[Federal Register Volume 79, Number 94 (Thursday, May 15, 2014)]
[Proposed Rules]
[Pages 27978-28384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-10067]



[[Page 27977]]

Vol. 79

Thursday,

No. 94

May 15, 2014

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 405, 412, 413, et al.





Medicare Program; Hospital Inpatient Prospective Payment Systems for 
Acute Care Hospitals and the Long Term Care Hospital Prospective 
Payment System and Proposed Fiscal Year 2015 Rates; Quality Reporting 
Requirements for Specific Providers; Reasonable Compensation 
Equivalents for Physician Services in Excluded Teaching Hospitals; 
Provider Administrative Appeals and Judicial Review; Enforcement 
Provisions for Organ Transplant Centers; and Electronic Health Record 
(EHR) Incentive Program; Proposed Rule

  Federal Register / Vol. 79 , No. 94 / Thursday, May 15, 2014 / 
Proposed Rules  

[[Page 27978]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 412, 413, 415, 422, 424, 485, and 488

[CMS-1607-P] RIN 0938-AS11


Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Proposed Fiscal Year 2015 Rates; Quality Reporting 
Requirements for Specific Providers; Reasonable Compensation 
Equivalents for Physician Services in Excluded Teaching Hospitals; 
Provider Administrative Appeals and Judicial Review; Enforcement 
Provisions for Organ Transplant Centers; and Electronic Health Record 
(EHR) Incentive Program

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

ACTION: Proposed rule.

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SUMMARY: We are proposing to revise the Medicare hospital inpatient 
prospective payment systems (IPPS) for operating and capital-related 
costs of acute care hospitals to implement changes arising from our 
continuing experience with these systems. Some of the proposed 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), the Protecting Access to Medicare Act of 2014, and other 
legislation. These proposed changes would be applicable to discharges 
occurring on or after October 1, 2014, unless otherwise specified in 
this proposed rule. We also are proposing to update 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 proposed 
updated rate-of-increase limits would be effective for cost reporting 
periods beginning on or after October 1, 2014.
    We also are proposing to update 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 to implement certain statutory changes to the LTCH PPS 
under the Affordable Care Act and the Pathway for Sustainable Growth 
Rate (SGR) Reform Act of 2013 and the Protecting Access to Medicare Act 
of 2014. In addition we are proposing to revise the interruption of 
stay policy for LTCHs and to retire the ``5 percent'' payment 
adjustment for co-located LTCHs. While many of the statutory mandates 
of the Pathway for SGR Reform Act will apply to discharges occurring on 
or after October 1, 2014, others will not begin to apply until 2016 and 
beyond. However, in light of the degree of forthcoming change, we 
discuss changes infra and request public feedback to inform our 
proposals for FY 2016 in this proposed rule as well.
    In addition, we are proposing to make a number of changes relating 
to direct graduate medical education (GME) and indirect medical 
education (IME) payments. We are proposing to establish new 
requirements or revise requirements for quality reporting by specific 
providers (acute care hospitals, PPS-exempt cancer hospitals, and 
LTCHs) that are participating in Medicare.
    We are proposing to update policies relating to the Hospital Value-
Based Purchasing (VBP) Program, the Hospital Readmissions Reduction 
Program, and the Hospital-Acquired Condition (HAC) Reduction Program. 
In addition, we are proposing changes to the regulations governing 
provider administrative appeals and judicial review relating to 
appropriate claims in provider cost reports; updates to the reasonable 
compensation equivalent (RCE) limits for services furnished by 
physicians to teaching hospitals excluded from the IPPS; regulatory 
revisions to broaden the specified uses of risk adjustment data and to 
specify the conditions for release of risk adjustment data to entities 
outside of CMS; and changes to the enforcement procedures for organ 
transplant centers.
    We are proposing to align the reporting and submission timelines 
for clinical quality measures for the Medicare EHR Incentive Program 
for eligible hospitals and critical access hospitals (CAHs) with the 
reporting and submission timelines for the Hospital IQR Program. In 
addition, we provide guidance and clarification of certain policies for 
eligible hospitals and CAHs such as our policy for reporting zero 
denominators on clinical quality measures and our policy for case 
threshold exemptions.

DATES: Comment Period: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
EDT on June 30, 2014.

ADDRESSES: In commenting, please refer to file code CMS-1607-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may (and we encourage you to) submit 
electronic comments on this regulation to http://www.regulations.gov. 
Follow the instructions under the ``submit a comment'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1607-P, P.O. Box 8011, 
Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments via 
express or overnight mail to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1607-P, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal Government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call the telephone number (410) 786-7195 in advance to schedule 
your arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, we refer readers to the

[[Page 27979]]

beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 
    Donald Thompson, (410) 786-4487, and Tiffany Swygert, (410) 786-
4465, 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.
    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.
    Karen Nakano, (410) 786-6889, 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.
    Kellie Shannon, (410) 786-0416, Appropriate Claims in Provider Cost 
Reports; Administrative Appeals by Providers and Judicial Review 
Issues.
    Amelia Citerone, (410) 786-3901, and Robert Kuhl (410) 786-4597, 
Reasonable Compensation Equivalent (RCE) Limits for Physician Services 
Provided in Providers.
    Ann Hornsby, (410) 786-1181, and Jennifer Harlow, (410) 786-4549, 
Medicare Advantage Encounter Data Issues.
    Thomas Hamilton, (410) 786-6763, Organ Transplant Center Issues.
    Jennifer Phillips, (410) 786-1023, 2-Midnight Rule Benchmark 
Issues.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All public comments received before 
the close of the comment period are available for viewing by the 
public, including any personally identifiable or confidential business 
information that is included in a comment. We post all public comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.

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 the IPPS tables 
and LTCH PPS tables are no longer published in the Federal Register. 
Instead, these tables are available only through the Internet. The IPPS 
tables for this proposed 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 2015 IPPS Proposed Rule Home 
Page'' or ``Acute Inpatient--Files for Download''. The LTCH PPS tables 
for this FY 2015 proposed 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-1607-P. For complete details on the 
availability of the tables referenced in this proposed rule, we refer 
readers to section VI. of the Addendum to this proposed 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
AJCC American Joint Committee on Cancer
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AMI Acute myocardial infarction
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
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
CABG Coronary artery bypass graft [surgery]
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 (C. 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
COPD Chronis obstructive pulmonary disease

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CPI Consumer price index
CQM Clinical quality measure
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
EBRT External Bean Radiotherapy
ECI Employment cost index
eCQM Electronic clinical quality measure
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
EP Eligible professional
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
FY Fiscal year
GAF Geographic Adjustment Factor
GME Graduate medical education
HAC Hospital-acquired condition
HAI Healthcare-associated infection
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
IBR Intern- and Resident-to-Bed Ratio
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
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
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of 
the Tax Relief and Health Care Act of 2006, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMEA Medicare and Medicaid Extenders Act of 2010, Public Law 111-309
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillin-resistant Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
MU Meaningful Use [EHR Incentive Program]
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
NQS National Quality Strategy
NTIS National Technical Information Service
NTTAA National Technology Transfer and Advancement Act of 1991, 
Public Law 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
PSI Patient safety indicator
PS&R Provider Statistical and Reimbursement [System]
PQRS Physician Quality Reporting System
QIG Quality Improvement Group [CMS]
QIO Quality Improvement Organization
QRDA Quality Reporting Data Architecture
RCE Reasonable compensation equivalent
RFA Regulatory Flexibility Act, Public Law 96-354
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
RSMR Risk-standardized mortality rate
RSRR Risk-standard readmission rate
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
THA/TKA Total hip arthroplasty/Total knee arthroplasty
TMA TMA [Transitional Medical Assistance], Abstinence Education, and 
QI

[[Page 27981]]

[Qualifying Individuals] Programs Extension Act of 2007, Public Law 
110-90
TPS Total Performance Score
UHDDS Uniform hospital discharge data set
UMRA Unfunded Mandate Reform Act, Public Law 104-4
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. Summary of Provisions of Recent Legislation Discussed in This 
Proposed Rule
    1. Patient Protection and Affordable Care Act (Pub. L. 111-148) 
and the Health Care and Education Reconciliation Act of 2010 (Pub. 
L. 111-152)
    2. American Taxpayer Relief Act of 2012 (Pub. L. 112-240)
    3. Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 
(Pub. L. 113-67)
    4. Protecting Access to Medicare Act of 2014 (Pub. L. 113-93)
    D. Summary of the Provisions of This Proposed Rule
II. Proposed 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. Proposed FY 2015 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. Prospective Adjustment for the MS-DRG Documentation and 
Coding Effect Through FY 2010
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    2. Discussion for FY 2015
    F. Proposed 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 Preparation for Transition to ICD-
10-CM and ICD-10-PCS
    5. Proposal Regarding 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. Proposed Changes to Specific MS-DRG Classifications
    1. Discussion of Changes to Coding System and Basis for Proposed 
MS-DRG Updates
    a. Conversion of MS-DRGs to the International Classification of 
Diseases, 10th Edition (ICD-10)
    b. Basis for FY 2015 MS-DRG Updates
    2. MDC 1 (Diseases and Disorders of the Nervous System)
    a. Intracerebral Therapies: Gliadel[supreg] Wafer
    b. Endovascular Embolization or Occlusion of Head and Neck
    3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and 
Throat): Avery Breathing Pacemaker System
    4. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Exclusion of Left Atrial Appendage
    b. Transcatheter Mitral Valve Repair: MitraClip[supreg]
    c. Endovascular Cardiac Valve Replacement Procedures
    d. Abdominal Aorta Graft
    5. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue)
    a. Shoulder Replacement Procedures
    b. Ankle Replacement Procedures
    c. Back and Neck Procedures
    6. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and 
Disorders): Disorders of Porphyria Metabolism
    7. MDC 15 (Newborns and Other Neonates With Conditions 
Originating in the Perinatal Period)
    8. Proposed Medicare Code Editor (MCE) Changes
    9. Proposed Changes to Surgical Hierarchies
    10. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2015
    a. Major Complications or Comorbidities (MCCs) and Complications 
or Comorbidities (CCs) Severity Levels for FY 2015
    b. Coronary Atherosclerosis Due to Calcified Coronary Lesion
    11. Complications or Comorbidity (CC) Exclusions List
    a. Background of the CC List and the CC Exclusions List
    b. Proposed CC Exclusions List for FY 2015
    12. Review of Procedure Codes in MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-
DRGs 987 Through 989 Into MDCs
    b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    c. Adding Diagnosis or Procedure Codes to MDCs
    13. Proposed Changes to the ICD-9-CM Coding System
    a. ICD-10 Coordination and Maintenance Committee
    b. Code Freeze
    H. Recalibration of the Proposed FY 2015 MS-DRG Relative Weights
    1. Data Sources for Developing the Proposed Relative Weights
    2. Methodology for Calculation of the Proposed Relative Weights
    3. Development of National Average CCRs
    4. Bundled Payments for Care Improvement (BPCI) Initiative
    I. Proposed Add-On Payments for New Services and Technologies
    1. Background
    2. Public Input Before Publication of a Notice of Proposed 
Rulemaking on Add-On Payments
    3. FY 2015 Status of Technologies Approved for FY 2014 Add-On 
Payments
    a. Glucarpidase (Trade Brand Voraxaze[supreg])
    b. DIFICIDTM (Fidaxomicin) Tablets
    c. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
    d. KcentraTM
    e. Argus[supreg] II Retinal Prosthesis System
    f. Zilver[supreg] PTX[supreg] Drug Eluting Stent
    4. FY 2015 Applications for New Technology Add-On Payments
    a. Dalbavancin (Durata Therapeutics, Inc.)
    b. Heli-FXTM EndoAnchor System (Aptus Endosystems, 
Inc.)
    c. WATCHMAN[supreg] Left Atrial Appendage Closure Technology
    d. CardioMEMSTM HF (Heart Failure) System
    e. MitraClip[supreg] System
    f. Responsive Neurostimulator (RNS[supreg]) System
III. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    A. Background
    B. Proposed Core-Based Statistical Areas for the Hospital Wage 
Index
    1. Background
    2. Proposed Implementation of New Labor Market Area Delineations
    a. Micropolitan Statistical Areas
    b. Urban Counties That Would Become Rural Under the New OMB 
Delineations
    c. Rural Counties That Would Become Urban Under the New OMB 
Delineations
    d. Urban Counties That Would Move to a Different Urban CBSA 
Under the New OMB Delineations
    e. Proposed Transition Period
    C. Worksheet S-3 Wage Data for the Proposed FY 2015 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 Proposed FY 2015 Unadjusted Wage 
Index

[[Page 27982]]

    F. Proposed Occupational Mix Adjustment to the Proposed FY 2015 
Wage Index
    1. Development of Data for the Proposed FY 2015 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 Proposed Occupational Mix Adjustment for 
FY 2015
    G. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2015 Occupational Mix Adjusted Wage 
Index
    1. Analysis of the Proposed Occupational Mix Adjustment and the 
Proposed Occupational Mix Adjusted Wage Index
    2. Proposed Application of the Rural, Imputed, and Frontier 
Floors
    a. Proposed Rural Floor
    b. Proposed Imputed Floor and Alternative, Temporary Methodology 
for Computing the Rural Floor for FY 2015
    c. Proposed Frontier Floor
    3. Proposed FY 2015 Wage Index Tables
    H. Revisions to the Wage Index Based on Hospital Redesignations 
and Reclassifications
    1. General Policies and Effects of Reclassification and 
Redesignation
    2. FY 2015 MGCRB Reclassifications
    a. FY 2015 Reclassification Requirements and Approvals
    b. Effects of Implementation of New OMB Labor Market Area 
Delineations on Reclassified Hospitals
    c. Applications for Reclassifications for FY 2016
    3. Hospitals Redesignated Under Section 1886(d)(8)(B) of the Act
    a. Proposed New Lugar Areas for FY 2015
    b. Hospitals Redesignated Under Section 1886(d)(8)(B) of the Act 
Seeking Reclassification by the MGCRB
    c. Rural Counties No Longer Meeting the Criteria To Be 
Redesignated as Lugar
    4. Waiving Lugar Redesignation for the Out-Migration Adjustment
    5. Update of Application of Urban to Rural Reclassification 
Criteria
    I. Proposed FY 2015 Wage Index Adjustment Based on Commuting 
Patterns of Hospital Employees
    J. Process for Requests for Wage Index Data Corrections
    K. Notice of Change to Wage Index Development Timetable
    L. Labor-Related Share for the Proposed FY 2015 Wage Index
IV. Other Decisions and Proposed Changes to the IPPS for Operating 
Costs and Graduate Medical Education (GME) Costs
    A. Proposed Changes to MS-DRGs Subject to the Postacute Care 
Transfer Policy (Sec.  412.4)
    B. Proposed Changes in the Inpatient Hospital Updates for FY 
2015 (Sec. Sec.  412.64(d) and 412.211(c))
    1. Proposed FY 2015 Inpatient Hospital Update
    2. Proposed FY 2015 Puerto Rico Hospital Update
    C. Rural Referral Centers (RRCs): Proposed Annual Updates to 
Case-Mix Index (CMI) and Discharge Criteria (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    D. Proposed Payment Adjustment for Low-Volume Hospitals (Sec.  
412.101)
    1. Background
    2. Provisions of the Protecting Access to Medicare Act of 2014
    3. Low-Volume Hospital Definition and Payment Adjustment for FY 
2015
    E. Indirect Medical Education (IME) Payment Adjustment (Sec.  
412.105)
    1. IME Adjustment Factor for FY 2015
    2. Proposed IME Medicare Part C Add-On Payments to Sole 
Community Hospitals (SCHs) That Are Paid According to Their 
Hospital-Specific Rates and Proposed Change in Methodology in 
Determining Payment to SCHs
    3. Other Proposed Policy Changes Affecting IME
    F. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs) (Sec.  412.106)
    1. Background
    2. Impact on Medicare DSH Payment Adjustment of Proposed 
Implementation of New OMB Labor Market Area Delineations
    3. Payment Adjustment Methodology for Medicare Disproportionate 
Share Hospitals (DSHs) Under Section 3133 of the Affordable Care Act 
(Sec.  412.106)
    a. General Discussion
    b. Eligibility for Empirically Justified Medicare DSH Payments 
and Uncompensated Care Payments
    c. Empirically Justified Medicare DSH Payments
    d. Uncompensated Care Payments
    e. Limitations on Review
    G. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
412.108)
    1. Background
    2. Provisions of Public Law 113-93 for FY 2015
    3. Expiration of the MDH Program
    H. Hospital Readmissions Reduction Program: Proposed Changes for 
FY 2015 Through FY 2017 (Sec. Sec.  412.150 Through 412.154)
    1. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Regulatory Background
    3. Overview of Proposals and Policies for the FY 2015 Hospital 
Readmissions Reduction Program
    4. Proposed Refinement of the Readmissions Measures and Related 
Methodology for FY 2015 and Subsequent Years Payment Determinations
    a. Proposed Refinement of Planned Readmission Algorithm for 
Acute Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia 
(PN), Chronic Obstructive Pulmonary Disease (COPD), and Total Hip 
Arthroplasty and Total Knee Arthroplasty (THA/TKA) 30-Day 
Readmission Measures
    b. Proposed Refinement of Total Hip Arthroplasty and Total Knee 
Arthroplasty (THA/TKA) 30-Day Readmission Measure Cohort
    c. Anticipated Effect of Proposed Refinements on Measures
    5. No Proposed Expansion of the Applicable Conditions for FY 
2016
    6. Proposed Expansion of the Applicable Conditions for FY 2017 
To Include Patients Readmitted Following Coronary Artery Bypass 
Graft (CABG) Surgery Measure
    a. Background
    b. Overview of the Proposed CABG Readmissions Measure: Hospital-
Level, 30-Day, All-Cause, Unplanned Readmission Following Coronary 
Artery Bypass Graft (CABG) Surgery
    c. Proposed Methodology for the CABG Measure: Hospital-Level, 
30-Day, All-Cause, Unplanned Readmission Following Coronary Artery 
Bypass Graft (CABG) Surgery
    7. Maintenance of Technical Specifications for Quality Measures
    8. Waiver From the Hospital Readmissions Reduction Program for 
Hospitals Formerly Paid Under Section 1814(b)(3) of the Act (Sec.  
412.152 and Sec.  412.154(d))
    9. Floor Adjustment Factor for FY 2015 (Sec.  412.154(c)(2))
    10. Applicable Period for FY 2015
    11. Proposed Inclusion of THA/TKA and COPD Readmissions Measures 
To Calculate Aggregate Payments for Excess Readmissions Beginning in 
FY 2015
    12. Hospital Readmissions Reduction Program Extraordinary 
Circumstances Exceptions
    I. Hospital Value-Based Purchasing (VBP) Program
    1. Statutory Background
    2. Overview of Previous Hospital VBP Program Rulemaking
    3. FY 2015 Payment Details
    a. Payment Adjustments
    b. Base Operating DRG Payment Amount Definition for Medicare-
Dependent Small Rural Hospitals (MDHs)
    4. Measures for the FY 2017 Hospital VBP Program
    a. Measures Previously Adopted
    b. Proposed Changes Affecting Topped-Out Measures
    c. Proposed New Measures for the FY 2017 Hospital VBP Program
    d. Proposed Adoption of the Current CLABSI Measure (NQF 
0139) for the FY 2017 Hospital VBP Program
    e. Summary of Previously Adopted and Proposed New Measures for 
the FY 2017 Hospital VBP Program
    5. Proposed Additional Measures for the FY 2019 Hospital VBP 
Program
    a. Hospital-Level Risk-Standardized Complication Rate (RSCR) 
Following Elective Primary Total Hip Arthroplasty (THA) and Total 
Knee Arthroplasty (TKA)
    b. PSI-90 Measure
    6. Possible Measure Topics for Future Program Years
    a. Care Transition Measure (CTM-3) Items for HCAHPS Survey
    b. Possible Future Efficiency and Cost Reduction Domain Measure 
Topics
    7. Previously Adopted and Proposed Performance Periods and 
Baseline Periods for the FY 2017 Hospital VBP Program
    a. Background
    b. Previously Adopted Baseline and Performance Periods for the 
FY 2017 Hospital VBP Program

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    c. Proposed Clinical Care--Process Domain Performance Period and 
Baseline Period for the FY 2017 Hospital VBP Program
    d. Proposed Patient and Caregiver-Centered Experience of Care/
Care Coordination Domain Performance Period and Baseline Period for 
the FY 2017 Hospital VBP Program
    e. Proposed Safety Domain Performance Period and Baseline Period 
for NHSN Measures for the FY 2017 Hospital VBP Program
    f. Proposed Efficiency and Cost Reduction Domain Performance 
Period and Baseline Period for the FY 2017 Hospital VBP Program
    g. Summary of Previously Adopted and Proposed Performance 
Periods and Baseline Periods for the FY 2017 Hospital VBP Program
    8. Previously Adopted and Proposed Performance Periods and 
Baseline Periods for Certain Measures for the FY 2019 Hospital VBP 
Program
    a. Previously Adopted and Proposed Performance Period and 
Baseline Period for the FY 2019 Hospital VBP Program for Clinical 
Care--Outcomes Domain Measures
    b. Proposed Performance Period and Baseline Period for the PSI-
90 Safety Domain Measure for the FY 2019 Hospital VBP Program
    c. Summary of Previously Adopted and Proposed Performance 
Periods and Baseline Periods for Certain Measures for the FY 2019 
Hospital VBP Program
    9. Proposed Performance Period and Baseline Period for the 
Clinical Care--Outcomes Domain for the FY 2020 Hospital VBP Program
    10. Proposed Performance Standards for the Hospital VBP Program
    a. Background
    b. Performance Standards for the FY 2016 Hospital VBP Program
    c. Previously Adopted Performance Standards for the FY 2017, FY 
2018, and FY 2019 Hospital VBP Programs
    d. Proposed Additional Performance Standards for the FY 2017 
Hospital VBP Program
    e. Proposed Performance Standards for the FY 2019 and FY 2020 
Hospital VBP Programs
    f. Proposed Technical Updates Policy for Performance Standards
    g. Request for Public Comments on ICD-10-CM/PCS Transition
    11. Proposed FY 2017 Hospital VBP Program Scoring Methodology
    a. Proposed General Hospital VBP Program Scoring Methodology
    b. Proposed Domain Weighting for the FY 2017 Hospital VBP 
Program for Hospitals That Receive a Score on All Domains
    c. Proposed Domain Weighting for the FY 2017 Hospital VBP 
Program for Hospitals Receiving Scores on Fewer than Four Domains
    12. Proposed Minimum Numbers of Cases and Measures for the FY 
2016 and FY 2017 Hospital VBP Program's Quality Domains
    a. Previously Adopted Minimum Numbers of Cases and FY 2016 
Proposed Minimum Numbers of Cases
    b. Proposed Minimum Number of Measures--Safety Domain
    c. Proposed Minimum Number of Measures--Clinical Care Domain
    d. Proposed Minimum Number of Measures--Efficiency and Cost 
Reduction Domain
    e. Proposed Minimum Number of Measures--Patient and Caregiver 
Centered Experience of Care/Care Coordination (PEC/CC) Domain
    13. Applicability of the Hospital VBP Program to Maryland 
Hospitals
    14. Disaster/Extraordinary Circumstance Exception Under the 
Hospital VBP Program
    J. Hospital-Acquired Condition (HAC) Reduction Program
    1. Background
    2. Statutory Basis for the HAC Reduction Program
    3. Implementation of the HAC Reduction Program for FY 2015
    a. Overview
    b. Payment Adjustment Under the HAC Reduction Program, Including 
Exemptions
    c. Measure Selection and Conditions, Including Risk Adjustment 
Scoring Methodology
    d. Criteria for Applicable Hospitals and Performance Scoring 
Policy
    e. Reporting Hospital-Specific Information, Including the Review 
and Correction of Information
    f. Limitation on Administrative and Judicial Review
    4. Proposed Maintenance of Technical Specifications for Quality 
Measures
    5. Extraordinary Circumstances Exceptions/Exemptions
    6. Implementation of the HAC Reduction Program for FY 2016
    a. Measure Selection and Conditions, Including a Risk-Adjustment 
Scoring Methodology
    b. Criteria for Applicable Hospitals and Performance Scoring
    7. Future Consideration for the Use of Electronically Specified 
Measures
    K. Payments for Indirect and Direct Graduate Medical Education 
(GME) Costs (Sec. Sec.  412.105 and 413.75 Through 413.83)
    1. Background
    2. Proposed Changes in the Effective Date of the FTE Resident 
Cap, 3-Year Rolling Average, and Interim- and Resident-to-Bed (IRB) 
Ratio Cap for New Programs in Teaching Hospitals
    3. Proposed Changes to IME and Direct GME Policies as a Result 
of New OMB Labor Market Area Delineations
    a. New Program FTE Cap Adjustment for Rural Hospitals 
Redesignated as Urban
    b. Participation of Redesignated Hospitals in Rural Training 
Track
    4. Proposed Clarification of Policies on Counting Resident Time 
in Nonprovider Settings Under Section 5504 of the Affordable Care 
Act
    5. Proposed Changes to the Review and Award Process for Resident 
Slots Under Section 5506 of the Affordable Care Act
    a. Effective Date of Slots Awarded Under Section 5506 of the 
Affordable Care Act
    b. Proposal To Remove Seamless Requirement
    c. Proposed Revisions to Ranking Criteria One, Seven, and Eight 
for Applications Under Section 5506
    d. Clarification to Ranking Criterion Two Regarding Emergency 
Medicare GME Affiliation Agreements
    6. Proposed Regulatory Clarification Applicable To Direct GME 
Payments to Federally Qualified Health Centers (FQHCs) and Rural 
Health Clinics (RHCs) for Training Residents in Approved Programs
    L. Rural Community Hospital Demonstration Program
    1. Background
    2. Proposed FY 2015 Budget Neutrality Offset Amount
    M. Requirement for Transparency of Hospital Charges Under the 
Affordable Care Act
    1. Overview
    2. Transparency Requirement Under the Affordable Care Act
    N. Medicare Payment for Short Inpatient Hospital Stays
    O. Suggested Exceptions to the 2-Midnight Benchmark
V. Proposed 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. Proposed Annual Update for FY 2015
VI. Proposed Changes for Hospitals Excluded From the IPPS
    A. Proposed Rate-of-Increase in Payments to Excluded Hospitals 
for FY 2015
    B. Proposed Updates to the Reasonable Compensation Equivalent 
(RCE) Limits on Compensation for Physician Services Provided in 
Providers (Sec.  415.70)
    1. Background
    2. Overview of the Current RCE Limits
    a. Application of the RCE Limits
    b. Exceptions to the RCE Limits
    c. Methodology for Establishing the RCE Limits
    3. Proposed Changes to the RCE Limits
    C. Critical Access Hospitals (CAHs
    1. Background
    2. Proposed Changes Related to Reclassifications as Rural for 
CAHs
    3. Proposed Revision of the Requirements for Physician 
Certification of CAH Inpatient Services
VII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2015
    A. Background of the LTCH PPS
    1. Legislative and Regulatory Authority
    2. Criteria for Classification as an LTCH
    a. Classification as an 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. Proposed Medicare Severity Long-Term Care Diagnosis-Related 
Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2015

[[Page 27984]]

    1. Background
    2. Patient Classifications Into MS-LTC-DRGs
    a. Background
    b. Proposed Changes to the MS-LTC-DRGs for FY 2015
    3. Development of the Proposed FY 2015 MS-LTC-DRG Relative 
Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Proposed Development of the MS-LTC-DRG Relative Weights for 
FY 2015
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Treatment of Severity Levels in Developing the Proposed MS-
LTC-DRG Relative Weights
    f. Proposed Low-Volume MS-LTC-DRGs
    g. Steps for Determining the Proposed FY 2015 MS-LTC-DRG 
Relative Weights
    C. Proposed LTCH PPS Payment Rates for FY 2015
    1. Overview of Development of the LTCH Payment Rates
    2. Proposed FY 2015 LTCH PPS Annual Market Basket Update
    a. Overview
    b. Proposed Revision of Certain Market Basket Updates as 
Required by the Affordable Care Act
    c. Proposed 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. Proposed Reduction to the Annual Update to the LTCH PPS 
Standard Federal Rate Under the LTCHQR Program
    d. Proposed Market Basket Under the LTCH PPS for FY 2015
    e. Proposed Annual Market Basket Update for LTCHs for FY 2015
    3. Proposed Adjustment for the Final Year of the Phase-In of the 
One-Time Prospective Adjustment to the Standard Federal Rate Under 
Sec.  412.523(d)(3)
    D. Proposed Revision of LTCH PPS Geographic Classifications
    1. Background
    2. Proposed Use of New OMB Labor Market Area Delineations (``New 
OMB Delineations'')
    a. Micropolitan Statistical Areas
    b. Urban Counties That Became Rural Under the New OMB Labor 
Market Area Delineations
    c. Rural Counties That Became Urban Under the New OMB Labor 
Market Area Delineations
    d. Urban Counties Moved to a Different Urban CBSA Under the New 
OMB Labor Market Area Delineations
    e. Proposed Transition Period
    E. Reinstatement and Extension of Certain Payment Rules for LTCH 
Services--The 25-Percent Threshold Payment Adjustment
    1. Background
    2. Proposed Implementation of Section 1206(b)(1) of Public Law 
113-67
    F. Proposed Changes to the Fixed-Day Thresholds Under the 
Greater Than 3-Day Interruption of Stay Policy Under the LTCH PPS
    1. Background
    2. Thresholds Used in Recent Statutory Programs
    3. Proposed Changes to the Greater Than 3-Day Interruption of 
Stay Policy
    G. Moratoria on the Establishment of LTCHs and LTCH Satellite 
Facilities and on the Increase in the Number of Beds in Existing 
LTCHs or LTCH Satellite Facilities
    H. Evaluation and Proposed Treatment of LTCHs Classified Under 
Section 1886(d)(1)(B)(iv)(II) of the Act
    I. Description of Statutory Framework for Patient-Level 
Criteria-Based Payment Adjustment Under the LTCH PPS Under Public 
Law 113-67
    1. Overview
    2. Provisions of Section 1206(a) of Public Law 113-67
    3. Additional LTCH PPS Issues
    J. Proposed Technical Change
VIII. Appropriate Claims in Provider Cost Reports; Administrative 
Appeals by Providers and Judicial Review
    A. Background
    1. Payment and Cost Reporting Requirements
    2. Administrative Appeals by Providers and Judicial Review
    3. Appropriate Claims in Provider Cost Reports
    B. Proposed Changes Regarding the Claims Required in Provider 
Cost Reports and for Provider Administrative Appeals
    1. Proposed Addition to the Cost Reporting Regulations of the 
Substantive Reimbursement Requirement of an Appropriate Cost Report 
Claim
    2. Proposed Revisions to the Provider Reimbursement Appeal 
Regulations
    C. Proposed Conforming Changes to the Board Appeal Regulations 
and Corresponding Revisions to the Contractor Hearing Regulations
    1. Technical Corrections and Conforming Changes to Sec. Sec.  
405.1801 and 405.1803
    2. Technical Corrections and Conforming Changes to Sec. Sec.  
405.1811, 405.1813, and 405.1814
    3. Proposed New Sec.  405.1832
    4. Proposed Revisions to Sec.  405.1834
    5. Technical Corrections and Conforming Changes to Sec. Sec.  
405.1836, 405.1837, and 405.1839
    6. Technical Corrections to 42 CFR Part 405, Subpart R and All 
Subparts of 42 CFR Part 413
IX. Quality Data Reporting Requirements for Specific Providers and 
Suppliers
    A. Hospital Inpatient Quality Reporting (IQR) Program
    1. Background
    a. History of 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
    a. Considerations in Removing Quality Measures From the Hospital 
IQR Program
    b. Proposed Removal of Hospital IQR Program Measures for the FY 
2017 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. Previously Adopted Hospital IQR Program Measures for the FY 
2016 Payment Determination and Subsequent Years
    6. Proposed Refinements to Existing Measures in the Hospital IQR 
Program
    a. Proposed Refinement of Planned Readmission Algorithm for 30-
Day Readmission Measures
    b. Proposed Refinement of Total Hip Arthroplasty and Total Knee 
Arthroplasty (THA/TKA) 30-Day Complication and Readmission Measures
    c. Anticipated Effect of Proposed Refinements to Existing 
Measures
    7. Proposed Additional Hospital IQR Program Measures for the FY 
2017 Payment Determination and Subsequent Years
    a. Proposed Hospital 30-Day, All-Cause, Unplanned, Risk-
Standardized Readmission Rate (RSRR) Following Coronary Artery 
Bypass Graft (CABG) Surgery
    b. Proposed Hospital 30-Day, All-Cause, Risk-Standardized 
Mortality Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) 
Surgery
    c. Proposed Hospital-level, Risk-Standardized 30-Day Episode-of-
Care Payment Measure for Pneumonia
    d. Proposed Hospital-Level, Risk-Standardized 30-Day Episode-of-
Care Payment Measure for Heart Failure
    e. Proposed Severe Sepsis and Septic Shock: Management Bundle 
Measure (NQF 0500)
    f. Electronic Health Record-Based Voluntary Measures
    g. Proposed Readoption of Measures as Voluntarily Reported 
Electronic Clinical Quality Measures
    h. Electronic Clinical Quality Measures
    8. Possible New Quality Measures and Measure Topics for Future 
Years
    a. Mandatory Electronic Clinical Quality Measure Reporting for 
FY 2018 Payment Determination
    b. Possible Future Electronic Clinical Quality Measures
    9. Form, Manner, and Timing of Quality Data Submission
    a. Background
    b. Procedural Requirements for the FY 2017 Payment Determination 
and Subsequent Years
    c. Data Submission Requirements for Chart-Abstracted Measures
    d. Alignment of the EHR Incentive Program Reporting and 
Submission Timelines for Clinical Quality Measures with Hospital IQR 
Program Reporting and Submission Timelines
    e. Sampling and Case Thresholds for the FY 2017 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 2017

[[Page 27985]]

Payment Determination and Subsequent Years
    h. Data Submission and Reporting Requirements for Healthcare-
Associated Infection (HAI) Measures Reported via NHSN
    10. Submission and Access of HAI Measures Data Through the CDC's 
NHSN Web site
    11. Proposed Modifications to the Existing Processes for 
Validation of Chart-abstracted Hospital IQR Program Data
    a. Eligibility Criteria for Hospitals Selected for Validation
    b. Number of Charts to be Submitted per Hospital for Validation
    c. Combining Scores for HAI and Clinical Process of Care Topic 
Areas
    d. Processes To Submit Patient Medical Records for Chart-
abstracted Measures
    e. Plans To Validate Electronic Clinical Quality Measure Data
    12. Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2017 Payment Determination and Subsequent Years
    13. Public Display Requirements for the FY 2017 Payment 
Determination and Subsequent Years
    14. Reconsideration and Appeal Procedures for the FY 2017 
Payment Determination and Subsequent Years
    15. Hospital IQR Program Extraordinary Circumstances Extensions 
or Exemptions
    B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
    1. Statutory Authority
    2. Covered Entities
    3. Previously Finalized PCHQR Program Quality Measures
    4. Proposed Update to the Clinical Process/Oncology Care 
Measures Beginning With the 2016 Program
    5. Proposed New Quality Measures Beginning With the FY 2017 
Program
    a. Considerations in the Selection of Quality Measures
    b. Proposed New Quality Measure Beginning With the FY 2017 
Program
    6. Possible New Quality Measure Topics for Future Years
    7. Maintenance of Technical Specifications for Quality Measures
    8. Public Display Requirements Beginning With the FY 2014 
Program
    9. Form, Manner, and Timing of Data Submission Beginning With 
the FY 2017 Program
    a. Background
    b. Proposed Reporting Requirements for the Proposed New Measure: 
External Beam Radiotherapy for Bone Metastases (NQF 1822) 
Beginning With the FY 2017 Program
    c. Proposed Reporting Options for the Clinical Process/Cancer 
Specific Treatment Measures Beginning With the FY 2015 Program and 
the SCIP and Clinical Process/Oncology Care Measures Beginning With 
the FY 2016 Program
    d. Proposed New Sampling Methodology for the Clinical Process/
Oncology Care Measures Beginning With the FY 2016 Program
    10. Exceptions From Program Requirements
    C. Long-Term Care Hospital Quality Reporting (LTCHQR) Program
    1. Background
    2. General Considerations Used for Selection of Quality Measures 
for the LTCHQR Program
    3. Policy for Retention of LTCHQR Program Measures Adopted for 
Previous Payment Determinations
    4. Policy for Adopting Changes to LTCHQR Program Measures
    5. Previously Adopted Quality Measures
    a. Previously Adopted Quality Measures for the FY 2015 and FY 
2016 Payment Determinations and Subsequent Years
    b. Previously Adopted Quality Measures for the FY 2017 and FY 
2018 Payment Determinations and Subsequent Years
    6. Proposed Revision to Data Collection Timelines and Submission 
Deadlines for Previously Adopted Quality Measures
    a. Proposed Revisions to Data Collection Timelines and 
Submission Deadlines for Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine 
(Short Stay) (NQF 0680)
    b. Proposed Revisions to Data Collection Timelines and 
Submission Deadlines for the Application of Percent of Residents 
Experiencing One or More Falls With Major Injury (Long Stay) (NQF 
0674)
    7. Proposed New LTCHQR Program Quality Measures for the FY 2018 
Payment Determination and Subsequent Years
    a. Proposed New LTCHQR Program Functional Status Quality 
Measures for the FY 2018 Payment Determination and Subsequent Years
    b. Proposed Quality Measure: National Healthcare Safety Network 
(NHSN) Ventilator-Associated Event (VAE) Outcome Measure
    8. LTCHQR Program Quality Measures and Concepts Under 
Consideration for Future Years
    9. Form, Manner, and Timing of Quality Data Submission for the 
FY 2016 Payment Determinations and Subsequent Years
    a. Background
    b. Finalized Timeline for Data Submission Under the LTCHQR 
Program for the FY 2016 and FY 2017 Payment Determinations (Except 
NQF 0680 and NQF 0431)
    c. Proposed Revision to the Previously Adopted Data Collection 
Timelines and Submission Deadlines for Percent of Residents or 
Patients Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (Short-Stay) (NQF -680) for the FY 2016 
Payment Determination and Subsequent Years
    d. Proposed Data Submission Mechanisms for the FY 2018 Payment 
Determination and Subsequent Years for Proposed New LTCHQR Program 
Quality Measures and for Proposed Revision to Previously Adopted 
Quality Measure
    e. Proposed Data Collection Timelines and Submission Deadlines 
Under the LTCHQR Program for the FY 2018 Payment Determination
    f. Proposed Data Collection Timelines and Submission Deadlines 
for the Application of Percent of Residents Experiencing One or More 
Falls With Major Injury (Long Stay) (NQF 0674) Measure for 
the FY 2018 Payment Determination and Subsequent Years
    g. Proposed Data Collection Timelines and Submission Deadlines 
Under the LTCHQR Program for the FY 2019 Payment Determination
    10. Proposed LTCHQR Program Data Completion Threshold for the FY 
2016 Payment Adjustment and Subsequent Years
    a. Overview
    b. Proposed LTCHQR Program Data Completion Threshold for the 
Required LTCH CARE Data Set (LCDS) Data Items
    c. LTCHQR Program Data Completion Threshold for Measures 
Submitted Using the Centers for Disease Control and Prevention (CDC) 
National Healthcare Safety Network (NHSN)
    d. Application of the 2 Percentage Point Reduction for LTCHs 
That Fail To Meet the Proposed Data Completion Thresholds
    11. Proposed Data Validation Process for the FY 2016 Payment 
Determination and Subsequent Years
    a. Proposed Data Validation Process
    b. Application of the 2 Percentage Point Reduction for LTCHs 
That Fail To Meet the Proposed Data Accuracy Threshold
    12. Public Display of Quality Measure Data for the LTCHQR 
Program
    13. Proposed LTCHQR Program Submission Exception and Extension 
Requirements for the FY 2017 Payment Determination and Subsequent 
Years
    14. Proposed LTCHQR Program Reconsideration and Appeals 
Procedures for the FY 2016 Payment Determination and Subsequent 
Years
    a. Previously Finalized LTCHQR Program Reconsideration and 
Appeals Procedures for the FY 2014 and FY 2015 Payment 
Determinations
    b. Proposed LTCHQR Program Reconsideration and Appeals 
Procedures for the FY 2016 Payment Determination and Subsequent 
Years
    15. Electronic Health Records (EHR) and Health Information 
Exchange (HIE)
    D. Electronic Health Record (EHR) Incentive Program and 
Meaningful Use (MU)
    1. Background
    2. Alignment of the Medicare EHR Incentive Program Reporting and 
Submission Timelines for Clinical Quality Measures With Hospital IQR 
Program Reporting and Submission Timelines
    3. Quality Reporting Data Architecture Category III (QRDA-III) 
Option in 2015
    4. Electronically Specified Clinical Quality Measures (CQMs) 
Reporting for 2015
    5. Clarification Regarding Reporting Zero Denominators
    6. Case Threshold Exemption Policy; Clarification for 2014 and 
Proposed Change for 2015
X. Proposed Revision of Regulations Governing Use and Release of 
Medicare Advantage Risk Adjustment Data
    A. Background

[[Page 27986]]

    B. Proposed Regulatory Changes
    1. Proposed Expansion of Uses and Reasons for Disclosure of Risk 
Adjustment Data
    2. Proposed Conditions for CMS Release of Data
    3. Proposed Technical Change
XI. Proposed Changes to Enforcement Provisions for Organ Transplant 
Centers
    A. Background
    B. Basis for Proposals in This Proposed Rule
    1. Proposed Expansion of Mitigating Factors Based on CMS' 
Experience
    2. Coordination With Efforts of the Organ Procurement and 
Transplantation Network (OPTN) and Health Resources and Services 
Administration
    C. Provisions of the Proposed Changes
    1. Proposed Expansion of Mitigating Factors List
    2. Content and Timeframe for Mitigating Factors Requests
    3. System Improvement Agreements (SIAs)
    a. Purpose and Intent of an SIA
    b. Description and Contents of an SIA
    c. Effective Period for an SIA
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 Proposed FY 
2015 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. ICR Regarding Electronic Health Record (EHR) Incentive 
Program and Meaningful Use (MU)
    11. ICR Regarding Proposed Revision of Regulations Governing Use 
and Release of Medicare Advantage (MA) Risk Adjustment Data (Sec.  
422.310(f))
Regulation Text
Addendum--Proposed Schedule of Standardized Amounts, Update Factors, 
and Rate-of-Increase Percentages Effective With Cost Reporting 
Periods Beginning on or After October 1, 2014 and Payment Rates for 
LTCHs Effective With Discharges Occurring on or After October 1, 
2014
I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2015
    A. Calculation of the Adjusted Standardized Amount
    B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
    C. Calculation of the Prospective Payment Rates
III. Proposed Changes to Payment Rates for Acute Care Hospital 
Inpatient Capital-Related Costs for FY 2015
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Proposed Inpatient Capital-Related 
Prospective Payments for FY 2015
    C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Excluded Hospitals: Rate-
of-Increase Percentages for FY 2015
V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 
2015
    A. Proposed LTCH PPS Standard Federal Rate for FY 2015
    1. Background
    2. Development of the Proposed FY 2015 LTCH PPS Standard Federal 
Rate
    B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS 
for FY 2015
    1. Background
    2. Proposed Geographic Classifications Based on the New OMB 
Delineations
    3. Proposed LTCH PPS Labor-Related Share
    4. Proposed LTCH PPS Wage Index for FY 2015
    5. Proposed Budget Neutrality Adjustment for Proposed Changes to 
the Area Wage Level Adjustment
    C. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs 
Located in Alaska and Hawaii
    D. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) 
Cases
    1. Background
    2. Determining LTCH CCRs Under the LTCH PPS
    3. Establishment of the Proposed LTCH PPS Fixed-Loss Amount for 
FY 2015
    4. Application of the Outlier Policy to SSO Cases
    E. Proposed Update to the IPPS Comparable/Equivalent Amounts To 
Reflect the Statutory Changes to the IPPS DSH Payment Adjustment 
Methodology
    F. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2015
VI. Tables Referenced in This Proposed Rule 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
    G. Quantitative Effects of the Proposed 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 Proposed Policy Changes
    1. Effects of Proposed Policy on MS-DRGs for Preventable HACs, 
Including Infections
    2. Effects of Proposed Policy Relating to New Medical Service 
and Technology Add-On Payments
    3. Effects of Proposed Changes to List of MS-DRGs Subject to 
Postacute Care Transfer and DRG Special Pay Policy
    4. Effects of Proposed Payment Adjustment for Low-Volume 
Hospitals for FY 2015
    5. Effects of Proposal Related to IME Medicare Part C Add-On 
Payments to SCHs Paid According to Their Hospital-Specific Rates
    6. Effects of the Extension of the MDH Program for the First 
Half of FY 2015
    7. Effects of Proposed Changes Under the FY 2015 Hospital Value-
Based Purchasing (VBP) Program
    8. Effects of the Proposed Changes to the HAC Reduction Program 
for FY 2015
    9. Effects of Proposed Policy Changes Relating to Payments for 
Direct GME and IME
    10. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    11. Effects of Proposed Changes Related to Reclassifications as 
Rural for CAHs
    12. Effects of Proposed Revision of the Requirements for 
Physician Certification of CAH Inpatient Services
    13. Effects of Proposed Changes Relating to Administrative 
Appeals by Providers and Judicial Review for Appropriate Claims in 
Provider Cost Reports
    I. Effects of Proposed Changes to Updates to the Reasonable 
Compensation Equivalent (RCE) Limits for Physician Services Provided 
to Providers
    J. Effects of Proposed Changes in the Capital IPPS
    1. General Considerations
    2. Results
    K. Effects of Proposed Payment Rate Changes and Policy Changes 
Under the LTCH PPS
    1. Introduction and General Considerations
    2. Impact on Rural Hospitals
    3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes 
and Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    L. Effects of Proposed Requirements for Hospital Inpatient 
Quality Reporting (IQR) Program
    M. Effects of Proposed Requirements for the PPS-Exempt Cancer 
Hospital Quality Reporting (PCHQR) Program for FY 2015
    N. Effects of Proposed Requirements for the LTCH Quality 
Reporting (LTCHQR) Program for FY 2015 Through FY 2019
    O. Effects of Proposals Regarding Electronic Health Record (EHR) 
Incentive Program and Hospital IQR Program
    P. Effects of Proposed Revision of Regulations Governing Use and 
Release of Medicare Advantage Risk Adjustment Data
    Q. Effects of Proposed Changes to Enforcement Provisions for 
Organ Transplant Centers
    II. Alternatives Considered
III. Overall Conclusion
    A. Acute Care Hospitals
    B. LTCHs

[[Page 27987]]

IV. Accounting Statements and Tables
    A. Acute Care Hospitals
    B. LTCHs
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 2015
    A. Proposed FY 2015 Inpatient Hospital Update
    B. Proposed Update for SCHs for FY 2015
    C. Proposed FY 2015 Puerto Rico Hospital Update
    D. Proposed Update for Hospitals Excluded From the IPPS for FY 
2015
    E. Proposed Update for LTCHs for FY 2015
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 proposed rule would make 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 
would make 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 would make 
policy changes to programs associated with Medicare IPPS hospitals, 
IPPS-excluded hospitals, and LTCHs.
    Under various statutory authorities, we are proposing to make 
changes to the Medicare IPPS, to the LTCH PPS, and to other related 
payment methodologies and programs for FY 2015 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; cancer 
hospitals; and short-term acute care hospitals located in the Virgin 
Islands, Guam, the Northern Mariana Islands, and American Samoa. 
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 
specify 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)(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. A payment for indirect 
medical education (IME) is made under section 1886(d)(5)(B) of the Act.
     Section 1886(b)(3)(B)(viii) of the Act, which requires the 
Secretary to reduce the applicable percentage 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.
     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 3133 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

[[Page 27988]]

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(m)(6) of the Act, as added by section 
1206(a)(1) of the Pathway for SGR Reform Act of 2013, which provided 
for the establishment of patient criteria for payment under the LTCH 
PPS for implementation beginning in FY 2016.
     Section 1206(b)(1) of the Pathway for SGR Reform Act of 
2013, which further amended 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, by retroactively reestablishing and extending the 
statutory moratorium on the full implementation of the 25-percent 
threshold payment adjustment policy under the LTCH PPS so that the 
policy will be in effect for 9 years (except for ``grandfathered'' 
hospital-within-hospitals (HwHs), which are permanently exempt from 
this policy); and section 1206(b)(2) (as amended by section 112(b) of 
the Protecting Access to Medicare Act of 2014 (Pub. L. 113-93)), which 
together further amended section 114(d) of the MMSEA, as amended by 
section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the 
Affordable Care Act to establish a new moratoria (subject to certain 
defined exceptions) on the development of new LTCHs and LTCH satellite 
facilities and a new moratorium on increases in the number of beds in 
existing LTCHs and LTCH satellite facilities beginning January 1, 2015 
and ending on September 30, 2017; and section 1206(d), which instructs 
the Secretary to evaluate payments to LTCHs classified under section 
1886(b)(1)(C)(iv)(II) of the Act and to adjust payment rates in FY 2015 
or FY 2016 under the LTCH PPS, as appropriate, based upon the 
evaluation findings.
     Section 1886(m)(5)(D)(iv) of the Act, as added by section 
1206(c) of the Pathway for SGR Reform Act of 2013, which provides for 
the establishment, no later than October 1, 2015, of a functional 
status quality measure under the LTCHQR Program for change in mobility 
among inpatients requiring ventilator support.
    To conform regulations to the statutory requirements of the 
Provider Reimbursement Review Board (Board) appeals based on untimely 
determinations of the Medicare Administrative Contractor (MAC), in this 
proposed rule, we are proposing to amend the regulations to eliminate 
the provider dissatisfaction requirement as a condition for Board 
jurisdiction over such appeals. We are proposing a similar amendment to 
the regulations for appeals to MAC hearing officers, to maintain 
consistency between the regulations for MAC and Board appeals. We also 
are proposing to codify in the cost reporting regulations our existing 
policy, implemented in section 115 of the Provider Reimbursement 
Manual, requiring providers to include an appropriate claim for an item 
in its cost report. In addition, we are proposing that providers' 
failure to include an appropriate claim for an item in its cost report 
will result in foreclosure of payment in the notice of program 
reimbursement and in any decision or order issued by a reviewing entity 
in an administrative appeal filed by the provider.
    We are proposing to align the reporting and submission timelines 
for clinical quality measures for the Medicare EHR Incentive Program 
for eligible hospitals and critical access hospitals (CAHs) with the 
reporting and submission timelines for the Hospital IQR Program. In 
addition, we provide guidance and clarification of certain policies for 
eligible hospitals and CAHs such as our policy for reporting zero 
denominators on clinical quality measures and our policy for case 
threshold exemptions.
    In addition, this proposed rule contains several proposals that are 
not directly related to these Medicare payment systems, such as 
regulatory revisions to broaden the specified uses and reasons for 
disclosure of risk adjustment data and to specify the conditions for 
release of risk adjustment data to entities outside of CMS and changes 
to the enforcement procedures for organ transplant centers. The 
specific statutory authority for these other proposals is discussed in 
the relevant sections below.
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 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 estimated 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 made a -0.8 percent recoupment adjustment to 
the standardized amount in FY 2014. We are proposing to make an 
additional -0.8 percent recoupment adjustment to the standardized 
amount in FY 2015.
b. Reduction of Hospital Payments for Excess Readmissions
    We are proposing changes in policies to the Hospital Readmissions 
Reduction Program, which is established under section 1886(q) of the 
Act, as added by section 3025 of the Affordable Care Act. 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 established additional exclusions to the three existing 
readmission measures (that is, the excess readmission ratio) to account 
for additional planned readmissions. We also established additional 
readmissions measures, Chronic Obstructive Pulmonary Disease (COPD), 
and Total Hip Arthroplasty and Total Knee Arthroplasty (THA/TKA), to be 
used in the Hospital Readmissions Reduction Program for FY 2015 and 
future years. We are proposing to expand the readmissions measures for 
FY 2017 and future years by adding a measure of patients readmitted 
following coronary artery bypass graft (CABG) surgery. We also are 
proposing to refine the readmission measures and related methodology 
for FY 2015 and subsequent years payment determinations. In addition, 
we are proposing that the readmissions payment adjustment factors for 
FY 2015

[[Page 27989]]

can be no more than a 3-percent reduction in accordance with the 
statute. We also are proposing to revise the calculation of aggregate 
payments for excess readmissions to include THA/TKA and COPD 
readmissions measures beginning in FY 2015.
c. 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 proposed rule, we are proposing to adopt quality measures 
for the FY 2017, FY 2019, and FY 2020 Hospital VBP Program years and to 
establish performance periods and performance standards for measures to 
be adopted for those fiscal years. We also are proposing to adopt 
additional policies related to performance standards and to revise the 
domain weighting previously adopted for the FY 2017 Hospital VBP 
Program.
d. Hospital-Acquired Condition (HAC) Reduction Program
    In this proposed rule, we are proposing a change in the scoring 
methodology with the addition of a previously finalized measure for the 
FY 2016 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. This 1-percent payment reduction applies to a hospital whose 
ranking is in the top quartile (25 percent) of all applicable 
hospitals, relative to the national average, of conditions acquired 
during the applicable period and on all of the hospital's discharges 
for the specified fiscal year. 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.
e. Proposed 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. 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 proposed 
rule, we are proposing updates to the uncompensated care amount to be 
distributed for FY 2015, and we are proposing changes to the 
methodology to calculate the uncompensated care payment amounts to be 
distributed such that we combine uncompensated care data for hospitals 
that have underwent a merger in order to calculate their relative share 
of uncompensated care.
f. 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 proposed rule, we are proposing to add nine new measures 
for the Hospital IQR Program for the FY 2017 payment determination and 
subsequent years. We are proposing to remove five measures for the FY 
2016 payment determination and subsequent years. We also are proposing 
to remove 15 chart-abstracted measures from the FY 2016 payment 
determination's measure set. However, we are proposing to retain an 
electronic clinical quality measure version of 10 of those chart-
abstracted measures for the program.
g. Proposed Changes to the LTCH PPS
    Section 1206(b) of the Pathway for SGR Reform Act provides for the 
retroactive reinstatement and extension, for an additional 4 years, of 
the moratorium on the full implementation of the 25-percent threshold 
payment adjustment under the LTCH PPS established under section 114(c) 
of the MMSEA, as further amended by subsequent legislation. In keeping 
with this mandate, we are proposing to reinstate this payment 
adjustment retroactively for LTCH cost reporting periods beginning on 
or after July 1, 2013 or October 1, 2013.
    Section 1206(b)(2) of the Pathway for SGR Reform Act, as amended by 
section 112(b) of the Protecting Access to Medicare Act of 2014, 
provides for new statutory moratoria on the establishment of new LTCHs 
and LTCH satellite facilities (subject to certain defined exceptions) 
and a new statutory moratorium on bed increases in existing LTCHs 
effective for the period beginning April 1, 2014 and ending September 
30, 2017.
    In accordance with section 1206(d) of the Pathway for SGR Reform 
Act of 2013, we are proposing to apply a payment adjustment under the 
LTCH PPS to subclause (II) LTCHs beginning in FY 2015 that would result 
in payments to this type of LTCH resembling reasonable cost payments 
under the TEFRA payment system model.
    We also are proposing to make changes to the LTCH interruption of 
stay policy, which is a payment adjustment that is applied when, during 
the course of an LTCH hospitalization, a patient is discharged to an 
inpatient acute care hospital, an IRF, or a SNF for treatment or 
services not available at the LTCH for a specified period followed by 
readmittance to the same LTCH.
3. Summary of Costs and Benefits
     Proposed Adjustment for MS-DRG Documentation and Coding 
Changes. We are proposing a -0.8 percent recoupment adjustment to the 
standardized amount for FY 2015 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 represent 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 estimated 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

[[Page 27990]]

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 and the 
adjustment we made for FY 2014, we are proposing to make a -0.8 percent 
recoupment adjustment to the standardized amount in FY 2015. We 
estimated that this level of adjustment, combined with leaving the -0.8 
percent adjustment made for FY 2014 in place, will recover up to $2 
billion in FY 2015. Taking into account the approximately $1 billion 
recovered in FY 2014, this will leave approximately $8 billion 
remaining to be recovered by FY 2017.
     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 
2015, 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 0.97 (that is, or a 3-
percent reduction). In this proposed 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 in payments to hospitals for FY 2015 relative to 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 2015 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 2015, and 
therefore the estimated amount available for value-based incentive 
payments for FY 2015 discharges, is approximately $1.4 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.
     Proposed Payment Adjustment Under the HAC Reduction 
Program for FY 2015. Under section 1886(p) of the Act, (as added by 
section 3008 of the Affordable Care Act), the incentive to reduce 
hospital-acquired conditions with a payment adjustment to applicable 
hospitals under the HAC Reduction Program is made beginning FY 2015. We 
estimate that, under this proposal, 753 hospitals would be subject to 
the 1-percent reduction, and that overall payments will decrease 
approximately 0.3 percent or $330 million.
     Proposed Changes Relating 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 is 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.
    For FY 2015, we are proposing that the 75 percent of what otherwise 
would have been paid for Medicare DSH is adjusted to approximately 80.4 
percent of the 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 approximately 60.3 percent (the 
product of 75 percent and 80.4 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 proposed 
reduction of Medicare DSH payments and the inclusion of the additional 
payments for uncompensated care will reduced payments overall by 1.1 
percent as compared to the Medicare DSH payments and uncompensated care 
payments distributed in FY 2014. The proposed additional payments have 
redistributive effects based on a hospital's uncompensated care amount 
relative to the uncompensated care amount to all hospitals that are 
estimated to receive Medicare DSH payments, and the payment amount is 
not tied to a hospital's discharges.
     Hospital Inpatient Quality Reporting (IQR) Program. In 
this proposed rule, we are proposing to add nine new measures for the 
FY 2017 payment determination and subsequent years. We are proposing to 
remove five measures from the hospital IQR Program for the FY 2016 
payment determination and subsequent years. We also are proposing to 
remove 15 chart-abstracted from the FY 2016 payment determination's 
measure set, but we are proposing to retain an electronic clinical 
quality measure version of 10 of those measures for the program. We 
estimate that our proposals for the adoption and removal of measures 
will decrease hospital costs by $39.8 million.
     Proposed Update to the LTCH PPS Standard Federal Rate and 
Other Payment Factors. Based on the best available data for the 423 
LTCHs in our database, we estimate that the proposed changes to the 
payment rates and factors we are presenting in the preamble and 
Addendum of this proposed rule, including the proposed update to the 
standard Federal rate for FY 2015, the proposed changes to the area 
wage adjustment for FY 2015, and the expected changes to short-stay 
outliers and high-cost outliers, would result in an increase in 
estimated payments from FY 2014 of approximately $44 million (or 0.8 
percent). In addition, we estimate that net effect of the projected 
impact of certain other proposed LTCH PPS policy changes (that is, the 
reinstatement of the moratorium on the full implementation of the ``25 
percent threshold'' payment adjustment; the reinstatement of the 
moratorium on the development of new LTCHs and LTCH satellite 
facilities and additional LTCH beds; the proposed revision of the 
``greater than 3-day interruption of stay'' policy; the proposed 
revocation of onsite discharges and readmissions policy; and the 
proposed payment adjustment for ``subclause (II)'' LTCHs) is estimated 
to result in a reduction in LTCH PPS payments of approximately $14 
million.
    The impact analysis of the proposed payment rates and factors 
presented in this proposed rule under the LTCH PPS, in conjunction with 
the estimated payment impacts of certain other proposed LTCH PPS policy 
changes would result in a net increase of $30 million to LTCH 
providers. Additionally, we estimate that the costs to LTCHs associated 
with the completion of the proposed data for the LTCHQR Program at 
$3.96 million or approximately $1 million more than FY 2014.

[[Page 27991]]

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.
    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 April 1, 2015, 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 on March 31, 2015, 
under current law.) 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; certain cancer hospitals; and short-tern acute care 
hospitals located in Guam, the U.S. Virgin Islands, the Northern 
Mariana Islands, and American Samoa. 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, certain cancer 
hospitals, short-tern acute care hospitals

[[Page 27992]]

located in Guam, the U.S. Virgin Islands, the Northern Mariana Islands, 
and American Samoa, and RNHCIs continue to be paid solely under a 
reasonable cost-based system subject to a rate-of-increase ceiling on 
inpatient operating costs, as updated annually by the percentage 
increase in the IPPS operating market basket.
    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 section 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 with 
FY 2009, annual updates to the LTCH PPS are published 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. Summary of Provisions of Recent Legislation Discussed in This 
Proposed Rule

    The Patient Protection and Affordable Care Act (Pub. L. 111-148), 
enacted on March 23, 2010, the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010, made a number 
of changes that affect the IPPS and the LTCH PPS. (Pub. L. 111-148 and 
Pub. L. 111-152 are collectively referred to as the ``Affordable Care 
Act.'') A number of the provisions of the Affordable Care Act affect 
the updates to the IPPS and the LTCH PPS and providers and suppliers. 
The provisions of the Affordable Care Act that were applicable to the 
IPPS and the LTCH PPS for FYs 2010, 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 in accordance with sections 605 and 606 of Public Law 112-240 
in a notice issued in the Federal Register on March 7, 2013 (78 FR 
14689).
    The Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), enacted on 
December 26, 2013, also made a number of changes that affect the IPPS 
and the LTCH PPS. We implemented changes related to the low-volume 
hospital payment adjustment and MDH provisions for FY 2014 in 
accordance with sections 1105 and 1106 of Public Law 113-67 in an 
interim final rule with comment period that appeared in the Federal 
Register on March 18, 2014 (79 FR 15022).
    The Protecting Access to Medicare Act of 2014 (Pub. L. 113-93), 
enacted on April 1, 2014, also made a number of changes that affect the 
IPPS and LTCH PPS.
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 proposed rule, we are proposing policy changes to implement 
(or, as applicable, continuing to implement in FY 2015) 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 for FY 2015:
     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 Public Law 111-152, 
which modifies the methodologies for determining Medicare DSH payments 
and creates a new additional payment for uncompensated care effective 
for discharges beginning on or after October 1, 2013.
     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 2015.

[[Page 27993]]

     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.
2. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)
    In this proposed rule, we are proposing policy changes to implement 
section 631 of the American Taxpayer Relief Act of 2012 that are 
applicable to the IPPS for FY 2015, 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).
3. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)
    In this proposed rule, we are proposing policy changes to 
implement, or the need for future policy changes, to carry out 
provisions under section 1206 of the Pathway for SGR Reform Act of 
2013. These include:
     Section 1206(a), which provides the establishment of 
patient criteria for ``site neutral'' payment rates under the LTCH PPS, 
portions of which will begin to be implemented in FY 2016.
     Section 1206(b)(1), which further amended 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 by retroactively 
reestablishing, and extending, the statutory moratorium on the full 
implementation of the 25-percent threshold payment adjustment policy 
under the LTCH PPS so that the policy will be in effect for 9 years 
(except for grandfathered HwHs, which are permanently exempt from this 
policy).
     Section 1206(b)(2), which amended section 114(d) of the 
MMSEA, as amended by section 4302(a) of the ARRA and sections 3106(c) 
and 10312(a) of the Affordable Care Act to establish new moratoria 
(subject to certain defined exceptions) on the development of new LTCHs 
and LTCH satellite facilities and a new moratorium on increases in the 
number of beds in existing LTCHs and LTCH satellite facilities.
     Section 1206(d), which instructs the Secretary to evaluate 
payments to LTCHs classified under section 1886(d)(1)(B)(iv)(II) of the 
Act and to adjust payment rates in FY 2015 or 2016 under the LTCH PPS, 
as appropriate, based upon the evaluation findings.
4. Protecting Access to Medicare Act of 2014 (Pub. L. 113-93)
    In this proposed rule, we are proposing policy changes to 
implement, or make conforming changes to regulations in accordance 
with, the following provisions (or portions of the following 
provisions) of the Protecting Access to Medicare Act of 2014 that are 
applicable to the IPPS and the LTCH PPS for FY 2015:
     Section 105, which extends the temporary changes to the 
Medicare inpatient hospital payment adjustment for low-volume 
subsection (d) hospitals through March 31, 2015.
     Section 106, which extends the MDH program through March 
31, 2015.
     Section 112, which makes certain changes to Medicare LTCH 
provisions, including modifications to the statutory moratoria on the 
establishment of new LTCHs and LTCH satellite facilities and on 
increases in bed size in LTCH and LTCH satellite facilities.
     Section 212, which prohibits the Secretary from requiring 
implementation of ICD-10 code sets before October 1, 2015.

D. Summary of the Provisions of This Proposed Rule

    In this proposed rule, we are setting forth proposed changes to the 
Medicare IPPS for operating costs and for capital-related costs of 
acute care hospitals for FY 2015. We also are setting 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 this proposed rule, we are 
setting forth proposed changes to the payment rates, factors, and other 
payment rate policies under the LTCH PPS for FY 2015.
    Below is a summary of the major changes that we are proposing to 
make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of 
Relative Weights
    In section II. of the preamble of this proposed rule, we include--
     Proposed changes to MS-DRG classifications based on our 
yearly review, including a discussion of the conversion of MS-DRGs to 
ICD-10 and the status of the implementation of the ICD-10-CM and ICD-
10-PCS systems.
     Proposed application of the documentation and coding 
adjustment for FY 2015 resulting from implementation of the MS-DRG 
system.
     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 2015.
     A discussion of the FY 2015 status of new technologies 
approved for add-on payments for FY 2014 and a presentation of our 
evaluation and analysis of the FY 2015 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 this proposed rule, we are 
proposing revisions to the wage index for acute care hospitals and the 
annual update of the wage data. Specific issues addressed include the 
following:
     Proposed changes in CBSAs as a result of new OMB labor 
market area delineations and proposed policies related to the proposed 
changes in CBSAs.
     The proposed FY 2015 wage index update using wage data 
from cost reporting periods beginning in FY 2011.
     Analysis and implementation of the proposed FY 2015 
occupational mix adjustment to the wage index for acute care hospitals, 
including the proposed application of the rural floor, the proposed 
imputed rural floor, and the proposed 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 2015 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 2015 hospital wage index and proposed 
revisions to that timetable.
     Determination of the labor-related share for the proposed 
FY 2015 wage index.

[[Page 27994]]

3. Other Decisions and Proposed Changes to the IPPS for Operating Costs 
and GME Costs
    In section IV. of the preamble of this proposed rule, we discuss 
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 in postacute care transfer policies as a 
result of proposed new MS-DRGs.
     Proposed changes to the inpatient hospital updates for FY 
2015, including incorporation of the adjustment for hospitals that are 
not meaningful EHR users under section 1886(b)(3)(B)(ix) of the Act.
     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 2015.
     The statutorily required IME adjustment factor for FY 2015 
and proposed IME Medicare Part C payments to SCHs that are paid 
according to their hospital-specific rates.
     Effect of expiration of the MDH program on April 1, 2015.
     Proposed changes to the methodologies for determining 
Medicare DSH payments and the additional payments for uncompensated 
care.
     Proposed changes to the measures and payment adjustments 
under the Hospital Readmissions Reduction Program.
     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 for FY 2015.
     Proposed IME and direct GME policy changes regarding the 
effective date of the FTE resident cap, 3-year rolling average, and IRB 
ratio cap in new programs in teaching hospitals; effect of new OMB 
labor market area delineations on certain teaching hospitals training 
residents in rural areas; clarification of effective date of provisions 
on counting resident time in nonprovider settings; proposed changes to 
the process for reviewing applications for and awarding slots made 
available under section 5506 of the Affordable Care Act by teaching 
hospitals that close; and clarification regarding direct GME payment to 
FQHCs and RHCs that train residents in approved programs.
     Discussion of the Rural Community Hospital Demonstration 
Program and a proposal for making a budget neutrality adjustment for 
the demonstration program.
     Discussion of the requirements for transparency of 
hospital charges under the Affordable Care Act.
     Discussion of and solicitation of comments on an 
alternative payment methodology under the Medicare program for short 
inpatient hospital stays.
     Discussion of the process for submitting suggested 
exceptions to the 2-midnight benchmark.
4. Proposed FY 2015 Policy Governing the IPPS for Capital-Related Costs
    In section V. of the preamble to this proposed rule, we discuss the 
proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2015 and other related proposed 
policy changes.
5. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VI. of the preamble of this proposed rule, we discuss--
     Proposed changes to payments to certain excluded hospitals 
for FY 2015.
     Proposed updates to the RCE limits for services furnished 
by physicians to excluded hospitals.
     Proposed CAH related changes regarding reclassifications 
as rural.
     Proposed changes to the physician certification 
requirements for services furnished in CAHs.
6. Proposed Changes to the LTCH PPS
    In section VII. of the preamble of this proposed rule, we set 
forth--
     Proposed changes to the payment rates, factors, and other 
payment rate policies under the LTCH PPS for FY 2015.
     Proposed revisions to the LTCH PPS geographic 
classifications based on the new OMB delineations.
     Proposals to implement section 1206(b)(1) of the Pathway 
for SGR Reform Act, which provides for the retroactive reinstatement 
and extension, for an additional 4 years, of the statutory moratorium 
on the full implementation of the 25-percent threshold payment 
adjustment established under section 114(c) of the MMSEA, as further 
amended by subsequent legislation.
     Proposals to implement section 1206(b)(2) of the Pathway 
for SGR Reform Act, as amended by section 112(b) of the Protecting 
Access to Medicare Act of 2014, which provides for moratoria (subject 
to certain defined exceptions) on the establishment of new LTCHs and 
LTCH satellite facilities and a moratorium on bed increases in LTCHs 
effective for the period beginning April 1, 2014, and ending September 
30, 2017.
     Proposed changes to the LTCH interruption of stay policy 
by revising the fixed-day thresholds under the ``greater than 3-day 
interruption of stay policy'' to apply a uniform 30-day threshold as an 
``acceptable standard'' for determining a linkage between an index 
discharge and a readmission.
     Proposal to remove the discharge and readmission 
requirement, ``Special Payment Provisions for Patients Who Are 
Transferred to Onsite Providers and Readmitted to an LTCH'' (the ``5 
percent payment threshold'') beginning in FY 2015.
     Proposal to apply a payment adjustment under the LTCH PPS 
to subclause (II) LTCHs beginning in FY 2015 that would result in 
payments to this type of LTCH resembling reasonable cost payment under 
the TEFRA payment system model, consistent with the provisions of 
section 1206(d) of the Pathway for SGR Reform Act of 2013.
7. Proposed Changes to Regulations Governing Administrative Appeals by 
Providers and Judicial Review of Provider Claims
    In section VIII. of the preamble of this proposed rule, we set 
forth proposals to revise the regulations governing administrative 
appeals and judicial review of provider claims in Medicare cost 
reports.
8. Proposed Changes Relating to Quality Data Reporting for Specific 
Providers and Suppliers
    In section IX. of the preamble of this proposed rule, we address--
     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.
9. Proposed Uses and Release of Medicare Advantage Risk Adjustment Data
    In section X. of the preamble of this proposed rule, we set forth 
proposed regulatory revisions to broaden the specified uses of risk 
adjustment data and to specify the conditions for release of risk 
adjustment data to entities outside of CMS.

[[Page 27995]]

10. Proposed Changes to Enforcement Provisions for Organ Transplant 
Centers
    In section XI. of the preamble of this proposed rule, we are 
proposing to revise the regulations governing organ transplant centers 
that request approval, based on mitigating factors for initial approval 
and re-approval, for participation in Medicare when the centers have 
not met one or more of the conditions of participation.
11. Determining Prospective Payment Operating and Capital Rates and 
Rate-of-Increase Limits for Acute Care Hospitals
    In the Addendum to this proposed rule, we set forth proposed 
changes to the amounts and factors for determining the proposed FY 2015 
prospective payment rates for operating costs and capital-related costs 
for acute care hospitals. We also are proposing 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 2015 for certain hospitals 
excluded from the IPPS.
12. Determining Prospective Payment Rates for LTCHs
    In the Addendum to this proposed rule, we set forth proposed 
changes to the amounts and factors for determining the proposed FY 2015 
LTCH PPS standard Federal rate. We are proposing to establish the 
adjustments for wage levels (including proposed changes to the LTCH PPS 
labor market area delineations based on the new OMB delineations), 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.
13. Impact Analysis
    In Appendix A of this proposed rule, we set forth an analysis of 
the impact that the proposed changes would have on affected acute care 
hospitals, LTCHs, and PCHs.
14. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    In Appendix B of this proposed rule, as required by sections 
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of 
the appropriate percentage changes for FY 2015 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.
15. 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 2014 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 address these recommendations in Appendix B of this proposed rule. 
For further information relating specifically to the MedPAC March 2014 
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.

II. Proposed 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), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53273), and 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50512).

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. Proposed FY 2015 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. (In FY 2014, 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.
    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

[[Page 27996]]

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 (Pub. L. 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 effective October 1, 2008 (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 section 7(a) of 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 
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 IPPS/
LTCH PPS 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 CMS 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 CMS 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 (refer to 
the Web site for the required payment amount) 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.
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

[[Page 27997]]

50073), we found a total prospective documentation and coding effect of 
5.4 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 believed 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 fiscal 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 noted that, as a result, 
payments in FY 2011 (and in each future fiscal 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 
would 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 instead of the full -3.9 percent.
    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 believed that 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 fiscal years until a full adjustment was made.
    We noted 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
    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 
there was a 5.8 percentage point difference resulting 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 payment rate adjustments over 
more than one year in order to moderate the effect on payment 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.
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

[[Page 27998]]

a permanent reduction to payment rates. Therefore, any adjustment made 
to reduce payment 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 final rule (78 FR 50515 
through 50517), 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 phase in payment rate 
adjustments over more than one year, in order to moderate the effect on 
payment rates in any one year. Therefore, consistent with the policies 
that we have adopted in many similar cases, and after consideration of 
the public comments we received, in the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50515 through 50517), we implemented a -0.8 percent 
recoupment adjustment to the standardized amount in FY 2014. We stated 
that 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 will 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 provide for specific adjustments for FYs 2015, 2016, or 2017 at 
that time. We stated that we believed that this level of adjustment for 
FY 2014 was 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.
    Consistent with the approach discussed in the FY 2014 rulemaking 
for recouping the $11 billion required by section 631 of the ATRA, we 
are proposing an additional -0.8 percent recoupment adjustment to the 
standardized amount for FY 2015. We estimated that this level of 
adjustment, combined with leaving the -0.8 percent adjustment made for 
FY 2014 in place, will recover up to $2 billion in FY 2015. Taking into 
account the approximately $1 billion recovered in FY 2014, this will 
leave approximately $8 billion remaining to be recovered by FY 2017. We 
continue to believe that if adjustments of approximately -0.8 percent 
are implemented in FYs 2014, 2015, 2016, and 2017, using standard 
inflation factors, the entire $11 billion will be accounted for by the 
end of the statutory 4-year timeline. As we explained in the FY 2014 
rulemaking, estimates of any future adjustments are subject to slight 
variations in total savings; therefore, we are not proposing specific 
adjustments for FY 2016 and FY 2017 at this time. We continue to 
believe that our proposed -0.8 percent adjustment for FY 2015 is a 
reasonable and fair approach that will help satisfy the requirements of 
the statute while mitigating extreme annual fluctuations in payment 
rates. In addition, we again note 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.
7. Prospective Adjustment for the MS-DRG Documentation and Coding 
Effect Through FY 2010
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 
50517), we discussed the possibility of applying an additional 
prospective adjustment to account for the cumulative MS-DRG 
documentation and coding effect through FY 2010. In that final rule, we 
stated that if we were to apply such an adjustment, we believe the most 
appropriate additional adjustment is -0.55 percent. However, we decided 
not to apply such an adjustment in FY 2014, in light of the need to 
make the retrospective adjustments required by the ATRA. We continue to 
believe that if we were to apply an additional prospective adjustment 
for the cumulative MS-DRG documentation and coding effect through FY 
2010, the most appropriate additional adjustment is -0.55 percent. 
However, we are not proposing such an adjustment in FY 2015, in light 
of the ongoing recoupment required by the ATRA. We will consider 
whether such an additional adjustment is appropriate in future years' 
rulemaking.

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 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 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

[[Page 27999]]

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 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/LTCH 
PPS 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. 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.
    At the time of the development of the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27506 through 27507), 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. We stated that 
we believed that the analytic findings described 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 (78 FR 27509).
    We refer readers to the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27507 through 27509) and final rule (78 FR 50518 through 50523) in 
which we presented data analyses using distinct CCRs for implantable 
devices, MRIs, CT scans, and cardiac catheterization. The FY 2014 IPPS/
LTCH PPS final rule also set forth our responses to public comments we 
received on our proposal to implement these CCRs. As explained in more 
detail in the FY 2014 IPPS/LTCH PPS final rule, we finalized our 
proposal to use 19 CCRs to calculate MS-DRG relative weights beginning 
in FY 2014--the then existing 15 cost centers and the 4 new CCRs for 
implantable devices, MRIs, CT scans, and cardiac catheterization. 
Therefore, beginning in FY 2014, we calculated the IPPS MS-DRG relative 
weights using 19 CCRs, creating distinct CCRs for implantable devices, 
MRIs, CT scans, and cardiac catheterization.
2. Discussion for FY 2015
    To calculate the proposed MS-DRG relative weights for FY 2015, we 
use two data sources: the MedPAR file as the

[[Page 28000]]

claims data source and the HCRIS as the cost report data source. We 
adjust the charges from the claims to costs by applying the 19 national 
average CCRs developed from the cost reports. The description of the 
calculation of the proposed 19 CCRs and the proposed MS-DRG relative 
weights for FY 2015 is included in section II.H. of the preamble of 
this proposed rule.

F. Proposed Adjustment to MS-DRGs for Preventable Hospital-Acquired 
Conditions (HACs), Including Infections for FY 2015

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 complication or comorbidity (CC) 
or a major complication or comorbidity (MCC). The presence of a CC or 
an MCC generally results in a higher payment.
    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 the 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 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 or 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] TP15MY14.000

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/

[[Page 28001]]

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); the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898) and final 
rule (77 FR 53283 through 53303); and the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27509 through 27512) and final rule (78 FR 50523 
through 50527). 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 have discussed in the prior rulemaking cited under 
section II.I.2. of the preamble of this proposed rule, 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, 
RNHCIs, and the Department of Veterans Affairs/Department of Defense 
hospitals, are exempt from POA reporting.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50525), we noted 
that hospitals in Maryland operating under a statutory waiver are not 
paid under the IPPS, but rather were paid under the provisions of 
section 1814(b)(3) of the Act and therefore exempt from reporting POA 
indicators. However, we believed it was 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. Therefore, in the FY 2014 
IPPS/LTCH PPS final rule, we finalized our policy that hospitals in 
Maryland that formerly operated under section 1814(b)(3) of the Act 
were no longer 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 note that, 
while this requirement was not effective until October 1, 2013, 
hospitals in Maryland could submit data with POA indicators before that 
date with the expectation that these data will be accepted by 
Medicare's claims processing systems. (We refer readers to the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50707 through 50712) for a discussion 
of our FY 2014 final policies to implement section 1886(p) of the Act 
that are applicable to Maryland hospitals.)
    Subsequent to our FY 2014 rulemaking, the State of Maryland entered 
into an agreement with CMS, effective January 1, 2014, to participate 
in CMS' new Maryland All-Payer Model, a 5-year hospital payment model. 
This model is being implemented under section 1115A of the Act, as 
added by section 3021 of the Affordable Care Act, which authorizes the 
testing of innovative payment and service delivery models, including 
models that allow States to ``test and evaluate systems of all-payer 
payment reform for the medical care of residents of the State, 
including dual eligible individuals.'' Section 1115A of the Act 
authorizes the Secretary to waive such requirements of titles XI and 
XVIII of the Act as may be necessary solely for purposes of carrying 
out section 1115A of the Act with respect to testing models.
    Under the agreement with CMS, Maryland will limit per capita total 
hospital cost growth for all payers, including Medicare. In order to 
implement the new model, effective January 1, 2014, Maryland elected to 
no longer have Medicare make payments to Maryland hospitals in 
accordance with section 1814(b)(3) of the Act. Maryland also 
represented that it is no longer in continuous operation of a 
demonstration project reimbursement system since July 1, 1977, as 
specified under section 1814(b)(3) of the Act. Because Maryland 
hospitals are no longer paid under section 1814(b)(3) of the Act, they 
are no longer subject to those provisions of the Act and related 
implementing regulations that are specific to section 1814(b)(3) 
hospitals. Although CMS has waived certain provisions of the Act for 
Maryland hospitals, as set forth in the agreement between CMS and 
Maryland and subject to Maryland's compliance with the terms of the 
agreement, CMS has not waived the POA indicator reporting requirement. 
In other words, the changes to the status of Maryland hospitals under 
section 1814(b)(3) of the Act as described above do not in any way 
change the POA indicator reporting requirement for Maryland hospitals.
    There are currently four POA indicator reporting options, ``Y'', 
``W'', ``N'', and ``U'', as defined by the ICD-9-CM Official Guidelines 
for Coding and Reporting. We note that prior to January 1, 2011, we 
also used a POA indicator reporting option ``1''. However, 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 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.) The POA indicator 
reporting process will not change when ICD-10-CM and ICD-10-PCS are 
implemented on October 1, 2014. The current POA indicators and their 
descriptors are shown in the chart below:

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


[[Page 28002]]

    Under the HAC payment 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 and 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 and MCC level. We refer readers to the following rules for a 
detailed discussion of POA indicator reporting: 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); the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27893 through 27894) and final rule (77 
FR 53284 through 53285); and the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27510 through 27511) and final rule (78 FR 50524 through 50525).
    In addition, as discussed previously in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53324), 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 diagnosis 
and all secondary diagnoses up to 25.
4. HACs and POA Reporting in Preparation for Transition to ICD-10-CM 
and ICD-10-PCS
    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, we indicated that 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 would 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 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 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).'' This 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 encouraged 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 was set up for this purpose under the 
Related Links section titled ``CMS HAC Feedback.''
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50525), we stated 
that the final HAC list translation from ICD-9-CM to ICD-10-CM/ICD-10-
PCS would be subject to formal rulemaking. We encouraged readers to 
review the educational materials and draft code sets available for ICD-
10-CM/ICD-10-PCS on the CMS Web site at: http://www.cms.gov/ICD10/. In 
addition, we stated that the draft ICD-10-CM/ICD-10-PCS Coding 
Guidelines could be viewed on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm.
    The HACs code translation list from ICM-9-CM to ICD-10-CM/ICD-10-
PCS is available to the public on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We note that Appendix I of the ICD-10 MS-DRGs Version 
31.0-R file posted on the Web site contains the DRA HACs translated to 
ICD-10.
    We note that section 212 of the Protecting Access to Medicare Act 
of 2014 (Pub. L. 113-93), enacted on April 1, 2014, delayed the 
transition from the ICD-9-CM to the ICD-10 code set.
5. Proposals Regarding Current HACs and Previously Considered Candidate 
HACs
    In this FY 2015 IPPS/LTCH PPS proposed rule, we are not proposing 
to add or remove categories of the HACs. However, 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 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 II.F.5. of 
the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898), 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53285 through 53292) for 
the HAC policy for FY 2013, and the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27509 through 27512) and the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50523 through 50527) for the HAC policy for FY 2014.
6. RTI Program Evaluation
    On September 30, 2009, a contract was awarded to RTI to evaluate 
the impact of the Hospital-Acquired Condition-Present on Admission 
(HAC-POA) provisions on the changes in the incidence of selected 
conditions, effects on Medicare payments, impacts on coding accuracy, 
unintended consequences, and infection and event rates. This 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 health care 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

[[Page 28003]]

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/Downloads/Evidence-Based-Guidelines.pdf. Subsequent to this final 
report, RTI was 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. This report is usually 
delivered to CMS annually in a May/June timeframe. Updates to the 
guidelines will be made available to the public.

G. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for Proposed MS-DRG 
Updates
a. Conversion of MS-DRGs to the International Classification of 
Diseases, 10th Revision (ICD-10)
    Providers use the code sets under the ICD-9-CM coding system to 
report diagnoses and procedures for Medicare hospital inpatient 
services under the MS-DRG system. 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 ICD-10-PCS Guidelines for Coding and Reporting. 
The ICD-10 coding system was initially adopted for transactions 
conducted on or after 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 published in the 
Federal Register on January 16, 2009 (74 FR 3328 through 3362) 
(hereinafter referred to as the ``ICD-10-CM and ICD-10-PCS final 
rule''). However, the Secretary of Health and Human Services issued a 
final rule that delays the compliance date for ICD-10 from October 1, 
2013, to October 1, 2014. That final rule, entitled ``Administrative 
Simplification: Adoption of a Standard for a Unique Health Plan 
Identifier; Addition to the National Provider Identifier Requirements; 
and a Change to the Compliance Date for ICD-10-CM and ICD-10-PCS 
Medical Data Code Sets,'' 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. On April 1, 2014, the Protecting Access to Medicare 
Act of 2014 (Pub. L. 113-93) was enacted. Section 212 of Public Law 
113-93, titled ``Delay in Transition from ICD-9 to ICD-10 Code Sets,'' 
provides that ``[t]he Secretary of Health and Human Services may not, 
prior to October 1, 2015, adopt ICD-10 code sets as the standard for 
code sets under section 1173(c) of the Social Security Act (42 U.S.C. 
1320d-2(c)) and section 162.1002 of title 45, Code of Federal 
Regulations.'' As of now, the Secretary has not implemented this 
provision under HIPPA.
    The anticipated move to ICD-10 necessitated the development of an 
ICD-10-CM/ICD-10-PCS version of the MS-DRGs. CMS began a project to 
convert the ICD-9-CM-based MS-DRGs to ICD-10 MS-DRGs. In response to 
the FY 2011 IPPS/LTCH PPS proposed rule, we received public 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). 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 current MS-DRGs from ICD-9-CM codes to ICD-10 
codes and sharing this information through the ICD-10 (previously ICD-
9-CM) Coordination and Maintenance Committee. We undertook this early 
conversion project to assist other payers and providers in 
understanding how to implement 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 other payers and providers to follow. 
Information on the ICD-10 MS-DRG conversion project can be found on the 
ICD-10 MS-DRG Conversion Project 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-10 
(previously 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. 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-DRGs 
Web page. We stated that we believed that, by providing the ICD-10 MS-
DRGs 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

[[Page 28004]]

Committee meeting. We encouraged the 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. 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 was posted on the ICD-10 MS-DRG Conversion 
Project Web site. The ICD-10 MS-DRGs Version 30.0 computer software 
facilitated additional review of the ICD-10 MS-DRGs conversion.
    We provided information on a study conducted on the impact of 
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) which was 
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 FY 
2009 Medicare claims 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 study found that moving from an ICD-
9-CM-based system to an ICD-10 MS-DRG replicated system would lead to 
DRG reassignments on only 1 percent of the 10 million MedPAR sample 
records used in the study. Ninety-nine percent of the records did not 
shift to another MS-DRG when using an ICD-10 MS-DRG system. For the 1 
percent of the records that shifted, 45 percent of the shifts were to a 
higher weighted MS-DRG, while 55 percent of the shifts were to lower 
weighted MS-DRGs. The net impact across all MS-DRGs was a reduction by 
4/10000 or minus 4 pennies per $100. The updated paper is posted on the 
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 provided additional information to the 
public who were evaluating the conversion of the MS-DRGs to ICD-10 MS-
DRGs.
    CMS prepared the ICD-10 MS-DRGs Version 31.0 based on the FY 2014 
MS-DRGs (Version 31.0) that we finalized in the FY 2014 IPPS/LTCH PPS 
final rule. In November 2013, we posted a Definitions Manual of the 
ICD-10 MS-DRGs Version 31.0 on the 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 described 
changes made from Version 30.0 to Version 31.0 to facilitate a review. 
We produced mainframe and computer software for Version 31.0, which was 
made available to the public in December 2013. Information on ordering 
the mainframe and computer software through NTIS was posted 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 31.0 computer software facilitated additional review 
of the ICD-10 MS-DRGs conversion. We encouraged the public to submit to 
CMS any comments on areas where they believed the ICD-10 MS-DRGs did 
not accurately reflect grouping logic found in the ICD-9-CM MS-DRGs 
Version 31.0.
    We reviewed comments received and developed an update of ICD-10 MS-
DRGs Version 31.0, which we called ICD-10 MS-DRGs Version 31.0-R. We 
have posted a Definitions Manual of the ICD-10 MS-DRGs Version 31.0-R 
on the 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 31.0 to Version 31.0-R to facilitate a review. We will 
continue to share ICD-10-MS-DRG conversion activities with the public 
through this Web site.
b. Basis for FY 2015 MS-DRG Updates
    CMS encourages input from our stakeholders concerning the annual 
IPPS updates when that input is made available to us by December 7 of 
the year prior to the next annual proposed rule update. For example, to 
be considered for any updates or changes in FY 2016, comments and 
suggestions should be submitted by December 7, 2014. The comments that 
were submitted in a timely manner for FY 2015 are discussed below in 
this section.
    Following are the changes we are proposing to the MS-DRGs. We are 
inviting 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 are proposing changes to the MS-DRG classifications 
based on our analysis of claims data. In other cases, we are proposing 
to maintain the existing MS-DRG classification based on our analysis of 
claims data. For this FY 2015 proposed rule, our MS-DRG analysis is 
based on claims data from the December

[[Page 28005]]

2013 update of the FY 2013 MedPAR file, which contains hospital bills 
received through September 30, 2013, for discharges occurring through 
September 30, 2013. In our discussion of the proposed MS-DRG 
reclassification changes that follows, we refer to our analysis of 
claims data from the ``December 2013 update of the FY 2013 MedPAR 
file.'' For the FY 2015 final rule, we intend to calculate the final 
relative weights on claims data from the March 2014 update of the FY 
2013 MedPAR file, which will contain hospital bills received through 
December 31, 2013, for discharges occurring through December 31, 2013.
    As explained in previous rulemaking (76 FR 51487), in deciding 
whether to propose to make further modification to the MS-DRGs for 
particular circumstances brought to our attention, we considered 
whether the resource consumption and clinical characteristics of the 
patients with a given set of conditions are significantly different 
than the remaining patients in the MS-DRG. We evaluated patient care 
costs using average costs and lengths of stay and relied on the 
judgment of our clinical advisors to decide whether patients are 
clinically distinct or similar to other patients in the MS-DRG. In 
evaluating resource costs, we considered both the absolute and 
percentage differences in average costs between the cases we selected 
for review and the remainder of cases in the MS-DRG. We also considered 
variation in costs within these groups; that is, whether observed 
average differences were consistent across patients or attributable to 
cases that were extreme in terms of costs or length of stay, or both. 
Further, we considered the number of patients who will have a given set 
of characteristics and generally preferred not to create a new MS-DRG 
unless it would include a substantial number of cases.
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Intracerebral Therapies: Gliadel[supreg] Wafer
    During the comment period for the FY 2014 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 2014 IPPS/LTCH PPS 
final rule (78 FR 50550) that we would consider this issue in future 
rulemaking as part of our annual review process. The commenter 
requested that a new MS-DRG be created for intracerebral therapies, 
including implantation of chemotherapeutic agents. Specifically, the 
commenter referred to the Gliadel[supreg] Wafer for the treatment of 
High-Grade Malignant Gliomas (HGGs) defined as aggressive tumors 
originating in the brain.
    The Gliadel[supreg] Wafer has been discussed in prior rulemaking, 
including the FY 2004 IPPS proposed rule (68 FR 27187) and final rule 
(68 FR 45354 through 45355 and 68 FR 45391 through 45392); the FY 2005 
IPPS proposed rule (69 FR 28221 through 28222) and final rule (69 FR 
48957 through 48971); and the FY 2008 IPPS/LTCH PPS final rule (72 FR 
47252 through 47253). We refer readers to these prior discussions for 
further background information regarding the Gliadel[supreg] Wafer.
    Effective October 1, 2002, ICD-9-CM procedure code 00.10 
(Implantation of chemotherapeutic agent) was created to identify and 
describe insertion of the Gliadel[supreg] Wafer. This procedure code is 
assigned to MS-DRG 023 (Craniotomy with Major Device Implant/Acute 
Complex Central Nervous System (CNS) PDX with MCC or Chemo Implant) in 
MDC 1. According to the commenter, this current MS-DRG assignment does 
not compensate providers adequately for the expenses incurred to 
perform the surgery and implantation of the wafer device. The commenter 
noted that MS-DRG 023 has a national average payment rate of 
approximately $28,016. However, the commenter stated, ``the acquisition 
cost for 1 box of the Gliadel[supreg] Wafer alone (typical utilization 
per procedure is 8 wafers or 1 box) is $29,035.''
    We conducted an analysis using claims data from the December 2013 
update of the FY 2013 MedPAR file. Our findings are shown in the table 
below.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 023--All cases...........................................           5,383           10.98         $36,982
MS-DRG 023--Cases with procedure code 00.10.....................             158             7.0          34,027
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, there were a total of 5,383 cases in 
MS-DRG 023 with an average length of stay of 10.98 days and average 
costs of $36,982. The number of cases reporting procedure code 00.10 in 
MS-DRG 023 totaled 158, with an average length of stay of 7.0 days and 
average costs of $34,027.
    The data clearly demonstrate that the volume of cases reporting 
procedure code 00.10 within MS-DRG 023 have a shorter average length of 
stay and are lower in average costs in comparison to all the cases in 
the MS-DRG. Given the low volume of cases, shorter average length of 
stay, and lower average costs, the data do not support the creation of 
a new MS-DRG for cases utilizing the Gliadel[supreg] Wafer. In 
addition, our clinical advisors determined that cases reporting 
procedure code 00.10 are appropriately assigned within MS-DRG 023. As 
discussed in the FY 2005 IPPS final rule (69 FR 48959), Gliadel[supreg] 
Wafer cases were assigned to a new DRG that was clinically coherent and 
reflected the resources used to treat those cases, which appropriately 
addressed the concerns of commenters who raised questions regarding DRG 
assignment for those cases at that time. Subsequently, with the 
adoption of the MS-DRGs, in the FY 2008 IPPS/LTCH PPS final rule (72 FR 
47252 through 47253), we assigned all cases utilizing the 
Gliadel[supreg] Wafer technology to MS-DRG 023, the higher severity 
level, and revised the title of this MS-DRG in recognition of the 
complexity and costs associated with the implantation. Our clinical 
advisors continue to support this assignment for these same reasons. 
Therefore, we are not proposing to create a new MS-DRG for FY 2015 for 
cases where ICD-9-CM procedure code 00.10 is reported. We are inviting 
public comments on our proposal to maintain the current MS-DRG 
structure.
b. Endovascular Embolization or Occlusion of Head and Neck
    We received a request to change the MS-DRG assignment for the 
following three ICD-9-CM procedure codes representing endovascular 
embolization or occlusion procedures of the head and neck:
     39.72 (Endovascular (total) embolization or occlusion of 
head and neck vessels);
     39.75 (Endovascular embolization or occlusion of vessel(s) 
of head or neck using bare coils); and
     39.76 (Endovascular embolization or occlusion of vessel(s) 
of head or neck using bioactive coils).
    These three procedure codes are currently assigned to the following 
eight

[[Page 28006]]

MS-DRGs under MDC 1. Cases assigned to MS-DRGs 020, 021, and 022 
require a principal diagnosis of hemorrhage. Cases assigned to MS-DRGs 
023 and 024 require the insertion of a major implant or an acute 
complex central nervous system (CNS) principal diagnosis. Cases 
assigned to MS-DRGs 025, 026, and 027 do not have a principal diagnosis 
of hemorrhage, an acute complex CNS principal diagnosis, or a major 
device implant.
     MS-DRG 020 (Intracranial Vascular Procedures with 
Principal Diagnosis of Hemorrhage with MCC)
     MS-DRG 021 (Intracranial Vascular Procedures with 
Principal Diagnosis of Hemorrhage with CC)
     MS-DRG 022 (Intracranial Vascular Procedures with 
Principal Diagnosis of Hemorrhage without CC/MCC)
     MS-DRG 023 (Craniotomy with Major Device Implant/Acute 
Complex CNS Principal Diagnosis with MCC or Chemo Implant)
     MS-DRG 024 (Craniotomy with Major Device Implant/Acute 
Complex CNS Principal Diagnosis without MCC)
     MS-DRG 025 (Craniotomy & Endovascular Intracranial 
Procedures with MCC)
     MS-DRG 026 (Craniotomy & Endovascular Intracranial 
Procedures with CC)
     MS-DRG 027 (Craniotomy & Endovascular Intracranial 
Procedures without CC/MCC)
    The requestor recommended that cases with procedure codes 39.72, 
39.75, and 39.76 be moved from MS-DRGs 025, 026, and 027 to MS-DRGs 023 
and 024, even when there is no reported acute complex CNS principal 
diagnosis or a major device implant. The requestor stated that 
unruptured aneurysms can be treated by a minimally invasive technique 
utilizing endovascular coiling. The requester noted that a 
microcatheter is inserted into a groin artery and navigated through the 
vascular system to the location of the aneurysm. The coils are inserted 
through the microcatheter into the aneurysm in order to occlude (fill) 
the aneurysm from inside the blood vessel. Once the coils are 
implanted, the blood flow pattern within the aneurysm is altered. The 
requestor stated that these cases do not have a principal diagnosis of 
hemorrhage because the treatment is for an unruptured aneurysm which 
has not hemorrhaged. Furthermore, the requestor stated that only a few 
of these cases without hemorrhage have a complex CNS principal 
diagnosis. Therefore, the requester believed that most of the cases 
should be assigned to MS-DRGs 025, 026, and 027.
    The requestor stated that the average costs of coil cases captured 
by procedure codes 39.72, 39.75, and 39.76 are significantly higher 
than other cases within MS-DRGs 025, 026, and 027 where most of the 
coil cases are assigned. As stated earlier, the requester recommended 
that cases with procedure codes 39.72, 39.75, and 39.76 be moved to MS-
DRGs 023 and 024, even when there is not an acute complex CNS principal 
diagnosis or a major device implant reported.
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for cases of endovascular embolization or occlusion of 
head and neck. The table below shows our findings. For MS-DRGs 025, 
026, and 027, the cases identified by procedure code 39.72, 39.75, or 
39.76 (endovascular embolization or occlusion of head and neck) have 
higher average costs and shorter lengths of stay in comparison to all 
the cases within each of those respective MS-DRGs. The average costs of 
cases in MS-DRG 024 are $4,049 higher than the average costs of the 
1,731 endovascular embolization or occlusion of head and neck 
procedures cases in MS-DRG 027 ($26,250 versus $22,201). The findings 
also show that the 524 cases with procedure code 39.72, 39.75, or 39.76 
with average costs of $41,030 in MS-DRG 025 are closer to the average 
costs of $36,982 for cases in MS-DRG 023. Lastly, we found that the 721 
endovascular embolization or occlusion of head and neck procedure cases 
in MS-DRG 026 have average costs of $27,998 compared to average costs 
of $26,250 for cases in MS-DRG 024.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 23--All cases............................................           5,383           10.98         $36,982
MS-DRG 24--All cases............................................           1,745            6.30          26,250
MS-DRG 25--All cases............................................          15,937            9.68          29,722
MS-DRG 25--Cases with procedure code 39.72, 39.75, or 39.76.....             524            7.97          41,030
MS-DRG 26--All cases............................................           8,520            6.16          21,194
MS-DRG 26--Cases with procedure code 39.72, 39.75, or 39.76.....             721            3.14          27,998
MS-DRG 27--All cases............................................          10,326            3.30          16,389
MS-DRG 27--Cases with procedure code 39.72, 39.75, or 39.76.....           1,731            1.66          22,201
----------------------------------------------------------------------------------------------------------------

    Our clinical advisors reviewed the results of our examination and 
determined that the endovascular embolization or occlusion of head and 
neck procedures are appropriately classified within MS-DRGs 025, 026, 
and 027 because they do not have an acute complex CNS principal 
diagnosis or a major device implant which would add to their clinical 
complexity. Cases in MS-DRG 024 have average costs that are $4,049 
higher than cases in MS-DRG 027 with procedure code 39.72, 39.75, or 
39.76. We acknowledge that the 1,245 cases with procedure code 39.72, 
39.75, or 39.76 in MS-DRGs 025 and 026 have average costs that are 
closer to those in MS-DRGs 024 and 025. However, these cases are 1,245 
of the total 2,976 cases that would be involved if we moved all MS-DRGs 
025, 026, and 027 cases with procedure code 39.72, 39.75, or 39.76 to 
MS-DRGs 024 and 025, even if they did not have an acute complex CNS 
principal diagnosis or a major device implant. Based on these findings 
and the recommendations from our clinical advisors, we have determined 
that proposing to move endovascular embolization or occlusion of head 
and neck procedures from MS-DRGs 025, 026, and 027 to MS-DRGs 023 and 
024 is not warranted. Therefore, we are proposing to maintain the 
current MS-DRG assignments for endovascular embolization or occlusion 
of head and neck procedures. We are inviting public comments on our 
proposal.
3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat): 
Avery Breathing Pacemaker System
    We received a request to create a new MS-DRG for the Avery 
Breathing Pacemaker System. This system is also called a diaphragmatic 
pacemaker and is captured by ICD-9-CM procedure code 34.85 
(Implantation of diaphragmatic pacemaker). The requestor stated that 
the diaphragmatic pacemaker is indicated for adult and

[[Page 28007]]

pediatric patients with chronic respiratory insufficiency that would 
otherwise be dependent on ventilator support. The procedure consists of 
surgically implanted receivers and electrodes mated to an external 
transmitter by antennas worn over the implanted receivers. The external 
transmitter and antennas send radiofrequency energy to the implanted 
receivers under the skin. The receivers then convert the radio waves 
into stimulating pulses sent down the electrodes to the phrenic nerves, 
causing the diaphragm to contract. The requestor stated that this 
normal pattern is superior to mechanical ventilators that force air 
into the chest. The requestor also stated that the system is expensive; 
the device cost is approximately $57,000. According to the requestor, 
given the cost of the device, hospitals are reluctant to use it. The 
requestor did not make a specific MS-DRG reassignment request.
    When used for a respiratory failure patient, procedure code 34.85 
is assigned to MS-DRGs 163, 164, and 165 (Major Chest Procedures with 
MCC, with CC, and without CC/MCC, respectively).
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for diaphragmatic pacemaker cases. The following table 
shows our findings.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 163--All cases...........................................          11,766           13.13         $34,308
MS-DRG 163--Cases with procedure code 34.85.....................              13            2.23          29,406
MS-DRG 164--All cases...........................................          16,087            6.58          18,352
MS-DRG 164--Cases with procedure code 34.85.....................              34            1.71          23,406
MS-DRG 165--All cases...........................................           9,207            3.91          13,081
MS-DRG 165--Cases with procedure code 34.85.....................               1            1.00          22,977
----------------------------------------------------------------------------------------------------------------

    There were only 48 cases of diaphragmatic pacemakers within MS-DRGs 
163, 164, and 165. The average costs of these diaphragmatic pacemaker 
cases ranged from $22,977 for the single case in MS-DRG 165 to $29,406 
for the cases in MS-DRG 163, compared to the average costs for all 
cases in MS-DRGs 163, 164, and 165, which range from $13,081 to 
$34,308. The average cost for diaphragmatic pacemaker cases in MS-DRG 
163 was lower than that for all cases in MS-DRG 163, $29,406 compared 
to $34,308 for all cases. The average cost for diaphragmatic pacemaker 
cases was higher for MS-DRG 164, $23,406 compared to $18,352 for all 
cases. While the average cost for the single diaphragmatic pacemaker 
case was significantly higher for MS-DRG 165, $22,977 compared to 
$13,081, we were unable to determine if additional factors might have 
impacted the higher cost for this single case.
    Given the small number of diaphragmatic pacemaker cases that we 
found, we do not believe that there is justification for creating a new 
MS-DRG. Basing a new MS-DRG on such a small number of cases could lead 
to distortions in the relative payment weights for the MS-DRG because 
several expensive cases could impact the overall relative payment 
weight. Having larger clinical cohesive groups within an MS-DRG 
provides greater stability for annual updates to the relative payment 
weights. We note that, as discussed in section II.G.4.c. of the 
preamble of this proposed rule, one of the criteria we apply in 
evaluating whether to create new severity subgroups within an MS-DRG is 
whether there are at least 500 cases in the CC or MCC subgroup. While 
this criterion is used to evaluate whether to create a severity 
subgroup within an MS-DRG, applying it here suggests that creating a 
new MS-DRG for only 48 cases would not be appropriate. Although the 
average costs of these diaphragmatic pacemaker cases are higher than 
the average costs of all cases in MS-DRGs 163 and 164, we believe the 
current MS-DRG assignment is appropriate and that the data do not 
support creating an MS-DRG because there are so few cases.
    Our clinical advisors reviewed this issue and determined that the 
diaphragmatic pacemaker cases are appropriately classified within MS-
DRGs 163, 164, and 165 because they are clinically similar to other 
cases of patients with major chest procedures within MS-DRGs 163, 164, 
and 165. Our clinical advisors did not support creating a new MS-DRG 
for such a small number of cases.
    Based on the results of the examination of the claims data, the 
recommendations from our clinical advisors, and the small number of 
diaphragmatic pacemaker cases, we are not proposing to create a new MS-
DRG for diaphragmatic pacemaker cases at this time. We are proposing to 
maintain the current MS-DRG assignments for diaphragmatic pacemaker 
cases. We are inviting public comments on our proposal.
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Exclusion of Left Atrial Appendage
    We received a request to move the exclusion of the left atrial 
appendage procedure, which is a non-O.R. procedure and captured by ICD-
9-CM procedure code 37.36 (Excision, destruction or exclusion of left 
atrial appendage (LAA)), from MS-DRGs 250 (Percutaneous Cardiovascular 
without Coronary Artery Stent with MCC) and 251 (Percutaneous 
Cardiovascular without Coronary Artery Stent without MCC) to MS-DRGs 
237 (Major Cardiovascular Procedures with MCC) and 238 (Major 
Cardiovascular Procedures without MCC). The requestor stated that the 
exclusion of the left atrial appendage procedure code 37.36 is not 
clinically coherent with the other procedures in MS-DRGs 250 and 251 
and that this current assignment to MS-DRGs 250 and 251 does not 
compensate providers adequately for the expenses incurred to perform 
this procedure and placement of the device.
    The exclusion of the left atrial appendage procedure involves a 
percutaneous placement of a snare/suture around the left atrial 
appendage to close it off. The exclusion of the left atrial appendage 
procedure takes place in the cardiac catheterization laboratory under 
general anesthesia and is a catheter based closed-chest procedure 
instead of an open heart surgical technique to treat the same clinical 
condition, with the same intended results. The procedure can be 
performed by either an interventional cardiologist or an 
electrophysiologist.
    We analyzed claims data from the December 2013 update of the FY 
2013 MedPAR file for cases assigned to MS-DRGs 250 and 251 and MS-DRGs 
237 and 238. Our findings are shown in the table below.

[[Page 28008]]



----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 250--All cases...........................................           9,174            6.90         $21,319
MS-DRG 250--Cases with procedure code 37.36.....................              61            7.21          29,637
MS-DRG 251--All cases...........................................          26,331            3.01          14,614
MS-DRG 251--Cases with procedure code 37.36.....................             341            3.01          18,298
MS-DRG 237--All cases...........................................          17,813            9.66          35,642
MS-DRG 238--All cases...........................................          33,644            3.73          24,511
----------------------------------------------------------------------------------------------------------------

    The data in the table above show that, while the average costs of 
the atrial appendage exclusion procedures are higher ($29,637) than 
those for all cases ($21,319) within MS-DRG 250 and are higher 
($18,298) than for all cases ($14,614) within MS-DRG 251, they are 
lower than those in MS-DRGs 237 ($35,642) and 238 ($24,511). Our 
clinical advisors reviewed this issue and recommended not moving these 
stand-alone percutaneous cases to MS-DRGs 237 and 238 because they do 
not consider them to be major cardiovascular procedures. Our clinical 
advisors stated that cases reporting ICD-9-CM procedure code 37.36 are 
appropriately assigned within MS-DRG 250 and 251 because they are 
percutaneous cardiovascular procedures and are clinically similar to 
other procedures within the MS-DRG. Therefore, we are not proposing to 
reassign exclusion of atrial appendage procedure cases from MS-DRGs 250 
and 251 to MS-DRGs 237 and 238 for FY 2015. We are inviting public 
comments on our proposal to maintain the current MS-DRG structure for 
the exclusion of the left atrial appendage.
b. Transcatheter Mitral Valve Repair: MitraClip[supreg]
    The MitraClip[supreg] System (hereafter referred to as 
MitraClip[supreg]) for transcatheter mitral valve repair has been 
discussed in extensive detail in previous rulemaking, including the FY 
2012 IPPS/LTCH PPS proposed rule (76 FR 25822) and final rule (76 FR 
51528 through 51529) and the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27902 through 27903) and final rule (77 FR 53308 through 53310), in 
response to requests for MS-DRG reclassification, as well as, in the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27547 through 27552) under the 
new technology add-on payment policy. In the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50575), the application for a new technology add-on 
payment for MitraClip[supreg] was unable to be considered further due 
to lack of FDA approval by the July 1, 2013 deadline.
    Subsequently, on October 24, 2013, MitraClip[supreg] received FDA 
approval. As a result, the manufacturer has submitted new requests for 
both an MS-DRG reclassification and new technology add-on payment for 
FY 2015. We refer readers to section II.I. of the preamble of this 
proposed rule for discussion regarding the application for 
MitraClip[supreg] under the new technology add-on payment policy. Below 
we discuss the MS-DRG reclassification request.
    The manufacturer's request for MS-DRG reclassification involves two 
components. The first component consists of reassigning cases reporting 
a transcatheter mitral valve repair using the MitraClip[supreg] from 
MS-DRGs 250 and 251(Percutaneous Cardiovascular Procedure without 
Coronary Artery Stent with MCC and without MCC, respectively) to MS-
DRGs 216 (Cardiac Valve & Other Major Cardiothoracic Procedures with 
Cardiac Catheterization with MCC), 217 (Cardiac Valve & Other Major 
Cardiothoracic Procedures with Cardiac Catheterization with CC), 218 
(Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac 
Catheterization without CC/MCC), 219 (Cardiac Valve & Other Major 
Cardiothoracic Procedures without Cardiac Catheterization with MCC), 
220 (Cardiac Valve & Other Major Cardiothoracic Procedures without 
Cardiac Catheterization with CC), and 221 (Cardiac Valve & Other Major 
Cardiothoracic Procedures without Cardiac Catheterization without CC/
MCC). The second component of the manufacturer's request was for CMS to 
examine the creation of a new base MS-DRG for transcatheter valve 
therapies.
    Effective October 1, 2010, ICD-9-CM procedure code 35.97 
(Percutaneous mitral valve repair with implant) was created to identify 
and describe the MitraClip[supreg] technology.
    To address the first component of the manufacturer's request, we 
conducted an analysis of claims data from the December 2013 update of 
the FY 2013 MedPAR file for cases reporting procedure code 35.97 in MS-
DRGs 250 and 251. The table below shows our findings.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 250--All cases...........................................           9,174            6.90         $21,319
MS-DRG 250--Cases with procedure code 35.97.....................              67            8.48          39,103
MS-DRG 251--All cases...........................................          26,331            3.01          14,614
MS-DRG 251--Cases with procedure code 35.97.....................             127            3.94          25,635
----------------------------------------------------------------------------------------------------------------

    As displayed in the table above, the data demonstrate that, for MS-
DRG 250, there were a total of 9,174 cases with an average length of 
stay of 6.90 days and average costs of $21,319. The number of cases 
reporting the ICD-9-CM procedure code 35.97 in MS-DRG 250 totaled 67 
with an average length of stay of 8.48 days and average costs of 
$39,103. For MS-DRG 251, there were a total of 26,331 cases with an 
average length of stay of 3.01 days and average costs of $14,614. There 
were 127 cases found in MS-DRG 251 reporting the procedure code 35.97 
with an average length of stay of 3.94 days and average costs of 
$25,635. We recognize that the cases reporting procedure code 35.97 
have a longer length of stay and higher average costs in comparison to 
all the cases within MS-DRGs 250 and 251. However, as stated in prior 
rulemaking (77 FR 53309), it is a fundamental principle of an averaged 
payment system that half of the procedures in a group will have above 
average costs. It is expected that there will be higher cost and lower 
cost subsets, especially when a subset has low numbers.
    We also evaluated the claims data from the December 2013 update of 
the FY 2013 MedPAR file for MS-DRGs 216

[[Page 28009]]

through 221. Our findings are shown in the table below.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 216--All cases...........................................          10,131           15.41         $65,478
MS-DRG 217--All cases...........................................           5,374            9.51          44,695
MS-DRG 218--All cases...........................................             882            6.88          39,470
MS-DRG 219--All cases...........................................          17,856           11.63          54,590
MS-DRG 220--All cases...........................................          21,059            7.13          38,137
MS-DRG 221--All cases...........................................           4,586            5.32          34,310
----------------------------------------------------------------------------------------------------------------

    The data in our findings do not warrant reassignment of cases 
reporting use of the MitraClip[supreg]. If we were to propose 
reassignment of cases reporting procedure code 35.97 to MS-DRGs 216 
through 221, they would be significantly overpaid, as the average costs 
range from $34,310 to $65,478 for those MS-DRGs. In addition, our 
clinical advisors do not support reassigning these cases. They noted 
that the current MS-DRG assignment is appropriate for the reasons 
stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53309). To 
reiterate, our clinical advisors note that the current MS-DRG 
assignment is reasonable because the operating room resource 
utilizations of percutaneous procedures, such as those found in MS-DRGs 
250 and 251, tend to group together, and are generally less costly than 
open procedures, such as those found in MS-DRGs 216 through 221. 
Percutaneous procedures by organ system represent groups that are 
reasonably clinically coherent. More significantly, our clinical 
advisors state that postoperative resource utilization is significantly 
higher for open procedures with much greater morbidity and consequent 
recovery needs. Because the equipment, technique, staff, patient 
populations, and physician specialty all tend to group by type of 
procedure (percutaneous or open), separately grouping percutaneous 
procedures and open procedures is more clinically consistent. 
Therefore, we are not proposing to modify the current MS-DRG assignment 
for cases reporting procedure code 35.97 from MS-DRGs 250 and 251 to 
MS-DRGs 216 through 221 for FY 2015. We are inviting public comments on 
our proposal to not make any modifications to the current MS-DRG logic 
for these cases.
    As indicated above, the second component of the manufacturer's 
request involved the creation of a new base MS-DRG for transcatheter 
valve therapies. We also received a similar request from another 
manufacturer recommending that we create a new MS-DRG for procedures 
referred to as endovascular cardiac valve replacement procedures. We 
reviewed each of these requests using the same data analysis, as set 
forth below. The discussion for endovascular cardiac valve replacement 
procedures is included in section II.G.4.c. of the preamble of this 
proposed rule and includes findings from the analysis and our proposals 
for each of these similar, but distinct requests.
c. Endovascular Cardiac Valve Replacement Procedures
    As noted in the previous section related to the MitraClip[supreg] 
technology, we received two requests to create a new base MS-DRG for 
what was referred to as ``transcatheter valve therapies'' by one 
manufacturer and ``endovascular cardiac valve replacement'' procedures 
by another manufacturer. Below we summarize the details of each request 
and review results of the data analysis that was performed.
Transcatheter Valve Therapies
    The request related to transcatheter valve therapies consisted of 
creating a new MS-DRG that would include the MitraClip[supreg] 
technology (ICD-9-CM procedure code 35.97 (Percutaneous mitral valve 
repair with implant)), along with the following list of ICD-9-CM 
procedure codes that identify the various types of valve replacements 
performed by an endovascular or transcatheter technique:
     35.05 (Endovascular replacement of aortic valve);
     35.06 (Transapical replacement of aortic valve);
     35.07 (Endovascular replacement of pulmonary valve);
     35.08 (Transapical replacement of pulmonary valve); and
     35.09 (Endovascular replacement of unspecified valve).
    We performed analysis of claims data from the December 2013 update 
of the FY 2013 MedPAR file for both the percutaneous mitral valve 
repair and the transcatheter/endovascular cardiac valve replacement 
codes in their respective MS-DRGs. The percutaneous mitral valve repair 
with implant (MitraClip[supreg]) procedure code is currently assigned 
to MS-DRGs 250 and 251, while the transcatheter/endovascular cardiac 
valve replacement procedure codes are currently assigned to MS-DRGs 
216, 217, 218, 219, 220, and 221. As illustrated in the table below, 
the data demonstrate that, for MS-DRGs 250 and 251, there were a total 
of 194 cases reporting procedure code 35.97, with an average length of 
stay of 5.5 days and average costs of $30,286.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 250 through 251--Cases with procedure code 35.97.........             194             5.5         $30,286
----------------------------------------------------------------------------------------------------------------

    Upon analysis of cases in MS-DRGs 216 through 221 reporting the 
cardiac valve replacement procedure codes, we found a total of 7,287 
cases with an average length of stay of 8.1 days and average costs of 
$53,802, as shown in the table below.

[[Page 28010]]



----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRGs 216 through 221--Cases with procedure codes 35.05,                 7,287             8.1         $53,802
 35.06, 35.07, 35.08 and 35.09..................................
MS-DRGs 216 through 221--Cases without procedure codes 35.05,             52,601            10.1          47,177
 35.06, 35.07, 35.08 and 35.09..................................
----------------------------------------------------------------------------------------------------------------

    The data clearly demonstrate that the volume of cases for the 
transcatheter/endovascular cardiac valve replacement procedures are 
much higher in comparison to the volume of cases for the percutaneous 
mitral valve repair (MitraClip[supreg]) procedure (7,287 compared to 
194). In addition, the average costs of the transcatheter/endovascular 
cardiac valve replacement procedures are significantly higher than the 
average costs of the percutaneous mitral valve repair with implant 
($53,802 compared to $30,286).
    Our clinical advisors do not support grouping a percutaneous valve 
repair procedure with transcatheter/endovascular valve replacement 
procedures. They do not believe that these procedures are clinically 
coherent or similar in terms of resource consumption because the 
MitraClip[supreg] technology identified by procedure code 35.97 is 
utilized for a percutaneous mitral valve repair, while the other 
technologies, identified by procedure codes 35.05 through 35.09, are 
utilized for transcatheter/endovascular cardiac valve replacements. 
Consequently, the data analysis and our clinical advisors do not 
support the creation of a new MS-DRG. Therefore, for FY 2015, we are 
not proposing to create a new MS-DRG to group cases reporting the 
percutaneous mitral valve repair (MitraClip[supreg]) procedure with 
transcatheter/endovascular cardiac valve replacement procedures. We are 
inviting public comments on our proposal.
Endovascular Cardiac Valve Replacement
    The similar but separate request relating to endovascular cardiac 
valve replacement procedures consisted of creating a new MS-DRG that 
would only include the various types of cardiac valve replacements 
performed by an endovascular or transcatheter technique. In other 
words, this request specifically did not include the MitraClip[supreg] 
technology (ICD-9-CM procedure code 35.97 (Percutaneous mitral valve 
repair with implant)) and only included the list of ICD-9-CM procedure 
codes that identify the various types of valve replacements performed 
by an endovascular or transcatheter technique (ICD-9-CM procedure codes 
35.05 through 35.09) as described earlier in this section.
    The human heart contains four major valves--the aortic, mitral, 
pulmonary, and tricuspid valves. These valves function to keep blood 
flowing through the heart. When conditions such as stenosis or 
insufficiency/regurgitation occur in one or more of these valves, 
valvular heart disease may result. Cardiac valve replacement surgery is 
performed in an effort to correct these diseased or damaged heart 
valves. The endovascular or transcatheter technique presents a viable 
option for high-risk patients who are not candidates for the 
traditional open surgical approach.
    We reviewed the claims data from the December 2013 update of the FY 
2013 MedPAR file for cases in MS-DRGs 216 through 221. Our findings are 
shown in the chart below. The data analysis shows that cardiac valve 
replacements performed by an endovascular or transcatheter technique 
represent a total of 7,287 of the cases in MS-DRGs 216 through 221, 
with an average length of stay of 8.1 days and higher average costs 
($53,802 compared to $47,177) in comparison to all of the cases in MS-
DRGs 216 through 221.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRGs 216 through 221--Cases with procedure codes 35.05,                 7,287             8.1         $53,802
 35.06, 35.07, 35.08 and 35.09..................................
MS-DRGs 216 through 221--Cases without procedure codes 35.05,             52,601            10.1          47,177
 35.06, 35.07, 35.08 and 35.09..................................
----------------------------------------------------------------------------------------------------------------

    As the data appear to indicate support for the creation of a new 
base MS-DRG, based on our evaluation of resource consumption, patient 
characteristics, volume, and costs between the cardiac valve 
replacements performed by an endovascular or transcatheter technique 
and the open surgical technique, we then applied our established 
criteria to determine if these cases would meet the requirements to 
create subgroups. We use five criteria established in the FY 2008 IPPS 
final rule (72 FR 47169) to review requests involving the creation of a 
new CC or an MCC subgroup within a base MS-DRG. As outlined in the FY 
2012 IPPS proposed rule (76 FR 25819), the original criteria were based 
on average charges but were later converted to average costs. In order 
to warrant creation of a CC or an MCC subgroup within a base MS-DRG, 
this subgroup must meet all of the following five criteria:
     A reduction in variance of costs of at least 3 percent.
     At least 5 percent of the patients in the MS-DRG fall 
within the CC or the MCC subgroup.
     At least 500 cases are in the CC or the MCC subgroup.
     There is at least a 20-percent difference in average costs 
between subgroups.
     There is a $2,000 difference in average costs between 
subgroups.
    In applying the five criteria, we found that the data support the 
creation of a new MS-DRG subdivided into two severity levels. We also 
consulted with our clinical advisors. Our clinical advisors stated that 
patients receiving endovascular cardiac valve replacements are 
significantly different from those patients who undergo an open chest 
cardiac valve replacement. They noted that patients receiving 
endovascular cardiac valve replacements are not eligible for open chest 
cardiac valve procedures because of a variety of health constraints. 
This highlights the fact that peri-operative complications and post-
operative morbidity have significantly different profiles for open 
chest procedures compared with endovascular interventions. This is also 
substantiated by the different average lengths of stay

[[Page 28011]]

demonstrated by the two cohorts. Our clinical advisors further noted 
that separately grouping these endovascular valve replacement 
procedures provides greater clinical cohesion for this subset of high-
risk patients.
    We are proposing to create the following MS-DRGs for endovascular 
cardiac valve replacements:
     Proposed new MS-DRG 266 (Endovascular Cardiac Valve 
Replacement with MCC); and
     Proposed new MS-DRG 267 (Endovascular Cardiac Valve 
Replacement without MCC).

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
 Proposed new MS-DRGs for endovascular cardiac valve replacement       cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
Proposed New MS-DRG 266 with MCC................................           3,516            10.6         $61,891
Proposed New MS-DRG 267 without MCC.............................           3,771             5.7          46,259
----------------------------------------------------------------------------------------------------------------

    We are inviting public comments on our proposal to create these new 
MS-DRGs for FY 2015.
d. Abdominal Aorta Graft
    We received a request that we change the MS-DRG assignment for 
procedure code 39.71 (Endovascular implantation of other graft in 
abdominal aorta), which is assigned to MS-DRGs 237 and 238 (Major 
Cardiovascular Procedures with MCC and without MCC, respectively). The 
requestor asked that we reassign procedure code 39.71 to MS-DRGs 228, 
229, and 230 (Other Cardiothoracic Procedures with MCC, with CC, and 
without CC/MCC, respectively). The requestor stated that the average 
cost of endovascular abdominal aorta graft implantation cases is 
significantly higher than other cases in MS-DRGs 237 and 238. The 
requestor stated that the average cost of endovascular abdominal aorta 
graft implantation cases is closer to those in MS-DRGs 228, 229, and 
230.
    The requestor stated that the goal of endovascular repair for 
abdominal aneurysm is to isolate the diseased, aneurismal portion of 
the aorta and common iliac arteries from continued exposure to systemic 
blood pressure. The procedure involves the delivery and deployment of 
endovascular prostheses, also referred to as a graft, as required to 
isolate the aneurysm above and below the extent of the disease. The 
requestor stated that this significantly reduces patient morbidity and 
death caused by leakage and/or sudden rupture of an untreated aneurysm.
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for cases of endovascular abdominal aorta graft 
implantations. The following table shows our findings.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 237--All cases...........................................          17,813            9.66         $35,642
MS-DRG 237--Cases with procedure code 39.71.....................           2,093            8.30          44,898
MS-DRG 238--All cases...........................................          33,644            3.73          24,511
MS-DRG 238--Cases with procedure code 39.71.....................          15,483            2.30          28,484
MS-DRG 228--All cases...........................................           1,543           13.48          52,315
MS-DRG 229--All cases...........................................           2,003            7.47          32,070
MS-DRG 230--All cases...........................................             493            4.95          29,281
----------------------------------------------------------------------------------------------------------------

    As this table shows, endovascular abdominal aorta graft 
implantation cases have higher average costs and shorter lengths of 
stay than all cases within MS-DRGs 237 and 238. The average cost for 
endovascular abdominal aorta graft implantation cases in MS-DRG 237 is 
$9,256 greater than that for all cases in MS-DRG 237 ($44,898 compared 
to $35,642). The average cost for endovascular abdominal aorta graft 
implantation cases in MS-DRG 238 is $3,973 higher than that for all 
cases in MS-DRG 238 ($28,484 compared to $24,511). Cases in MS-DRG 228 
have average costs that are $7,417 higher than the endovascular 
abdominal aorta graft implantation cases in MS-DRG 237 ($52,315 
compared to $44,898). MS-DRG 228 and MS-DRG 237 both contain cases with 
MCCs. Cases in MS-DRG 229, which contain a CC, have average costs that 
are $3,586 higher than average costs of the endovascular abdominal 
aorta graft implantation cases in MS-DRG 238, which do not contain an 
MCC ($32,070 compared to $28,484). Cases in MS-DRG 230, which have 
neither an MCC nor a CC, have average costs that are $797 higher than 
the endovascular abdominal aorta graft implantation cases in MS-DRG 238 
($29,281 compared to $28,484). While the average costs were higher for 
endovascular abdominal aorta graft implantation cases compared to all 
cases within MS-DRGs 237 and 238, each MS-DRG has some cases that are 
higher and some cases that are lower than the average costs for the 
entire MS-DRG. MS-DRGs were developed to capture cases that are 
clinically consistent with similar overall average resource 
requirements. This results in some cases within an MS-DRG having costs 
that are higher than the overall average and other cases having costs 
that are lower than the overall average. This may be due to specific 
types of cases included within the MS-DRGs or to the fact that some 
cases will simply require additional resources on a specific admission. 
However, taken as a whole, the hospital will be paid an appropriate 
amount for the group of cases that are assigned to the MS-DRG. We 
believe the endovascular abdominal aorta graft implantation cases are 
appropriately grouped with other procedures within MS-DRGs 237 and 238.
    Our clinical advisors reviewed this issue and determined that the 
endovascular abdominal aorta graft implantation cases are appropriately 
classified within MS-DRGs 237 and 238 because they are clinically 
similar to the other procedures in MS-DRGs 237 and 238, which include 
other procedures on the aorta. While the endovascular abdominal aorta 
graft implantation cases have higher average costs than the average for 
all cases within MS-DRGs 237 and 238, our clinical advisors do not 
believe this justifies moving the cases to MS-DRGs 228, 229 and 230, 
which involve a different set of cardiothoracic surgeries.
    Based on the results of examination of the claims data and the 
recommendations of our clinical advisors, we do not believe that

[[Page 28012]]

proposing to reclassify endovascular abdominal aorta graft implantation 
cases from MS-DRGs 237 and 238 is warranted. We are proposing to 
maintain the current MS-DRG assignments for endovascular abdominal 
aorta graft implantation cases. We are inviting public comments on our 
proposal.
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue)
a. Shoulder Replacement Procedures
    We received a request to change the MS-DRG assignment for shoulder 
replacement procedures. This request involved the following two 
procedure codes:
     81.88 (Reverse total shoulder replacement); and
     81.97 (Revision of joint replacement of upper extremity).
    With respect to procedure code 81.88, the requestor asked that 
reverse total shoulder replacements be reassigned from MS-DRGs 483 and 
484 (Major Joint/Limb Reattachment Procedure of Upper Extremities with 
CC/MCC and without CC/MCC, respectively) to MS-DRG 483 only. The 
reassignment of procedure code 81.88 from MS-DRGs 483 and 484 was 
discussed previously in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50534 through 50536). The result of reassigning reverse shoulder 
replacements from MS-DRGs 483 and 484 to MS-DRG 483 only would be that 
this procedure would be assigned to MS-DRG 483 whether or not the case 
had a CC or an MCC. The requestor stated that reverse shoulder 
replacement procedures are more clinically cohesive with higher 
severity MS-DRGs due to the complexity and resource consumption of 
these procedures. We refer readers to the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50534 through 50536) for a discussion of the reverse total 
shoulder replacement.
    The requestor also recommended that we reassign what it described 
as another shoulder procedure involving procedure code 81.97, which is 
assigned to MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and 
Connective Tissue O.R. Procedures with MCC, with CC, and without CC/
MCC, respectively), to MS-DRG 483. We point out that MS-DRG 483 
contains upper joint replacements, including shoulder replacements. MS-
DRG 483 does not contain any joint revision procedures. Similar to the 
request for reassignment of procedure code 81.88, this would mean that 
procedure code 81.97 would be assigned to MS-DRG 483 whether or not the 
case had a CC or an MCC. If CMS did not support this recommendation for 
moving procedure code 81.97 to MS-DRG 483, the requestor recommended an 
alternative reassignment to MS-DRG 515 (Other Musculoskeletal System 
and Connective Tissue O.R. procedures with MCC) even if the case had no 
MCC.
    We point out that, while the requestor refers to procedure code 
81.97 as a shoulder procedure, the code description actually includes 
revisions of joint replacements of a variety of upper extremity joints, 
including those in the elbow, hand, shoulder, and wrist.
    As stated earlier, reverse shoulder replacements are assigned to 
MS-DRGs 483 and 484. Revisions of upper joint replacements are assigned 
to MS-DRGs 515, 516, and 517. We examined claims data from the December 
2013 update of the FY 2013 MedPAR file for MS-DRGs 483 and 484. The 
following table shows our findings of cases of reverse shoulder 
replacement.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 483--All cases...........................................          14,220            3.20         $18,807
MS-DRG 483--Cases with procedure code 81.88.....................           7,086            3.19          20,699
MS-DRG 484--All cases...........................................          23,183            1.95          16,354
MS-DRG 484--Cases with procedure code 81.88.....................           9,633            2.03          18,719
Proposed Revised MS-DRG 483 with all severity levels included...          37,403             2.4          17,287
----------------------------------------------------------------------------------------------------------------

    As the above table shows, MS-DRG 484 reverse shoulder replacement 
cases have similar average costs to those in MS-DRG 483 ($18,719 for 
reverse shoulder replacements in MS-DRG 484 compared to $18,807 for all 
cases in MS-DRG 483). However, in reviewing the data, we observed that 
the claims data no longer support two severity levels for MS-DRGs 483 
and 484.
    We use the five criteria established in FY 2008 (72 FR 47169) to 
review requests involving the creation of a new CC or MCC subgroup 
within a base MS-DRG. As outlined in the FY 2012 IPPS/LTCH PPS proposed 
rule (76 FR 25819), the original criteria were based on average charges 
but were later converted to average costs. In order to warrant creation 
of a CC or an MCC subgroup within a base MS-DRG, the subgroup must meet 
all of the following five criteria:
     A reduction in variance of costs of at least 3 percent.
     At least 5 percent of the patients in the MS-DRG fall 
within the CC or MCC subgroup.
     At least 500 cases are in the CC or MCC subgroup.
     There is at least a 20-percent difference in average costs 
between subgroups.
     There is a $2,000 difference in average costs between 
subgroups.
    We found through our examination of the claims data from the 
December 2013 update of the FY 2013 MedPAR file that the two severity 
subgroups of MS-DRG 483 and 484 no longer meet the fourth criterion of 
at least a 20-percent difference in average costs between subgroups. We 
found that there is a $2,453 difference in average costs between MS-DRG 
483 and MS-DRG 484. The difference in average costs would need to be 
$3,761 to meet the fourth criterion. Therefore, our claims data support 
collapsing MS-DRGs 483 and 484 into a single MS-DRG. Our clinical 
advisors reviewed this issue and agree that there is no longer enough 
difference between the two severity levels to justify separate severity 
subgroups for MS-DRGs 483 and 484, which include a variety of upper 
joint replacements. Therefore, our clinical advisors support our 
recommendation to collapse MS-DRGs 483 and 484 into a single MS-DRG.
    Based on the results of examination of the claims data and the 
advice of our clinical advisors, we are proposing to collapse MS-DRGs 
483 and 484 into a single MS-DRG by deleting MS-DRG 484 and revising 
the title of MS-DRG 483 to read ``Major Joint/Limb Reattachment 
Procedure of Upper Extremities''.
    The following table shows our findings of cases of revisions of 
upper joint replacement from the December 2013 update of the FY 2013 
MedPAR file.

[[Page 28013]]



----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 515--All cases...........................................           3,407            9.22         $22,191
MS-DRG 515--Cases with procedure code 81.97.....................              88            5.66          22,085
MS-DRG 516--All cases...........................................           8,502            5.34          14,356
MS-DRG 516--Cases with procedure code 81.97.....................             799            2.84          18,214
MS-DRG 517--All cases...........................................           5,794            3.28          12,172
MS-DRG 517--Cases with procedure code 81.97.....................           1,256            2.07          15,920
MS-DRG 483--All cases...........................................          14,220            3.20          18,807
----------------------------------------------------------------------------------------------------------------

    Cases identified by code 81.97 in MS-DRGs 515, 516, and 517 have 
lower average costs and shorter lengths of stay than all cases in MS-
DRG 515. The average costs of cases in MS-DRG 515 are $3,977 higher 
than the average costs of the cases with procedure code 81.97 in MS-DRG 
516 ($22,191 compared to $18,214). The average costs of cases in MS-DRG 
515 are $6,271 higher than cases with procedure code 81.97 in MS-DRG 
517 ($22,191 compared to $15,920).
    The table above shows that the average costs of cases in MS-DRG 483 
are $3,278 lower than the average costs of cases with procedure code 
81.97 in MS-DRG 515 ($18,807 compared to $22,085). The average costs of 
cases in MS-DRG 483 are $593 higher than the average costs of cases 
with procedure code 81.97 in MS-DRG 516 ($18,807 compared to $18,214). 
The average costs of cases in MS-DRG 483 are $2,887 higher than the 
average costs of cases with procedure code 81.97 in MS-DRG 517 ($18,807 
compared to $15,920).
    The claims data do not support moving all procedure code 81.97 
cases to MS-DRG 515 or MS-DRG 483, whether or not there is a CC or an 
MCC. We also point out once again that procedure code 81.97 is a 
nonspecific code that captures revisions to not only the shoulder, but 
also a variety of upper extremity joints including those in the elbow, 
hand, shoulder, and wrist. Therefore, we have no way of determining how 
many cases reporting procedure code 81.97 were actually shoulder 
procedures as opposed to procedures on the elbow, hand, or wrist.
    Our clinical advisors reviewed this issue and determined that the 
revisions of upper joint replacement procedures are appropriately 
classified within MS-DRGs 515, 516, and 517, which include other joint 
revision procedures. They do not support moving revisions of upper 
joint replacement procedures to MS-DRG 515, whether or not there is an 
MCC. They support the current classification, which bases the severity 
level on the presence of a CC or an MCC. They also do not support 
moving revisions of upper joint replacement procedures to MS-DRG 483, 
whether or not there is a CC or an MCC, because these revisions are not 
joint replacements. Based on the results of our examination and the 
advice of our clinical advisors, we are not proposing moving revisions 
of upper joint replacement procedures to MS-DRG 515 or MS-DRG 483, 
whether or not there is a CC or an MCC.
    In summation, we are proposing to collapse MS-DRGs 483 and 484 into 
a single MS-DRG by deleting MS-DRG 484 and revising the title of MS-DRG 
483 to read ``Major Joint/Limb Reattachment Procedure of Upper 
Extremities''. We are proposing to maintain the current MS-DRG 
assignments for revisions of upper joint replacement procedures in MS-
DRGs 515, 516, and 517. We are inviting public comments on our 
proposals.
b. Ankle Replacement Procedures
    We received a request to change the MS-DRG assignment for two ankle 
replacement procedures. The request involved the following two 
procedure codes:
     81.56 (Total ankle replacement); and
     81.59 (Revision of joint replacement of lower extremity, 
not elsewhere classified).
    The reassignment of procedure code 81.56 from MS-DRGs 469 and 470 
(Major Joint Replacement or Reattachment of Lower Extremity with CC and 
without MCC, respectively) to a new MS-DRG or, alternatively, to MS-DRG 
469 was discussed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50536 
through 50537). We refer readers to this final rule for a discussion of 
ankle replacement procedures. The requestor asked that we again 
evaluate reassigning total ankle replacement procedures. The requestor 
also asked that we reassign what it referred to as another ankle 
replacement revision procedure captured by procedure code 81.59 
(Revision of joint replacement of lower extremity, not elsewhere 
classified), which is assigned to MS-DRGs 515, 516, and 517 (Other 
Musculoskeletal System and Connective Tissue O.R. Procedures with MCC, 
with CC, and without CC/MCC, respectively).
    The requestor asked that we reassign procedure code 81.56 from MS-
DRGs 469 and 470 to MS-DRG 483 (Major Joint/Limb Reattachment Procedure 
of Upper Extremities with CC/MCC) and rename the MS-DRG to better 
capture the additional lower extremity cases. The requestor stated that 
the result would be assignment of lower joint procedures to an MS-DRG 
that currently captures only upper extremity cases and assignment to 
the highest severity level even if the case did not have a CC or an 
MCC. If CMS did not find this acceptable, the requestor made an 
alternative recommendation of assigning procedure code 81.56 to MS-DRG 
469 and renaming the MS-DRG to better capture the additional cases. 
Cases would be assigned to the highest severity level whether or not 
the case had an MCC.
    The requestor also recommended that procedure code 81.59, which is 
assigned to MS-DRGs 515, 516, and 517 be reassigned to MS-DRG 483 and 
that the MS-DRG be given a new title to better capture the additional 
lower extremity cases. The requestor stated that the result would be 
assignment of lower joint procedures to an MS-DRG that currently 
captures only upper extremity cases and assignment to the highest 
severity level even if the patient did not have a CC or an MCC. If CMS 
did not support this recommendation, the requestor suggested two 
additional recommendations. One involves moving procedure code 81.59 to 
MS-DRG 515 even when the case had no MCC. The other recommendation was 
to move procedure code 81.59 to MS-DRG 469, whether or not the case had 
a MCC.
    We point out that while the requestor refers to procedure code 
81.59 as a revision of an ankle replacement, the code actually includes 
revisions of joint replacements of a variety of lower extremity joints 
including the ankle, foot, and toe.
    The following table shows the number of total ankle replacement 
cases, average length of stay, and average costs for procedure code 
81.56 in MS-DRGs 469 and 470 found in claims data from the December 
2013 update of the FY 2013

[[Page 28014]]

MedPAR file compared to all cases within MS-DRGs 469, 470, and 483.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases...........................................          25,916          722            $22,548
MS-DRG 469--Cases with procedure code 81.56.....................              32            6.19          27,419
MS-DRG 470--All cases...........................................         406,344            3.25          15,119
MS-DRG 470--Cases with procedure code 81.56.....................           1,379            2.13          19,332
MS-DRG 483......................................................          14,220            3.20          18,807
----------------------------------------------------------------------------------------------------------------

    In summary, the requestor asked us to reassign procedure code 81.56 
in MS-DRGs 469 and 470 to one of the following two options: MS-DRG 483 
(highest severity level); or MS-DRG 469 (highest severity level).
    As the table for total ankle replacement above shows, the average 
cost of cases with procedure code 81.56 in MS-DRG 469 is $27,419 and 
$19,332 in MS-DRG 470. This compares with the average costs of all 
cases in MS-DRGs 469 and 470 of $22,548 and $15,119, respectively. 
While the average cost of cases reporting procedure code 81.56 in MS-
DRG 469 is $4,871 higher than the average cost for all cases in MS-DRG 
469, we point out that there were only 32 cases. The relatively small 
number of cases may have been impacted by other factors such as 
complications or comorbidities. Several expensive cases could impact 
the average costs for a very small number of patients. The average cost 
of cases reporting procedure code 81.56 in MS-DRG 470 is $4,213 higher 
than the average cost for all cases in MS-DRG 470. While the average 
costs are higher, within all MS-DRGs, some cases have higher and some 
cases have lower average costs. MS-DRGs are groups of clinically 
similar cases that have similar overall costs. Within a group of cases, 
one would expect that some cases have costs that are higher than the 
overall average and some cases have costs that are lower than the 
overall average.
    MS-DRG 469 ankle replacement cases have average costs that are 
$8,612 higher than the average costs of all cases in MS-DRG 483 
($27,419 compared to $18,807). Moving these cases (procedure code 
81.56) to MS-DRG 483 would result in payment below average costs 
compared to the current MS-DRG assignment in MS-DRG 469. Furthermore, 
as noted earlier, moving total ankle replacement cases to MS-DRG 483 
would result in a lower extremity procedure being added to what is now 
an upper extremity MS-DRG. This would significantly disrupt the 
clinical cohesion of MS-DRG 483.
    The average costs of all cases in MS-DRG 469 are $3,216 higher than 
the average costs of those cases with procedure code 81.56 in MS-DRG 
470 ($22,548 compared to $19,332) The data do not support moving 
procedure code 81.56 cases to MS-DRG 483 or 469 because it would not 
result in payments that more accurately reflect their current average 
costs. Our clinical advisors reviewed this issue and determined that 
the ankle replacement cases are appropriately classified within MS-DRGs 
469 and 470 with the severity level leading to the MS-DRG assignment. 
They do not support moving these cases to MS-DRG 483 because ankle 
replacements, which are lower joint procedures, are not clinically 
similar to upper joint replacement procedures. Based on the results of 
examination of the claims data, the issue of clinical cohesion, and the 
recommendations from our clinical advisors, we are not proposing to 
move total ankle procedures to MS-DRG 483 or MS-DRG 469 when there is 
no MCC. We are proposing to maintain the current MS-DRG assignments for 
ankle replacement cases. We are inviting public comments on our 
proposal.
    The following table shows our findings from examination of the 
claims data from the December 2013 update of the FY 2013 MedPAR file 
for the number of cases reporting procedure code 81.59 in MS-DRGs 515, 
516, and 517 (revision of joint replacement of lower extremity) and 
their average length of stay and average costs as compared to all cases 
within MS-DRGs 515, 516, and 517 (where procedure code 81.59 is 
currently assigned), as well as data for MS-DRGs 469 and 483.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 515--All cases...........................................           3,407            9.22         $22,191
MS-DRG 515--Cases with procedure code 81.59.....................               5            6.00          16,988
MS-DRG 516--All cases...........................................           8,502            5.34          14,356
MS-DRG 516--Cases with procedure code 81.59.....................              16            3.00          16,998
MS-DRG 517--All cases...........................................           5,794            3.28          12,172
MS-DRG 517--Cases with procedure code 81.59.....................              40            1.80          13,704
MS-DRG 483--All cases...........................................          25,916          722             22,548
MS- DRG 469--All cases..........................................          14,220            3.20          18,807
----------------------------------------------------------------------------------------------------------------

    The requestor asked that all cases with procedure code 81.59 in MS-
DRGs 515, 516, and 517 be assigned to one of the following three 
choices:
     MS-DRG 483 (highest severity level);
     MS-DRG 515 (highest severity level) whether or not there 
is an MCC; or
     MS-DRG 469 (highest severity level).
    Our review of data from the above revision of joint replacement of 
lower extremity table shows that cases in MS-DRG 483 have average costs 
that are $5,560 higher than the average costs of cases with procedure 
code 81.59 in MS-DRG 515; $5,550 greater than those in MS-DRG 516; and 
$8,844 greater than those in MS-DRG 517 ($22,548 compared to $16,988; 
$22,548 compared to $16,998, and $22,548 compared to $13,704, 
respectively). As mentioned earlier, MS-DRG 483 is currently composed 
of only upper extremity procedures. Moving lower extremity procedures 
into this MS-DRG would disrupt the clinical cohesiveness of MS-DRG 483.

[[Page 28015]]

    The average costs of all cases in MS-DRG 469 are $18,807, compared 
to average costs of $16,988, $16,998, and $13,703 for procedure code 
81.59 cases in MS-DRGs 515, 516, and 517, respectively. The data do not 
support moving all procedure code 81.59 cases to MS-DRG 469 even when 
there is no MCC. We also point out that moving cases with procedure 
code 81.59 to MS-DRG 469 would disrupt the clinical cohesiveness of MS-
DRG 469, which currently captures major joint replacement or 
reattachment procedures of the lower extremity. Procedure code 81.59 
includes revisions of joint replacements of a variety of lower 
extremity joints including the ankle, foot, and toe. This nonspecific 
code would not be considered a major joint procedure. The code captures 
revisions of an ankle replacement as well as a more minor revision of 
the toe.
    Our clinical advisors reviewed this issue and determined that the 
revision of joint replacement of lower extremity cases are 
appropriately classified within MS-DRGs 515, 516, and 517 where 
revisions of other joint replacements are captured. They support the 
current severity levels in MS-DRGs 515, 516, and 517, which allow the 
presence of a CC or an MCC to determine the severity level assignment. 
They do not support moving these cases to MS-DRG 483, which is applied 
to upper extremity procedures because these procedures are not 
clinically consistent with revisions of lower joint procedures. They 
also do not support moving these cases to MS-DRG 469 when there is no 
MCC because these procedures are not joint replacement procedures. 
Based on the findings of our examination of the claims data, the issue 
of clinical cohesion, and the recommendations from our clinical 
advisors, we are not proposing to move the revision of joint 
replacement of lower extremity cases to MS-DRGs 483 or 469, whether or 
not there is an MCC. We are proposing to maintain the current MS-DRG 
assignments for revision of joint replacement of lower extremity cases.
    In summary, we are proposing to maintain the current MS-DRG 
assignment for total ankle replacements in MS-DRGs 469 and 470 and 
revision of joint replacement of lower extremity procedures in MS-DRGs 
515, 516, and 517. We are inviting public comments on our proposals.
c. Back and Neck Procedures
    We received a request to reassign cases identified with a 
complication or comorbidity (CC) in MS-DRG 490 (Back & Neck Procedures 
Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) to MS-
DRG 491 (Back & Neck Procedures Except Spinal Fusion without CC/MCC or 
Disc Device/Neurostimulator). The requester suggested that we create a 
new MS-DRG that would be subdivided based solely on the ``with MCC or 
Disc Device/Neurostimulator'' and the ``without MCC'' (and no device) 
criteria.
    For the FY 2008 rulemaking cycle, we performed a comprehensive 
analysis of all the spinal DRGs as we proposed (72 FR 24731 through 
24735) and finalized (72 FR 47226 through 47232) adoption of the MS-
DRGs. With the revised spinal MS-DRGs, we were better able to identify 
a patient's level of severity, complexity of service, and utilization 
of resources. This was primarily attributed to the new structure for 
the severity level designations of ``with MCC,'' ``with CC,'' and 
``non-CC'' (or without CC/MCC). Another contributing factor was that we 
incorporated specific procedures and technologies into the GROUPER 
logic for some of those spinal MS-DRGs. Specifically, as noted above, 
in the title of MS-DRG 490, we accounted for disc devices and 
neurostimulators because the data demonstrated that the procedures 
utilizing those technologies were more complex and required greater 
utilization of resources.
    According to the requester, since that time, concerns have been 
expressed in the provider community regarding inadequate payment for 
MS-DRG 490 when these technologies are utilized. An analysis conducted 
by the requester alleged that the subset of patients identified in the 
``with MCC or disc device/neurostimulator'' group are different with 
regard to resource use from the ``without CC/MCC'' (and no device) 
patient group.
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for MS-DRGs 490 and 491. The table below shows our 
findings.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 490--All cases...........................................          16,930            4.53         $13,727
MS-DRG 491--All cases...........................................          25,778            2.20           8,151
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, there were a total of 16,930 cases in 
MS-DRG 490 with an average length of stay of 4.53 days and average 
costs of $13,727. For MS-DRG 491, there were a total of 25,778 cases 
with an average length of stay of 2.20 days and average costs of 
$8,151.
    We then analyzed the data for MS-DRGs 490 and 491 by subdividing 
cases based on the ``with MCC or Disc Device/Neurostimulator'' and the 
``without MCC'' (and no device) criteria. We found a total of 3,379 
cases with an average length of stay of 6.6 days and average costs of 
$21,493 in the ``with MCC or Disc Device/Neurostimulator'' group and a 
total of 39,329 cases with an average length of stay of 2.8 days and 
average costs of $9,405 in the ``without MCC'' and no device group. Due 
to the wide range in the volume of cases, length of stay, and average 
costs between these two subgroups, we concluded that further analysis 
of the data using a separate ``with CC'' (and no device) subset of 
patients was warranted.
    Therefore, we evaluated the data using a three-way severity level 
split that consisted of the three subgroups shown in the table below.

        Additional Analysis for Back & Neck Procedures Except Spinal Fusion: Disc Device/Neurostimulator
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                      Severity level split                             cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
--With MCC or disc device/neurostimulator.......................           3,379             6.6         $21,493
--With CC.......................................................          13,551             3.9          11,791
--Without CC/MCC................................................          25,778             2.2           8,151
----------------------------------------------------------------------------------------------------------------


[[Page 28016]]

    For the first subgroup, ``with MCC or Disc Device/
Neurostimulator,'' we found a total of 3,379 cases with an average 
length of stay of 6.6 days and average costs of $21,493. In the second 
subgroup, ``with CC'' (no device), we found a total of 13,551 cases 
with an average length of stay of 3.9 days and average costs of 
$11,791. In the third subgroup, ``without CC/MCC'' (no device), we 
found a total of 25,778 cases with an average length of stay of 2.2 
days and average costs of $8,151.
    The results of this additional data analysis demonstrate a better 
distribution of cases with regard to length of stay and average costs. 
Our clinical advisors agree that a patient's severity of illness is 
captured more appropriately with this subdivision. The data also meet 
the established criteria for creating subgroups within a base MS-DRG as 
discussed earlier in this proposed rule.
    As the subdivision of the claims data based on these subgroups 
better captures a patient's severity level and utilization of resources 
and is supported by our clinical advisors, we are proposing to create 
three new MS-DRGs and to delete MS-DRGs 490 and 491. These proposed new 
MS-DRGs would be titled as follows and would be effective as of October 
1, 2014:
     Proposed new MS-DRG 518 (Back & Neck Procedures Except 
Spinal Fusion with MCC or Disc Device/Neurostimulator);
     Proposed new MS-DRG 519 (Back & Neck Procedures Except 
Spinal Fusion with CC); and
     Proposed new MS-DRG 520 (Back & Neck Procedures Except 
Spinal Fusion without CC/MCC).
    We are inviting public comments on our proposal to create these 
proposed new MS-DRGs for FY 2015.
6. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and 
Disorders): Disorders of Porphyrin Metabolism
    We received a comment on the FY 2014 IPPS/LTCH PPS proposed rule 
that we considered out of scope for the proposed rule. We stated in the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50550) that we would consider 
this issue in future rulemaking as part of our annual review process. 
The request was for the creation of a new MS-DRG to better identify 
cases where patients with disorders of porphyrin metabolism exist, to 
recognize the resource requirements in caring for these patients, to 
ensure appropriate payment for these cases, and to preserve patient 
access to necessary treatments. This issue has been discussed 
previously in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27904 and 
27905) and final rule (77 FR 53311 through 53313).
    Porphyria is defined as a group of rare disorders (``porphyrias'') 
that interfere with the production of hemoglobin that is needed for red 
blood cells. While some of these disorders are genetic (inborn) and 
others can be acquired, they all result in the abnormal accumulation of 
hemoglobin building blocks, called porphyrins, which can be deposited 
in the tissues where they particularly interfere with the functioning 
of the nervous system and the skin. Treatment for patients suffering 
from disorders of porphyrin metabolism consists of an intravenous 
injection of Panhematin[supreg] (hemin for injection). In 1984, this 
pharmaceutical agent became the first approved drug for a rare disease 
to be designated under the Orphan Drug Act. The requestor stated that 
it is the only FDA-approved prescription treatment for acute 
intermittent porphyria. ICD-9-CM diagnosis code 277.1 (Disorders of 
porphyrin metabolism) describes these cases, which are currently 
assigned to MS-DRG 642 (Inborn and Other Disorders of Metabolism).
    We analyzed claims data from the December 2013 update of the FY 
2013 MedPAR file for cases assigned to MS-DRG 642. Our findings are 
shown in the table below.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 642--All cases...........................................           1,486            4.61          $8,151
MS-DRG 642--Cases with principal diagnosis code 277.1...........             299            5.98          13,303
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, we found a total of 1,486 cases in MS-
DRG 642, with an average length of stay of 4.61 days and average costs 
of $8,151. We then analyzed the data for cases reporting diagnosis code 
277.1 as the principal diagnosis in this same MS-DRG. We found a total 
of 299 cases, with an average length of stay of 5.98 days and average 
costs of $13,303.
    While the data show that the average costs for the 299 cases 
reporting a principal diagnosis code of 277.1 were higher than the 
average costs for all cases in MS-DRG 642 ($13,303 compared to $8,151), 
the number of cases is small. Given the small number of porphyria 
cases, we do not believe there is justification for creating a new MS-
DRG. Basing a new MS-DRG on such a small number of cases could lead to 
distortions in the relative payment weights for the MS-DRG because 
several expensive cases could impact the overall relative payment 
weight. Having larger clinical cohesive groups within an MS-DRG 
provides greater stability for annual updates to the relative payment 
weights. In addition, as discussed earlier, one of the criteria we 
apply in evaluating whether to create new severity subgroups within an 
MS-DRG is whether there are at least 500 cases in the CC or MCC 
subgroup. While this criterion is used to evaluate whether to create a 
severity subgroup within an MS-DRG, applying it here suggests that 
creating a new MS-DRG for cases reporting a principal diagnosis of code 
277.1 would not be appropriate. Our clinical advisors reviewed this 
issue and recommended no MS-DRG change for porphyria cases because they 
fit clinically within MS-DRG 642.
    In summary, we are not proposing to create a new MS-DRG for 
porphyria cases. We are inviting public comments on our proposal to 
maintain porphyria cases in MS-DRG 642.
7. MDC 15 (Newborns and Other Neonates With Conditions Originating in 
the Perinatal Period)
    We received a request to evaluate the MS-DRG assignment of seven 
ICD-9-CM diagnosis codes in MS-DRG 794 (Neonate With Other Significant 
Problems) under MDC 15. The requestor stated that these codes have no 
bearing on the infant, and are not representative of a neonate with a 
significant problem. The requestor recommended that we change the MS-
DRG logic so that the following seven ICD-9-CM codes would not lead to 
assignment of MS-DRG 794. The requestor recommended that the diagnoses 
be added to the ``only secondary diagnosis'' list under MS-DRG 795 
(Normal newborn) so that the case would be assigned to MS-DRG 795 
(Normal newborn).

 V17.0 (Family history of psychiatric condition)
 V17.2 (Family history of other neurological Diseases)

[[Page 28017]]

 V17.49 (Family history of other cardiovascular diseases)
 V18.0 (Family history of diabetes mellitus)
 V18.19 (Family history of other endocrine and metabolic 
diseases)
 V18.8 (Family history of infectious and parasitic diseases)
 V50.3 (Ear piercing)

    In the case of a newborn with one of these diagnosis codes reported 
as a secondary diagnosis, the case would be assigned to MS-DRG 794. The 
commenter believed that any of these seven diagnosis codes (noted 
above), 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 the seven ICD-9-CM diagnosis codes noted above should 
not continue to be assigned to MS-DRG 794, as there is no clinically 
usable information reported in those codes identifying significant 
problems. Therefore, for FY 2015, we are proposing to reassign these 
following seven diagnoses to the ``only secondary diagnosis list'' 
under MS-DRG 795 so that the case would be assigned to MS-DRG 795.

 V17.0 (Family history of psychiatric condition)
 V17.2 (Family history of other neurological diseases)
 V17.49 (Family history of other cardiovascular diseases)
 V18.0 (Family history of diabetes mellitus)
 V18.19 (Family history of other endocrine and metabolic 
diseases)
 V18.8 (Family history of infectious and parasitic diseases)
 V50.3 (Ear piercing)

    We are inviting public comments on this proposal.
8. Proposed 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.
    As discussed in section II.G.1.a. of the preamble of this proposed 
rule, we developed an ICD-10 version of the current MS-DRGs, which are 
based on ICD-9-CM codes. We refer to this version of the MS-DRGs as the 
ICD-10 MS-DRGs Version 31.0-R. In November 2013, we also posted a 
Definitions of Medicare Code Edits Manual of the ICD-10 MCE Version 
31.0 on the ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We produced mainframe and computer software for Version 
31.0 of the MS-DRG GROUPER with Medicare Code Editor, which was made 
available to the public in December 2013. Information on ordering the 
mainframe and computer software through NTIS was posted on the CMS Web 
site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the ``Related Links'' section. This ICD-
10 MS-DRG GROUPER with Medicare Code Editor Version 31.0 computer 
software facilitated additional review of the ICD-10 MS-DRGs 
conversion. We encouraged the public to submit to CMS any comments on 
areas where they believed the ICD-10 MS-DRG GROUPER and MCE did not 
accurately reflect the logic and edits found in the ICD-9-CM MS-DRG 
GROUPER and MCE Version 31.0.
    We also have posted an ICD-10 version of the current MCE, which is 
based on ICD-9-CM codes, and refer to that version of the MCE as the 
ICD-10 MCE Version 31.0-R. Both of these documents are posted 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 will 
continue to share ICD-10 MS-DRG and MCE conversion activities with the 
public through this Web site.
    For FY 2015, we are proposing to remove extracranial-intracranial 
(EC-IC) bypass surgery from the ``Noncovered Procedure'' edit code list 
for Version 32.0 of the MCE. This procedure is identified by ICD-9-CM 
procedure code 39.28 (Extracranial-intracranial (EC-IC) vascular 
bypass).
    Because of the complexity of appropriately classifying the 
circumstances under which the EC-IC bypass surgery may, or may not, be 
considered reasonable and necessary for certain conditions, we are 
proposing to remove the MCE ``Noncovered Procedure'' edit for EC-IC 
bypass surgery from the ``Noncovered Procedure'' edit code list for 
Version 32.0 of the MCE. We are inviting public comments on this 
proposal.
9. Proposed Changes to 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 2015, 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

[[Page 28018]]

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.
    Based on the changes that we are proposing to make for FY 2015, as 
discussed in sections II.G.4.c., II.G.5.a., and II.G.5.c. of the 
preamble of this FY 2015 IPPS/LTCH PPS proposed rule, we are proposing 
to revise the surgical hierarchy for MDC 5 (Diseases and Disorders of 
the Circulatory System) and MDC 8 (Diseases and Disorders of the 
Musculoskeletal System and Connective Tissue) as follows:
    In MDC 5, we are proposing to sequence proposed new MS-DRG 266 
(Endovascular Cardiac Valve Replacement with MCC) and proposed new MS-
DRG 267 (Endovascular Cardiac Valve Replacement without MCC) above MS-
DRG 222 (Cardiac Defibrillator Implant with Cardiac Catheterization 
with AMI/HF/Shock with MCC).
    In MDC 8, we are proposing to delete MS-DRGs 490 (Back & Neck 
Procedures Except Spinal Fusion with CC/MCC or Disc Device/
Neurostimulator) and MS-DRG 491 (Back & Neck Procedures Except Spinal 
Fusion without CC/MCC or Disc Device/Neurostimulator) from the surgical 
hierarchy. We are proposing to sequence proposed new MS-DRG 518 (Back & 
Neck Procedure Except Spinal Fusion with MCC or Disc Device/
Neurostimulator), proposed new MS-DRG 519 (Back & Neck Procedure Except 
Spinal Fusion with CC), and proposed new MS-DRG 520 (Back & Neck 
Procedure Except Spinal Fusion without CC/MCC) above MS-DRG 492 (Lower 
Extremity and Humerus Procedure Except Hip, Foot, Femur with MCC).
    We are inviting public comments on our proposals.
10. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2015
a. Major Complications or Comorbidities (MCCs) and Complications or 
Comorbidities (CC) Severity Levels for FY 2015
    A complete updated MCC, CC, and Non-CC Exclusion List is available 
via the Internet on the CMS Web site at: http://cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as 
follows:
     Table 6I (Complete MCC list);
     Table 6J (Complete CC list); and
     Table 6K (Complete list of CC Exclusions).
b. Coronary Atherosclerosis Due to Calcified Coronary Lesion
    We received a request that we change the severity level for ICD-9-
CM diagnosis code 414.4 (Coronary atherosclerosis due to calcified 
coronary lesion) from a non-CC to an MCC. This issue was previously 
discussed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27522) and 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541 through 50542).
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for ICD-9-CM diagnosis code 414.4. The following chart 
shows our findings.

--------------------------------------------------------------------------------------------------------------------------------------------------------
          Code           Diagnosis description        CC Level            Cnt 1     Cnt 1 Impact      Cnt 2     Cnt 2 Impact      Cnt 3     Cnt 3 Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
414.4..................  Coronary               Non-CC..............        1,796          1.16         3,056          2.18         2,835          3.01
                          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 1.16. 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 2.18. 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 
1.16 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 consume resources more similar to 
an MCC than a CC or a non-CC. The C2 finding of 2.18 also does not 
support reclassifying this diagnosis code to an MCC. 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. They do 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, we are not proposing 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 are 
proposing to maintain diagnosis code 414.4 as a non-

[[Page 28019]]

CC. We are inviting public comments on our proposal.
11. 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 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. Proposed CC Exclusions List for FY 2015
    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); the FY 2013 final rule (77 FR 53315); and the FY 2014 final 
rule (78 FR 50541). In the FY 2000 final rule (64 FR 41490, July 30, 
1999), we did not modify the CC Exclusions List because we did not 
make any changes to the ICD-9-CM codes for FY 2000.
---------------------------------------------------------------------------

    For FY 2015, we are not proposing any changes to the CC Exclusion 
List. Therefore, we are not developing or publishing Tables 6G 
(Additions to the CC Exclusion List) or Table 6H (Deletions from the CC 
Exclusion List). We have developed Table 6K (Complete List of CC 
Exclusions), which is available only via the Internet on the CMS Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Because of the length of Table 6K, we are 
not publishing it in the Addendum to this proposed rule. Each of these 
principal diagnosis codes for which there is a CC exclusion is shown 
with an asterisk and the conditions that will not count as a CC are 
provided in an indented column immediately following the affected 
principal diagnosis. Beginning with discharges on or after October 1 of 
each year, the indented diagnoses are not recognized by the GROUPER as 
valid CCs for the asterisked principal diagnoses.
    A complete updated MCC, CC, and Non-CC Exclusions List is available 
via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
    Because there are no proposed new, revised, or deleted diagnosis or 
procedure codes for FY 2015, we are not developing Table 6A (New 
Diagnosis Codes), Table 6B (New Procedure Codes), Table 6C (Invalid 
Diagnosis Codes), Table 6D (Invalid Procedure Codes), Table 6E (Revised 
Diagnosis Code Titles), and Table 6F (Revised Procedure Codes) to this 
proposed rule and they are not published as part of this proposed rule.
    We are proposing no additions or deletions to the MS-DRG MCC List 
for FY 2015 and no additions or deletions to the MS-DRG CC List for FY 
2015. Therefore, we are not developing Tables 6I.1 (Additions to the 
MCC List), 6I.2 (Deletions to the MCC List), 6J.1 (Additions to the CC 
List), and 6J.2 (Deletions to the CC List), and they are not published 
as part of this proposed rule.
    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 31.0, is available on a CD 
for $225.00. This manual 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. Version

[[Page 28020]]

32.0 of this manual, which will include the final FY 2015 MS-DRG 
changes, will be available after publication of the FY 2015 final rule 
on a CD for $225.00. This manual may be obtained by writing 3M/HIS at 
the address provided above; or by calling (203) 949-0303; or by 
obtaining an order form at the Web site at: http://www/3MHIS.com. 
Please specify the revision or revisions requested.
12. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 
986; and 987 Through 989
    Each year, we review cases assigned to former CMS DRG 468 
(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 
476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and 
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal 
Diagnosis) to determine whether it would be appropriate to change the 
procedures assigned among these CMS DRGs. Under the MS-DRGs that we 
adopted for FY 2008, CMS DRG 468 was split three ways and became MS-
DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal 
Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 
476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 
(Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC, and without CC/MCC, respectively).
    MS-DRGs 981 through 983, 984 through 986, and 987 through 989 
(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for 
those cases in which none of the O.R. procedures performed are related 
to the principal diagnosis. These MS-DRGs are intended to capture 
atypical cases, that is, those cases not occurring with sufficient 
frequency to represent a distinct, recognizable clinical group. MS-DRGs 
984 through 986 (previously CMS DRG 476) are assigned to those 
discharges in which one or more of the following prostatic procedures 
are performed and are unrelated to the principal diagnosis:
     60.0 (Incision of prostate);
     60.12 (Open biopsy of prostate);
     60.15 (Biopsy of periprostatic tissue);
     60.18 (Other diagnostic procedures on prostate and 
periprostatic tissue);
     60.21 (Transurethral prostatectomy);
     60.29 (Other transurethral prostatectomy);
     60.61 (Local excision of lesion of prostate);
     60.69 (Prostatectomy, not elsewhere classified);
     60.81 (Incision of periprostatic tissue);
     60.82 (Excision of periprostatic tissue);
     60.93 (Repair of prostate);
     60.94 (Control of (postoperative) hemorrhage of prostate);
     60.95 (Transurethral balloon dilation of the prostatic 
urethra);
     60.96 (Transurethral destruction of prostate tissue by 
microwave thermotherapy);
     60.97 (Other transurethral destruction of prostate tissue 
by other thermotherapy); and
     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, 2013, and 2014, 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), in the FY 2013 final rule (77 FR 53321), 
and in the FY 2014 final rule (78 FR 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 2015, we are not proposing to change the 
procedures assigned among these MS-DRGs.
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 2015, we are not proposing 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.
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

[[Page 28021]]

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 2015, we are not 
proposing to move any procedure codes among these MS-DRGs.
c. Adding Diagnosis or Procedure Codes to MDCs
    Based on the review of cases in the MDCs as described above in 
sections II.G.2. through 7. of the preamble of this proposed rule, we 
are not proposing to add any diagnosis or procedure codes to MDCs for 
FY 2015.
13. Proposed Changes to the ICD-9-CM System
a. ICD-10 Coordination and Maintenance Committee
    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 final update to ICD-
9-CM codes was to be made on October 1, 2013. Thereafter, the name of 
the Committee was changed to the ICD-10 Coordination and Maintenance 
Committee, effective with the March 19-20, 2014 meeting. The ICD-10 
Coordination and Maintenance Committee will address updates to the ICD-
10-CM, ICD-10-PCS, and ICD-9-CM coding systems. The Committee is 
jointly responsible for approving coding changes, and developing 
errata, addenda, and other modifications to the coding systems 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 ICD-9-CM diagnosis and procedure codes by 
fiscal year can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/codes.html. The official 
list of ICD-10-CM and ICD-10-PCS codes can be found on the CMS Web site 
at: http://www.cms.gov/Medicare/Coding/ICD10/index.html.
    The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM 
diagnosis codes included in the Tabular List and Alphabetic Index for 
Diseases, while CMS has lead responsibility for the ICD-10-PCS and 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 2015 at a public meeting held on September 18-19, 
2013, and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 15, 2013.
    The Committee held its 2014 meeting on March 19-20, 2014. Any new 
ICD-10-CM/PCS codes for which there was consensus of public support and 
for which complete tabular and indexing changes will be made by May 
2014 will be included in the October 1, 2014 update to ICD-10-CM/ICD-
10-PCS. For FY 2015, there are no proposed new, revised, or deleted 
ICD-9-CM diagnosis or procedure codes.
    Copies of the minutes of the procedure codes discussions at the 
Committee's September 18-19, 2013 meeting and March 19-20, 2014 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 18-19, 2013 meeting and 
March 19-20, 2014 meeting are found at: http://www.cdc.gov/nchs/icd/icd9cm.html. 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-10 
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 Brooks, Co-Chairperson, ICD-10 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

[[Page 28022]]

in order to identify and report the new codes.
    The ICD-10 (previously 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 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 diagnosis and procedure 
coding changes, 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 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-10 
(previously 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, 2014 implementation of a 
code at the September 18-19, 2013 Committee meeting. Therefore, there 
were no new codes implemented on April 1, 2014.
    ICD-9-CM 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. ICD-10-CM and 
ICD-10-PCS addendum and code title information is published on the CMS 
Web site at http://www.cms.gov/Medicare/Coding/ICD10/index.html. 
Information on ICD-10-CM diagnosis codes, along with the Official ICD-
10-CM Coding Guidelines, can also be found on the CDC Web site at: 
http://www.cdc.gov/nchs/icd/icd10cm.html. Information on new, revised, 
and deleted ICD-10-CM/ICD-10-PCS codes is also provided to the AHA for 
publication in the Coding Clinic for ICD-10. 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.
    The code titles are adopted as part of the ICD-10 (previously 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.
b. Code Freeze
    In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 
3340), 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.
     On October 1, 2015, one year after the originally 
scheduled implementation of ICD-10, regular updates to ICD-10 were to 
begin.
    The ICD-10 (previously 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 one year after the 
implementation of ICD-10, once the partial freeze is ended.

[[Page 28023]]

    Complete information on the partial code freeze and discussions of 
the issues at the Committee meetings can be found on the ICD-10 
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, is 
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.
    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-10 Coordination and Maintenance Committee meeting. The 
public has supported only a limited number of new codes during the 
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 discussed any requests we had received for new ICD-10-CM 
diagnosis and ICD-10-PCS procedure codes that were to be implemented on 
October 1, 2014. We did not discuss ICD-9-CM codes. The public was 
given the opportunity to comment on whether or not new ICD-10-CM and 
ICD-10-PCS codes should be created, based on the partial code freeze 
criteria. The public was to use the criteria as to whether codes were 
needed to capture new diagnoses or new technologies. If the codes do 
not meet those criteria for implementation during the partial code 
freeze, consideration was to be given as to whether the codes should be 
created after the partial code freeze ends one year after the 
implementation of ICD-10-CM/PCS. We invited public comments on any code 
requests discussed at the September 18-19, 2013 and March 19-20, 2014 
Committee meetings for implementation as part of the October 1, 2014 
update. The deadline for commenting on code proposals discussed at the 
September 18-19, 2013 Committee meeting was November 15, 2013. The 
deadline for commenting on code proposals discussed at the March 19-20, 
2014 Committee meeting was April 18, 2014.

H. Recalibration of the Proposed FY 2015 MS-DRG Relative Weights

1. Data Sources for Developing the Proposed Relative Weights
    In developing the proposed FY 2015 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 2013 MedPAR data used in this proposed rule include 
discharges occurring on October 1, 2012, through September 30, 2013, 
based on bills received by CMS through December 31, 2013, from all 
hospitals subject to the IPPS and short-term, acute care hospitals in 
Maryland (which at that time were under a waiver from the IPPS under 
section 1814(b)(3) of the Act). The FY 2013 MedPAR file used in 
calculating the proposed relative weights includes data for 
approximately 10,050,984 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 December 31, 2013 update of the FY 2013 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 proposed relative weights for 
FY 2015 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. We note 
that the FY 2015 proposed relative weights are based on the ICD-

[[Page 28024]]

9-CM diagnoses and procedures codes from the MedPAR claims data, 
grouped through the ICD-9-CM version of the FY 2015 GROUPER (Version 
32). 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 December 
31, 2013 update of the FY 2012 HCRIS for calculating the proposed FY 
2015 cost-based relative weights.
2. Methodology for Calculation of the Proposed Relative Weights
    As we explain in section II.E.2. of the preamble of this proposed 
rule, we are calculating the proposed FY 2015 relative weights based on 
19 CCRs, as we did for FY 2014. The methodology we used to calculate 
the proposed FY 2015 MS-DRG cost-based relative weights based on claims 
data in the FY 2013 MedPAR file and data from the FY 2012 Medicare cost 
reports is as follows:
     To the extent possible, all the claims were regrouped 
using the proposed FY 2015 MS-DRG classifications discussed in sections 
II.B. and II.G. of the preamble of this proposed rule.
     The transplant cases that were used to establish the 
proposed 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 2012 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 92.2 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. (We refer readers to the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50551) for the edit threshold related to FY 2014 and prior 
fiscal years).
     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 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 2012 cost report data.
    The 19 cost centers that we used in the proposed 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.

[[Page 28025]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        Cost from HCRIS       Charges from HCRIS   Medicare charges from
                                                   Revenue codes                     (Worksheet C, Part 1,  (Worksheet C, Part 1,   HCRIS  (Worksheet D-
 Cost center group name  (19     MedPAR charge     contained in    Cost report line    Column 5 and line    Column 6 & 7 and line     3, Column & line
            total)                   field         MedPAR charge      description    number) Form CMS-2552- number) Form CMS-2552- number) Form CMS-2552-
                                                       field                                   10                     10                     10
--------------------------------------------------------------------------------------------------------------------------------------------------------
Routine Days.................  Private Room      011X and 014X...  Adults &          C--1--C5--30           C--1--C6--30           D3--HOS--C2--30
                                Charges.                            Pediatrics
                                                                    (General
                                                                    Routine Care).
                               Semi-Private      012X, 013X and                                             .....................  .....................
                                Room Charges.     016X-019X
                               Ward Charges....  015X                                                       .....................  .....................
Intensive Days...............  Intensive Care    020X............  Intensive Care    C--1--C5--31           C--1--C6--31           D3--HOS--C2--31
                                Charges.                            Unit.
                               Coronary Care     021X............  Coronary Care     C--1--C5--32           C--1--C6--32           D3--HOS--C2--32
                                Charges.                            Unit.
                                                                   Burn Intensive    C--1--C5--33           C--1--C6--33           D3--HOS--C2--33
                                                                    Care Unit.
                                                                   Surgical          C--1--C5--34           C--1--C6--34           D3--HOS--C2--34
                                                                    Intensive Care
                                                                    Unit.
                                                                   Other Special     C--1--C5--35           C--1--C6--35           D3--HOS--C2--35
                                                                    Care Unit.
Drugs........................  Pharmacy Charges  025X, 026X and    Intravenous       C--1--C5--64           C--1--C6--64           D3--HOS--C2--64
                                                  063X.             Therapy.                                C--1--C7--64
                                                                   Drugs Charged To  C--1--C5--73           C--1--C6--73           D3--HOS--C2--73
                                                                    Patient.                                C--1--C7--73
Supplies and Equipment.......  Medical/Surgical  0270, 0271,       Medical Supplies  C--1--C5--71           C--1--C6--71           D3--HOS--C2--71
                                Supply Charges.   0272, 0273,       Charged to                              C--1--C7--71
                                                  0274, 0277,       Patients.
                                                  0279, and 0621,
                                                  0622, 0623.
                               Durable Medical   0290, 0291, 0292  DME-Rented......  C--1--C5--96           C--1--C6--96           D3--HOS--C2--96
                                Equipment         and 0294-0299.                                            C--1--C7--96
                                Charges.
                               Used Durable      0293............  DME-Sold........  C--1--C5--67           C--1--C6--97           D3--HOS--C2--97
                                Medical Charges.                                                            C--1--C7--97
Implantable Devices..........  ................  0275, 0276,       Implantable       C--1--C5--72           C--1--C6--72           D3--HOS--C2--72
                                                  0278, 0624.       Devices Charged                         C--1--C7--72
                                                                    to Patients.
Therapy Services.............  Physical Therapy  042X............  Physical Therapy  C--1--C5--66           C--1--C6--66           D3--HOS--C2--66
                                Charges.                                                                    C--1--C7--66
                               Occupational      043X............  Occupational      C--1--C5--67           C--1--C6--67           D3--HOS--C2--67
                                Therapy Charges.                    Therapy.                                C--1--C7--67
                               Speech Pathology  044X and 047X...  Speech Pathology  C--1--C5--68           C--1--C6--68           D3--HOS--C2--68
                                Charges.                                                                    C--1--C7--68
Inhalation Therapy...........  Inhalation        041X and 046X...  Respiratory       C--1--C5--65           C--1--C6--65           D3--HOS--C2--65
                                Therapy Charges.                    Therapy.                                C--1--C7--65
Operating Room...............  Operating Room    036X............  Operating Room..  C--1--C5--50           C--1--C6--50           D3--HOS--C2--50
                                Charges.                                                                    C--1--C7--50
                                                 071X............  Recovery Room...  C--1--C5--51           C--1--C6--51           D3--HOS--C2--51
                                                                                                            C--1--C7--51
Labor & Delivery.............  Operating Room    072X............  Delivery Room     C--1--C5--52           C--1--C6--52           D3--HOS--C2--52
                                Charges.                            and Labor Room.                         C--1--C7--52
Anesthesia...................  Anesthesia        037X............  Anesthesiology..  C--1--C5--53           C--1--C6--53           D3--HOS--C2--53
                                Charges.                                                                    C--1--C7--53
Cardiology...................  Cardiology        048X and 073X...  Electrocardiolog  C--1--C5--69           C--1--C6--69           D3--HOS--C2--69
                                Charges.                            y.                                      C--1--C7--69
Cardiac Catheterization......  ................  0481............  Cardiac           C--1--C5--59           C--1--C6--59           D3--HOS--C2--59
                                                                    Catheterization.                        C--1--C7--59
Laboratory...................  Laboratory        030X, 031X, and   Laboratory......  C--1--C5--60           C--1--C6--60           D3--HOS--C2--60
                                Charges.          075X.                                                     C--1--C7--60
                                                                   PBP Clinic        C--1--C5--61           C--1--C6--61           D3--HOS--C2--61
                                                                    Laboratory                              C--1--C7--61
                                                                    Services.
                                                 074X, 086X......  Electro-          C--1--C5--70           C--1--C6--70           D3--HOS--C2--70
                                                                    Encephalography.                        C--1--C7--70
Radiology....................  Radiology         032X, 040X......  Radiology--Diagn  C--1--C5--54           C--1--C6--54           D3--HOS--C2--54
                                Charges.                            ostic.                                  C--1--C7--54
                                                 028x, 0331,       Radiology--Thera  C--1--C5--55           C--1--C6--55           D3--HOS--C2--55
                                                  0332, 0333,       peutic.
                                                  0335, 0339,
                                                  0342.
                                                 0343 and 344....  Radioisotope....  C--1--C5--56           C--1--C6--56           D3--HOS--C2--56
                                                                                                            C--1--C7--56
Computed Tomography (CT) Scan  CT Scan Charges.  035X............  Computed          C--1--C5--57           C--1--C6--57           D3--HOS--C2--57
                                                                    Tomography (CT)                         C--1--C7--57
                                                                    Scan.

[[Page 28026]]

 
Magnetic Resonance Imaging     MRI Charges.....  061X............  Magnetic          C--1--C5--58           C--1--C6--58           D3--HOS--C2--58
 (MRI).                                                             Resonance                               C--1--C7--58
                                                                    Imaging (MRI).
Emergency Room...............  Emergency Room    045x............  Emergency.......  C--1--C5--91           C--1--C6--91           D3--HOS--C2--91
                                Charges.                                                                    C--1--C7--91
Blood and Blood Products.....  Blood Charges...  038x............  Whole Blood &     C--1--C5--62           C--1--C6--62           D3--HOS--C2--62
                                                                    Packed Red                              C--1--C7--62
                                                                    Blood Cells.
                               Blood Storage/    039x............  Blood Storing,    C--1--C5--63           C--1--C6--63           D3--HOS--C2--63
                                Processing.                         Processing, &                           C--1--C7--63
                                                                    Transfusing.
Other Services...............  Other Service     0002-0099, 022X,
                                Charge.           023X, 024X,
                                                  052X, 053X.
                                                 055X-060X, 064X-
                                                  070X, 076X-
                                                  078X, 090X-095X
                                                  and 099X.
                               Renal Dialysis..  0800X...........  Renal Dialysis..  C--1--C5--74           C--1--C6--74           D3--HOS--C2--74
                               ESRD Revenue      080X and 082X-    ................  .....................  C--1--C7--74           .....................
                                Setting Charges.  088X.
                                                                   Home Program      C--1--C5--94           C--1--C6--94           D3--HOS--C2--94
                                                                    Dialysis.                               C--1--C7--94
                               Outpatient        049X............  ASC (Non          C--1--C5--75           C--1--C6--75           D3--HOS--C2--75
                                Service Charges.                    Distinct Part).
                               Lithotripsy       079X............  ................  .....................  C--1--C7--75           .....................
                                Charge.
                                                                   Other Ancillary.  C--1--C5--76           C--1--C6--76           D3--HOS--C2--76
                                                                                                            C--1--C7--76
                               Clinic Visit      051X............  Clinic..........  C--1--C5--90           C--1--C6--90           D3--HOS--C2--90
                                Charges.                                                                    C--1--C7--90
                                                                   Observation beds  C--1--C5--92.01        C--1--C6--92.01        D3--HOS--C2--92.01
                                                                                                            C--1--C7--92.01
                               Professional      096X, 097X, and   Other Outpatient  C--1--C5--93           C--1--C6--93           D3--HOS--C2--93
                                Fees Charges.     098X.             Services.                               C--1--C7--93
                               Ambulance         054X............  Ambulance.......  C--1--C5--95           C--1--C6--95           D3--HOS--C2--95
                                Charges.                                                                    C--1--C7--95
                                                                   Rural Health      C--1--C5--88           C--1--C6--88           D3--HOS--C2--88
                                                                    Clinic.                                 C--1--C7--88
                                                                   FQHC............  C--1--C5--89           C--1--C6--89           D3--HOS--C2--89
                                                                                                            C--1--C7--89
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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 2012 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 proposed FY 2015 cost-based relative weights were then 
normalized by an adjustment factor of 1.642112 so that the average case 
weight after

[[Page 28027]]

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 proposed 19 national average CCRs for FY 2015 are as follows:

------------------------------------------------------------------------
                             Group                                 CCR
------------------------------------------------------------------------
Routine Days...................................................    0.483
Intensive Days.................................................    0.405
Drugs..........................................................    0.191
Supplies & Equipment...........................................    0.293
Implantable Devices............................................    0.355
Therapy Services...............................................    0.345
Laboratory.....................................................    0.128
Operating Room.................................................    0.212
Cardiology.....................................................    0.124
Cardiac Catheterization........................................    0.131
Radiology......................................................    0.164
MRIs...........................................................    0.086
CT Scans.......................................................    0.043
Emergency Room.................................................    0.197
Blood and Blood Products.......................................    0.360
Other Services.................................................    0.398
Labor & Delivery...............................................    0.393
Inhalation Therapy.............................................    0.182
Anesthesia.....................................................    0.115
------------------------------------------------------------------------

    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 this FY 2015 IPPS/LTCH PPS proposed 
rule, we are proposing to use that same case threshold in recalibrating 
the proposed MS-DRG relative weights for FY 2015. Using data from the 
FY 2013 MedPAR file, there were 8 MS-DRGs that contain fewer than 10 
cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the 
CMS DRGs because we no longer have separate DRGs for patients aged 0 to 
17 years. With the exception of newborns, we previously separated some 
DRGs based on whether the patient was age 0 to 17 years or age 17 years 
and older. Other than the age split, cases grouping to these DRGs are 
identical. The DRGs for patients aged 0 to 17 years generally have very 
low volumes because children are typically ineligible for Medicare. In 
the past, we have found that the low volume of cases for the pediatric 
DRGs could lead to significant year-to-year instability in their 
relative weights. Although we have always encouraged non-Medicare 
payers to develop weights applicable to their own patient populations, 
we have 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 2015, because we do not have sufficient MedPAR data to set 
accurate and stable cost relative weights for these low-volume MS-DRGs, 
we are proposing to compute relative weights for the low-volume MS-DRGs 
by adjusting their final FY 2014 relative weights by the percentage 
change in the average weight of the cases in other MS-DRGs. The 
crosswalk table is shown below:

------------------------------------------------------------------------
Low[dash]volume MS-DRG       MS-DRG title         Crosswalk to MS-DRG
------------------------------------------------------------------------
768...................  Vaginal Delivery with  Final FY 2014 relative
                         O.R. Procedure         weight (adjusted by
                         Except Sterilization   percent change in
                         and/or D&C.            average weight of the
                                                cases in other MS-DRGs).
789...................  Neonates, Died or      Final FY 2014 relative
                         Transferred to         weight (adjusted by
                         Another Acute Care     percent change in
                         Facility.              average weight of the
                                                cases in other MS-DRGs).
790...................  Extreme Immaturity or  Final FY 2014 relative
                         Respiratory Distress   weight (adjusted by
                         Syndrome, Neonate.     percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
791...................  Prematurity with       Final FY 2014 relative
                         Major Problems.        weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
792...................  Prematurity without    Final FY 2014 relative
                         Major Problems.        weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
793...................  Full-Term Neonate      Final FY 2014 relative
                         with Major Problems.   weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
794...................  Neonate with Other     Final FY 2014 relative
                         Significant Problems.  weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
795...................  Normal Newborn.......  Final FY 2014 relative
                                                weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
------------------------------------------------------------------------

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 2015, we are proposing 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 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

[[Page 28028]]

the BPCI initiative in our ratesetting process.

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

1. Background
    Sections 1886(d)(5)(K) and (L) of the Act establish a process of 
identifying and ensuring adequate payment for new medical services and 
technologies (sometimes collectively referred to in this section as 
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the 
Act specifies 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 2014 IPPS/LTCH PPS final rule contains 
the final thresholds that we use to evaluate applications for new 
technology add-on payments for FY 2015. We refer readers to the CMS Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2014-IPPS-Final-Rule-Home-Page.html for a complete 
viewing of Table 10 from the FY 2014 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.
    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 
criterion, 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

[[Page 28029]]

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 2016 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 2016, the CMS 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 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 2015 prior 
to publication of the FY 2015 IPPS/LTCH PPS proposed rule, we published 
a notice in the Federal Register on November 29, 2013 (78 FR 71555 
through 71557), and held a town hall meeting at the CMS Headquarters 
Office in Baltimore, MD, on February 12, 2014. 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 2015 new medical service and 
technology add-on payment applications before the publication of the FY 
2015 proposed rule.
    Approximately 91 individuals registered to attend the town hall 
meeting in person, while additional individuals listened over an open 
telephone line. We also live-streamed the town hall meeting and posted 
the town hall on the CMS YouTube Web page at: http://www.youtube.com/watch?v=WXyR_TILfKo&list=TLiu1B_AxXsinTW6EEn4BVUdR4iEM61eV4. 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 January 21, 2014, in our evaluation of the 
new technology add-on payment applications for FY 2015 in this proposed 
rule.
    In response to the published notice and the New Technology Town 
Hall meeting, we received written comments regarding the applications 
for FY 2015 new technology add-on payments. We summarize these comments 
below or, if applicable, indicate that there were no comments received, 
at the end of each discussion of the individual applications in this 
proposed rule.
    A number of attendees at the New Technology Town Hall meeting 
provided comments that were unrelated to the ``substantial clinical 
improvement'' criterion. As explained above and in the Federal Register 
notice

[[Page 28030]]

announcing the New Technology Town Hall meeting (78 FR 71555 through 
71557), the purpose of the meeting was specifically to discuss the 
substantial clinical improvement criterion in regard to pending new 
technology add-on payment applications for FY 2015. Therefore, we are 
not summarizing those comments in this proposed rule. Commenters are 
welcome to resubmit these comments in response to proposals presented 
in this proposed rule.
3. FY 2015 Status of Technologies Approved for FY 2014 Add-On Payments
a. 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)). 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 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 the 3-year anniversary date for 
Voraxaze[supreg] will occur in the latter half of FY 2015 (April 30, 
2015), we are proposing to continue new technology add-on payments for 
this technology for FY 2015. We are inviting public comments on this 
proposal.
b. DIFICIDTM (Fidaxomicin) Tablets
    Optimer Pharmaceuticals, Inc. submitted an application for new 
technology add-on payments for FY 2013 for the use of 
DIFICIDTM 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 DIFICIDTM 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 DIFICIDTM) 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 
DIFICIDTM and consideration of the public comments we 
received in response to the FY 2013 IPPS/LTCH PPS proposed rule, we 
approved DIFICIDTM for new technology add-on payments for FY 
2013. Cases of DIFICIDTM 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 DIFICIDTM is

[[Page 28031]]

$2,800 for a 10-day dosage. The average cost per day for 
DIFICIDTM is $280 ($2,800/10). Cases of DIFICIDTM 
within the inpatient setting typically incur an average dosage of 6.2 
days, which results in an average cost per case for 
DIFICIDTM 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 DIFICIDTM 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)).
    The manufacturer commented through a letter to CMS, prior to the 
publication of this proposed rule, requesting that CMS extend the 
eligibility for a third year of new technology add-on payments for 
DIFICIDTM in FY 2015. The manufacturer maintained that the 
technology still meets all three criteria for new technology add-on 
payments. Regarding the substantial clinical improvement criterion, the 
applicant stated that DIFICIDTM continues to remain the only 
FDA-approved treatment to demonstrate substantial clinical improvement 
over existing therapies. No new treatments for CDAD have been approved 
by the FDA since DIFICIDTM. The applicant further stated 
that a third year of new technology add-on payments for 
DIFICIDTM would continue to reduce access barriers in the 
acute care hospital inpatient setting, which would support the 
appropriate use of DIFICIDTM, a treatment that offers a 
substantial clinical improvement over existing therapies.
    With respect to the cost criterion, the applicant stated that 
DIFICIDTM continues to meet the cost criterion. Using claims 
data from the FY 2012 MedPAR file, the applicant provided updated data 
from the two analyses described in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53350 through 53358), and demonstrated that the average case-
weighted standardized charge per case exceeded the average case-
weighted thresholds under both analyses. The applicant stated that the 
new technology add-on payment is intended to offer additional payments 
to support patient access and appropriate use of new technologies for a 
period of time until the MS-DRGs are adjusted to reflect the cost of 
the new technology. The applicant believed that the analyses conducted 
with the most recent MedPAR claims data available demonstrate that the 
MS-DRG recalibrations are insufficient to accommodate the cost 
associated with CDAD and new technologies to treat CDAD under the IPPS 
within the allotted timeframe of 2 years. According to the applicant, 
these payment amounts remain an obstacle for the appropriate use of new 
technologies for CDAD that demonstrate substantial clinical improvement 
over existing treatments, such as DIFICIDTM. The applicant 
concluded that a third year of new technology add-on payments for 
DIFICIDTM is needed to allow sufficient data for future MS-
DRG recalibration analyses.
    With regard to newness criterion, the manufacturer commented that 
it believed that the technology still meets the newness criterion for 
the following reason: Sec.  412.87(b)(2) states 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 
International Classification of Diseases, Ninth Revision, Clinical 
Modification (ICD-9-CM) code assigned to the new service or technology 
(depending on when a new code is assigned and data on the new service 
or technology become available for DRG recalibration). After CMS has 
recalibrated the DRGs, based on available data, to reflect the costs of 
an otherwise new medical service or technology, the medical service or 
technology will no longer be considered `new' under the criterion of 
this section.'' The manufacturer noted that DIFICIDTM was 
not assigned an ICD-9-CM procedure code and DIFICIDTM is the 
first product for which no inpatient procedure is associated to receive 
a new technology add-on payment since the implementation of the new 
technology add-on payment policy.
    The manufacturer also cited the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53352), which indicated that ``Hospitals currently code and 
report procedures and more invasive services such as surgeries, 
infusion of drugs, and specialized procedures such as cardiac 
catheterizations. Hospitals neither code nor report self-administered 
drugs.'' Therefore, the manufacturer contended that, as an oral 
therapy, neither DIFICIDTM nor its administration was 
assigned an ICD-9-CM procedure code and, therefore, the technology 
should still be eligible for the new technology add-on payments.
    The manufacturer further noted that, in the FY 2013 IPPS/LTCH PPS 
final rule, because an ICD-9-CM procedure code for the administration 
of an oral medication did not exist and hospitals had no other 
mechanism to report the use of DIFICIDTM, for FY 2013, CMS 
instructed hospitals to report the DIFICIDTM NDC on hospital 
inpatient claims to receive the new technology add-on payment for 
DIFICIDTM. Prior to October 1, 2012, hospitals did not use 
NDCs on hospital inpatient claims, which prevented CMS from isolating 
DIFICIDTM cases and their associated costs. The manufacturer 
further stated that the NDC methodology was a bold change in policy and 
inpatient billing processes, and it stands to reason that, because of 
hospitals unfamiliarity with reporting NDCs on inpatient claims, 
hospitals' use of the DIFICIDTM NDC would greatly lag behind 
the traditional use of ICD-9-CM procedure codes. As such, the 
manufacturer reasoned that any lag in hospital reporting would directly 
impact CMS' ability to track and analyze the cost data associated with 
DIFICIDTM cases.
    The manufacturer also noted that on August 31, 2012, CMS issued 
Transmittal 2539, which is a change request for Medicare Administrative 
Contractors concerning updates for the upcoming fiscal year. The 
manufacturer stated that because the new technology add-on heading was 
omitted in the transmittal, this change request did not highlight the 
NDC billing approach to ensure that hospitals recognized the important 
change, which may have caused hospitals to overlook the claim reporting 
instructions for DIFICIDTM.
    The manufacturer added that Transmittal 2539 and a Medicare 
Learning Network[supreg] Matters (MLN) article were rescinded and 
replaced by Transmittal 2627 on January 4, 2013. The manufacturer noted 
that among CMS' reasons for replacing the transmittal was to insert the 
omitted new technology add-on section heading. The manufacturer stated 
that, although the original transmittal further supports that 
collection of DIFICIDTM-specific data did not begin until at 
least October 1, 2012, CMS' reissuance of the claims processing 
instructions, and the missing header in the initial instructions, 
effectively delayed implementation of the new technology add-on 
payments for 3 months past the October 2012 beginning date. The 
manufacturer also believed that the need to replace the transmittal 
underlies hospitals' difficulties instituting claims' reporting 
instructions to receive new technology add-on payments for 
DIFICIDTM at the hospital level.
    The manufacturer noted that anecdotal feedback from hospitals, 
which was shared with CMS during a

[[Page 28032]]

meeting in June 2013, suggests that some hospitals faced challenges 
implementing the appropriate billing and coding processes. The 
manufacturer was concerned that that these challenges were, in part, 
caused by the missing header, and that these challenges may have 
impacted whether eligible cases were properly billed and coded to 
receive the new technology add-on payment for DIFICIDTM. The 
manufacturer was further concerned that the effects of any lag or delay 
caused by unfamiliarity with reporting NDCs and the missing header 
would also impact the data available to CMS to recalibrate the MS-DRGs 
and, separately, to evaluate the impact of the new technology add-on 
payment for DIFICIDTM. The manufacturer further explained 
that, while DIFICIDTM was available to hospitals after its 
launch in July 2011, hospitals had no experience reporting NDCs until 
October 2012, and may not have recognized the opportunity to, or 
understood the mechanism for doing so, until after January 2013. For 
the purposes of inpatient data collection and ratesetting, the 
manufacturer believed that this meant that 2 complete years of 
DIFICIDTM costs would not be fully reflected in the Medicare 
claims data for the FY 2015 MS-DRG recalibrations.
    The manufacturer also analyzed the 100 percent sample of the 
Standard Analytical File (SAF) for calendar year 2012, which contained 
first quarter claims data for FY 2013, the first 3 months that 
DIFICIDTM was eligible for the new technology add-on 
payments. The manufacturer found a total of 43,608 cases with a 
diagnosis of CDI. Of these 43,608 cases, the manufacturer found 38 
cases across 26 hospitals that reported new technology add-on payments 
for DIFICIDTM on submitted claims. The manufacturer stated 
that this preliminary data suggests that the number of cases available 
for MS-DRG recalibrations for FY 2015 is limited. The manufacturer 
stated that it is currently attempting to secure FY 2013 MedPAR claims 
data and that it will likely provide further insights on these issues.
    In addition, the manufacturer noted that prior new technology add-
on payment application approvals have involved technologies with much 
narrower patient populations compared to DIFICIDTM, allowing 
the costs of those technologies to influence the MS-DRG relative 
payment weights for the small number of MS-DRGs with which they are 
associated. The manufacturer explained that, unlike other technologies 
approved for new technology add-on payments, the DIFICIDTM 
therapeutic value, while limited to patients with CDAD, is used in 
patients across a wide range of MS-DRGs due to it being reported as a 
secondary diagnosis in two-thirds of the cases compared to other 
technologies, which are assigned to a relatively small number of MS-
DRGs. For example, cases involving the Spiration IBV[supreg] Valve 
System, which was granted approval for new technology add-on payments 
in FY 2010, primarily mapped to three MS-DRGs: 163 (Major Chest 
Procedures with MCC), 164 (Major Chest Procedures with CC), and 165 
(Major Chest Procedures without CC/MCC). In its analysis of the FY 2012 
MedPAR data for the cost criterion, the manufacturer found cases using 
DIFICIDTM mapped to 544 unique MS-DRGs. Under the 100 
percent sample of the SAF for calendar year 2012, the 38 cases 
mentioned above mapped to 20 different MS-DRGs. The manufacturer 
maintained that because of the diffuse nature of the 
DIFICIDTM cases mapping to many MS-DRGs, it believed an 
extension of the newness period is required for the costs to be 
adequately reflected in the MS-DRG relative payment weights. In the 
unique case of DIFICIDTM for the treatment of CDAD, the 
manufacturer stated that 2 years of new technology add-on payments is 
insufficient to allow the 544 MS-DRGs to be recalibrated to 
sufficiently reflect the cost of the use of DIFICIDTM, a 
treatment that offers significant clinical improvement over existing 
therapies.
    With regard to the technology's newness, as discussed in the FY 
2005 IPPS final rule (69 FR 49003), the timeframe that a new technology 
can be eligible to receive new technology add-on payments begins when 
data become available. Section 412.87(b)(2) clearly states 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 (depending on 
when a new code is assigned and data on the new service or technology 
become available for DRG recalibration).'' Section 412.87(b)(2) also 
states, ``[a]fter CMS has recalibrated the DRGs, based on available 
data, to reflect the costs of an otherwise new medical service or 
technology, the medical service or technology will no longer be 
considered `new' under the criterion of this section.'' Therefore, 
regardless of whether a technology can be individually identified by a 
separate ICD-9-CM code or whether it can only be identified using a NDC 
code, if the costs of the technology are included in the charge data, 
and the MS-DRGs have been recalibrated using that data, then the 
technology can no longer be considered ``new'' for the purposes of this 
provision. We further stated in that final rule that the period of 
newness does not necessarily start with the approval date for the 
medical service or technology, and does not necessarily start with the 
issuance of a distinct code. Instead, it begins with availability of 
the product on the U.S. market, which is when data become available. We 
have consistently applied this standard, and believe that it is most 
consistent with the purpose of new technology add-on payments.
    In addition, similar to our discussion in the FY 2006 IPPS final 
rule (70 FR 47349), we do not believe that case volume is a relevant 
consideration for making the determination as to whether a product is 
``new.'' Consistent with the statute, a technology no longer qualifies 
as ``new'' once it is more than 2 to 3 years old, irrespective of how 
frequently it has been used in the Medicare population. Similarly, this 
same determination is applicable no matter how many MS-DRGs the 
technology is spread across. Therefore, if a product is more than 2 to 
3 years old, we consider its costs to be included in the MS-DRG 
relative weights whether its use in the Medicare population has been 
frequent or infrequent. We recognize that using an NDC was a novel 
billing practice under the IPPS. Nevertheless, even though hospitals 
may not have coded all uses of DIFICIDTM with the NDC, 
hospital bills would still include charges for all items and services 
furnished to a Medicare patient, including use of DIFICIDTM. 
Therefore, even though we may be not be able to identify all uses of 
DIFICIDTM in the Medicare charge data, hospital charges for 
the MS-DRGs would continue to reflect use of this technology.
    With respect to the Transmittal 2539 omitting the header referenced 
above, as noted above, CMS corrected this issue as soon as possible by 
rescinding and reissuing this transmittal. Additionally, as noted by 
the manufacturer, this transmittal was meant for MACs and not 
hospitals. We believe the guidance issued in Transmittal 2539 clearly 
described to MACs how hospitals were to report the NDC on the inpatient 
claim in order to identify cases using DIFICIDTM for 
purposes of new technology add-on payments. Additionally, the MLN 
article that the manufacturer referred to above (MLN articles are 
typically a summary of transmittals for the general public) clearly 
indicated that DIFICIDTM was new for FY 2013 new technology 
add-

[[Page 28033]]

on payments and clearly described how to properly code 
DIFICIDTM on the inpatient bill in order to receive the new 
technology add-on payment for FY 2013. The MLN article can be 
downloaded from the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/MM8041.pdf.
    After considering the manufacturer's comments above, we still 
consider the beginning of the newness period to commence when 
DIFICIDTM was first approved by the FDA on May 27, 2011. 
Because the 3-year anniversary date of the product's entry on the U.S. 
market occurred in the second half of the fiscal year (after April 1, 
2014), we continued new technology add-on payments for 
DIFICIDTM for FY 2014. However, for FY 2015, the 3-year 
anniversary date of the product's entry on the U.S. market would occur 
on May 27, 2014, which is prior to the beginning of FY 2015. Therefore, 
we are proposing to discontinue new technology add-on payments for 
DIFICIDTM for FY 2015. We are inviting public comments on 
this proposal.
c. 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.
    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 3-year 
anniversary date of the entry of the Zenith[supreg] F. Graft on the 
U.S. market will occur in the second half of the fiscal year (April 4, 
2015), we are proposing to continue new technology add-on payments for 
this technology for FY 2015. We are inviting public comments on this 
proposal.
d. KcentraTM
    CSL Behring submitted an application for new technology add-on 
payments for KcentraTM for FY 2014. KcentraTM 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. KcentraTM 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. KcentraTM 
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 KcentraTM have diminished.
    KcentraTM was approved by the FDA on April 29, 2013. In 
the FY 2014 IPPS/LTCH PPS final rule, we approved new ICD-9-CM 
procedure code 00.96 (Infusion of 4-Factor Prothrombrin Complex 
Concentrate) which uniquely identifies KcentraTM.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27538), we noted 
that we were concerned that KcentraTM may be substantially 
similar to FFP and/or Vitamin K therapy. In the FY 2014 IPPS/LTCH PPS 
final rule, in response to comments submitted by the manufacturer, we 
stated that we agree that KcentraTM 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, FFP is limited because it 
requires special storage conditions while KcentraTM 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 KcentraTM and treat patients who would possibly 
have no access to FFP. We noted 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 stated that we believe that KcentraTM provides 
a therapeutic option for a new patient population and is not 
substantially similar to FFP. Also, we gave credence to the information 
presented by the

[[Page 28034]]

manufacturer that KcentraTM 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. As a result, we concluded that 
KcentraTM is not substantially similar to FFP, and that it 
meets the newness criterion.
    After evaluation of the newness, cost, and substantial clinical 
improvement criteria for new technology add-on payments for 
KcentraTM and consideration of the public comments we 
received in response to the FY 2014 IPPS/LTCH PPS proposed rule, we 
approved KcentraTM for new technology add-on payments for FY 
2014 (78 FR 50575 through 50580). Cases involving KcentraTM 
that are eligible for new technology add-on payments are 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 for FY 2014.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50579), we stated 
that new technology add-on payments for KcentraTM would not 
be available with respect to discharges for which the hospital received 
an add-on payment for a 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 a blood clotting factor to a 
Medicare beneficiary who has hemophilia and is a hospital inpatient 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 believed that it may be eligible for blood clotting 
factor add-on payments when administered to Medicare beneficiaries with 
hemophilia. We make an add-on payment for KcentraTM for such 
discharges in accordance with our policy for payment of a blood 
clotting factor, and the costs 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 pointed 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.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50579), we stated 
that we believe that hospitals may only receive new technology add-on 
payments for discharges where KcentraTM is an operating cost 
of inpatient hospital services. In other words, a hospital would not 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 would be eligible for a new technology add-on 
payment because KcentraTM would not be excluded from the 
operating costs of inpatient hospital services. Therefore, discharges 
where the hospital receives a blood clotting factor add-on payment are 
not eligible for a new technology add-on payment for the blood clotting 
factor. 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.
    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 KcentraTM, as stated above, we consider the beginning of 
the newness period to commence when KcentraTM was approved 
by the FDA on April 29, 2013. Because KcentraTM is still 
within the 3-year newness period, we are proposing to continue new 
technology add-on payments for this technology for FY 2015. We are 
inviting public comments on this proposal.
e. 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

[[Page 28035]]

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. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50580 through 
50583), we 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.
    After evaluation of the new technology add-on payment application 
and consideration of public comments received, we concluded that the 
Argus[supreg] II System met all of the new technology add-on payment 
policy criteria. Therefore, we approved the Argus[supreg] II System for 
new technology add-on payments in FY 2014 (78 FR 50580 through 50583). 
Cases involving the Argus[supreg] II System that are eligible for new 
technology add-on payments are 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 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 for FY 2014 is 
$72,028.75.
    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 Argus[supreg] II System, as stated above, we consider the 
beginning of the newness period to commence when the Argus[supreg] II

[[Page 28036]]

System was approved by the FDA on February 14, 2013. Because the 
Argus[supreg] II System is still within the 3-year newness period, we 
are proposing to continue new technology add-on payments for this 
technology for FY 2015. We are inviting public comments on this 
proposal.
f. 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).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50583 through 
50585), after evaluation of the new technology add-on payment 
application and consideration of the public comments received, we 
approved 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 are identified by 
ICD-9-CM procedure code 00.60. As explained in the FY 2014 IPPS/LTCH 
PPS final rule, 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 for FY 2014.
    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 Zilver[supreg] PTX[supreg], as stated above, we consider the 
beginning of the newness period to commence when the Zilver[supreg] 
PTX[supreg] was approved by the FDA on November 15, 2012. Because the 
Zilver[supreg] PTX[supreg] is still within the 3-year newness period, 
we are proposing to continue new technology add-on payments for this 
technology for FY 2015. We are inviting public comments on this 
proposal.
4. FY 2015 Applications for New Technology Add-On Payments
    We received seven applications for new technology add-on payments 
for FY 2015, three of which were applications resubmitted from FY 2014. 
However, one applicant withdrew its application prior to the 
publication of this proposed rule. 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. A discussion 
of the six remaining applications is presented below.
a. Dalbavancin (Durata Therapeutics, Inc.)
    Durata Therapeutics, Inc. submitted an application for new 
technology add-on payments for FY 2015 for the use of Dalbavancin. 
Dalbavancin is an intravenous (IV) lipoglycopeptide antibiotic 
administered as a once-weekly 30-minute infusion via a peripheral line 
for the treatment of patients with acute bacterial skin and skin 
structure infections, or ABSSSI. According to the applicant, 
Dalbavancin's unique pharmacokinetic profile demonstrates rapid 
bactericidal activity that is potent and sustained against serious 
gram-positive bacteria, including methicillin-resistant Staphylococcus 
aureus (MRSA).
    With respect to the newness criterion, the applicant stated that 
Dalbavancin's once-weekly dosing, a simpler regimen than the current 
standard of care (Vancomycin) of daily or multiple-times daily 
intravenous dosing, allows for the discontinuation of IV access with 
its attendant risks of line-related thrombosis and infection. The 
applicant submitted a New Drug Approval Application (NDA) on September 
26, 2013, and anticipates FDA approval of Dalbavancin sometime in May 
of 2014. To date, no ICD-10-PCS code specifically describes the 
administration of Dalbavancin. The applicant applied for a new ICD-10-
PCS code to describe the administration of Dalbavancin, which was 
presented at the March 19-20, 2014 ICD-10 Coordination and Maintenance 
Committee meeting. If approved, the code will be effective on October 
1, 2014. We are inviting public comments on whether the technology 
meets the newness criterion.
    We note that 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 substantially 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, the applicant stated that 
Dalbavancin's mechanism of action is unique compared to other 
antibiotics as it involves the interruption of cell wall synthesis 
resulting in bacterial cell death. Furthermore, the applicant cited 
Dalbavancin's long half-life as the factor that differentiates itself 
from existing antibacterial agents active against MRSA. With respect to 
the second criterion, we believe that cases of ABSSSI that use 
Dalbavancin or other antibiotics for treatment would be assigned to the 
same MS-DRGs. Finally, with respect to the third criterion, we believe 
that Dalbavancin and other antibiotics used to treat cases of ABSSSI 
treat the same disease and patient population. Based on evaluation of 
the substantially similarity criteria, it appears that Dalbavancin is 
not substantially similar to other antibiotics for the treatment of 
ABSSSI because it

[[Page 28037]]

does not use the same or a similar mechanism of action to achieve a 
therapeutic outcome. We are inviting public comments regarding whether 
Dalbavancin is substantially similar to existing antibiotics and 
whether Dalbavancin meets the newness criterion.
    According to the applicant, Dalbavancin is indicated to treat gram-
positive ABSSSIs, such as cellulitis or erysipelas, and MRSA. These 
conditions may be a primary diagnosis, but are often secondary to an 
underlying condition such as diabetes, heart failure, pressure ulcers, 
etc. Therefore, the technology is eligible to be used across all MS-
DRGs. To demonstrate that it meets the cost criterion, the applicant 
searched the FY 2012 MedPAR file (across all MS-DRGs) for cases where 
at least one ABSSSI ICD-9-CM code was present on the claim, including 
those where MRSA was present on a claim with an ABSSSI diagnosis. 
Specifically, the applicant searched for cases with one of the 
following diagnosis codes: 035 (Erysipelas); 681.00 (Cellulitis and 
abscess of finger, unspecified); 681.01 (Felon); 681.02 (Onychia and 
paronychia of finger); 681.10 (Cellulitis and abscess of toe, 
unspecified); 681.11 (Onychia and paronychia of toe); 681.9 (Cellulitis 
and abscess of unspecified digit); 682.0-682.9 (Other cellulitis and 
abscess of face, neck, trunk, upper arm and forearm, hand except 
fingers and thumb, buttock, leg except foot, foot except toes, 
specified sites, unspecified sites); 686.00 (Pyoderma, unspecified); 
686.01 (Pyoderma gangrenosum); 686.09 (Other pyoderma); 686.1 (Pyogenic 
granuloma of skin and subcutaneous tissue); 686.8 (Other specified 
local infections of skin and subcutaneous tissue); 686.9 (Unspecified 
local infection of skin and subcutaneous tissue); 958.3 (Posttraumatic 
wound infection not elsewhere classified); 998.51 (Infected 
postoperative seroma); and 998.59 (Other postoperative infection). The 
applicant believed that these cases represent potential cases eligible 
for the administration of Dalbavancin.
    The applicant found 570,698 cases across 682 MS-DRGs and noted that 
almost 25 percent of the total number of cases would map to MS-DRGs 603 
(Cellulitis without MCC), while the top 10 MS-DRGs accounted for almost 
half (or 49 percent) of the total number of cases. Of the 682 MS-DRGs, 
only 90 of these MS-DRGs accounted for 1,000 cases or more. The 
applicant standardized the charges for all 570,698 cases, which equated 
to an average case-weighted standardized charge per case of $46,138. We 
note that the applicant did not inflate the charges nor did it include 
charges for Dalbavancin in the average case-weighted standardized 
charge per case. The applicant calculated an average case-weighted 
threshold of $44,255 across all MS-DRGs. Therefore, the applicant 
asserted the average case-weighted standardized charge per case 
(without inflating and including charges for Dalbavancin) exceeds the 
average case-weighted threshold of $44,255 (as indicated in Table 10 of 
the FY 2014 IPPS/LTCH PPS final rule). Therefore, the applicant 
maintained that Dalbavancin meets the cost criterion. We are inviting 
public comments regarding whether Dalbavancin meets the cost criterion, 
particularly with regard to the assumptions and methodology used in the 
applicant's analysis.
    With regard to substantial clinical improvement, as previously 
stated by the applicant, Dalbavancin is a new intravenous (IV) 
lipoglycopeptide antibiotic administered as a once-weekly 30 minute 
infusion via a peripheral line for the treatment of patients with acute 
bacterial skin and skin structure infections, or ABSSSI. The applicant 
noted that, in the setting of continuing emergence of resistance among 
gram-positive pathogens worldwide, there is an increasing medical need 
for new antibacterial agents with enhanced gram-positive activity. The 
applicant cited the Infectious Diseases Society of America (IDSA),\3\ 
stating the need for a multi-pronged approach to address the impact of 
antibiotic resistance. In addition, the applicant stated the FDA has 
also designated MRSA as a pathogen of special interest which allows an 
antibiotic effective against this organism to be designated as a 
``Qualified Infectious Disease Product,'' recognizing the medical need 
for drugs to treat infections caused by this pathogen. The applicant 
believed that having a medicinal agent with clinical efficacy against 
gram-positive pathogens, including MRSA and CA-MRSA, a favorable 
benefit/risk ratio, and a favorable pharmacokinetics profile allowing 
convenient dosing in inpatients and outpatients with the potential for 
minimizing patient noncompliance would be a valuable addition to the 
antibacterial armamentarium for the treatment of ABSSSI. The applicant 
also noted that, when taking Dalbavancin, there is no need for oral 
step-down therapy.
---------------------------------------------------------------------------

    \3\ ``Bad Bugs, No Drugs,'' July 2004.
---------------------------------------------------------------------------

    The applicant suggested that Dalbavancin offers treatment 
advantages over other available options for therapy for skin infections 
as a result of the following:
     Improved potency against key bacterial pathogens with the 
concentration of Dalbavancin required to kill key target pathogens 
lower relative to other antibiotics commonly used to treat such 
pathogens;
     Retained activity against staphylococcus aureus resistant 
to other antibiotics;
     Improved safety profile as Dalbavancin exhibits more 
favorable tolerability and safety than alternative approved 
antibacterial drugs in areas such as no evidence of thrombocytopenia as 
seen with linezolid and tedezolid, superior infusion related 
tolerability relative to other antiobiotics, an absence or reduction of 
drug specific toxicities, and once a week dosing of IV Dalbavancin 
avoids pitfalls of patient noncompliance with an oral medication;
     Lack of drug interactions due to metabolic profile which 
minimizes risk of unexpected adverse events when co-administered with 
other compounds as seen with linezolid and quinupristin/dalfopristin;
     Decreased requirement for therapeutic interventions, 
specifically the need for an intravenous catheter as Dalbavancin is 
administered once a week, thus reducing catheter related infection as 
well;
     Reduced time to patient defined recovery;
     Reduced mortality rate as demonstrated in the combined 
phase of the Discover 1 and Discover 2 clinical trials;
     The potential for avoidance of admission to the hospital 
as Dalbavancin allows the utilization of a weekly treatment regimen, 
thus potentially increasing the convenience of outpatient therapy for 
patients.
    The applicant conducted three phase three randomized, controlled, 
double blinded clinical trials. The first was the pivotal VER001-9 
study with a total of 873 patients with cSSSIs, which compared the 
safety and efficacy of IV Dalbavancin with possible switch to oral 
placebo to IV Linezolid with possible switch to oral Linezolid. 
According to the applicant, the primary efficacy endpoint of clinical 
response at test of 14 days with a plus or minus of 2 days after 
completion of therapy demonstrated comparable clinical efficacy to 
linezolid and met the requirement of statistical demonstration of 
noninferiority. In the clinically evaluable population, 88.9 percent of 
patients who received Dalbavancin compared to 91.2 percent of patients 
who received vancomycin/linezolid

[[Page 28038]]

were clinical successes. The applicant also noted that Dalbavancin had 
an improved safety profile compared to Linezolid as the overall 
incidence and percentage of adverse events and deaths were lower in the 
Dalbavancin group, which was statistically significant.
    The second and third clinical trials were the Discover 1 and 
Discover 2 trials, which enrolled a total of 1,312 patients with ABSSSI 
and compared IV Dalbavancin with IV placebo every 12 hours to match 
Vancomycin with possible switch to oral Vancomycin to IV Vancomycin 
with IV placebo to match IV Dalbavancin with possible switch to oral 
Linezolid. The applicant reported that in both studies, the primary 
efficacy outcome measure was clinical response in 48 to 72 hours post-
study drug initiation and a secondary outcome measure was clinical 
status at the end of treatment visit (day 14) in the Intent to Treat 
(ITT) and clinically evaluable at End of Treatment populations. 
Clinical status was also determined at the short-term follow-up and 
long-term follow-up visits.
    According to the applicant, the Discover 1 trial demonstrated that 
83.3 percent of patients in the ITT population who received Dalbavancin 
were responders at 48 to 72 hours after the start of therapy compared 
to 81.8 percent of patients who received Vancomycin/Linezolid. The 
applicant also noted that Dalbavancin was noninferior to Vancomycin/
Linezolid (Absolute Difference in Success Rates (95 percent confidence 
interval): -4.6 percent; 7.9 percent).
    The applicant further noted that the Discover 2 trial showed 
similar results to the Discover 1 trial. Specifically, the trial 
demonstrated that 76.8 percent of patients in the ITT population who 
received Dalbavancin were responders at 48 to 72 hours after the start 
of therapy compared to 78.3 percent of patients who received 
Vancomycin/Linezolid. The applicant again noted that Dalbavancin was 
noninferior to Vancomycin/Linezolid (Absolute Difference in Success 
Rates (95 percent confidence interval): -7.4 percent; 4.6 percent).
    The applicant found Dalbavancin to be effective against MRSA and 
other gram-positive bacteria associated with ABSSSI. The applicant 
stated that 25 percent of patients in the study were treated without an 
inpatient admission.
    We are concerned with the details of the trial design and the 
primary efficacy endpoints used within those trials that were used to 
provide the clinical data supplied by the applicant. All of the trials 
were noninferiority studies, which prevent any determination as to 
substantial clinical improvement from the trial data. The primary 
efficacy endpoint was defined as having no increase in lesion size, and 
no fever 48 to 72 hours after drug initiation. The secondary endpoint 
was a >20 percent reduction in infection area at defined points in 
time. At neither endpoint is the patient oriented endpoint of 
resolution of infection increased. With these limitations in using 
efficacy data to establish substantial clinical improvement, the 
applicant suggested that the outpatient treatment, elimination of 
central lines and avoidance of hospitalization all may improve safety, 
avoid treatment-associated infections and improve patient satisfaction, 
and that these factors demonstrate substantial clinical improvement. 
While the factors mentioned may be true, the applicant did not present 
any evidence to support its assertions. We are inviting public comments 
on whether Dalbavancin meets the substantial clinical improvement 
criterion, including public comments in response to our concern that 
the applicant has only provided efficacy data of noninferiority, and no 
data for the other suggested benefits.
    We did not receive any public comments in response to the New 
Technology Town Hall meeting held on February 12, 2014 regarding this 
technology.
b. Heli-FXTM EndoAnchor System (Aptus Endosystems, Inc.)
    The Heli-FXTM EndoAnchor System is indicated for use in 
the treatment of patients whose endovascular grafts during treatment of 
aortic aneurysms have exhibited migrations or endoleaks, or in the 
treatment of patients who are at risk of such complications, and in 
whom augmented radial fixation and/or sealing is required to regain or 
maintain adequate aneurysm exclusion.
    The Heli-FXTM EndoAnchor System is comprised of the 
following three components: (1) The EndoAnchor Implant; (2) the Heli-
FXTM Applier; and (3) the Heli-FXTM Guide with 
Obturator. The Heli-FXTM EndoAnchor System is a mechanical 
fastening device that is designed to enhance the long-term durability 
and reduce the risk of repeat interventions in endovascular aneurysm 
repair (EVAR) and thoracic endovascular aneurysm repair (TEVAR). By 
deploying a small helical screw (the Heli-FXTM EndoAnchors) 
to connect the endograft to the aorta, the Heli-FXTM System 
seeks to provide a permanent seal and fixation, similar to the 
stability achieved with an open surgical anastomosis.
    The original Heli-FXTM EndoAnchor System, designed for 
treating abdominal aortic aneurysms (AAA), was cleared by the FDA 
through the ``de novo'' 510(k) process on November 21, 2011 (reference 
K102333). The Heli-FXTM Thoracic System, which allows the 
expanded use of the Heli-FXTM EndoAnchor System technology 
to the treatment of thoracic aortic aneurysms (TAA), was cleared by the 
FDA on August 14, 2012 (reference K121168).
    The applicant submitted two applications for approval for new 
technology add-on payment in FY 2015: one for the treatment of AAAs and 
the other for the treatment of TAA repair. We note that, as stated in 
the Inpatient New Technology Add-on Payment Final Rule (66 FR 46915), 
two applications are necessary in this instance, because patients that 
may be eligible for use of the technology under the first indication 
are not expected to be assigned to the same MS-DRGs as patients 
receiving treatment using the new technology under the second 
indication. Specifically, patients who have endovascular grafts 
implanted for the treatment of AAA map to MS-DRGs 237 (Major 
Cardiovascular Procedures with MCC) and 238 (Major Cardiovascular 
Procedures without MCC), while patients who have endovascular grafts 
implanted for the treatment of TAA map to MS-DRGs 219 (Cardiac Valve 
and Other Major Cardiothoracic Procedure without Cardiac Catheter with 
MCC), 220 (Cardiac Valve and Other Major Cardiothoracic Procedure 
without Cardiac Catheter with CC), and 221 (Cardiac Valve and Other 
Major Cardiothoracic Procedure without Cardiac Catheter without CC/
MCC). Each indication/application must also meet the cost criterion and 
the substantial clinical improvement criterion in order to be eligible 
for new technology add-on payments beginning in FY 2015. We discuss 
both of these applications below.
(1) Heli-FXTM EndoAnchor System for the Treatment of AAA
    As mentioned above, the original Heli-FXTM EndoAnchor 
System, designed for treating patients diagnosed with AAA, was cleared 
by the FDA through the ``de novo'' 510(k) process on November 21, 2011 
(reference K102333). According to the applicant, the device became 
available to Medicare beneficiaries following the product launch at the 
Society of Vascular Surgery (SVS) Annual Meeting held on June 7-9, 
2012. Therefore, the applicant maintained that the Heli-FXTM 
EndoAnchor System meets the ``newness'' criterion because the

[[Page 28039]]

technology was not available on the U.S. market until June 2012. The 
applicant explained that the delay in the general market availability 
of the original Heli-FXTM EndoAnchor System, following 
initial FDA clearance, was mainly because of the regulatory uncertainty 
inherent in the ``de novo'' 510(k) process. This uncertainty prevented 
the manufacturer from being able to secure the venture capital funding 
that was necessary to prepare for commercialization before obtaining 
market clearance. The ability to secure venture capital through the 
fundraising process was dependent upon the FDA clearance. According to 
the applicant, funding to commercially market the technology was not 
obtained until June 2012. In subsequent discussions with the applicant, 
the applicant confirmed that the Heli-FXTM EndoAnchor System 
was available on the U.S. market as of November 2011. Further, the 
applicant acknowledged that four implantations were performed on 
Medicare beneficiaries between November 2011 and June 2012. Therefore, 
the Heli-FXTM EndoAnchor System is considered ``new'' as of 
November 2011 when the technology was cleared by the FDA and became 
available on the U.S. market.
    Section 412.87(b)(2) of the regulations state 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.'' Our past practice 
has been to begin and end the eligibility for new technology add-on 
payments on a fiscal year basis. We have generally followed a guideline 
that uses a 6-month window, before and after the beginning of the 
fiscal year, to determine whether to still consider a technology 
``new'' and extend approved new technology add-on payments for an 
additional fiscal year. In general, a technology is still considered 
``new'' (and eligible to receive new technology add-on payments) only 
if the 3-year anniversary date of the product's entry on the market 
occurs in the latter half of the fiscal year. (We refer readers to 70 
FR 47362.) With regard to the newness criterion for the Heli-
FXTM EndoAnchor System, as stated above, we consider the 
beginning of the newness period for the device to begin when the 
technology first became available on the U.S. market in November 2011. 
As previously stated, the applicant acknowledged that four 
implantations were performed on Medicare beneficiaries between November 
2011 and June 2012. Therefore, the costs of the Heli-FXTM 
EndoAnchor System are currently reflected in the MS-DRGs, and the 3-
year anniversary date under the newness criterion for the product's 
entry on the U.S. market will occur during November 2014 (the first 
half of FY 2015). As such, we do not believe that the Heli-
FXTM EndoAnchor System meets the newness criterion. We are 
inviting public comments on whether the Heli-FXTM EndoAnchor 
System meets the newness criterion.
    The applicant requested an ICD-10-PCS code, and presented comments 
at the March 2014 ICD-10 Coordination & Maintenance Committee meeting.
    To demonstrate that the technology meets the cost criterion, the 
applicant researched claims data from the 100 percent sample of the 
2012 Inpatient Hospital Standard Analytical File (SAF) for cases 
reporting either procedure code 39.71 (Endovascular implantation of 
other graft in abdominal aorta), or procedure code 39.79 (Other 
endovascular procedures on other vessels) in the first or second 
procedure position on the claim, in combination with one of the 
following primary diagnosis codes: 441.4 (Abdominal aneurysm without 
mention of rupture); 996.1 (Mechanical complication of other vascular 
device, implant, and graft); or 996.74 (Other complications due to 
other vascular device, implant, and graft). The applicant believed that 
this combination of ICD-9-CM codes identifies cases treated for AAA. We 
note that the 2012 SAF dataset includes all claims submitted from 
hospitals paid under the IPPS for calendar year 2012.
    The applicant focused its analysis on MS-DRGs 237 and 238 because 
these are the MS-DRGs that cases treated with the implantation of 
endovascular grafts for AAAs would most likely map to. The applicant 
found a total of 8,142 cases, and noted that 9.35 percent of the total 
number of cases would map to MS-DRG 237, and 90.65 percent of the total 
number of cases would map to MS-DRG 238. The applicant standardized the 
charges for all 8,142 cases. Using the inflation factor of 1.47329 
published in the FY 2014 IPPS/LTCH final rule (78 FR 50982), the 
applicant inflated the standardized charges by 14.88 percent (the 
applicant multiplied 1.47329 x 1.47329 x 1.47329 in order to inflate 
the charges from 2012 to 2015). The applicant then added the charges 
for the Heli-FXTM EndoAnchor System to the standardized 
charges by dividing the cost of the Heli-FXTM EndoAnchor 
System device by each individual hospital specific CCR from the FY 2012 
impact file. This equated to an average case-weighted inflated 
standardized charge per case of $111,613. The applicant noted that the 
average case-weighted inflated standardized charge per case did not 
contain additional operating room charges that relate to the Heli-
FXTM EndoAnchor System. Therefore, the applicant determined 
that it was necessary to add an additional $1,440 for operating room 
charges, which was based on an additional half hour of operating room 
time from one hospital, to the average case-weighted standardized 
charge per case. This resulted in an average case-weighted standardized 
charge per case of $113,053. The applicant calculated an average case-
weighted threshold of $86,278 across both MS-DRGs 237 and 238. The 
applicant noted that the average case-weighted standardized charge per 
case, computed without including the additional operating room charges 
that relate to the Heli-FXTM EndoAnchor System, exceeded the 
average case-weighted threshold of $86,278. Therefore, the applicant 
maintained that the technology meets the cost criterion.
    The applicant also submitted claims data from the ANCHOR (Aneurysm 
Treatment Using the Heli-FX Aortic Securement System Global Registry) 
study to demonstrate that the technology meets the cost criterion. A 
total of 51 cases were submitted with 11.76 percent of all the cases 
mapping to MS-DRG 237, and 88.24 percent of all the cases mapping to 
MS-DRG 238. The applicant standardized the charges for all 51 cases, 
and determined an average case-weighted standardized charge per case of 
$128,196. The applicant calculated an average case-weighted threshold 
of $87,118 across MS-DRGs 237 and 238. Therefore, because the average 
case-weighted standardized charge per case exceeds the average case-
weighted threshold, the applicant maintained that the technology meets 
the cost criterion. We are inviting public comments on whether the 
Heli-FXTM EndoAnchor System meets the cost criterion, 
particularly with regard to the assumptions and methodology used in the 
applicant's analyses. We discuss whether the Heli-FXTM 
EndoAnchor System represents a substantial clinical improvement over 
other treatments used for the repair of both abdominal and thoracic 
aortic aneurysms in one discussion below.
(2) Heli-FXTM EndoAnchor System for the Treatment of 
Thoracic Aortic Aneurysms
    The Heli-FXTM Thoracic System, which allows the expanded 
use of the Heli-FXTM EndoAnchor System technology to TAA 
repair, was cleared

[[Page 28040]]

by the FDA on August 14, 2012 (reference K121168). The new system 
consists of a longer delivery device with additional tip configurations 
to allow the helical EndoAnchor technology to treat TAA. A line 
extension to the original Heli-FXTM EndoAnchor System, 
allowing improved treatment of AAA patients with larger aortic neck 
diameters, was cleared by the FDA on April 12, 2013 (reference 
K130677).
    With regard to the newness criterion for the Heli-FXTM 
Thoracic System, we consider the beginning of the newness period for 
the device to begin when the technology was approved by the FDA on 
August 14, 2012. Because the 3-year anniversary date of the product's 
entry on the U.S. market would occur in the second half of FY 2015 
(August 14, 2015), we believe that the Heli-FXTM Thoracic 
System meets the newness criterion. We are inviting public comments on 
whether the Heli-FXTM Thoracic System meets the newness 
criterion. As stated above, the applicant requested an ICD-10-PCS code, 
and presented comments at the March 2014 ICD-10 Coordination & 
Maintenance Committee meeting.
    To demonstrate that the Heli-FXTM Thoracic System meets 
the cost criterion, similar to the analysis performed for the Heli-
FXTM EndoAnchor System for the treatment of AAA, the 
applicant researched claims data from the 100 percent sample of the 
2012 SAF for cases reporting procedure code 39.73 (Endovascular 
implantation of graft in thoracic aorta) in the first or second 
procedure position on the claim, in combination with one of the 
following primary diagnosis codes: 404.93 (Hypertensive heart and 
chronic kidney disease, unspecified, with heart failure and chronic 
kidney disease stage V or end-stage renal disease); 441.01 (Dissection 
of aorta, thoracic); 441.03 (Dissection of aorta, thoracoabdominal); 
441.2 (Thoracic aneurysm without mention of rupture); 441.4 (Abdominal 
aneurysm without mention of rupture); 441.7 (Thoracoabdominal aneurysm, 
without mention of rupture); 996.1 (Mechanical complication of other 
vascular device, implant, and graft); or 996.74 (Other complications 
due to other vascular device, implant, and graft). The applicant 
believed that this combination of ICD-9-CM codes identifies cases 
treated for TAA. We note that the 2012 SAF dataset includes all claims 
submitted from hospitals paid under the IPPS for CY 2012.
    The applicant focused its analysis on MS-DRGs 219, 220, and 221 
because these are the MS-DRGs to which cases treated with the 
implantation of endovascular grafts for TAA repair would most likely 
map. The applicant found a total of 642 cases, and noted that 27.88 
percent of the total number of cases would map to MS-DRG 219, 40.50 
percent of the total number of cases would map to MS-DRG 220, and 31.62 
percent of the total number of cases would map to MS-DRG 221. The 
applicant standardized the charges for all 642 cases. Using the 
inflation factor of 1.47329 published in the FY 2014 IPPS/LTCH final 
rule (78 FR 50982), the applicant inflated the standardized charges by 
14.88 percent (the applicant multiplied 1.47329 x 1.47329 x 1.47329 in 
order to inflate the charges from 2012 to 2015). The applicant then 
added the charges for the Heli-FXTM EndoAnchor System to the 
standardized charges by dividing the cost of the Heli-FXTM 
EndoAnchor System device by each individual hospital specific CCR from 
the FY 2012 impact file. This equated to an average case-weighted 
inflated standardized charge per case of $156,625. The applicant noted 
that the average case-weighted inflated standardized charge per case 
did not contain additional operating room charges related to the use of 
this technology. Therefore, the applicant determined that it was 
necessary to add an additional $2,160 for operating room charges, which 
was based on an additional 45 minutes of operating room time from one 
hospital, to the average case-weighted standardized charge per case. 
This resulted in an average case-weighted standardized charge per case 
of $158,785. The applicant calculated an average case-weighted 
threshold of $141,194 across MS-DRGs 219, 220, and 221. The applicant 
noted that the average case-weighted standardized charge per case, 
without including charges for additional operating room time, exceeded 
the average case-weighted threshold of $141,194. Therefore, the 
applicant maintained that the technology meets the cost criterion. We 
are inviting public comments on whether the Heli-FXTM 
Thoracic System meets the cost criterion, particularly with regard to 
the assumptions and methodology used in the applicant's analysis.
(3) Evaluation of the Substantial Clinical Improvement Criterion for 
the Heli-FXTM EndoAnchor System for the Treatment of 
Abdominal and Thoracic Aortic Aneurysms
    The applicant stated that the Heli-FXTM EndoAnchor 
System represents a substantial clinical improvement for the following 
reasons: The technology improves overall rates of aneurysm exclusion 
and long-term success after EVAR by increasing the integrity and long-
term durability of the proximal seal and fixation; the technology 
reduces the risk and rate of secondary interventions and readmissions 
due to aneurysm-related complications (for example, endoleaks, 
migration, aneurysm enlargement) caused by failure of the proximal 
seal; the technology improves the general applicability of EVAR to 
patients with a broader spectrum of aortoiliac anatomy, including those 
with hostile proximal neck anatomy; and the technology reduces the 
rigor of life-long imaging follow-up for EVAR patients by reducing the 
rate of late failure and increasing the post-EVAR rates of aneurysm sac 
regression due to complete, endoleak-free durable aneurysm exclusion.
    While current devices and capabilities are greatly improved over 
the first generation of devices, the applicant noted that EVAR 
treatments using the first generation of devices has not proven to be 
as durable, anatomically applicable, or complication-free as open 
surgery. 4 5 6 7 Several critical and life-threatening 
limitations continue to require improvement to these devices and 
procedures, including the need to reduce serious early and late device 
and procedure-related complications, such as loss of stability, and 
integrity and robustness of the clinical proximal aortic landing zone, 
and to offer an alternative method of EVAR to a broader segment of the 
patient population.
---------------------------------------------------------------------------

    \4\ Abbruzzese, T.A., Kwolek, C.J., Brewster, D.C., et al, 
``Outcomes following endovascular abdominal aortic aneurysm repair 
(EVAR): An anatomic and device-specific analysis,'' Journal of 
Vascular Surgery, 2008, Vol. 48, pp. 19-28.
    \5\ Dangas, G., O'Connor, D., Firwana, B., et al, ``Open Versus 
Endovascular Stent Graft Repair of Abdominal Aortic Aneurysms: A 
Meta-Analysis of Randomized Trials,'' JACC, 2012, Vol. 5 (10), pp. 
1072-1080.
    \6\ De Bruin, J.L., Baas, A.F., Buth, J., et al, ``Long-Term 
Outcome of Open or Endovascular Repair of Abdominal Aortic 
Aneurysm,'' New England Journal of Medicine, May 2010, Vol. 362(20), 
pp. 1881-1889.
    \7\ Greenhalgh, R.M., Brown, L.C., Powell, J.T., et al, 
``Endovascular versus open repair of abdominal aortic aneurysm,'' 
New England Journal of Medicine, May 2010, Vol. 362(20), pp. 1863-
1871.
---------------------------------------------------------------------------

    The applicant provided literature, analyses of data from the 
``STAPLE-2'' clinical trial and the ANCHOR Registry, and a meta-
analysis of EVAR trials to demonstrate that the Heli-FXTM 
EndoAnchor System represents a substantial clinical improvement above 
current treatments available. We summarize the information provided by 
the applicant that supports the clinically beneficial results of using 
the Heli-FXTM EndoAnchor System.
    The ``STAPLE-2'' clinical trial enrolled 155 patients at 25 U.S. 
centers between September 2007 and January

[[Page 28041]]

2009. Clinical (and imaging) data are available for 147, 139 and 125 
patients at 1-year, 2-year, and 3-year follow-up, respectively, 
representing the complete data sets at these time points. Patients 
enrolled in the clinical trial and observed under the study will 
continue to be followed per protocol for 5 years following aneurysm 
repair. According to the applicant, the results of the trial and study 
demonstrate that the Heli-FXTM EndoAnchor System is 
associated with an extremely low rate of proximal neck-related issues 
in long-term follow-up. The applicant maintained that this 
determination results in improved outcomes for aortic aneurysm 
patients, and reduced rate of re-interventions, which are associated 
with hospital admissions, procedural risks, and reversions to increased 
follow-up frequency requiring more physician visits and radiographic 
imaging studies.
    The data used for this analysis was extracted from the clinical 
database on February 1, 2013, and are identical to those used to 
generate the most recent Annual Progress Report (APR) submitted to the 
FDA, as required under the U.S. IDE regulations.
    While the ``STAPLE-2'' clinical trial was conducted exclusively 
with the Aptus AAA endograft (which remains investigational), the 
applicant believed that the use of the Heli-FXTM EndoAnchor 
System-related data is applicable to the use of the anchor with the 
compatible Cook, Gore, and Medtronic manufactured endografts in 
treatment anatomies for AAA and TAA cases.
    Through 3-year follow-up, the applicant noted that there have been 
no anchor fractures as observed by the core lab. Further, there have 
been no relative migrations of the Heli-FXTM EndoAnchor 
System as compared to other endografts reported by the core laboratory.
    In the analysis of the ``STAPLE-2'' clinical trial data at 1-year 
follow-up, the applicant noted that the core lab observed no proximal 
migrations, and a single case of Type I endoleak. A single secondary 
intervention was required to address the Type I endoleak in a patient 
with a circumferentially incomplete proximal neck within the 1-year 
follow-up period.
    The applicant further noted that no additional Type I endoleaks 
have been observed beyond the 1-year follow-up in any patient enrolled 
in the trial. In addition, there were no reported instances of aneurysm 
rupture, vessel perforation, vessel dissection, catheter embolization, 
enteric fistula, infection, Type III endoleak, conversion, allergic 
reactions, renal emboli, or patient death associated with the use of 
the Heli-FXTM EndoAnchor System. Further, there have been no 
reports of bleeding or hematoma at the EndoAnchor penetration locations 
in the aortic neck.
    Beyond the 1-year follow-up, three patients have demonstrated 
proximal migrations less than 1 cm. None of these cases were associated 
with Type I endoleaks or aneurysm sac expansions.
    The applicant then compared migrations and Type I endoleaks data 
from the ``STAPLE-2'' clinical trial to analogous data from five 
compatible AAA endografts that were not anchored (data taken from 
published SSE data obtained from the FDA's Web site). One year of data 
was compared because this timeframe is what is reported in a standard 
fashion from IDE trials of endografts. The applicant noted that the 
Heli-FXTM EndoAnchor System data compares favorably against 
the data obtained in U.S. pivotal trials of devices that did not employ 
discrete independent fixation means, particularly when viewed in light 
of the shorter average neck lengths treated in the ``STAPLE-2'' 
clinical trial versus those involving the Cook, Gore, and Medtronic 
manufactured endografts. According to the applicant, the number of 
proximal migrations were low across devices as reported in the SSE 
data, and an analysis using the Fisher's exact method demonstrated no 
statistically significant differences when compared to the anchored 
endografts used in the ``STAPLE-2'' clinical trial (all p = NS). The 
incidence of Type I endoleaks and the need for secondary interventions 
to address them was significantly lower for the Heli-FXTM 
EndoAnchor System endografts analyzed under the ``STAPLE-2'' clinical 
trial versus the Medtronic, AneuRx, and Talent manufactured endografts 
(p = 0.026 versus AneuRx and p = 0.015 versus Talent). The applicant 
stated that the applicability of post-hoc statistical analyses is 
limited. However, the applicant believed that because the data being 
compared under the analyses were collected through similar protocols 
and with the same endpoint definitions, post-hoc comparisons were 
deemed appropriate. The applicant further believed that the comparison 
of this data demonstrates that the Heli-FXTM EndoAnchor 
System is associated with very low rates of Type I endoleaks and 
migrations.
    The applicant also provided data from the ANCHOR Registry, which is 
a post-market, prospective, observational, multi-center, international, 
dual-arm study designed to capture real-world data on the usage 
patterns and clinical results associated with the use of the Heli-
FXTM EndoAnchor System as a method of treatment for patients 
in need of EVAR. The applicant explained that the ANCHOR Registry 
represents a growing body of data on the application of the Heli-
FXTM EndoAnchor System used as a method of endovascular 
aortic aneurysm repair. The applicant noted that to its knowledge, the 
anatomical challenges present in the registry are greater than those in 
any large scale published series. The applicant further noted that, 
although long-term results are limited, the acute results demonstrate a 
high level of device safety, technical feasibility and acute success in 
a patient population with few viable options.
    Primary safety for the ANCHOR Registry is being measured as a 
composite of freedom from device or procedure-related serious adverse 
events through 1-year follow-up following the Heli-FXTM 
EndoAnchor System implantation. Primary effectiveness is being measured 
as a composite of acute technical success and freedom from Type Ia 
endoleaks and endograft migrations through 1-year follow-up. Inclusion 
and exclusion criteria are minimal, essentially following the IFU 
requirements. Patients are being followed in the registry by their 
physician's standard of care for 5 years.
    Enrollment in the ANCHOR Registry began in March 2012. Through 
August 2013, a total of 258 patients were enrolled at 40 participating 
centers (29 located in the United States and 11 located in the European 
Union), and data are available in the registry's database. Of these, 
195 patients (76 percent) were enrolled in the primary arm, having the 
Heli-FXTM EndoAnchor System implanted at the time of their 
initial aneurysm treatment, either as a prophylactic measure, or to 
address an acute leak seen on completion arteriography. The remaining 
patients (63 or 24 percent) were enrolled in the revision arm, having 
the Heli-FXTM EndoAnchor Systems implanted at a secondary 
procedure to arrest migration, or address endoleaks discovered on 
follow-up in previously implanted endografts.
    The applicant noted that physicians are choosing to apply the Heli-
FXTM EndoAnchor System in a subset of patients that are at a 
higher risk for proximal neck-related complications during follow-up. 
The large average sac diameter in the revision arm suggested that these 
patients' initial treatments were unsuccessful and, as such, they have 
experienced continued sac expansion post-EVAR. These patients

[[Page 28042]]

also represent a high-risk subset of patients.
    Acute results are measured in terms of technical success. In the 
primary arm, 193 of 194 procedures were successful, and in the revision 
arm, 57 of 63 procedures were successful. All technical failures were 
persistence of Type Ia endoleaks. There has been a single re-
intervention at 69 days post-Endoanchor implantation for a persistent 
Type Ia endoleak in one patient in the revision arm, in which the Heli-
FXTM EndoAnchor System combined with a proximal cuff were 
unable to completely resolve the endoleak. There have been no device-
related serious adverse events.
    As mentioned above, because the ``STAPLE-1,'' \8\ and ``STAPLE-2'' 
clinical trials were single-arm studies, no data are available from 
them to assess the impact of the Heli-FXTM EndoAnchor System 
on endograft performance. To make this assessment, a meta-analysis was 
conducted. The meta-analysis combined long-term AAA endograft 
performance from endografts marketed in the United States, and compared 
these measures to those from long-term follow-up in the ``STAPLE-2'' 
trial.
---------------------------------------------------------------------------

    \8\ Deaton, D.H., Mehla, M., Kasirajan, K., et al., ``The Phase 
I Multi-center Trial (Staple-1) of the Aptus Endovascular Repair 
System: Results at 6 Months and 1 Year,'' Journal of Vascular 
Surgery, 2009, Vol. 49, pp. 851-857 (discussion on pp. 857-858.)
---------------------------------------------------------------------------

    According to the applicant, the key findings from the meta-analysis 
are as follows:
     Heli-FXTM EndoAnchors reduced the proportion of 
treated aneurysms with enlargement greater than 5 mm at 3 years from 
12.7 percent to 3.9 percent (p = .002).
     Heli-FX EndoAnchor System reduced the proportion of leaks 
requiring treatment at 3 years from 12 percent to 1.3 percent (p < 
.001).
     Heli-FXTM EndoAnchor System reduced (all-cause) 
mortality at 3 years from 18.8 percent to 8.4 percent (p = .002). 
However, this does not appear to have been totally mediated by AAA-
related mortality, which was reduced by the Heli-FXTM 
EndoAnchor System from 2.5 percent to 0.7 percent at 3 years (but was 
not statistically significant, p = .372).
    According to the applicant, in general, patients in the ANCHOR 
Registry were similar to the patients in the AAA endograft studies. The 
applicant noted that the results of the analysis using the Fisher's 
Exact Tests were consistent between the All-Studies' comparisons and 
the IDE-Studies' comparisons: All-Cause Mortality, Leaks requiring 
Treatment, and Enlargement were all significantly lower at 3 years in 
the endografts implanted with the Heli-FXTM EndoAnchor 
System than in standard endografts.
    The applicant asserted that the meta-analysis shows that there is 
objective evidence that the Heli-FXTM EndoAnchor System 
effectively reduces well-documented problems with endografts. By 
providing the endograft with better apposition to the native artery, 
the applicant noted that the Heli-FXTM EndoAnchor System 
reduces the rates of enlargement and endoleaks requiring treatment. The 
applicant further noted that these results were consistent in the All-
Studies' and IDE Studies' meta-analyses. The applicant believed that 
lower rates of leaks requiring intervention would save payers money 
over the long term.
    The applicant observed that, while there was no significant 
improvement in the rate of ruptures with the Heli-FXTM 
EndoAnchor System, this may be due to the fact that leaks were treated 
and, thereby, prevented any ruptures. The applicant believed that the 
higher rate of treated endoleaks in endografts implanted without the 
Heli-FXTM EndoAnchor System provides for this hypothesis. 
Also, migration did not appear to be significantly reduced by the Heli-
FXTM EndoAnchor System (3.5 percent at 3 years in both 
groups; p = 1.0).
    Finally, the applicant concluded that, overall, the lower 
complication rates seen with the Heli-FXTM EndoAnchor System 
in the meta-analysis provide evidence of the clinical benefits and 
likely economic benefits associated with the use of the Heli-
FXTM EndoAnchor System. The applicant believed that the 
technology may be especially helpful in patients with difficult 
anatomy, and that it may be reasonable to consider using the Heli-
FXTM EndoAnchor System prophylactically in the treatment of 
all such patients.
    In addition to the formal study data from the ``STAPLE-2'' trial, 
the Global ANCHOR Registry, and the meta-analysis based on these, the 
applicant provided published peer-reviewed literature that represent an 
early state of scientific data dissemination outside of non-company 
sponsored clinical studies, which is commensurate with the recent 
market approvals of the Heli-FXTM EndoAnchor System 
technology. The applicant believed that this data demonstrates strong 
initial physician enthusiasm and resulting favorable clinical results 
in their experience to date. The applicant noted that the general body 
of scientific literature is considered meaningful and growing for this 
early stage of market introduction. However, the applicant asserted 
that the literature supports the study and meta-analysis data above 
that documents that improved clinical outcomes were observed, including 
outcomes in a broader range of patients that are often ineligible for, 
or at greatest risk with, EVAR.
    We are concerned that the three sources of data, the ``STAPLE-2'' 
clinical trial, the Anchor registry, and the literature review that the 
applicant submitted to support their application are not high quality 
evidence. The ``STAPLE-2'' study was a single-arm study and only used 
one endograft, the registry is an observational study, and the 
literature review does not provide clinical data. Also, the meta-
analysis of all the submitted data is only as good as the data used. 
While the clinical data submitted suggests that some outcomes such as 
EVAR failure are improved, we are concerned that there is not enough 
clinical evidence to support the substantial clinical improvement 
criterion. We are inviting public comments on whether the submitted 
data demonstrate that the Heli-FXTM EndoAnchor System 
represents a substantial clinical improvement in the treatment of 
Medicare beneficiaries, particularly in regard to the concerns we have 
identified.
    We received public comments in response to the New Technology Town 
Hall meeting held on February 12, 2014. We summarize these comments 
below.
    Comment: Several commenters supporting new technology add-on 
payments for the Heli-FXTM EndoAnchor System. In addition, 
one commenter believed that EndoAnchors would broaden the applicability 
of endovascular aneurysm repair. The commenter noted that use of 
EndoAnchors increases the force needed to dislodge the proximal neck of 
the graft by several times, and in some cases even stronger than a 
hand-sewn anastomosis. This commenter further noted that this would 
allow patients with short, or otherwise difficult aortic necks to be 
treated more safely with endovascular aneurysm repair. The commenter 
stated that the technology is beneficial for patients who have medical 
problems or advanced age as contraindications to open surgery because 
endovascular repair can be made possible with the Heli-FXTM 
EndoAnchor System.
    The commenter further stated that patients with endoleaks 
identified during follow-up are frequently not candidates for extension 
prostheses and would otherwise require open explantation of the graft 
and aneurysm

[[Page 28043]]

repair. The commenter explained that these are far more challenging and 
risky operations than primary open aneurysm repairs, and are routinely 
associated with blood loss of several liters as well as prolonged lower 
extremity, renal, and visceral ischemia. The commenter noted that many 
of these often elderly patients can be successfully treated in a 
minimally invasive manner using the Heli-FXTM EndoAnchor 
System, reestablishing proximal fixation and seal while avoiding the 
morbidity and mortality associated with graft explantation and open 
repair. The commenter concluded that if new technology add-on payments 
are approved for the Heli-FXTM EndoAnchor System, many 
patients would realize the advantages of this unique and necessary 
device, improving their care and reducing overall cost.
    Another commenter stated that the Heli-FXTM EndoAnchor 
System provides an opportunity to extend a less mortal procedure (EVAR) 
to patients whose anatomy may predispose them to late failure, 
including patients with large proximal neck diameters, increased iliac 
diameters, or abnormal neck anatomy. In primary repair, the applicant 
stated that endoanchors have been demonstrated to mimic a surgical 
anastomosis. The commenter believed that this would lead to less 
reinterventions and less aneurysm related mortality. Given the cost of 
reintervention or treating a ruptured AAA, the commenter believed that 
this technology should have a real impact in the overall cost of EVAR 
in this patient population.
    Response: We appreciate the commenters' support. We considered 
these comments in our evaluation of the Heli-FXTM EndoAnchor 
System application for new technology add-on payments for FY 2015 and 
in the development of this proposed rule. As stated above, we are 
inviting additional public comments on whether the Heli-FXTM 
EndoAnchor System represents a substantial clinical improvement in the 
treatment of Medicare beneficiaries, particularly in regard to the 
concerns we have identified.
c. WATCHMAN[supreg] Left Atrial Appendage Closure Technology
    Boston Scientific Corporation submitted an application for new 
technology add-on payments for the WATCHMAN[supreg] Left Atrial 
Appendage Closure Technology (Watchman[supreg] System) for FY 2015. 
When a patient has an arrhythmia known as atrial fibrillation (AF), the 
left atrium does not expand and contract normally. As a result, the 
left atrium is not capable of completely emptying itself of blood. 
Blood may pool, particularly in the part of the left atrium called the 
left atrial appendage. This pooled blood is prone to clotting, causing 
formation of a thrombus (that is, a blood clot). When a thrombus breaks 
off, it is called an embolism (or thromboembolism). An embolism can 
cause a stroke or other peripheral arterial blockage.
    The WATCHMAN[supreg] Left Atrial Appendage (LAA) Closure Device is 
an implant that acts as a physical barrier, sealing the LAA to prevent 
thromboemboli from entering into the arterial circulation from the LAA, 
thereby reducing the risk of stroke and potentially eliminating the 
need for Warfarin therapy in those patients diagnosed with nonvalvular 
AF and who are eligible for Warfarin therapy.
    The applicant anticipates FDA premarket approval of the 
WATCHMAN[supreg] System in the first half of 2014. According to the 
applicant, the WATCHMAN[supreg] System is the first LAA closure device 
that would be approved by the FDA. Therefore, the applicant believes 
that the technology meets the newness criterion. The device is 
currently identified by ICD-9-CM procedure code 37.90 (Insertion of 
Left Atrial Appendage Device), which was issued on October 1, 2004. We 
are inviting public comments on if, and how, the WATCHMAN[supreg] 
System meets the newness criterion.
    With regard to the cost criterion, the applicant used the FY 2012 
MedPAR file and searched the claims data for cases reporting with ICD-
9-CM procedure code 37.90. The applicant provided two analyses. The 
first analysis includes all claims that contained ICD-9-CM procedure 
code 37.90 regardless of whether it was the principle procedure that 
determined the MS-DRG assignment of the case. This returned 243 cases 
spread across 21 MS-DRGs. The applicant noted that the MedPAR file 
contained claims that were returned to the provider reporting charges 
for actual cases from clinical trials that used the WATCHMAN[supreg] 
System that were well below post-FDA approval pricing. Therefore, the 
applicant removed the premarket device related charges. The applicant 
then standardized the charges, applied an inflation factor of 1.096898 
based on the 2-year charge inflation factor listed in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50982) and then added post-FDA approval 
charges for the WATCHMAN[supreg] System. This resulted in an average 
case-weighted standardized charge per case of $176,943. The applicant 
calculated an average case-weighted threshold of $107,345 across all 
MS-DRGs. Therefore, the applicant asserted that the average case-
weighted standardized charge per case exceeds the average case-weighted 
threshold and maintained that the technology meets the cost criterion.
    The second analysis focused on cases reporting ICD-9-CM procedure 
code 37.90, and assigned to MS-DRGs 250 (Percutaneous Cardiovascular 
Procedure without Coronary Artery Stent with MCC) and 251 (Percutaneous 
Cardiovascular Procedure without Coronary Artery Stent without MCC). 
According to the applicant, these are the MS-DRGs to which cases using 
the WATCHMAN[supreg] System in the delivery of treatment as the 
principal procedure performed during the inpatient stay are assigned. 
The applicant found a total of 122 cases, and noted that 9.02 percent 
of the total number of cases would map to MS-DRG 250, and 90.98 percent 
of the total number of cases would map to MS-DRG 252. Similar to above, 
the applicant noted that the MedPAR file contained claims that were 
returned to the provider reporting charges for actual cases from 
clinical trials that used the WATCHMAN[supreg] System that were well 
below post-FDA approval pricing. Therefore, the applicant removed the 
premarket device-related charges. The applicant then standardized the 
charges, applied an inflation factor of 1.096898 based on the 2-year 
charge inflation factor listed in the FY 2014 IPPS/LTCH final rule (78 
FR 50982), and then added post FDA-approval charges for the 
WATCHMAN[supreg] System. This resulted in an average case-weighted 
standardized charge per case of $113,210. The applicant calculated an 
average case-weighted threshold of $68,093. The applicant asserted that 
the average case-weighted standardized charge per case exceeds the 
average case-weighted threshold. Therefore, the applicant maintained 
that the technology meets the cost criterion. We are inviting public 
comments on whether the WATCHMAN[supreg] System meets the cost 
criterion, particularly with regard to the assumptions and methodology 
used in the applicant's analysis.
    The applicant asserted in its application that the WATCHMAN[supreg] 
System meets the substantial clinical improvement criterion. The 
applicant believed that the WATCHMAN[supreg] System provides a 
permanent solution proven to reduce the risk of thromboembolic stroke 
in patients diagnosed with high-risk, nonvalvular AF, and who are 
eligible for Warfarin therapy. Therefore, the applicant believed that 
the WATCHMAN[supreg] System fulfills a major unmet clinical need. 
According to the applicant, clinical trial data

[[Page 28044]]

demonstrated non-inferiority of the WATCHMAN[supreg] System compared to 
Warfarin therapy. Further, long-term follow-up data suggested 
superiority compared to Warfarin therapy by demonstrating 40 percent 
relative reduction of primary efficacy events, and 60 percent relative 
reduction for CV mortality. The applicant also stated that, procedure 
complication rate is low, with the majority of events occurring soon 
before, during, or soon after the procedure.
    The applicant submitted multiple clinical trial studies to 
demonstrate that the technology represents a substantial clinical 
improvement. Specifically, the WATCHMAN[supreg] System United States 
clinical program included five studies with approximately 2000 
patients. There were two prospective, randomized-controlled trials 
(PROTECT AF 9 10 11 12 and PREVAIL \13\ \14\), two continued 
access registries for patients who completed PROTECT AF and PREVAIL 
(CAP and CAP2, respectively), and the ASAP feasibility study.
---------------------------------------------------------------------------

    \9\ Wrigley, B., Lip, G., ``Can the WATCHMAN device truly 
PROTECT from stroke in atrial fibrillation?'', Lancet Neurology, 
2009.
    \10\ Reddy, V., Holmes, D., Doshi, S., et al. ``Safety of 
percutaneous left atrial appendage closure: Results from the 
WATCHMAN left atrial appendage system for embolic protection in 
patients With AF (PROTECT AF) clinical trial and the Continued 
Access Registry. Circulation.'' Vol. 123, 2011.
    \11\ Reddy, V., Doshi, S., Sievert, H., et. al., ``Percutaneous 
left atrial appendage closure for stroke prophylaxis in patients 
with atrial fibrillation: 2.3-year follow up of the PROTECT AF 
(Watchman Left Atrial Appendage System for embolic protection in 
patients with atrial fibrillation) trial,'' Circulation., 2013, Vol. 
127, pp. 720-729.
    \12\ Alli, O., Doshi, S., Kar, S., et al., ``Quality of Life 
Assessment in the Randomized PROTECT AF Trial of Patients at Risk 
for Stroke With Non-Valvular Atrial Fibrillation,'' Journal of 
American College of Cardiology, Vol. 61, No 17, 2013, pp. 1790-1798.
    \13\ Landmesser, U., Holmes, D., ``Left atrial appendage 
closure: A percutaneous transcatheter approach for stroke prevention 
in atrial fibrillation,'' European Heart Journal, Vol. 33, 2012.
    \14\ Homes, D.R. PREVAIL Results CIT, 2013.
---------------------------------------------------------------------------

    According to the applicant, PROTECT AF was a prospective, 
randomized-controlled trial comparing the outcomes of patients who 
received care for LAA closure using the WATCHMAN[supreg] System (463 
patients) with those of patients who were anticoagulated with Warfarin 
therapy (244 patients). The trial was designed to show that the 
WATCHMAN[supreg] System was noninferior to Warfarin therapy. The 
primary outcome was anticipated to occur at a rate of 6.15 per 100 
patient-years in the control group, and the sample size was chosen 
using a ``two-fold non-inferiority margin.'' Because patients could be 
randomized to Warfarin therapy, all patients were eligible to continue 
Warfarin, and did not have an excessive risk of bleeding. By design, 
all patients in PROTECT AF continued Warfarin therapy for 45 days after 
the device implantation procedure.
    Outcome data from PROTECT AF have been reported after mean follow-
ups of 1.5 years, 2.3 years, and 3.7 years. The primary efficacy 
endpoint was the composite of stroke, systemic embolism, cardiovascular 
death, or unexplained death. This primary endpoint occurred in the 
control group at a lower rate than was assumed in the sample size 
calculations: The observed rate was between 3.8 and 4.9 per 100 
patient-years compared with the design estimate of 6.15 per 100 
patient-years. According to the applicant, patients randomly assigned 
to receive the WATCHMAN[supreg] System device in the PROTECT AF trial 
had numerically lower rates of the primary endpoint than the patients 
randomly assigned to Warfarin (also known as Coumadin) at all time 
points. We note that, although the point estimates favor the device for 
the primary endpoint, the differences were not statistically 
significant because the upper 95 percent confidence intervals are all 
above 1.0. However, the secondary endpoint of cardiovascular death was 
reduced significantly, as was all-cause mortality with a rate ratio of 
0.66 (CL 0.45-0.98).
    The criteria for noninferiority of the primary endpoint were met 
over all follow-up intervals. According to the applicant, the 
probability is >99 percent that device-treated patients have no more 
than twice the rate of stroke, embolism, or death than Warfarin-treated 
patients.
    Also, the incidence of procedural-related complications in this 
trial was 8.7 percent. The applicant noted that complications early in 
the trial were related to procedures performed by new users. As a 
result, changes were made to the procedure and physician training, and 
the complication rate subsequently decreased.
    The applicant stated in its application that the Circulatory System 
Devices Advisory Panel to the Division of Cardiovascular Devices (DCD) 
within the Center for Devices and Radiological Health (CDRH) of the FDA 
reviewed the 1-year PROTECT AF data on April 23, 2009. The panel voted 
7:5 in favor of the device, resulting in a positive recommendation for 
``approval with conditions.'' However, noting the complication rate, 
the FDA required additional data collection on procedural safety to 
confirm the lower rates observed in the second half of the trial. As a 
result of this requirement, the PREVAIL trial study was designed in a 
similar fashion to PROTECT AF, but with modifications to trial entry 
criteria and a minimum number of new operators.
    According to the applicant, in the interim, FDA also recognized the 
effectiveness of the WATCHMAN[supreg] System and the need for a new 
therapeutic option for patients receiving Warfarin therapy, and a 
continued access program (CAP) was authorized. With 460 patients 
enrolled, according to the applicant, efficacy rates in the CAP trial 
study were similar to those seen in the PROTECT AF trial study, and 
procedural complications were reduced by over 50 percent compared to 
the PROTECT AF trial study, from 8.7 percent to 4.1 percent.
    From November 2010 to June 2012, the PREVAIL trial enrolled a total 
of 407 patients, 269 of whom received treatment for LAA closure with 
the WATCHMAN[supreg] System, and 138 who received Warfarin therapy. The 
applicant noted that the procedural complication rate was 4.4 percent, 
confirming the rate seen in the second half of the PROTECT AF trial 
study and the CAP trial study. After the PREVAIL trial closed, the FDA 
authorized a second CAP (specifically, CAP2), which has enrolled 336 
patients as of the date the applicant submitted its application.
    The applicant also submitted data concerning patients diagnosed 
with AF who are not on an oral anticoagulant. These patients are not 
protected from stroke by an oral anticoagulant. There may be increased 
periprocedural risk of device implantation because thrombus might form 
on the device surface more readily in patients with no anticoagulation 
(patients in the PROTECT AF trial were treated with Warfarin for 45 
days after the device implantation procedure). Specifically, the ASAP 
Registry (5) enrolled 150 patients, at one of four centers, that had a 
contraindication to even short-term anticoagulation, mostly a history 
of prior bleeding. There was no control group. Device implantation led 
to a serious adverse event in 13 patients (8.7 percent), including one 
case of device thrombus leading to ischemic stroke. Five other patients 
had a device-related thrombus that did not lead to stroke (four of 
these patients were treated with low molecular weight heparin), 
resulting in an overall 4.0 percent incidence (6 out of 150) of device-
associated thrombus. In the PROTECT AF trail study, 20 of the 473 
patients (4.2 percent) had device-associated thrombus, 3 of which led 
to an ischemic stroke. The rates of device-related thrombus are similar 
in the two studies

[[Page 28045]]

(4.0 percent versus 4.2 percent), but the number of patient studied is 
smaller in the ASAP Registry (5) study compared to the PROTECT AF 
clinical trial study.
    In the 14-month follow-up data for the ASAP Registry (5) study, the 
rate of stroke or systemic embolism was 2.3 percent per year, which was 
said to be ``lower than expected'' based on prior data for patients 
diagnosed with AF who were not treated with Warfarin (there was no 
concurrent control group). The data provided suggested efficacy in this 
patient population. However, we are concerned that there is not strong 
evidence that the device prevents stroke.
    All trials in the U.S. clinical program allowed for continued 
follow-up of patients out to 5 years post-randomization. According to 
the applicant, the patients enrolled in the PROTECT AF clinical trial 
now have an average of 3.8 years of follow-up. The applicant asserted 
that an analysis of this long-term data demonstrates superior primary 
efficacy outcomes of the WATCHMAN[supreg] System over Warfarin therapy.
    The applicant concluded that the WATCHMAN[supreg] System provides a 
permanent solution to reduce the risk of ischemic strokes caused by 
thromboemboli originating in the LAA in patients diagnosed with 
nonvalvular AF. The applicant further stated that, the data demonstrate 
that LAA closure using the WATCHMAN[supreg] System is a substantial 
improvement in care as compared to currently available pharmacologic 
therapy, such as Warfarin therapy.
    The WATCHMAN[supreg] System may be used in two populations: (1) 
Patients who could take Warfarin (or other oral anticoagulant), but 
would prefer to avoid the risk of bleeding from anticoagulant therapy; 
(2) patients who are not eligible for oral anticoagulation therapy 
because of an unacceptable risk of bleeding. Most of the clinical 
evidence presented by the applicant is from the former group, and the 
applicant has requested from the FDA that the label indication be for 
``high risk patients with nonvalvular atrial fibrillation who are 
eligible for warfarin therapy, but, for whom the risks posed by long-
term warfarin therapy outweigh the benefits.''
    We are concerned that the evidence presented by the applicant 
demonstrating the superiority of the WATCHMAN[supreg] System compared 
to Warfarin therapy is insufficient. The clinical study discussed above 
was designed to demonstrate that the WATCHMAN[supreg] is noninferior to 
Warfarin therapy. Specifically, in the PREVAIL AF trial study, the 
primary endpoint was not significantly improved in the conventional 
hypothesis testing statistical analysis at any time point. The longer 
term data has improved efficacy and safety data, but still remain 
sparse. Even for the secondary patient population ineligible for 
anticoagulation therapy, the evidence remains weak as the only data 
comes from the ASAP Registry (5) observational study of 150 patients 
without a concurrent control group.
    A recent article in the Journal of the American College of 
Cardiology echoes these concerns: ``Current issues compromising the 
implementation of procedural approaches for stroke prevention in AF are 
discussed herein and include: (1) Lack of multiple randomized clinical 
trials; (2) lack of consensus regarding the appropriate target 
population to study; and (3) ability to obtain approval of devices for 
outcome measures of unconfirmed clinical importance, such as, the use 
of complete closure of the LAA at the time of the index procedure as a 
surrogate for clinical efficacy.'' \15\
---------------------------------------------------------------------------

    \15\ Holmes, D.R., et. al., ``Left Atrial Occlusion,'' Journal 
of American College of Cardiology, 2014, Vol. 63, pp. 291-8.
---------------------------------------------------------------------------

    We are inviting public comments on whether this technology meets 
the substantial clinical improvement criterion, particularly regarding 
our concerns discussed above.
    We did not receive any public comments in response to the New 
Technology Town Hall meeting held on February 12, 2014 in regard to 
this technology.
d. CardioMEMSTM HF (Heart Failure) System
    CardioMEMS, Inc. submitted an application for new technology add-on 
payment for FY 2015 for the CardioMEMSTM HF (Heart Failure) 
System, which is an implantable hemodynamic monitoring system comprised 
of an implantable sensor/monitor placed in the distal pulmonary artery. 
Pulmonary artery hemodynamic monitoring is used in the management of 
heart failure. The CardioMEMSTM HF System measures multiple 
pulmonary artery pressure parameters for an ambulatory patient to 
measure and transmit data via a wireless sensor to a secure Web site.
    The CardioMEMSTM HF System utilizes radiofrequency (RF) 
energy to power the sensor and to measure pulmonary artery (PA) 
pressure and consists of three components: An Implantable Sensor with 
Delivery Catheter, an External Electronics Unit, and a Pulmonary Artery 
Pressure Database. The system provides the physician with the patient's 
PA pressure waveform (including systolic, diastolic, and mean 
pressures) as well as heart rate. The sensor is permanently implanted 
in the distal pulmonary artery using transcatheter techniques in the 
catheterization laboratory where it is calibrated using a Swan-Ganz 
catheter. PA pressures are transmitted by the patient at home in a 
supine position on a padded antenna, pushing one button which records 
an 18-second continuous waveform. The data also can be recorded from 
the hospital, physician's office or clinic.
    The hemodynamic data, including a detailed waveform, are 
transmitted to a secure Web site that serves as the Pulmonary Artery 
Pressure Database, so that information regarding PA pressure is 
available to the physician or nurse at any time via the Internet. 
Interpretation of trend data allows the clinician to make adjustments 
to therapy and can be used along with heart failure signs and symptoms 
to adjust medications.
    The applicant believed that a large majority of patients receiving 
the sensor would be admitted as an inpatient to a hospital with a 
diagnosis of acute or chronic heart failure, which is typically 
described by ICD-9-CM diagnosis code 428.43 (Acute or chronic combine 
systolic and diastolic heart failure) and the sensor would be implanted 
during the inpatient stay. The applicant stated that for safety 
considerations, a small portion of these patients may be discharged and 
the sensor would be implanted at a future date in the hospital 
outpatient setting. In addition, there would likely be a group of 
patients diagnosed with chronic heart failure who are not currently 
hospitalized, but who have been hospitalized in the past few months for 
whom the treating physician believes that regular pulmonary artery 
pressure readings are necessary to optimize patient management. 
Depending on the patient's status, the applicant stated that these 
patients may have the sensor implanted in the hospital inpatient or 
outpatient setting.
    The applicant anticipates FDA approval and commercial launch in the 
second quarter of 2014. The CardioMEMSTM HF System is 
currently described by ICD-9-CM procedure code 38.26 (Insertion of 
implantable pressure sensor without lead for intracardiac or great 
vessel hemodynamic monitoring). We are inviting public comments 
regarding how the CardioMEMSTM HF System meets the newness 
criterion.
    With respect to cost criterion, the applicant submitted actual 
claims from

[[Page 28046]]

the CHAMPION \16\ clinical trial. Of the 550 patients enrolled in the 
trial, the applicant received 310 hospital bills. The applicant 
excluded the following claims: Incomplete or missing procedure codes, 
incomplete charge information and bills that were statistical outliers 
(three standard deviations away from the geometric mean). This resulted 
in a final cohort of 138 claims. The applicant noted that cases treated 
with the CardioMEMSTM HF System would typically map to MS-
DRG 264 (Other Circulatory System Operating Room Procedures). Using the 
138 clinical trial claims, the applicant standardized the charges and 
added charges for the CardioMEMSTM HF System (because the 
clinical trial claims did not contain charges for the 
CardioMEMSTM HF System). This resulted in an average case-
weighted standardized charge per case of $79,218.
---------------------------------------------------------------------------

    \16\ Abraham WT, Adamson PB, Bourge RC, Aaron MF, Costanzo MR, 
Stevenson LW, Strickland W, Neelagaru S, Raval N, Krueger S, Weiner 
S, Shavelle D, Jeffries B, Yadav JS; for the CHAMPION Trial Study 
Group. Wireless pulmonary artery haemodynamic monitoring in chronic 
heart failure: a randomised controlled trial, Lancet, February 19, 
2011, Vol. 377(9766), pp:658-666.
---------------------------------------------------------------------------

    Using the FY 2014 Table 10 thresholds, the threshold for MS-DRG 264 
is $60,172. Because the average case-weighted standardized charge per 
case exceeded the threshold amount, the applicant maintained that the 
CardioMEMSTM HF System would meet the cost criterion. We are 
inviting public comments on whether or not the CardioMEMSTM 
HF System meets the cost criterion.
    With regard to substantial clinical improvement, the applicant 
asserted that elevated PA pressures occur prior to signs and symptoms 
of heart failure and changes in PA pressures provide a sound 
physiologic basis for its management. The applicant also contended 
that, until the creation of the CardioMEMS wireless PA implant, 
knowledge of PA pressure was only feasible in the hospital with the 
performance of a right heart catheterization. According to the 
applicant, the CardioMEMSTM HF System provides physicians 
knowledge of PA pressure while the patient is at home, allowing 
proactive management to prevent heart failure decompensation and 
hospitalization.
    The applicant cited clinical data from the CHAMPION trial. The 
trial is a prospective, multicenter, randomized, single-blinded 
clinical trial conducted in the United States, designed to evaluate the 
safety and efficacy of the CardioMEMSTM HF System in 
reducing heart failure-related hospitalizations in a subset of subjects 
suffering from heart failure. The applicant shared several major 
findings from the CHAMPION trial as described below.
    The primary efficacy endpoint of the CHAMPION trial was the rate of 
HF hospitalizations during the first 6 months of randomized access. 
There were 84 heart failure hospitalizations in the treatment group 
compared with 120 heart failure hospitalizations in the control group. 
This difference between the groups represented a 28-percent reduction 
in the rate of hospitalization for heart failure in the treatment group 
(0.32 hospitalizations per patient in the treatment group versus 0.44 
hospitalizations per patient in the control group, p = 0.0002). 
Although not a primary end point, the rate of HF hospitalizations after 
18 months was 33 percent lower in the treatment group than in the 
control group.
    According to the applicant, secondary endpoints of the CHAMPION 
trial are changes in pulmonary artery pressures, proportion of subjects 
hospitalized, days alive outside of the hospital, quality of life 
(QOL), and heart failure management which demonstrated the following 
results:
     Pulmonary Artery Pressures: At baseline, both treatment 
and control patients had similar PA mean pressures. The change in 
pressure over the first 6 months was evaluated by integrating the area 
under the pressure curve (AUC). At 6 months of follow-up, the treatment 
group had a significantly greater reduction in AUC of -155.7 mmHg days 
compared to the control group which had an increase in AUC of +33.1 
mmHg-days; p = 0.0077.
     Proportion of Subjects Hospitalized: During the 6-month 
follow-up period, the proportion of subjects hospitalized for 1 or more 
HF hospitalizations was significantly lower in the treatment group (55 
out of 270 patients) than in the control group (80 out of 280 patients) 
(20.4 percent versus 28.6 percent; p = 0.0292).
     Days Alive Outside of the Hospital: At 6 months, treatment 
patients had a nonsignificant and clinically not meaningful increase in 
days alive outside of the hospital (174.4 versus 172.1; p = 0.0280) and 
fewer average days in the hospital (2.2 versus 3.8; p = 0.0246) 
compared to control patients.
     Quality of Life: The heart failure specific quality of 
life was assessed with the MLHFQ total score at 6 months. The average 
total score in the treatment group was 45.2  26.4 which was 
significantly better than the average total score in the control group 
50.6  24.8 (p = 0.0236). The difference in total quality of 
life was primarily due to the physical domain. The average physical 
score for the treatment group (19.8  11.2) was 
significantly better than the control group (22.4  10.9) (p 
= 0.0096). There was also a significant difference in the emotional 
domain with an average score of 9.5  8.1 for the treatment 
group and 11.0  7.7 for the control group (p = 0.0398).
     Heart Failure Management: Physicians responded to 
treatment of patients' elevated PA pressures by making medication 
changes to lower PA pressures and reduce the risk for HF 
hospitalization. Physicians documented all medication changes for all 
patients and indicated whether the change was made in response to PA 
pressures or standard of care information. During the 6-month follow-up 
period, physicians made approximately one additional HF medication 
change per patient per month in the treatment group when compared to 
the control group. Specifically, treatment patients had 1.55 medication 
changes per month on average compared to control patients having 0.65 
medication changes per month (p < 0.0001). The difference in HF 
management between the treatment and control group was due to HF 
medication changes made in response to PA pressures.
    The study met the two primary safety endpoints: (1) Freedom from 
device/system related complications (DSRC); and (2) freedom from sensor 
failure. The protocol pre-specified objective performance criterion 
(OPC) were that at least 80 percent of patients were to be free from 
DSRC and at least 90 percent were to be free from pressure sensor 
failure. Of the 575 patients in the safety population, 567 (98.6 
percent) were free from DSRC at 6 months (lower confidence limit 97.3 
percent, p < 0.0001). This lower limit of 97.3 percent is greater than 
the pre-specified OPC of 80 percent. There were no sensor explants or 
repeat implants and all sensors were operational at 6 months for a 
freedom from sensor failure of 100 percent (lower confidence limit 99.3 
percent, p < 0.0001). This lower limit of 99.3 percent is greater than 
the pre-specified OPC of 90 percent.
    The applicant also noted that the CardioMEMSTM HF System 
reduces the occurrence of HF hospitalizations in NYHA Class III heart 
failure patients. According to the applicant, the device had very few 
device and system related complications occurring over the course of 
the clinical trial. All primary and secondary study endpoints were 
successfully achieved. In addition, the CHAMPION trial suggests the 
safety and effectiveness of the device was

[[Page 28047]]

maintained during longer term follow-up.
    After reviewing the information provided by the applicant, we have 
the following concerns. The applicant did not discuss long-term 
outcomes, specifically death. We believe additional long-term outcome 
information and how the technology changes long-term outcomes would 
further assist in our determination of whether the technology 
represents a substantial clinical improvement. With regard to the 
clinical trial, information from the randomized access period and the 
open access period did not include the total number of deaths in each 
group. While the data support a reduction in total hospitalizations, 
the rate of hospitalization in each group (0.32 versus 0.44) does not 
appear to be clinically meaningful. This is supported by total days 
alive out of the hospital being virtually identical in both groups. 
Finally, we are concerned about the cause of the significant dropouts 
in the Kaplan Meier curves which further demonstrates lack of impact on 
survival. We are inviting public comments on whether or not the 
CardioMEMSTM HF Monitoring System technology represents a 
substantial clinical improvement in the Medicare population.
    We received public comments via email in response to the February 
12, 2014 New Technology Town Hall meeting in regard to this technology. 
We summarize these comments below.
    Comment: Commenters supported the approval of new technology add-on 
payments for the CardioMEMSTM HF System. One commenter 
stated that it had personal experience with the CardioMEMSTM 
HF System. The commenter explained that having access to a patient's 
daily pressures provides trend data. The commenter further explained 
that if there is a variation or increase in a patient's pressure, the 
physician can contact the patient over the phone and conduct an 
evaluation to look for increased symptoms or to learn if the patient 
has skipped their diuretics. The device prompts the clinician to ask 
questions such as what is different today than yesterday and if the 
patient is feeling okay, especially if the patient has not taken a 
pressure rate in a few days. Based on the answer to these questions or 
if the clinician has concerns, the primary investigator or the 
patient's primary cardiologist can assess the pressures and symptoms 
and decide the next course of treatment for the patient. The commenter 
believed that this structured and consistent monitoring has kept many 
patients out of the hospital.
    The commenter noted that the monitoring of pressures to assess 
clinical status before the patient recognizes symptoms for chronic CHF 
patients with significant left ventricular dysfunction can be very 
useful. The commenter explained that these patients are accustomed to 
being sick and tend to ignore the first symptoms and do not seek 
treatment until they are unable to breathe. The commenter noted that 
often a clinician can increase the patient's home medications before 
pressures get too high.
    The commenter also noted that, for patients who go to a CHF clinic 
on a regular basis, typically patient information of pressure trends, 
along with symptoms and laboratory results, can help determine if 
medications should be given that day. The commenter stated that extra 
information from the CardioMEMSTM HF System can change the 
way physicians treat the patient and has, in many instances, at its 
site. The commenter concluded the CardioMEMSTM HF System 
provides a substantial clinical benefit versus current methods for 
managing heart failure.
    Another commenter stated that the implant procedure was very simple 
and straightforward for patients, especially compared to having a 
pacemaker or defibrillator implanted. The commenter further stated that 
the device is compatible with defibrillators and cardiac 
resynchronization therapy, which are present in many advanced heart 
failure patients. The commenter added that the CardioMEMSTM 
HF System is a wireless device and does not involve addition of another 
intracardiac lead. Aside from regular pressure readings, the commenter 
noted that it found unexpected intake issues for some patients who were 
unknowingly consuming certain high-sodium foods. The commenter noted 
that they were able to reduce sodium intake further to help reduce 
pressures. The commenter also noted that it presented a case report of 
increasing pressures in a patient in whom the primary investigator 
adjusted diuretic therapy and later the patient's ACE-Inhibitor and 
nitrates. The commenter stated that it successfully lowered pressures 
and avoided a probable heart failure hospitalization. The commenter 
added that the CardioMEMSTM HF System allows hospitals to 
easily obtain pressures at home for transmission and the ability to 
check pressures rather than perform right heart catheterization if a 
patient was admitted to the hospital.
    The commenter also stated that patients found transmission of their 
data easy and were surprised how quickly the data was sent to the 
clinic. The commenter added that it had patients that liked the 
portability of the home electronic equipment, which allowed them to 
take it with them on long weekends or vacations. The commenter added 
that this information was advantageous as it further allowed clinicians 
to implement changes in a timely manner.
    The commenter noted the following trial results in its clinic, 
which the commenter believed confirm the benefit of hemodynamic 
monitoring: A 28-percent reduction in heart failure hospitalization at 
6 months and a 15-percent reduction at 15 months. The commenter noted 
that there were no sensor failures and 98.6 percent of patients 
remained free from device or system complications. The commenter 
further noted that it did not experience any complications in patients 
who were implanted with the device. The commenter did explain that 
inevitably, due to the nature of heart failure, several patients 
eventually required advanced therapies with transplantation or 
ventricular assist device support without any issue from the sensor. 
The commenter also noted some additional key points such as: A 
reduction in hospitalization for patients with preserved ejection 
fraction; in addition to diuretic adjustment, the study found nitrates 
were also adjusted, which further supports use of the device to 
optimize vasodilator therapy for pulmonary hypertension and afterload 
reduction in this patient population. The commenter concluded that, for 
the reasons stated above, the CardioMEMSTM HF System 
provides a substantial clinical benefit versus current methods for 
managing heart failure.
    One commenter stated that the CardioMEMSTM HF System 
provides clinicians with daily remotely monitored pulmonary artery 
pressure and has been proven clinically and dramatically to reduce 
heart failure hospitalizations. The commenter cited the CHAMPION IDE 
trial, which was a prospective, multicenter, single-blind, clinical 
study that enrolled 550 patients randomized to treatment guided by the 
CardioMEMSTM HF System verses optimal medical therapy. The 
commenter stated that the trial met all of its primary safety and 
efficacy endpoints; reducing heart failure hospitalizations by 28 
percent 6 months after implant (p = 0.0002). The commenter further 
stated that the reduction in heart failure hospitalizations increased 
over time reaching 33 percent (p < 0.0001) at 17 months after implant. 
In addition, the

[[Page 28048]]

commenter asserted that the system was shown to be extremely safe, with 
almost 99 percent of patients free from device or system complications.
    The commenter also stated that one criterion CMS uses to evaluate 
substantial clinical improvement is that the device offers the ability 
to diagnose a medical condition earlier in a patient population than 
allowed by currently available methods. The commenter believed that 
there is evidence that use of the CardioMEMSTM HF System to 
make a diagnosis affects the management of the patient. The commenter 
added that the CHAMPION trial demonstrated that therapy guided by 
CardioMEMSTM HF System allows physicians to titrate 
medications earlier and more effectively reduce heart failure 
hospitalizations. The commenter noted that this information is not 
available with any other device or treatment alternative.
    The commenter further stated that another of CMS' criteria is that 
use of the device significantly improves clinical outcomes for a 
patient population as compared to currently available treatments, such 
as a decreased number of future hospitalizations. The commenter stated 
that evidence provided in the CHAMPION trial at 6 months showed a 28-
percent reduction in heart failure hospitalizations and even a larger 
reduction of 33 percent during long-term follow-up at 17 months. Based 
on the criteria outlined by CMS and the evidence supporting the 
CardioMEMSTM HF System, the commenter believed that the 
CardioMEMSTM HF System meets the criteria for substantial 
clinical improvement.
    Another commenter, the applicant, reiterated the statements set 
forth above in the substantial clinical improvement discussion.
    Response: We appreciate the commenters' support. We considered 
these comments in our evaluation of the CardioMEMSTM HF 
System for new technology add-on payments for FY 2015 and in the 
development of this proposed rule. As stated above, we are inviting 
additional public comments on whether or not the 
CardioMEMSTM HF System represents a substantial clinical 
improvement in the Medicare population.
e. MitraClip[supreg] System
    Abbott Vascular submitted an application for new technology add-on 
payments for the MitraClip[supreg] System for FY 2015. (We note that 
the applicant submitted an application for new technology add-on 
payments for FY 2014 but failed to receive FDA approval by the July 1 
deadline.) The MitraClip[supreg] System is a transcatheter mitral valve 
repair system that includes a MitraClip[supreg] device implant, a 
Steerable Guide Catheter, and a Clip Delivery System. It is designed to 
perform reconstruction of the insufficient mitral valve for high-risk 
patients who are not candidates for conventional open mitral valve 
repair surgery.
    Mitral regurgitation (MR), also referred to as mitral insufficiency 
or mitral incompetence, occurs when the mitral valve fails to close 
completely causing the blood to leak or flow backwards (regurgitate) 
into the left ventricle. If the amount of blood that leaks backwards 
into the left ventricle is minimal, then intervention is usually not 
necessary. However, if the amount of blood that is regurgitated becomes 
significant, this can cause the left ventricle to work harder to meet 
the body's need for oxygenated blood. Severity levels of MR can range 
from grade 1+ through grade 4+. If left untreated, severe MR can lead 
to heart failure and death. The American College of Cardiology (ACC) 
and the American Heart Association (AHA) issued practice guidelines in 
2006 that recommended intervention for moderate/severe or severe MR 
(grade 3+ to 4+). The applicant stated that the MitraClip[supreg] 
System is ``indicated for percutaneous reduction of significant mitral 
regurgitation . . . in patients who have been determined to be at 
prohibitive risk for mitral value surgery by a heart team, which 
includes a cardiac surgeon experienced in mitral valve surgery and a 
cardiologist experienced in mitral valve disease and in whom existing 
comorbidities would not preclude the expected benefit from correction 
of the mitral regurgitation.''
    The MitraClip [supreg] System mitral valve repair procedure is 
based on the double-orifice surgical repair technique that has been 
used as a surgical technique in open chest, arrested-heart surgery for 
the treatment of MR since the early 1990s. According to the applicant, 
in utilizing ``the double-orifice technique, a portion of the anterior 
leaflet is sutured to the corresponding portion of the posterior 
leaflet using standard techniques and forceps and suture, creating a 
point of permanent coaptation (``approximation'') of the two leaflets. 
When the suture is placed in the middle of the valve, the valve will 
have a functional double orifice during diastole.''
    With regard to the newness criterion, the MitraClip[supreg] System 
received a premarket approval from the FDA on October 24, 2013. The 
MitraClip[supreg] System is indicated ``for the percutaneous reduction 
of significant symptomatic mitral regurgitation (MR >= 3+) due to 
primary abnormality of the mitral apparatus (degenerative MR) in 
patients who have been determined to be at prohibitive risk for mitral 
valve surgery by a heart team, which includes a cardiac surgeon 
experienced in mitral valve surgery and a cardiologist experienced in 
mitral valve disease, and in whom existing comorbidities would not 
preclude the expected benefit from reduction of the mitral 
regurgitation.'' The MitraClip[supreg] System became immediately 
available on the U.S. market following FDA approval. The 
MitraClip[supreg] System is a Class III device, and has an 
investigational device exemption (IDE) for the EVEREST study 
(Endovascular Valve Edge-to-Edge Repair Study)--IDE G030061, and for 
the COAPT study (Cardiovascular Outcomes Assessment of the MitraClip 
Percutaneous Therapy for Health Failure Patients with Functional Mitral 
Regurgitation)--IDE G120024. Effective October 1, 2010, ICD-9-CM 
procedure code 35.97 (Percutaneous mitral valve repair with implant) 
was created to identify and describe the MitraClip[supreg] System 
technology.
    Abbott Vascular has also submitted an application for a National 
Coverage Decision (NCD) for the MitraClip[supreg] System device. We 
refer readers to the CMS Web site at: http://www.cms.gov/medicare-coverage-database/details/nca-tracking-sheet.aspx?NCAId=273&NcaName=Transcatheter+Mitral+Valve+(TMV)+Procedures
&TimeFrame=90&DocType=All&bc=AAAAIAAACAAAAA%3d%3d& for information 
related to this ongoing NCD. The tracking sheet for this National 
Coverage Analysis (NCA) indicates an expected NCA completion date of 
August 16, 2014, which is after the FY 2015 IPPS/LTCH PPS final rule is 
scheduled to be published. The processes for evaluation and 
determination of an NCD, and the processes for evaluation and approval 
of an application for new technology add-on payments are made 
independent of each other. However, any payment made under the Medicare 
program for services provided to a beneficiary would be contingent on 
CMS' coverage of the item, and any restrictions on the coverage would 
apply. We are inviting public comments on how the MitraClip[supreg] 
System meets the newness criterion for purposes of new technology add-
on payments and the issues that may arise from concurrent NCD requests 
and new technology add-on payment application review and approval 
processes.

[[Page 28049]]

    With regard to the cost criterion, the applicant conducted two 
analyses. The applicant noted that, while ICD-9-CM procedure code 35.97 
maps to MS-DRGs 246 (Percutaneous Cardiovascular Procedure with Drug- 
Eluting Stent with Major Complication or Comorbidity (MCC) or 4+ 
Vessels/Stents), 247 (Percutaneous Cardiovascular Procedure with Drug-
Eluting Stent without MCC), 248 (Percutaneous Cardiovascular Procedure 
with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 249 
(Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent 
without MCC), 250 (Percutaneous Cardiovascular Procedure without 
Coronary Artery Stent or AMI with MCC), and 251 (Percutaneous 
Cardiovascular Procedure without Coronary Artery Stent or AMI without 
MCC), clinical experience with the MitraClip[supreg] System device has 
demonstrated that it is extremely rare for a patient to receive stents 
concurrently during procedures using the MitraClip[supreg] System 
device. The applicant further cited the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53308) which stated, ``According to the Food and Drug 
Administration's (FDA's) terms of the clinical trial for MitraClip\TM\, 
the device is to be implanted in patients without any additional 
surgeries performed. Therefore, based on these terms, we stated that 
while the procedure code is assigned to MS-DRGs 246 through 251, the 
most likely MS-DRG assignments would be MS-DRGs 250 and 251.'' As a 
result, the applicant stated that it conducted its analyses solely for 
MS-DRGs 250 and 251 to demonstrate that the cases involving the 
MitraClip[supreg] System device meet the incremental cost thresholds 
provided in Table 10 for those MS-DRGs.
    The applicant researched the FY 2012 MedPAR file for claims for 
cases reporting ICD-9-CM procedure code 35.97. Under the first analysis 
and methodology, the applicant noted that this search yielded actual 
claims for cases in which the MitraClip[supreg] System device was used 
in procedures performed in an IDE study type setting, and hospitals 
obtained the MitraClip[supreg] System device at a reduced 
investigational price. The applicant further stated that it is likely 
that hospitals did not report the charges for the investigational 
device, or submitted claims for charges that were significantly less 
than the actual device acquisition costs (we refer readers to the 
explanation below). The applicant found 57 cases in MS-DRG 250 (29.38 
percent of the total number of cases), and 137 cases in MS-DRG 251 
(70.61 percent of the total number of cases), which resulted in an 
average case-weighted standardized charge per case of $232,670.
    The applicant standardized the charges using the FY 2014 IPPS final 
rule impact file, and inflated the result using three different 
inflation factors. We note that, since the applicant used FY 2012 
MedPAR data, we believe it is appropriate to use comparable data for 
standardization. Therefore, we believe use of the FY 2012 final rule 
impact file is more appropriate rather than the FY 2014 final rule 
impact file. The first analysis and methodology used an inflation 
factor of 4.57 percent, which was based on data from the BLS' non-
seasonally adjusted CPI for all urban consumers between January 2011 
and January 2013. This resulted in an average case-weighted 
standardized charge per case of $94,517. The second methodology under 
the first analysis used an inflation factor of 9.92 percent, which was 
based on the 2-year charge inflation factor listed in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50982). This resulted in an average case-
weighted standardized charge per case of $96,199. The third methodology 
used under the first analysis used an inflation factor of 4.63 percent, 
which was based on the Medicare Economic Index (MEI) from the IPPS 
market basket update between the third quarter of 2012 projected 
through the third quarter of 2014. This resulted in an average case-
weighted standardized charge per case of $91,570. The applicant noted 
that all three methodologies used under the first analysis to determine 
each respective average case-weighted standardized charge per case were 
calculated without any adjustments to reflect the reduced 
investigational price, or inadequate hospital claim reporting and 
billing.
    Using the FY 2014 IPPS Table 10 thresholds, the average case-
weighted threshold for MS-DRGs 250 and 251 is $71,467 (all calculations 
above were performed using unrounded numbers). Because the average 
case-weighted standardized charge per case for the applicable MS-DRGs 
calculated under each methodology under the first analysis discussed 
above exceeds the average case-weighted threshold amount, the applicant 
maintained that the technology meets the cost criterion.
    Under the second analysis, which used the same premise as the first 
analysis, the applicant researched the FY 2012 MedPAR file for claims 
for cases reporting procedure code 35.97 that mapped to MS-DRGs 250 and 
251, except that the applicant excluded charges related to the 
MitraClip[supreg] System by removing all charges from the claim that 
would map to the implantable cost center on the cost report. The 
applicant then standardized the charges, inflated the result using the 
three inflation factors above, and added a fixed amount of commercial 
charges based on post-FDA approval pricing. This resulted in an average 
case weighted standardized charge per case of $139,536 under the first 
inflation factor (4.57 percent), $142,364 under the second inflation 
factor (9.2 percent), and $139,568 under the third inflation factor 
(4.63 percent).
    Using the FY 2014 IPPS Table 10 thresholds, the average case-
weighted threshold for MS-DRGs 250 and 251 is $71,467 (all calculations 
above were performed using unrounded numbers). Because the average 
case-weighted standardized charge per case for the applicable MS-DRGs 
calculated under all three methodologies discussed above exceeds the 
average case-weighted threshold amount, the applicant maintained that 
the MitraClip[supreg] System meets the cost criterion.
    We are inviting public comments on whether or not the 
MitraClip[supreg] System meets the cost criterion. In addition, we are 
inviting public comments on the methodologies used by the applicant in 
its two analyses.
    The applicant asserted that the MitraClip[supreg] System meets the 
substantial clinical improvement criterion. Severe MR is associated 
with significant morbidity and mortality rates, and is a progressive 
condition. For symptomatic patients diagnosed with significant MR, 
surgical repair or replacement is considered the gold standard--
offering improvements in symptoms and longer survival rates. However, 
the applicant explained that studies have indicated that a significant 
proportion of patients are not eligible for mitral valve repair and/or 
replacement surgery because of risk factors, including reduced left 
ventricular function, significant comorbidities, and advanced age. As a 
result, the applicant stated that there is a significant unmet clinical 
need for patients diagnosed with severe MR who are too high-risk for 
surgery, who are receiving palliative medical management.
    The applicant also stated that the MitraClip[supreg] System meets 
the substantial clinical improvement criterion based on clinical 
studies \17,18,19,20,21,22,23,24,25\

[[Page 28050]]

that have consistently shown that procedures performed using the 
MitraClip [supreg] System device lead to a significant reduction of MR; 
improvements in left ventricular (LV) function including LV volumes and 
dimensions; improved patient outcomes as measured by improvements in 
New York Heart Association (NYHA) functional class, improvement in 
health-related quality of life measures, and reductions in heart-
failure related hospitalizations; and significantly lower mortality 
rates than predicted surgical mortality rates.
---------------------------------------------------------------------------

    \17\ Feldman, et al., ``Percutaneous Repair or Surgery for 
Mitral Regurgitation,'' New England Journal of Medicine, 2011, Vol. 
364, pp. 1395-1406.
    \18\ Foster, et al., ``Percutaneous Mitral Valve Repair in the 
Initial EVEREST Cohort: Evidence of Reverse Left Ventricular 
Remodeling,'' Circulation in Cardivascular Imaging, July 2013, Vol. 
6(4), pp. 522-530.
    \19\ Grayburn, et al., ``The Relationship between the Magnitude 
of Reduction in Mitral Regurgitation Severity and Left Ventricular 
and Left Atrial Reverse Remodeling after MitraClip Therapy,'' 
Circulation in Cardiovascular Imaging, September 2013, epub, 
September 6, 2013.
    \20\ Lim, et al., ``Improved Functional Status and Quality of 
Life in Prohibitive Surgical Risk Patients With Degenerative Mitral 
Regurgitation Following Transcatheter Mitral Valve Repair With the 
MitraClip[supreg] System,'' Journal of American College of 
Cardiology, 2013, In Press, Accepted Manuscript, Available online, 
October 31, 2013.
    \21\ Maisano, F., et al., ``Percutaneous Mitral Valve 
Interventions in the Real World: Early and One Year Results From the 
ACCESS-EU, a Prospective, Multicenter, Non-Randomized Post-Approval 
Study of the MitraClip Therapy in Europ,'' Journal of American 
College of Cardiology, 2013, doi: 10.1016/j.jacc.2013.02.094.
    \22\ Mauri, et al., ``4-Year Results of a Randomized Controlled 
Trial of Percutaneous Repair Versus Surgery for Mitral 
Regurgitation,'' Journal of American College of Cardiology, Volume 
62, Issue 4, 2013, pp. 317-328.
    \23\ Munkholm, et al., ``Asystemic Review on the Safety and 
Efficacy of Percutaneousedge-to-edge Mitral Valve Repair with the 
MitraClip System for high surgical risk candidates,'' Heart, June 
27, 2013.
    \24\ Reichenspurner, H., et al., ``Clinical Outcomes Through 12 
Months in Patients With Degenerative Mitral Regurgitation Treated 
With the MitraClip Device in the ACCESS-EUrope Phase I Trial,'' 
European Journal of Cardiology-and Thoracic Surgy, 2013, Vol. 15, 
pp. 919-927.
    \25\ Whitlow, et al,. ``Acute and 12-Month Results With 
Catheter-Based Mitral Valve Leaflet Repair: The EVEREST II 
(Endovascular Valve Edge-to-Edge Repair) High Risk Study,'' Journal 
of American College of Cardiology, 2012, Vol. 59, pp. 130-139.
---------------------------------------------------------------------------

    The applicant cited clinical data from the EVEREST II High-Risk 
Study and the EVEREST II (REALISM) Continued Access Study/Registry. The 
applicant also cited clinical data from a high-risk cohort of patients 
(the EVEREST II High-Risk Cohort), which is an integrated analysis of 
the following: (1) Patients within the EVEREST II High-Risk Study who 
met eligibility criteria for being too high-risk to undergo mitral 
valve repair surgery; and (2) patients within the EVEREST II (REALISM) 
Continued Access Study/Registry who were too high-risk for surgery 
using identical eligibility inclusion criteria. The applicant also 
cited data from the Prohibitive Risk Degenerative Mitral Regurgitation 
(DMR) Cohort, which is an analysis of retrospectively evaluated high-
risk patients diagnosed with DMR enrolled in the EVEREST II studies 
that had 1-year follow-up available.
    In addition to the published clinical experience from the EVEREST 
studies, the applicant cited data on the use of the MitraClip[supreg] 
System device in a ``real-world'' setting published recently by a 
select number of European centers as part of their individual and/or 
multi-center commercial experience or enrollment in the 
MitraClip[supreg] System device group of the ACCESS-EU post-approval 
clinical trial in Europe. The European use of the MitraClip[supreg] 
System device is focused on patients who are too high-risk for surgery, 
and patients who are selected for therapy using a multi-disciplinary 
``heart team'' approach.
    The applicant stated that published reports on the 
MitraClip[supreg] System device and the procedures in which the device 
was used have consistently demonstrated a significant reduction in MR 
incidents that have been durable out to 1, 2, 3, and 4 years. The 
applicant cited the EVEREST II High-Risk Study (an analysis of 78 
patients diagnosed with degenerative or functional MR enrolled in the 
trial), which stated that ``objective measures of MR grade improved in 
the MitraClipTM group, including MR grade of <=2+ in 78 
percent of surviving patients at 1 year. These patients also 
experienced clinically significant improvements in left ventricular 
volume measurements. The clinical significance of these improvements is 
reflected in the NYHA class improvements. At baseline, 89 percent of 
patients were NYHA III/IV, improving to Class I/II in 74 percent of 
surviving patients at 12 months. Quality of life scores also improved 
significantly. Finally, the number of admissions for heart failure was 
significantly reduced compared to the year prior to 
MitraClipTM therapy.''
    The applicant cited clinical outcomes from the Prohibitive Risk DMR 
cohort. These results are the basis of the FDA premarket approval. 
Major effectiveness endpoints evaluated at 12 months demonstrated 
clinically important improvements in MR severity, with MR severity 
grades of 3+/4+ decreasing from 90.4 percent at baseline to 16.7 
percent at 1 year; NYHA Class III/IV decreasing from 86.6 percent at 
baseline to 13.1 percent at 1 year; and the SF-36 Physical/Mental scale 
measuring 33.4/46.6 at baseline increasing to 39.4/52.2 at 1 year.
    The applicant stated in its new technology add-on payment 
application that, ``Heart failure hospitalizations were reduced by 73 
percent in the 12 months post MitraClipTM procedure from the 
12 month pre-MitraClipTM procedure . . .,'' and ``the 
primary safety analysis indicated low procedural (30-day) mortality 
(6.3 percent) after MitraClipTM in comparison with the STS 
predicted surgical mortality risk score for these patients (13.2 
percent).''
    The applicant discussed published results \26\ ``assessing the 
relationship between the magnitude of reduction in MR and left 
ventricular (LV) and left atrial (LA) remodeling after the 
MitraClipTM therapy.'' In this study of patients diagnosed 
with significant (grade 3+ or 4+) DMR or functional MR (FMR), the 
authors found that, ``even reduction of MR severity to moderate (2+) is 
associated with LV and LA reverse remodeling. In both DMR and FMR, 
reduction in left ventricular end-diastolic volume (LVEDV) and LA 
volumes were improved proportionally to the degree of MR reduction at 
one year.''
---------------------------------------------------------------------------

    \26\ Grayburn, et al., ``The Relationship between the Magnitude 
of Reduction in Mitral Regurgitation Severity and Left Ventricular 
and Left Atrial Reverse Remodeling after MitraClip Therapy,'' 
Circulation in Cardiovascular Imaging, September 2013, epub, 
September 6, 2013.
---------------------------------------------------------------------------

    In conclusion, the applicant cited data from the ACCESS-EU study, 
which noted improvement in disease-specific quality of life measures, 
including the Minnesota Living with Heart Failure Questionnaire and 
Six-Minute Walk Test. The applicant also provided data supporting the 
overall safety and effectiveness of the MitraClip[supreg] System device 
in European ``real-world'' outcome studies.
    As noted in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27547 
through 27552), we are concerned that the applicant revised its initial 
FDA request for the use of the MitraClip[supreg] System device in all 
patients diagnosed with significant MR, after learning that the FDA 
expressed concern that the initial study, EVEREST II, demonstrated 
that, while the MitraClip[supreg] System device had clinically 
meaningful improvements in LV volume and QOL, the surgical option had 
better outcomes than the MitraClip[supreg] System device in surgical 
candidates. The FDA then required a second trial focused on high 
surgical risk patients. We note that the data evaluated by the FDA and 
presented by the applicant in its application for new technology add-on 
payments included information from the following:
    [ssquf] EVEREST I feasibility trial; enrollment 2003-2006; 55 
patients.
    [ssquf] EVEREST II RCT; enrollment 2005-2008; 279 patients.

[[Page 28051]]

    [ssquf] EVEREST II High-Risk Study; enrollment 2007-2008; 78 
patients. (A comparator group of 36 patients was identified from 
patients who were screened for the study, but did not meet the mitral 
valve anatomic criteria for placement of the device.)
    [ssquf] EVEREST (REALISM) Continued Access Study and compassionate 
use; enrollment 2009-2013; 49 patients.
    The applicant provided comparisons of various outcomes prior to the 
procedure using the MitraClip[supreg] System device and outcomes 12 
months later. MR severity, LV end diastolic volume, NYHA Class, SF36 
Physical/Mental scale, and heart failure hospitalization rates all had 
clinically meaningful improvements. For the EVEREST II HRS, the 
applicant provided analysis demonstrating a significant survival 
benefit (76 percent versus 55 percent/p <0.047) over the comparator 
group.
    In our review of the clinical trials' data, we have the following 
key points of concern:
     Post-hoc analyses of pooled data sets retain all of the 
individual shortcomings of the individual data sets;
     Pooling does not enhance the utility and scientific value 
of uncontrolled single-arm registries with no comparators; and
     Inappropriate pooling introduces additional confounders.
    It is also unclear if the appropriate target population for the 
MitraClip[supreg] System device has been identified because the 
clinical trials conducted by the applicant included patients diagnosed 
with both DMR and FMR. This makes it difficult to determine which group 
of patients may benefit more, or less, from the new technology. For 
example, in a subgroup analysis of the EVEREST II RCT, the authors 
concluded that, older patients and those patients diagnosed with FMR or 
abnormal left ventricular function had results more comparable to 
surgical repair. Data results from 2 years of the EVEREST II RCT also 
demonstrated that surgery reduced incidents of MR more than the 
procedures performed using the percutaneous MitraClip[supreg] System 
device. However, both the surgical patients and the patients who were 
treated using the MitraClip[supreg] System device showed comparable 
results for improved left ventricular function, NYHA functional class, 
and quality of life.
    We are inviting public comments on whether this technology meets 
the substantial clinical improvement criterion, particularly in 
comparison to other surgical therapies, such as mitral valve repair or 
replacement, and the appropriate target population for this technology.
    We did not receive any public comments in response to the New 
Technology Town Hall meeting held on February 12, 2014 in regard to 
this technology.
f. Responsive Neurostimulator (RNS[supreg]) System
    NeuroPace, Inc. submitted an application for new technology add-on 
payments for FY 2015 for the use of the RNS[supreg] System. (We note 
that the applicant submitted an application for new technology add-on 
payments for FY 2014, but failed to receive FDA approval prior to the 
July 1 deadline.) Seizures occur when brain function is disrupted by 
abnormal electrical activity. Epilepsy is a brain disorder 
characterized by recurrent, unprovoked seizures. According to the 
applicant, the RNS[supreg] System is the first implantable medical 
device (developed by NeuroPace, Inc.) for treating persons diagnosed 
with epilepsy whose partial onset seizures have not been adequately 
controlled with antiepileptic medications. The applicant further stated 
that, the RNS[supreg] System is the first closed-loop, responsive 
system to treat partial onset seizures. Responsive electrical 
stimulation is delivered directly to the seizure focus in the brain 
when abnormal brain activity is detected. A cranially implanted 
programmable neurostimulator senses and records brain activity through 
one or two electrode-containing leads that are placed at the patient's 
seizure focus/foci. The neurostimulator detects electrographic patterns 
previously identified by the physician as abnormal, and then provides 
brief pulses of electrical stimulation through the leads to interrupt 
those patterns. Stimulation is delivered only when abnormal 
electrocorticographic activity is detected. The typical patient is 
treated with a total of 5 minutes of stimulation a day. The RNS[supreg] 
System incorporates remote monitoring, which allows patients to share 
information with their physicians remotely.
    With respect to the newness criterion, the applicant stated that 
some patients diagnosed with partial onset seizures that cannot be 
controlled with antiepileptic medications may be candidates for the 
vagus nerve stimulator (VNS) or for surgical removal of the seizure 
focus. According to the applicant, these treatments are not appropriate 
for, or helpful to, all patients. Therefore, the applicant believed 
that there is an unmet clinical need for additional therapies for 
partial onset seizures. The applicant further stated that the 
RNS[supreg] System addresses this unmet clinical need by providing a 
novel treatment option for treating persons diagnosed with medically 
intractable partial onset seizures. The applicant received FDA 
premarket approval in November 2013. The following ICD-9-CM procedure 
codes are used to identify this technology: 01.20 (Cranial implantation 
or replacement of neurostimulator pulse generator); 01.29 (Removal of 
cranial neurostimulator pulse generator); and 02.93 (Implantation or 
replacement of intracranial neurostimulator lead(s)). We are inviting 
public comments on whether the technology meets the newness criterion.
    With regard to the cost criterion, the applicant stated that 
substantially all cases eligible for the RNS[supreg] System would map 
to MS-DRG 024 (Craniotomy with Major Device Implant/Acute Complex 
Central Nervous System Principal Diagnosis without MCC). The applicant 
further stated that, while it is possible for some cases to occur in 
MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex Central 
Nervous System Principal Diagnosis with MCC or Chemotherapy Implant), 
it would be extremely rare because the applicant believed that these 
major complications and/or comorbidities would probably preclude a 
patient from receiving treatment using the RNS[supreg] System because 
the technology is an elective procedure.
    The applicant submitted two analyses to demonstrate that the 
technology meets the cost criterion. For the first analysis, the 
applicant used clinical trial claims data collected in the RNS[supreg] 
System Pivotal Clinical Investigation to calculate the anticipated 
average case-weighted standardized charge per case. The applicant 
maintained that this analysis best represents the anticipated charges 
for the technology because it is based on actual cases treated using 
this technology. The applicant analyzed 163 claims from 28 hospitals 
participating in the clinical trial. Five claims from one hospital were 
excluded because no hospital-specific information regarding 
standardization was available. The resulting 158 claims included dates 
of service ranging from May 2006 through May 2009. The average case-
weighted standardized charge per case for these 158 claims was $54,691.
    The applicant then standardized the charges for each claim. The 
applicant noted that it was not necessary to remove any charges from 
these claims because the technology was provided at no charge in the 
trial. After standardizing the charges for each

[[Page 28052]]

claim, the applicant inflated the charges reported on each claim using 
the BLS' CPI-IP data covering the same period. Specifically, because 
the publicly available FY 2012 MedPAR data do not identify the month of 
the discharge on inpatient claims, but do identify the calendar 
quarter, the applicant used a mid-month convention to determine the 
relevant monthly CPI-IP for each calendar quarter. The applicant then 
calculated the percentage change from the relevant quarter to the 
quarter of the most recently available CPI-IP, which was the August 
2013 CPI-IP. Specifically, the applicant used the following 
assumptions:

----------------------------------------------------------------------------------------------------------------
                                                                                                  Percent change
           FY 2012 calendar quarter                    Midpoint of quarter            CPI IP      to August 2013
----------------------------------------------------------------------------------------------------------------
Q4 2011.......................................  Nov-11..........................         242.672            7.93
Q1 2012.......................................  Feb-11..........................         245.721            6.59
Q2 2012.......................................  May-11..........................         247.646            5.76
Q3 2012.......................................  Aug-11..........................         248.856            5.25
Most recent as of application.................  Aug-13..........................         261.915  ..............
----------------------------------------------------------------------------------------------------------------
Source as cited by applicant: Bureau of Labor Statistics' Web site, accessed October 13, 2013; Base Period:
  December 1996 = 100.

    After inflating the charges, the applicant estimated charges for 
the RNS[supreg] System by multiplying the device cost to the hospital 
by an anticipated hospital markup of 100 percent, or conversely by 
dividing the device cost by a CCR of 0.50. The applicant based its 
estimated CCR on four analyses. First, the applicant reviewed the 2007 
and 2008 reports prepared by RTI for CMS on charge compression, which 
found that the national aggregate CCR for devices and implants was 0.43 
and 0.467, as presented in the respective reports. Second, the 
applicant queried hospitals participating in the RNS[supreg] System 
Pivotal trial, and these queries yielded a mean and median CCR for 
implantable devices of 0.37 and 0.36, respectively. Third, the 
applicant reviewed data from the (All Payor) Premier database for cases 
performed during 2000 through 2010 that reported ICD-9 CM procedure 
codes 02.93 and/or 86.95 on a claim, and calculated a mean and median 
CCR for implanted leads and neurostimulators of 0.50 and 0.44, 
respectively. The applicant then reviewed other discussions of past new 
technology add-on payment applications published in the Federal 
Register, and noted that other applicants used lower CCRs (higher 
markups) for implanted devices than the CCR of 0.50 used in the 
applicant's analyses.
    Using this approach, the applicant added the anticipated hospital 
charge for the implantable RNS[supreg] System to the average case-
weighted standardized charge per case, and determined a final average 
case-weighted standardized charge per case of $128,723. The anticipated 
hospital charge for the implantable RNS[supreg] System is $73,900. 
Using the FY 2014 IPPS Table 10 thresholds, the threshold for MS-DRG 
024 is $91,197. Because the final average case-weighted standardized 
charge per case of $128,723 for MS-DRG 024 exceeds the average case-
weighted threshold amount, the applicant maintained that the 
RNS[supreg] System meets the cost criterion.
    In the second analysis, which the applicant characterizes as 
supplementary, the applicant researched the FY 2012 MedPAR file for 
cases reporting the following combinations of ICD-9-CM procedures 
codes: 02.93 and 86.95, or procedures codes 02.93 and 01.20 that mapped 
to MS-DRG 024. The applicant found 383 claims for cases reporting the 
combination of ICD-9-CM procedures codes 02.93 and 01.20, and pointed 
out that these cases were coded with procedure code 01.20 in error 
because no new RNS[supreg] System implantations occurred after May 
2009. The applicant analyzed these 383 claims, and found that more than 
90 percent of these cases had a primary or secondary diagnosis of 
Parkinson's disease, essential tremor, or dystonia. These diagnoses are 
FDA-approved indications for deep brain stimulation (DBS). In addition, 
the applicant noted that the total covered charges for these cases were 
less than the estimated charges for a full DBS system, and hypothesized 
that these cases did not represent implantation of a full DBS system, 
but did represent the implantation of leads only. The applicant 
contacted two hospitals that reported claims for cases where total 
covered charges were less than the charges for a full DBS system, and 
the hospitals confirmed that their claims represented lead 
implantations only. Therefore, for the second analysis, the applicant 
included all of the cases assigned to MS-DRG 024 reporting a 
combination of ICD-9-CM procedures codes 02.93 and 86.95, and all of 
the cases assigned to MS-DRG 024 reporting a combination of ICD-9-CM 
procedures codes 02.93 and 01.20 where the covered charges were greater 
than, or equal to, the estimated charges of a full DBS system. The 
applicant maintained that 374 claims from 106 providers met this 
criterion, and data represented claims from the fourth calendar quarter 
of 2011 through the third calendar quarter of 2012. Based on this 
assumption, the applicant calculated an average case-weighted 
standardized charge per case of $65,555.
    The applicant then removed DBS charges from the average case-
weighted standardized charge per case. The applicant estimated charges 
for a full DBS system, and maintained that the average cost for a full 
DBS system is $25,979. Similar to its first analysis, the applicant 
assumed a CCR of 0.50, or 100 percent markup, which resulted in 
estimated charges for a full DBS system of $51,958. After removing the 
DBS system charges, the applicant inflated the charges to the current 
period using the same methodology in the first analysis, added charges 
for the RNS[supreg] System, and determined a final average case-
weighted standardized charge per case of $130,233. As noted above, the 
anticipated hospital charge for the implantable RNS[supreg] System is 
$73,900. Using the FY 2014 IPPS Table 10 thresholds, the average case-
weighted threshold for MS-DRG 024 is $91,197. Because the final average 
standardized charge per case of $130,233 for MS-DRG 024 exceeds the 
threshold amount, the applicant maintained that the RNS[supreg] System 
meets the cost criterion.
    Under either analysis, the applicant maintained that the final 
average case-weighted standardized charge per case would exceed the 
average case-weighted threshold. We are inviting public comments on 
whether the RNS[supreg] System meets the cost criterion, particularly 
based on the assumptions and methodology used in the applicant's 
analyses.
    With regard to substantial clinical improvement, as previously 
stated, some patients diagnosed with partial

[[Page 28053]]

onset seizures may not be able to control their seizures with 
antiepileptic medications, VNS, or with surgical removal of the seizure 
focus. The applicant stated that the RNS[supreg] System provides 
treatment for those patients diagnosed with partial onset seizures who 
fail treatment with antiepileptic medications, or VNS therapy, and who 
are ineligible for resective surgery because of the extent and/or 
location of the seizure focus, or patients who do not elect surgery. 
According to the applicant, the RNS[supreg] System clinical trials 
provide Class I evidence that treatment using the RNS[supreg] System 
substantially reduces disabling seizures in patients diagnosed with 
severe epilepsy, who have tried and failed treatment with antiepileptic 
medications, and in many cases, VNS or epilepsy surgery. The applicant 
maintained that the results from their clinical trials demonstrate 
significant and sustained improvements in health outcomes over the 
controlled period and over the long term. The applicant conducted a 
feasibility trial, which was designed to demonstrate adequate safety of 
its treatment, and provide evidence of effectiveness to support 
commencement of a randomized double-blinded pivotal trail. In addition, 
the applicant has an ongoing long-term treatment clinical investigation 
trial (LTT trial) to assess the long-term safety and effectiveness of 
the treatment on patients who have completed either the Feasibility 
trial, or the RNS[supreg] System Pivotal trial for an additional seven 
years. The LTT trial started in April 2006, and the final patient is 
expected to complete the trial in 2018. The applicant noted that 
patients enrolled in the LTT trial continued to experience a reduction 
in seizures over several years of follow-up, further demonstrating the 
positive effect of responsive stimulation from the RNS[supreg] System 
is durable.
    The applicant stated that their pivotal trial met its primary 
effectiveness endpoint by proving that there was a statistically 
significant greater reduction in seizures in the treatment group&fnl 
compared to the control group (p = 0.012). Significant improvements at 
1 and 2 years post-implant included:
     A significant reduction in disabling seizures of 44 
percent and 53 percent at 1 and 2 years, respectively;
     Fifty-five percent of patients who reached 2 years post-
implant experienced a 50 percent or greater reduction in seizures; and
     Significant improvements in overall quality of life, as 
well as individual quality of life measures including memory, language, 
attention, concentration and medication effects.
    The applicant asserted that there was no negative effect of 
treatment using the RNS[supreg] System on neuropsychological function 
(including verbal functioning, visual spatial processing, and memory) 
or mood. The applicant concluded that the RNS[supreg] System Pivotal 
trial provides Class I evidence that responsive cortical stimulation is 
effective in significantly reducing seizure frequency in adults with 
one or two seizure foci who have failed two or more antiepileptic 
medication trials. The applicant stated that experience across all of 
the RNS[supreg] System trials demonstrates the reduction in seizure 
frequency of disabling partial onset seizures improves over time. In 
addition, the applicant noted that sustained improvements were also 
seen in quality of life. Finally, the applicant noted that safety and 
tolerability measures compare favorably to alternative treatments, such 
as antiepileptic medications, VNS, and epilepsy surgery.
    With regard to the substantial clinical improvement criterion, we 
are concerned that the average age of the patients enrolled in the 
applicant's trials was 35 years. Although the applicant maintained that 
31 percent of the patients enrolled in the pivotal trial were Medicare 
beneficiaries, we are unsure of the extent to which this technology 
would be used by Medicare beneficiaries because of the relatively young 
age of the majority of the patients enrolled in the pivotal trial. We 
also are concerned that further clarification on how the RNS[supreg] 
System compares to other neurostimulation treatments was not provided 
by the applicant.
    Because the applicant included claims with DBS charges in one of 
its cost analyses, we believe that the similarities and differences 
between DBS and the RNS[supreg] System may also be relevant under the 
substantial clinical improvement criterion. In addition, we are 
concerned that the time period in the clinical trial may not be 
sufficient to confirm durability. In the RNS[supreg] System Pivotal 
Clinical Investigation, the primary effectiveness endpoint considered 
seizure frequency over the last 3 months of the blinded period of the 
trial. We note that the applicant is currently conducting a 5-year 
study. We are inviting public comments on whether the RNS[supreg] 
System meets the substantial clinical improvement criterion, 
particularly in regard to the degree in which the technology would be 
used by Medicare beneficiaries, the comparison to other 
neurostimulation treatments, and its durability.
    We received public comments in response to the New Technology Town 
Hall meeting held on February 12, 2014, regarding this technology and 
the application for new technology add-on payments. We summarize these 
comments below.
    Comment: One commenter, a physician, stated that even with the 
release of multiple new antiepileptic medications in the past 20 years, 
over one-third of people diagnosed with epilepsy cannot obtain adequate 
seizure control. The commenter noted that seizures lead to loss of 
employment and driving licenses and are socially disabling. The 
commenter further noted that uncontrolled seizures can cause physical 
injury and even significantly increased risk of death. The commenter 
stated that only a fraction of these patients are candidates for 
potentially curative resective brain surgery and antiepileptic 
medications can have disabling or severe adverse effects, such as 
lethargy, ataxia, organ or blood cell damage, Stevens-Johnson syndrome, 
and psychiatric changes including suicidal ideation. For this reason, 
the commenter believed that new treatments are still needed.
    The commenter asserted that the RNS[supreg] System represents a 
much needed new therapy for patients who are desperate to get seizures 
under control and lead a productive life. The commenter stated that of 
its patients that participated in the clinical trials, these patients 
have demonstrated significant and sustained benefits from treatment 
with the RNS[supreg] System. The commenter noted that two patients had 
a significant reduction in the amount of seizures per month, and are 
now able to obtain driver licenses and both show improved quality of 
life.
    The commenter also noted that the RNS[supreg] System is a unique 
therapy for the following reasons: (1) While medications are chemicals 
that circulate to every organ, the RNS[supreg] System delivers therapy 
directly to the epileptic focus; (2) RNS[supreg] therapy is delivered 
automatically, avoiding compliance problems that occur with 
medications; and (3) the RNS[supreg] System constantly records data on 
seizure occurrences that is available to the clinician at any time 
which can track a patient's progress without depending on the patient's 
memory or willingness to report seizures. The commenter asserted that 
no other therapy offers this capability.
    The commenter urged CMS to approve the new technology add-on 
payment application for the RNS[supreg] System, which the commenter 
believed would help ensure access to this novel therapy for Medicare 
beneficiaries for whom there are otherwise no good treatment options 
available.

[[Page 28054]]

    Another commenter, also a physician, stated that some of the 
benefits of the RNS[supreg] System therapy include a significant 
reduction in the seizure frequency and severity, and for some patients, 
extended periods of seizure freedom. The commenter explained that this 
reduction in the seizure frequency improves over time, is sustained 
over several years of follow-up, and can result in improved cognition 
and a better quality of life. The commenter further stated that some 
patients have been able to live independently for the first time in 
their life, take care of children, resume driving, go back to school 
and/or obtain employment. The commenter concluded the following 
comparisons between the RNS[supreg] System and the vagus nerve 
stimulator (VNS):
     In clinical trials, the RNS[supreg] System subjects 
experienced a greater reduction in seizures than VNS subjects. The 
median percent reduction in seizures was: 1 year: RNS--44 percent and 
VNS--31 percent; 2 years: RNS--53 percent and VNS--41 percent.
     VNS therapy results in stimulation-related side effects, 
including coughing, difficulties with speech and throat pain. 
RNS[supreg] therapy does not result in chronic side effects.
     About one-third of patients in RNS[supreg] System pivotal 
trial had previously failed therapy with a VNS. These subjects achieved 
the same positive improvements in health outcomes from the RNS[supreg] 
System as patients that had not previously tried a VNS.
     In the commenter's experience, not only is the frequency 
of the seizure activity improved but also the severity of the seizures 
can improve with the RNS[supreg] System.
    The commenter further noted the ``positive long-term results of RNS 
therapy.'' The commenter stated that therapy is being evaluated in the 
ongoing LTT trial, in which patients are enrolled for an additional 7 
years after completing the initial 2-year clinical trial with some 
patients having the implant for over 9 years. The commenter asserted 
that the long-term data clearly show that the therapy is durable. 
Specifically, the commenter noted that seizure reductions are 
maintained at 50 percent or greater through 7 years (that is, the 
median percent reduction in seizures is about 60 percent at 7 years). 
The commenter added that the vast majority of its patients have elected 
to continue treatment with the device given their response to the 
RNS[supreg] therapy. The commenter encouraged CMS to approve new 
technology add-on payments for the RNS[supreg] System.
    Response: We appreciate the commenters' support. We considered 
these comments in our evaluation of the RNS[supreg] System new 
technology add-on payment application for FY 2015 and in the 
development of this proposed rule. As stated above, we are inviting 
additional public comments on whether the RNS[supreg] System meets the 
substantial clinical improvement criterion, particularly in regard to 
the degree in which the technology would be used by Medicare 
beneficiaries, the comparison to other neurostimulation treatments, and 
its durability.

III. Proposed 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 proposed FY 2015 hospital wage index based 
on the statistical areas appears under section III.B. of the preamble 
of this proposed 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 proposed adjustment for 
FY 2015 is discussed in section II.B. of the Addendum to this proposed 
rule.
    As discussed in section III.H. of the preamble of this proposed 
rule, 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), 
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 proposed budget neutrality adjustment for FY 2015 is discussed in 
section II.A.4.b. of the Addendum to this proposed rule.
    Section 1886(d)(3)(E) of the Act also provides for the collection 
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in 
order to construct an occupational mix adjustment to the wage index. A 
discussion of the occupational mix adjustment that we are proposing to 
apply to the FY 2015 wage index appears under section III.F. of the 
preamble of this proposed rule.

B. Proposed Core-Based Statistical Areas for the Hospital Wage Index

1. Background
    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 delineate 
hospital labor market areas based on the Core-Based Statistical Areas 
(CBSAs) established by the Office of Management and Budget (OMB). The 
current statistical areas used in FY 2014 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 labor market 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) and final rule (78 FR 50586), 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

[[Page 28055]]

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 this 
FY 2015 IPPS/LTCH PPS proposed rule, when referencing the new OMB 
geographic boundaries of statistical areas, we are using the term 
``delineations'' rather than the term '' definitions'' that we have 
used in the past, consistent with OMB's use of the terms (75 FR 37249).
    In order to implement these changes for the IPPS, it is necessary 
to identify the new labor market area delineation 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, under the new OMB delineations, there would be 
new CBSAs, urban counties that would become rural, rural counties that 
would become urban, and existing CBSAs would be split apart. In 
addition, the effect of the new OMB delineations 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 reviewed regarding the effects 
of the new OMB labor market area delineations 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 needed to 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 and, thus, did not implement changes to the wage index 
for FY 2014 based on these new OMB delineations. In the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50586), we stated that we intended to 
propose changes to the wage index based on the new OMB delineations in 
this FY 2015 proposed rule. As discussed below, in this proposed rule, 
we are proposing to implement the new OMB delineations as described in 
the February 28, 2013 OMB Bulletin No. 13-01, effective for the FY 2015 
IPPS wage index.
2. Proposed Implementation of New Labor Market Area Delineations
    As discussed previously, CMS delayed implementing the new OMB labor 
market area delineations to allow for sufficient time to assess the new 
changes. We believe it is important for the IPPS to use the latest 
labor market area delineations available as soon as is reasonably 
possible in order to maintain a more accurate and up-to-date payment 
system that reflects the reality of population shifts and labor market 
conditions. While CMS and other stakeholders have explored potential 
alternatives to the current CBSA-based labor market system (we refer 
readers to the CMS Web site at: www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Reform.html), no consensus 
has been achieved regarding how best to implement a replacement system. 
As discussed in the FY 2005 IPPS final rule (69 FR 49027), ``While we 
recognize that MSAs are not designed specifically to define labor 
market areas, we believe they do represent a useful proxy for this 
purpose.'' We further believe that using the most current delineations 
will increase the integrity of the IPPS wage index system by creating a 
more accurate representation of geographic variations in wage levels. 
We have reviewed our findings and impacts relating to the new OMB 
delineations, and find no compelling reason to further delay 
implementation. Therefore, we are proposing to implement the new OMB 
delineations as described in the February 28, 2013 OMB Bulletin No. 13-
01, effective for the FY 2015 IPPS wage index. We are proposing to use 
these new delineations to calculate area wage indexes in a manner that 
is generally consistent with the CBSA-based methodologies finalized in 
the FY 2005 IPPS final rule, and refined in subsequent rulemaking. We 
also are proposing a wage index transition period applicable to all 
hospitals that experience negative impacts due to the proposed 
implementation of the new OMB delineations. This transition is 
discussed in more detail below.
a. Micropolitan Statistical Areas
    As discussed in the FY 2005 IPPS final rule (69 FR 49029 through 
49032), CMS considered whether to use Micropolitan Statistical Areas to 
define the labor market areas for the purpose of the IPPS wage index. 
OMB defines a ``Micropolitan Statistical Area'' as a CBSA ``associated 
with at least one urban cluster that has a population of at least 
10,000, but less than 50,000'' (75 FR 37252). We refer to these areas 
as Micropolitan Areas. After extensive impact analysis, CMS determined 
the best course of action would be to treat all hospitals located in 
Micropolitan Areas as ``rural'' and include them in the calculation of 
each State's rural wage index. Because Micropolitan areas tend to 
encompass smaller population centers and contain fewer hospitals than 
MSAs, we determined that if Micropolitan Areas were to be treated as 
separate labor market areas, the IPPS wage index would have included 
drastically more single-provider labor market areas. This larger number 
of labor market areas with fewer hospitals could create instability in 
year-to-year wage index values for a large number of hospitals; could 
reduce the averaging effect of the wage index, thus lessening some of 
the efficiency incentive inherent in a system based on the average 
hourly wages for a large number of hospitals; and could arguably create 
an inequitable system when so many hospitals have wage indexes based 
solely on their own wage data while other hospitals' wage indexes are 
based on an average hourly wage across many hospitals. For these 
reasons, we adopted a policy to include Micropolitan Areas in the 
State's rural wage area, and have continued this policy through the 
present.
    Based upon the new 2010 Decennial Census data, a number of urban 
counties have switched status and have joined or became Micropolitan 
Areas, and some counties that once were part of a Micropolitan Area, 
under current OMB delineations, have become urban. Overall, there are 
fewer Micropolitan Areas (541) under the new OMB delineations based on 
the 2010 Census than existed under the latest data from the 2000 Census 
(581). We believe that the best course of action would be to continue 
the policy established in the FY 2005 IPPS final rule and include 
hospitals located in Micropolitan Areas in each State's rural wage 
index. These areas continue to be defined as having relatively small 
urban cores (populations of 10,000-49,999). We do not believe it would 
be appropriate to calculate a separate wage index for areas that 
typically may include only a few hospitals for the reasons set forth in 
the FY 2005 IPPS/LTCH PPS final rule, as discussed above. Therefore, in 
conjunction with our proposal to implement the new OMB labor market 
area delineations beginning in FY 2015, we are proposing to continue to 
treat Micropolitan Areas as ``rural'' and to include the Micropolitan 
Areas in the calculation of each State's rural wage index.
b. Urban Counties That Would Become Rural Under the New OMB 
Delineations
    As previously discussed, we are proposing to implement the new OMB 
labor market area delineations (based

[[Page 28056]]

upon the 2010 Decennial Census data) beginning in FY 2015. Our analysis 
shows that a total of 37 counties (and county equivalents) and 12 
hospitals that were once considered part of an urban CBSA would be 
considered to be located in a rural area, beginning in FY 2015, under 
these new OMB delineations. The following chart lists the 37 urban 
counties that would be rural if we finalize our proposal to implement 
the new OMB delineations.

                                      Counties That Would Lose Urban Status
----------------------------------------------------------------------------------------------------------------
                                                                    Previous
                  County                           State              CBSA                    CBSA
                                                                     number
----------------------------------------------------------------------------------------------------------------
Greene County............................  IN                           14020  Bloomington, IN.
Anson County.............................  NC                           16740  Charlotte-Gastonia-Rock Hill, NC-
                                                                                SC.
Franklin County..........................  IN                           17140  Cincinnati-Middletown, OH-KY-IN.
Stewart County...........................  TN                           17300  Clarksville, TN-KY.
Howard County............................  MO                           17860  Columbia, MO.
Delta County.............................  TX                           19124  Dallas-Fort Worth-Arlington, TX.
Pittsylvania County......................  VA                           19260  Danville, VA.
Danville City............................  VA                           19260  Danville, VA.
Preble County............................  OH                           19380  Dayton, OH.
Gibson County............................  IN                           21780  Evansville, IN-KY.
Webster County...........................  KY                           21780  Evansville, IN-KY.
Franklin County..........................  AR                           22900  Fort Smith, AR-OK.
Ionia County.............................  MI                           24340  Grand Rapids-Wyoming, MI.
Newaygo County...........................  MI                           24340  Grand Rapids-Wyoming, MI.
Greene County............................  NC                           24780  Greenville, NC.
Stone County.............................  MS                           25060  Gulfport-Biloxi, MS.
Morgan County............................  WV                           25180  Hagerstown-Martinsburg, MD-WV.
San Jacinto County.......................  TX                           26420  Houston-Sugar Land-Baytown, TX.
Franklin County..........................  KS                           28140  Kansas City, MO-KS.
Tipton County............................  IN                           29020  Kokomo, IN.
Nelson County............................  KY                           31140  Louisville/Jefferson County, KY-
                                                                                IN.
Geary County.............................  KS                           31740  Manhattan, KS.
Washington County........................  OH                           37620  Parkersburg-Marietta-Vienna, WV-
                                                                                OH.
Pleasants County.........................  WV                           37620  Parkersburg-Marietta-Vienna, WV-
                                                                                OH.
George County............................  MS                           37700  Pascagoula, MS.
Power County.............................  ID                           38540  Pocatello, ID.
Cumberland County........................  VA                           40060  Richmond, VA.
King and Queen County....................  VA                           40060  Richmond, VA.
Louisa County............................  VA                           40060  Richmond, VA.
Washington County........................  MO                           41180  St. Louis, MO-IL.
Summit County............................  UT                           41620  Salt Lake City, UT.
Erie County..............................  OH                           41780  Sandusky, OH.
Franklin County..........................  MA                           44140  Springfield, MA.
Ottawa County............................  OH                           45780  Toledo, OH.
Greene County............................  AL                           46220  Tuscaloosa, AL.
Calhoun County...........................  TX                           47020  Victoria, TX.
Surry County.............................  VA                           47260  Virginia Beach-Norfolk-Newport
                                                                                News, VA-NC.
----------------------------------------------------------------------------------------------------------------

    We are proposing that the wage data for all hospitals located in 
the counties listed above would now be considered rural when 
calculating their respective State's rural wage index. We recognize 
that rural areas typically have lower area wage index values than urban 
areas, and hospitals located in these counties may experience a 
negative impact in their IPPS payment due to the proposed adoption of 
the new OMB delineations. We refer readers to section III.B.2.e. of the 
preamble of this proposed rule for a discussion of the proposed wage 
index transition period, in particular, the discussion regarding the 3-
year transition for hospitals located in these specific counties.
c. Rural Counties That Would Become Urban Under the New OMB 
Delineations
    As previously discussed, we are proposing to implement the new OMB 
labor market area delineations (based upon the 2010 Decennial Census 
data) beginning in FY 2015. Analysis of these OMB labor market area 
delineations shows that a total of 105 counties (and county 
equivalents) and 81 hospitals that were located in rural areas would be 
located in urban areas under the new OMB delineations. The following 
chart lists the 105 rural counties that would be urban if we finalize 
our proposal to implement the new OMB delineations.

                  Counties That Would Gain Urban Status
------------------------------------------------------------------------
                                         New CBSA
            County              State     number            CBSA.
------------------------------------------------------------------------
Utuado Municipio.............  PR            10380  Aguadilla-Isabela,
                                                     PR.
Linn County..................  OR            10540  Albany, OR.
Oldham County................  TX            11100  Amarillo, TX.
Morgan County................  GA            12060  Atlanta-Sandy
                                                     Springs-Roswell,
                                                     GA.
Lincoln County...............  GA            12260  Augusta-Richmond
                                                     County, GA-SC.

[[Page 28057]]

 
Newton County................  TX            13140  Beaumont-Port
                                                     Arthur, TX.
Fayette County...............  WV            13220  Beckley, WV.
Raleigh County...............  WV            13220  Beckley, WV.
Golden Valley County.........  MT            13740  Billings, MT.
Oliver County................  ND            13900  Bismarck, ND.
Sioux County.................  ND            13900  Bismarck, ND.
Floyd County.................  VI            13980  Blacksburg-
                                                     Christiansburg-
                                                     Radford, VA.
De Witt County...............  IL            14010  Bloomington, IL.
Columbia County..............  PA            14100  Bloomsburg-Berwick,
                                                     PA.
Montour County...............  PA            14100  Bloomsburg-Berwick,
                                                     PA.
Allen County.................  KY            14540  Bowling Green, KY.
Butler County................  KY            14540  Bowling Green, KY.
St. Mary's County............  MD            15680  California-Lexington
                                                     Park, MD.
Jackson County...............  IL            16060  Carbondale-Marion,
                                                     IL.
Williamson County............  IL            16060  Carbondale-Marion,
                                                     IL.
Franklin County..............  PA            16540  Chambersburg-
                                                     Waynesboro, PA.
Iredell County...............  NC            16740  Charlotte-Concord-
                                                     Gastonia, NC-SC.
Lincoln County...............  NC            16740  Charlotte-Concord-
                                                     Gastonia, NC-SC.
Rowan County.................  NC            16740  Charlotte-Concord-
                                                     Gastonia, NC-SC.
Chester County...............  SC            16740  Charlotte-Concord-
                                                     Gastonia, NC-SC.
Lancaster County.............  SC            16740  Charlotte-Concord-
                                                     Gastonia, NC-SC.
Buckingham County............  VA            16820  Charlottesville, VA.
Union County.................  IN            17140  Cincinnati, OH-KY-
                                                     IN.
Hocking County...............  OH            18140  Columbus, OH.
Perry County.................  OH            18140  Columbus, OH.
Walton County................  FL            18880  Crestview-Fort
                                                     Walton Beach-
                                                     Destin, FL.
Hood County..................  TX            23104  Dallas-Fort Worth-
                                                     Arlington, TX.
Somervell County.............  TX            23104  Dallas-Fort Worth-
                                                     Arlington, TX.
Baldwin County...............  AL            19300  Daphne-Fairhope-
                                                     Foley, AL.
Monroe County................  PA            20700  East Stroudsburg,
                                                     PA.
Hudspeth County..............  TX            21340  El Paso, TX.
Adams County.................  PA            23900  Gettysburg, PA.
Hall County..................  NE            24260  Grand Island, NE.
Hamilton County..............  NE            24260  Grand Island, NE.
Howard County................  NE            24260  Grand Island, NE.
Merrick County...............  NE            24260  Grand Island, NE.
Montcalm County..............  MI            24340  Grand Rapids-
                                                     Wyoming, MI.
Josephine County.............  OR            24420  Grants Pass, OR.
Tangipahoa Parish............  LA            25220  Hammond, LA.
Beaufort County..............  SC            25940  Hilton Head Island-
                                                     Bluffton-Beaufort,
                                                     SC.
Jasper County................  SC            25940  Hilton Head Island-
                                                     Bluffton-Beaufort,
                                                     SC.
Citrus County................  FL            26140  Homosassa Springs,
                                                     FL.
Butte County.................  ID            26820  Idaho Falls, ID.
Yazoo County.................  MS            27140  Jackson, MS.
Crockett County..............  TN            27180  Jackson, TN.
Kalawao County...............  HI            27980  Kahului-Wailuku-
                                                     Lahaina, HI.
Maui County..................  HI            27980  Kahului-Wailuku-
                                                     Lahaina, HI.
Campbell County..............  TN            28940  Knoxville, TN.
Morgan County................  TN            28940  Knoxville, TN.
Roane County.................  TN            28940  Knoxville, TN.
Acadia Parish................  LA            29180  Lafayette, LA.
Iberia Parish................  LA            29180  Lafayette, LA.
Vermilion Parish.............  LA            29180  Lafayette, LA.
Cotton County................  OK            30020  Lawton, OK.
Scott County.................  IN            31140  Louisville/Jefferson
                                                     County, KY-IN.
Lynn County..................  TX            31180  Lubbock, TX.
Green County.................  WI            31540  Madison, WI.
Benton County................  MS            32820  Memphis, TN-MS-AR.
Midland County...............  MI            33220  Midland, MI.
Martin County................  TX            33260  Midland, TX.
Le Sueur County..............  MN            33460  Minneapolis-St. Paul-
                                                     Bloomington, MN-WI.
Mille Lacs County............  MN            33460  Minneapolis-St. Paul-
                                                     Bloomington, MN-WI.
Sibley County................  MN            33460  Minneapolis-St. Paul-
                                                     Bloomington, MN-WI.
Maury County.................  TN            34980  Nashville-Davidson-
                                                     Murfreesboro-
                                                     Franklin, TN.
Craven County................  NC            35100  New Bern, NC.
Jones County.................  NC            35100  New Bern, NC.
Pamlico County...............  NC            35100  New Bern, NC.
St. James Parish.............  LA            35380  New Orleans-
                                                     Metairie, LA.
Box Elder County.............  UT            36260  Ogden-Clearfield,
                                                     UT.
Gulf County..................  FL            37460  Panama City, FL.
Custer County................  SD            39660  Rapid City, SD.

[[Page 28058]]

 
Fillmore County..............  MN            40340  Rochester, MN.
Yates County.................  NY            40380  Rochester, NY.
Sussex County................  DE            41540  Salisbury, MD-DE.
Worcester County.............  MA            41540  Salisbury, MD-DE.
Highlands County.............  FL            42700  Sebring, FL.
Webster Parish...............  LA            43340  Shreveport-Bossier
                                                     City, LA.
Cochise County...............  AZ            43420  Sierra Vista-
                                                     Douglas, AZ.
Plymouth County..............  IA            43580  Sioux City, IA-NE-
                                                     SD.
Union County.................  SC            43900  Spartanburg, SC.
Pend Oreille County..........  WA            44060  Spokane-Spokane
                                                     Valley, WA.
Stevens County...............  WA            44060  Spokane-Spokane
                                                     Valley, WA.
Augusta County...............  VA            44420  Staunton-Waynesboro,
                                                     VA.
Staunton City................  VA            44420  Staunton-Waynesboro,
                                                     VA.
Waynesboro City..............  VA            44420  Staunton-Waynesboro,
                                                     VA.
Little River County..........  AR            45500  Texarkana, TX-AR.
Sumter County................  FL            45540  The Villages, FL.
Pickens County...............  AL            46220  Tuscaloosa, AL.
Gates County.................  NC            47260  Virginia Beach-
                                                     Norfolk-Newport
                                                     News, VA-NC.
Falls County.................  TX            47380  Waco, TX.
Columbia County..............  WA            47460  Walla Walla, WA.
Walla Walla County...........  WA            47460  Walla Walla, WA.
Peach County.................  GA            47580  Warner Robins, GA.
Pulaski County...............  GA            47580  Warner Robins, GA.
Culpeper County..............  VA            47894  Washington-Arlington-
                                                     Alexandria, DC-VA-
                                                     MD-WV.
Rappahannock County..........  VA            47894  Washington-Arlington-
                                                     Alexandria, DC-VA-
                                                     MD-WV.
Jefferson County.............  NY            48060  Watertown-Fort Drum,
                                                     NY.
Kingman County...............  KS            48620  Wichita, KS.
Davidson County..............  NC            49180  Winston-Salem, NC.
Windham County...............  CT            49340  Worcester, MA-CT.
------------------------------------------------------------------------

    We are proposing that when calculating the area wage index, the 
wage data for hospitals located in these counties would be included in 
their new respective urban CBSAs. Typically, hospitals located in an 
urban area would receive a higher wage index value than hospitals 
located in their State's rural area. However, with regard to the wage 
index applicable to individual hospitals, we are proposing to implement 
a transitional wage index adjustment for any hospital that would 
receive a lower wage index under the new OMB delineations than it would 
have received under the current CBSA definitions. We refer readers to 
section III.B.2.e. of the preamble of this proposed rule for further 
discussion of this proposed transition.
d. Urban Counties That Would Move to a Different Urban CBSA Under the 
New OMB Delineations
    In addition to rural counties becoming urban and urban counties 
becoming rural, several urban counties would shift from one urban CBSA 
to another urban CBSA under our proposal to adopt the new OMB 
delineations. In certain cases, adopting the new OMB delineations would 
involve a change only in CBSA name or number, while the CBSA continues 
to encompass the same constituent counties. For example, CBSA 29140 
(Lafayette, IN) would experience both a change to its number and its 
name, and become CBSA 29200 (Lafayette-West Lafayette, IN), while all 
of its three constituent counties would remain the same. We have 
identified 19 counties that would remain in a CBSA that experienced a 
change in name or number under the new delineations, but would retain 
the same constituent counties, as shown in the following table.

         Counties That Would Remain in CBSA That Changed Number
------------------------------------------------------------------------
    Prior CBSA No.         New CBSA No.          County          State
------------------------------------------------------------------------
14484.................              14454  Norfolk County...  MA.
14484.................              14454  Plymouth County..  MA.
14484.................              14454  Suffolk County...  MA.
47644.................              47664  Lapeer County....  MI.
47644.................              47664  Livingston County  MI.
47644.................              47664  Macomb County....  MI.
47644.................              47664  Oakland County...  MI.
47644.................              47664  St. Clair County.  MI.
26180.................              46520  Honolulu County..  HI.
29140.................              29200  Benton County....  IN.
29140.................              29200  Carroll County...  IN.
29140.................              29200  Tippecanoe County  IN.
42044.................              11244  Orange County....  CA.
42060.................              42200  Santa Barbara      CA.
                                            County.
44600.................              48260  Jefferson County.  OH.
44600.................              48260  Brooke County....  WV.

[[Page 28059]]

 
44600.................              48260  Hancock County...  WV.
13644.................              43524  Frederick County.  MD.
13644.................              43524  Montgomery County  MD.
------------------------------------------------------------------------

    We are not discussing further in this section these proposed 
changes because they are inconsequential changes with respect to the 
IPPS wage index. However, in other cases, if we adopt the new OMB 
delineations, counties would shift between existing and new CBSAs, 
changing the constituent makeup of the CBSAs.
    In one type of change, an entire CBSA would be subsumed by another 
CBSA. For example, CBSA 37380 (Palm Coast, FL) currently is a single 
county (Flagler, FL) CBSA. Flagler County would become a part of CBSA 
19660 (Deltona-Daytona Beach-Ormond Beach, FL) under the new OMB 
delineations.
    In another type of change, some CBSAs have counties that would 
split off to become part of or to form entirely new labor market areas. 
For example, CBSA 37964 (Philadelphia Metropolitan Division) currently 
is comprised of five Pennsylvania counties (Bucks, Chester, Delaware, 
Montgomery, and Philadelphia). If we adopt the new OMB delineations, 
Montgomery, Bucks, and Chester counties would split off and form the 
new CBSA 33874 (Montgomery County-Bucks County-Chester County, PA 
Metropolitan Division), while Delaware and Philadelphia counties would 
remain in CBSA 37964.
    Finally, in some cases, a CBSA would lose counties to another 
existing CBSA if we adopt the new OMB delineations. For example, 
Lincoln County and Putnam County, WV would move from CBSA 16620 
(Charleston, WV) to CBSA 26580 (Huntington-Ashland, WV-KY-OH). CBSA 
16620 still would exist in the new labor market delineations with fewer 
constituent counties.
    The following chart lists the urban counties that would move from 
one urban CBSA to another urban CBSA if we adopted the new OMB 
delineations.

               Counties That Would Change to Another CBSA
------------------------------------------------------------------------
      Prior CBSA             New CBSA            County          State
------------------------------------------------------------------------
11300.................              26900  Madison County...  IN.
11340.................              24860  Anderson County..  SC.
14060.................              14010  McLean County....  IL.
37764.................              15764  Essex County.....  MA.
16620.................              26580  Lincoln County...  WV.
16620.................              26580  Putnam County....  WV.
16974.................              20994  DeKalb County....  IL.
16974.................              20994  Kane County......  IL.
21940.................              41980  Ceiba Municipio..  PR.
21940.................              41980  Fajardo Municipio  PR.
21940.................              41980  Luquillo           PR.
                                            Municipio.
26100.................              24340  Ottawa County....  MI.
31140.................              21060  Meade County.....  KY.
34100.................              28940  Grainger County..  TN.
35644.................              35614  Bergen County....  NJ.
35644.................              35614  Hudson County....  NJ.
20764.................              35614  Middlesex County.  NJ.
20764.................              35614  Monmouth County..  NJ.
20764.................              35614  Ocean County.....  NJ.
35644.................              35614  Passaic County...  NJ.
20764.................              35084  Somerset County..  NJ.
35644.................              35614  Bronx County.....  NY.
35644.................              35614  Kings County.....  NY.
35644.................              35614  New York County..  NY.
35644.................              20524  Putnam County....  NY.
35644.................              35614  Queens County....  NY.
35644.................              35614  Richmond County..  NY.
35644.................              35614  Rockland County..  NY.
35644.................              35614  Westchester        NY.
                                            County.
37380.................              19660  Flagler County...  FL.
37700.................              25060  Jackson County...  MS.
37964.................              33874  Bucks County.....  PA.
37964.................              33874  Chester County...  PA.
37964.................              33874  Montgomery County  PA.
39100.................              20524  Dutchess County..  NY.
39100.................              35614  Orange County....  NY.
41884.................              42034  Marin County.....  CA.
41980.................              11640  Arecibo Municipio  PR.
41980.................              11640  Camuy Municipio..  PR.
41980.................              11640  Hatillo Municipio  PR.
41980.................              11640  Quebradillas       PR.
                                            Municipio.
48900.................              34820  Brunswick County.  NC.
49500.................              38660  Gu[aacute]nica     PR.
                                            Municipio.
49500.................              38660  Guayanilla         PR.
                                            Municipio.

[[Page 28060]]

 
49500.................              38660  Pe[ntilde]uelas    PR.
                                            Municipio.
49500.................              38660  Yauco Municipio..  PR.
------------------------------------------------------------------------

    If hospitals located in these counties move from one CBSA to 
another under the new OMB delineations, there may be impacts, both 
negative and positive, upon their specific wage index values. We refer 
readers to section III.B.2.e. of the preamble of this proposed rule for 
a discussion of our proposals to moderate the impact of our proposed 
adoption of the new OMB delineations.
e. Proposed Transition Period
(1) Background
    Overall, we believe implementing the new OMB labor market area 
delineations would result in wage index values being more 
representative of the actual costs of labor in a given area. However, 
we recognize that some hospitals would experience decreases in wage 
index values as a result of our proposed implementation of the new 
labor market area delineations. We also realize that some hospitals 
would have higher wage index values due to our proposed implementation 
of the new labor market area delineations.
    In the past, we have provided for transition periods when adopting 
changes that have significant payment implications, particularly large 
negative impacts. As discussed in the FY 2005 IPPS final rule (69 FR 
49032 through 49034), we evaluated several options to ease the 
transition to the new CBSA system, which we implemented starting in FY 
2005 and which is the system currently in use.
    As discussed in that rule, we determined that the transition to the 
current wage index system would have the largest negative impacts upon 
hospitals that were originally considered urban, but would be 
considered rural under the new definitions. To alleviate the decreased 
payments associated with having a rural wage index, in calculating the 
area wage index, in the FY 2005 IPPS final rule, we allowed urban 
hospitals that became rural under new definitions to maintain their 
assignment to the labor market area where they were located for FY 
2004. This adjustment was granted for a period of 3 fiscal years.
    In the FY 2005 IPPS final rule, for all hospitals that experienced 
negative payment impacts due to new definitions (for example, they were 
moved to an urban CBSA with a lower wage index value than their 
previous rural or urban labor market area), we implemented a 1-year 
blended adjustment. We calculated wage indexes for all hospitals using 
both old and new labor market definitions. Hospitals received 50 
percent of their wage index based on the new OMB delineations, and 50 
percent of their wage index based on their current labor market area. 
This adjustment only applied to hospitals that would have experienced a 
drop in wage index values due to a change in labor market definitions. 
Hospitals that benefitted from the labor market area transition 
received their new wage index at the time the new labor market 
definitions became effective.
    We continue to have the same concerns expressed in the FY 2005 IPPS 
final rulemaking. Therefore, we are proposing a similar transition 
methodology to mitigate any negative financial impacts experienced by 
hospitals due to our proposal to implement the new OMB labor market 
area delineations for FY 2015.
(2) Proposed Transition for Hospitals in Urban Areas That Would Become 
Rural
    For hospitals that are currently located in an urban county that 
would become rural under the new OMB delineations, and would have no 
form of wage index reclassification or redesignation in place for FY 
2015 (that is, MGCRB reclassifications under section 1886(d)(10) of the 
Act, redesignations under section 1886(d)(8)(B) of the Act, or rural 
reclassifications under section 1886(d)(8)(E) of the Act), we are 
proposing a policy to assign them the urban wage index value of the 
CBSA in which they are physically located for FY 2014 for a period of 3 
fiscal years (with the rural and imputed floors applied and with the 
rural floor budget neutrality adjustment applied to the area wage 
index). As stated in the FY 2005 IPPS proposed rule (69 FR 28252), we 
have in the past provided transitions when adopting changes that have 
significant payment implications, particularly large negative impacts. 
We believe it is appropriate to apply a 3-year transition period for 
hospitals located in urban counties that would become rural under the 
new OMB delineations, given the potentially significant payment impacts 
for these hospitals. This is consistent with the transition policy 
adopted in FY 2005 (69 FR 49032 through 49034). We continue to believe, 
as we stated in the FY 2005 IPPS final rule (69 FR 49033), that the 
longer transition period is appropriate because, as a group, we expect 
these hospitals would experience a steeper and more abrupt reduction in 
their wage index due to the labor market revisions compared to other 
hospitals. Assigning these hospitals the urban wage index value of the 
CBSA in which they are physically located for FY 2014 for a period of 3 
fiscal years (with the rural and imputed floors applied and with the 
rural floor budget neutrality adjustment applied to the area wage 
index) would be the most similar to the actual payment wage index that 
these hospitals received in FY 2014, thereby minimizing the negative 
impact of adopting the new OMB delineations for these hospitals. 
Accordingly, for FYs 2015, 2016, and 2017, assuming no other form of 
wage index reclassification or redesignation is granted, we are 
proposing to assign these hospitals the area wage index value of the 
urban CBSA to which they geographically were located in FY 2014 (with 
the rural and imputed floors applied and with the rural floor budget 
neutrality adjustment applied to the area wage index). For example, if 
urban CBSA 12345 consisted of three counties in FY 2014, and, under the 
new OMB delineations, one of those counties, County X, would no longer 
be part of CBSA 12345 and would become rural for FY 2015, we are 
proposing that hospitals in County X would be assigned the FY 2015 wage 
index of CBSA 12345, computed using the remaining two counties, with 
the rural and imputed floors applied and with the rural floor budget 
neutrality adjustment applied to the area wage index. We believe that 
assigning the wage index of the hospitals' current area is the simplest 
and most effective method for mitigating negative payment impacts due 
to the proposed adoption of the new OMB delineations. We have 
identified relatively few hospitals that are located in urban counties 
that would become rural, and fewer yet that do not have a 
reclassification or redesignation in effect for FY 2015. Because we 
believe that these urban to rural transitions would

[[Page 28061]]

be the most likely to cause significant negative payment impacts, we 
believe that these hospitals should be granted a longer transition 
period than hospitals that may be switching between urban labor market 
areas, which as discussed later, we are proposing may receive 1-year 
blended wage index.
    We note that there are situations where a hospital cannot be 
assigned the wage index value of the CBSA to which it geographically 
belonged in FY 2014 because that CBSA would be split and no longer 
exist and some or all of the constituent counties would be added to 
another urban labor market area under the new OMB delineations. If the 
hospital cannot be assigned the wage index value of the CBSA to which 
it is geographically located in FY 2014 because that CBSA would be 
split apart and no longer exist, and some or all of its constituent 
counties would be added to another urban labor market area under the 
new OMB delineations, we are proposing that hospitals located in such 
counties that would become rural under the new OMB delineations would 
be assigned the wage index of the FY 2015 urban labor market area that 
contains the urban county in their FY 2014 CBSA to which they are 
closest (with the rural and imputed floors applied and with the rural 
floor budget neutrality adjustment applied) for a period of 3 fiscal 
years. We believe this approach of assigning the wage index of the FY 
2015 urban labor market area that contains the urban county in their FY 
2014 CBSA to which they are closest (with the rural and imputed floors 
applied and with the rural floor budget neutrality adjustment applied) 
would most closely approximate the hospitals' FY 2014 actual payment 
wage index, thereby minimizing the negative effects of the proposed 
change in the OMB delineations. For example, George County, MS and 
Jackson County, MS, together, in FY 2014, comprise the urban CBSA 37700 
(Pascagoula, MS). Under the new OMB delineations, George County would 
be considered rural and Jackson County, MS would become part of the 
urban labor market area of Gulfport-Biloxi-Pascagoula, MS (CBSA 25060). 
In this instance, we are proposing that hospitals in George County, MS 
would be assigned the FY 2015 wage index for CBSA 25060 (Gulfport-
Biloxi-Pascagoula, MS), with the rural and imputed floors applied and 
with the rural floor budget neutrality adjustment applied.
    Furthermore, we are proposing that any hospital that is currently 
located in an urban county that would become rural for FY 2015 under 
the new OMB delineations, but also has a reclassification or 
redesignation in effect for FY 2015 (from a pre-existing 
reclassification or redesignation granted prior to FY 2015), would not 
be eligible for the 3-year transition wage index. This is because if 
the hospital is reclassified or redesignated in some manner, it would 
instead receive a wage index that reflects its own choice to obtain its 
reclassified or redesignated status. Accordingly, if a hospital is 
currently located in an urban county that would become rural for FY 
2015 under the new OMB delineations and such hospital sought and was 
granted reclassification or redesignation for FY 2015 or such hospital 
seeks and is granted any reclassification or redesignation for FY 2016 
or FY 2017, we are proposing that the hospital would permanently lose 
its 3-year transitional assigned wage index status, and would not be 
eligible to reinstate it. For example, if a hospital that is currently 
urban but would become rural under the new OMB delineations received a 
3-year transition wage index in FY 2015 based on the wage index of the 
urban CBSA to which it was geographically located in FY 2014 and then 
by its own choice, reclassifies to obtain a different area wage index 
in FY 2016, the hospital would not be eligible to reinstate the 
transition wage index, even if it opts to cancel its reclassification 
for FY 2017. We are proposing the transition adjustment to assist 
hospitals if they experience a negative payment impact specifically due 
to the proposed adoption of the new OMB delineations in FY 2015. If a 
hospital chooses in a future fiscal year to forego this transition 
adjustment by obtaining some form of reclassification or redesignation, 
we do not believe reinstatement of this transition adjustment would be 
appropriate. The purpose of the adjustment is to assist hospitals that 
may be negatively impacted by the new OMB delineations in transitioning 
to a wage index based on these delineations. By obtaining a 
reclassification or redesignation, we believe that the hospital has 
made the determination that the transition adjustment is not necessary 
because it has other viable options for mitigating the impact of the 
transition to the new OMB delineations.
    With respect to the wage index computation, we are proposing to 
follow our existing policy regarding the inclusion of a hospital's wage 
index data in the CBSA in which it is geographically located (we refer 
readers to Step 6 of the method for computing the unadjusted wage index 
in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592)). Accordingly, 
beginning with FY 2015, we are proposing that the wage data of all 
hospitals receiving this type of 3-year transition adjustment would be 
included in the statewide rural area in which they are geographically 
located under the new OMB labor market area delineations of FY 2015. 
After the 3-year transition period, beginning in FY 2018, we are 
proposing that these formerly urban hospitals discussed above would 
receive their statewide rural wage index, absent any reclassification 
or redesignation.
    In addition, we are proposing that the hospitals receiving this 3-
year transition because they are in counties that were urban under the 
current CBSA definitions, but would be rural under the new OMB 
delineations, would not be considered urban hospitals. Rather, they 
would maintain their status as rural hospitals for other payment 
considerations. This is because our proposal to apply a 3-year 
transitional wage index for these newly rural hospitals only applies 
for the purpose of calculating the wage index under our proposal to 
adopt the new CBSA delineations. We are not proposing transitions for 
other IPPS payment policies that may be impacted by the proposed 
adoption of the new CBSA delineations. However, we will continue to 
apply the existing regulations at Sec.  412.102 with respect to 
determining DSH payments in the first year after a hospital loses urban 
status (we refer readers to section II.B.2.e.(7) of the preamble of 
this proposed rule).
(3) Proposed Transition for Hospitals Deemed Urban Under Section 
1886(d)(8)(B) of the Act Where the Urban Area Would Become Rural Under 
the New OMB Delineations
    As discussed in section II.H.3. of the preamble of this proposed 
rule, there are some hospitals that currently are geographically 
located in rural areas but are deemed to be urban under section 
1886(d)(8)(B) of the Act. For FY 2015, some of these hospitals 
currently redesignated under section 1886(d)(8)(B) of the Act would no 
longer be eligible for deemed urban status under the new OMB 
delineations, as discussed in detail in section III.H.3. of the 
preamble of this proposed rule. Similar to the policy implemented in 
the FY 2005 IPPS final rule (69 FR 49059), and consistent with the 
policy we are proposing for other hospitals in counties that were urban 
and would become rural under the new OMB delineations, we are proposing 
to apply the 3-year transition to these hospitals currently 
redesignated to urban areas under section 1886(d)(8)(B) of the Act

[[Page 28062]]

that would no longer be deemed urban under the new OMB delineations and 
would revert to being rural. That is, for FYs 2015, 2016, and 2017, 
assuming no other form of wage index reclassification or redesignation 
is granted, we are proposing to assign these hospitals the FY 2015 area 
wage index value of hospitals reclassified to the urban CBSA (that is, 
the attaching wage index) to which they were redesignated in FY 2014 
(with the rural and imputed floors applied and with the rural floor 
budget neutrality adjustment applied). If the hospital cannot be 
assigned the reclassified wage index value of the CBSA to which it was 
redesignated in FY 2014 because that CBSA would split apart and no 
longer exist, and some or all of its constituent counties would be 
added to another urban labor market area under the new OMB 
delineations, we are proposing that such hospitals would be assigned 
the wage index of the hospitals reclassified to the FY 2015 urban labor 
market area that contains the urban county in their FY 2014 
redesignated CBSA to which they are closest for a period of 3 fiscal 
years. We are proposing to assign these hospitals the area wage index 
of hospitals reclassified to a CBSA because hospitals deemed urban 
under section 1886(d)(8)(B) of the Act are treated as reclassified 
under current policy, under which such hospitals receive an area wage 
index that includes wage data of all hospitals reclassified to the 
area.
(4) Proposed Transition for Hospitals That Would Experience a Decrease 
in Wage Index Under the New OMB Delineations
    While we believe that instituting the latest OMB labor market area 
delineations would create a more accurate wage index system, we also 
recognize that implementing the new OMB delineations may cause some 
short-term instability in hospital payments. Therefore, in addition to 
the 3-year transition adjustment for hospitals being transitioned from 
urban to rural status as discussed above, we are proposing a 1-year 
blended wage index for all hospitals that would experience any decrease 
in their actual payment wage index (that is, a hospital's actual wage 
index used for payment, which accounts for all applicable effects of 
reclassification and redesignation) exclusively due to the proposed 
implementation of the new OMB delineations. Similar to the policy 
adopted in the FY 2005 IPPS final rule (69 FR 49033), we are proposing 
that a post-reclassified wage index with the rural and imputed floor 
applied would be computed based on the hospital's FY 2014 CBSA (that 
is, using all of its FY 2014 constituent county/ies), and another post-
reclassified wage index with the rural and imputed floor applied would 
be computed based on the hospital's new FY 2015 CBSA (that is, the FY 
2015 constituent county/ies). We are proposing to compare these two 
wage indexes. If the proposed FY 2015 wage index with FY 2015 CBSAs 
would be lower than the proposed FY 2015 wage index with FY 2014 CBSAs, 
we are proposing that a blended wage index would be computed, 
consisting of 50 percent of each of the two wage indexes added 
together. We are proposing that this blended wage index would be the 
hospital's wage index for FY 2015. We believe a 1-year, 50/50 blend 
would mitigate the short-term instability and negative payment impacts 
due to the proposed implementation of the new OMB delineations, 
providing hospitals with a transition period during which they may 
adjust to their new geographic CBSA or may assess any reclassification 
options that would be available to them starting in FY 2016. We are 
proposing a longer 3-year transition adjustment for hospitals losing 
urban status because there are significantly fewer affected urban-to-
rural hospitals, and we believe the negative impacts to a hospital 
shifting from urban to rural status would typically be greater than 
other types of transitions. We believe that a transition period longer 
than 1 year to address other impacts of the proposed adoption of new 
OMB delineations would reduce the accuracy of the overall labor market 
area wage index system because far more hospitals would be affected.
    In addition, for FY 2015, for hospitals that would receive the 
proposed 3-year transition, it is possible that receiving the FY 2015 
wage index (with the rural and imputed floors applied and with the 
rural floor budget neutrality adjustment applied) of the CBSA where the 
hospital is geographically located for FY 2014 might still be less than 
the FY 2015 wage index that the hospital would have received in the 
absence of the adoption of the new OMB delineations (particularly in 
States where the rural floor is historically very high). Therefore, 
such a hospital may additionally benefit from application of the 50/50 
blended wage indexes. Accordingly, we are proposing to include the 
assignment of the 3-year transitional wage index in our calculation of 
the FY 2015 portion of the 50/50 blended wage index for that hospital. 
After FY 2015, such a hospital may revert to the second year of the 3-
year transition. For example, if Hospital X (formerly part of CBSA 
12345, now rural) is assigned CBSA 12345's FY 2015 wage index value of 
1.0000 as part of the 3-year transition, but that FY 2015 wage index 
value would have been 1.1000 under the previous OMB delineations, that 
hospital would receive a 50/50 blended wage index of 1.0500 for FY 
2015. In FY 2016 and FY 2017, Hospital X would still be eligible to 
receive the remaining 2 years of the 3-year transition wage index of 
CBSA 12345 (that is, in FY 2016, Hospital X would receive the FY 2016 
wage index of CBSA 12345 (with the rural and imputed floors applied and 
with the rural floor budget neutrality adjustment applied)), and in FY 
2017, Hospital X would receive the FY 2017 wage index of CBSA 12345 
(with the rural and imputed floors applied and with the rural floor 
budget neutrality adjustment applied).
(5) Impact of Proposed Adoption of New OMB Labor Market Area 
Delineations
    To illustrate how the proposed adoption of the new OMB labor market 
area delineations would impact hospitals' proposed FY 2015 wage 
indexes, we compared the proposed FY 2015 occupational mix adjusted 
post-reclassified wage indexes with rural floor budget neutrality 
applied under the FY 2014 CBSAs and under the proposed FY 2015 CBSAs 
using the new OMB delineations. (This analysis does not include the 
effects of the out-migration adjustment, the frontier floor, the 
proposed 3-year hold harmless transition wage indexes, or the proposed 
1-year transition blended wage indexes). As a result of applying the 
proposed new OMB delineations to the wage data, the proposed wage index 
values for 2,362 urban hospitals (83.8 percent) and 396 (64.0 percent) 
rural hospitals would increase. The wage index values of 2,337 (82.9 
percent) urban hospitals would increase by less than 5 percent, and the 
wage index values of 13 (0.5 percent) urban hospitals would increase by 
at least 5 percent but less than 10 percent. The wage index values of 
12 (0.4 percent) urban hospitals would increase by greater than or 
equal to 10 percent. The wage index values of 369 (59.6 percent) rural 
hospitals would increase by less than 5 percent, 18 rural hospitals 
(2.9 percent) would increase by at least 5 percent but less than 10 
percent, and 9 rural hospitals (1.5 percent) would increase by greater 
than or equal to 10 percent. However, the wage index values for 451 
urban hospitals (16.0 percent) and 223 (36.0 percent) rural hospitals 
would decrease. The wage index values of 396 (14.0

[[Page 28063]]

percent) urban hospitals would decrease by less than 5 percent, 40 
urban hospitals (1.4 percent) would decrease by at least 5 percent but 
less than 10 percent, and 15 urban hospitals (0.5 percent) would 
decrease by greater than or equal to 10 percent. The wage index values 
of 198 (32.0 percent) rural hospitals would decrease by less than 5 
percent, 24 rural hospitals (3.9 percent) would decrease by 5 percent 
and less than 10 percent, and 1 rural hospital (0.2 percent) would 
decrease by greater than or equal to 10 percent. The wage index values 
of 6 (0.2 percent) urban hospitals and zero rural hospitals would 
remain unchanged by the adoption of the new OMB CBSA delineations. The 
largest positive impacts would be for 8 hospitals in 5 States (Texas, 
Minnesota, Louisiana, Alabama, and Michigan) that would be moving from 
a rural to an urban area (ranging from a 16.57 percent to a 22.91 
percent increase in wage index), and for 10 hospitals that would be 
moving from one urban CBSA (FY 2014 CBSA 20764, Edison-New Brunswick, 
NJ) to new urban CBSA 35614 (New York-Jersey City-White Plains, NY-NJ), 
representing a 15.12 percent increase in wage index. The largest 
negative impacts would be for 5 hospitals in 4 States (New York, 
Alabama, Idaho, and North Carolina) that would be moving from an urban 
to a rural area (ranging from a 13.08 percent to a 27.25 percent 
decrease in wage index), and for 8 hospitals that would be moving from 
one urban CBSA (FY 2014 CBSA 35644, New York-White Plains-Wayne, NY-NJ) 
to new urban CBSA 20524 (Dutchess County-Putnam County, NY), 
representing a 11.42 percent decrease in wage index. These results 
illustrate that hospitals that would move from rural CBSAs to urban 
CBSAs generally would benefit significantly, while hospitals that would 
move from urban to rural CBSAs generally would have larger negative 
impacts. For all hospitals combined, the wage index values of 2,758 
(80.2 percent) overall would be increasing, and 674 (19.6 percent) 
overall would be decreasing, indicating that most hospitals would be 
positively affected by the adoption of the new OMB delineations. 
Furthermore, the magnitude of the changes would be relatively small 
overall, with only 132 hospitals (3.8 percent) experiencing either an 
increase or decrease of at least 5 percent.
    The following table shows the impact of the proposed adoption of 
the new OMB delineations on hospitals' proposed FY 2015 wage indexes, 
comparing the proposed FY 2015 occupational mix adjusted post-
reclassified wage indexes with rural floor budget neutrality applied 
under the FY 2014 CBSAs and the proposed FY 2015 CBSAs using the new 
OMB delineations. (This analysis does not include the effects of the 
out-migration adjustment, the frontier floor, the proposed 3-year hold 
harmless transition wage indexes, or the proposed 1-year transition 
blended wage indexes).

----------------------------------------------------------------------------------------------------------------
                                                             Number of post-   Number of post-
                                                              reclassified      reclassified
           Percent change in FY 2015 wage index              rural hospitals   urban hospitals   Total number of
                                                            based on FY 2014  based on FY 2014      hospitals
                                                                  CBSA              CBSA
----------------------------------------------------------------------------------------------------------------
Decrease greater than or equal to 10.0....................                 1                15                16
Decrease greater than or equal to 5.0 but less than 10.0..                24                40                64
Decrease greater than or equal to 2.0 but less than 5.0...                36                94               130
Decrease greater than 0.0 but less than 2.0...............               162               302               464
No change.................................................                 0                 6                 6
Increase greater than 0.0 but less than 2.0...............               365             2,304             2,669
Increase greater than or equal to 2.0 but less than 5.0...                 4                33                37
Increase greater than or equal to 5.0 but less than 10.0..                18                13                31
Increase greater than or equal to 10.0....................                 9                12                21
                                                           -----------------------------------------------------
    Total.................................................               619             2,819             3,438
----------------------------------------------------------------------------------------------------------------

(6) Proposed Budget Neutrality
    For FY 2015, we are proposing to apply both the 3-year transition 
and 50/50 blended wage index adjustments in a budget neutral manner. We 
are proposing to make an adjustment to the standardized amount to 
ensure that the total payments, including the effect of the transition 
provisions, would equal what payments would have been if we would not 
be providing for any transitional wage indexes under the new OMB 
delineations. For a complete discussion on this proposed budget 
neutrality adjustment for FY 2015, we refer the reader to section 
II.A.4.b. of the Addendum to this proposed rule.
    We note that, consistent with past practice (69 FR 49034), we are 
not adopting the new OMB delineations themselves in a budget neutral 
manner. We do not believe that the revision to the labor market areas 
in and of itself constitutes an ``adjustment or update'' to the 
adjustment for area wage differences, as provided under section 
1886(d)(3)(E) of the Act.
(7) Proposals With Respect To Determining Disproportionate Share 
Hospital (DSH) Payments
    As noted in the FY 2005 IPPS final rule (69 FR 49033), the 
provisions of Sec.  412.102 of the regulations would continue to apply 
with respect to determining DSH payments. Specifically, in the first 
year after a hospital loses urban status, the hospital would receive an 
additional payment that equals two-thirds of the difference between the 
urban DSH payments applicable to the hospital before its redesignation 
from urban to rural and the rural DSH payments applicable to the 
hospital subsequent to its redesignation from urban to rural. In the 
second year after a hospital loses urban status, the hospital would 
receive an additional payment that equals one-third of the difference 
between the urban DSH payments applicable to the hospital before its 
redesignation from urban to rural and the rural DSH payments applicable 
to the hospital subsequent to its redesignation from urban to rural.
    We also are proposing to make changes to the regulations to delete 
Sec.  412.64(b)(1)(ii)(D). In this regulation section, we currently 
define a ``hospital reclassified as rural'' as a hospital located in a 
county that, in FY 2004, was urban but was redesignated as rural after 
September 30, 2004, as a result of the most recent census data and 
implementation of the new MSA definitions announced by OMB on June 6, 
2003. Because this term is not used in Sec.  412.64, but is used in 
Sec.  412.102, we

[[Page 28064]]

are proposing to delete Sec.  412.64(b)(1)(ii)(D) and revise the 
language at Sec.  412.102 to address the circumstances set forth in 
Sec.  412.64(b)(1)(ii)(D). The regulation at Sec.  412.102, which 
addresses special treatment of hospitals located in areas that are 
changing from urban to rural as a result of a geographic redesignation, 
is the only location that currently references a ``hospital 
reclassified as rural'', as defined at Sec.  412.64(b)(1)(ii)(D). To 
avoid confusion with urban hospitals that choose to reclassify as rural 
under Sec.  412.103, we are proposing to revise the regulation text at 
Sec.  412.102 so that it no longer refers to the defined term 
``hospital reclassified as rural,'' and instead specifically states the 
circumstances in which Sec.  412.102 applies. In addition, we are 
proposing to modify the regulation text so that it would apply to all 
transitions from urban to rural status that occur as a result of any 
future adoption of new or revised OMB standards for delineating 
statistical areas adopted by CMS. Specifically, we are proposing to 
revise the regulations at Sec.  412.102 to state that ``An urban 
hospital that was part of an MSA, but was redesignated as rural as a 
result of the most recent OMB standards for delineating statistical 
areas adopted by CMS, may receive an adjustment to its rural Federal 
payment amount for operating costs for 2 successive fiscal years as 
provided in paragraphs (a) and (b) of this section. . . .''

C. Worksheet S-3 Wage Data for the Proposed FY 2015 Wage Index

    The proposed FY 2015 wage index values are based on the data 
collected from the Medicare cost reports submitted by hospitals for 
cost reporting periods beginning in FY 2011 (the FY 2014 wage indexes 
were based on data from cost reporting periods beginning during FY 
2010).
1. Included Categories of Costs
    The proposed FY 2015 wage index includes the following categories 
of data associated with costs paid under the IPPS (as well as 
outpatient costs):
     Salaries and hours from short-term, acute care hospitals 
(including paid lunch hours and hours associated with military leave 
and jury duty);
     Home office costs and hours;
     Certain contract labor costs and hours (which includes 
direct patient care, certain top management, pharmacy, laboratory, and 
nonteaching physician Part A services, and certain contract indirect 
patient care services (as discussed in the FY 2008 final rule with 
comment period (72 FR 47315 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 2014, the 
proposed wage index for FY 2015 also excludes the direct and overhead 
salaries and hours for services not subject to IPPS payment, such as 
skilled nursing facility (SNF) services, home health services, costs 
related to GME (teaching physicians and residents) and certified 
registered nurse anesthetists (CRNAs), and other subprovider components 
that are not paid under the IPPS. The proposed FY 2015 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 indexes 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 indexes 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 proposed FY 2015 wage index were obtained 
from Worksheet S-3, Parts II and III of the Medicare cost report for 
cost reporting periods beginning on or after October 1, 2010, and 
before October 1, 2011. For wage index purposes, we refer to cost 
reports during this period as the ``FY 2011 cost report,'' the ``FY 
2011 wage data,'' or the ``FY 2011 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 40, 
Sections 4005.2 through 4005.4 for Form CMS-2552-10. The data file used 
to construct the proposed FY 2015 wage index includes FY 2011 data 
submitted to us as of February 27, 2014. 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 MACs to revise or verify data elements that result in 
specific edit failures. For the proposed FY 2015 wage index, we 
identified and excluded 50 providers with data that were too aberrant 
to include in the proposed wage index, although if data elements for 
some of these providers are corrected, we intend to include some of 
these providers in the final FY 2015 wage index. We instructed MACs to 
complete their data verification of questionable data elements and to 
transmit any changes to the wage data no later than April 9, 2014. We 
intend that all unresolved data elements will be resolved by the date 
the FY 2015 final rule is issued. The revised data will be reflected in 
the FY 2015 IPPS final rule.
    In constructing the proposed FY 2015 wage index, we included the 
wage data for facilities that were IPPS hospitals in FY 2011, 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 this proposed 
rule, we removed 6 hospitals that converted to CAH status on or after 
February 14, 2013, the cut-off date for CAH exclusion from the FY 2014 
wage index, and through and including February 13, 2014, the cut-off 
date for CAH exclusion from the FY 2015 wage index. After removing 
hospitals with aberrant data and hospitals that converted to CAH 
status, the proposed FY 2015 wage index is calculated based on 3,400 
hospitals.
    For the proposed FY 2015 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 2014 wage index (78 FR 50587). 
Table 2 containing the proposed

[[Page 28065]]

FY 2015 wage index associated with this proposed rule (available via 
the Internet on the CMS Web site) includes separate wage data for the 
campuses of 6 multicampus hospitals.
    Questions have been raised recently regarding the reporting of 
contract housekeeping and dietary services on Worksheet S-3, Part II, 
lines 33 and 35 of the Medicare cost report. CMS finalized its proposal 
to begin collecting contract labor costs and hours for housekeeping, 
and dietary (along with management services and the overhead services 
of administrative and general) in the FY 2003 IPPS final rule (67 FR 
50022 through 50023). At that time, we stated, ``We continue to 
consider whether to expand our contract labor definition to include 
more types of contract services in the wage index. In particular, we 
have examined whether to include the costs for acquired dietary and 
housekeeping services, as many hospitals now provide these services 
through contracts. Costs for these services tend to be below the 
average wages for all hospital employees. Therefore, excluding the 
costs and hours for these services if they are provided under contract, 
while including them if the services are provided directly by the 
hospital, creates an incentive for hospitals to contract for these 
services in order to increase their average hourly wage for wage index 
purposes'' (67 FR 50022). In the FY 2003 IPPS proposed rule, we 
explained that we selected the three overhead services of 
administrative and general, housekeeping, and dietary because they are 
provided at all hospitals, either directly or through contracts, and 
together they comprise about 60 percent of a hospital's overhead hours 
(67 FR 31433). In the FY 2003 IPPS final rule, we stated that we ``will 
monitor the hospital industry for information regarding the hospitals' 
ability to provide the data. Further, we will work with hospitals and 
intermediaries [MACs] to develop acceptable methods for tracking the 
costs and hours. Finally, before including these additional costs in 
the wage index, we will provide a detailed analysis of the impact of 
including these additional costs in the wage index values in the 
Federal Register and provide for public comment. Our final decision on 
whether to include contract indirect patient care labor costs in our 
calculation of the wage index will depend on the outcome of our 
analyses and public comments'' (67 FR 50023).
    Subsequent to the issuance of the FY 2003 IPPS final rule, we 
revised Worksheet S-3, Part II of the Medicare cost report (CMS Form 
2552-96) to add four lines for the reporting of contract labor 
salaries, wages, and hours. The lines added for contract housekeeping 
and dietary services were lines 26.01 and 27.01, respectively. (Line 
9.03 for contract management and line 22.01 for contract administrative 
and general (A&G) services were also added at that time). These lines 
were effective with cost reporting periods beginning on or after 
October 1, 2003 (that is, FY 2004). Because the cost report data used 
for the wage index are on a 4-year lag, data from these new contract 
labor lines would first be available for the FY 2008 wage index.
    In the FY 2008 rulemaking process, we provided an analysis of the 
effect on the inclusion in the wage index of the wages and hours 
related to the new contract labor lines. At that time, 56 hospitals 
(1.6 percent) failed edits for contract housekeeping line 26.01; and 99 
hospitals (2.8 percent) failed edits for contract dietary line 27.01 
(72 FR 24680 and 24782). We also noted that ``many of these edit 
failures are for wage data that are not to be included in the wage 
index and will be excluded through the wage index calculation. . . . In 
addition, some of the aberrant data will be resolved by the final rule 
through the correction process'' (72 FR 24680 and 24782). The small 
percentage of hospitals that failed edits for these contract labor 
lines indicates that the vast majority of hospitals completing these 
contract labor lines were able to obtain and report reasonable 
salaries, wages, and hours associated with contract housekeeping and 
dietary services. In the FY 2008 IPPS final rule, we stated that we 
believe that ``the impact of this policy is generally very minor, and 
we do not believe the additional complexity of a transition wage index 
is warranted for an impact this small. Further, we continue to believe 
it is prudent policy to include in the wage index the costs for these 
contract indirect patient care services'' (72 FR 47316). Therefore, we 
adopted the policy to include the new contract labor lines in the wage 
index, beginning with the FY 2008 wage index.
    The questions that have recently come to our attention involve 
hospitals that consistently do not provide documentable salaries, 
wages, and hours for their contracted housekeeping and/or dietary 
services. (On the Medicare cost report (CMS Form 2552-10), contract 
housekeeping is on Worksheet S-3, Part II, line 33 and contract dietary 
is on line 35). When this situation occurs, CMS has instructed the 
Medicare contractors to use reasonable estimates, such as regional 
average hourly rates, as a substitute for actual wages and hours, and 
to report the estimates on the hospital's Worksheet S-3, Part II, line 
33 or line 35, respectively. Our policy has been to use reasonable 
estimates for these housekeeping and dietary lines, rather than report 
zeroes for wages and hours, because, as discussed above and as stated 
in the FY 2003 IPPS final rule, ``[c]osts for these services tend to be 
below the average wages for all hospital employees. Therefore, 
excluding the costs and hours for these services if they are provided 
under contract, while including them if the services are provided 
directly by the hospital, creates an incentive for hospitals to 
contract for these services in order to increase their average hourly 
wage for wage index purposes'' (57 FR 50022). We understand that the 
reason many hospitals provide for failing to report such contract wages 
and hours is that their contracts do not clearly specify this 
information, often because they use a single vendor to provide several 
different contract labor services. We believe that allowing hospitals 
to routinely use contracts that do not clearly break out the salaries, 
wages, and hours associated with these services as a reason for not 
being able to report proper salaries, wages, and hours for these cost 
report lines undermines the purpose of instituting these lines in the 
first place. Furthermore, because every hospital must provide 
housekeeping and dietary services, and because the wage index is a 
relative measure of the value of the labor provided to a hospital in a 
particular labor market area, to report zeroes for salaries, wages, and 
hours for housekeeping and dietary services is not only unrealistic (in 
that every hospital provides for these services), but also 
misrepresents the labor costs in that area and undermines our policy. 
Consequently, CMS has instructed the Medicare contractors not to zero 
out these line items when a hospital cannot document the housekeeping 
or dietary salaries, wages, and hours, but instead to use a reasonable 
estimation of these wages and hours.
    In this proposed rule, we are reiterating our requirement that all 
hospitals must document salaries, wages, and hours for the purpose of 
reporting this information on Worksheet S-3, Part II, lines 32, 33, 34, 
and/or 35 (for either directly employed housekeeping and dietary 
employees on lines 32 and 34, and contract labor on lines 33 and 35). 
It is not acceptable for a hospital to request that the Medicare 
contractor zero out these line items if the hospital's contract does 
not

[[Page 28066]]

specifically break out the actual wages and hours. As indicated above, 
and stated in the FY 2008 IPPS proposed rule (72 FR 24680 and 24782), a 
small percentage of hospitals failed edits associated with the contract 
housekeeping and dietary lines, showing that the vast majority of 
hospitals reporting data on these lines were able to obtain and report 
reasonable salaries, wages, and hours associated with contract 
housekeeping and dietary services. We encourage hospitals to ensure 
that their contracts clearly specify the salaries, wages, and hours 
related to all of their contract labor. Because these line items have 
been included in the cost report since FY 2004, we believe that 
hospitals have had adequate notice and time to structure their 
contracts so that the wages and hours of contract employees can be 
determined and included in the cost reports. We expect hospitals to 
provide accurate data on their cost reports.
    We understand that there may be rare situations where a hospital 
would not have documentable salaries, wages, and hours for contract 
housekeeping and dietary services. In these situations, we believe that 
it is appropriate and necessary to use reasonable estimates for these 
numbers in order to determinate the best, most realistic, wage index 
that we can. As discussed previously, housekeeping and dietary services 
are unique in that the costs for housekeeping and dietary services tend 
to be below the average wages for all hospital employees. Thus, an 
incentive is created for hospitals to avoid reporting these contract 
labor salaries, wages, and hours on the cost report in order to 
increase their average hourly wage for wage index purposes. To deter 
hospitals from not reporting this information and to ensure that the 
wage index more accurately reflects the labor costs in an area, we 
believe that it is both necessary and appropriate for the Medicare 
contractors to estimate such salaries, wages, and hours in the rare 
instance where a hospital cannot provide such information. Therefore, 
in the absence of documentable wages and hours for contract 
housekeeping and dietary services, Medicare contractors would continue 
to use reasonable estimates for these services. Examples of reasonable 
estimates are regional average hourly rates, including an average of 
the wages and hours for dietary and housekeeping services of other 
hospitals in the same CBSA as the hospital in question. Hospitals also 
may conduct time studies to determine hours worked. If, for whatever 
reason, regional averages or time studies cannot be used, Medicare 
contractors may use data from the Bureau of Labor Statistics to obtain 
average wages and hours for housekeeping and dietary services. 
Commenters may also suggest alternatives for imputing reasonable 
estimates for possible consideration by CMS. In all cases, Medicare 
contractors must determine that the data used are reasonable.

E. Method for Computing the Proposed FY 2015 Unadjusted Wage Index

    The method used to compute the proposed FY 2015 wage index without 
an occupational mix adjustment follows the same methodology that we 
used to compute the FY 2012, FY 2013, and FY 2014 final wage indexes 
without an occupational mix adjustment (76 FR 51591 through 51593, 77 
FR 53366 through 53367, and 78 FR 50587 through 50588, respectively).
    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, 2010, through April 15, 2012, 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 we are not proposing any changes to the usage for FY 2015. 
The factors used to adjust the hospital's data were based on the 
midpoint of the cost reporting period, as indicated in the following 
table.

                    Midpoint of Cost Reporting Period
------------------------------------------------------------------------
         After                    Before             Adjustment factor
------------------------------------------------------------------------
      10/14/2010               11/15/2010                 1.02230
      11/14/2010               12/15/2010                 1.02078
      12/14/2010               01/15/2011                 1.01929
      01/14/2011               02/15/2011                 1.01782
      02/14/2011               03/15/2011                 1.01637
      03/14/2011               04/15/2011                 1.01494
      04/14/2011               05/15/2011                 1.01355
      05/14/2011               06/15/2011                 1.01219
      06/14/2011               07/15/2011                 1.01084
      07/14/2011               08/15/2011                 1.00948
      08/14/2011               09/15/2011                 1.00811
      09/14/2011               10/15/2011                 1.00674
      10/14/2011               11/15/2011                 1.00538
      11/14/2011               12/15/2011                 1.00403
      12/14/2011               01/15/2012                 1.00269
      01/14/2012               02/15/2012                 1.00134
      02/14/2012               03/15/2012                 1.00000
      03/14/2012               04/15/2012                 0.99866
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2011, and ending December 31, 2011, is June 30, 2011. An 
adjustment factor of 1.01084 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 2014 IPPS/LTCH PPS 
final rule (78 FR 50587 through 50588), the proposed FY 2015 national 
average hourly wage (unadjusted for occupational mix) is $39.1525. The 
proposed FY 2015 Puerto Rico overall average hourly wage (unadjusted 
for occupational mix) is $17.0010.

F. Proposed Occupational Mix Adjustment to the Proposed FY 2015 Wage 
Index

    As stated earlier, section 1886(d)(3)(E) of the Act provides for 
the collection of data every 3 years on the occupational mix of 
employees for each short-term, acute care hospital participating in the 
Medicare program, in order to construct an occupational mix adjustment 
to the wage index, for application beginning October 1, 2004 (the FY 
2005 wage index). The purpose of the occupational mix adjustment is to 
control for the effect of hospitals' employment choices on the wage 
index. For example, hospitals may choose to employ different 
combinations of registered nurses, licensed practical nurses, nursing 
aides, and medical assistants for the purpose of providing nursing care 
to their patients. The varying labor costs associated with these 
choices reflect hospital management decisions rather than geographic 
differences in the costs of labor.
1. Development of Data for the Proposed FY 2015 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 2014 IPPS/LTCH PPS final rule (78 FR 50588), 
the occupational mix adjustment to the FY 2014 wage index was based on 
data collected on the 2010 Medicare Wage Index Occupational Mix Survey 
(Form CMS-10079 (2010)). For the FY 2015

[[Page 28067]]

wage index, we are proposing to again use occupational mix data 
collected on the 2010 survey to compute the occupational mix adjustment 
for FY 2015. We are including data for 3,165 hospitals that also have 
wage data included in the proposed FY 2015 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, FY 2014, and the proposed FY 
2015 wage index associated with this proposed rule. 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.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/WAGE-INDEX-OCCUPATIONAL-MIX-SURVEY2013.pdf.
    The 2013 Occupational Mix Survey Hospital Reporting Form CMS-10079 
for the Wage Index Beginning FY 2016 (in excel format) is available on 
the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2016-Wage-Index-OccupationalMix.html. Hospitals are required to submit their 
completed 2013 surveys to their 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.
3. Calculation of the Proposed Occupational Mix Adjustment for FY 2015
    For FY 2015, we are proposing to calculate the occupational mix 
adjustment factor using the same methodology that we used for the FY 
2012, FY 2013, and FY 2014 wage indexes (76 FR 51582 through 51586, 77 
FR 53367 through 53368, and 78 FR 50588 through 50589, respectively). 
As a result of applying this methodology, the proposed FY 2015 
occupational mix adjusted national average hourly wage (based on the 
proposed new OMB delineations) is $39.1177. The proposed FY 2015 
occupational mix adjusted Puerto Rico-specific average hourly wage 
(based on the proposed new OMB delineations) is $17.0526.
    Because the occupational mix adjustment is required by statute, all 
hospitals that are subject to payments under the IPPS, or any hospital 
that would be subject to the IPPS if not granted a waiver, must 
complete the occupational mix survey, unless the hospital has no 
associated cost report wage data that are included in the proposed FY 
2015 wage index. For the FY 2015 proposed wage index, because we are 
using the Worksheet S-3, Parts II and III wage data of 3,400 hospitals, 
and we are using the occupational mix surveys of 3,165 hospitals for 
which we also have Worksheet S-3 wage data, that represents a 
``response'' rate of 93.1 percent (3,165/3,400). In the proposed FY 
2015 wage index established in this proposed 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 and FY 2015 wage index desk 
review process. We stated that we would review these data for future 
analysis and consideration of potential penalties for noncompliant 
hospitals.

G. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2015 Occupational Mix Adjusted Wage 
Index

1. Analysis of the Proposed Occupational Mix Adjustment and the 
Proposed Occupational Mix Adjusted Wage Index
    As discussed in section III.F. of the preamble of this proposed 
rule, for FY 2015, we are proposing to apply the proposed occupational 
mix adjustment to 100 percent of the proposed FY 2015 wage index. We 
calculated the proposed 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 proposed FY 2015 wage 
index results in a proposed national average hourly wage (based on the 
new OMB delineations) of $39.1177 and a proposed Puerto-Rico specific 
average hourly wage of $17.0526. After excluding data of hospitals that 
either submitted aberrant data that failed critical edits, or that do 
not have FY 2011 Worksheet S-3, Parts II and III, cost report data for 
use in calculating the proposed FY 2015 wage index, we calculated the 
proposed FY 2015 wage index using the occupational mix survey data from 
3,165 hospitals. For the FY 2015 proposed wage index, because we are 
using the Worksheet S-3, Parts II and III wage data of 3,400 hospitals, 
and we are using the occupational mix survey data of 3,165 hospitals 
for which we also have Worksheet S-3 wage data, those data represent a 
``response'' rate of 93.1 percent (3,165/3,400). The proposed FY 2015 
national average hourly wages for each occupational mix nursing 
subcategory as calculated in Step 2 of the occupational mix calculation 
are as follows:

[[Page 28068]]



------------------------------------------------------------------------
                                                     Proposed average
      Occupational mix nursing subcategory             hourly wage
------------------------------------------------------------------------
National RN....................................             37.388291241
National LPN and Surgical Technician...........             21.767178303
National Nurse Aide, Orderly, and Attendant....              15.31155016
National Medical Assistant.....................             17.246724132
National Nurse Category........................             31.744397958
------------------------------------------------------------------------

    The proposed national average hourly wage for the entire nurse 
category as computed in Step 5 of the occupational mix calculation is 
$31.744397958. 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 43.43 
percent, and the national percentage of hospital employees in the all 
other occupations category is 56.57 percent. At the CBSA level, using 
the new OMB delineations proposed for FY 2015, the percentage of 
hospital employees in the nurse category ranged from a low of 21.88 
percent in one CBSA to a high of 73.27 percent in another CBSA.
    We compared the proposed FY 2015 occupational mix adjusted wage 
indexes for each CBSA to the proposed unadjusted wage indexes for each 
CBSA. We used the proposed FY 2015 new OMB delineations for this 
analysis. As a result of applying the proposed occupational mix 
adjustment to the wage data, the proposed wage index values for 215 
(52.8 percent) urban areas and 29 (61.7 percent) rural areas would 
increase. One hundred and sixteen (28.5 percent) urban areas would 
increase by 1 percent but less than 5 percent, and 4 (1.0 percent) 
urban areas would increase by 5 percent or more. Fourteen (29.8 
percent) rural areas would increase by 1 percent but less than 5 
percent, and no rural areas would increase by 5 percent or more. 
However, the wage index values for 190 (46.7 percent) urban areas and 
18 (38.3 percent) rural areas would decrease. Eighty (19.7 percent) 
urban areas would decrease by 1 percent but less than 5 percent, and 1 
(0.2 percent) urban area would decrease by 5 percent or more. Seven 
(14.9 percent) rural areas would decrease by 1 percent and less than 5 
percent, and no rural areas would decrease by 5 percent or more. The 
largest positive impacts would be 6.56 percent for an urban area and 
3.35 percent for a rural area. The largest negative impacts would be 
5.32 percent for an urban area and 1.71 percent for a rural area. Two 
urban areas' wage indexes, but no rural area wage indexes, would remain 
unchanged by application of the occupational mix adjustment. These 
results indicate that a larger percentage of rural areas (61.7 percent) 
would benefit from the occupational mix adjustment than would urban 
areas (52.8 percent). However, approximately one-third (38.3 percent) 
of rural CBSAs would still experience a decrease in their wage indexes 
as a result of the occupational mix adjustment.
2. Proposed Application of the Rural, Imputed, and Frontier Floors
a. Proposed 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 proposed FY 2015 wage index associated with this proposed rule and 
available on the CMS Web site, based on the proposed implementation of 
the new OMB delineations discussed in section III.B. of the preamble of 
this proposed rule, we estimated that 441 hospitals would receive an 
increase in their FY 2015 proposed wage index due to the application of 
the rural floor.
b. Proposed Imputed Floor for FY 2015
    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 four times, 
the last of which was adopted in the FY 2014 IPPS/LTCH PPS final rule 
and is set to expire on September 30, 2014. (We refer readers to 
further discussion of the imputed floor in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50589 through 50590) and to our regulations at 42 CFR 
412.64(h)(4).) There were previously two all-urban States, New Jersey 
and Rhode Island, that have a range of wage indexes 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 proposed rule). However, as we explain below, the method as of 
FY 2012 for computing the imputed floor (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 as well as the average of the 
ratios of lowest-to-highest CBSA wage indexes of those all-urban 
States. We then compared the State's own ratio to the average ratio for 
all-urban States and whichever is higher is multiplied by the highest 
CBSA wage index value in the State--the product of which established 
the imputed floor for the State. Under the current OMB labor market 
area delineations that we used for the FY 2014 wage index, Rhode Island 
has only one CBSA (Providence-New Bedford-Fall River, RI-MA) and New 
Jersey has 10 CBSAs. Therefore, under the original methodology, Rhode 
Island's own ratio equaled 1.0, and its imputed floor was equal to its 
original CBSA wage index value. However, because the average ratio of 
New Jersey and Rhode Island was higher than New Jersey's own ratio, 
this 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), we retained the imputed floor calculated under the original 
methodology as discussed above, and established an alternative 
methodology for computing the imputed floor wage index to address the 
concern that the original imputed floor methodology guaranteed a 
benefit

[[Page 28069]]

for one all-urban State with multiple wage indexes (New Jersey) but 
could not benefit the other all-urban State (Rhode Island). The 
alternative methodology for calculating the imputed floor was 
established using data from the application of the rural floor policy 
for FY 2013. Under the alternative methodology, 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 IPPS/LTCH PPS 
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 then is increased by this factor, the 
result of which establishes the State's alternative imputed floor. We 
amended Sec.  412.64(h)(4) of the regulations to add new paragraphs to 
incorporate the finalized alternative methodology, and to make 
reference and date changes.
    In summary, for the FY 2013 wage index, we did not make any changes 
to the original imputed floor methodology at Sec.  412.64(h)(4) and, 
therefore, made no changes to the New Jersey imputed floor computation 
for FY 2013. Instead, for FY 2013, we adopted a second, alternative 
methodology for use in cases where an all-urban State has a range of 
wage indexes assigned to its hospitals, but the State cannot benefit 
from the methodology in existing Sec.  412.64(h)(4).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50589 through 
50590), we extended the imputed floor policy (both the original 
methodology and the alternative methodology) for 1 additional year, 
through September 30, 2014, while we continued to explore potential 
wage index reforms.
    For FY 2015, we are proposing to continue the extension of the 
imputed floor policy (both the original methodology and alternative 
methodology) for another year, through September 30, 2015, as we 
continue to explore potential wage index reforms. As discussed in 
section III.B. of the preamble of this proposed rule, we are proposing 
to adopt the new OMB labor market area delineations beginning in FY 
2015. Under OMB's new labor market area delineations based on Census 
2010 data, Delaware would become an all-urban State, along with New 
Jersey and Rhode Island. Under the new OMB delineations, Delaware would 
have three CBSAs, New Jersey would have seven CBSAs, and Rhode Island 
would continue to have only one CBSA (Providence-Warwick, RI-MA). We 
refer readers to a detailed discussion of our proposal to adopt the new 
OMB labor market area delineations in section III.B. of the preamble of 
this proposed rule. We are proposing to revise the regulations at Sec.  
412.64(h)(4) and (h)(4)(vi) to reflect the proposed 1-year extension of 
the imputed floor. We are inviting public comments on our proposal 
regarding the 1-year extension of the imputed floor.
    The wage index and impact tables associated with this FY 2015 IPPS/
LTCH PPS proposed rule that are available on the CMS Web site reflect 
the proposed continued application of the imputed floor policy at Sec.  
412.64(h)(4) and a national budget neutrality adjustment for the 
imputed floor for FY 2015. There are 12 providers in New Jersey, and 1 
provider in Delaware that would receive an increase in their FY 2015 
wage index due to the proposed continued application of the imputed 
floor policy under the original methodology. The wage index and impact 
tables for this FY 2015 proposed rule also reflect the proposed 
application of the second alternative methodology for computing the 
imputed floor, which would benefit four hospitals in Rhode Island.
c. Proposed State 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)). Based on the proposed implementation 
of the new OMB delineations discussed in section III.B. of the preamble 
of this proposed rule, 46 hospitals would receive the frontier floor 
value of 1.0000 for their proposed FY 2015 wage index in this proposed 
rule. These hospitals are located in Montana, North Dakota, South 
Dakota, and Wyoming. Although Nevada is also defined as a frontier 
State, its proposed FY 2015 rural floor value of 1.1373 is greater than 
1.0000, and therefore, no Nevada hospitals would receive a frontier 
floor value for their proposed FY 2015 wage index.
    The areas affected by the proposed rural, imputed, and frontier 
floor policies for the proposed FY 2015 wage index are identified in 
Table 4D associated with this proposed rule, which is available on the 
CMS Web site.
3. Proposed FY 2015 Wage Index Tables
    The proposed wage index values for FY 2015 (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 proposed occupational mix adjustment, geographic 
reclassification or redesignation as discussed in section III.H. of the 
preamble of this proposed rule, and the application of the rural, 
imputed, and frontier State floors as discussed in section III.G.2. of 
the preamble of this proposed rule. We note that because we are 
proposing to adopt the new OMB labor market area delineations for FY 
2015, these tables have additional tabulations to account for wage 
index calculations computed under the previous and the new OMB 
delineations.
    Tables 3A and 3B, available on the CMS Web site, list the proposed 
3-year average hourly wage for each labor market area before the 
redesignation or reclassification of hospitals based on FYs 2009, 2010, 
and 2011 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 proposed 
adjusted average hourly wage for each hospital from the FY 2009 and FY 
2010 cost reporting periods, as well as the FY 2011 period used to 
calculate the proposed FY 2015 wage index. The proposed 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 proposed rule) across all 3 years, by the sum 
of the hours. If a hospital is missing data for any of the previous 
years, its proposed average hourly wage for the 3-year period is 
calculated based on the data available during that period. The proposed 
average hourly wages in Tables 2, 3A, and 3B, which are available on 
the CMS Web site, include the proposed occupational mix adjustment. The 
proposed wage index values in Tables 4A, 4B, 4C, and 4D also include 
the proposed national rural floor budget neutrality adjustment (which 
includes the proposed imputed floor). The proposed wage index values in 
Table 2 also include the proposed out-migration adjustment for eligible 
hospitals. As stated above, because we are proposing to adopt the new 
OMB labor market area delineations for FY 2015, these tables have 
additional tabulations to account for wage index calculations computed 
under the current labor market definitions and the

[[Page 28070]]

new OMB labor market area delineations. In addition, for certain 
applicable hospitals, the proposed wage index values included in Table 
2 are computed to reflect the proposed transitional wage index or the 
50/50 blended wage index discussed in detail in section III.B.2.e. of 
the preamble of this proposed rule.

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 proposing for FY 2015, 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. 
While our general policies on geographic reclassification, 
redesignations under section 1886(d)(8)(B) of the Act, and urban 
hospitals reclassifying to rural under 42 CFR 412.103 will remain 
unchanged for FY 2015, we note that, due to our proposed adoption of 
the new OMB labor market area delineations for FY 2015, there are 
numerous unique classification considerations for FY 2015 that are 
discussed in more detail in section III.H. of the preamble of this 
proposed rule. For a discussion of the new CBSA changes based on the 
new OMB labor market area delineations and our proposed implementation 
of those changes, we refer readers to sections III.B. and VI.C. of the 
preamble of this proposed rule.
2. FY 2015 MGCRB Reclassifications
a. FY 2015 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.
    In February 2014, the MGCRB completed its review of FY 2015 
reclassification requests. Based on such reviews, there were 379 
hospitals approved for wage index reclassifications by the MGCRB 
starting in FY 2015. Because MGCRB wage index reclassifications are 
effective for 3 years, for FY 2015, hospitals reclassified beginning 
during FY 2013 or FY 2014 are eligible to continue to be reclassified 
to a particular labor market area based on such prior reclassifications 
for the remainder of their 3-year period. There were 172 hospitals 
approved for wage index reclassifications in FY 2013, and 287 hospitals 
approved for wage index reclassifications in FY 2014. Of all the 
hospitals approved for reclassification for FY 2013, FY 2014, and FY 
2015, as of February 2014, 838 hospitals are in a reclassification 
status for FY 2015.
    Under the regulations at 42 CFR 412.273, hospitals that have been 
reclassified by the MGCRB are permitted to withdraw their applications 
within 45 days of the publication of a proposed rule. 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 2015 will be incorporated 
into the wage index values published in the FY 2015 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. Effects of Implementation of New OMB Labor Market Area Delineations 
on Reclassified Hospitals
    Because hospitals that have been reclassified beginning in FY 2013, 
2014, or 2015 were reclassified based on the current labor market 
delineations, if we adopt the new OMB labor market area delineations 
beginning in FY 2015, the areas to which they have been reclassified, 
or the areas where they are located, may change. Under the new OMB 
delineations, many existing CBSAs would be reconfigured. Hospitals with 
current reclassifications are encouraged to verify area wage indexes on 
Tables 4A-2 and 4B-2 associated with this proposed rule (which are 
available via the Internet on the CMS Web site), and confirm that the 
areas to which they have been reclassified for FY 2015 would continue 
to provide a higher wage index than their geographic area wage index. 
Hospitals may withdraw their FY 2015 reclassifications by contacting 
the MGCRB within 45 days from the publication of this proposed rule.
    In some cases, adopting the new OMB delineations would result in 
counties splitting apart from CBSAs to form new CBSAs, or counties 
shifting from one CBSA designation to another CBSA. Reclassifications 
granted under section 1886(d)(10) of the Act are effective for 3 fiscal 
years so that a hospital or county group of hospitals would be assigned 
a wage index based upon the wage data of hospitals in a nearby labor 
market area for a 3-year period. If CBSAs are split apart, or if 
counties shift from one CBSA to another under the new OMB delineations, 
it raises the question of how to continue a hospital's reclassification 
for the remainder of its 3-year reclassification period, if that area 
to which the hospital reclassified no longer exists, in whole or in 
part. We dealt with this question in FY 2005 as well when CMS adopted 
the current OMB labor market area definitions.

[[Page 28071]]

Consistent with the policy CMS implemented in the FY 2005 IPPS final 
rule (69 FR 49054 through 49056), if a CBSA would be reconfigured due 
to the new OMB delineations and it would not be possible for the 
reclassification to continue seamlessly to the reconfigured CBSA, we 
believe it is appropriate for us to determine the best alternative 
location to reassign current reclassifications for the remaining 3 
years. Therefore, to maintain the integrity of a hospital's 3-year 
reclassification period, we are proposing a policy to assure that 
current geographic reclassifications (applications approved in FY 2013, 
FY 2014, or FY 2015) that would be affected by CBSAs that are split 
apart or counties that shift to another CBSA under the new OMB 
delineations, would ultimately be assigned to a CBSA under the new OMB 
delineations that contains at least one county from the reclassified 
CBSA under the current FY 2014 OMB definitions, and would be generally 
consistent with rules that govern geographic reclassification. That is, 
consistent with policy finalized in FY 2005 (69 FR 49054 and 49055), we 
are proposing a general policy that affected reclassified hospitals 
would be assigned to a CBSA that (1) would contain the most proximate 
county that is located outside of the hospital's proposed FY 2015 
geographic labor market area, and (2) is part of the original FY 2014 
CBSA to which the hospital is reclassified. We believe that by 
assigning reclassifications to the CBSA that contains the nearest 
eligible county (as described above) satisfies the statutory 
requirement at section 1886(d)(10)(v) of the Act by maintaining 
reclassification status for a period of 3 fiscal years, while generally 
respecting the longstanding principle of geographic proximity in the 
labor market reclassification process. The hospitals that we are 
proposing to reassign to a different CBSA based on our proposed policy 
above are listed in a special Table 9A-2 for this proposed rule, which 
is available via the Internet on the CMS Web site. In addition, we are 
proposing to allow a hospital, or county group of hospitals, to request 
reassignment to another CBSA that would contain a county that is part 
of the current FY 2014 CBSA to which they are reclassified, if the 
hospital or county group of hospitals can demonstrate compliance with 
applicable reclassification proximity rules, as described later in this 
section.
    We recognize that this proposed reclassification reassignment 
described for hospitals that are reclassified to CBSAs that would split 
apart or to counties that would shift to another CBSA under the new OMB 
delineations may result in the reassignment of the hospital for the 
remainder of its 3-year reclassification period to a CBSA having a 
lower wage index than the wage index that would have been assigned for 
the reclassified hospital in the absence of the proposed adoption of 
the new OMB delineations. Therefore, as discussed in section 
III.B.2.e.(4) of the preamble of this proposed rule, we are proposing 
that all hospitals that would experience a decrease in their FY 2015 
wage index value due to the proposed implementation of the new OMB 
delineations would receive a 50/50 blended wage index adjustment in FY 
2015. For FY 2015, using FY 2015 wage data, we are proposing to 
calculate a wage index value based on the current FY 2014 OMB 
definitions, and a wage index value based upon the proposed new OMB 
delineations (including reclassification assignments discussed in this 
section). If the wage index under the proposed new OMB delineations 
would be lower than the wage index calculated with the current (FY 
2014) OMB definitions, the hospital would be assigned a blended wage 
index (50 percent of the current; 50 percent of the proposed). We 
believe that this proposed transitional adjustment would mitigate 
negative payment impacts for FY 2015, and would afford hospitals 
additional time to fully assess any additional reclassification options 
available to them under the new OMB delineations.
    We are including the following descriptions of specific situations 
where we have determined that reassignment of reclassification areas 
would be appropriate.
(1) Reclassifications to CBSAs That Would Be Subsumed by Other CBSAs
    We identified 66 counties that are currently located in CBSAs that 
would be subsumed by another CBSA under the new OMB labor market area 
delineations. As a result, hospitals reclassifying to those CBSAs would 
now find that their reclassifications are to a CBSA that no longer 
exists. For these hospitals, we are proposing to reassign 
reclassifications to the newly configured CBSA to which all of the 
original constituent counties in the FY 2014 CBSA are transferred. For 
example, CBSA 11300 (Anderson, IN) would no longer exist under the 
proposed FY 2015 delineations. The only constituent county in CBSA 
11300, Madison County, IN, would be moving to CBSA 26900 (Indianapolis-
Carmel-Anderson, IN). Because the original Anderson, IN labor market 
area no longer exists, we are proposing to reassign reclassifications 
from the original Anderson, IN labor market area to a newly configured 
CBSA where the original constituent county or counties are transferred, 
which is Indianapolis-Carmel-Anderson, IN. For hospitals reclassified 
to a CBSA that would be subsumed by another CBSA, the following table 
reflects the hospitals' current reclassified CBSA, and the CBSA to 
which CMS is proposing to assign them for FY 2015.

     Proposed Hospital Reclassification Reassignments for Hospitals
      Reclassified to a CBSA That Would Be Subsumed by Another CBSA
------------------------------------------------------------------------
  CMS certification No.     Current reclassified
          (CCN)                     CBSA               Proposed CBSA
------------------------------------------------------------------------
          050022                     42044                   11244
          050054                     42044                   11244
          050102                     42044                   11244
          050243                     42044                   11244
          050292                     42044                   11244
          050329                     42044                   11244
          050390                     42044                   11244
          050423                     42044                   11244
          050534                     42044                   11244
          050573                     42044                   11244
          050684                     42044                   11244
          050686                     42044                   11244
          050701                     42044                   11244
          050765                     42044                   11244
          050770                     42044                   11244
          140067                     14060                   14010
          150089                     11300                   26900
          220001                     14484                   14454
          220002                     14484                   14454
          220008                     14484                   14454
          220011                     14484                   14454
          220019                     14484                   14454
          220020                     14484                   14454
          220049                     14484                   14454
          220058                     14484                   14454
          220062                     14484                   14454
          220063                     14484                   14454
          220070                     14484                   14454
          220073                     14484                   14454
          220074                     14484                   14454
          220082                     14484                   14454
          220084                     14484                   14454
          220090                     14484                   14454
          220095                     14484                   14454
          220098                     14484                   14454
          220101                     14484                   14454
          220105                     14484                   14454
          220163                     14484                   14454
          220171                     14484                   14454
          220175                     14484                   14454
          220176                     14484                   14454
          230002                     47644                   47664
          230020                     47644                   47664
          230024                     47644                   47664
          230053                     47644                   47664
          230089                     47644                   47664
          230104                     47644                   47664
          230142                     47644                   47664
          230146                     47644                   47664

[[Page 28072]]

 
          230165                     47644                   47664
          230176                     47644                   47664
          230244                     47644                   47664
          230270                     47644                   47664
          230273                     47644                   47664
          230297                     47644                   47664
          300017                     37764                   15764
          300023                     37764                   15764
          300029                     37764                   15764
          390151                     13644                   43524
          410001                     14484                   14454
          410004                     14484                   14454
          410005                     14484                   14454
          410007                     14484                   14454
          410010                     14484                   14454
          410011                     14484                   14454
          410012                     14484                   14454
------------------------------------------------------------------------

(2) Reclassification to CBSAs Where the CBSA Number or Name Has Changed 
or to CBSAs Containing Counties That Would Be Moving to Another CBSA
    We identified six CBSAs with current reclassifications that would 
maintain the same constituent counties, but the CBSA number or name 
would change if we adopted the new OMB delineations. For example, CBSA 
29140 (Lafayette, IN) currently contains three counties (Benton, 
Carroll, and Tippecanoe Counties). The CBSA name and number for these 
counties would change to CBSA 29200 (Lafayette-West Lafayette, IN) 
under the new OMB delineations. Because the constituent counties in 
these CBSAs would not change under the new delineations, we would 
consider these CBSAs to be unchanged, and we are not proposing any 
reassignment for hospitals reclassified to those labor market areas. 
Table 9A-2 for this proposed rule (which is available via the Internet 
on the CMS Web site) reflects the proposed revised CBSA number 
effective in FY 2015.
    We identified eight CBSAs with current reclassifications that have 
one or more counties that would split off and move to a new CBSA or to 
a different existing CBSA under the new OMB delineations. These CBSAs 
are shown in the following table.

------------------------------------------------------------------------
       Current FY 2014 CBSA              Current FY 2014 CBSA name
------------------------------------------------------------------------
16620............................  Charleston, WV.
16974............................  Chicago-Joliet-Naperville, IL.
20764............................  Edison-New Brunswick, NJ.
31140............................  Louisville/Jefferson County, KY-IN.
35644............................  New York-White Plains-Wayne, NY-NJ.
37964............................  Philadelphia, PA.
39100............................  Poughkeepsie-Newburgh-Middletown, NY.
48900............................  Wilmington, NC.
------------------------------------------------------------------------

    We have determined that 69 hospitals have current reclassifications 
to one of these CBSAs. Similar to the methodology finalized in the FY 
2005 IPPS final rule (69 FR 49054 through 49055), we are proposing to 
follow the general policy discussed in section III.H.2.b. of the 
preamble of this proposed rule. Specifically, we are proposing that 
affected reclassified hospitals would be assigned to a CBSA (under the 
new OMB delineations) that would contain the most proximate county that 
is (1) located outside of the hospital's proposed FY 2015 geographic 
labor market area; and (2) is included in the current CBSA to which 
they are reclassified. For each of the 69 hospitals, we conducted a 
mapping analysis and determined driving distances from their geographic 
location to the borders of each county (that is in the reclassified 
CBSA under the FY 2014 delineations) and is also included in a CBSA 
under the new OMB delineations, excluding any counties that would be 
located in the hospital's proposed FY 2015 geographic labor market 
area. Following the general reassignment principle that we are 
proposing, we are proposing to reassign those reclassified hospitals to 
the CBSA which contains the geographically closest county. For example, 
there are hospitals that currently are reclassified to CBSA 39100 
(Poughkeepsie-Newburgh-Middletown, NY) under the FY 2014 delineations, 
which is comprised of Dutchess County and Orange County, NY. Under the 
new OMB delineations, Dutchess County would become part of new CBSA 
20524 (Dutchess County-Putnam County, NY), while Orange County would 
join CBSA 35614 (New York-Jersey City-White Plains, NY-NJ Metropolitan 
Division). Therefore, we mapped the distances from one reclassified 
hospital to the border of Dutchess County and Orange County, NY (the 
two counties that were part of CBSA 39100 under the FY 2014 
delineations). Our analysis showed that the hospital is 2.2 miles from 
Dutchess County, and 25.9 miles from Orange County. Therefore, we are 
proposing to reassign this hospital's reclassification from the FY 2014 
CBSA 39100 to the new CBSA 20524.
    We also identified affected county group reclassifications. For 
these reclassifications, we would follow our proposed policy discussed 
above, except that, for county group reclassifications, we are 
proposing to reassign hospitals in a county group reclassification to 
the CBSA under the new OMB delineations to which the majority of 
hospitals in the group reclassification are geographically closest. 
Because hospitals in a county group applied as a group, we believe the 
reassignment should also be applied to the whole group. For example, 
the hospitals of Fairfield County, CT are reclassified as a group to 
CBSA 35644 under the FY 2014 delineations. Under the new OMB 
delineations, CBSA 35644 would no longer exist and would be split into 
the following two new CBSAs: 20524 (Dutchess County-Putnam County, NY) 
and 35614 (New York-Jersey City-White Plains, NY-NJ). Of the six 
hospitals in the group reclassification, all but one would be closer to 
an eligible county (Westchester, NY) in CBSA 35614 than to an eligible 
county (Putnam, NY) in CBSA 20524. Because these hospitals in 
Fairfield, CT applied as a group, we believe the reassignment should 
also be applied to the whole group. Therefore, we are proposing to 
assign the hospitals in this group reclassification to CBSA 35614, the 
reconfigured CBSA to which the majority of the hospitals in the group 
reclassification are geographically closest.
    To summarize, of the 69 hospitals reclassified to one of the 8 
CBSAs in the preceding table that have counties that would split off 
and move to a new CBSA or a different existing CBSA under the new OMB 
delineations, there are 27 hospitals that would maintain the same 
reclassified CBSA number under our proposals. Another 28 hospitals 
would be reassigned to a reconfigured CBSA that would contain a similar 
number of counties from their current reclassified CBSA. For example, 
the new CBSA 35614 (New York-Jersey City-White Plains, NY-NJ 
Metropolitan Division) would contain 10 out of 11 counties from current 
(FY 2014) CBSA 35644 (New York-White Plains-Wayne, NY-NJ Metropolitan 
Division).
    For the remaining 14 reclassified hospitals, we are proposing to 
assign them to a CBSA (under the new OMB delineations) that would have 
a different CBSA number from the labor market area to which they are 
currently reclassified (under the current FY 2014 delineations). This 
is because if the original CBSA to which the hospitals are reclassified 
is losing counties to another urban CBSA, it may be that the

[[Page 28073]]

original reclassification determination would not be reflective of the 
new delineations. In addition, because proximity to a CBSA is a 
requirement of reclassifications approved under section 1886(d)(10) of 
the Act, we believe it is appropriate to propose to reassign 
reclassification status to an urban CBSA that contains the county (from 
the hospital's current CBSA reclassification) that is closest to the 
hospital. We believe this would more accurately reflect the geographic 
labor market area of the reclassified hospital. For example, under the 
FY 2014 delineations, CBSA 37964 (Philadelphia, PA Metropolitan 
Division) is comprised of five counties (Bucks, Chester, Delaware, 
Montgomery, and Philadelphia Counties, PA). Under the new OMB 
delineations, CBSA 37964 would retain the same CBSA name and number, 
but three counties (Bucks, Chester, and Montgomery) would split off to 
form the new CBSA 33874 (Montgomery County-Bucks County-Chester County, 
PA Metropolitan Division). While CBSA 37964 exists under the FY 2014 
and proposed new labor market area delineations, the fact that three 
counties would be moved to another CBSA means that current 
reclassifications to CBSA 37964 (Philadelphia) may be more proximate to 
new CBSA 33874. Therefore, if reclassified hospitals, or the majority 
of hospitals in a county group, are geographically closer to a county 
in CBSA 33874 than to a county in CBSA 37964, we are proposing to 
reassign the reclassification to that area, new CBSA 33874 (Montgomery 
County-Bucks County-Chester County, PA Metropolitan Division).
    Consistent with refinements implemented in the FY 2005 IPPS final 
rule (69 FR 49055), we are proposing to allow hospitals that 
reclassified under section 1886(d)(10) of the Act to one of the eight 
CBSAs that split (that is, current FY 2014 CBSAs 16620, 16974, 20764, 
31140, 35644, 37964, 39100, 48900) to be reclassified to any CBSA 
containing a county from their original reclassification labor market 
area, provided that the hospital demonstrates that it meets the 
applicable proximity requirements under 42 CFR 412.230(b) and (c) (for 
individual hospitals), 42 CFR 412.232(a)(1) (for a rural group), and 42 
CFR 412.234(a)(2) and (a)(3) (for an urban group) to that CBSA. 
Hospitals that wish to be reassigned to an alternate CBSA (other than 
the CBSA to which their reclassification would be reassigned in this 
proposed rule) for which they meet the applicable proximity criteria 
may request reassignment within 45 days from the publication of this 
proposed rule. Hospitals must send a request to [email protected] 
and provide documentation certifying that they meet the requisite 
proximity criteria for reassignment to an alternate CBSA, as described 
above. We believe this option of allowing hospitals to submit a request 
to CMS would provide hospitals with greater flexibility with respect to 
their reclassification reassignment, while ensuring that the proximity 
requirements are met. We believe that where the proximity requirements 
are met, the reclassified wage index would be consistent with the labor 
market area to which the hospitals were originally approved for 
reclassification. Under this proposed policy, a hospital may request to 
be assigned a reclassification to any CBSA that contains any county 
from the CBSA to which it is currently reclassified. However, to be 
reassigned to an area that is not the most proximate to the hospital 
(or the majority of hospitals in a county group), we believe it is 
necessary that the hospital demonstrates that it complies with the 
applicable proximity criteria. If a hospital cannot demonstrate 
proximity to an alternate CBSA, the hospital would not be considered 
for reclassification to that labor market area, and reassignment would 
remain with the closest eligible (new) CBSA.
    As discussed previously in this section, under the new OMB 
delineations, we identified CBSA 35644 (New York-White Plains-Wayne, 
NY-NJ Metropolitan Division) as one of the examples of the eight CBSAs 
that would have at least one county that would split off and join 
another new CBSA (Putnam County joined Dutchess County, NY to form new 
CBSA 20524), while also having multiple counties assigned to a 
reconfigured CBSA 35614 (New York-Jersey City-White Plains, NY-NJ 
Metropolitan Division). CBSA 35614 would also add Orange County, NY 
under the new OMB delineations. The hospitals that are currently 
located in CBSA 39100 (Poughkeepsie-Newburgh-Middletown, NY) are 
currently part of a group reclassification of Orange County, NY to CBSA 
35644 (New York-White Plains-Wayne, NY-NJ Metropolitan Division). As 
discussed above, we are proposing to reassign current reclassifications 
to the CBSA that contains the most proximate county that is located 
outside of the reclassified hospital's proposed geographic labor market 
area, and is currently part of the original CBSA to which the hospital 
is reclassified. In the case of the Orange County, NY group 
reclassification, the closest (and only) county from the original 
reclassified area (CBSA 35644), that would not be located in Orange 
County's proposed home labor market area (CBSA 35614) is Putnam County, 
NY. Therefore, we are proposing to reassign the Orange County group 
reclassification to CBSA 20524 (Putnam County-Dutchess County, NY). If 
the hospitals from the Orange County, NY group reclassification do not 
wish to maintain this assignment, we encourage them to formally 
terminate the current group reclassification within 45 days from the 
publication of this proposed rule, as discussed earlier in this 
section.
    The following table shows proposed hospital reclassification 
assignments for hospitals reclassified to CBSAs from which counties 
would be split off and moved to a different CBSA under the new OMB 
delineations. The following table shows the current reclassified CBSA 
and the CBSA to which CMS is proposing reassignment.

 Proposed Hospital Reclassification Reassignments for Hospitals That Are
 Reclassified to CBSAs From Which Counties Would Be Split Off and Moved
                           to a Different CBSA
------------------------------------------------------------------------
CMS Certification number    Current reclassified    Proposed reassigned
          (CCN)                     CBSA                    CBSA
------------------------------------------------------------------------
          070006                     35644                   35614
          070010                     35644                   35614
          070018                     35644                   35614
          070028                     35644                   35614
          070033                     35644                   35614
          070034                     35644                   35614
          140B10                     16974                   16974
          140012                     16974                   20994
          140033                     16974                   16974
          140084                     16974                   16974
          140100                     16974                   16974
          140110                     16974                   16974
          140130                     16974                   16974
          140155                     16974                   16974
          140161                     16974                   16974
          140186                     16974                   16974
          140202                     16974                   16974
          140291                     16974                   16974
          150002                     16974                   16974
          150004                     16974                   16974
          150008                     16974                   16974
          150034                     16974                   16974
          150090                     16974                   16974
          150125                     16974                   16974
          150126                     16974                   16974
          150165                     16974                   16974
          150166                     16974                   16974
          180012                     31140                   31140
          180048                     31140                   31140
          310002                     35644                   35614
          310009                     35644                   35614
          310014                     37964                   37964
          310015                     35644                   35614
          310017                     35644                   35614
          310031                     20764                   35614
          310038                     35644                   20524

[[Page 28074]]

 
          310039                     35644                   20524
          310050                     35644                   35614
          310054                     35644                   35614
          310070                     35644                   20524
          310076                     35644                   35614
          310083                     35644                   35614
          310096                     35644                   35614
          310108                     35644                   20524
          310119                     35644                   35614
          330027                     35644                   35614
          330106                     35644                   35614
          330126                     35644                   20524
          330135                     35644                   20524
          330167                     35644                   35614
          330181                     35644                   35614
          330182                     35644                   35614
          330198                     35644                   35614
          330205                     35644                   20524
          330224                     39100                   20524
          330225                     35644                   35614
          330259                     35644                   35614
          330264                     35644                   20524
          330331                     35644                   35614
          330332                     35644                   35614
          330372                     35644                   35614
          340042                     48900                   48900
          340068                     48900                   34820
          390044                     37964                   33874
          390096                     37964                   33874
          390316                     37964                   33874
          420085                     48900                   48900
          510062                     16620                   16620
          510070                     16620                   16620
------------------------------------------------------------------------

    Table 9A-2 for this proposed rule (which is available via the 
Internet on the CMS Web site) reflects all proposed reassignments of 
hospital reclassifications. We are proposing that hospitals that 
disagree with our determination of the most proximate county must 
provide an alternative method for determining proximity to CMS within 
45 days from the publication of this proposed rule.
    The hospital's request for reassignment should contain the 
hospital's name, address, CCN, and point of contact information. All 
requests must be sent to [email protected]. Changes to a hospital's 
CBSA assignment on the basis of a hospital's disagreement with our 
determination of closest county, or on the basis of being granted a 
reassignment due to meeting applicable proximity criteria to an 
eligible CBSA will be announced in the FY 2015 IPPS final rule.
(3) Reclassifications to CBSAs That Would Contain Hospital's Geographic 
County
    We identified 14 reclassified hospitals that would be 
geographically located in their reclassified labor market area under 
the new OMB delineations. For example, hospital 34-0015 is located in 
Rowan County, NC. Rowan County is currently a Micropolitan Statistical 
Area in NC, and treated as rural. The hospital is reclassified to CBSA 
16740 (Charlotte-Concord-Rock Hill, NC-SC). Under the new OMB 
delineations, CBSA 16740 (Charlotte-Concord-Gastonia, NC-SC) would 
include Rowan County. Therefore, the current reclassification would 
become redundant. CBSA 16740 did not lose any counties to another labor 
market area; therefore, assignment to another alternate CBSA would not 
be an option under our proposed methodology. Because, by definition, a 
hospital would not be ``reclassified'' to its own geographic labor 
market area, and maintaining that ``reclassified'' status to its own 
geographic labor market area would serve no beneficial purpose for a 
hospital, we expect that all such affected hospitals would wish to 
terminate their reclassification status. Therefore, we are assuming for 
purposes of this proposed rule that the affected hospitals would be 
terminating their reclassification status for the remaining years of 
their 3-year reclassification period, and for FY 2015, we are proposing 
to assign them the wage index of the CBSA in which they are 
geographically located. Affected hospitals should inform CMS if they 
wish to retain their current reclassification by sending notice to 
[email protected] within 45 days from the publication of this 
proposed rule. If an affected hospital does not inform us that they 
wish to retain their current reclassification, we will assume that the 
hospital has elected to terminate the reclassification. For purposes of 
this proposed rule, we are presenting tables under the presumption that 
all 14 hospitals will opt to cancel their reclassification status. We 
are proposing to assign these hospitals the wage index value of their 
home area from Table 4A-2 for this proposed rule (which is available 
via the Internet on the CMS Web site), and not include them as 
reclassified hospitals in Table 9A-2 for this proposed rule (which is 
available via the Internet on the CMS Web site).

        Hospitals Reclassified to Proposed Home Labor Market Area
------------------------------------------------------------------------
  CMS certification No.      Current geographic     Proposed geographic
          (CCN)                     CBSA                    CBSA
------------------------------------------------------------------------
           340015                       34                   16740
           340129                       34                   16740
           340144                       34                   16740
           420036                       42                   16740
           450596                       45                   23104
           420027                    11340                   24860
           150088                    11300                   26900
           150113                    11300                   26900
           190003                       19                   29180
           440073                       44                   34980
           460017                       46                   36260
           460039                       46                   36260
           190144                       19                   43340
           490019                       49                   47894
------------------------------------------------------------------------

    We have included a footnote for Table 9A-2 for this proposed rule 
indicating that these hospitals have been removed from this table, 
pending notification by the hospitals.
c. Applications for Reclassifications for FY 2016
    Applications for FY 2016 reclassifications are due to the MGCRB by 
September 2, 2014 (the first working day of September 2014). 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 
discussed in section III.B. of the preamble of this proposed rule, we 
are proposing to adopt the new OMB labor market area delineations 
announced on February 28, 2013. Therefore, hospitals would apply for 
reclassifications based on the new OMB delineations we are proposing to 
use for FY 2015. 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.
    We also are proposing changes to the regulations at Sec.  
412.232(b)(2) and Sec.  412.234(a)(3)(iv) to include reference to the 
most recent OMB standards for delineating statistical areas (using the 
most recent Census Bureau data and estimates) that were adopted by CMS. 
For rural groups, the group of hospitals must demonstrate that the 
county in which the hospitals are located meets the standards for 
redesignation to an MSA as an ``outlying county.'' For urban groups, 
hospitals located in counties that are in the same combined statistical 
area or CBSA as the urban area to which

[[Page 28075]]

they seek redesignation qualify as meeting the proximity requirements 
for reclassification to the urban area to which they seek 
redesignation. We are not proposing any changes to the reclassification 
policy, but would include language to reflect use of the most recent 
OMB standards for delineating statistical areas (using the most recent 
Census Bureau data and estimates) that were adopted by CMS in 
consideration of group reclassification applications submitted for 
review in FY 2015 (that is submitted by September 30, 2014, reviewed by 
the MGCRB in FY 2015, to be effective in FY 2016) and future years.
3. Redesignation of Hospitals Under Section 1886(d)(8)(B) of the Act
    Section 1886(d)(8)(B)(i) of the Act requires the Secretary to 
``treat a hospital located in a rural county adjacent to one or more 
urban areas as being located in the urban metropolitan statistical area 
to which the greatest number of workers in the county commute'' if 
certain adjacency and commuting criteria are met. The criteria utilize 
standards for designating Metropolitan Statistical Areas published in 
the Federal Register by the Director of the Office of Management and 
Budget (OMB) based on the most recently available decennial population 
data. Effective beginning FY 2005, we used OMB's CBSA standards based 
on the 2000 Census and the 2000 Census data to identify counties in 
which hospitals qualify under section 1886(d)(8)(B) of the Act to 
receive the wage index of the urban area. Hospitals located in these 
counties have been known as ``Lugar'' hospitals and the counties 
themselves are often referred to as ``Lugar'' counties.
    As discussed in section III.B. of the preamble to this proposed 
rule, we are proposing to implement OMB's revised labor market area 
delineations based on the Census 2010 data for purposes of determining 
applicable wage indexes for acute care hospitals beginning in FY 2015. 
As we have done in the past, we also are proposing to use the new OMB 
delineations to identify rural counties that would qualify as ``Lugar'' 
under section 1886(d)(8)(B) of the Act and therefore would be 
redesignated to urban areas for FY 2015. We are proposing to revise the 
regulations at Sec.  412.64(b)(3)(i) to reflect the most recent OMB 
standards for delineating statistical areas adopted by CMS. By applying 
the new OMB delineations, the number of qualifying counties, shown in 
the following chart, would increase from 98 to 127. After evaluating 
and analyzing the 2010 Census commuting data, we are proposing that, 
effective for discharges on or after October 1, 2014, in accordance 
with section 1886(d)(8)(B) of the Act, hospitals located in the rural 
counties listed in the first column of the following table would be 
designated as part of the urban area listed in the second column based 
on the criteria discussed above. We note that rural counties that no 
longer meet the qualifying criteria to be Lugar are discussed below in 
section III.H.3.c. of the preamble of this proposed rule.

 Rural Counties Containing Hospitals Redesignated as Urban Under Section 1886(d)(8)(B) of the Act (Based on New
                                     OMB Delineations and Census 2010 Data)
----------------------------------------------------------------------------------------------------------------
                      Rural county                               Lugar designated CBSA
-----------------------------------------------------------------------------------------------        NEW
             County name                     State         CBSA             CBSA name
----------------------------------------------------------------------------------------------------------------
Chambers County......................  AL..............    12220  Auburn-Opelika, AL..........  New.
Cherokee County......................  AL..............    40660  Rome, GA....................  ................
Cleburne County......................  AL..............    11500  Anniston-Oxford-              New.
                                                                   Jacksonville, AL.
Macon County.........................  AL..............    12220  Auburn-Opelika, AL..........  ................
Talladega County.....................  AL..............    11500  Anniston-Oxford-              ................
                                                                   Jacksonville, AL.
Denali Borough.......................  AK..............    21820  Fairbanks, AK...............  New.
Hot Spring County....................  AR..............    26300  Hot Springs, AR.............  ................
Litchfield County....................  CT..............    35300  New Haven-Milford, CT.......  ................
Bradford County......................  FL..............    27260  Jacksonville, FL............  ................
Levy County..........................  FL..............    23540  Gainesville, FL.............  ................
Washington County....................  FL..............    37460  Panama City, FL.............  New.
Chattooga County.....................  GA..............    40660  Rome, GA....................  ................
Jackson County.......................  GA..............    12060  Atlanta-Sandy Springs-        ................
                                                                   Roswell, GA.
Lumpkin County.......................  GA..............    12060  Atlanta-Sandy Springs-        ................
                                                                   Roswell, GA.
Polk County..........................  GA..............    40660  Rome, GA....................  ................
Talbot County........................  GA..............    17980  Columbus, GA-AL.............  ................
Oneida County........................  ID..............    36260  Ogden-Clearfield, UT........  New.
Christian County.....................  IL..............    44100  Springfield, IL.............  ................
Iroquois County......................  IL..............    28100  Kankakee, IL................  ................
Logan County.........................  IL..............    44100  Springfield, IL.............  ................
Mason County.........................  IL..............    37900  Peoria, IL..................  ................
Ogle County..........................  IL..............    40420  Rockford, IL................  ................
Union County.........................  IL..............    16060  Carbondale-Marion, IL.......  ................
Clinton County.......................  IN..............    29200  Lafayette-West Lafayette, IN  ................
Greene County........................  IN..............    14020  Bloomington, IN.............  New.
Henry County.........................  IN..............    26900  Indianapolis-Carmel-          ................
                                                                   Anderson, IN.
Marshall County......................  IN..............    43780  South Bend-Mishawaka, IN-MI.  New.
Parke County.........................  IN..............    45460  Terre Haute, IN.............  New.
Spencer County.......................  IN..............    21780  Evansville, IN-KY...........  ................
Starke County........................  IN..............    16980  Chicago-Naperville-Elgin, IL- ................
                                                                   IN-WI.
Tipton County........................  IN..............    26900  Indianapolis-Carmel-          New.
                                                                   Anderson, IN.
Warren County........................  IN..............    29200  Lafayette-West Lafayette, IN  ................
Boone County.........................  IA..............    11180  Ames, IA....................  ................
Buchanan County......................  IA..............    47940  Waterloo-Cedar Falls, IA....  ................
Cedar County.........................  IA..............    26980  Iowa City, IA...............  ................
Delaware County......................  IA..............    20220  Dubuque, IA.................  New.
Iowa County..........................  IA..............    26980  Iowa City, IA...............  New.

[[Page 28076]]

 
Jasper County........................  IA..............    19780  Des Moines-West Des Moines,   New.
                                                                   IA.
Franklin County......................  KS..............    28140  Kansas City, MO-KS..........  New.
Nelson County........................  KY..............    31140  Louisville/Jefferson County,  New.
                                                                   KY-IN.
Assumption Parish....................  LA..............    12940  Baton Rouge, LA.............  ................
Jefferson Davis Parish...............  LA..............    29340  Lake Charles, LA............  New.
St. Landry Parish....................  LA..............    29180  Lafayette, LA...............  New.
Oxford County........................  ME..............    30340  Lewiston-Auburn, ME.........  New.
Caroline County......................  MD..............    12580  Baltimore-Columbia-Towson,    New.
                                                                   MD.
Franklin County......................  MA..............    44140  Springfield, MA.............  New.
Allegan County.......................  MI..............    24340  Grand Rapids-Wyoming, MI....  ................
Ionia County.........................  MI..............    24340  Grand Rapids-Wyoming, MI....  New.
Lenawee County.......................  MI..............    11460  Ann Arbor, MI...............  New.
Newaygo County.......................  MI..............    24340  Grand Rapids-Wyoming, MI....  New.
Shiawassee County....................  MI..............    29620  Lansing-East Lansing, MI....  ................
Tuscola County.......................  MI..............    40980  Saginaw, MI.................  ................
Goodhue County.......................  MN..............    33460  Minneapolis-St. Paul-         New.
                                                                   Bloomington, MN-WI.
Meeker County........................  MN..............    33460  Minneapolis-St. Paul-         New.
                                                                   Bloomington, MN-WI.
Rice County..........................  MN..............    33460  Minneapolis-St. Paul-         New.
                                                                   Bloomington, MN-WI.
Pearl River County...................  MS..............    25060  Gulfport-Biloxi-Pascagoula,   ................
                                                                   MS.
Stone County.........................  MS..............    25060  Gulfport-Biloxi-Pascagoula,   New.
                                                                   MS.
Dade County..........................  MO..............    44180  Springfield, MO.............  ................
Otoe County..........................  NE..............    30700  Lincoln, NE.................  New.
Douglas County.......................  NV..............    16180  Carson City, NV.............  New.
Lyon County..........................  NV..............    16180  Carson City, NV.............  ................
Los Alamos County....................  NM..............    42140  Santa Fe, NM................  ................
Cayuga County........................  NY..............    45060  Syracuse, NY................  ................
Cortland County......................  NY..............    27060  Ithaca, NY..................  New.
Genesee County.......................  NY..............    40380  Rochester, NY...............  ................
Greene County........................  NY..............    10580  Albany-Schenectady-Troy, NY.  ................
Lewis County.........................  NY..............    48060  Watertown-Fort Drum, NY.....  New.
Montgomery County....................  NY..............    10580  Albany-Schenectady-Troy, NY.  New.
Schuyler County......................  NY..............    27060  Ithaca, NY..................  ................
Seneca County........................  NY..............    40380  Rochester, NY...............  New.
Camden County........................  NC..............    47260  Virginia Beach-Norfolk-       New.
                                                                   Newport News, VA-NC.
Caswell County.......................  NC..............    15500  Burlington, NC..............  ................
Granville County.....................  NC..............    20500  Durham-Chapel Hill, NC......  ................
Greene County........................  NC..............    24780  Greenville, NC..............  New.
Harnett County.......................  NC..............    39580  Raleigh, NC.................  ................
Polk County..........................  NC..............    43900  Spartanburg, SC.............  ................
Wilson County........................  NC..............    40580  Rocky Mount, NC.............  New.
Traill County........................  ND..............    24220  Grand Forks, ND-MN..........  New.
Ashtabula County.....................  OH..............    17460  Cleveland-Elyria, OH........  ................
Champaign County.....................  OH..............    44220  Springfield, OH.............  ................
Columbiana County....................  OH..............    49660  Youngstown-Warren-Boardman,   ................
                                                                   OH-PA.
Harrison County......................  OH..............    48260  Weirton-Steubenville, WV-OH.  New.
Preble County........................  OH..............    19380  Dayton, OH..................  New.
Clinton County.......................  PA..............    48700  Williamsport, PA............  ................
Fulton County........................  PA..............    25180  Hagerstown-Martinsburg, MD-   New.
                                                                   WV.
Greene County........................  PA..............    38300  Pittsburgh, PA..............  ................
Lawrence County......................  PA..............    38300  Pittsburgh, PA..............  New.
Schuylkill County....................  PA..............    39740  Reading, PA.................  ................
Susquehanna County...................  PA..............    13780  Binghamton, NY..............  ................
Adjuntas Municipio...................  PR..............    38660  Ponce, PR...................  New.
Coamo Municipio......................  PR..............    41980  San Juan-Carolina-Caguas, PR  New.
Las Mar[iacute]as Municipio..........  PR..............    32420  Mayag[uuml]ez, PR...........  New.
Maricao Municipio....................  PR..............    32420  Mayag[uuml]ez, PR...........  New.
Salinas Municipio....................  PR..............    25020  Guayama, PR.................  New.
Clarendon County.....................  SC..............    44940  Sumter, SC..................  ................
Colleton County......................  SC..............    16700  Charleston-North Charleston,  New.
                                                                   SC.
Lee County...........................  SC..............    44940  Sumter, SC..................  ................
Marion County........................  SC..............    22500  Florence, SC................  New.
Newberry County......................  SC..............    17900  Columbia, SC................  New.
Meigs County.........................  TN..............    17420  Cleveland, TN...............  ................
Blanco County........................  TX..............    12420  Austin-Round Rock, TX.......  New.
Bosque County........................  TX..............    47380  Waco, TX....................  ................
Calhoun County.......................  TX..............    47020  Victoria, TX................  New.
Fannin County........................  TX..............    19100  Dallas-Fort Worth-Arlington,  ................
                                                                   TX.
Grimes County........................  TX..............    17780  College Station-Bryan, TX...  ................
Harrison County......................  TX..............    30980  Longview, TX................  ................

[[Page 28077]]

 
Henderson County.....................  TX..............    46340  Tyler, TX...................  ................
Hill County..........................  TX..............    19100  Dallas-Fort Worth-Arlington,  New.
                                                                   TX.
Milam County.........................  TX..............    12420  Austin-Round Rock, TX.......  ................
Van Zandt County.....................  TX..............    19100  Dallas-Fort Worth-Arlington,  ................
                                                                   TX.
Willacy County.......................  TX..............    15180  Brownsville-Harlingen, TX...  ................
King and Queen County................  VA..............    40060  Richmond, VA................  New.
Louisa County........................  VA..............    40060  Richmond, VA................  New.
Madison County.......................  VA..............    16820  Charlottesville, VA.........  New.
Orange County........................  VA..............    47900  Washington-Arlington-         New.
                                                                   Alexandria, DC-VA-MD-WV.
Page County..........................  VA..............    25500  Harrisonburg, VA............  ................
Shenandoah County....................  VA..............    49020  Winchester, VA-WV...........  ................
Southampton County...................  VA..............    47260  Virginia Beach-Norfolk-       New.
                                                                   Newport News, VA-NC.
Surry County.........................  VA..............    47260  Virginia Beach-Norfolk-       New.
                                                                   Newport News, VA-NC.
Island County........................  WA..............    42660  Seattle-Tacoma-Bellevue, WA.  ................
Mason County.........................  WA..............    36500  Olympia-Tumwater, WA........  ................
Jackson County.......................  WV..............    16620  Charleston, WV..............  ................
Morgan County........................  WV..............    25180  Hagerstown-Martinsburg, MD-   New.
                                                                   WV.
Roane County.........................  WV..............    16620  Charleston, WV..............  ................
Green Lake County....................  WI..............    22540  Fond du Lac, WI.............  ................
Jefferson County.....................  WI..............    33340  Milwaukee-Waukesha-West       ................
                                                                   Allis, WI.
Walworth County......................  WI..............    33340  Milwaukee-Waukesha-West       ................
                                                                   Allis, WI.
----------------------------------------------------------------------------------------------------------------

a. Proposed New Lugar Areas for FY 2015
    Of the 127 qualifying counties identified as Lugar counties based 
on the new OMB delineations, 58 counties would be newly designated as 
Lugar for FY 2015 if we finalize our proposed adoption of the new OMB 
delineations. Hospitals in these counties, with at least 25 percent of 
their workers commuting to a higher wage area, effective October 1, 
2014, will be deemed to be located in the CBSA to which the highest 
number of their workers commute (which is identified in the column 
titled ``Lugar Designated CBSA'' in the table above). Hospitals in 
these counties would receive the reclassified urban wage index of the 
corresponding Lugar Designated CBSA, unless they choose to waive their 
Lugar status, as discussed later in this section.
    Some areas that are currently urban counties would be 
geographically rural if we adopted the new OMB delineations and would 
meet the requirements for redesignation as Lugar areas. As described in 
section III.B.2.e.(2) of the preamble of this proposed rule, we are 
proposing a 3-year hold harmless transitional wage index adjustment for 
hospitals located in urban counties that become rural under the new OMB 
delineations. Because Lugar status is a form of redesignation, 
hospitals that currently are located in urban counties that would 
become rural under the new OMB delineations and are also considered 
Lugar areas under the new OMB delineations would not be eligible for 
the 3-year transition wage index adjustment unless they choose to waive 
Lugar status for FY 2015 (as discussed later in this section) and seek 
no other form of wage index reclassification.
b. 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 this proposed rule (which is 
available via the Internet on the CMS Web site), affected hospitals may 
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 may withdraw from an MGCRB 
reclassification within 45 days of the publication of this FY 2015 
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.)
c. Rural Counties No Longer Meeting the Criteria To Be Redesignated as 
Lugar
    If we adopt the new OMB delineations, 29 rural counties would no 
longer meet the qualifying criteria to be redesignated as Lugar 
effective October 1, 2014, either because they would be geographically 
located in an urban area, or they would fail to meet the 25-percent 
cumulative out-migration threshold with application of the new 2010 
Census commuting data.
    Counties that were deemed urban under section 1886(d)(8)(B) of the 
Act in FY 2014, but would be geographically located in an urban area 
under the new OMB delineations for FY 2015 are:

Windham County, CT
Flagler County, FL
Walton County, FL
Morgan County, GA
Peach County, GA
De Witt County, IL
Allen County, KY
St. James Parrish, LA
Montcalm County, MI
Fillmore County, MN
Lincoln County, NC
Cotton County, OK
Linn County, OR
Adams County, PA
Monroe County, PA
Falls County, TX
Buckingham County, VA
Floyd County, VA
Green County, WI


[[Page 28078]]


    Counties that would fail to meet the 25-percent threshold in FY 
2015 are:

Banks County, GA
Hendry County, FL
Bingham County, ID
Oceana County, MI
Columbia County, NY
Sullivan County, NY
Wyoming County, NY
Oconee County, SC
Middlesex County, VA
Wahkiakum County, WA

    In section III.B.2.e.(2) of the preamble of this proposed rule, to 
help ease dramatic negative impacts in payment for hospitals designated 
as urban under the current FY 2014 OMB delineations, but would be 
classified as rural under the new OMB delineations, for FYs 2015, 2016, 
and 2017, assuming no other form of wage index reclassification or 
redesignation is granted, we are proposing to assign these hospitals 
the FY 2015 area wage index value of the urban CBSA to which they 
geographically belonged in FY 2014 (with the rural and imputed floors 
applied and with the rural floor budget neutrality adjustment applied 
to the area wage index). (For purposes of the wage index computation, 
the wage data of these hospitals would remain assigned to the statewide 
rural area in which they are located.) Similarly, we are proposing that 
the same 3-year transition apply to hospitals located in those counties 
that would lose their deemed urban designation under section 
1886(d)(8)(B) of the Act and would become rural if we adopt the new OMB 
delineations. Because these hospitals would, in fact, lose their 
designated urban status, we are proposing to extend the 3-year hold 
harmless transitional wage index adjustment to these hospitals located 
in counties formerly designated as urban under section 1886(d)(8)(B) of 
the Act. That is, for FYs 2015, 2016, and 2017, assuming no other form 
of wage index reclassification or redesignation is granted, we are 
proposing to assign these hospitals the FY 2015 area wage index value 
of the urban CBSA to which they were designated as urban in FY 2014 
(with the rural and imputed floors applied and with the rural floor 
budget neutrality adjustment applied). We are proposing to use the wage 
data from these hospitals as part of computing the rural wage index. In 
addition, during this 3-year transition period, these hospitals would 
be eligible to apply for reclassification by the MGCRB. As discussed in 
section III.B.2.e.(3) of the preamble of this proposed rule, we are 
proposing that if a hospital is currently located in an urban county 
that would become rural for FY 2015 under the new OMB delineations, and 
such hospital seeks and is granted any reclassification or 
redesignation during FYs 2015, 2016, or 2017, the hospital would 
permanently lose its 3-year transitional assigned wage index, and would 
not be able to reinstate it. Similarly, we are proposing that this 
policy also apply to hospitals located in those counties that would 
lose their deemed urban designation under section 1886(d)(8)(B) of the 
Act and would become rural if we adopt the new OMB delineations. In FY 
2018, we are proposing that these hospitals would receive their 
statewide rural wage index.
4. 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 IV.F. of the preamble of this proposed 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 45 days from the 
publication of the proposed rule) to waive its urban status for the 
full 3-year period for which its out-migration adjustment is effective. 
By doing so, 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 out-migration adjustment. Therefore, 
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. If the hospital does notify CMS that it is 
electing to return to its deemed urban status, it would again be 
treated as urban for all IPPS payment purposes.
    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.
5. Update of Application of Urban to Rural Reclassification Criteria
    Section 401(a) of the Medicare, Medicaid, and SCHIP Balanced Budget 
Refinement Act of 1999 (Pub. L. 106-113), which amended section 
1886(d)(8) of the Act by adding a new paragraph (E), directed the 
Secretary to treat any subsection (d) hospital located in an urban area 
as being located in the rural area of the State in which the hospital 
is located, providing that the hospital applied for reclassification in 
a manner determined by the Secretary and met certain criteria. As 
discussed in the FY 2001 interim final rule (65 FR 47029 through 
47031), we codified in regulation at Sec.  412.103 the application 
process and the qualifying criteria for any hospital seeking rural 
reclassification.
    In order to be approved for a rural reclassification, a hospital 
must meet one of three criteria. The first criterion, located at Sec.  
412.103(a)(1), qualifies a hospital located in a rural census tract of 
an MSA area, as determined under the most recent version of the 
Goldsmith Modification, the Rural-Urban Commuting Area (RUCA) codes. 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. 
These delineations are based on 2010 decennial Census data. Several 
modifications of RUCA codes were necessary to take into account updated 
commuting data and revised OMB delineations. We refer readers to the 
U.S. Department of Agriculture's Economic Research Service Web site for 
a detailed listing of updated RUCA codes found at: http://www.ers.usda.gov/data-products/rural-urban-commuting-area-codes.aspx. 
The updated RUCA code definitions were introduced in late 2013. As 
discussed at Sec.  412.103(f), the duration of an approved rural 
reclassification remains in effect without need for reapproval unless 
there is a change in the circumstances under which the

[[Page 28079]]

classification was approved. If a hospital located in an urban area was 
approved for a rural reclassification under Sec.  412.103(a)(1), that 
reclassification would no longer be valid if the hospital is no longer 
located within a rural census tract of an MSA defined as an RUCA. 
Therefore, we encourage all hospitals with active rural 
reclassifications under section 1886(d)(8)(E) of the Act to review 
their original reclassification application and determine whether the 
reclassification status would still apply. As discussed in section 
VI.C.2. of the preamble of this proposed rule, we are proposing a 2-
year grace period allowing affected CAHs additional time to seek a new 
rural reclassification without the threat of losing its CAH status. As 
discussed in section VI.C.2. of the preamble of this proposed rule, we 
are not proposing a grace period for other types of hospitals to seek a 
new rural reclassification. We note that rural reclassification status 
under Sec.  412.103 is effective as of the filing date of the 
application. Therefore, if the change in RUCA codes invalidates any 
hospital's rural reclassification status, we believe hospitals will 
have adequate time to apply for a new reclassification using an 
alternative qualification criterion specified at either Sec.  
412.103(a)(2) or Sec.  412.103(a)(3). A rural referral center (RRC) or 
a sole community hospital (SCH) that continues to meet the appropriate 
qualification criteria would, in itself, qualify for a rural 
reclassification. If a complete application is received before October 
1, 2014, and is approved by the CMS Regional Office, the hospital would 
experience no interruption in its rural status.

I. Proposed FY 2015 Wage Index Adjustment Based on Commuting Patterns 
of Hospital Employees

    In accordance with 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.
    When this provision was implemented for the FY 2005 wage index, we 
analyzed commuting data compiled by the U.S. Census Bureau which was 
derived from a special tabulation of the 2000 Census journey-to-work 
data for all industries (CMS extracted data applicable to hospitals). 
These data were compiled from responses to the ``long-form'' survey, 
which the Census Bureau used at the time, and it contained questions on 
where residents in each county worked (69 FR 49062). However, the 2010 
Census was ``short form'' only; therefore, this information was not 
collected as part of the 2010 Census. The Census Bureau is working with 
CMS to provide an alternative dataset based on the latest available 
data that is expected to meet our needs for developing a new out-
migration adjustment. We believe we will have the necessary time to 
obtain, review and analyze the data in order to propose new out-
migration adjustments based on new commuting patterns developed from 
the 2010 Census data beginning with FY 2016. Section 1886(d)(13)(B) of 
the Act requires the Secretary to use data the Secretary determines to 
be appropriate to establish the qualifying counties. The data used for 
the FY 2014 out-migration adjustment are the most recent data that have 
been analyzed, and we believe that these data are appropriate to 
establish the qualifying counties. Therefore, we are proposing that the 
FY 2015 out-migration adjustments continue to be based on the 2000 
Census data. We also are proposing that the FY 2015 out-migration 
adjustments continue to be based on the policies, procedures, and 
computation that were used for the FY 2014 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 proposed out-migration adjustments for the 
proposed FY 2015 wage index.
    Section 1886(d)(13)(F) of the Act states that ``[a] wage index 
increase under this paragraph shall be effective for a period of 3 
fiscal years, except that the Secretary shall establish procedures 
under which a subsection (d) hospital may elect to waive the 
application of such wage index increase.'' Therefore, for FY 2015, 
because we are proposing to continue to use the out-migration 
adjustment data used for FY 2014, consistent with the statute, we also 
are proposing to allow hospitals that qualified in FY 2013 or FY 2014 
to receive the out-migration adjustment based on the commuting data and 
the CBSA delineations used for FY 2014 to continue to receive the same 
out-migration adjustment for the remainder of their 3-year 
qualification period. Similarly, if a hospital qualifies for and opts 
to receive the out-migration adjustment for the first time in FY 2015, 
we also are proposing to allow that hospital to receive the out-
migration adjustment based on the data used for FY 2014 for FYs 2015, 
2016, and 2017. Accordingly, even if we propose to adopt new out-
migration adjustment data for FY 2016, as we believe we will be able to 
do, hospitals that are already receiving an out-migration adjustment 
beginning with a fiscal year prior to FY 2016 would still receive their 
out-migration adjustment based on the data used for FY 2014 for the 
years that remain of their 3-year qualification period in FY 2016 and 
after.
    We intend to address application of the FY 2016 out-migration 
adjustment in greater detail in the FY 2016 proposed rule. However, in 
this FY 2015 proposed rule, we are soliciting comments on how to 
implement the new out-migration adjustment data for FY 2016, given the 
statutory requirement at section 1886(d)(13)(F) of the Act that an out-
migration adjustment be effective for 3 fiscal years.
    As discussed in section III.B. of the preamble of this proposed 
rule, we are proposing to use OMB's new labor market area delineations 
based on the 2010 Census data to identify counties qualifying as Lugar 
counties for FY 2015. In section III.H.3 of the preamble of this 
proposed rule, we discuss hospitals located in rural counties that are 
deemed to be urban under section 1886(d)(8)(B) of the Act. These rural 
counties are known as ``Lugar'' counties. Under the new OMB 
delineations, there would be counties newly qualifying as Lugar as well 
as counties that were previously Lugar counties that would no longer 
meet the criteria to be redesignated as Lugar. As discussed in section 
III.H.4. of the preamble of this proposed rule, if a Lugar hospital 
qualifies for and accepts the out-migration adjustment, it must waive 
its deemed urban status and can do so for the 3-year period for which 
the out-migration adjustment is effective. Therefore, hospitals located 
in counties newly designated as Lugar due to the new OMB delineations 
would have the choice to either maintain their Lugar status or waive it 
in order to receive the out-migration adjustment in FY 2015 based on 
the out-migration adjustment data used for FY 2014.
    On the other hand, there are hospitals in counties deemed to be 
Lugar under

[[Page 28080]]

the previous CBSA delineations that waived their Lugar status for the 
out-migration adjustment, but are not Lugar under the new OMB 
delineations. These hospitals would continue to receive the out-
migration adjustment for the 3-year eligibility period through FY 2015 
or FY 2016. However, these hospitals that are located in urban counties 
under the new OMB delineations, and wish to continue to maintain their 
rural status effective October 1, 2014, must do so by reclassifying 
from urban to rural under Sec.  412.103. Section 1886(d)(13)(G) of the 
Act states that a hospital cannot simultaneously receive the out-
migration adjustment and be subject to a reclassification under section 
1886(d)(8) or 1886(d)(10) of the Act. Therefore, if such hospital is 
not located in a geographically rural area under the new OMB 
delineations, and reclassifies under Sec.  412.103 of the regulations 
in order to be treated as rural for IPPS purposes, the hospital would 
be ineligible to receive an out-migration adjustment, even if the 3-
year eligibility period has not expired.
    As discussed in section III.B.5. of the preamble of this proposed 
rule, we are proposing a 1-year blended wage index for any provider 
that experiences a decrease in wage index value due to the proposed 
implementation of the new OMB labor market area delineations. This 
proposal would create a wage index that is 50 percent of the wage index 
derived using the current FY 2014 OMB delineations, and 50 percent of 
the wage index based on the proposed new OMB delineations. As discussed 
in section III.B.2.e.(4) of the preamble of this proposed rule, we are 
proposing to apply this blended wage index value to any affected 
hospital in a budget neutral manner. However, we are proposing that 
hospitals receiving the out-migration adjustment would have it added to 
the result of the 50/50 blended wage index, after budget neutrality is 
applied. We are proposing the blended wage index transition adjustment 
specifically to address any negative impact that may be caused by the 
proposed adoption of the new OMB delineations in FY 2015. To 
specifically identify and address any such negative payment impact, we 
are proposing to apply the out-migration adjustment independent of the 
blended wage index and other wage index adjustments (for example, the 
rural floor) and related budget neutrality adjustments. This is 
consistent with our current policy to apply the out-migration 
adjustment after all other wage index adjustments and related budget 
neutrality adjustments have been applied. Therefore, we believe the 
out-migration adjustment would be properly applied as a supplemental 
addition to a hospital's final wage index value, similar to our 
treatment of hospitals receiving the frontier State floor value of 
1.00, as described under 42 CFR 412.64(m), that also qualify for an 
out-migration adjustment and would receive that adjustment.

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 2015 wage index were made 
available on September 13, 2013, 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-2015-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 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 September 16, 2013, we instructed all 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 
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 September 13, 2013 wage and occupational mix data files, the 
hospital was to submit corrections along with complete, detailed 
supporting documentation to its MAC by November 21, 2013. 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 September 16, 2013 memorandum referenced above.
    In the September 16, 2013 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 September, highlight the revised 
cells on its spreadsheet, and submit its spreadsheet(s) and complete 
documentation to its MAC no later than November 21, 2013.
    The MACs notified the hospitals by early-February 2014 of any 
changes to the wage index data as a result of the desk reviews and the 
resolution of the hospitals' late-November revision requests. The MACs 
also submitted the revised data to CMS by late January 2014. CMS 
published the proposed wage index public use files that included 
hospitals' revised wage index data on February 20, 2014. Hospitals had 
until March 3, 2014, to submit requests to the MACs for reconsideration 
of adjustments made by the MACs as a result of the desk review, and to 
correct errors due to CMS' or 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, MACs were 
required to transmit to CMS any additional revisions resulting from the 
hospitals' reconsideration requests by April 9, 2014. The deadline for 
a hospital to request CMS intervention in cases where the hospital 
disagreed with the MAC's policy interpretations was April 16, 2014. We 
note that, beginning with the FY 2015 wage index, per the FY 2015 wage 
index timeline posted on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf, the April appeals must be sent via mail and 
email. We refer readers to the wage index timeline for complete 
details.
    Upon release of this proposed rule, hospitals should examine Table 
2, which is listed in section VI. of the Addendum to this 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-2015-Wage-Index-Home-Page.html. Table 2 contains each hospital's proposed adjusted average 
hourly wage used to construct the wage index values for the past 3 
years, including the FY 2011 data used to construct the proposed FY 
2015 wage index. We note that the proposed hospital average hourly 
wages shown in

[[Page 28081]]

Table 2 only reflect changes made to a hospital's data that were 
transmitted to CMS by February 26, 2014.
    The final wage index data public use files are posted on May 2, 
2014 on the Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2015-Wage-Index-Home-Page.html. The May 2014 public use files are made available 
solely for the limited purpose of identifying any potential errors made 
by CMS or the MAC in the entry of the final wage index data that 
resulted from the correction process described above (revisions 
submitted to CMS by the MACs by April 9, 2014).
    After the release of the May 2014 wage index data files, changes to 
the wage and occupational mix data will only be made in those very 
limited situations involving an error by the MAC or CMS that the 
hospital could not have known about before its review of the final wage 
index data files. Specifically, neither the MAC nor CMS will approve 
the following types of requests:
     Requests for wage index data corrections that were 
submitted too late to be included in the data transmitted to CMS by the 
MACs on or before April 9, 2014.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 20, 
2014 wage index public use files.
     Requests to revisit factual determinations or policy 
interpretations made by the MAC or CMS during the wage index data 
correction process.
    If, after reviewing the May 2014 final public use files, a hospital 
believes that its wage or occupational mix data are incorrect due to a 
MAC or CMS error in the entry or tabulation of the final data, the 
hospital should notify both its MAC and CMS regarding why the hospital 
believes an error exists and provide all supporting information, 
including relevant dates (for example, when it first became aware of 
the error). The hospital is required to send its request to CMS and to 
the MAC no later than June 2, 2014. Similar to the April appeals, 
beginning with the FY 2015 wage index, in accordance with the FY 2015 
wage index timeline posted on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf, the June appeals must be sent via mail and 
email to CMS and the MACs. We refer readers to the wage index timeline 
for complete details. (We refer readers to section II.K. of the 
preamble to this proposed rule where we are proposing revisions to the 
wage index timetable.)
    Verified corrections to the wage index data received timely by CMS 
and the MACs (that is, by June 2, 2014) will be incorporated into the 
final wage index in the FY 2015 IPPS/LTCH PPS final rule, which will be 
effective October 1, 2014.
    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 2015 payment rates. Accordingly, 
hospitals that do not meet the procedural deadlines set forth above 
will not be afforded a later opportunity to submit wage index data 
corrections or to dispute the 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 PRRB, 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 MAC's attention. Moreover, 
because hospitals have access to the final wage index data by early May 
2014, they have the opportunity to detect any data entry or tabulation 
errors made by the MAC or CMS before the development and publication of 
the final FY 2015 wage index by August 2014, and the implementation of 
the FY 2015 wage index on October 1, 2014. 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 2, 2014, 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 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 2, 2014 for the 
FY 2015 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 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 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 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 2, 2014 deadline for the 
FY 2015 wage index); and (3) CMS agreed before October 1 that 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 2, 2014 deadline for the FY 2015 wage index), and CMS 
acknowledges that the error in the hospital's wage index data was 
caused by CMS' or 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

[[Page 28082]]

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. Notice of Change to Wage Index Development Timetable

    As explained in section III.J. the preamble of this proposed rule, 
the preliminary, unaudited Worksheet S-3 wage data and occupational mix 
survey data files for the proposed FY 2015 wage index were made 
available on September 13, 2013, through the Internet on the CMS Web 
site. The posting of these preliminary files initiate what is virtually 
a year-long cycle for developing the wage index associated with the 
following IPPS fiscal year. This lengthy, almost year-long cycle is 
unique to the development of the IPPS wage index, and occurs 
independently from the development of the IPPS proposed and final 
rules, which typically are published in the spring and summer each 
year. In addition, the wage index, which is based on hospitals' wage 
data reported on Worksheets S-3, Parts II and III of the Form CMS-2552-
10 of the Medicare cost report and occupational mix data, is the only 
portion of the IPPS that historically has been subject to its own 
annual review process, first by the MACs, and then by CMS, followed by 
distinct opportunities for hospitals to appeal decisions made by the 
MACs or CMS. This process is separate and independent from the standard 
cost report settlement and appeals processes established under the 
regulations at 42 CFR 405.1800 through 405.1889.
    Although this unique wage index development timetable has been in 
place since the early days of the IPPS, the current timetable is rooted 
in changes adopted in the FY 1998 IPPS final rule with comment period 
(62 FR 45990 through 45993). However, with numerous legislative and 
regulatory changes made to the IPPS since FY 1998, the demands on 
hospitals, MACs, and CMS have increased substantially. As a result, it 
has become increasingly challenging for wage index stakeholders to 
manage the wage index timetable with competing priorities. For the FY 
2015 wage index, CMS made slight changes to the wage index development 
timetable, by posting the preliminary public use file (PUF) in 
September 2013 rather than in October 2013, which, in turn, moved back 
the deadline for hospitals to request revisions to the data displayed 
in that preliminary PUF to November 2013, instead of December 2013. In 
addition, the date for the MACs to complete desk reviews on that data 
was similarly moved to a slightly earlier deadline in early CY 2014. 
The FY 2015 Wage Index Development Timetable, which is posted on the 
CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf, shows that 
hospitals have a little more than 2 months to request revisions to 
their data displayed in the September 13, 2013 preliminary PUF, until 
the commencement of the desk review process by the MACs on November 21, 
2013. The MACs also have a little more than 2 months to complete the 
desk reviews and submit revised cost report data to CMS by January 29, 
2014. Less than a month later, on February 20, 2014, the revised FY 
2015 wage index and occupational mix PUFs were posted on the CMS Web 
site. Ensuring the accuracy of the February PUF is extremely important 
and beneficial to hospitals because, as the timetable shows, it is the 
basis for hospitals to appeal data that are incorrect, with March 3, 
2014 being the last date that hospitals can request revisions to errors 
in the February 20, 2014 PUF.
    Therefore, we have concluded that steps should be taken to improve 
the accuracy of the February PUF, most importantly by proposing changes 
to the wage index timetables for future IPPS fiscal years that are much 
more significant and fundamental than the slight revisions to the 
timetable implemented for FY 2015. We believe that the changes we are 
proposing below would not only improve the accuracy of the February 
PUF, but also would reduce the number of hospital appeals based on the 
February PUF. For example, as specified below, instead of the current 
timetable which only provides CMS with less than a month to review the 
MACs' desk reviews and prepare the February PUF, we are proposing 
approximately 3 months between the date that the MACs' desk reviews 
would end and the date that CMS would post the subsequent PUF. To allow 
hospitals and MACs adequate time to prepare for the changes to the wage 
index development timetable, we are proposing to make the following 
significant changes beginning with the FY 2017 wage index cycle. We are 
listing the proposed changes for FY 2017 below in a table side by side 
with the existing timetable, so that commenters may read the proposed 
changes in the context of the existing timetable. Under the proposed 
changes for FY 2017, although we are not providing exact dates for the 
FY 2017 wage index timetable, we note that, with every change listed 
below, we intend to provide hospitals and MACs with the same or 
somewhat more time than under the current timetable to complete reviews 
and request revisions. The proposed revisions would not reduce the 
amount of time that either hospitals or MACs have to review wage data. 
Therefore, these proposed changes would not result in additional work 
on the part of the hospitals or MACs; in fact, in shifting the various 
dates, we expect that more time would be provided to hospitals, MACs, 
and CMS to ensure an even more accurate wage index.

----------------------------------------------------------------------------------------------------------------
                 Deadlines                      FY 2015 Timetable             Proposed FY 2017 timetable
----------------------------------------------------------------------------------------------------------------
Posting of Preliminary PUF on CMS Web site  September 13, 2013......  Mid May 2015.
Deadline for Hospitals to Request           November 21, 2013.......  Early August 2015.
 Revisions to Preliminary PUF.
Deadline for MACs to Complete Desk Reviews  January 29, 2014........  Mid-October 2015.
Posting of February PUF on CMS Web site...  February 20, 2014.......  Late January 2016.
Deadline Following Posting of February PUF  March 3, 2014...........  Mid-February 2016.
 for Hospitals to Request Revisions.
Completion of Appeals by MACs and           April 9, 2014...........  Mid- to Late March 2016.
 Transmission of Final Wage Data to CMS.
Deadline for Hospitals to Appeal in April.  April 16, 2014..........  Early April 2016.
Posting of Final Rule PUF.................  May 2, 2014.............  Late April 2016.
Deadline for Hospitals to Appeal in June..  June 2, 2014............  Late May 2016.
Expected Issuance of IPPS final rule......  August 1, 2014..........  August 1, 2016.
----------------------------------------------------------------------------------------------------------------


[[Page 28083]]

    With regard to the FY 2016 wage index cycle, we believe it can 
serve as a transition to the more significant changes we are proposing 
for the FY 2017 wage index cycle. We believe that there are steps we 
can take to improve the accuracy of the February 2016 PUF by building 
in more time to the FY 2016 wage index review process as well. 
Specifically, we are notifying hospitals of changes to the deadlines 
only in the beginning of the FY 2016 wage index timetable, as a 
transition to the more significant proposed changes for the entire FY 
2017 wage index timetable. That is, for FY 2016, we are only changing 
the following four dates: the posting of the preliminary wage index 
PUF; the posting of the CY 2013 occupational mix survey data 
preliminary PUF; the deadline for hospitals to request revisions to the 
wage data and occupational mix data preliminary PUFs; and the deadline 
for MACs to complete the desk reviews. We are not changing the 
remainder of the FY 2016 timetable at this time. We expect that making 
these changes for the FY 2016 timetable would improve the accuracy of 
the February 2016 PUF, and also mitigate the number of hospital appeals 
based on the February 2016 PUF. In addition, we believe these changes 
would help hospitals, MACs, and CMS adjust to the more significant 
timeline changes proposed for FY 2017. We are listing only the changes 
for FY 2016 in the following table side by side with the existing FY 
2015 timetable, so that commenters may read the FY 2016 changes in the 
context of the existing timetable. We are not listing dates that would 
remain unchanged for FY 2016.

----------------------------------------------------------------------------------------------------------------
                 Deadlines                      FY 2015 Timetable             Adjusted FY 2016 timetable
----------------------------------------------------------------------------------------------------------------
Posting of Preliminary Wage Data PUF on     September 13, 2013......  Late May 2014.
 CMS Web site.
Posting of Preliminary CY 2013              September 13, 2013......  Early to Mid-July 2014.
 Occupational Mix Data PUF on CMS Web site.
Deadline for Hospitals to Request           November 21, 2013.......  Early October 2014.
 Revisions to Preliminary PUF.
Deadline for MACs to Complete Desk Reviews  January 29, 2014........  Mid-December 2014.
----------------------------------------------------------------------------------------------------------------

    Typically, the preliminary PUF initiating the start of an IPPS wage 
index fiscal year contains one spreadsheet with the Worksheet S-3 wage 
data for the applicable fiscal year on one tab, and another tab with 
the preliminary occupational mix data for that fiscal year. For the FY 
2016 wage index, new occupational mix survey data will be available for 
use, based on the CY 2013 occupational mix survey. Hospitals are 
required to submit their CY 2013 occupational mix surveys to their MACs 
no later than July 1, 2014. Therefore, we will not have the preliminary 
CY 2013 occupational mix survey data in time to post it simultaneously 
in late May 2014 with the preliminary FY 2016 wage data. Accordingly, 
as the table above indicates, we would post the preliminary FY 2016 
wage data by itself first in late May 2014, to be followed by a 
separate posting of the preliminary CY 2013 occupational mix survey 
data when the data are available, in early to mid-July 2014.
    We are inviting public comments on our proposals set forth above to 
make revisions to the wage index timetables for FY 2017.

L. Labor-Related Share for the FY 2015 Wage Index

    Section 1886(d)(3)(E) of the Act directs the Secretary to adjust 
the proportion of the national prospective payment system base payment 
rates that are attributable to wages and wage-related costs by a factor 
that reflects the relative differences in labor costs among geographic 
areas. It also directs the Secretary to estimate from time to time the 
proportion of hospital costs that are labor-related: ``The Secretary 
shall adjust the proportion (as estimated by the Secretary from time to 
time) of hospitals' costs which are attributable to wages and wage-
related costs of the DRG prospective payment rates. . . .'' We refer to 
the portion of hospital costs attributable to wages and wage-related 
costs as the labor-related share. The labor-related share of the 
prospective payment rate is adjusted by an index of relative labor 
costs, which is referred to as the wage index.
    Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of 
the Act to provide that the Secretary must employ 62 percent as the 
labor-related share unless this ``would result in lower payments to a 
hospital than would otherwise be made.'' However, this provision of 
Public Law 108-173 did not change the legal requirement that the 
Secretary estimate ``from time to time'' the proportion of hospitals' 
costs that are ``attributable to wages and wage-related costs.'' 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 resulted in a higher 
payment.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50596 through 
50607), we rebased and revised the hospital market basket. We 
established a FY 2010-based IPPS hospital market basket to replace the 
FY 2006-based IPPS hospital market basket, effective October 1, 2013. 
In that final rule, we presented our analysis and conclusions regarding 
the frequency and methodology for updating the labor-related share for 
FY 2014. Using the FY 2010-based IPPS market basket, we finalized a 
labor-related share for FY 2014 of 69.6 percent. In addition, we 
implemented this revised and rebased labor-related share in a budget 
neutral manner, but consistent with section 1886(d)(3)(E) of the Act, 
we did not take into account the additional payments that would be made 
as a result of hospitals with a wage index less than or equal to 1.0 
being paid using a labor-related share lower than the labor-related 
share of hospitals with a wage index greater than 1.0.
    The labor-related share is used to determine the proportion of the 
national IPPS base payment rate to which the area wage index is 
applied. In this FY 2015 proposed rule, we are not proposing to make 
any further changes to 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.
    Therefore, for FY 2015, we are proposing to continue to use a 
labor-related share of 69.6 percent for discharges occurring on or 
after October 1, 2014. Tables 1A and 1B, which are published in section 
VI. of the Addendum to this proposed rule and available via the 
Internet, reflect this proposed labor-related share. For FY 2015, for 
all IPPS hospitals whose wage indexes are less than or equal to 1.0000, 
we are proposing to apply the wage index to a labor-related share of 62 
percent of the national standardized amount. For all IPPS hospitals 
whose wage indexes are greater than 1.0000, for FY 2015, we are 
proposing to apply the wage index to a proposed labor-

[[Page 28084]]

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 2014 IPPS/LTCH PPS final rule (78 FR 50601 through 
50603), we also rebased and revised the labor-related share for the 
Puerto Rico-specific standardized amounts using FY 2010 as a base year. 
We finalized a labor-related share for the Puerto Rico-specific 
standardized amounts for FY 2014 of 63.2 percent. In this FY 2015 
proposed rule, we are not proposing to make any further changes to the 
Puerto Rico specific 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. 
Therefore, for FY 2015, we are proposing to continue to use a labor-
related share for the Puerto Rico-specific standardized amounts of 63.2 
percent for discharges occurring on or after October 1, 2014. 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 2015, we are proposing to adopt that the 
labor-related share of a hospital's Puerto Rico-specific rate would 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 2015, we are proposing to 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 would result in higher 
payments. Conversely, a hospital with a Puerto Rico-specific wage index 
of less than or equal to 1.0 for FY 2015 would 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 would result in 
higher payments. The proposed Puerto Rico labor-related share of 63.2 
percent for FY 2015 is reflected in Table 1C, which is published in 
section VI. of the Addendum to this proposed rule and available via the 
Internet.

IV. Other Decisions and Proposed Changes to the IPPS for Operating 
Costs and Graduate Medical Education (GME) Costs

A. Proposed Changes to MS-DRGs Subject to the Postacute Care Transfer 
Policy (Sec.  412.4)

1. Background
    Existing regulations at Sec.  412.4(a) define discharges under the 
IPPS as situations in which a patient is formally released from an 
acute care hospital or dies in the hospital. Section 412.4(b) defines 
acute care transfers, and Sec.  412.4(c) defines postacute care 
transfers. Our policy, set forth in Sec.  412(f), provides that when a 
patient is transferred and his or her length of stay is less than the 
geometric mean length of stay for the MS-DRG to which the case is 
assigned, the transferring hospital is generally paid based on a 
graduated per diem rate for each day of stay, not to exceed the full 
MS-DRG payment that would have been made if the patient had been 
discharged without being transferred.
    The per diem rate paid to a transferring hospital is calculated by 
dividing the full DRG payment by the geometric mean length of stay for 
the MS-DRG. Based on an analysis that showed that the first day of 
hospitalization is the most expensive (60 FR 45804), our policy 
generally provides for payment that is twice the per diem amount for 
the first day, with each subsequent day paid at the per diem amount up 
to the full MS-DRG payment (Sec.  412.4(f)(1)). Transfer cases are also 
eligible for outlier payments. In general, the outlier threshold for 
transfer cases, as described in Sec.  412.80(b), is equal to the fixed-
loss outlier threshold for nontransfer cases (adjusted for geographic 
variations in costs), divided by the geometric mean length of stay for 
the MS-DRG, and multiplied by the length of stay for the case, plus one 
day.
    We established the criteria set forth in Sec.  412.4(d) for 
determining which DRGs qualify for postacute care transfer payments in 
the FY 2006 IPPS final rule (70 FR 47419 through 47420). The 
determination of whether a DRG is subject to the postacute care 
transfer policy was initially based on the Medicare Version 23.0 
GROUPER (FY 2006) and data from the FY 2004 MedPAR file. However, if a 
DRG did not exist in Version 23.0 or a DRG included in Version 23.0 is 
revised, we use the current version of the Medicare GROUPER and the 
most recent complete year of MedPAR data to determine if the DRG is 
subject to the postacute care transfer policy. Specifically, if the MS-
DRG's total number of discharges to postacute care equals or exceeds 
the 55th percentile for all MS-DRGs and the proportion of short-stay 
discharges to postacute care to total discharges in the MS-DRG exceeds 
the 55th percentile for all MS-DRGs, CMS will apply the postacute care 
transfer policy to that MS-DRG and to any other MS-DRG that shares the 
same base MS-DRG. In the preamble to the FY 2006 IPPS final rule (70 FR 
47419), we stated that ``we will not revise the list of DRGs subject to 
the postacute care transfer policy annually unless we are making a 
change to a specific DRG.''
    To account for MS-DRGs subject to the postacute care transfer 
policy that exhibit exceptionally higher shares of costs very early in 
the hospital stay, Sec.  412.4(f) also includes a special payment 
methodology. For these MS-DRGs, hospitals receive 50 percent of the 
full MS-DRG payment, plus the single per diem payment, for the first 
day of the stay, as well as a per diem payment for subsequent days (up 
to the full MS-DRG payment (Sec.  412.4(f)(6)). For an MS-DRG to 
qualify for the special payment methodology, the geometric mean length 
of stay must be greater than 4 days, and the average charges of 1-day 
discharge cases in the MS-DRG must be at least 50 percent of the 
average charges for all cases within the MS-DRG. MS-DRGs that are part 
of an MS-DRG group will qualify under the DRG special payment policy if 
any one of the MS-DRGs that share that same base MS-DRG qualifies 
(Sec.  412.4(f)(6)).
2. Proposed Changes to the Postacute Care Transfer MS-DRGs
    Based on our annual review of MS-DRGs, we have identified a number 
of MS-DRGs that should be included on the list of MS-DRGs subject to 
the postacute care transfer policy. As we discuss in section II.G. of 
this proposed rule, in response to public comments and based on our 
analysis of FY 2013 MedPAR claims data, we are proposing to make 
several changes to MS-DRGs to better capture certain severity of 
illness levels, to be effective for FY 2015. Specifically, we are 
proposing to modify the assignment of endovascular cardiac valve 
replacements currently assigned to MS-DRGs 216 (Cardiac Valve & Other 
Major Cardiothoracic Procedures with Cardiac Catheterization with MCC), 
217 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac 
Catheterization with CC), 218 (Cardiac Valve & Other Major 
Cardiothoracic Procedures with Cardiac Catheterization without CC/MCC), 
219 (Cardiac Valve & Other Major Cardiothoracic Procedures

[[Page 28085]]

without Cardiac Catheterization with MCC), 220 (Cardiac Valve & Other 
Major Cardiothoracic Procedures without Cardiac Catheterization with 
CC), and 221 (Cardiac Valve & Other Major Cardiothoracic Procedures 
without Cardiac Catheterization without CC/MCC) to MS-DRGs 266 and 267 
(Endovascular Cardiac Valve Replacement with and without MCC, 
respectively) to better reflect the differences in patients receiving 
endovascular cardiac valve replacements from patients who undergo an 
open chest cardiac valve replacement. We also are proposing to further 
refine back and neck procedures currently assigned to MS-DRGs 490 and 
491 (Back & Neck Procedure Except Spinal Fusion with CC/MCC or Disc 
Device/Neurostimulator and without CC/MCC or Disc Device/
Neurostimulator, respectively) into additional severity levels, now 
identified as MS-DRGs 518, 519, and 520 (Back & Neck Procedure Except 
Spinal Fusion with MCC or Disc Device/Neurostimulator, with CC, and 
without MCC/CC, respectively). Finally, we are proposing to remove the 
severity levels for reverse shoulder replacements, merging MS-DRGs 483 
and 484 (Major Joint & Limb Reattachment Procedure of Upper Extremity 
with CC/MCC and without CC/MCC, respectively) into MS-DRG 483 (Major 
Joint/Limb Reattachment Procedure of Upper Extremities). A discussion 
of these proposed changes can be found in section II.G.4.c., II.G.5.c. 
and II.G.5.a., respectively, of the preamble of this proposed rule.
    In light of these proposed changes to the MS-DRGs, according to the 
regulations under Sec.  412.4(c), we evaluated these proposed FY 2015 
MS-DRGs against the general postacute care transfer policy criteria 
using the FY 2013 MedPAR data. If an MS-DRG qualified for the postacute 
care transfer policy, we also evaluated that MS-DRG under the special 
payment methodology criteria according to regulations at Sec.  
412.4(f)(6). We continue believe it is appropriate to reassess MS-DRGs 
when proposing reassignment of diagnostic codes that would result in 
material changes to an MS-DRG. As a result of our review, we found that 
MS-DRGs 216 through 221 would require no revisions in postacute care 
transfer or special payment policy status. However, we are proposing to 
update the list of MS-DRGs that are subject to the postacute care 
transfer policy to include the proposed new MS-DRGs 266, 267, 518, 519, 
and 520. (These MS-DRGs are reflected in Table 5, which is listed in 
section VI. of the Addendum to this proposed rule and available via the 
Internet on the CMS Web site, and also are listed in the charts at the 
end of this section.)
    In addition, based on our evaluation of the proposed FY 2015 MS-
DRGs using the FY 2013 Med PAR data, we have determined that proposed 
revised MS-DRG 483 would no longer meet the postacute care transfer 
criteria. Therefore, we are proposing that it be removed from the list 
of MS-DRGs subject to the postacute care transfer policy, effective FY 
2015. We refer readers to the asterisk (*) bolded text in the following 
table for which criterion was not met in our analysis for each MS-DRG 
removed from the postacute care transfer policy list.

                                   List of MS-DRGs That Would Change Postacute Care Transfer Policy Status in FY 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   Percent of short-
                                                                                                                    stay postacute
                                                                                Postacute care                      care transfers
                                                                                transfers (55th     Short-stay       to all cases     Postacute transfer
            MS-DRG                      MS-DRG Title            Total cases       percentile:     postacute care         (55th          policy status
                                                                                    1,471)           transfers        percentile:
                                                                                                                       7.9060%)
                                                                                                                       (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
266...........................  Endovascular Cardiac Valve.             4,086             2,851             1,030             25.21  YES.
                                Replacement with MCC.......
267...........................  Endovascular Cardiac Valve              4,476             2,800               835             18.66  YES.
                                 Replacement w/o MCC.
483...........................  Major Joint/Limb                       41,372            17,289             2,271            * 5.49  NO.
                                 Reattachment Procedure of
                                 Upper Extremities.
518...........................  Back & Neck Procedure                   3,844             2,136               412             10.72  YES.
                                 Except Spinal Fusion with
                                 MCC or Disc Device/
                                 Neurostimulator.
519...........................  Back & Neck Procedure                  15,238             7,405             1,126            * 7.39  YES.**
                                 Except Spinal Fusion with
                                 CC.
520...........................  Back & Neck Procedure                  31,792             7,859                 0            * 0.00  YES.**
                                 Except Spinal Fusion
                                 without CC/MCC).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Indicates a current postacute care transfer policy criterion that the MS-DRG did not meet.
** As described in the policy at 42 CFR 412.4(d)(3)(ii)(D), MS-DRGs that share the same base MS-DRG will all qualify under the postacute care transfer
  policy if any one of the MS-DRGs that share that same base MS-DRG qualifies.

    Finally, we have determined that MS-DRGs 266, 267, 518, 519, and 
520 also would meet the criteria for the special payment methodology. 
Therefore, we are proposing that they would be subject to the MS-DRG 
special payment methodology, effective FY 2015.

                                     List of MS-DRGs That Would Change DRG Special Payment Policy Status in FY 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               50% of average
                                                                       Geometric mean    Average charges of    charges for all      Special pay policy
              MS-DRG                          MS-DRG Title             length of stay     1-day discharges    cases within MS-            status
                                                                                                                     DRG
--------------------------------------------------------------------------------------------------------------------------------------------------------
266...............................  Endovascular Cardiac Valve                   8.3643             $42,081            $126,326  YES.*
                                     Replacement with MCC.

[[Page 28086]]

 
267...............................  Endovascular Cardiac Valve                   5.0271             128,013              95,141  YES.
                                     Replacement without MCC.
518...............................  Back & Neck Procedure Except                 4.2882              68,515              43,514  YES.
                                     Spinal Fusion with MCC or Disc
                                     Device/Neurostimulator.
519...............................  Back & Neck Procedure Except                 3.0507                   0                   0  YES.*
                                     Spinal Fusion with CC.
520...............................  Back & Neck Procedure Except                 1.7315                   0                   0  YES.*
                                     Spinal Fusion without CC/MCC.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* As described in the policy at 42 CFR 412.4(d)(6)(iv), MS-DRGs that share the same base MS-DRG will all qualify under the DRG special payment policy if
  any one of the MS-DRGs that share that same base MS-DRG qualifies.

B. Proposed Changes in the Inpatient Hospital Update for FY 2015 (Sec.  
412.64(d))

1. Proposed FY 2015 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.'' In FY 
2014, consistent with section 1886(b)(3)(B) of the Act, as amended by 
sections 3401(a) and 10319(a) of the Affordable Care Act, we set the 
applicable percentage increase under the IPPS by applying the following 
adjustments in the following sequence. Specifically, the applicable 
percentage increase under the IPPS is 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 as required by section 
1886(b)(3)(B)(xii) of the Act. 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.
    For FY 2015, there are three statutory changes to the applicable 
percentage increase compared to FY 2014. First, under section 
1886(b)(3)(B)(viii) of the Act, beginning with FY 2015, the reduction 
in the applicable percentage increase for hospitals that fail to submit 
quality information under rules established by the Secretary is one-
quarter of the applicable percentage increase (prior to the application 
of statutory adjustments under sections 1886(b)(3)(B)(ix), 
1886(b)(3)(B)(xi), and 1886(b)(3)(B)(xii) of the Act) or one-quarter of 
the applicable market basket update. For FY 2014, the reduction to the 
applicable percentage increase for hospitals that failed to submit 
quality information under rules established by the Secretary was 2.0 
percentage points. Second, beginning with FY 2015, section 
1886(b)(3)(B)(ix) requires that any hospital that is not a meaningful 
electronic health record (EHR) user (as defined in section1886(n)(3) of 
the Act and not subject to an exception under section1886(b)(3)(B)(ix) 
of the Act)) will have ``three-quarters'' of the applicable percentage 
increase (prior to the application of statutory adjustments under 
sections 1886(b)(3)(B)(viii), 1886(b)(3)(B)(xi), and 1886(b)(3)(B)(xii) 
of the Act), or three-quarters of the applicable market basket update, 
reduced by 33\1/3\ percent. The reduction to three-quarters of the 
applicable percentage increase for those hospitals that are not 
meaningful EHR users increases to 66\2/3\ percent for FY 2016, and, for 
FY 2017 and subsequent fiscal years, to 100 percent. Third, for FY 
2015, section 1886(b)(3)(B)(xii) of the Act applies an additional 
reduction of 0.2 percentage point compared to 0.3 percentage point for 
FY 2014.
    To summarize, for FY 2015, consistent with section 1886(b)(3)(B) of 
the Act, as amended by sections 3401(a) and 10319(a) of the Affordable 
Care Act, we are setting the applicable percentage increase by applying 
the following adjustments in the following sequence. Specifically, the 
applicable percentage increase under the IPPS is equal to the rate-of-
increase in the hospital market basket for IPPS hospitals in all areas, 
subject to a reduction of one-quarter of the applicable percentage 
increase (prior to the application of other statutory adjustments; also 
referred to as the market basket update or rate-of-increase (with no 
adjustments)) for hospitals that fail to submit quality information 
under rules established by the Secretary in accordance with section 
1886(b)(3)(B)(viii) of the Act and a 33\1/3\ percent reduction to 
three-fourths of the applicable percentage increase (prior to the 
application of other statutory adjustments; also referred to as the 
market basket update or rate-of-increase (with no adjustments)) for 
hospitals not considered to be meaningful EHR users in accordance with 
section 1886(b)(3)(B)(ix) 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 0.2 
percentage point as required by section 1886(b)(3)(B)(xii) of the Act. 
As noted previously, 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 2015 
adjustment of 0.2 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 the FY 
2014 IPPS/LTCH PPS final rule, we replaced 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 
are proposing to continue to use the FY 2010-based IPPS operating and 
capital market baskets for FY 2015. We also are proposing to continue 
to use a labor-related share that is reflective of the FY 2010 base 
year. For FY 2015, we are proposing to continue using the labor-related 
share of 69.6 percent, which is based on the FY 2010-based IPPS market 
basket.
    Based on the most recent data available for this FY 2015 proposed 
rule, in accordance with section 1886(b)(3)(B) of the Act, we are

[[Page 28087]]

proposing to base the proposed FY 2015 market basket update used to 
determine the applicable percentage increase for the IPPS on IHS Global 
Insight, Inc.'s (IGI's) first quarter 2014 forecast of the FY 2010-
based IPPS market basket rate-of-increase with historical data through 
fourth quarter 2013, which is estimated to be 2.7 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. For FY 2015, we are not proposing to make any change in 
our methodology for calculating and applying the MFP adjustment. For FY 
2015, we are proposing a MFP adjustment of -0.4 percentage point. 
Similar to the market basket adjustment, for this proposed rule, we 
used the most recent data available to compute the MFP adjustment.
    For FY 2015, depending on whether a hospital submits quality data 
under the rules established in accordance with section 
1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital 
that submits quality data) and is a meaningful EHR user under section 
1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that 
is a meaningful EHR user), there are four possible applicable 
percentage increases that can be applied to the standardized amount. 
Below we discuss these four options.
     For a hospital that submits quality data and is a 
meaningful EHR user, we are proposing an applicable percentage increase 
to the FY 2015 operating standardized amount of 2.1 percent (that is, 
the FY 2015 estimate of the market basket rate-of-increase of 2.7 
percent less an adjustment of 0.4 percentage point for economy-wide 
productivity (that is, the MFP adjustment) and less 0.2 percentage 
point).
     For a hospitals that submits quality data and is not a 
meaningful EHR user, we are proposing an applicable percentage increase 
to the operating standardized amount of 1.425 percent (that is, the FY 
2015 estimate of the market basket rate-of-increase of 2.7 percent, 
less an adjustment of 0.675 percentage point (the market basket rate-
of-increase of 2.7 percent x 0.75)/3) for failure to be a meaningful 
EHR user, less an adjustment of 0.4 percentage point for the MFP 
adjustment, and less an additional adjustment of 0.2 percentage point).
     For a hospital that does not submit quality data and is a 
meaningful EHR user, we are proposing an applicable percentage increase 
to the operating standardized amount of 1.425 percent (that is, the FY 
2015 estimate of the market basket rate-of-increase of 2.7 percent, 
less an adjustment of 0.675 percentage point (the market basket rate-
of-increase of 2.7 percent/4) for failure to submit quality data, less 
an adjustment of 0.4 percentage point for the MFP adjustment, and less 
an additional adjustment of 0.2 percentage point).
     For a hospital that does not submit quality data and is 
not a meaningful EHR user, we are proposing an applicable percentage 
increase to the operating standardized amount of 0.75 percent (that is, 
the FY 2015 estimate of the market basket rate-of-increase of 2.7 
percent, less an adjustment of 0.675 percentage point (the market 
basket rate-of-increase of 2.7 percent/4) for failure to submit quality 
data, less an adjustment of 0.675 percentage point (the market basket 
rate-of-increase of 2.7 percent x 0.75)/3) for failure to be a 
meaningful EHR user, less an adjustment of 0.4 percentage point for the 
MFP adjustment, and less an additional adjustment of 0.2 percentage 
point).
    If more recent data become subsequently available (for example, a 
more recent estimate of the market basket and the MFP adjustment), we 
are proposing to use such data, if appropriate, to determine the FY 
2015 market basket update and MFP adjustment in the final rule. Below 
we provide a table summarizing the four proposed applicable percentage 
increases.

----------------------------------------------------------------------------------------------------------------
                                                      Hospital submitted   Hospital did NOT    Hospital did NOT
                                  Hospital submitted    quality data and    submit quality      submit quality
             FY 2015               quality data and        is NOT a          data and is a     data and is NOT a
                                    is a meaningful     meaningful EHR      meaningful EHR      meaningful EHR
                                       EHR user              user                user                user
----------------------------------------------------------------------------------------------------------------
Market Basket                                    2.7                 2.7                 2.7                 2.7
 Rate[dash]of[dash]Increase.....
Adjustment for Failure to Submit                 0.0                 0.0              -0.675              -0.675
 Quality Data under Section
 1886(b)(3)(B)(viii) of the Act.
Adjustment for Failure to be a                   0.0              -0.675                 0.0              -0.675
 Meaningful EHR User under
 Section 1886(b)(3)(B)(ix) of
 the Act........................
MFP Adjustment under Section                    -0.4                -0.4                -0.4                -0.4
 1886(b)(3)(B)(xi) of the Act...
Statutory Adjustment under                      -0.2                -0.2                -0.2                -0.2
 Section 1886(b)(3)(B)(xii) of
 the Act........................
                                 -------------------------------------------------------------------------------
    Proposed Applicable                          2.1               1.425               1.425                0.75
     Percentage Increase Applied
     to Standardized Amount.....
----------------------------------------------------------------------------------------------------------------

    We are proposing to revise the existing regulations at 42 CFR 
412.64(d) to reflect the current law for the FY 2015 update. 
Specifically, in accordance with section 1886(b)(3)(B) of the Act, we 
are proposing to add a new paragraph (vi) to Sec.  412.64(d)(1) to 
reflect the applicable percentage increase to the FY 2015 operating 
standardized amount as the percentage increase in the market basket 
index, subject to a reduction of one-fourth of the applicable 
percentage increase (prior to the application of other statutory 
adjustments) 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 a 33\1/3\ percent reduction to 
three-fourths of the applicable percentage increase (prior to the 
application of other statutory adjustments) for a hospital that is not 
a meaningful EHR user in accordance with section 1886(b)(3)(B)(ix) of 
the Act, less an MFP adjustment and less an additional reduction of 0.2 
percentage point.
    In addition, we are proposing to make technical changes to 
Sec. Sec.  412.64(d)(1), (d)(1)(i) through (d)(1)(v), (d)(2)(i), 
(d)(2)(ii), and (d)(3) introductory text to reflect the order in which 
CMS applies the statutory adjustments to the

[[Page 28088]]

applicable percentage increase under section 1886(b)(3)(B) of the Act. 
As mentioned above, consistent with section 1886(b)(3)(B) of the Act, 
CMS sets the applicable percentage increase under the IPPS by applying 
the following adjustments in the following sequence. Specifically, we 
set the applicable percentage increase under the IPPS equal to the 
rate-of-increase in the hospital market basket for IPPS hospitals in 
all areas subject to a reduction for hospitals that fail to submit 
quality information under rules established by the Secretary in 
accordance with section 1886(b)(3)(B)(viii) of the Act and, beginning 
in FY 2015, a reduction for hospitals not considered to be meaningful 
EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act; and 
then subject to an adjustment based on changes in economy-wide 
productivity (the MFP adjustment), and an additional reduction as 
required by section 1886(b)(3)(B)(xii) of the Act.
    The existing regulation text at Sec.  412.64(d)(2) and (d)(3) 
describes the reductions for hospitals that fail to submit quality 
information under rules established by the Secretary in accordance with 
section 1886(b)(3)(B)(viii) of the Act and hospitals not considered to 
be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of 
the Act as reductions to ``the applicable percentage change specified 
in paragraph (d)(1) of this section.'' Section 412.64(d)(1) describes 
the applicable percentage change for the applicable fiscal year as the 
percentage increase in the market basket index less the MFP adjustment 
and less the additional reduction required by section 
1886(b)(3)(B)(xii) of the Act. This text suggests that CMS applies the 
reduction for hospitals that fail to submit quality information and, 
beginning in FY 2015, the reduction for hospitals not considered to be 
meaningful EHR users, after it applies the MFP adjustment and the 
additional reduction under section 1886(b)(3)(B)(xii) of the Act. 
Therefore, we are proposing to revise the regulations in Sec.  
412.64(d) to reflect the order in which CMS applies the adjustments to 
the applicable percentage increase under section 1886(b)(3)(B) of the 
Act. We note that we also are proposing clarifying amendments to the 
regulatory text for prior fiscal years under Sec. Sec.  412.64(d)(1)(i) 
through (d)(1)(v) to reflect the determination of the applicable 
percentage change for those prior years as well as other technical 
changes for readability.
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase to the hospital-specific rates for SCHs and MDHs 
equals the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all 
other hospitals subject to the IPPS). Therefore, the update to the 
hospital-specific rates for SCHs and MDHs is also subject to section 
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 
10319(a) of the Affordable Care Act. Accordingly, for FY 2015, we are 
proposing the following updates to the hospital-specific rates 
applicable to SCHs and MDHs: An update of 2.1 percent for a hospital 
that submits quality data and is a meaningful EHR user; an update of 
1.425 percent for a hospital that fails to submit quality data and is a 
meaningful EHR user; an update of 1.425 percent for a hospital that 
submits quality data and is not a meaningful EHR user; an update of 
0.75 percent for a hospital that fails to submit quality data and is 
not a meaningful EHR user. (As noted below, under current law, the MDH 
program is effective for discharges occurring on or before March 31, 
2015.) For FY 2015, the existing regulations in Sec. Sec.  
412.73(c)(16), 412.75(d), 412.77(e), 412.78(e), and 412.79(d) contain 
provisions that set the update factor for SCHs and MDHs equal to the 
update factor applied to the national standardized amount for all IPPS 
hospitals. Therefore, we are not proposing to make any further changes 
to these five regulatory provisions to reflect the FY 2015 update 
factor for the hospital-specific rates of SCHs and MDHs. As mentioned 
above, for this proposed rule, we used IGI's first quarter 2014 
forecast of the FY 2010-based IPPS market basket update with historical 
data through fourth quarter 2013. Similarly, we used IGI's first 
quarter 2014 forecast of the MFP adjustment. For the final rule, we are 
proposing to use the most recent data available.
    We note that, as discussed in section IV.G. of the preamble of this 
proposed rule, section 1106 of the Pathway for SGR Reform Act of 2013 
(Pub. L. 113-67), enacted on December 26, 2013, extended the MDH 
program from the end of FY 2013 through the first half of FY 2014 (that 
is, for discharges occurring before April 1, 2014). Subsequently, 
section 106 of the Protecting Access to Medicare Act of 2014, Public 
Law 113-93, enacted on April 1, 2014, further extended the MDH program 
through the first half of FY 2015 (that is, for discharges occurring 
before April l, 2015). Prior to the enactment of Public Law 113-67, the 
MDH program was to be in effect through the end of FY 2013 only. The 
MDH program expires for discharges beginning on April 1, 2015 under 
current law. Accordingly, the proposed update of the hospital-specific 
rates for FY 2015 for MDHs will apply in determining payments for FY 
2015 discharges occurring before April 1, 2015.
2. FY 2015 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, we 
are proposing an applicable percentage increase to the Puerto Rico-
specific operating standardized amount of 2.1 percent for FY 2015. We 
note that the provisions of section 1886(b)(3)(B)(viii) of the Act, 
which specify the adjustments to the applicable percentage increase for 
``subsection (d)'' hospitals that do not submit quality data under the 
rules established by the Secretary, and the provisions of section 
1886(b)(3)(B)(ix) of the Act, which specify the adjustments to the 
applicable percentage increase for ``subsection (d)'' hospitals that 
are not meaningful EHR users, are not applicable to hospitals located 
in Puerto Rico.
    For FY 2015, the existing regulations in Sec.  412.211(c) set the 
update factor for

[[Page 28089]]

Puerto Rico-specific standardized amount equal to the update factor 
applied to the national standardized amount for all IPPS hospitals. 
Therefore, we are not proposing to make any further changes to this 
regulatory provision to reflect the FY 2015 update factor for the 
Puerto Rico-specific standardized amount.
    As mentioned previously, for this proposed rule, we used IGI's 
first quarter 2014 forecast of the FY 2010-based IPPS market basket 
update with historical data through fourth quarter 2013. For the final 
rule, we are proposing to use the most recent data available. 
Similarly, we used IGI's first quarter 2014 forecast of the MFP 
adjustment. For the final rule, we are proposing to use the most recent 
data available.

C. Rural Referral Centers (RRCs): Proposed 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 
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 proposed national 
median CMI value for FY 2015 includes data from all urban hospitals 
nationwide, and the proposed regional values for FY 2015 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 proposed values are based on discharges 
occurring during FY 2013 (October 1, 2012 through September 30, 2013), 
and include bills posted to CMS' records through December 2013.
    We are proposing that, in addition to meeting other criteria, if 
rural hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting periods beginning on or after October 1, 
2014, they must have a CMI value for FY 2013 that is at least--
     1.5730; or
     The median CMI value (not transfer-adjusted) for urban 
hospitals (excluding hospitals with approved teaching programs as 
identified in Sec.  413.75) calculated by CMS for the census region in 
which the hospital is located.
    The proposed CMI values by region are set forth in the following 
table:

------------------------------------------------------------------------
                                                          Proposed case-
                         Region                              mix index
                                                               value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................          1.3602
2. Middle Atlantic (PA, NJ, NY).........................          1.4334
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          1.4815
4. East North Central (IL, IN, MI, OH, WI)..............          1.4915
5. East South Central (AL, KY, MS, TN)..................          1.4099
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......          1.5498
7. West South Central (AR, LA, OK, TX)..................          1.6041
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............          1.6583
9. Pacific (AK, CA, HI, OR, WA).........................          1.5680
------------------------------------------------------------------------

    We intend to update the preceding numbers in the FY 2015 final rule 
to reflect the updated FY 2013 MedPAR file, which would contain data 
from additional bills received through March 2014.

[[Page 28090]]

    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 are proposing to update the 
regional standards based on discharges for urban hospitals' cost 
reporting periods that began during FY 2012 (that is October 1, 2011 
through September 30, 2012), which are the latest cost report data 
available at the time this proposed rule was developed.
    We are proposing that, in addition to meeting other criteria, a 
hospital, if it is to qualify for initial RRC status for cost reporting 
periods beginning on or after October 1, 2014, must have, as the number 
of discharges for its cost reporting period that began during FY 2012, 
at least--
     5,000 (3,000 for an osteopathic hospital); or
     The median number of discharges for urban hospitals in the 
census region in which the hospital is located, as indicated in the 
following table.

------------------------------------------------------------------------
                                                             Number of
                         Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................           7,679
2. Middle Atlantic (PA, NJ, NY).........................          10,661
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          10,591
4. East North Central (IL, IN, MI, OH, WI)..............           8,130
5. East South Central (AL, KY, MS, TN)..................           7,065
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......           7,925
7. West South Central (AR, LA, OK, TX)..................           4,524
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............           8,830
9. Pacific (AK, CA, HI, OR, WA).........................           8,261
------------------------------------------------------------------------

    We intend to update these numbers in the FY 2015 final rule based 
on the latest available cost report data.
    We reiterate that, if an osteopathic hospital is to qualify for RRC 
status for cost reporting periods beginning on or after October 1, 
2014, the hospital would be required to have at least 3,000 discharges 
for its cost reporting period that began during FY 2012.

D. Proposed 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 that is paid under IPPS 
beginning in FY 2005. 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. Section 605 of the American Taxpayer 
Relief Act of 2012 (ATRA) extended, for FY 2013, the temporary changes 
in the low-volume hospital payment policy provided for in FYs 2011 and 
2012 by the Affordable Care Act. Prior to the enactment of the Pathway 
for SGR Reform Act of 2013 (Pub. L. 113-67) on December 26, 2013 and 
section 106 of the Protecting Access to Medicare Act of 2014 (Pub. L. 
113-93) on April l, 2014, beginning with FY 2014, the low-volume 
hospital qualifying criteria and payment adjustment returned to the 
statutory requirements under section 1886(d)(12) of the Act that were 
in effect prior to the amendments made by the Affordable Care Act and 
the ATRA. (For additional information on the expiration of the 
temporary changes in the low-volume hospital payment policy for FYs 
2011 through 2013 provided for by the Affordable Care Act and the ATRA, 
we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50610 
through 50613).)
    Section 1105 of the Pathway for SGR Reform Act extended, for the 
first 6 months of FY 2014 (that is, through March 31, 2014), the 
temporary changes in the low-volume hospital payment policy provided 
for in FYs 2011 and 2012 by the Affordable Care Act and extended 
through FY 2013 by the ATRA. We addressed the extension of the 
temporary changes to the low-volume hospital payment policy through 
March 31, 2014 under the Pathway for SGR Reform Act in an interim final 
rule with comment period that appeared in the Federal Register on March 
18, 2014 (79 FR 15022 through 15025). In that March 18, 2014 interim 
final rule with comment period, we also amended the regulations at 42 
CFR 412.101 to reflect the extension of the temporary changes to the 
qualifying criteria and the payment adjustment for low-volume hospitals 
through March 31, 2014.
2. Provisions of the Protecting Access to Medicare Act of 2014
    Section 105 of the Protecting Access to Medicare Act of 2014 (Pub. 
L. 113-93) extends, for an additional year (that is, through March 31, 
2015), the temporary changes in the low-volume hospital payment policy 
provided for in FYs 2011 and 2012 by the Affordable Care Act and 
extended through FY 2013 by the ATRA and the first half of FY 2014 by 
the Pathway for SGR Reform Act. We intend to address the extension of 
the temporary changes to the low-volume hospital payment policy for the 
second half of FY 2014 (that is, from April 1, 2014 through September 
30, 2014) under Public Law 113-93 in a forthcoming Federal Register 
notice. However, in this proposed rule, we are proposing 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 the 
first half of FY 2015 (that is, through March 31, 2015) in accordance 
with section 105 of Public Law 113-93. Specifically, we are proposing 
to revise paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), (c)(2), and (d) of 
Sec.  412.101. Under these proposed changes to Sec.  412.101, beginning 
with FY 2015 discharges occurring on or after April 1, 2015, 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 subsequent legislation (that is, the low-volume 
hospital payment adjustment policy in effect for FYs 2005 through 
2010).

[[Page 28091]]

3. Low-Volume Hospital Definition and Payment Adjustment for FY 2015
    As discussed above, under section 1886(d)(12) of the Act, as 
amended, the temporary changes in the low-volume hospital payment 
policy originally provided by the Affordable Care Act and extended 
through subsequent legislation, are effective for FY 2015 discharges 
occurring before April 1, 2015. To implement the extension of the 
temporary change in the low-volume hospital payment policy through the 
first half of FY 2015 (that is, for discharges occurring through March 
31, 2015) provided for by Public Law 113-93, in accordance with 
proposed Sec.  412.101(b)(2)(ii) and consistent with our historical 
approach, we are proposing to update the discharge data source used to 
identify qualifying low-volume hospitals and calculate the payment 
adjustment (percentage increase) for FY 2015 discharges occurring 
before April 1, 2015. Under existing Sec.  412.101(b)(2)(ii), for the 
applicable fiscal years, 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 payment adjustment in the current year. The applicable low-
volume percentage increase, as originally provided for by the 
Affordable Care Act, 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. For FY 2015 
discharges occurring before April 1, 2015, consistent with our 
historical policy, we are proposing that qualifying low-volume 
hospitals and their payment adjustment would be determined using the 
most recently available Medicare discharge data from the FY 2013 MedPAR 
file, as these data are the most recent data available. Table 14 listed 
in the Addendum of this proposed rule (which is available only through 
the Internet on the CMS Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp) lists the ``subsection (d)'' 
hospitals with fewer than 1,600 Medicare discharges based on the 
December 2013 update of the FY 2013 MedPAR file and their proposed low-
volume payment adjustment for FY 2015 discharges occurring before April 
1, 2015 (if eligible). Eligibility for the low-volume hospital payment 
adjustment for the first 6 months of FY 2015 would also be dependent 
upon meeting (in the case of a hospital that did not qualify for the 
low-volume hospital payment adjustment in FY 2014) or continuing to 
meet (in the case of a hospital that did qualify for the low-volume 
hospital payment adjustment in FY 2014) the mileage criterion specified 
at proposed Sec.  412.101(b)(2)(ii). A hospital also must be located 
more than 15 road miles from any other IPPS hospital in order to 
qualify for a low-volume hospital payment adjustment for FY 2015 
discharges occurring before April 1, 2015. We note that the list of 
hospitals with fewer than 1,600 Medicare discharges in Table 14 does 
not reflect whether or not the hospital meets the mileage criterion. If 
more recent Medicare discharge data become available, we intend to use 
updated data to determine the list of ``subsection (d)'' hospitals with 
fewer than 1,600 Medicare discharges based on the March 2014 update of 
the FY 2013 MedPAR file and their potential low-volume payment 
adjustment for FY 2015 discharges occurring before April 1, 2015 (if 
eligible) in Table 14 of the final rule.
    Furthermore, in accordance with section 1886(d)(12) of the Act, as 
amended, beginning with FY 2015 discharges occurring on or after April 
1, 2015, 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 
subsequent legislation (including the Protecting Access to Medicare 
Act). Therefore, 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 2015 discharges occurring on or after April 1, 2015 
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 2015 discharges occurring on or after April 1, 2015 
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 (or portion of the fiscal year). 
Consistent with our existing policy for FYs 2005 through 2010, for FY 
2015 discharges occurring on or after April 1, 2015 (and subsequent 
years), the discharge determination for the low-volume hospital payment 
adjustment would be made based on the hospital's number of total 
discharges, that is, Medicare and non-Medicare discharges, as specified 
at proposed Sec.  412.101(b)(2)(i). 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 fiscal year. We use cost report data to 
determine if a hospital meets the discharge criterion because these 
data are the best available data source that includes information on 
both Medicare and non-Medicare discharges. In addition to a discharge 
criterion, eligibility for the low-volume hospital payment adjustment 
also depends on the hospital meeting a mileage criterion. As specified 
at proposed Sec.  412.101(b)(2)(i), to meet the mileage criterion to 
qualify for the low-volume hospital payment adjustment for FY 2015 
discharges occurring on or after April 1, 2015 (and subsequent years), 
a hospital must be located more than 25 road miles from the nearest 
subsection (d) hospital.
    Consistent with our previously established procedure, for FY 2015, 
we are proposing the following 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 MAC that it meets the 
discharge and distance requirements under proposed Sec.  
412.101(b)(2)(ii) for FY 2015 discharges occurring before April 1, 
2015, and under proposed Sec.  412.101(b)(2)(i) for FY 2015 discharges 
occurring on or after April 1, 2015, if also applicable. The MAC will 
determine, based on the most recent data available, if the hospital 
qualifies as a low-volume hospital, so that the hospital would know in 
advance whether or not it will receive a payment adjustment. The 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. 
Consistent with our previously established procedure, for FY 2015, we 
are proposing that a hospital must make a written request for low-
volume hospital status that is received by its MAC no later than 
September 1, 2014, in order for the applicable low-volume hospital 
payment adjustment to be applied to payments for its discharges

[[Page 28092]]

occurring on or after October 1, 2014, and through March 31, 2015, 
under proposed Sec.  412.101(b)(2)(ii) or through September 30, 2015, 
for hospitals that also qualify under proposed Sec.  412.101(b)(2)(i)). 
A hospital that qualified for the low-volume payment adjustment in FY 
2014 may continue to receive a low-volume payment adjustment for FY 
2015 discharges occurring before April 1, 2015, without reapplying if 
it continues to meet the Medicare discharge criterion established for 
FY 2015 (shown in Table 14, which is available via the Internet on the 
CMS Web site) and the distance criterion. However, the hospital must 
send written verification that is received by its MAC no later than 
September 1, 2014, that it continues to be more than 15 miles from any 
other ``subsection (d)'' hospital.
    If a hospital's written request for low-volume hospital status for 
FY 2015 is received after September 1, 2014, and if the MAC determines 
that the hospital meets the criteria to qualify as a low-volume 
hospital under proposed Sec.  412.101(b)(2)(ii), the MAC would apply 
the applicable low-volume hospital payment adjustment to determine the 
payment for the hospital's FY 2015 discharges, effective prospectively 
within 30 days of the date of its low-volume hospital status 
determination through discharges occurring on or before March 31, 2015. 
If the hospital also qualifies under proposed Sec.  412.101(b)(2)(i), 
the MAC would apply the 25-percent low-volume hospital payment 
adjustment to determine the payment for the hospital's FY 2015 
discharges occurring on or after April 1, 2015. If a hospital's written 
request for low-volume hospital status for FY 2015 is received on a 
later date such that the prospective effective date would be on or 
after April 1, 2015, and the hospital qualifies under proposed Sec.  
412.101(b)(2)(i), the MAC would apply the 25-percent low-volume 
hospital payment adjustment to determine the payment for the hospital's 
FY 2015 discharges occurring from the prospective effective date 
through September 30, 2015. (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).)

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

1. IME Adjustment Factor for FY 2015
    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 2015, the formula 
multiplier is 1.35. We estimate that application of this formula 
multiplier for the FY 2015 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.
2. Proposed IME Medicare Part C Add-On Payments to Sole Community 
Hospitals (SCHs) That Are Paid According to Their Hospital-Specific 
Rates and Proposed Change in Methodology in Determining Payment to SCHs
    Section 1886(d)(11) of the Act provides for an additional payment 
amount to a subsection (d) teaching hospital that has an approved 
medical residency training program for each applicable discharge of any 
individual who is enrolled under Medicare Managed Care under Part C. 
The amount of such payment is specified in section 1886(d)(11)(C) of 
the Act and ``shall be equal to the applicable percentage (as defined 
in subsection (h)(3)(D)(ii)) of the estimated average per discharge 
amount that would otherwise have been paid under paragraph (5)(B) if 
the individuals had not been enrolled as described in subparagraph 
(B).''
    Under section 1886(d)(5)(D) of the Act, sole community hospitals 
(SCHs) are paid based on their hospital-specific rate from 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 include no add-
on payments. Under CMS' current payment system, both the IME add-on 
payment for Medicare Part A patient discharges under section 
1886(d)(5)(B) of the Act and the IME add-on payment for Medicare Part C 
patient discharges under section 1886(d)(11) of the Act are included as 
part of the Federal rate payment, whereas neither of these add-on 
payments are included as part of the hospital-specific rate payment. We 
note that SCHs that are paid based on their hospital-specific rate do 
not receive an IME add-on payment for Medicare Part A patient 
discharges because, generally, the hospital-specific rate already 
reflects the additional costs that a teaching hospital incurs for its 
Medicare Part A patients, but they also do not receive the IME add-on 
payment for Medicare Part C patient discharges under section 
1886(d)(11) of the Act. Therefore, in the case of Medicare Part C 
patients, there is no component of the hospital-specific rate that 
already accounts for the additional costs that SCHs incur for their 
Medicare Part C patients, and there is currently no payment mechanism 
for SCHs paid based on their hospital-specific rate to receive the IME 
add-on payment for Medicare Part C patients.
    For the reasons specified below, effective for discharges occurring 
in cost reporting periods beginning on or after October 1, 2014, we are 
proposing: (1) To provide all SCHs that are subsection (d) teaching 
hospitals IME add-on payments for applicable discharges of Medicare 
Part C patients in accordance with section 1886(d)(11) of the Act, 
regardless of whether the SCH is paid based on the Federal rate or its 
hospital-specific rate; and (2) that, for purposes of the comparison of 
payments based on the Federal rate and payments based on the hospital-
specific rate under section 1886(d)(5)(D) of the Act, IME payments 
under section 1886(d)(11) of the Act for Medicare Part C patients will 
no longer be included as part of the Federal rate payment. After the 
higher of the Federal rate payment amount or the hospital-specific rate 
payment amount is determined, any IME add-on payments under section 
1886(d)(11) of the Act would be added to that payment for purposes of 
determining the hospital's total payment amount.
    As noted above, under section 1886(d)(5)(D) of the Act, SCHs are 
paid based on their hospital-specific rate or the IPPS Federal rate, 
whichever yields the higher payment for the hospital's cost reporting 
period. For each cost reporting period, the MAC determines which of the 
payment options will yield the higher aggregate payment. Interim 
payments are automatically made on a claim-by-claim basis at the higher 
rate using the best data available at the time the MAC makes the 
payment determination for each discharge. However, it may not be 
possible for the MAC to determine in advance precisely

[[Page 28093]]

which of the rates will yield the higher aggregate payment by year's 
end. In many cases, 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 MAC makes a final 
adjustment at cost report settlement after it determines precisely 
which of the two payment rates would yield the higher aggregate payment 
to the hospital for its cost reporting period. This payment methodology 
makes SCHs unique because SCH payments can change on a yearly basis 
from payments based on the hospital-specific rate to payments based on 
the Federal rate, or vice versa.
    As we stated earlier, section 1886(d)(11) of the Act provides for 
an additional payment for each applicable discharge of any subsection 
(d) teaching hospital for treating Medicare Part C patients. Section 
1886(d)(11)(C) of the Act specifies that the amount of the payment 
``shall be equal to the applicable percentage (as defined in subsection 
(h)(3)(D)(ii)) of the estimated average per discharge amount that would 
otherwise have been paid under paragraph (5)(B) if the individuals had 
not been enrolled as described in subparagraph (B)'' (emphasis added). 
Because an SCH that is paid based on its hospital-specific rate does 
not receive any IME add-on payment for Medicare Part A patients as 
provided under section 1886(d)(5)(B) of the Act because, generally, the 
hospital-specific rate already reflects the additional costs that a 
teaching hospital incurs for its Medicare Part A patients, CMS has 
interpreted section 1886(d)(11)(C) of the Act to mean that an SCH that 
is paid based on its hospital-specific rate also is not entitled to 
receive an additional payment for discharges of Medicare Part C 
patients under section 1886(d)(11) of the Act.
    After further consideration of the language at section 1886(d)(11) 
of the Act, we believe that the statute would allow an SCH that is paid 
based on its hospital-specific rate to receive IME add-on payments for 
its Medicare Part C patient discharges. Section 1886(d)(11)(A) of the 
Act provides for an additional payment amount for each applicable 
discharge of a Medicare Part C patient of a subsection (d) hospital 
that has an approved medical residency training program. Section 
1886(d)(11)(C) of the Act sets forth the amount of this additional 
payment, by reference to the amount that would otherwise have been paid 
under section 1886(d)(5)(B) of the Act. Although an SCH that is paid 
based on its hospital-specific rate does not receive any amount under 
section 1886(d)(5)(B) of the Act for discharges of Medicare Part A 
patients, we believe that section 1886(d)(11)(C) of the Act can be 
interpreted as simply establishing the methodology for calculating the 
amount of the add-on payment, without limiting the applicability of the 
add-on payment to those SCHs that are paid based on the Federal rate.
    As noted earlier, in making the comparison of SCH payments under 
the Federal rate and the hospital-specific rate under section 
1886(d)(5)(D) of the Act, the aggregate Federal rate payments are based 
on the IPPS standardized amount and include IME add-on payments for 
both Medicare Part A and Medicare Part C patient discharges. Payments 
based on the hospital-specific rate do not include the Medicare Part A 
IME add-on payment under section 1886(d)(5)(B) of the Act, under the 
rationale that, generally, the hospital-specific rate already reflects 
the additional costs that a teaching hospital incurs for its Medicare 
Part A patients. Payments based on the hospital-specific rate also do 
not include the IME add-on payment for Medicare Part C patient 
discharges under section 1886(d)(11) of the Act. As a result, under the 
current methodology, if an SCH that is a teaching hospital is paid 
based on its hospital-specific rate, it receives no IPPS payment that 
accounts for the additional costs that a teaching hospital incurs for 
its Medicare Part C patients.
    In conjunction with our proposal to provide IME add-on payments 
under section 1886(d)(11) of the Act to SCHs, regardless of whether the 
SCH is paid based on the Federal rate or its hospital-specific rate, we 
also believe that, for purposes of the comparison of payments under the 
Federal rate and the hospital-specific rate for SCHs under section 
1886(d)(5)(D) of the Act, it is no longer appropriate for IME add-on 
payments under section 1886(d)(11) of the Act to be included as part of 
the Federal rate payment. Therefore, we are proposing to no longer 
include these payments in the comparison in order to more accurately 
reflect comparable payments for Medicare Part A patient discharges. In 
addition, because the IME add-on payment for Medicare Part C patient 
discharges for a given SCH would be the same, regardless of whether it 
is paid based on the Federal rate or its hospital-specific rate, there 
would be no need to include the IME add-on payment for Medicare Part C 
patient discharges in the comparison. This is because the Part C IME 
adjustment is always multiplied by the Federal rate that is used under 
section 1886(d)(5)(B) of the Act, regardless of whether the hospital-
specific rate is higher, in accordance with section 1886(d)(11) of the 
Act, which states that the IME Part C add-on amount ``shall be equal to 
the applicable percentage . . . of the estimated average per discharge 
amount that would otherwise have been paid under paragraph (5)(B).''
    In summary, effective with discharges occurring in cost reporting 
periods beginning on or after October 1, 2014, we are proposing: (1) To 
provide all SCHs that are subsection (d) teaching hospitals IME add-on 
payments for Medicare Part C patient discharges in accordance with 
section 1886(d)(11) of the Act; and (2) that, for purposes of the 
comparison of payments based on the Federal rate and the hospital-
specific rate for SCHs under section 1886(d)(5)(D) of the Act, IME add-
on payments under section 1886(d)(11) of the Act for Medicare Part C 
patient discharges will no longer be included in the aggregate payment 
under the Federal rate. That is, for purposes of determining payment to 
an SCH under section 1886(d)(5)(D) of the Act, we are proposing to 
compare aggregate payments based on the Federal rate, including the IME 
add-on payment for Medicare Part A patients (where applicable), but not 
the IME add-on payment for Medicare Part C patients, to aggregate 
payments based on the hospital-specific rate, which as explained 
earlier, do not include any IME add-on payments for either Medicare 
Part A or Part C patients. After the higher of the Federal rate payment 
amount or the hospital-specific rate payment amount under section 
1886(d)(5)(D) of the Act is determined, the Part C IME adjustment 
factor would be multiplied by the Federal rate payment amount to 
determine the add-on payment amount under section 1886(d)(11) of the 
Act, and then any IME add-on payments under section 1886(d)(11) of the 
Act would be added to the payment amount under section 1886(d)(5)(D) of 
the Act for purposes of determining the hospital's total payment 
amount. We are inviting public comments on both of these proposals and 
any alternatives that we should consider.
3. Other Proposed Policy Changes Affecting IME
    In section IV.K. of the preamble of this proposed rule, we present 
other proposed policy changes relating to GME payments, which may also 
apply to IME payments. We refer readers to

[[Page 28094]]

that section of the preamble of this proposed rule where we present the 
proposed policies.

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

1. Background
    Section 1886(d)(5)(F) of the Act provides for additional Medicare 
payments to subsection (d) hospitals that serve a 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. Impact on Medicare DSH Payment Adjustment of Proposed Implementation 
of New OMB Labor Market Delineations
    As discussed in section III.B. of the preamble of this proposed 
rule, we are proposing to implement the new OMB labor market area 
delineations (which are based on 2010 Decennial Census data) for the FY 
2015 wage index. This proposal also would have an impact on the 
calculation of Medicare DSH payments to certain hospitals. Hospitals 
that are designated as rural with less than 500 beds and that are not 
rural referral centers (RRCs) are subject to a maximum DSH payment 
adjustment of 12 percent. Accordingly, hospitals with less than 500 
beds that are currently in urban counties that would become rural if we 
adopt the new OMB delineations, and that do not become RRCs, would be 
subject to a maximum DSH payment adjustment of 12 percent. (We note 
that urban hospitals are only subject to a maximum DSH payment 
adjustment of 12 percent if they have less than 100 beds.)
    Under existing regulations at 42 CFR 412.102, a hospital located in 
an area that is reclassified from urban to rural, as defined in the 
regulations, may receive an adjustment to its rural Federal payment 
amount for operating costs for two successive fiscal years. 
Specifically, the regulations state that, in the first year after a 
hospital loses urban status, the hospital will receive an additional 
payment that equals two-thirds of the difference between the urban 
standardized amount and disproportionate share payments as applicable 
to the hospital before its redesignation from urban to rural and the 
rural standardized amount and disproportionate share payments otherwise 
applicable to the hospital subsequent to its redesignation from urban 
to rural. In the second year after a hospital loses urban status, the 
hospital will receive an additional payment that equals one-third of 
the difference between the urban standardized amount and 
disproportionate share payments applicable to the hospital before its 
redesignation from urban to rural and the rural standardized amount and 
disproportionate share payments otherwise applicable to the hospital 
subsequent to its redesignation from urban to rural.
    We note that we no longer make a distinction between the urban 
standardized amount and the rural standardized amount. Rather, 
hospitals receive the same standardized amount regardless of their 
geographic designation. Accordingly, we are proposing to revise the 
regulation at Sec.  412.102 to remove references to the urban and rural 
standardized amounts.
    The provisions of Sec.  412.102 would continue to apply with 
respect to the calculation of the DSH payments to hospitals that are 
currently located in urban counties that would become rural if we adopt 
the new OMB delineations. Specifically, the regulations would state 
that in the first year after a hospital loses urban status, the 
hospital will receive an additional payment that equals two-thirds of 
the difference between disproportionate share payments as applicable to 
the hospital before its redesignation from urban to rural and the 
disproportionate share payments otherwise applicable to the hospital 
subsequent to its redesignation from urban to rural. In the second year 
after a hospital loses urban status, the hospital will receive an 
additional payment that equals one-third of the difference between the 
disproportionate share payments applicable to the hospital before its 
redesignation from urban to rural and the disproportionate share 
payments otherwise applicable to the hospital subsequent to its 
redesignation from urban to rural.
    For the purposes of ratesetting, calculating budget neutrality, and 
modeling payment impacts for this proposed rule, any hospital that was 
previously urban but would be changed to rural status in FY 2015 as a 
result of the proposed adoption of the new OMB labor market area 
delineations would have its DSH payments modeled such that the payment 
equals the amount of the rural disproportionate share payments plus 
two-thirds of the difference between the urban disproportionate share 
payments and the rural disproportionate share payments.
3. Payment Adjustment Methodology for Medicare Disproportionate Share 
Hospitals (DSHs) Under Section 3133 of the Affordable Care Act (Sec.  
412.106)
a. General Discussion
    Section 3133 of the Patient Protection and Affordable Care Act, as 
amended by section 10316 of the same act 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

[[Page 28095]]

Medicare DSH payment adjustment beginning in FY 2014. For purposes of 
this proposed rule, we refer to these provisions collectively as 
section 3133 of the Affordable Care Act.
    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 with 
discharges in FY 2014, hospitals that qualify for Medicare DSH payments 
under section 1886(d)(5)(F) of the Act receive 25 percent of the amount 
they previously would have received under the statutory formula for 
Medicare DSH payments. This provision applies equally to hospitals that 
qualify for DSH payments under section 1886(d)(5)(F)(i)(I) of the Act 
and those hospitals that qualify under the Pickle method 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, is 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 are 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 FY 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)'' receives 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 hospital 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 FY 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 points for FY 2014, and minus 0.2 percentage points 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 Director of the 
Congressional Budget Office to the Speaker of the House. (A link to 
this letter is included in section IV.F.3.d.(2) of the preamble of this 
proposed 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 the percent of individuals 
``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.'' Therefore, for FY 2018 and subsequent years, 
the statute provides some greater flexibility in the choice of the data 
sources to be used for 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 applies to FY 2014 and each subsequent 
fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 
through 50647) and the FY 2014 IPPS interim final rule with comment 
period (78 FR 61191 through 61197), we set forth our policies for 
implementing the required changes to the DSH payment methodology made 
by section 3133 of the Affordable Care Act for FY 2014. In those rules, 
we noted that, because section 1886(r) of the Act 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 is 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.

[[Page 28096]]

b. Eligibility for Empirically Justified Medicare DSH Payments and 
Uncompensated Care Payments
    As indicated earlier, the payment methodology under section 3133 of 
the Affordable Care Act 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 section 3133 of the 
Affordable Care Act. Consistent with the law, hospitals must receive 
empirically justified Medicare DSH payments in a fiscal 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 therefore, is limited to 
hospitals that receive empirically justified Medicare DSH payments in 
accordance with section 1886(r)(1) of the Act for the applicable fiscal 
year.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY 
2014 IPPS interim final rule with comment period (78 FR 61193), we 
provided that hospitals that are not eligible to receive empirically 
justified Medicare DSH payments in a fiscal year will not receive 
uncompensated care payments for that year. We also specified that we 
would make a determination concerning eligibility for interim 
uncompensated care payments based on each hospital's estimated DSH 
status for the applicable fiscal 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.
    In the FY 2014 IPPS/LTCH PPS final rule, we also considered whether 
several specific classes of hospitals are included within the scope of 
section 1886(r) of the Act. As we specified in that final rule (78 FR 
50623), subsection (d) Puerto Rico hospitals that are eligible for DSH 
payments also are eligible to receive empirically justified Medicare 
DSH payments and uncompensated care payments under the new payment 
methodology.
    In addition, in the FY 2014 IPPS/LTCH PPS final rule, we considered 
whether Maryland hospitals that were paid under section 1814(b)(3) of 
the Act, would be eligible to receive uncompensated care payments. We 
explained that, under section 1814(b) of the Act, hospitals in the 
State of Maryland were subject to a waiver from the Medicare payment 
methodologies under which they would otherwise be paid. Because 
Maryland waiver hospitals were not paid under the IPPS (section 1886(d) 
of the Act), in the FY 2014 IPPS/LTCH PPS final rule, we determined 
that Maryland hospitals that operated under a waiver under section 
1814(b)(3) of the Act were not eligible to receive empirically 
justified Medicare DSH payments and uncompensated care payments under 
the payment methodology of section 1886(r) of the Act (78 FR 50623). As 
stated in section IV.H. of the preamble of this proposed rule, 
effective January 1, 2014, the State of Maryland elected to no longer 
have Medicare pay Maryland hospitals in accordance with section 
1814(b)(3) of the Act and entered into an agreement with CMS that 
Maryland hospitals would be paid under the Maryland All-Payor Model. 
However, under the Maryland All-Payor Model, Maryland hospitals still 
are not paid under the IPPS. Therefore, they remain ineligible to 
receive empirically justified Medicare DSH payments or the 
uncompensated care payments under section 1886(r) of the Act.
    SCHs are paid based on their hospital-specific rate from certain 
specified base years or the IPPS Federal rate, whichever yields the 
greater aggregate payment for the hospital's cost reporting period. If 
an SCH is paid under its hospital-specific rate, it is not eligible for 
Medicare DSH payments. In order to implement the provisions of section 
1886(r) of the Act, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50624), we specified that we will 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 specified that SCHs that receive interim 
empirically justified Medicare DSH payments in a fiscal year would 
receive interim uncompensated care payments for that fiscal year on a 
per discharge basis, subject as well to settlement through the cost 
report. Final eligibility determinations will be made at the end of the 
cost reporting period at settlement, and both interim empirically 
justified Medicare DSH payments and uncompensated care payments will be 
adjusted accordingly. Therefore, we follow the same processes of 
interim and final payments for SCHs that we follow for eligible IPPS 
DSH hospitals generally.
    MDHs are paid based on the IPPS Federal rate or, if higher, the 
IPPS Federal rate plus 75 percent of the amount by which the Federal 
rate is exceeded by the updated hospital-specific rate from certain 
specified base years (76 FR 51684). The IPPS Federal rate used in the 
MDH payment methodology is the same IPPS Federal rate that is used in 
the SCH payment methodology. Uncompensated care payments to MDHs were 
not explicitly addressed in the FY 2014 IPPS/LTCH PPS final rule 
because, at the time of the publication of the final rule, the MDH 
program was set to expire at the end of FY 2013. Since the publication 
of the FY 2014 IPPS/LTCH PPS final rule, the MDH program was extended 
from October 1, 2013, to March 31, 2014, under the Pathway for SGR 
Reform Act (Pub. L. 113-67) and was further extended an additional year 
from April 1, 2014, to March 31, 2015, by the Protecting Access to 
Medicare Act of 2014 (Pub. L. 113-93). Because MDHs are paid under the 
IPPS Federal rate and, therefore, are eligible to receive Medicare DSH 
payments if their disproportionate patient percentage is at least 15 
percent, we apply the same process to determine eligibility for 
Medicare DSH and the uncompensated care payment as we do for all other 
IPPS hospitals. That is, we make a determination concerning eligibility 
for interim uncompensated care payments based on each hospital's 
estimated DSH status for the applicable fiscal year (using the most 
recent data that are available) and 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. In addition, as we do for all IPPS hospitals, we would calculate 
a numerator for Factor 3 for all MDHs, regardless of whether they are 
projected to be eligible for DSH during the fiscal year, but the 
denominator for Factor 3 would be based on the uncompensated care data 
from the hospitals that we have projected to be eligible for DSH during 
the fiscal year.
    Furthermore, in the FY 2014 IPPS interim final rule with comment 
period (79 FR 15027), which addressed MDH payments for the first 6 
months of FY 2014, we established a policy of including a pro rata 
share of the uncompensated care payment amount for that period as part 
of the Federal rate payment in the comparison of payments under the 
hospital-specific rate and the

[[Page 28097]]

Federal rate. Consistent with that policy, for MDH payments for the 
first 6 months of FY 2015, a pro rata share of the uncompensated care 
payment amount for that period will be included as part of the Federal 
rate payment in the comparison of payments under the hospital-specific 
rate and the Federal rate. That is, in making this comparison at cost 
report settlement, we will include the pro rata share of the 
uncompensated care payment amount that reflects the period of time the 
hospital was paid under the MDH program for its discharges occurring on 
or after October 1, 2014, and before April 1, 2015. Consistent with the 
policy for hospitals with Medicare cost reporting periods that span 
more than 1 Federal fiscal year, this pro rata share will be determined 
based on the proportion of the applicable Federal fiscal year that is 
included in that cost reporting period (78 FR 61192 through 61194). As 
noted previously, section 106 of Public Law 113-93 provides for an 
extension of the MDH program through March 31, 2015, only. Therefore, 
beginning April 1, 2015, all hospitals that previously qualified for 
MDH status will no longer have MDH status under current law.
    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 final rule (78 FR 50625), 
we specified that we will apply the new DSH payment methodology to the 
hospitals participating in this initiative, so that eligible hospitals 
will receive empirically justified Medicare DSH payments and 
uncompensated care payments.
    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, the hospitals 
participating in the demonstration receive payments for the reasonable 
cost of providing such services. For discharges occurring in subsequent 
cost reporting periods during the applicable 5-year period, hospitals 
receive the lesser of the current year's reasonable cost-based amount, 
or the previous year's amount updated by the percentage increase in the 
IPPS market basket (the target amount). The instructions (Change 
Request 5020 (April 14, 2006) and Change Request 7505 (July 22, 2011) 
for the demonstration require that the MAC not pay Medicare DSH 
payments in addition to the amount received under the reasonable cost-
based payment methodology. Because hospitals participating in the 
demonstration do not receive DSH payments, we determined in the FY 2014 
IPPS/LTCH PPS final rule that these hospitals also are excluded from 
receiving empirically justified Medicare DSH payments and uncompensated 
care payments under the new payment methodology (78 FR 50625).
c. Empirically Justified Medicare DSH Payments
    As we have discussed earlier, section 1886(r)(1) of the Act 
requires the Secretary to pay 25 percent of the amount of the DSH 
payment that would otherwise be made under subsection (d)(5)(F) to a 
subsection (d) hospital. 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 FY 2014 IPPS/LTCH 
PPS final rule that we did not believe that it is necessary to develop 
any new operational mechanisms for making such payments. Therefore, in 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50626), we implemented 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 made 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 provided more detailed operational instructions 
and cost report instructions following issuance of the final rule that 
can be found on the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014-Transmittals-Items/R5P240.html.
d. Uncompensated Care Payments
    As we have discussed earlier, 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 the rate of uninsurance in 
2013, and each eligible hospital's estimated uncompensated care amount 
relative to the estimated uncompensated care amount for all eligible 
hospitals. Below we review the data sources and methodologies for 
computing each of these factors, our final policies for FY 2014, and 
our proposed policies for FY 2015.
(1) Proposed Calculation of Factor 1 for FY 2015
    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. 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, section 1886(r)(2)(A)(i) of the Act 
provides 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 a fiscal year, as prescribed under section 
1886(r)(1) of the Act. Again, section

[[Page 28098]]

1886(r)(2)(A)(ii) of the Act provides 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 the 
fiscal year, in the absence of the new payment provision; and (2) the 
amount of empirically justified Medicare DSH payments that are made for 
the fiscal year, 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 the fiscal year.
    In order to determine Factor 1 in the uncompensated care payment 
formula, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50628 through 
50630) and in the FY 2014 IPPS interim final rule with comment period 
(78 FR 61194), we adopted a policy under which we develop final 
estimates of both the aggregate amount of Medicare DSH payments that 
would be made in the absence of section 1886(r)(1) of the Act 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. These estimates are not revised or 
updated after we know the final Medicare DSH payments for the fiscal 
year. 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) of the Act), we use the most recently 
available projections of Medicare DSH payments for the fiscal 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, supplemental cost report data provided by Indian 
Health Service (IHS) hospitals to CMS, 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 2014 estimate, 
the data are based on the December 2013 update of the Medicare Hospital 
Cost Report Information System (HCRIS), supplemental cost report data 
provided by IHS hospitals to CMS as of December 2013 and the FY 2014 
IPPS/LTCH PPS final rule IPPS Impact file, published in conjunction 
with the publication of the FY 2014 IPPS/LTCH PPS final rule. For the 
July 2014 estimate, we anticipate that the data will be based on the 
March 2014 update of the HCRIS data, supplemental cost report data 
provided by IHS hospitals to CMS as of March 2014, and the FY 2015 
proposed rule's IPPS Impact file, published in conjunction with this 
proposed rule (and which is available via the Internet on the CMS Web 
site). For purposes of this proposed rule, we are using the February 
2014 Medicare DSH estimates to calculate Factor 1 and to model the 
proposed impact of this provision. For the final rule, we intend to use 
the July 2014 Medicare DSH estimates to determine Factor 1 and to model 
the impact of this provision. In addition, because SCHs paid under 
their hospital-specific payment rate are excluded from the application 
of section 1886(r) of the Act, we also exclude SCHs that are projected 
to be paid under their hospital-specific rate from our Medicare DSH 
estimates. Similarly, because Maryland hospitals participating in the 
Maryland All-Payer Model and hospitals participating in the Rural 
Community Hospital Demonstration do not receive DSH payments, we also 
exclude these hospitals from our Medicare DSH estimates.
    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, supplemental cost report data provided 
by IHS hospitals to CMS, 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 2014 
Office of the Actuary estimate for Medicare DSH payments for FY 2015, 
without regard to the application of section 1886(r)(1) of the Act, is 
$14.205 billion. This estimate excludes Maryland hospitals 
participating in the Maryland All-Payer Model, 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 2015, with the application of section 1886(r)(1) of 
the Act, is $3.551 billion (25 percent of the total amount estimated). 
Under Sec.  412.l06(g)(1)(i) of the regulations, Factor 1 is the 
difference between these two estimates of the Office of the Actuary. 
Therefore, for the purpose of modeling Factor 1, we are proposing that 
Factor 1 for FY 2015 would be $10.654 billion ($14.205 billion minus 
$3.551 billion). We are inviting public comment on our proposed 
calculation of Factor 1 for FY 2015.
(2) Proposed Calculation of Factor 2 for FY 2015
    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)(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

[[Page 28099]]

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 . . .'' (emphasis 
added) appeared in a March 20, 2010 letter from the director of the CBO 
to the Speaker of the House. 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 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'' (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 final rule (78 FR 50631), we used 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 of 65. In addition, we stated that we 
believe that this estimate more fully reflects the levels of 
uninsurance in the United States that influence uncompensated care for 
hospitals than the estimate that reflects only legal residents. 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 the applicable year with the percent 
of individuals who were uninsured in 2013, in the FY 2014 IPPS/LTCH PPS 
final rule, we used the CBO insurance rate figure and subtracted that 
amount from 100 percent (that is the total population without regard to 
insurance status) to estimate the 2013 baseline percent of individuals 
without insurance. Therefore, for FYs 2014 through 2017, our estimate 
of the uninsurance percentage for 2013 is 18 percent.
    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 final rule (78 FR 50634), 
we used the same data source, CBO estimates, to calculate this percent 
of individuals without insurance. In response to public comments, we 
also agreed that we should normalize the CBO estimates, which are based 
on the calendar year, for the Federal fiscal years for which each 
calculation of Factor 2 is made (78 FR 50633). Therefore, in the FY 
2014 IPPS/LTCH PPS final rule, we employed the most recently 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 was 80 percent, and for CY 2014 was 84 
percent. Therefore, the calculation of Factor 2 for FY 2014, employing 
a weighted average of the CBO projections for CY 2013 and CY 2014, was 
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

    Therefore, in the FY 2014 IPPS/LTCH PPS final rule, we adopted 
0.943 as the final determination of Factor 2 for FY 2014. In 
conjunction with this determination, we also determined in the FY 2014 
IPPS/LTCH PPS final rule and later revised in the FY 2014 IPPS interim 
final rule with comment period (78 FR 61195) that the amount available 
for uncompensated care payments for FY 2014 would be approximately 
$9.046 billion (0.943 times our Factor 1 estimate of $9.593 billion).
    For this FY 2015 proposed rule, we have used CBO's February 2014 
estimates of the effects of the Affordable Care Act on health insurance 
coverage (which are available at http://www.cbo.gov/publication/43900?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm_content=812526&utm_campaign=0). The CBO's February 2014 estimate of 
individuals under the age of 65 with insurance in CY 2014 is 84 
percent. Therefore, the CBO's most recent estimate of the rate of 
uninsurance in CY 2014 is 16 percent (that is, 100 percent minus 84 
percent.) Similarly, the CBO's February 2014 estimate of individuals 
under the age of 65 with insurance in CY 2015 is 86 percent. Therefore, 
the CBO's most recent estimate of the rate of uninsurance in CY 2015 
available during the development of this proposed rule is 14 percent 
(that is, 100 percent minus 86 percent.)
    The calculation of the proposed Factor 2 for FY 2015, employing a 
weighted average of the CBO projections for CY 2014 and CY 2015, is as 
follows:
     CY 2014 rate of insurance coverage (February 2014 CBO 
estimate): 84 percent.
     CY 2015 rate of insurance coverage (February 2014 CBO 
estimate): 86 percent.
     FY 2015 rate of insurance coverage: (84 percent * .25) + 
(86 percent * .75) = 85.5 percent.
     Percent of individuals without insurance for 2013 (March 
2010 CBO estimate): 18 percent
     Percent of individuals without insurance for FY 2015 
(weighted average): 14.5 percent

1-[verbar][(0.145--0.18)/0.18][verbar] = 1-0.19444 = 0.80556 (80.556 
percent)
0.80556 (80.556 percent)-0.002 (0.2 percentage points for FY 2015 under 
section 1886(r)(2)(B)(i) of the Act) = 0.8036 (80.36 percent)
0.8036 = Factor 2

    Therefore, we are proposing that Factor 2 for FY 2015 would be 
0.8036. Our proposal for Factor 2 is subject to change if more recent 
CBO estimates of the insurance rate become available at the time of the 
preparation of the final rule. We are inviting public comments on our 
proposed calculation of Factor 2 for FY 2015.

[[Page 28100]]

(3) Proposed Calculation of Factor 3 for FY 2015
    Section 1886(r)(2)(C) of the Act defines Factor 3 in the 
calculation of the uncompensated care payment. As we have discussed 
earlier, 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 each 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 fiscal years. 
In order to implement the statutory requirements for this factor of the 
uncompensated care payment formula, it was necessary to determine: (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 fiscal year); (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 during the 
rulemaking process for FY 2014, we considered defining the amount 
uncompensated care for a hospital as the uncompensated care costs of 
each hospital and considered potential data sources for those costs. 
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 Worksheet S-10 of the 
Medicare cost report 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 is 
available 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. At the same 
time, we noted that Worksheet S-10 is the only national data source 
that includes data for all Medicare hospitals and is designed to elicit 
data on uncompensated care costs. We discussed the possible use of data 
reported on Worksheet S-10 to determine uncompensated care costs in 
more detail in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27586).
    Because of concerns regarding variations in the data reported on 
Worksheet S-10 of the Medicare cost report and the completeness of 
these data, we did not propose to use data from the Worksheet S-10 to 
determine the amount of uncompensated care. 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. We indicated that we 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 EHR Incentive Program, and that we will continue to monitor these 
data. Accordingly, we stated 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 a result of our concerns regarding the data reported on 
Worksheet S-10 of the Medicare cost report, we believed it was 
appropriate to consider the use of alternative data, at least in FY 
2014, the first year that this provision is in effect, and possibly for 
additional years until hospitals have adequate experience reporting all 
of the data elements on Worksheet S-10. We noted that this approach 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 should 
not be used for implementation of section 1886(r) of the Act and who 
requested the opportunity to resubmit 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 reporting on 
Worksheet S-10 of the Medicare cost report. We stated in the FY 2014 
IPPS/LTCH PPS final 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 also determined that these alternative data, which are 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 final rule (78 FR 50639), we adopted the policy 
of employing the utilization of insured low-income patients defined as

[[Page 28101]]

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 also indicated that we remained 
convinced that the Worksheet S-10 could ultimately serve as an 
appropriate source of more direct data regarding uncompensated care 
costs for purposes of determining Factor 3 once hospitals are 
submitting more accurate and consistent data through this reporting 
mechanism. In the interim, we indicated that we would take steps such 
as revising and clarifying cost report instructions, as appropriate. We 
stated that it is our intention to propose introducing the use of the 
Worksheet S-10 data for purposes of determining Factor 3 within a 
reasonable amount of time.
    Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we 
have continued to evaluate and assess the comments we have received 
from stakeholders about Worksheet S-10 as well as evaluate what changes 
might need to be made to the instructions to make the data hospitals 
submit more accurate and consistent across hospitals. Although we have 
not yet developed revisions to the Worksheet S-10 instructions at this 
time, we remain committed to making improvements to Worksheet S-10. For 
that reason, we believe it would be premature to propose the use of 
Worksheet S-10 data for purposes of determining Factor 3 for FY 2015. 
Therefore, we are proposing to continue to employ the utilization of 
insured low-income patients defined as inpatient days of Medicaid 
patients plus inpatient days of Medicare SSI patients, as defined in 
Sec.  412.106(b)(4) and Sec.  412.106(b)(2)(i), respectively, to 
determine Factor 3 for FY 2015. Accordingly, we are proposing to revise 
the regulations at 42 CFR 412.106(g)(1)(iii)(C) to state that, for FY 
2015, 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 that section of the 
regulations. We are inviting public comments on this proposal, and we 
will continue to work with the hospital community and others to develop 
the appropriate clarifications and revisions to Worksheet S-10 of the 
Medicare cost report for reporting uncompensated care data. In 
particular, we are inviting public comments on what would be a 
reasonable timeline for adopting Worksheet S-10 of the Medicare cost 
report as the data source for determining Factor 3.
    As we did for the FY 2014 IPPS/LTCH PPS proposed rule, we are 
publishing on the CMS Web site a table listing Factor 3 for all 
hospitals that we estimate would receive empirically justified Medicare 
DSH payments in a fiscal year (that is, hospitals that we project 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. Hospitals 
have 60 days from the date of public 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.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50639), we 
considered public comments which recommended that we use the wage index 
to adjust insured low-income days in determining Factor 3 in order to 
account for the differences in ``purchasing power'' in different 
regions of the country. With respect to these public comments, we 
agreed that there may be regional variation in uncompensated care costs 
due to regional variations in the costs of care generally. However, we 
stated that we did not believe that there was 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 stated that we did not believe that there was 
sufficient basis for believing that adjusting low-income patient days 
by the wage index would better reflect variations in uncompensated care 
costs.
    Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we 
have continued to consider whether to propose employing the wage index 
to adjust insured low-income days in determining Factor 3. After this 
consideration, we continue to believe that a wage index adjustment to 
insured low-income days is not an appropriate measure to account for 
variations in the costs of uncompensated care among hospitals. The 
intensity of such care, and therefore the costs, may vary by hospital, 
but we still lack convincing evidence that the wage index data are an 
accurate measure of that intensity. Therefore, we are not proposing to 
adopt such an adjustment to low-income days for purposes of calculating 
Factor 3 in FY 2015.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50639), we also 
considered public comments that requested that we include insured low-
income days from exempt units (specifically, inpatient rehabilitation 
units paid under the IRF PPS and inpatient psychiatric units paid under 
the IPF PPS) of the hospital in the computation of Factor 3, in order 
to better capture the treatment costs of the uninsured by the hospital. 
In response to those public comments, we stated our belief that there 
may be some merit to including 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 
also indicated that we believed it would be prudent to consider the 
degree to which these data meet these conditions before adopting this 
recommendation. Therefore, we stated that we would consider including 
this recommendation among our proposals in future rulemaking.
    Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we 
have conducted an analysis of the impact of adopting this 
recommendation. That analysis has indicated that the inclusion of 
Medicaid and Medicare-SSI days for exempt inpatient units does not 
significantly change the distribution of uncompensated care payments to 
hospitals, with the exception of a few hospitals with high utilization 
associated with those exempt units that

[[Page 28102]]

would see increases in their uncompensated care payments. Furthermore, 
Medicaid and SSI days for inpatient rehabilitation units have been 
audited and are used for payment purposes under the IRF PPS; 
specifically, these data are used to calculate the low-income payment 
(LIP) adjustment under the IRF PPS. However, the data for inpatient 
psychiatric units are not generally audited and have not been used 
previously for payment purposes. Therefore, we are not proposing at 
this time to include those days in the calculation of a hospital's 
share of uncompensated care payments. As we indicated earlier, we 
believe it would be appropriate to include such data in the calculation 
of uncompensated care payments only insofar as those data may be 
publicly available, subject to audit, and used for payment purposes. 
The use of data for inpatient psychiatric units would fail the second 
and third conditions. At the same time, we do not believe that 
including only inpatient rehabilitation unit days without inpatient 
psychiatric unit days would improve the accuracy of the uncompensated 
care payment calculation. We also observe, as we have previously noted, 
that the statutory references under section 1886(d)(5)(F) of the Act to 
``days'' apply only to hospital acute care inpatient days. Section 
412.106(a)(1)(ii) of the regulations therefore provides that, for 
purposes of DSH payments, ``the number of patient days in the hospital 
includes only those days attributable to units or wards of the hospital 
providing acute care services generally payable under the prospective 
payment system and excludes'' other days. In the absence of compelling 
reasons to do otherwise, we believe it is preferable to maintain 
consistency with this longstanding precedent in the context of this 
temporary method for determining uncompensated care payments. However, 
we are inviting public comments on this issue.
    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, 
section 1886(r)(2)(C)(i) of the Act defines the numerator of the 
quotient as ``the amount of uncompensated care for such hospital for a 
period selected by the Secretary. . . .'' (emphasis added). Section 
1886(r)(2)(C)(ii) of the Act 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). In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50638), we 
adopted 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 process, we also determined 
the time period from which to calculate the numerator and denominator 
of the Factor 3 quotient in a way that would 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 the 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 final rule (78 FR 50638), therefore, 
we adopted the policy to calculate 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 use data from the most recently 
available full year 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. Furthermore, in the FY 2014 IPPS 
interim final rule with comment period (78 FR 61195), we revised our 
policy to also include supplemental cost report data submitted to CMS 
only by IHS hospitals in order allow their Medicaid days to be used to 
calculate Factor 3.
    Therefore, for FY 2014, we used data from the most recently 
available full year cost report for the Medicaid days and the most 
recently available SSI ratios, which meant data from the 2010/2011 cost 
reports for the Medicaid days, supplemental 2011 cost report data 
submitted to CMS by IHS hospitals, and the FY 2011 SSI ratios for the 
Medicare SSI days to estimate Factor 3 for FY 2014. For FY 2015, we are 
again proposing to use data from the most recently available full year 
cost report for the Medicaid days (that is, we are proposing to use the 
2012 cost report, unless that cost report is unavailable or reflects 
less than a full 12-month year; in the event the 2012 cost report is 
for less than 12 months, we are proposing to use the cost report from 
2012 or 2011 that is closest to being a full 12-month cost report), 
supplemental cost report data submitted to CMS only by IHS hospitals 
and the most recently available SSI ratios. For purposes of this 
proposed rule, we are using data from the December 2013 update of the 
2011/2012 Medicare cost reports for the Medicaid days and the FY 2011 
SSI ratios for the Medicare SSI days. Consistent with our FY 2014 IPPS 
interim final rule with comment period (78 FR 61195), for FY 2015, we 
also are using supplemental cost report data provided by IHS hospitals 
to CMS as of December 2013 in order to calculate the proposed Factor 3. 
For the FY 2015 IPPS final rule, we intend to use the March 2014 update 
of the 2011/2012 Medicare cost reports, supplemental cost report data 
submitted to CMS by IHS hospitals as of March 2014, and the most 
recently available SSI ratios (FY 2012 SSI ratios and, if not 
available, the FY 2011 SSI ratios) to calculate Factor 3. We believe 
the March update to the Medicare cost reports will be the most recently 
available data to calculate Factor 3 at the time of publication of the 
FY 2015 IPPS final rule. We believe this is consistent with CMS' 
historical policy to use the best available data when setting the 
payment rates and factors in both the proposed and final rules. 
Furthermore, this is consistent with our approach in other areas of 
IPPS, where we historically use the March update of cost report data 
and MedPAR claims data to calculate IPPS relative weights, budget 
neutrality factors, the outlier threshold, and the standardized amount 
for the IPPS final rule. If we were to wait for a later update of the 
cost report data to become available, this could cause delay of the 
publication of the IPPS final rule.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50642), we discussed 
several specific issues concerning the use of cost report data to 
determine Factor 3. One issue concerned the process and data to be 
employed in determining Factor 3 in the case of hospital mergers. 
Specifically, two hospitals that merged in 2011 with one surviving 
provider number requested that we account for the merger by including 
data from both hospitals' cost reports immediately prior to the merger 
in the calculation of the Factor 3 amount. In that final rule, we had 
calculated Factor 3 using only the surviving hospital's cost report 
data and SSI ratio data. In the final rule (78 FR

[[Page 28103]]

50602), we responded to the public comment that Factor 3 would 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 (for FY 2014, from the cost report 
for 2011 or 2010). We noted that this was 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 are 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.
    Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we 
have received additional input from hospitals that have undergone 
mergers that suggest using only the surviving CCN produces an estimate 
of the surviving hospital's uncompensated care burden that is lower 
than warranted. For FY 2015, for example, Factor 3 of the uncompensated 
care payment calculation would be determined using 2011/2012 cost 
reports. As a result, for any mergers occurring between FY 2011 and FY 
2015, Factor 3 of the uncompensated care payment for FY 2015 would 
reflect only the data of the hospital with the surviving CCN, not the 
combination of the data from the two hospitals that merged. We believe 
that revising our methodology to incorporate data from both of the 
hospitals that merged could improve our estimate of the uncompensated 
care burden of the merged hospital. Accordingly, we are proposing to 
revise our methodology for determining Factor 3 to incorporate data 
from both merged hospitals until data for the merged hospitals become 
available under the surviving CCN.
    In addition, because the data systems used to calculate Factor 3 do 
not identify hospitals that have merged, we also are proposing to 
establish a process to identify hospitals that have merged after the 
period of the historical data that are being used to calculate Factor 
3, up to a point in time during ratesetting for that Federal fiscal 
year. Under this approach, we would combine the data for the merged 
hospitals to calculate Factor 3 of the uncompensated care payment. 
Specifically, we are proposing that we would identify the hospitals 
that merged after the period from which data are being used to 
calculate Factor 3 (for FY 2015, 2012 and 2011) but before the 
publication of each year's final rule. For purposes of this proposal, 
we are defining a merger to be an acquisition where the Medicare 
provider agreement of one hospital is subsumed into the provider 
agreement of the surviving provider. We would not consider an 
acquisition where the new owner voluntarily terminates the Medicare 
provider agreement of the hospital it purchased by rejecting assignment 
of the previous owner's provider agreement to be a merger. We believe 
it is appropriate to combine data to calculate Factor 3 for a merged 
hospital where the Medicare provider agreement of one hospital is 
subsumed into the provider agreement of the surviving provider because, 
in this type of acquisition as described in the September 6, 2013 
Survey & Certification Memorandum S&C: 13-60-ALL (http://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/SurveyCertificationGenInfo/Downloads/Survey-and-Cert-Letter-13-60.pdf), 
the buyer is subject to all applicable statutes and regulations and to 
the terms and conditions under which the assigned agreement was 
originally issued. These include, but are not limited to, Medicare 
requirements to adjust payments to account for prior overpayments and 
underpayments, even if they relate to a pre-acquisition period 
(successor liability), and to adjust payments to collect civil monetary 
penalties. Therefore, we believe it is appropriate to also retain the 
data of the subsumed hospital to calculate the uncompensated care 
payment for the merged hospital. Conversely, by rejecting assignment of 
the Medicare provider agreement of the subsumed hospital, the surviving 
provider has voluntarily terminated the Medicare provider agreement and 
is precluded from having successor liability for Medicare overpayments 
or underpayments that would have otherwise been made to the subsumed 
provider. Furthermore, when the surviving hospital rejects automatic 
assignment of the existing provider agreement, but wishes to 
participate in the Medicare program, the merged hospital is considered 
an initial applicant to the Medicare program. In an instance in which 
the surviving provider has rejected assignment of the Medicare provider 
agreement of the subsumed provider, it would not seem appropriate to 
use data from the subsumed provider for purposes of Medicare payment, 
including for the calculation of a hospital's uncompensated care 
payment.
    For FY 2015, we are proposing to identify mergers by querying the 
Medicare contractors. We believe it is appropriate to obtain merger 
information from the Medicare contractors, as a copy of each final 
sales agreement/transaction indicating the effective date of the 
acquisition is generally submitted to the Medicare contractors once an 
acquisition is finalized. For the purpose of this proposed rule, we 
requested that the Medicare contractors provide us with a list of 
mergers that occurred between October 1, 2010 (the first day of FY 
2011, which is the earliest date that would be included in any 2011 
cost report data that are used to calculate a hospital's Factor 3) 
through January 2014 (when we started preparing for the FY 2015 IPPS 
proposed rule). On the basis of this information, we would then combine 
the data elements of any hospitals that had merged to calculate the 
uncompensated care payment for the merged hospital. Specifically, we 
would combine the Medicaid days from the most recently available full 
year cost reports and the SSI days from the most recently available SSI 
ratios tied to the two CCNs prior to the merger to calculate the merged 
hospital's Factor 3. For FY 2015, we would combine the Medicaid days 
from either the 2011 or 2012 cost reports and would use the most 
recently available SSI ratios available at the time the final rule is 
developed.
    In order to confirm these mergers and the accuracy of the data used 
to determine each merged hospital's uncompensated care payment, we are 
proposing to publish a table on the CMS Web site, in conjunction with 
the issuance of the proposed and final rules for a fiscal year, 
containing a list of the mergers that we are aware of and the computed 
uncompensated care payment for each merged hospital. A copy of this 
table is being published on the CMS Web site in conjunction with the 
issuance of this proposed rule. The affected hospitals would then have 
the opportunity to comment during the public comment period on the 
accuracy of this information.
    We are proposing to treat hospitals that merge after the 
development of the final rule similar to new hospitals. For these newly 
merged hospitals, we would not have data currently available to 
calculate a Factor 3 amount that accounts for the merged hospital's 
uncompensated care burden. In addition, we would not have data to 
determine if the newly merged hospital is eligible for Medicare DSH 
payment and, therefore, eligible for uncompensated care payments for 
the applicable fiscal year because the only data we would have to make 
this determination are those for the surviving CCN. Accordingly, we are 
proposing to treat newly merged hospitals in a similar manner as new

[[Page 28104]]

hospitals, such that the newly merged hospital's final uncompensated 
care payment would be determined at cost report settlement where the 
numerator of the newly merged hospital's Factor 3 would be based on the 
Medicaid days and SSI days reported on the cost report used for the 
applicable fiscal year. We are proposing that the interim uncompensated 
care payments for the newly merged hospitals would be based on only the 
data of the surviving hospital's CCN at the time of the preparation of 
the final rule for the applicable fiscal year. In other words, for 
newly merged hospitals, eligibility to receive interim uncompensated 
care payments and the amount of any interim uncompensated care payments 
would be based on the Medicaid days from either the 2011 or 2012 cost 
reports and the most recently available SSI ratios available at the 
time the final rule is developed for only the surviving CCN. However, 
at cost report settlement, we would determine the newly merged 
hospital's final uncompensated care payments based on the Medicaid days 
and SSI days reported on the cost report used for the applicable fiscal 
year. That is, we would revise the numerator of Factor 3 for the newly 
merged hospital to reflect the Medicaid and SSI days reported on the 
cost report for the applicable fiscal year. We are inviting public 
comment on our proposed change to the treatment of hospital mergers in 
the calculation of a hospital's uncompensated care payment.

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

1. Background
    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.
    Since the extension of the MDH program through FY 2012 provided by 
section 3124 of the Affordable Care Act, the MDH program has been 
further extended multiple times. First, section 606 of the ATRA of 2012 
(Pub. L. 112-240) extended the MDH program through FY 2013 (that is, 
for discharges occurring before October 1, 2013.) Second, section 1106 
of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) extended the 
MDH program through the first half of FY 2014 (that is, for discharges 
occurring before April 1, 2014.) In the FY 2014 interim final rule with 
comment period that appeared in the Federal Register on March 18, 2013 
(79 FR 15025 through 15027), we discussed the expiration of the MDH 
program on March 31, 2014, and explained how providers may be affected 
by the 6-month extension of the MDH program under Public Law 113-67 and 
described the steps to reapply for MDH status for FY 2014, as 
applicable. Generally, a provider that was classified as an MDH as of 
September 30, 2013, was reinstated as an MDH effective October 1, 2013, 
with no need to reapply for MDH classification. However, if the MDH had 
classified as an SCH or cancelled its rural classification under Sec.  
412.103(g) effective on or after October 1, 2013, the effective date of 
MDH status may not be retroactive to October 1, 2013. In the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50647 through 50649) and the FY 2014 
interim final rule with comment period (79 FR 15025 through 15027), we 
made conforming changes to the regulations at Sec.  412.108(a)(1) and 
(c)(2)(iii) to reflect the extensions of the MDH program provided for 
by the ATRA and Pathway for SGR Reform Act, respectively. Lastly, under 
current law, section 106 of the Protecting Access to Medicare Act of 
2014 (Pub. L. 113-93) provides for a 1-year extension of the MDH 
program effective from April 1, 2014 through March 31, 2015. 
Specifically, section 106 of Public Law 113-93 amended sections 
1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act by striking 
``April 1, 2014'' and inserting ``April 1, 2015''. Section 106 of 
Public Law 113-93 also made conforming amendments to sections 
1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act.
    We intend to address the extension of the MDH program for the 
second half of FY 2014 (that is, from April 1, 2014 through September 
30, 2014) under Public Law 113-93 in a separate Federal Register 
notice. For additional information on the extensions of the MDH program 
after FY 2012, we refer readers to the following rules: The FY 2013 
IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 53413 through 
53414); the FY 2013 IPPS notice that appeared in the Federal Register 
on March 7, 2013 (78 FR 14689); the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50647 through 50649); and the FY 2014 interim final rule with 
comment period (79 FR 15025 through 15027).
2. Provisions of Public Law 113-93 for FY 2015
    Prior to the enactment of Public Law 113-93, under section 1106 of 
Public Law 113-67, the MDH program authorized by section 1886(d)(5)(G) 
of the Act was set to expire midway through FY 2014. Section 106 of 
Public Law 113-93 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 April 1, 2014 through 
March 31, 2015. Section 106 of Public Law 113-93 also made conforming 
amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the 
Act.
    In this proposed rule, we are proposing 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 for the first 6 
months of FY 2015 made by section 106 of Public Law 113-93.
3. Expiration of the MDH Program
    Because section 106 of Public Law 113-93 extends the MDH program 
through the first half of FY 2015 only, effective April 1, 2015, the 
MDH program will no longer be in effect. Because the MDH program is not 
authorized by statute beyond March 31, 2015, beginning April 1, 2015, 
all hospitals that previously qualified for MDH status will no longer 
have MDH status and will be paid based 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 on March 31, 2015. 
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

[[Page 28105]]

effective April 1, 2015, 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 March 1, 2015. 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 April 1, 2015, immediately after its MDH 
status expires with the expiration of the MDH program on March 31, 
2015. We note that an MDH that applies for SCH status in anticipation 
of the expiration of the MDH program would not qualify for the April 1, 
2015 effective date upon approval if it does not apply by the March 1, 
2015 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).

H. Hospital Readmissions Reduction Program: Proposed Changes for FY 
2015 Through FY 2017 (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 section 1886(q) to 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. In accordance with 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, including policies for 
SCHs and for MDHs for FY 2013. 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'' with respect to those hospitals.
    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 establishes 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 defines 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 readmissions ratio. . . for such hospital for such 
applicable period minus 1.'' The ``excess readmissions ratio'' is a 
hospital-specific ratio based on each applicable condition. 
Specifically, section 1886(q)(4)(C) of the Act defines the excess 
readmissions ratio as the ratio of actual-over-expected readmissions; 
specifically, 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) [of 
the Act] . . . 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 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 (76 FR 51671), the ``applicable period'' is the period 
during which data are collected in order to calculate various ratios 
and payment 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

[[Page 28106]]

inpatients (not just Medicare patients) for a broad range of both 
subsection (d) and non-subsection(d) hospitals, in order to calculate 
the hospital-specific readmission rates for all such hospital 
inpatients and to publicly report these ``all-patient'' readmission 
rates.
2. Regulatory Background
    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 (76 FR 51660 through 51676), we addressed the issues of 
the selection of readmission measures and the calculation of the excess 
readmissions ratio, which will be used, in part, to calculate the 
readmissions adjustment factor. Specifically, in that final rule, we 
finalized policies that relate to the portions of section 1886(q) of 
the Act that address the selection of and measures for the applicable 
conditions, the definitions of ``readmission'' and ``applicable 
period,'' and the methodology for calculating the excess readmissions 
ratio. We also established policies with respect to measures for 
readmission for the applicable conditions and our methodology for 
calculating the excess readmissions ratio.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 
53401), we finalized policies that relate to the portions of section 
1886(q) of the Act that address the calculation of the hospital 
readmission payment adjustment factor and the process by which 
hospitals can review and correct their data. Specifically, in that 
final rule, we addressed the base operating DRG payment amount, 
aggregate payments for excess readmissions and aggregate payments for 
all discharges, the adjustment factor, applicable hospital, limitations 
on review, and reporting of hospital-specific information, including 
the process for hospitals to review readmission information and submit 
corrections. We also 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.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50649 through 
50676), we finalized our policies that relate to refinement of the 
readmissions measures and related methodology for the current 
applicable conditions, expansion of the ``applicable conditions'' 
beginning for FY 2015, and clarification of the process for reporting 
hospital-specific information, including the opportunity to review and 
submit corrections. We also established policies related to the 
calculation of the adjustment factor for FY 2014.
3. Overview of Proposals and Policies for the FY 2015 Hospital 
Readmissions Reduction Program
    In this proposed rule, we are--
     Proposing to make refinements to the readmissions measures 
and related methodology for FY 2015 and subsequent years (section 
IV.H.4. of the preamble of this proposed rule);
     Proposing to expand the scope of ``applicable conditions'' 
for FY 2017 to include coronary artery bypass graft (CABG) (section 
IV.H.6. of the preamble of this proposed rule);
     Discussing the maintenance of technical specifications for 
quality measures (section IV.H.7. of the preamble of this proposed 
rule);
     Describing a waiver from the Hospital Readmissions 
Reduction Program for hospitals formerly paid under section 1814(b)(3) 
of the Act (Sec.  412.154(d)) (section IV.H.8. of the preamble of this 
proposed rule);
     Proposing to specify the adjustment factor floor for FY 
2015 (section IV.H.9. of the preamble of this proposed rule);
     Proposing to specify the applicable period for FY 2015 
(section IV.H.10. of the preamble of this proposed rule);
     Proposing to make changes to the calculation of the 
aggregate payments for excess readmissions to include two additional 
readmissions measures (chronic obstructive pulmonary disease (COPD) and 
THA/TKA) (section IV.H.11. of the preamble of this proposed rule); and
     Discussing whether to establish an exceptions process to 
address hospitals with extraordinary circumstances (section IV.H.12. of 
the preamble of this proposed rule).
4. Proposed Refinement of the Readmission Measures and Related 
Methodology for FY 2015 and Subsequent Years Payment Determinations
a. Proposed Refinement of Planned Readmission Algorithm for Acute 
Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia (PN), 
Chronic Obstructive Pulmonary Disease (COPD), and Total Hip 
Arthroplasty and Total Knee Arthroplasty (THA/TKA) 30-Day Readmission 
Measures
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50651 through 
50655), we finalized for 2014 and subsequent years' payment 
determinations the use of the CMS Planned Readmission Algorithm Version 
2.1 in the AMI, HF, PN, COPD and THA/TKA readmission measures. The 
algorithm identifies readmissions that are planned and occur within 30 
days of discharge from the hospital. A complete description of the CMS 
Planned Readmission Algorithm Version 2.1, which includes lists of 
planned diagnoses and procedures, can be found on our Web site 
(available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). 
NQF has endorsed the use of the algorithm for these measures.
    Last year's stakeholder comments supported the incorporation of the 
CMS Planned Readmission Algorithm Version 2.1 and suggested that we 
update it on a regular basis. In the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50652), we agreed to continually review the CMS Planned 
Readmission Algorithm and make updates as needed. Subsequently we have 
identified and made improvements to the algorithm. We are proposing to 
use the revised version, the CMS Planned Readmission Algorithm Version 
3.0, for the AMI, HF, PN, COPD, and THA/TKA readmission measures for FY 
2015 and subsequent payment determinations. We are also proposing to 
use this algorithm for the CABG readmission measure proposed for 
inclusion in the Hospital Readmissions Reduction Program starting in FY 
2017.
    Version 3.0 incorporates improvements that were made based on a 
validation study of the algorithm. Researchers reviewed 634 patients' 
charts at 7 hospitals, classified readmission as planned or unplanned 
based on the chart review, and compared the results to the claims-based 
algorithm's classification of the readmissions. The findings suggested 
the algorithm was working well but could be improved.
    Specifically, the study suggested the need to make small changes to 
the tables of procedures and conditions used in the algorithm to 
classify readmission as planned or unplanned. The algorithm uses the 
Agency for Healthcare Research and Quality's (AHRQ's) Clinical 
Classification Software (CCS) to group thousands of procedure and 
diagnosis codes into fewer categories of related procedures or 
diagnoses. The algorithm then uses four tables of procedures and 
diagnoses categories and a flow diagram to classify tables as planned 
or unplanned. For all measures, the first table identifies procedures 
that, if present in a readmission, classify the readmission as planned. 
The second table identifies primary discharge diagnoses that always 
classify readmissions as planned. Because almost all planned admissions 
are for

[[Page 28107]]

procedures or surgeries, a third table identifies procedures for which 
patients are typically admitted; if any of these procedures are coded 
in the readmission, we classify a readmission as planned as long as 
that readmission does not have an acute (unplanned) primary discharge 
diagnosis. The fourth table lists the acute (unplanned) primary 
discharge diagnoses that disqualify readmissions that include one or 
more of the potentially planned procedure in the third table as 
planned. These tables are structured the same across all measures but 
the specific procedure and conditions they contain vary slightly for 
certain measures based on clinical considerations for each cohort. The 
final proposed tables for each measure can be found on our Web site 
under the Measure Methodology reports (available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html).
    Version 3.0 modifies two of these tables by removing or adding 
procedures or conditions to improve the accuracy of the algorithm. 
First, validation study revealed that the algorithm could be improved 
by removing two procedure CCS categories from the third table, the 
potentially planned procedure table: CCS 211--Therapeutic Radiation and 
CCS 224--Cancer Chemotherapy. Typically, patients do not require 
admission for scheduled Therapeutic Radiation treatments (CCS 211). The 
study found that readmissions that were classified as planned because 
they included Therapeutic Radiation were largely unplanned.
    The algorithm was also more accurate when CCS 224--Cancer 
Chemotherapy was removed from the potentially planned procedure table. 
The second table of the algorithm classifies all readmissions with a 
principal diagnosis of Maintenance Chemotherapy as planned. Most 
patients who receive cancer chemotherapy have both a code for Cancer 
Chemotherapy (CCS 224) and a principal discharge diagnosis of 
Maintenance Chemotherapy (CCS 45). In the validation study, the 
readmissions for patients who received Cancer Chemotherapy (CCS 224) 
but who did not have a principal diagnosis of Maintenance Chemotherapy 
were largely unplanned, so removing CCS 224 from the potentially 
planned procedure table improved the algorithm's accuracy. Therefore, 
Version 3.0 removes CCS 211 and CCS 224 from the list of potentially 
planned procedures to improve the accuracy of the algorithm.
    As noted above, the algorithm uses a table of acute principal 
discharge diagnoses to help identify unplanned readmissions. 
Readmissions that have a principal diagnosis listed in the table are 
classified as unplanned, regardless of whether they include a procedure 
in the potentially planned procedure table. The validation study 
identified one diagnosis CCS that should be added to the table of acute 
diagnoses to more accurately identify truly unplanned admissions as 
unplanned: Hypertension with Complications (CCS 99). Hypertension with 
complications is a diagnosis that is rarely associated with planned 
readmissions.
    In addition, the validation study identified a subset of ICD-9-CM 
diagnosis codes within two CCS diagnosis categories that should be 
added to the acute diagnosis table to improve the algorithm. CCS 149, 
Pancreatic Disorders, includes the code for acute pancreatitis; 
clinically there is no situation in which a patient with this acute 
condition would be admitted for a planned procedure. Therefore, Version 
3.0 adds the ICD-9 code for acute pancreatitis, 577.0, to the acute 
primary diagnosis table to better identify unplanned readmissions. 
Finally, CCS 149, Biliary Tract Disease, is a mix of acute and nonacute 
diagnoses. Adding the subset of ICD-9-CM codes within this CCS group 
that are for acute diagnoses to the list of acute conditions improves 
the accuracy of the algorithm for these acute conditions while still 
ensuring that readmissions for planned procedures, like 
cholecystectomies, are counted accurately as planned. For more detailed 
information on how the algorithm is structured and the use of tables to 
identify planned procedures and diagnoses, we refer readers to 
discussion of the CMS Planned Readmission Algorithm Version 2.1 in our 
reports (available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). As noted above, readers can find the specific 
Version 3.0 tables for each measure in the measure updates and 
specifications reports at the above link.
    We invite public comment on these proposals.
b. Proposed Refinement of Total Hip Arthroplasty and Total Knee 
Arthroplasty (THA/TKA) 30-Day Readmission Measure Cohort
    In this proposed rule, for FY 2015 and subsequent years, we are 
proposing to refine the measure cohort for the Elective Primary Total 
Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) All-Cause 
Unplanned 30-Day Risk-Standardized Readmission Measure.
    Currently, the THA/TKA Readmission Measure adopted for the Hospital 
Readmissions Reduction Program is intended to only include patients who 
have an elective THA or TKA. This measure therefore excludes patients 
who have a principal discharge diagnosis of femur, hip, or pelvic 
fracture on their index admission since hip replacement for hip 
fracture is not an elective procedure. However, after hospitals 
reviewed their hospital-specific THA/TKA Readmission Measure data 
during the national dry run conducted during September and October of 
2012, we learned that hospitals code hip fractures that occur during 
the same admission as a THA as either a principal or secondary 
diagnosis. According to feedback received from hospitals participating 
in the dry run, the measure methodology failed to identify and 
therefore appropriately exclude a small number of patients (that is, 
0.42 percent of patients in 2009-2010 data) with hip fracture who had 
non-elective total hip arthroplasty.
    To ensure that all such hip fracture patients are excluded from the 
measure, we are proposing to refine the measure to exclude patients 
with hip fracture coded as either principal or secondary diagnosis 
during the index admission. We believe this refinement is responsive to 
comments from hospitals and will allow us to accurately exclude 
patients who were initially admitted for a hip fracture and then 
underwent total hip arthroplasty, making their procedure nonelective.
    We invite public comments on this proposal.
c. Anticipated Effect of Proposed Refinements on Measures
    The proposed refinement of the CMS Planned Readmission Algorithm 
Version 2.1 to Version 3.0 would have had the following effects on the 
measures based on our analyses of discharges between July 2009 and June 
2012, if these changes had been applied for FY 2014. We note that these 
statistics are for illustrative purposes only, and we are not proposing 
to revise the measure calculations for the FY 2014 payment 
determination. Rather, we are proposing to apply these changes to the 
readmission measures for the FY 2015 payment determination and 
subsequent years.
    Among hospitals that were subject to the Hospital Readmissions 
Reduction Program in FY 2014 (Table IV.H.1), the number of eligible 
discharges based on

[[Page 28108]]

the July 2009 through June 2012 data were 494,121 discharges for AMI; 
1,165,606 discharges for HF; 954,033 discharges for PN; 926,433 
discharges for COPD; and 858,266 discharges for hip/knee.
    The proposed 30-day readmission rate (excluding the planned 
readmissions) would remain constant for AMI and COPD; increase by 0.1 
percentage points for HF and PN; and increase by 0.4 percentage points 
for hip/knee.
    The new national readmission (unplanned) rate for each condition 
would have been 17.9 percent for AMI; 23.0 percent for HF; 17.7 percent 
for PN; 21.1 percent for COPD; and 5.27 percent for hip/knee.
    The number of readmissions considered planned (and, therefore, not 
counted as a readmission) would decrease by 319 for AMI; 1,313 for HF; 
866 for PN, 547 for COPD; and 298 for hip/knee.
    The proposed modification of the hip/knee measure cohort would have 
had the following effects on the measure: the measure cohort would have 
been reduced by 0.37 percent; the crude readmission rate would have 
been reduced by 0.02 absolute percentage points; and the mean RSRR 
would have been reduced by 0.03 absolute percentage points.

                                      Table IV.H.1.--Comparison of Planned Readmission Algorithms V 2.1 and 3.0 for AMI/HF/PN/COPD/HK Readmission Measures
                                                                      [Based on 2009-2012 discharges from 3,025 hospitals]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           AMI                       HF                        PN                       COPD                    Hip/Knee
                                                               ---------------------------------------------------------------------------------------------------------------------------------
                                                                   V 3.0        V 2.1        V 3.0        V 2.1        V 3.0        V 2.1        V 3.0        V 2.1        V 3.0        V 2.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Discharges..........................................      494,121      494,121    1,165,606    1,165,606      954,033      954,033      926,433      926,433      858,266      858,266
Number of Unplanned Readmissions..............................       88,567       88,248      268,072      266,759      169,213      168,347      195,595      195,048       45,205       44,907
Readmission Rate..............................................        17.9%        17.9%        23.0%        22.9%        17.7%        17.6%        21.1%        21.1%        5.27%        5.23%
Number of Planned Readmissions................................       11,577       11,896       15,293       16,606        5,867        6,733        5,858        6,405        2,283        2,581
Planned Readmission Rate......................................         2.3%         2.4%         1.3%         1.4%         0.6%         0.7%         0.6%         0.7%         0.3%         0.3%
% of Readmissions that are Planned............................        11.6%        11.9%         5.4%         5.9%         3.4%         3.8%         2.9%         3.2%         4.8%         5.4%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5. No Proposed Expansion of the Applicable Conditions for FY 2016
    In FY 2014 IPPS/LTCH PPS final rule we finalized for FY 2015 two 
new condition specific readmission measures: (1) Hospital-level 30-day 
all-cause risk-standardized readmission rate following elective total 
hip arthroplasty (THA) and total knee arthroplasty (TKA) (NQF 
1551); (2) Hospital-level 30-day all-cause risk-standardized 
readmission rate following chronic obstructive pulmonary disease (COPD) 
(NQF 1891), bringing the total number of finalized applicable 
conditions to five over the past two years of implementation. We also 
noted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50657) that 
commenters requested that we delay adding other condition-specific 
measures. In view of these requests and our belief that it is 
reasonable to allow more time for hospitals to become familiar with 
these 5 applicable conditions, before adding other applicable 
conditions we are not proposing any new applicable conditions for FY 
2016.
6. Proposed Expansion of the Applicable Conditions for FY 2017 to 
Include the Patients Readmitted Following Coronary Artery Bypass Graft 
(CABG) Surgery Measure
a. Background
    Under section 1886(q)(5)(B) of the Act, ``[b]eginning with FY 2015, 
the Secretary shall, to the extent practicable, expand the applicable 
conditions beyond the 3 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 Advisory Commission [MedPAC] 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 readmissions ``that 
represent conditions or procedures that are high volume or high 
expenditures under this title (or other criteria specified by the 
Secretary).''
    In accordance with section 1886(q)(5)(A) of the Act, effective for 
the calculation of the readmissions payment adjustment factors in FY 
2017, we are proposing to expand the scope of applicable conditions and 
procedures to include patients readmitted following CABG surgery. This 
proposal is consistent with the prior FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50657) where we indicated our intent to explore quality measures 
that address CABG readmission rates. We describe this measure in detail 
below.
    We are proposing the inclusion of the condition of CABG 
readmissions to the Hospital Readmissions Reduction Program based on 
MedPAC's recommendations. For this condition, we developed a Hospital-
Level 30-Day All-Cause Unplanned Readmission Following Coronary Artery 
Bypass Graft (CABG) Surgery measure. The National Quality Forum (NQF) 
Measure Applications Partnership (MAP) Hospital workgroup conditionally 
supported this measure for use in the Hospital Readmissions Reduction 
Program. The condition for support is based on attainment of NQF 
endorsement. On February 5, 2014, we submitted the Hospital-Level 30-
Day All-Cause Unplanned Readmission Following Coronary Artery Bypass 
Graft

[[Page 28109]]

(CABG) Surgery measure to NQF for endorsement.
    The rationale for expanding the applicable conditions and the 
measures used to estimate the excess readmissions ratio is described in 
detail below.
b. Overview of the Proposed CABG Readmissions Measure: Hospital-Level, 
30-Day, All-Cause, Unplanned Readmission Following Coronary Artery 
Bypass Graft (CABG) Surgery
    Among the seven conditions MedPAC identified in its 2007 Report to 
Congress as having the highest potentially preventable readmission 
rate, CABG had the highest rate of readmissions within 15 days 
following discharge (13.5 percent) and second highest average Medicare 
payment per readmission ($8,136).\27\ The annual cost to Medicare for 
potentially preventable CABG readmissions was estimated at $151 
million.\28\
---------------------------------------------------------------------------

    \27\ Medicare Payment Advisory Committee. Report to the 
Congress: Promoting Greater Efficiency in Medicare, 2007.
    \28\ Ibid.
---------------------------------------------------------------------------

    Evidence also shows variation in readmissions rates for patients 
with CABG surgery, 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 CABG in 2009 was 17.2 percent, and ranged from 13.9 percent to 22.1 
percent across 1,160 hospitals.\29\ Although data documenting 
readmission reductions in CABG are limited, there are data that support 
CABG readmission as an important quality metric.\30\ Studying 
readmission rates after CABG surgery in New York, Hannan, et al. found: 
(1) Wide variation in readmission rates; (2) the most common cause of 
readmission after CABG is complication related to the surgery; and (3) 
that hospital-level variables such as use of cardiac rehabilitation and 
length of stay influenced readmission rates.\31\ The authors also noted 
that readmission rates were not closely correlated to mortality rates 
and thus measuring readmission rates likely offers a complementary 
metric intended to assess a different domain of quality. Mortality 
measures are more likely to encourage improvements in clinical quality, 
including rapid triage, effective safety practices, and early 
intervention and coordination in the hospital. Readmission measures 
place an increased emphasis on aspects of quality related to effective 
transitions to the outpatient setting, clear communication with 
patients and caregivers, and collaboration across communities and 
providers. Together, these data suggest that reducing readmission rates 
following CABG surgery is an important target for quality improvement. 
In addition, inclusion of this measure in the Hospital Readmissions 
Reduction Program aligns with CMS' Quality Strategy objectives to 
promote successful transitions of care for patients from the acute care 
setting to the outpatient setting, and to reduce short-term readmission 
rates. In its final recommendations for rulemaking, the MAP 
conditionally supported the inclusion of the proposed CABG measure 
pending NQF endorsement and implementation. In order to address this 
concern, we submitted the CABG readmission measure to NQF for 
endorsement on February 5, 2014.
---------------------------------------------------------------------------

    \29\ Suter L.G., Wang, C., Vellanky S., Potteiger J., Curtis J., 
Lin Z., Geary L.L., Krumholz H.M., Drye E.D. Hospital-level 30-day 
All-Cause Unplanned Readmission Following Coronary Artery Bypass 
Graft Surgery: Report prepared for the Centers for Medicare & 
Medicaid Services. 2012.
    \30\ Rumsfield J, Allen L. Reducing Readmission Rates: Does 
Coronary Artery Bypass Graft Surgery Provide Clarity? JACC 
Cardiovasc Interv. May 2011;4(5):2.
    \31\ Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions 
after coronary artery bypass graft surgery in New York State. JACC 
Cardiovasc Interv. 2011;4(5):569-576.
---------------------------------------------------------------------------

    We believe the proposed Hospital-Level, 30-Day, All-Cause, 
Unplanned Readmission Measure Following CABG Surgery warrants inclusion 
in the Hospital Readmissions Reduction Program for FY 2017, because it 
meets the criteria in section 1886(q)(5)(A) of the Act, as a high cost, 
high volume condition that was recognized by MedPAC Report to Congress 
in 2007 as a specific medical condition to focus on for improving 
readmission rates. As with other readmission measures, this measure 
also excludes such unrelated readmissions as planned readmissions and 
transfers to other hospitals. For these reasons we believe this measure 
is appropriate for the Hospital Readmissions Reduction Program.
    We invite public comments on this proposal.
c. Proposed Methodology for the CABG Measure: Hospital-Level, 30-Day, 
All-Cause, Unplanned Readmission Following Coronary Artery Bypass Graft 
(CABG) Surgery
    The proposed CABG readmission measure assesses hospitals' 30-day, 
all-cause risk-standardized rate of unplanned readmission following 
admission for a CABG procedure. In general, the measure uses the same 
approach to risk-adjustment and hierarchical logistic modeling (HLM) 
methodology that is specified for the AMI, HF, PN, COPD and THA/TKA 
readmission measures that we previously adopted for this program. 
Information on how the measure employs HLM can be found in the 2012 
CABG 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 CABG, 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.
    We discuss the measure methodology below.
(1) Data Sources
    The proposed CABG readmission measure is based on data derived from 
administrative claims. It uses Medicare administrative data from 
hospitalizations for fee-for-service Medicare beneficiaries 
hospitalized for a CABG procedure.
(2) Definition of Outcome
    The proposed CABG readmission measure defines 30-day, all-cause 
readmission as an unplanned subsequent inpatient admission to any 
applicable acute care facility for 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-day readmission rates.32 33 Thirty days is

[[Page 28110]]

a meaningful timeframe for hospitals because readmissions are more 
likely attributable to care received within the index hospitalization 
and during the transition to the outpatient setting.
---------------------------------------------------------------------------

    \32\ 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.
    \33\ 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 proposed CABG readmission measure assesses all-cause unplanned 
readmissions (excluding planned readmissions) rather than readmissions 
for CABG only. We include all unplanned readmissions 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 CABG-
related readmissions may focus quality improvement efforts too narrowly 
rather than encouraging broader initiatives aimed at improving the 
overall care within the hospital and care transitions from the hospital 
setting. Moreover, it is often hard to exclude quality issues and 
accountability for a readmission based on the documented cause of 
readmission. For example, a patient who underwent a CABG surgery and 
developed a hospital-acquired infection might ultimately be readmitted 
for sepsis. It would be inappropriate to consider such a readmission to 
be unrelated to the care the patient received for their CABG surgery. 
Finally, while the measure does not presume that each readmission is 
preventable, quality improvement interventions generally have shown 
reductions in all types of readmissions.
    The proposed measure does not count planned readmissions as 
readmissions. Planned readmissions are identified in claims data using 
the CMS Planned Readmission Algorithm Version 3.0 that detects planned 
readmissions that may occur within 30 days of discharge from the 
hospital. Version 2.1 of the algorithm was finalized for use in the 
Hospital Readmissions Reduction Program in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50651 through 50655). We have since updated the 
algorithm to Version 3.0 as part of yearly measure maintenance. The 
proposed CABG readmission measure uses the planned readmission 
algorithm, tailored for CABG patients. We adapted the algorithm for 
this group of patients with input from Cardiothoracic surgeons and 
other experts, narrowing the types of readmissions considered planned 
since planned readmissions following CABG are less common and less 
varied than among patients discharged from the hospital following a 
medical admission. More detailed information on how the proposed CABG 
readmission measure incorporates the CMS Planned Readmission Algorithm 
Version 3.0 can be found in the 2012 CABG Readmission Measure 
Methodology Report on the CMS Web site (available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). For the 
proposed CABG readmission 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.
(3) Cohort of Patients
    In order to include a clinically coherent set of patients in the 
measure, we sought input from clinical experts regarding the inclusion 
of other concomitant cardiac and non-cardiac procedures, such as valve 
replacement and carotid endarterectomy. Adverse clinical outcomes 
following such procedures are higher than those following ``isolated'' 
CABG procedures; that is, CABG procedures performed without concomitant 
high-risk cardiac and noncardiac procedures.\34\ Limiting the measure 
cohort to ``isolated'' CABG patients is consistent with published 
reports of CABG outcomes; therefore, the proposed measure cohort 
considers only patients undergoing isolated CABG as eligible for 
inclusion in the measure. We defined isolated CABG patients as those 
undergoing CABG procedures without concomitant valve or other major 
cardiac, vascular or thoracic procedures. In addition, our clinical 
experts, consultants, and Technical Expert Panel (TEP) members agreed 
that an isolated CABG cohort is a clinically coherent cohort suitable 
for a risk-adjusted outcome measure. For detailed information on the 
cohort definition, we refer readers to the 2012 CABG Readmission 
Measure Methodology Report on the CMS Web site (available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html).
---------------------------------------------------------------------------

    \34\ Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions 
after coronary artery bypass graft surgery in New York State. JACC 
Cardiovasc Interv. 2011;4(5):569-576.
---------------------------------------------------------------------------

(4) Inclusion and Exclusion Criteria
    The proposed CABG readmission 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 enrollment to allow for adequate data for risk adjustment. 
The measure excludes the following admissions from the measure cohort: 
(1) Admissions for patients who are discharged against medical advice 
(excluded because providers do not have the opportunity to deliver full 
care and prepare the patient for discharge); (2) admissions for 
patients who die during the initial hospitalization (these patients are 
not eligible for readmission); (3) admissions for patients with 
subsequent qualifying CABG procedures during the measurement period (a 
repeat CABG procedure during the measurement period very likely 
represents a complication of the original CABG procedure and is a 
clinically more complex and higher risk surgery; therefore, we select 
the first CABG admission for inclusion in the measure and exclude 
subsequent CABG admissions from the cohort); and (4) admissions for 
patients without at least 30 days post-discharge enrollment in Medicare 
fee-for-service (excluded because the 30-day readmission outcome cannot 
be assessed in this group).
(5) Transferred Patients and Attribution of Readmission Outcome
    Among medical conditions, such as AMI, heart failure and pneumonia, 
transfers between acute care facilities can occur for a variety of 
different reasons and it is likely that the discharging hospital has 
the most influence over a patient's risk of readmission and therefore 
the readmission outcome is appropriately assigned to the hospital that 
discharges the patient. For that reason, the currently publicly 
reported AMI, heart failure and pneumonia readmission measures 
attribute the readmission outcome to the hospital discharging the 
patient, even if that is not the hospital that initially admitted the 
patient.
    In contrast, following CABG surgery, transfer to another acute care 
facility after CABG is most likely due to a complication of the CABG 
procedure or the peri-operative care the patient received. Therefore, 
the care provided by the hospital performing the CABG procedure likely 
dominates readmission risk, even among transferred patients. This 
viewpoint is supported by the high proportion of CABG readmissions for 
diagnoses such as heart failure, pleural effusion and pneumonia and 
endorsed by the clinical experts on both the Yale New Haven Hospital 
Health Services Corporation, Center for Outcomes Research and 
Evaluation (YNHHSC/CORE), and the Society of Thoracic Surgeons (STS) 
CABG readmission measure development working groups

[[Page 28111]]

and our TEP. Therefore, for this measure, the readmission outcome is 
attributed to the hospital performing the first (``index'') CABG, even 
if this is not the discharging hospital. For example, a patient may be 
admitted to hospital A for a CABG that qualifies them for inclusion in 
the measure and is then transferred to hospital B. The initial 
admission to hospital A and the admission to hospital B are considered 
one acute episode of care, made up of two inpatient admissions. The 
measure identifies transferred patients as those who are admitted to an 
acute care hospital on the same day or following day of discharge from 
an eligible admission.
(6) Risk-Adjustment
    The proposed CABG readmission measure adjusts for differences 
across hospitals in the level of risk their patients have for 
readmission relative to patients cared for by other hospitals. The 
measure uses administrative 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. 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.
(7) Calculating the Excess Readmissions Ratio
    The proposed CABG readmission measure uses the same methodology and 
statistical modeling approach as the other Hospital Readmissions 
Reduction Program measures. We published a detailed description of how 
the readmission measures estimate the excess readmissions ratio in the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53380 through 53381).
    In summary, we are proposing to adopt the Hospital-Level, 30-Day, 
All-Cause, Unplanned Readmission Following Coronary Artery Bypass Graft 
(CABG) Surgery measure in the Hospital Readmissions Reduction Program 
beginning in FY 2017.
    We note that the set of hospitals for which this measure is 
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, if not waived from 
participating, hospitals paid under section 1814(b)(3) of the Act), 
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 CABG 
readmissions measure is appropriate for use in both programs.
    We invite public comment on this proposal.
7. Maintenance of Technical Specifications for Quality Measures
    Technical specification of the re admission measures are provided 
at our Web site in the Measure Methodology Reports (available at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). Additional 
resources about the Hospital Readmissions Reduction Program and measure 
technical specifications and methodology are on the QualityNet Web site 
on the Resources Web page (available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772412995).
    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.
    We note that NQF's annual or triennial maintenance processes for 
endorsed measures may result in the NQF requiring updates to the 
measures. We believe that it is important to have in place a 
subregulatory process to incorporate nonsubstantive updates required by 
the NQF into the measure specifications we have adopted for the 
Hospital Readmissions Program so that these measures remain up-to-date. 
The NQF regularly maintains its endorsed measures through annual and 
triennial reviews, which may result in the NQF requiring updates to the 
measures. We note for this calendar year the AMI readmission measure is 
undergoing the NQF maintenance endorsement process.
    For the Hospital Readmissions Reduction Program, we are proposing 
to follow the finalized processes outlined for addressing changes to 
adopted measures in the Hospital IQR Program ``Maintenance of Technical 
Specifications for Quality Measures'' section found in section 
IX.A.1.b. of the preamble of this proposed rule.
    We believe this proposal adequately balances our need to 
incorporate NQF updates to NQF-endorsed Hospital Readmissions Reduction 
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 invite public comment on this 
proposal.
8. Waiver From the Hospital Readmissions Reduction Program for 
Hospitals Formerly Paid Under Section 1814(b)(3) of the Act (Sec.  
412.152 and Sec.  412.154(d))
    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. Section 1886(q)(2)(B)(ii) of the Act, however, 
allows the Secretary to exempt such hospitals from the Hospital 
Readmissions Reduction Program, provided that the State submit 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.''
    The State of Maryland entered into an agreement with CMS, effective 
January 1, 2014, to participate in CMS' new Maryland All-Payer Model, a 
5-year hospital payment model. This model is being implemented under 
section 1115A of the Act, as added by section 3021 of the Affordable 
Care Act, which authorizes the testing of innovative payment and 
service delivery models, including models that allow States to ``test 
and evaluate systems of all-payer payment reform for the medical care 
of residents of the State, including dual-eligible individuals.'' 
Section 1115A of the Act authorizes the Secretary to waive such 
requirements of titles XI and XVIII of the Act as may be necessary 
solely for purposes of carrying out section 1115A of the Act with 
respect to testing models.

[[Page 28112]]

    As part of this agreement, the State of Maryland also elected to no 
longer have Medicare pay Maryland hospitals in accordance with section 
1814(b)(3) of the Act. Therefore, section 1886(q)(2)(B)(ii) of the Act 
is no longer applicable to Maryland hospitals. The effect of Maryland 
hospitals no longer being paid under 1814(b)(3) of the Act is that they 
are not entitled to be exempted from the Hospital Readmissions 
Reduction Program under section 1886(q)(2)(B)(ii) of the Act and, but 
for the model, would be included in the Hospital Readmissions Reduction 
Program. In other words, the exemption from the Hospital Readmissions 
Reduction Program under section 1814(b)(3) of the Act no longer 
applies. However Maryland hospitals will not be participating in the 
Hospital Readmissions Reduction Program because section 1886(q) and its 
implementing regulations have been waived for purposes of the model, 
subject to the terms of the agreement.
    We are proposing to make conforming changes to the implementing 
regulations to reflect this change. Under Sec.  412.152, we are 
proposing to delete from the definition of an ``applicable hospital'' 
the following language: ``or 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.'' Under Sec.  412.154, we are 
proposing to delete Sec.  412.154(d) in its entirety. We invite public 
comment on these proposals.
9. Floor Adjustment Factor for FY 2015 (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 . . . .'' The calculation of this ratio is codified 
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 (77 FR 53386).
    Consistent with 1886(q)(3) of the Act, codified at Sec.  
412.154(c)(2), the adjustment factor is either the greater of the ratio 
or, for FY 2015 and subsequent fiscal years, a floor adjustment factor 
of 0.97. Under our established policy, the ratio is rounded to the 
fourth decimal place. In other words, for FY 2015 and subsequent fiscal 
years, a hospital subject to the Hospital Readmissions Reduction 
Program will have an adjustment factor that is between 1.0 and 0.9700.
10. Applicable Period for FY 2015
    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 readmissions 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.
    Consistent with the definition at Sec.  412.152, we established 
that the applicable period for FY 2014 under the Hospital Readmissions 
Reduction Program is the 3-year period from July 1, 2009, to June 30, 
2012. That is, we determined the excess readmissions ratios and 
calculate the 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 (78 FR 50669).
    In this proposed rule, for FY 2015, consistent with the definition 
at Sec.  412.152, we are proposing an ``applicable period'' for the 
Hospital Readmissions Reduction Program to be the 3-year period from 
July 1, 2010 to June 30, 2013. In other words, we are proposing that 
the excess readmissions ratios and the payment adjustment (including 
aggregate payments for excess readmissions and aggregate payments for 
all discharges) for FY 2015 would be calculated based on data from the 
3-year time period of July 1, 2010 to June 30, 2013. We note that for 
the purpose of modeling the readmissions payment adjustments for FY 
2015 in this proposed rule, the excess readmissions ratios will be 
based on the applicable period from FY 2014 (that is July 1, 2009 to 
June 30, 2012) and the MedPAR claims data to calculate the readmissions 
payment adjustments will be based on the proposed applicable period for 
FY 2015 (that is July 1, 2010 to June 30, 2013).
    We invite public comment on these proposals.
11. Proposed Inclusion of THA/TKA and COPD Readmissions Measures To 
Calculate Aggregate Payments for Excess Readmissions Beginning in FY 
2015
    Under the Hospital Readmissions Reduction Program the ``base 
operating DRG payment amount'' defined at Sec.  412.152 is used both to 
determine the readmission adjustment factor that accounts for excess 
readmissions under section 1886(q)(3) of the Act and to determine which 
payment amounts will be adjusted to account for excess readmissions 
under section 1886(q) of the Act. Consistent with section 1886(q)(2) of 
the Act, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 
53383), under the regulations at Sec.  412.152, we define the ``base 
operating DRG payment amount'' and specify that it does not include 
adjustments or add-on payments for IME, DSH, outliers and low-volume 
hospitals as required by section 1886(q)(2) of the Act. Furthermore, 
consistent with section 1886(q)(2)(B)(i) of the Act, for SCHs and for 
MDHs for FY 2013, the definition of ``base operating DRG payment 
amount'' at Sec.  412.152 excludes the difference between the 
hospital's applicable hospital-specific payment rate and the Federal 
payment rate.
    For FY 2015 and subsequent years, for purposes of calculating the 
payment adjustment factors and applying the payment methodology, we are 
proposing that the base operating DRG payment amount for MDHs includes 
the difference between the hospital-specific payment rate and the 
Federal payment rate (as applicable).
    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. . . .'' The definition 
of ``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

[[Page 28113]]

payments for all discharges) are codified at Sec.  412.154(c)(2) of the 
regulations (77 FR 53387).
    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 readmissions 
ratio . . . for such hospital for such applicable period minus 1.'' We 
codified this definition of ``aggregate payments for excess 
readmissions'' under the regulations at Sec.  412.152 as the product, 
for each applicable condition, of: (1) The base operating DRG payment 
amount for the hospital for the applicable period for such condition; 
(2) the number of admissions for such condition for the hospital for 
the applicable period; and (3) the excess readmissions ratio for the 
hospital for the applicable period minus 1 (77 FR 53675).
    The excess readmissions ratio is a hospital-specific ratio 
calculated for each applicable condition. Specifically, section 
1886(q)(4)(C) of the Act defines the excess readmissions 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 readmissions 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 (as 
described in further detail later in this section).
    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. We codified this definition of 
``aggregate payments for all discharges'' under the regulations at 
Sec.  412.152 (77 FR 53387).
    We finalized the inclusion of two additional applicable conditions, 
COPD and THA/TKA, to the Hospital Readmissions Reduction Program 
beginning for FY 2015 in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50657 through 50664). In this section, we discuss the proposed 
methodology to include these two additional measures in the calculation 
of the readmissions payment adjustment for FY 2015. Specifically, we 
are proposing how the addition of COPD and THA/TKA applicable 
conditions would be included in the calculation of the aggregate 
payments for excess readmissions, which is the numerator of the 
readmissions payment adjustment. We note that this proposal does not 
alter our established methodology for calculating aggregate payments 
for all discharges, that is, the denominator of the ratio (77 FR 
53387).
    As discussed above, when calculating the numerator (aggregate 
payments for excess readmissions), we determine 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, 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 readmissions 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 to calculate the excess 
readmissions 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 2015, we are proposing to use MedPAR claims with discharge 
dates that are on or after July 1, 2010, and no later than June 30, 
2013. Under our established methodology that 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 2010 through FY 2013 MedPAR data files can be purchased from 
CMS. Use of these files allows the public to verify the readmissions 
adjustment factors. Interested individuals may order these files 
through the CMS 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.
    For this proposed rule, we are proposing 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, 2010, and no later than June 30, 2013. However, we 
note that for the purpose of modeling the proposed FY 2015 readmissions 
payment adjustment factors for this proposed rule, we are using excess 
readmissions ratios for applicable hospitals from the FY 2014 Hospital 
Readmissions Reduction Program applicable period. For the final rule, 
applicable hospitals will have had the opportunity to review and 
correct data from the proposed FY 2015 applicable period of July 1, 
2010 to June 30, 2013 before they are made public under our policy 
regarding the reporting of hospital-specific information, which is 
discussed later in this section.
    In this proposed rule, for FY 2015, we are proposing to use MedPAR 
data from July 1, 2010 through June 30, 2013. Specifically, in this 
proposed rule, we are using the March 2011 update of the FY 2010 MedPAR 
file to identify claims within FY 2010 with discharges dates that are 
on or after July 1, 2010, the March 2012 update of the FY 2011 MedPAR 
file to identify claims within FY 2011, the March 2013 update of the FY 
2012 MedPAR file to identify claims within FY 2012, and the December 
2013 update of the FY 2013 MedPAR file to identify claims within FY 
2013 with

[[Page 28114]]

discharge dates no later than June 30, 2013. For the final rule, we are 
proposing to use the same MedPAR files as listed above for claims 
within FY 2010, FY 2011 and FY 2012. For claims within FY 2013, we are 
proposing to use in the final rule the March 2014 update of the FY 2013 
MedPAR file.
    In order to identify the admissions for each condition, including 
the two additional conditions THA/TKA and COPD, to calculate the 
aggregate payments for excess readmissions for an individual hospital, 
for FY 2015, we are proposing to identify each applicable condition 
using the ICD-9-CM codes used to identify applicable conditions to 
calculate the excess readmissions ratios. Under our existing policy, 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 (76 FR 
51669). 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 QualityNet 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, for FY 2015, we are 
proposing to identify the claim as an applicable condition consistent 
with the methodology to identify conditions to calculate the excess 
readmissions ratio. In other words, the applicable conditions of AMI, 
HF and PN are identified for the calculation of aggregate payments for 
excess readmissions if the ICD-9-CM code for that condition is listed 
as the principal diagnosis on the claim.
    In order to identify claims with the applicable condition of THA/
TKA, we are proposing that any claim that has the procedure codes for 
THA/TKA listed in any diagnosis/procedure field of the claim would be 
included in the calculation of aggregate payments for readmissions, 
consistent with the methodology to calculate the excess readmissions 
ratio for THA/TKA. In order to identify claims with the applicable 
condition of COPD, we are proposing to identify claims that either have 
the ICD-9-CM code for that condition is listed as the principal 
diagnosis on the claim or has a principal diagnosis of some respiratory 
failure along with secondary diagnosis of COPD.
    Under our established methodology for calculating aggregate 
payments for readmissions, admissions that are not considered index 
admissions for the purpose of the readmissions measures are excluded 
from the calculation of the excess readmissions ratio, and therefore 
also are not considered admissions for the purposes of determining a 
hospital's aggregate payments for excess readmissions (78 FR 50670 
through 50876). With the addition of THA/TKA and COPD as applicable 
conditions beginning in FY 2015, we are proposing to modify our current 
methodology to identify the admissions included in the calculation of 
``aggregate payments for excess readmissions'' for THA/TKA and COPD in 
the same manner as the original applicable conditions (AMI, HF and PN). 
That is, THA/TKA and COPD admissions that would not considered index 
admissions in the readmissions measures also would not considered 
admissions for the purposes of calculation a hospital's aggregate 
payments for excess readmissions.
    In this proposed rule, for FY 2015, we are proposing to continue to 
apply the same exclusions to the claims in the MedPAR file as we 
applied for FY 2014 (78 FR 50670 through 50673), and we are proposing 
to apply those exclusions for the two additional applicable conditions, 
THA/TKA and COPD. For FY 2015, in order to have the same types of 
admissions to calculate aggregate payments for excess readmissions as 
is used to calculate the excess readmissions ratio, we are proposing to 
identify admissions for all five applicable conditions, AMI, HF, PN, 
THA/TKA and COPD, for the purposes of calculating aggregate payments 
for excess readmissions as follows:
     We would exclude admissions that are identified as an 
applicable condition if the patient died in the hospital, as identified 
by the discharge status code on the MedPAR claim.
     We would exclude admissions identified as an applicable 
condition for which the patient was transferred to another provider 
that provides acute care hospital services (that is, a CAH or an IPPS 
hospital), as identified through examination of contiguous stays in 
MedPAR at other hospitals.
     We would exclude admissions identified as an applicable 
condition 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.
     For conditions identified as AMI, we would exclude claims 
that are same day discharges, as identified by the admission date and 
discharge date on the MedPAR claim.
     We would exclude 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 would exclude admissions for patients without at least 
30 days post-discharge enrollment in Medicare Parts A and B fee-for-
service, based on the information provided in the Medicare Enrollment 
Database.
     We would exclude all multiple admissions within 30 days of 
a prior index admission's discharge date, 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 
readmissions ratio.
    These exclusions are consistent with our current methodology, which 
was established in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50671).
    In addition to the exclusions described above for all five 
applicable conditions, for FY 2015, we are proposing the following 
steps to identify admissions specifically for THA/TKA for the purposes 
of calculating aggregate payments for excess readmissions:
     We are proposing to exclude admissions for THA/TKA for all 
transfer cases regardless of whether the discharge was a transfer to 
another hospital or from another hospital, consistent with the 
calculation of the excess readmissions ratio for THA/TKA.
     We are proposing to exclude admissions for THA/TKA for 
cases where the discharge includes a femur, hip, or pelvic fracture 
coded in the principal or secondary diagnosis fields, consistent with 
the calculation of the excess readmissions ratio for THA/TKA.
     We are proposing to exclude admissions for THA/TKA for 
cases where the discharge includes a mechanical complication coded in 
the principal diagnosis field, consistent with the calculation of the 
excess readmissions ratio for THA/TKA.
     We are proposing to exclude admissions for THA/TKA for 
cases where the discharge includes a malignant neoplasm of the pelvis, 
sacrum, coccyx, lower limbs, or bone/bone marrow or a disseminated 
malignant neoplasm coded in the principal diagnosis field, consistent 
with the calculation of the excess readmissions ratio for THA/TKA.
     We are proposing to exclude admissions for THA/TKA for 
cases where the discharge includes more than two hip/knee procedures.
     We are proposing to exclude admissions for THA/TKA for 
cases that meet either any of the following conditions or following 
procedures

[[Page 28115]]

concurrent with THA/TKA: revision procedures; partial hip arthroplasty 
(PHA) procedures; resurfacing procedures; and removal of implanted 
devices/prostheses.
    Furthermore, we are proposing to 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 readmissions ratios 
based solely on admissions and readmissions for Medicare FFS patients. 
Therefore, consistent with our established methodology, for FY 2015, we 
would exclude admissions for patients enrolled in Medicare Advantage as 
identified in the Medicare Enrollment Database. This proposal is 
consistent with how admissions for Medicare Advantage patients are 
identified in the calculation of the excess readmissions ratios under 
our established methodology. The tables below list the ICD-9-CM codes 
we are proposing to use to identify each applicable condition to 
calculate the aggregate payments for excess readmissions under this 
proposal for FY 2015. The tables include the ICD-9-CM codes we are 
proposing to use to identify the two conditions, THA/TKA and COPD, 
added to the Hospital Readmissions Reduction Program beginning for FY 
2015. These ICD-9-CM codes also would be used to identify the 
applicable conditions to calculate the excess readmissions ratios, 
consistent with our established policy (76 FR 51673 through 51676).

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


[[Page 28116]]


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


                  ICD-9-CM Codes To Identify Chronic Obstructive Pulmonary Disease (COPD) Cases
----------------------------------------------------------------------------------------------------------------
                ICD-9-CM Code                                         Description of code
----------------------------------------------------------------------------------------------------------------
491.21......................................  Obstructive chronic bronchitis; With (acute) exacerbation; acute
                                               exacerbation of COPD, decompensated COPD, decompensated COPD with
                                               exacerbation.
491.22......................................  Obstructive chronic bronchitis; with acute bronchitis.
491.8.......................................  Other chronic bronchitis. Chronic: tracheitis, tracheobronchitis.
491.9.......................................  Unspecified chronic bronchitis.
492.8.......................................  Other emphysema; emphysema (lung or pulmonary): NOS, centriacinar,
                                               centrilobular, obstructive, panacinar, panlobular, unilateral,
                                               vesicular. MacLeod's syndrome; Swyer-James syndrome; unilateral
                                               hyperlucent lung.
493.20......................................  Chronic obstructive asthma; asthma with COPD, chronic asthmatic
                                               bronchitis, unspecified.
493.21......................................  Chronic obstructive asthma; asthma with COPD, chronic asthmatic
                                               bronchitis, with status asthmaticus.
493.22......................................  Chronic obstructive asthma; asthma with COPD, chronic asthmatic
                                               bronchitis, with (acute) exacerbation.
496.........................................  Chronic: nonspecific lung disease, obstructive lung disease,
                                               obstructive pulmonary disease (COPD) NOS. NOTE: This code is not
                                               to be used with any code from categories 491-493.
518.81 *....................................  Other diseases of lung; acute respiratory failure; respiratory
                                               failure NOS.
518.82 *....................................  Other diseases of lung; acute respiratory failure; other pulmonary
                                               insufficiency, acute respiratory distress.
518.84 *....................................  Other diseases of lung; acute respiratory failure; acute and
                                               chronic respiratory failure.
799.1 *.....................................  Other ill-defined and unknown causes of morbidity and mortality;
                                               respiratory arrest, cardiorespiratory failure.
----------------------------------------------------------------------------------------------------------------
* Principal diagnosis when combined with a secondary diagnosis of AECOPD (491.21, 491.22, 493.21, or 493.22).


ICD-9-CM Codes To Identify Total Hip Arthroplasty/Total Knee Arthroplaty
                             (THA/TKA) Cases
------------------------------------------------------------------------
          ICD-9-CM Code                     Description of code
------------------------------------------------------------------------
81.51............................  Total hip arthroplasty.
81.54............................  Total knee arthroplasty.
------------------------------------------------------------------------

    For FY 2015, we are proposing to calculate aggregate payments for 
excess readmissions, using MedPAR claims from July 1, 2010 to June 30, 
2013, 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 proposed exclusions for the types of admissions 
discussed above. To calculate aggregate payments for excess 
readmissions, we are proposing to calculate the base operating DRG 
payment amounts for all claims in the 3-year applicable period for each 
applicable condition (AMI, HF, PN, COPD and THA/TKA) based on the 
claims we have identified as described above. Once we have calculated 
the base operating DRG amounts for all the claims for the five 
applicable conditions, we are proposing to sum the base operating DRG 
payments amounts by each condition, resulting in five summed amounts, 
one amount for each of the five applicable conditions. We are proposing 
to then multiply the amount for each condition by the respective excess 
readmissions ratio minus 1 when that excess readmissions ratio is 
greater than 1, which indicates that a hospital has performed, with 
respect to readmissions for that applicable condition, worse than the 
average hospital with similar patients. Each product in this 
computation represents the payments for excess readmissions for that 
condition. We are proposing to then sum the resulting products which 
represent a hospital's proposed ``aggregate payments for excess 
readmissions'' (the numerator of the ratio). Because this calculation 
is performed separately for each of the five conditions, a hospital's 
excess readmissions ratio must be less than or equal to 1 on each 
measure to aggregate payments for excess readmissions (and thus a 
payment reduction under the Hospital Readmissions Reduction Program). 
We note that we are not proposing any changes to our existing 
methodology to calculate ``aggregate payments for all discharges'' (the 
denominator of the ratio).
    We are proposing the following methodology for FY 2015 as displayed 
in the chart below.

[[Page 28117]]



        Formulas To Calculate the Readmissions Adjustment Factor
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Aggregate payments for excess readmissions = [sum of base operating DRG
 payments for AMI x (Excess Readmissions Ratio for AMI-1)] + [sum of
 base operating DRG payments for HF x (Excess Readmissions Ratio for HF-
 1)] + [sum of base operating DRG payments for PN x (Excess Readmissions
 Ratio for PN-1)] + [sum of base operating DRG payments for COPD) x
 (Excess Readmissions Ratio for COPD-1)] + [sum of base operating DRG
 payments for THA/TKA x (Excess Readmissions Ratio for THA/TKA-1)].
* Note, if a hospital's excess readmissions ratio for a condition is
 less than/equal to 1, then there are no aggregate payments for excess
 readmissions for that condition included in this calculation.
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).
Proposed Readmissions Adjustment Factor for FY 2015 is the higher of the
 ratio or 0.9700.
------------------------------------------------------------------------
* Based on claims data from July 1, 2010 to June 30, 2013 for FY 2015.

    We invite public comment on these proposals.
12. Hospital Readmissions Reduction Program Extraordinary Circumstances 
Exceptions
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50676), we indicated 
that commenters had requested a potential waiver or exemption process 
for hospitals located in areas that experience disasters or other 
extraordinary circumstances, even though we had not proposed an 
extraordinary circumstance exceptions/exemptions (ECE) policy for the 
Hospital Readmissions Reduction Program. We noted that there are 
several policy and operational considerations in developing a disaster 
exemption process for the Hospital Readmissions Reduction Program.
    We welcome public comment on whether an exemption process should be 
implemented, and the policy and operational considerations for a 
potential Hospital Readmissions Reduction Program ECE policy.

I. 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 2014, the available funding pool was equal to 1.25 
percent of the base-operating DRG payments to all participating 
hospitals, as estimated by the Secretary. The size of the applicable 
percentage has increased to 1.50 percent for FY 2015 and will increase 
to 1.75 percent for FY 2016, and to 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.
2. Overview of Previous Hospital VBP Program Rulemaking
    We refer readers to the Hospital Inpatient VBP Program final rule 
(76 FR 26490 through 26547), FY 2012 IPPS/LTCH PPS final rule (76 FR 
51653 through 51660), CY 2012 OPPS/ASC final rule with comment period 
(76 FR 74527 through 74547), FY 2013 IPPS/LTCH PPS final rule (77 FR 
53567 through 53614), FY 2014 IPPS/LTCH PPS final rule (78 FR 50676 
through 50707), and CY 2014 OPPS/ASC final rule with comment period (78 
FR 75120 through 75121) for further descriptions of our policies for 
the Hospital VBP Program.
    We have also codified certain requirements for the Hospital VBP 
Program at Sec. Sec.  412.160 through 412.167 of our regulations.
3. FY 2015 Payment Details
a. Payment Adjustments
    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 rule for further details.
    Under section 1886(o)(7)(C)(iii) of the Act, the applicable percent 
for the FY 2015 Hospital VBP Program is 1.50 percent. Using the 
methodology we adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53571 through 53573), we estimate that the total amount available for 
value-based incentive payments for FY 2015 is $1.4 billion, based on 
the December 2013 update of the FY 2013 MedPAR file. We intend to 
update this estimate for the FY 2015 IPPS/LTCH PPS final rule, using 
the March 2014 update of the FY 2013 MedPAR file.
    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 that will be applied 
to the base operating DRG payment amount for each discharge occurring 
in FY 2015, on a per-claim basis. We are publishing proxy value-

[[Page 28118]]

based incentive payment adjustment factors in Table 16 of this proposed 
rule (which is available via the Internet on the CMS Web site). The 
proxy factors are based on the TPSs from the FY 2014 Hospital VBP 
Program. These FY 2014 performance scores are the most recently 
available performance scores that hospitals have been given the 
opportunity to review and correct. The slope of the linear exchange 
function used to calculate those proxy value-based incentive payment 
adjustment factors was 2.0952951561. This slope, along with the 
estimated amount available for value-based incentive payments, is also 
published in Table 16.
    We intend to update this table as Table 16A in the final rule 
(which will be available via the Internet on the CMS Web site) to 
reflect changes based on the March 2014 update to the FY 2013 MedPAR 
file. We also intend to update the slope of the linear exchange 
function used to calculate those updated proxy value-based incentive 
payment adjustment factors. The updated proxy value-based incentive 
payment adjustment factors for FY 2015 will continue to be based on 
historic FY 2014 Program TPSs because hospitals will not have been 
given the opportunity to review and correct their actual TPSs for the 
FY 2015 Hospital VBP Program until after the FY 2015 IPPS/LTCH PPS 
final rule is published. After hospitals have been given an opportunity 
to review and correct their actual TPSs for FY 2015, we will add Table 
16B (which will be available via the Internet 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 2015 
Hospital VBP Program. We expect that Table 16B will be posted on the 
CMS Web site in October 2014.
b. Base Operating DRG Payment Amount Definition for Medicare-Dependent 
Small Rural Hospitals (MDHs)
    Section 106 of Public Law 113-93, the Protecting Access to Medicare 
Act of 2014 (PAMA), extended the MDH program through March 31, 2015. We 
note that that the special treatment for MDHs under section 
1886(o)(7)(D)(ii)(I) of the Act, with regard to definition of base 
operating DRG payment amount, does not apply to discharges occurring 
after FY 2013.
    For FY 2015 and subsequent years, for purposes of calculating the 
payment adjustment factors and applying the payment methodology, we are 
proposing that the base operating DRG payment amount for MDHs will 
include the difference between the hospital-specific payment rate and 
the Federal payment rate (as applicable). We are also proposing to 
revise the definition of base operating DRG payment amount in Sec.  
412.160 paragraph (2) of our regulations to reflect this change. We 
welcome comments on this proposal.
4. Measures for the FY 2017 Hospital VBP Program
a. Measures Previously Adopted
    In the FY 2013 IPPS/LTCH PPS final rule, we finalized our proposal 
to readopt measures from the prior program year for each successive 
program year, unless proposed and finalized otherwise (for example, 
because one or more of the measures is ``topped-out'' or for other 
policy reasons). We stated our belief that this policy would facilitate 
measure adoption for the Hospital VBP Program for future years, as well 
as align the Hospital VBP Program with the Hospital IQR Program (77 FR 
53592). The FY 2016 Hospital VBP Program includes the following 
measures:

         Finalized Measures for the FY 2016 Hospital VBP Program
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                     Clinical Process of Care Domain
------------------------------------------------------------------------
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 Arrival Who
                                        Received a Beta-Blocker During
                                        the Perioperative Period.
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 Domain
------------------------------------------------------------------------
HCAHPS...............................  Hospital Consumer Assessment of
                                        Healthcare Providers and Systems
                                        Survey.
------------------------------------------------------------------------
                             Outcome Domain
------------------------------------------------------------------------
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 Domain
------------------------------------------------------------------------
MSPB-1...............................  Medicare Spending per
                                        Beneficiary.
------------------------------------------------------------------------


[[Page 28119]]

b. Proposed Changes Affecting Topped Out Measures
(1) Proposed Removal of Six Topped-Out Measures
    For the FY 2017 Hospital VBP Program measure set, we evaluated 
whether any measures that we previously adopted are now ``topped out'' 
by focusing on two criteria: (1) National measure data showing 
statistically indistinguishable performance levels at the 75th and 90th 
percentiles; and (2) national measure data showing a truncated 
coefficient of variation (TCV) less than 0.10. We refer readers to the 
Hospital Inpatient VBP Program final rule (76 FR 26496 through 26497) 
for further discussion of these current ``topped-out'' criteria and to 
our proposal below to modify the second criterion.
    Based on our evaluation of the most recently available data, we 
believe that PN-6, SCIP-Card-2, SCIP-Inf-2, SCIP-Inf-3, SCIP-Inf-9, and 
SCIP-VTE-2 are all now ``topped-out.'' Therefore, we are proposing to 
remove these six measures from the FY 2017 Hospital VBP measure set 
because measuring hospital performance on these measures will have no 
meaningful effect on a hospital's TPS. We believe that removing these 
``topped-out'' measures will continue to ensure that we make valid 
statistical comparisons through our finalized scoring methodology, and 
will reduce the reporting burden on participating hospitals.
    We welcome public comment on this proposal.
(2) Proposed Change to Truncated Coefficient of Variation Criterion to 
Determine Whether a Measure is Topped Out
    As stated above, we have adopted two criteria for determining the 
``topped-out'' status of Hospital VBP Program measures:
     Statistically indistinguishable performance at the 75th 
and 90th percentiles; and
     Truncated coefficient of variation < 0.10.
    We are proposing to modify the second criterion to the following:
     Truncated coefficient of variation <= 0.10.
    The coefficient of variation (CV) is a common statistic that 
expresses the standard deviation as a percentage of the sample mean in 
a way that is independent of the units of observation. Applied to this 
analysis, a large CV would indicate a broad distribution of individual 
hospital scores, with large and presumably meaningful differences 
between hospitals in relative performance. A small CV would indicate 
that the distribution of individual hospital scores is clustered 
tightly around the mean value, suggesting that it is not useful to draw 
distinctions among individual hospitals' measure performance. By 
proposing to change the truncated CV from ``less than'' to ``less than 
or equal to'' 0.10 under our ``topped out'' test, we will better be 
able to distinguish measures with significant variation in performance 
among hospitals and more accurately apply determine what measures are 
``topped out'' for purposes of the Program.
    We welcome public comments on this proposal.
c. Proposed New Measures for the FY 2017 Hospital VBP Program
    We considered if we should adopt additional measures for the FY 
2017 Hospital VBP Program. We considered which 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, and our priorities for quality improvement 
as outlined in the NQS (available for download at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/CMS-Quality-Strategy.pdf).
    We believe that the following three proposed measures meet the 
statutory requirements for inclusion in the FY 2017 Hospital VBP 
Program. We also believe that these measures represent important 
components of quality improvement in the acute inpatient hospital 
setting.

(1) Methicillin-Resistant Staphylococcus aureus (MRSA) Bacteremia (NQF 
1716)

    Methicillin-Resistant Staphylococcus aureus (MRSA) Bacteremia (NQF 
1716) is a risk-adjusted outcome measure monitoring hospital 
onset of MRSA bloodstream infection events using the standardized 
infection ratio (MRSA bacteremia SIR) among all inpatients in the 
facility, and is reported via CDC's National Healthcare Safety Network 
(NHSN). We adopted this measure beginning with the FY 2015 payment 
determination under the Hospital IQR Program in the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51630), and initial measure data were posted on 
Hospital Compare in December 2013.
    We remain concerned about the persistent public health threat 
presented by MRSA infections. According to a 2013 study available at 
the NIH Web site, MRSA ``results in longer hospitalization, increased 
expenses, and poorer patient prognosis,'' and MRSA ``has been swiftly 
increasing worldwide over the past several decades.'' \35\ As we noted 
in the FY 2012 IPPS/LTCH PPS final rule, invasive MRSA infections may 
cause about 18,000 deaths during a hospital stay a year.\36\
---------------------------------------------------------------------------

    \35\ Tatokoro et al. BMC Urology 2013, 13:35. Available at 
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3720197/pdf/1471-2490-13-35.pdf.
    \36\ Catherine Liu, Arnold Bayer, et al., Clinical practice 
Guidelines for the treatment of Methicillin-Resistant Staphylococcus 
aureus Infections in Adult and Children. Infectious Disease Society 
of America 2011; 52:e18.
---------------------------------------------------------------------------

    The MAP supported the direction of the MRSA bacteremia measure for 
inclusion in the Hospital VBP Program in the MAP Pre-Rulemaking Report: 
2013 Recommendations on Measures Under Consideration by HHS found at 
https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746. The MAP noted that the 
measure addresses an NQS priority not adequately addressed in the 
program measure set, the measure should be applied following public 
reporting on Hospital Compare, and that the most recent version of the 
NQF-endorsed measure should be applied.
    We believe that this measure is eligible for the Hospital VBP 
Program based on the MAP recommendation, our adoption of the most 
recent NQF-endorsed version under the Hospital IQR Program, and our 
posting of measure data on Hospital Compare. Based on the continued 
danger that MRSA infections present to patients and to the public 
health, we further believe that this measure is appropriate for the 
Hospital VBP Program. Therefore, we are proposing to adopt the MRSA 
bacteremia measure for the FY 2017 Hospital VBP Program, and we are 
proposing to place the measure into the Safety domain.
    We invite public comment on this proposal.

(2) Clostridium difficile Infection (NQF 1717)

    Clostridium difficile Infection (NQF 1717) is a risk-
adjusted outcome measure monitoring hospital onset of C. difficile 
infection events using the standardized infection ratio (C. difficile 
SIR) among all inpatients in the facility, and is reported via CDC's 
NHSN. We adopted this measure for the FY 2015 payment determination 
under the Hospital IQR Program in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51630 through 51631), and initial measure data were posted on 
Hospital Compare in December 2013.
    As with MRSA infections, we are concerned about the seriousness of 
C. difficile infections. According to a 2012

[[Page 28120]]

study, ``infection with Clostridium difficile is associated with poor 
outcomes for patients. Previous work has determined that, regardless of 
baseline risk of death, for every 10 patients that acquire C. difficile 
in hospital, 1 patient will die. Clostridium difficile is also 
associated with increased health care costs. One of the primary 
mechanisms by which C. difficile increases costs is by increasing the 
length of time patients spend in hospital.'' \37\ As we stated in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51630 through 51631), C. 
difficile infections have become more frequent, more severe, and more 
difficult to treat in recent years. Each year, tens of thousands of 
people in the United States get sick from C. difficile, including some 
otherwise healthy people who are not hospitalized or taking 
antibiotics.
---------------------------------------------------------------------------

    \37\ Forster et al. ``The effect of hospital-acquired infection 
with Clostridium difficile on length of stay in hospital.'' Canadian 
Medical Association Journal, January 10, 2012. Available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3255231/pdf/1840037.pdf.
---------------------------------------------------------------------------

    The MAP supported the direction of the C. difficile infection 
measure for inclusion in the Hospital VBP Program in the MAP Pre-
Rulemaking Report: 2013 Recommendations on Measures Under Consideration 
by HHS found at https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746. The MAP noted that the 
measure addresses an NQS priority not adequately addressed in the 
program measure set, the measure should be applied following public 
reporting on Hospital Compare, and that the most recent version of the 
NQF-endorsed measure should be applied.
    We believe that this measure is eligible for the Hospital VBP 
Program based on the MAP recommendation, our adoption of the most 
recent NQF-endorsed version under the Hospital IQR Program, and our 
posting of measure data on Hospital Compare, as well as the continued 
danger that C. difficile infections present to patients and the public 
health. Therefore, we are proposing to adopt the C. difficile SIR 
measure for the FY 2017 Hospital VBP Program, and we are proposing to 
place the measure into the Safety domain.
    We invite public comment on this proposal.

(3) PC-01: Elective Delivery Prior to 39 Completed Weeks Gestation (NQF 
0469)

    PC-01: Elective Delivery Prior to 39 Completed Weeks Gestation (NQF 
0469) is a chart-abstracted measure that we adopted beginning 
with the FY 2015 payment determination for the Hospital IQR Program in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53528 through 53530). 
Initial measure data were posted on Hospital Compare in December 2013. 
Although this is a chart-abstracted measure, we finalized our policy in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53528 through 53529) that 
this measure would be collected in aggregated numerator, denominator, 
and exclusion counts per hospital via a Web-based tool, instead of 
collecting patient-level data from hospitals.
    As we described in the FY 2013 IPPS/LTCH PPS final rule referenced 
above, the Strong Start Initiative (http://www.innovation.cms.gov/initiatives/strong-start/) was launched to help reduce early elective 
births. At launch, the HHS Secretary stated that more than half a 
million infants are born prematurely in America each year. Fortunately, 
the early elective birth rate has steadily decreased. In 2012, the 
number of early elective births had decreased to approximately 456,000 
or 11.55 percent of the total number of births.\38\ Early elective 
births may require additional medical attention and early intervention 
services. Research indicates that elective deliveries before 39 weeks 
increase the risk of significant complications for mother and baby, as 
well as long-term health problems. 39 40 41 42 Early 
elective births are a public health problem that has significant 
consequences for families well into a child's life.
---------------------------------------------------------------------------

    \38\ Martin, JA, Hamilton, BE, Osterman, MJK, Curtin, SC, 
Mathews, TJ. (2013). Births: Final data for 2012. Natl Vital Stat 
Rpt. 62(9). Retrieved from http://www.cdc.gov/nchs/data/nvsr/nvsr62/nvsr62_09.pdf.
    \39\ Glantz, J. (Apr. 2005). Elective induction vs. spontaneous 
labor associations and outcomes. J Reprod Med. 50(4):235-40.
    \40\ Vardo, J., Thornburg, L., Glantz J., (2011). Maternal and 
neonatal morbidity among nulliparous women undergoing elective 
induction of labor. J. report med. 56(1-2): 25-30.
    \41\ Tita, A., Landon, M., Spong, C., Lai, Y., Leveno, K., 
Varner, M., et al. (2009). Timing of elective repeat cesarean 
delivery at term and neonatal outcomes. [Electronic Version]. NEJM. 
360:2, 111-120.
    \42\ Clark, S., Miller, D., Belfort, M., Dildy, G., Frye, D., & 
Meyers, J. (2009). Neonatal and maternal outcomes associated with 
elective delivery. [Electronic Version]. Am J Obstet Gynecol. 
200:156.e1-156.e4.
---------------------------------------------------------------------------

    As a public campaign to reduce early elective births, the Strong 
Start Initiative's objective is to test ways to reverse this trend by 
helping provide expectant mothers with the care they need for a healthy 
delivery and a healthy baby, and by focusing on reducing early elective 
deliveries, which can lead to a variety of health problems for mothers 
and infants.
    The Strong Start Initiative cuts across many agencies within HHS 
and involves external organizations including the March of Dimes, and 
the American College of Obstetricians and Gynecologists (ACOG). We 
believe that a reduction in the number of nonmedically indicated 
elective deliveries at >=37 to <39 weeks gestation will result in a 
substantial decrease in neonatal morbidity and mortality, as well as a 
significant savings in healthcare costs. In addition, the rate of 
cesarean sections should decrease with fewer elective inductions, 
resulting in decreased length of stay and healthcare costs.
    The MAP supported adoption of the PC-01 Elective Delivery measure 
for inclusion in the Hospital VBP Program in the MAP Pre-Rulemaking 
Report: 2013 Recommendations on Measures Under Consideration by HHS 
found at https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746. The MAP noted that the 
measure addresses an NQS priority not adequately addressed in the 
program measure set.
    We are proposing to adopt this measure for the Hospital VBP Program 
and we are proposing to place the measure into the Clinical Care--
Process domain because we believe this measure furthers the NQS's 
three-part aim of better health care for individuals, better health for 
populations, and lower costs for health care. In addition, although the 
PC-01 measure captures data from all applicable patients, we also 
believe that the measure is specifically relevant to the nearly 2 
million Medicare beneficiaries who are aged 44 and under, most of who 
are dual eligible beneficiaries, who have the potential to be impacted 
by early elective births. In 2011, Medicare paid for roughly 14,000 
births.
    We welcome public comment on this proposal.
d. Proposed Adoption of the Current CLABSI Measure (NQF 0139) 
for the FY 2017 Hospital VBP Program
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50682 and 50686), we 
adopted the CLABSI measure for the FY 2016 Hospital VBP Program. We 
stated our belief that adopting the current CLABSI measure is 
consistent with the MAP's recommendations in the MAP Pre-Rulemaking 
Report: 2013 Recommendations on Measures Under Consideration by HHS 
found at https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746, to use the standardized 
infection ratio version of the measure until the reliability-adjusted 
CLABSI

[[Page 28121]]

measure is NQF-endorsed. We have stated our intent to consider adopting 
the reliability-adjusted CLABSI measure in future rulemaking.
    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.
    However, in the absence of NQF endorsement of the reliability-
adjusted measure and any additional MAP recommendations, and unless and 
until the Hospital IQR Program adopts the reliability adjustments, we 
believe we may only consider the current version of the CLABSI measure 
for adoption under the Hospital VBP Program. We continue to believe 
that the CLABSI measure encourages hospitals to minimize infection 
events that present significant health risks to patients. Therefore, we 
are proposing to adopt the current version of the CLABSI measure for 
the FY 2017 Hospital VBP Program and subsequent years. If a 
reliability-adjusted version of the measure becomes available to us in 
the future, we will consider adopting it.
    We welcome public comment on this proposal.
e. Summary of Previously Adopted and Proposed New Measures for the FY 
2017 Hospital VBP Program
    The following table outlines the measures for the FY 2017 Hospital 
VBP Program that we are readopting, as well as those measures we are 
proposing to adopt. As discussed further below, this table includes the 
FY 2017 domains in which we would place the previously adopted 
measures, as well as the proposed domains in which we would place the 
newly proposed measures.

                Previously Adopted and Proposed New Measures for the FY 2017 Hospital VBP Program
----------------------------------------------------------------------------------------------------------------
              Measure                               Description                              Domain
----------------------------------------------------------------------------------------------------------------
CAUTI *............................  Catheter-Associated Urinary Tract          Safety.
                                      Infection (NQF 0138).
CLABSI **..........................  Central Line-Associated Blood Stream       Safety.
                                      Infection (NQF 0139).
C. difficile ***...................  Clostridium difficile Infection (NQF       Safety.
                                      1717).
MRSA ***...........................  Methicillin-Resistant Staphylococcus       Safety.
                                      aureus Bacteremia (NQF 1726).
PSI-90 *...........................  Complication/patient safety for selected   Safety.
                                      indicators (composite) (NQF 0531).
SSI *..............................  Surgical Site Infection: (NQF 0753).
                                      Colon...........................
                                      Abdominal Hysterectomy..........
MORT-30-AMI *......................  Acute Myocardial Infarction (AMI) 30-day   Clinical Care--Outcomes.
                                      mortality rate (NQF 0230).
MORT-30-HF *.......................  Heart Failure (HF) 30-day mortality rate   Clinical Care--Outcomes.
                                      (NQF 0229).
MORT-30-PN *.......................  Pneumonia (PN) 30-day mortality rate (NQF  Clinical Care--Outcomes.
                                      0468).
AMI-7a *...........................  Fibrinolytic Therapy Received Within 30    Clinical Care--Process.
                                      Minutes of Hospital Arrival (NQF 0164).
IMM-2 *............................  Influenza Immunization (NQF 1659).
PC-01 ***..........................  Elective Delivery Prior to 39 Completed    Clinical Care--Process.
                                      Weeks Gestation (NQF 0469).
MSPB-1 *...........................  Medicare Spending per Beneficiary (NQF     Efficiency and Cost Reduction.
                                      2158).
HCAHPS *...........................  Hospital Consumer Assessment of            Patient and Caregiver Centered
                                      Healthcare Providers and Systems Survey    Experience of Care/Care
                                      (NQF 0166).                       Coordination.
----------------------------------------------------------------------------------------------------------------
* Measures readopted for the FY 2017 Hospital VBP Program.
** Measure adopted for the FY 2016 Hospital VBP Program but not previously subject to automatic readoption.
*** Measures proposed for the FY 2017 Hospital VBP Program.

5. Proposed Additional Measures for the FY 2019 Hospital VBP Program
a. Hospital-Level Risk-Standardized Complication Rate (RSCR) Following 
Elective Primary Total Hip Arthroplasty (THA) and Total Knee 
Arthroplasty (TKA)
    Hospital-level Risk-Standardized Complication Rate (RSCR) Following 
Elective Primary Total Hip Arthroplasty (THA) and Total Knee 
Arthroplasty (TKA) (NQF 1550) is an outcome measure that we 
adopted beginning with the FY 2015 payment determination under the 
Hospital IQR Program in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53516 through 53518). The measure assesses complications occurring 
after THA and TKA surgery from the date of the index admission to 90 
days post date of the index admission. The outcome is one or more of 
the following complications: Acute myocardial infarction, pneumonia, or 
sepsis/septicemia within 7 days of admission; surgical site bleeding, 
pulmonary embolism or death within 30 days of admission; or mechanical 
complications, periprosthetic joint infection or wound infection within 
90 days of admission. We posted THA/TKA measure data on the Hospital 
Compare Web site in December 2013. We refer readers to the FY 2013 
IPPS/LTCH PPS final rule and to the THA/TKA complication methodology 
report (http://qualitynet.org/dcs/
BlobServer?blobkey=id&blobnocache=true&blobwhere=1228890067881&blobheade
r=multipart%2Foctet-stream&blobheadername1=Content-

[[Page 28122]]

Disposition&blobheadervalue1=attachment%3Bfilename%3DTHK--
CmpMsrUpdtSpecs--080113.pdf&blobcol=urldata&blobtable=MungoBlobs) for 
additional details on the THA/TKA measure.
    We continue to believe that measuring and reporting risk-
standardized complication rates will inform health care providers about 
opportunities to improve care, strengthen incentives for quality 
improvement, and promote improvements in the quality of care received 
by patients and in the outcomes they experience. We believe that THA/
TKA is an important measure of clinical outcomes, and we therefore are 
proposing to adopt it for the FY 2019 Hospital VBP Program and 
subsequent years. The MAP supported the adoption of the measure for 
inclusion in the Hospital VBP Program in its MAP Pre-Rulemaking Report: 
2013 Recommendations on Measures Under Consideration by HHS found at 
https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746, noting it addresses a high-
volume elective procedure with variation in performance. We are 
proposing to adopt this measure for FY 2019 based on the length of the 
measure's reporting period and the time necessary to complete scoring 
calculations. Because it is an outcome measure, we are proposing to 
place it in the Clinical Care--Outcomes domain.
    We welcome public comments on this proposal.
b. PSI-90 Measure
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50698), we declined 
to finalize the PSI-90 measure for the FY 2019 Hospital VBP Program in 
order to adopt a more recent baseline period than would have been 
possible at that time. However, we did not intend to signal that we 
would not adopt the PSI-90 measure for FY 2019 and subsequent years. We 
continue to believe that adopting this 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 in quality improvement. In order to clarify the measure's 
status under the Hospital VBP Program and ensure that there is no 
confusion about our intent, we are proposing to readopt the PSI-90 
measure for FY 2019 Hospital VBP Program and subsequent years.
    We welcome public comments on this proposal.
6. Possible Measure Topics for Future Program Years
a. Care Transition Measure (CTM-3) Items for HCAHPS Survey
    We are considering proposing to add the Care Transition Measure 
from the Hospital Consumer Assessment of Healthcare Providers and 
Systems (HCAHPS) Survey to the Patient and Caregiver Centered 
Experience of Care/Care Coordination (PEC/CC) domain of the FY 2018 
Hospital VBP Program. We seek public comments on this topic.
    The Care Transition Measure (CTM) was added to the HCAHPS Survey of 
hospital inpatients in January 2013 (77 FR 53513 through 53516). Three 
items were added to the HCAHPS Survey to create the new Care Transition 
Measure composite. After collecting four quarters of data on these 
items (January 2013 through December 2013), we intend to publicly 
report CTM scores for the first time on our Hospital Compare Web site 
in October 2014.
    Once the Care Transition Measure has been publicly reported on 
Hospital Compare for one year, in accordance with the statutory 
requirements of the Hospital VBP Program, we are considering proposing 
to adopt CTM as the ninth dimension of the HCAHPS survey in the PEC/CC 
domain for the FY 2018 Hospital VBP Program. We intend to propose that 
the PEC/CC domain in the FY 2018 Hospital VBP Program would have a 
baseline period of January 1, 2014 through December 31, 2014, and a 
performance period of January 1, 2016 through December 31, 2016.
    Currently, the PEC/CC domain (formerly known as the Patient 
Experience of Care domain) is comprised of eight dimensions of the 
HCAHPS Survey. Scoring in this domain is based on two elements: the 
HCAHPS Base Score and HCAHPS Consistency Points Score. For additional 
information on the calculation of the PEC/CC domain score, we refer 
readers to ``A Step-by-Step Guide to Calculating the Patient Experience 
of Care Domain Score in the Hospital Value-Based Purchasing FY 2013 
Actual Percentage Payment Summary Report,'' at: http://www.hcahpsonline.org/HospitalVBP.aspx.
    We specifically seek public comments on how the new CTM dimension 
should be included in the scoring methodology that we have adopted for 
the PEC/CC domain. In accordance with the finalized Hospital VBP 
Program scoring methodology for other domains, we are considering the 
``normalization'' approach, which would introduce only minor changes to 
the original scoring formula, as follows.
    For purposes of the HCAHPS Base Score, the new CTM dimension would 
be calculated in the same manner as the eight existing HCAHPS 
dimensions; for further details, we refer readers to ``A Step-by-Step 
Guide to Calculating the Patient Experience of Care Domain Score in the 
Hospital Value-Based Purchasing FY 2013 Actual Percentage Payment 
Summary Report,'' at: http://www.hcahpsonline.org/HospitalVBP.aspx. For 
each of the nine dimensions, Achievement Points (0-10 points) and 
Improvement Points (0-9 points) would be calculated, the larger of 
which will be summed across the nine dimensions to create a pre-
normalized HCAHPS Base Score (0-90 points, as compared to 0-80 points 
when only eight dimensions were included). The pre-normalized HCAHPS 
Base Score would then be multiplied by 8/9 (0.88888) and rounded 
according to standard rules (values of 0.5 and higher are rounded up, 
values below 0.5 are rounded down) to create the normalized HCAHPS Base 
Score. Each of the nine dimensions would be of equal weight, so that, 
as before, the normalized HCAHPS Base Score would range from 0 to 80 
points.
    HCAHPS Consistency Points would then be calculated in the same 
manner as before and would continue to range from 0 to 20 points. The 
Consistency Points Score would now consider scores across all nine of 
the PEC/CC domain dimensions, whereas before it considered only the 
eight dimensions that preceded the CTM measure.
    The final element of the scoring formula would be the sum of the 
HCAHPS Base Score and the HCAHPS Consistency Points Score and would 
range from 0 to 100 points, as before.
    We welcome public comments on this approach to including the CTM-3 
dimension in the PEC/CC domain score.
b. Possible Future Efficiency and Cost Reduction Domain Measure Topics
    In the interest of expanding the Efficiency domain to include a 
more robust measure set, including measures that supplement the 
Medicare Spending per Beneficiary (MSPB) measure with more condition 
and/or treatment specific episodes, as well as facilitating alignment 
with the Physician Value-Based Payment Modifier (VM) Program, we are 
considering proposing to add new episode-based payment measures to the 
Hospital VBP Program through future rulemaking. Expanding the 
Efficiency domain to include such measures would create incentives for 
coordination between hospitals and physicians to optimize the care they 
provide to Medicare beneficiaries and

[[Page 28123]]

would increase alignment between the Hospital VBP and Physician VM 
Programs. Any future Hospital VBP Program measures would first be 
finalized for inclusion in the Hospital IQR Program and included on the 
Hospital Compare Web site for one year, as required by section 
1886(o)(2)(C) of the Act.
    The six episode-based standardized payment measures we are 
considering are discussed below and are similar in many ways to the 
NQF-endorsed MSPB measure already included in the Efficiency domain. 
Like the MSPB measure, these episode-based standardized payment 
measures would include services initiated during an episode that spans 
from 3 days prior to a hospital admission through 30 days post-
discharge from the hospital. We would sum the standardized Medicare 
payment amounts for Part A and Part B services provided during this 
timeframe and attribute them to the hospital at which the index 
admission occurred. Medicare payments included in these episode-based 
measures would be standardized according to the CMS standardization 
methodology finalized for the MSPB measure in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51626).
    Episodes in the six new measures would be risk-adjusted in a manner 
similar to the MSPB measure risk adjustment methodology finalized in 
the FY 2013 IPPS/LTCH PPS final rule (76 FR 51625 through 51626). The 
difference between the risk adjustment approaches stems from the fact 
that MSPB episodes are standardized at the Major Diagnostic Category 
(MDC) level, whereas two of the new episode-based measures, the hip 
episode measure and the knee episode measure, represent conditions that 
are in the same MDC. Accordingly, the new episode-based measures would 
be individually risk-adjusted at the specific episode type level, in 
order to recognize the distinctions.
    The payment standardization methodology is available in the 
document entitled ``CMS Price Standardization'' and the MSPB risk 
adjustment methodology is included in the document entitled ``MSPB 
Measure Information Form,'' both available at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228772057350. The risk adjustment methodology specific to these six episode-
based standardized payment measures can be found on the CMS Web site 
at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/index.html?redirect=/hospital-value-based-purchasing. Risk adjustment and payment 
standardization would allow us to compare performance on these measures 
across hospitals.
    In contrast to the MSPB measure, we would only include Medicare 
payments for services that are clinically related to the health 
conditions treated during the hospital stay that triggered the episode. 
The aim of including these episode-based payment measures in the 
Hospital VBP Program would be to differentiate between hospitals that 
provide care efficiently (that is, high quality care at a lower cost to 
Medicare). We believe that risk-adjusted standardized Medicare payments 
are an appropriate indicator of efficiency as they allow us to compare 
hospitals without regard to such factors as geography and teaching 
status. This comparison is particularly important with clinically 
coherent episodes because it distinguishes the degree to which practice 
pattern variation influences the cost of care. We believe that creating 
incentives for appropriately reducing practice pattern variation is an 
important part of our aims to lower the cost of care appropriately and 
create better coordinated care for Medicare beneficiaries.
    Another notable difference between the episode-based measures we 
are considering and the MSPB measure occurs when, during the 30 days 
following discharge from an index admission, a beneficiary is 
readmitted for a condition that is clinically related to the index 
admission and that also triggers an episode-based cost measure episode. 
For example, if a beneficiary were discharged after a hip replacement, 
then readmitted for a revision 15 days later, the standardized Medicare 
payments associated with the revision would count toward the initial 
hip replacement/revision episode and would also trigger a new hip 
replacement/revision episode where the index admission would be that 
for the revision. Details of which admissions would begin a new episode 
and contribute to a preceding episode may be found at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/index.html?redirect=/hospital-value-based-purchasing.
    We are considering three medical and three surgical episodes for 
the initial expansion of the Efficiency domain. The medical episodes 
would address the following conditions: (1) Kidney/urinary tract 
infection; (2) cellulitis; and (3) gastrointestinal hemorrhage. A 
medical episode would be `triggered' by an inpatient claim with a 
specified MS-DRG. The surgical episodes currently under consideration 
are (1) hip replacement/revision; (2) knee replacement/revision; and 
(3) lumbar spine fusion/refusion. A surgical episode would be triggered 
when an inpatient claim has one of the specified MS-DRGs and at least 
one of the procedure codes specified for that episode. We welcome 
public comment on the three medical and three surgical conditions that 
we are considering as new episode-based measures for initial expansion 
of the Efficiency domain.
    There are a number of other types of episodes that could also meet 
the episode selection criteria we describe below, including those 
related to heart and lung (for example, heart failure and pneumonia). 
We note that we are exploring data related to episodes for these types 
of conditions under the Physician VM Program. We welcome comment 
regarding the applicability of episode-based measures for these or 
other conditions for future expansion of the Efficiency domain.
    In selecting the six conditions around which we would develop 
episode measures for future expansion of the Efficiency domain, we 
considered the following five criteria: (1) The condition constitutes a 
significant share of Medicare payments for hospitalized patients during 
and surrounding the hospital stay; (2) the degree to which clinical 
experts consulted for this project agree that standardized Medicare 
payments for services provided during the episode can be linked to the 
care provided during the hospitalization; (3) episodes of care for the 
condition are comprised of a substantial proportion of payments for 
post-acute care, indicating episode payment differences are driven by 
utilization outside of the MS-DRG payment; (4) episodes of care for the 
condition reflect high variation in post-discharge payments, enabling 
differentiation between hospitals; and, (5) the medical condition is 
managed by general medicine physicians or hospitalists and the surgical 
conditions are managed by surgical subspecialists, enabling comparison 
between similar practitioner types within each episode measure.
    For analysis purposes, the five selection criteria were applied to 
2012 Medicare acute inpatient hospital data in a hierarchical manner, 
to prioritize the inpatient conditions. After the selection criteria 
were applied, we narrowed the medical and surgical episodes to those 
episodes that are less complex, in order to allow CMS and hospitals to 
gain experience with this new measure type. Full details of the

[[Page 28124]]

episode selection criteria are available on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/index.html?redirect=/hospital-value-based-purchasing. We welcome public comments on the 
episode selection criteria we utilized.
    Complete episode specifications, including the MS-DRG and ICD-9-CM 
procedure codes used to identify each of the episodes, details of 
episode construction methodology, and information on the clinical 
expert reviewers for this project are available on the CMS Web site at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/index.html?redirect=/hospital-value-based-purchasing. We welcome public comments on these 
specifications and the construction of the six episode-based payment 
measures that we are considering.
7. Previously Adopted and Proposed Performance Periods and Baseline 
Periods for the FY 2017 Hospital VBP Program
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. We refer 
readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50689 through 
50692) and the CY 2014 OPPS/ASC final rule with comment period (78 FR 
75020 through 75021) for the performance periods and baseline periods 
for the Clinical Process of Care, Patient Experience of Care, Outcome, 
and Efficiency domains for the FY 2016 Hospital VBP Program.
    As discussed further below, in the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50702 through 50704), we adopted new NQS-based quality domains 
for FY 2017, and we are proposing to adopt performance and baseline 
periods using those new domains for the FY 2017 Hospital VBP Program.
b. Previously Adopted Baseline and Performance Periods for the FY 2017 
Hospital VBP Program
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50692 through 50694 
and 50698 through 50699), because of the time needed to process measure 
data for the three 30-day mortality measures (Clinical Care--Outcomes 
domain) and the PSI-90 measure (also referred to in previous rulemaking 
as the AHRQ patient safety PSI-90 composite measure) (Safety domain), 
and in consideration of our policy goal to collect enough data to 
generate the most reliable scores possible, we adopted performance 
periods and performance standards for the 30-day mortality measures for 
FY 2017, FY 2018, and FY 2019, and for the PSI-90 measure for FY 2017 
and FY 2018.
c. Proposed Clinical Care--Process Domain Performance Period and 
Baseline Period for the FY 2017 Hospital VBP Program
    In the FY 2014 IPPS/LTCH PPS final rule, we adopted a 12-month 
performance period for the FY 2016 Clinical Process of Care domain 
measures of CY 2014 (January 1, 2014 through December 31, 2014). We 
also adopted a corresponding 12-month baseline period of CY 2012 
(January 1, 2012, through December 31, 2012), for purposes of 
calculating improvement points and performance standards.
    Based on our review of FY 2013 and FY 2014 Hospital VBP performance 
period denominator data, we continue to believe that a 12-month 
performance period provides us with reliable and sufficient data for 
scoring Clinical Care--Process domain measures under the Hospital VBP 
Program. These data are available for public review on our Hospital 
Compare Web site. We are therefore proposing to adopt a 12-month 
performance period for FY 2017 Clinical Care--Process domain measures 
(including the proposed PC-01 measure) of CY 2015 (January 1, 2015, 
through December 31, 2015). We also are proposing to adopt a 
corresponding 12-month baseline period of CY 2013 (January 1, 2013, 
through December 31, 2013) for purposes of calculating improvement 
points and calculating performance standards.
    We invite public comment on these proposals.
d. Proposed Patient and Caregiver-Centered Experience of Care/Care 
Coordination (PEC/CC) Domain Performance Period and Baseline Period for 
the FY 2017 Hospital VBP Program
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50689), we adopted a 
12-month performance period for FY 2016 Patient Experience of Care 
domain measures of CY 2014, or January 1, 2014 through December 31, 
2014, for the FY 2016 Hospital VBP Program. We also adopted a 
corresponding 12-month baseline period of CY 2012 (January 1, 2012 
through December 31, 2012), for purposes of calculating improvement 
points and calculating performance standards. We continue to believe 
that a 12-month performance period provides us sufficient HCAHPS data 
on which to score hospital performance, which is an important goal both 
for CMS and for stakeholders.
    We are proposing to adopt a 12-month performance period for the FY 
2017 PEC/CC domain of CY 2015 (January 1, 2015 through December 31, 
2015). We also are proposing to adopt a corresponding 12-month baseline 
period of CY 2013 (January 1, 2013 through December 31, 2013) for 
purposes of calculating improvement points and calculating performance 
standards.
    We invite public comment on these proposals.
e. Proposed Safety Domain Performance Period and Baseline Period for 
NHSN Measures for the FY 2017 Hospital VBP Program
    In the CY 2014 OPPS/ASC final rule with comment period (78 FR 
75121), for the three NHSN HAI measures that we have adopted for the FY 
2016 Hospital VBP Program (CAUTI, CLABSI, and SSI), we adopted an FY 
2016 performance period of CY 2014 (January 1, 2014 through December 
31, 2014), with a corresponding baseline period of CY 2012 (January 1, 
2012 through December 31, 2012) for purposes of calculating improvement 
points and calculating performance standards.
    We continue to believe that a 12-month performance period provides 
us with sufficient data on which to score hospital performance on NHSN 
measures in the Safety domain. We also note that 12-month performance 
and baseline periods are consistent with the reporting periods used for 
these measures under the Hospital IQR Program (78 FR 50689). Therefore, 
for the FY 2017 NHSN measures in the Safety domain (including the 
proposed CLABSI, C. difficile infection and MRSA bacteremia measures), 
we are proposing to adopt a performance period of CY 2015 (January 1, 
2015 through December 31, 2015), and a corresponding baseline period of 
CY 2013 (January 1, 2013 through December 31, 2013) for purposes of 
calculating improvement points and calculating performance standards.
    We invite public comment on these proposals.
f. Proposed Efficiency and Cost Reduction Domain Performance Period and 
Baseline Period for the FY 2017 Hospital VBP Program
    In the FY 2014 IPPS/LTCH PPS final rule, we adopted a 12-month 
performance period for the MSPB measure for the FY 2016 Hospital VBP 
Program of CY 2014 (January 1, 2014, through December 31, 2014), with a

[[Page 28125]]

corresponding baseline period of CY 2012 (January 1, 2012, through 
December 31, 2012). This performance and baseline period 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 are proposing to adopt a 12-month performance period for the FY 
2017 Efficiency and Cost Reduction domain of CY 2015 (January 1, 2015 
through December 31, 2015), with a corresponding baseline period of CY 
2013 (January 1, 2013 through December 31, 2013). We note that this 
proposed performance and baseline period aligns with the performance 
and baseline periods for Clinical Care--Process, PEC/CC, and certain 
Safety measures under the new domain structure.
    We invite public comments on these proposals.
g. Summary of Previously Adopted and Proposed Performance Periods and 
Baseline Periods for the FY 2017 Hospital VBP Program
    The table below summarizes the proposed baseline and performance 
periods for the FY 2017 Hospital VBP Program (with previously adopted 
baseline and performance periods for the mortality and AHRQ PSI 
composite (PSI-90) measures noted).

Previously Adopted and Proposed Performance and Baseline Periods for the
                      FY 2017 Hospital VBP Program
------------------------------------------------------------------------
           Domain                Baseline period     Performance period
------------------------------------------------------------------------
Safety:
     PSI-90*........   October 1,    October 1,
                               2010-June 30, 2012    2013-June 30,
                               *.                    2015.*
                               January 1,
                               2013-December 31,
                               2013.
     NHSN (CAUTI,     ....................   January 1,
     CLABSI, SSI, C.                                 2015-December 31,
     difficile Infection,                            2015.
     MRSA Bacteremia).
Clinical Care--Outcomes:....
     Mortality *....   October 1,    October 1,
    (MORT-30-AMI,...........   2010-June 30, 2012    2013-June 30,
                               *.                    2015.*
    MORT-30-HF,
    MORT-30-PN)
Clinical Care--Process:
     (AMI-7a, IMM-2,  January 1, 2013-      January 1, 2015-
     PC-01).                   December 31, 2013.    December 31, 2015.
Efficiency and Cost           January 1, 2013-      January 1, 2015-
 Reduction (MSPB-1).           December 31, 2013.    December 31, 2015.
Patient and Caregiver-        January 1, 2013-      January 1, 2015-
 Centered Experience of Care/  December 31, 2013.    December 31, 2015.
 Care Coordination (HCAHPS).
------------------------------------------------------------------------
* Previously adopted performance and baseline periods.

    We note that we intend to propose additional baseline and 
performance periods for the FY 2018 Hospital VBP Program in future 
rulemaking.
8. Previously Adopted and Proposed Performance Periods and Baseline 
Periods for Certain Measures for the FY 2019 Hospital VBP Program
a. Previously Adopted and Proposed Performance Period and Baseline 
Period for the FY 2019 Hospital VBP Program for Clinical Care--Outcomes 
Domain Measures
    As described above, we have previously adopted the FY 2019 
performance and baseline periods for the three 30-day mortality 
measures that we have adopted for the former Outcome domain and that we 
have since placed into the Clinical Care--Outcomes domain under the new 
domain structure.
    In this proposed rule, we are proposing to adopt the THA/TKA 
measure for the FY 2019 Hospital VBP Program and to place that measure 
in the Clinical Care--Outcomes domain. THA/TKA is reported to the 
Hospital IQR Program for 36-month time periods. However, we do not 
believe that we can feasibly adopt a 36-month performance period for 
this measure and adopt it for the FY 2019 Hospital VBP Program. Based 
on the time needed to complete measure calculations and performance 
scoring, we believe that we must conclude the performance period for 
this measure by June 30, 2017. We believe that a 30-month performance 
period will result in sufficiently reliable quality measure data for 
purposes of Hospital VBP Program scoring, and our analysis of historic 
data supports our belief that comparisons between a 36-month baseline 
period and a 30-month performance period will not result in significant 
differences in measure scores. Further, adopting this proposed 
performance period would enable us to include the measure in the FY 
2019 Hospital VBP Program, which would ensure that hospitals continue 
focusing on measures of outcomes under the Hospital VBP Program and 
that we continue transitioning the Hospital VBP Program from its 
initial focus on process measures to outcome measures.
    We note that we have proposed below to adopt a 36-month performance 
period for the THA/TKA measure for the FY 2020 Hospital VBP Program. We 
have examined the correlation between hospitals' performance on the 
THA/TKA measure for 30-month and 36-month periods, and we believe that 
the 30-month period meets our standard for moderate reliability of 
quality measure data during the specified time period. However, as with 
the 30-day mortality and PSI-90 measures, we are attempting to align 
performance periods under the Hospital VBP Program with reporting 
periods under the Hospital IQR Program, while introducing measures 
covering important clinical topics into the Hospital VBP Program as 
quickly as possible. We believe that our proposal for a 30-month 
performance period for this measure for the FY 2019 Hospital VBP 
Program allows us to bring the measure into the Program in FY 2019 and 
to accomplish that alignment beginning with the FY 2020 Hospital VBP 
Program.
    Therefore, we are proposing to adopt an FY 2019 performance period 
of January 1, 2015, through June 30, 2017, for the THA/TKA measure. 
Further, we are proposing to adopt an FY 2019 baseline period for this 
measure of July 1, 2010 to June 30, 2013, for purposes of calculating 
performance standards and awarding improvement points.
    We welcome public comments on these proposals.

[[Page 28126]]

b. Proposed Performance Period and Baseline Period for the PSI-90 
Safety Domain Measure for the FY 2019 Hospital VBP Program
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50692 through 5094), 
we adopted performance periods and baseline periods for the PSI-90 
measure for the FY 2017 and FY 2018 Hospital VBP Programs. We adopted 
this policy in light of the time needed to process measure data and our 
policy goal to collect enough data to generate the most reliable 
measure scores possible. We stated our belief 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. We stated our further belief 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 this measure.
    We did not finalize a baseline period and performance period for 
the AHRQ PSI-90 measure for FY 2019 in that final rule (78 FR 50692 
through 50694). We stated that, by declining to finalize the measure's 
FY 2019 performance and baseline periods in that final rule, we would 
be able to adopt a more recent baseline period than we initially 
proposed. We stated that we intended to propose baseline and 
performance periods for the AHRQ PSI measure for the FY 2019 Hospital 
VBP Program in future rulemaking.
    We continue to believe that we should adopt performance and 
baseline periods of 24 months for the PSI-90 measure. Therefore, we are 
proposing to adopt an FY 2019 performance period for the PSI-90 measure 
of July 1, 2015 through June 30, 2017, with a corresponding 24-month 
baseline period of July 1, 2011 through June 30, 2013, for purposes of 
calculating performance standards and awarding improvement points.
    We welcome public comments on these proposals.
c. Summary of Previously Adopted and Proposed Performance Periods and 
Baseline Periods for Certain Measures for the FY 2019 Hospital VBP 
Program
    The following table summarizes previously adopted and proposed 
performance and baseline periods for the FY 2019 Hospital VBP Program:

 Previously Adopted and Proposed Performance and Baseline Periods for Certain Measures for the FY 2019 Hospital
                                                   VBP Program
----------------------------------------------------------------------------------------------------------------
                  Domain                          Baseline period                   Performance period
----------------------------------------------------------------------------------------------------------------
Safety:
     PSI-90......................   July 1, 2011-June     July 1, 2015-June 30, 2017.
                                            30, 2013.
Clinical Care-Outcomes:
     Mortality *.................   July 1, 2009-June     July 1, 2010-June 30, 2013.
                                            30, 2012 *.
    (MORT-30-AMI,
    MORT-30-HF,
    MORT[dash]30-PN)
     THA/TKA.....................   July 1, 2010-June     January 1, 2015-June 30, 2017.
                                            30, 2013 *.
----------------------------------------------------------------------------------------------------------------
* Previously adopted performance and baseline periods.

    We welcome public comment on these proposals.
9. Proposed Performance Period and Baseline Period for the Clinical 
Care--Outcomes Domain for the FY 2020 Hospital VBP Program
    As described above with respect to the mortality measures, in the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50692 through 50694), we 
adopted performance periods and baseline periods for the three 30-day 
mortality measures for the FY 2017, FY 2018, and FY 2019 Hospital VBP 
Programs. We adopted this policy in light of the time needed to process 
measure data and to ensure that we collect enough measure data for 
reliable performance scoring, as described further above. We continue 
to believe that we should adopt 36-month performance and baseline 
periods for the mortality measures when possible to accommodate those 
durations.
    We believe that a similar rationale applies to the new THA/TKA 
measure that we are proposing to adopt for the Clinical Care--Outcomes 
domain for the FY 2019 Hospital VBP Program, and which, under our 
policy of measure readoption, we generally would readopt for the FY 
2020 Hospital VBP Program if finalized. As stated above, we have 
examined the correlation between hospitals' performance on the THA/TKA 
measure for 30-month and 36-month periods, and we believe that the 30-
month period meets our standard for moderate reliability of quality 
measure data during the specified time period. However, as with the 30-
day mortality and PSI-90 measures, we are attempting to align 
performance periods under the Hospital VBP Program with reporting 
periods under the Hospital IQR Program, while introducing measures 
covering important clinical topics into the Program as quickly as 
possible. We believe that our proposal for a 30-month performance 
period for this measure for FY 2019 allows us to accomplish that 
alignment beginning with the FY 2020 Program.
    Therefore, we are proposing to adopt a 36-month performance period 
for the measures in the Clinical Care--Outcomes domain in the FY 2020 
Hospital VBP Program (including the proposed THA/TKA measure for FY 
2020, if that measure is adopted for the FY 2020 Hospital VBP Program) 
of July 1, 2015 through June 30, 2018, with a corresponding 36-month 
baseline period of July 1, 2010 through June 30, 2013, for purposes of 
calculating performance standards and awarding improvement points.
    The following table summarizes the proposed performance and 
baseline period for the Clinical Care--Outcomes domain for the FY 2020 
Hospital VBP Program:

[[Page 28127]]



Proposed Performance and Baseline Period for the Clinical Care--Outcomes
               Domain for the FY 2020 Hospital VBP Program
------------------------------------------------------------------------
             Domain                 Baseline period   Performance period
------------------------------------------------------------------------
Clinical Care--Outcomes:
     Mortality (MORT-30    July 1,     July 1,
     AMI, MORT-30-HF, MORT-30-     2010-June 30,       2015-June 30,
     PN).                          2013.               2018.
     THA/TKA............   July 1,     July 1,
                                   2010-June 30,       2015-June 30,
                                   2013.               2018.
------------------------------------------------------------------------

    We welcome public comment on these proposals.
10. Proposed 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. We refer readers to the 
Hospital Inpatient VBP Program final rule (76 FR 26511 through 26513) 
for further discussion of achievement and improvement standards under 
the Hospital VBP Program.
    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.
b. Performance Standards for the FY 2016 Hospital VBP Program
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53599 through 
53604), we adopted performance standards for FY 2015 and certain 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 the CMS Web site or another 
publicly available Web site.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50694 through 
50698), we revised our regulatory definitions of ``achievement 
threshold'' and ``benchmark'' at Sec.  412.160 and adopted performance 
standards for additional FY 2016 Hospital VBP Program measures. We also 
adopted an interpretation of ``achievement threshold'' and 
``benchmark'' under Sec.  412.160 to not include the numerical values 
that result when the performance standards are calculated. We further 
adopted a policy under which we may update a measure's performance 
standards for a fiscal year once if we identify data issues, 
calculation errors, or other problems that would significantly affect 
the displayed performance standards. We refer readers to the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50695 through 50698) for the complete 
set of FY 2016 performance standards.
c. Previously Adopted Performance Standards for the FY 2017, FY 2018, 
and FY 2019 Hospital VBP Programs
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50698 through 
50699), we adopted performance standards for the three 30-day mortality 
measures for the FY 2017, FY 2018, and FY 2019 Hospital VBP Programs 
and for the PSI-90 measure for the FY 2017 and FY 2018 Hospital VBP 
Programs. We refer readers to that final rule for those performance 
standards.
d. Proposed Additional Performance Standards for the FY 2017 Hospital 
VBP Program
    In accordance with our finalized methodology for calculating 
performance standards (discussed more fully in the Hospital Inpatient 
VBP Program final rule (76 FR 26511 through 26513)), we are proposing 
to adopt the following additional performance standards for the FY 2017 
Hospital VBP Program. We note that the numerical values for the 
performance standards displayed below represent estimates based on the 
most recently available data, and we intend to update the numerical 
values in the FY 2015 IPPS/LTCH PPS final rule. We note further that 
the MSPB measure's performance standards are based on performance 
period data; therefore, we are unable to provide numerical equivalents 
for the standards at this time.
    We note further that the performance standards for the NHSN 
measures (CAUTI, SSI, and proposed CLABSI, MRSA Bacteremia, and C. 
difficile Infection), the PSI-90 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 further in the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50684), the performance standards for SSI are computed 
separately for each measure stratum, and we will award achievement and 
improvement points to each stratum separately, then compute a weighted 
average of the points awarded to each stratum by predicted infections.

  Previously Adopted and Proposed Performance Standards for the FY 2017 Hospital VBP Program: Safety, Clinical
               Care--Outcomes, Clinical Care--Process, and Efficiency and Cost Reduction Measures
----------------------------------------------------------------------------------------------------------------
          Measure ID                       Description             Achievement threshold         Benchmark
----------------------------------------------------------------------------------------------------------------
                                                 Safety Measures
----------------------------------------------------------------------------------------------------------------
CAUTI.........................  Catheter-Associated Urinary       0.8371................  0.0000
                                 Tract Infection.
CLABSI........................  Central Line-Associated Blood     0. 4483...............  0.0000
                                 Stream Infection.
C. difficile..................  Clostridium difficile Infection.  0.7927................  0.0000
MRSA bacteremia...............  Methicillin-Resistant             0.8613................  0.0000
                                 Staphylococcus aureus
                                 Bacteremia.

[[Page 28128]]

 
PSI-90 *......................  Complication/patient safety for   0.577321 *............  0.397051 *
                                 selected indicators (composite)
                                 *.
SSI...........................  Surgical Site Infection.........
                                   Colon................   0.7117.......   0.0000
                                   Abdominal               0.7509.......   0.0000
                                   Hysterectomy.
----------------------------------------------------------------------------------------------------------------
                                        Clinical Care--Outcomes Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI *.................  Acute Myocardial Infarction       0.851458 *............  0.871669 *
                                 (AMI) 30-day mortality rate *.
MORT-30-HF *..................  Heart Failure (HF) 30-day         0.881794 *............  0.903985 *
                                 mortality rate *.
MORT-30-PN *..................  Pneumonia (PN) 30-day mortality   0.882986 *............  0.908124 *
                                 rate *.
----------------------------------------------------------------------------------------------------------------
                                         Clinical Care--Process Measures
----------------------------------------------------------------------------------------------------------------
AMI-7a........................  Fibrinolytic Therapy Received     0.954545..............  1.000000
                                 Within 30 Minutes of Hospital
                                 Arrival.
IMM-2.........................  Influenza Immunization..........  0.995882..............  1.000000
PC-01.........................  Elective Delivery Prior to 39     0.031250..............  1.000000
                                 Completed Weeks Gestation.
----------------------------------------------------------------------------------------------------------------
                                      Efficiency and Cost Reduction Measure
----------------------------------------------------------------------------------------------------------------
MSPB-1........................  Medicare Spending per             Median Medicare         Mean of the lowest
                                 Beneficiary.                      Spending per            decile Medicare
                                                                   Beneficiary ratio       Spending per
                                                                   across all hospitals    Beneficiary ratios
                                                                   during the              across all hospitals
                                                                   performance period.     during the
                                                                                           performance period.
----------------------------------------------------------------------------------------------------------------
* Previously adopted performance standards.


Proposed Performance Standards for the FY 2017 Hospital VBP Program Patient and Caregiver-Centered Experience of
                                          Care/Care Coordination Domain
----------------------------------------------------------------------------------------------------------------
                                                                                  Achievement       Benchmark
                   HCAHPS survey dimension                     Floor (percent)     threshold        (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses....................................            56.90            78.08            86.41
Communication with Doctors...................................            62.03            80.43            88.71
Responsiveness of Hospital Staff.............................            36.46            64.83            79.62
Pain Management..............................................            49.47            70.20            78.18
Communication about Medicines................................            42.89            62.82            73.15
Hospital Cleanliness & Quietness.............................            43.46            65.26            79.06
Discharge Information........................................            61.86            85.59            91.04
Overall Rating of Hospital...................................            35.00            69.81            84.27
----------------------------------------------------------------------------------------------------------------

    We note that we intend to propose additional performance standards 
for the FY 2018 Hospital VBP Program in future rulemaking.
    We welcome public comments on these proposed performance standards.
e. Proposed Performance Standards for the FY 2019 and FY 2020 Hospital 
VBP Programs
    As discussed further above, we have adopted certain Safety and 
Clinical Care--Outcomes domain measures for future program years in 
order to ensure that we can adopt performance periods and baseline 
periods of sufficient length for performance scoring purposes. We are 
also proposing to adopt the PSI-90 measure in the Safety domain and the 
THA/TKA measure in the Clinical Care--Outcomes domain for the FY 2019 
Hospital VBP Program. We note that, as described above with respect to 
the NHSN measures, the PSI-90 measure, and the MSPB measure, for the 
THA/TKA measure, better performance is represented by lower values. 
Therefore, we are proposing to adopt the following performance 
standards for the FY 2019 Hospital VBP Program:

[[Page 28129]]



   Previously Adopted and Proposed Performance Standards for Certain Safety and Clinical Care--Outcomes Domain
                                  Measures for the FY 2019 Hospital VBP Program
----------------------------------------------------------------------------------------------------------------
                                                                                  Achievement
             Measure ID                             Description                    threshold        Benchmark
----------------------------------------------------------------------------------------------------------------
                                                 Safety Measures
----------------------------------------------------------------------------------------------------------------
PSI-90.............................  Complication/patient safety for selected          0.840421         0.589716
                                      indicators (composite).
----------------------------------------------------------------------------------------------------------------
                                                Outcomes Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI *......................  Acute Myocardial Infarction (AMI) 30-day        * 0.850671       * 0.873263
                                      mortality rate *.
MORT-30-HF *.......................  Heart Failure (HF) 30-day mortality rate        * 0.883472       * 0.908094
                                      *.
MORT-30-PN *.......................  Pneumonia (PN) 30-day mortality rate *...       * 0.882334       * 0.907906
THA/TKA............................  Hospital-level Risk-Standardized                  0.032521         0.022895
                                      Complication Rate Following Elective
                                      Primary Total Hip Arthroplasty (THA) And/
                                      Or Total Knee Arthroplasty (TKA).
----------------------------------------------------------------------------------------------------------------
* Previously adopted performance standards.

    We welcome public comments on these proposed performance standards.
    We also are proposing to adopt the following performance standards 
for the FY 2020 Hospital VBP Program:

 Proposed Performance Standards for Clinical Care--Outcomes Domain Measures for the FY 2020 Hospital VBP Program
----------------------------------------------------------------------------------------------------------------
                                                                                  Achievement
             Measure ID                             Description                    threshold        Benchmark
----------------------------------------------------------------------------------------------------------------
                                        Clinical Care--Outcomes Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI........................  Acute Myocardial Infarction (AMI) 30-day          0.853511         0.875840
                                      mortality rate.
MORT-30-HF.........................  Heart Failure (HF) 30-day mortality rate.         0.881394         0.905962
MORT-30-PN.........................  Pneumonia (PN) 30-day mortality rate.....         0.882281         0.909460
THA/TKA............................  Hospital-level Risk-Standardized                  0.032521         0.022895
                                      Complication Rate Following Elective
                                      Primary Total Hip Arthroplasty (THA) And/
                                      Or Total Knee Arthroplasty (TKA).
----------------------------------------------------------------------------------------------------------------

    We welcome public comments on these proposed performance standards.
f. Proposed Technical Updates Policy for Performance Standards
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50694 through 
50698), we revised our regulatory definitions of ``achievement 
threshold'' and ``benchmark'' at Sec.  412.160 and adopted performance 
standards for additional FY 2016 Hospital VBP Program measures. We also 
adopted an interpretation of ``achievement threshold'' and 
``benchmark'' under Sec.  412.160 to not include the numerical values 
that result when the performance standards are calculated. We further 
adopted a policy under which we may 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.
    Our historic practice has been to display Hospital VBP Program 
performance standards' numerical values in rulemaking. We adopted this 
practice for the convenience of the public. Although we have typically 
expressed the performance standards for each Hospital VBP measure as a 
numerical value prior to the start of the performance period for that 
measure, we do not display numerical values for the MSPB measure 
because the measure is constructed as a measure of costs attributable 
to patient care during a specified episode of care during the 
performance period itself (77 FR 53601). We have stated that with 
respect to the MSPB measure, we do not believe it is helpful for 
hospitals to be compared against performance standards constructed from 
baseline period data given the potential changes in market forces and 
utilization practices that occur over time.
    Further, during the long interval between the time we first display 
the performance standards for all measures but the MSPB measure and the 
time that we calculate the achievement and improvement scores for those 
measures based on actual hospital performance, one or more of those 
measures might have been technically updated in a way that inhibits our 
ability to ensure that we are making appropriate comparisons between 
the baseline and performance period. For example, the software used to 
calculate the PSI-90 measure is regularly updated to incorporate coding 
changes, refinements based on the consensus development process, and 
refinements to improve specificity and sensitivity. The statistical 
modeling we use to adjust measure calculations for PSI-90 and HCAHPS 
also needs to be periodically updated to incorporate coefficient 
factors that more properly account for patient mix (both measures) and 
the HCAHPS survey data collection mode (HCAHPS survey). These types of 
technical updates do not substantively affect the measure rate 
calculation methodology, but they do sometimes affect our ability to 
make appropriate comparisons between the baseline and performance 
period if, for example, the baseline performance standards are 
tabulated using one version of the software and hospital performance 
during subsequent performance periods is tabulated with another 
version. We believe that in order to make the most accurate comparison 
of hospital performance across time, we should use the most updated 
version of the measure that is available at the time we calculate that 
performance because the updated version will produce the most valid 
measure rates.

[[Page 28130]]

    Further, as part of its regular maintenance process for NQF-
endorsed performance measures, 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.
    The NQF's annual or triennial maintenance processes for endorsed 
measures may result in the NQF requiring updates to the measures in 
order to maintain endorsement status. We believe that it is important 
to incorporate nonsubstantive updates required by the NQF, as well as 
nonsubstantive updates made to other measures, into the measure 
specifications we have adopted for the Hospital VBP Program so that 
these measures remain up-to-date and ensure that we make fair 
comparisons between the performance and baseline periods that we adopt 
under the Program. We also recognize that some updates to measures are 
substantive in nature and might not be appropriate for adoption without 
further rulemaking.
    With respect to what constitutes substantive versus nonsubstantive 
changes to measures, we would make this determination on a case-by-case 
basis. 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 nonsubstantive changes may include updates 
to measures based upon changes to guidelines upon which the measures 
are based.
    Therefore, we are proposing to amend the definition of 
``performance standards'' under Sec.  412.160 to enable us to update 
performance standards' numerical values to incorporate nonsubstantive 
technical updates that are made to Hospital VBP Program measures 
between the time that they are adopted for a particular program year 
and the time that we actually calculate hospital performance on those 
measures after the performance period for the program year has 
concluded. Further, we are proposing to inform hospitals of these 
technical updates through postings on our Hospital VBP Program Web 
site, the QualityNet Web site, other educational outreach efforts, and/
or the scoring reports that we provide for each program year. We note 
that these proposals, if finalized, may have the effect of superseding 
the performance standards that we establish prior to the start of the 
performance period for the affected measures, but we believe them to be 
necessary to ensure that the performance standards in the Hospital VBP 
Program's scoring calculations enable the fairest comparisons between 
performance measured during the baseline period and performance period.
    We would continue to use rulemaking to adopt substantive updates to 
the measures we have adopted for the Hospital VBP 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). We also note 
that the NQF process incorporates an opportunity for public comment and 
engagement in the measure maintenance process.
    We are also proposing to include in our revised definition of 
``performance standards'' under Sec.  412.160 of our regulations the 
policy we adopted in the FY 2013 IPPS/LTCH final rule to update the 
performance standards once if we identify data issues, calculation 
errors, or other problems that would significantly change the standards 
(78 FR 50695). We are proposing to make this change so that our 
policies governing updates to the performance standards appear 
together.
    We welcome public comments on these proposals. We also specifically 
seek public comments on what we should consider to be substantive 
changes in measures' performance standards, including whether or not we 
should consider certain changes in performance standards as a result of 
technical or non-substantive updates to be substantive.
g. Request for Public Comments on ICD-10-CM/PCS Transition
    The ICD-10-CM/PCS transition is scheduled to take place on October 
1, 2015. After that date, we will collect nonelectronic health record-
based quality measure data coded only in ICD-10-CM/PCS. Even though we 
expect that the endorsement status of the measures we have adopted for 
the Hospital VBP Program will remain the same, we are concerned that 
the transition to a new coding system might have unintended 
consequences on quality measure data denominators, statistical 
adjustment coefficients, and measure rates. We are concerned about the 
possible impacts on the Hospital VBP Program, and request public 
comments on how we should accommodate the transition.
    Specifically, we request comments on how, if at all, we should 
adjust performance scoring under the Hospital VBP Program to 
accommodate quality data coded under ICD-10-CM/PCS, or otherwise ensure 
fair and accurate comparisons under the Hospital VBP Program once the 
transition date has passed. For example, we could consider analyzing 
the effects of the ICD-10-CM/PCS transition on hospitals' measured 
performance and, if substantive differences result, retrospectively 
adjusting performance standards in order to ensure that they accurately 
reflect the underlying methodology. We could also consider performing 
similar adjustments to hospitals' measure rates, measure scores, or 
TPSs once our analysis is completed. We also might consider scoring 
hospitals only on achievement if analysis indicates that we are unable 
to reliably and validly calculate improvement scores when comparing 
ICD-9-CM based baseline period data to ICD-10-CM/PCS based performance 
period data. However, while we intend to analyze the effects of the 
ICD-10-CM/PCS transition on hospitals' performance, we do not have the 
necessary data for all hospitals at this time.
    We intend to take two steps to analyze ICD-10-CM/PCS potential 
impact before receiving ICD-10-CM/PCS-based fall 2015 discharge data in 
May 2016. First, we will assess measure specifications to qualitatively 
assess impact to measure denominators after CMS releases ICD-10-CM/PCS-
based measure specifications in the future. Second, we intend to 
voluntarily solicit information from no more than 9 hospitals before 
October 1, 2015 to estimate the impact of ICD-10-CM/PCS on their 
Hospital VBP measure rates and denominator counts. We intend to use 
this information to inform both proposed and future Hospital VBP 
Program policy and measures.
    We welcome public comments on this topic.
11. Proposed FY 2017 Hospital VBP Program Scoring Methodology
    a. Proposed General Hospital VBP Program Scoring Methodology
    In the Hospital Inpatient VBP Program final rule (76 FR 26514), we 
adopted a

[[Page 28131]]

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. 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 similar 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 53604 through 
53605), for the FY 2015 Hospital VBP Program, we finalized our proposal 
to use these same general 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. In the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50699), we readopted the finalized 
general scoring methodology adopted for the FY 2015 Hospital VBP 
Program for the FY 2016 Hospital VBP Program.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50702 through 
50704), we adopted new quality domains based on the NQS for FY 2017 and 
subsequent years.
    We continue to agree with the reasoning for the scoring methodology 
outlined in the FY 2013 IPPS/LTCH PPS final rule and summarized above. 
Therefore, we are proposing to adopt the general scoring methodology 
adopted for the FY 2016 Hospital VBP Program for the FY 2017 Hospital 
VBP Program, with appropriate modifications to accommodate the new 
quality domains that we have previously adopted. These proposed 
modifications to our scoring methodology are limited to reclassified 
quality domains, new placements for measures within those domains, and 
domain weighting. We discuss below a proposal to revise the finalized 
domain weighting for FY 2017.
    We welcome public comment on this proposal.
b. Proposed Domain Weighting for the FY 2017 Hospital VBP Program for 
Hospitals That Receive a Score on All Domains
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50702 through 
50704), we adopted our proposal to align the Hospital VBP Program's 
quality measurement domains with the NQS' quality priorities, with 
certain modifications. We adopted this realignment beginning with the 
FY 2017 Hospital VBP Program. We also adopted the following domains and 
domain weights for the FY 2017 Hospital VBP Program for hospitals that 
receive a score in all newly aligned domains.

 Previously Adopted Domains and Domain Weights for the FY 2017 Hospital
VBP Program for Hospitals Receiving a Score on All Newly Aligned 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 Experience of Care/  25 percent.
 Care Coordination.
------------------------------------------------------------------------

    However, as discussed in more detail above, we are proposing to 
remove six ``topped out'' measures from the FY 2017 Clinical Care--
Process subdomain. We believe that the proposed substantial reduction 
in the number of measures adopted for the Clinical Care--Process 
subdomain, if finalized, warrants reconsideration of the finalized 
domain weighting for FY 2017 that we adopted in the FY 2014 IPPS/LTCH 
PPS final rule.
    As described in more detail above, we are proposing to re-adopt the 
CLABSI measure and to adopt two new measures (MRSA Bacteremia and C. 
difficile Infection) for the Safety domain for FY 2017 Hospital VBP 
Program and subsequent years, and, if finalized, they would raise the 
total number of measures in this domain for FY 2017 to six. Because we 
are proposing to make changes in the number of measures in only two 
domains (Safety and Clinical Care), we focused our proposed domain 
weighting changes in this proposed rule on these domains only. Because 
we continue to believe that hospitals should be provided strong 
incentives to perform well on measures of patient safety, in view of 
the new measures we are proposing to add to that domain, we are 
proposing to revise the previously finalized domain weighting for the 
FY 2017 Hospital VBP Program for hospitals receiving a score on all 
newly aligned domains as follows:

Proposed Revised Domain Weights for the FY 2017 Hospital VBP Program for
        Hospitals Receiving a Score on All Newly Aligned Domains
------------------------------------------------------------------------
                      Domain                               Weight
------------------------------------------------------------------------
Safety............................................  20 percent.
Clinical Care:                                      30 percent.
     Clinical Care--Outcomes..............     25
                                                       percent.
     Clinical Care--Process...............     5
                                                       percent.
Efficiency and Cost Reduction.....................  25 percent.

[[Page 28132]]

 
Patient and Caregiver Centered Experience of Care/  25 percent.
 Care Coordination.
------------------------------------------------------------------------

    We welcome public comments on this proposal.
c. Proposed Domain Weighting for the FY 2017 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, because 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.
    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 out of the four domain scores that existed 
for the FY 2015 Hospital VBP Program (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 final rule (78 FR 50701 through 
50702), we continued this approach for the FY 2016 Hospital VBP Program 
and subsequent fiscal years for purposes of eligibility for the program 
even though, based on the NQS, we adopted four NQS-based domains for 
the FY 2017 Hospital VBP Program (78 FR 50702 through 50704), which 
include the subdivided Clinical Care domain.
    In light of the four NQS-based domains we have adopted, we have 
reconsidered the appropriate minimum number of domains (that is, the 
number of domains on which hospitals must receive scores) in order to 
receive a TPS. We are concerned that requiring just two out of the four 
NQS-based domains in order to receive a TPS may be insufficient to 
ensure robust quality measurement under the Hospital VBP Program. 
Further, given the transition to NQS-based domains that we have 
adopted, we believe an additional independent analysis of appropriate 
minimum numbers of domains under the new domain structure is 
appropriate. We commissioned that analysis from our Reports & Analytics 
contractor for the Hospital VBP Program. The results of that analysis 
informed our proposal below, and we intend to post a summary of the 
reliability and minimum numbers analysis on the CMS Web site during the 
public comment period. We believe that requiring three out of the four 
NQS-based domains appropriately balances our desire to be as inclusive 
as possible with Hospital VBP Program requirements while ensuring that 
TPSs under the Program are sufficiently reliable.
    Therefore, we are proposing to require that, for the FY 2017 
Hospital VBP Program and subsequent years, hospitals must receive 
domain scores on at least three quality domains in order to receive a 
TPS. For purposes of the Clinical Care domain score, we are proposing 
to consider either the Clinical Care--Process or Clinical Care--Outcome 
subdomains as one domain in order to meet this proposed requirement. By 
adopting this policy, we believe we will continue to allow as many 
hospitals as possible may participate in the program while ensuring 
that reliable TPSs result. However, we would only reweight hospitals' 
TPSs once, and will therefore not reallocate the Clinical Care--Process 
and Clinical Care--Outcome subdomains' weighting within the Clinical 
Care domain if a hospital does not have sufficient data for one of the 
subdomains. For example, a hospital receiving domain scores on all 
domains except the Clinical Care--Process subdomain would not have the 
5 percent weighting from the Clinical Care--Process subdomain 
reallocated entirely to the Clinical Care--Outcome subdomain. Instead, 
the 5 percent weighting from the Clinical Care--Process subdomain would 
be proportionately reallocated across all domains.
    We welcome public comments on this proposal.
12. Proposed Minimum Numbers of Cases and Measures for the FY 2016 and 
FY 2017 Hospital VBP Program's Quality Domains
a. Previously Adopted Minimum Numbers of Cases and FY 2016 Proposed 
Minimum Numbers of Cases
    In the Hospital Inpatient VBP Program final rule (76 FR 26527 
through 26531), we adopted minimum numbers of at least 10 cases on at 
least 4 measures for hospitals to receive a Clinical Process of Care 
domain score. In the same final rule, we adopted a minimum number of 
100 HCAHPS surveys for a hospital to receive a Patient Experience of 
Care domain score. In the CY 2012 OPPS/ASC final rule with comment 
period (76 FR 74532 through 74534), we adopted a minimum number of 10 
cases for the mortality measures that we adopted for FY 2014. In the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53608 through 53609), we adopted a 
new minimum number of 25 cases for the mortality measures for FY 2015. 
In the same final rule, we adopted a minimum number of 25 cases for the 
MSPB measure (77 FR 53609 through 53610), a minimum of three cases for 
any underlying indicator for the PSI-90 measure based on AHRQ's measure 
methodology (77 FR 53608 through 53609), and a minimum of one predicted 
infection for NHSN-based surveillance measures based on CDC's minimum 
case criteria (77 FR 53608 through 53609). However, we note that we 
adopted these case minimums for FY 2015 only, although we intended to 
adopt them for FY 2015 and subsequent years. We continue to believe 
that the finalized minimum numbers of cases described above are 
appropriate and provide sufficiently reliable data for scoring purposes 
under the Hospital VBP Program. Therefore, we are proposing to adopt 
the specified case minimums for the FY 2016 Hospital VBP Program and 
subsequent years.
    We welcome public comment on this proposal. We note that we are 
proposing below to specify minimum numbers of measures for the FY 2017 
Hospital VBP Program and subsequent years based on the new domain 
structure.

[[Page 28133]]

b. Proposed Minimum Number of Measures--Safety Domain
    As described in more detail above, we have proposed to adopt six 
quality measures in the Safety domain for the FY 2017 Hospital VBP 
Program. Of these measures, five are NHSN-based surveillance measures, 
and one is the PSI-90 measure. After consideration of these measures 
and of previous independent analyses of the necessary minimum number of 
measures adopted for the Outcome domain, whose measures formed the 
basis for part of the new Safety domain, we are proposing to adopt a 
minimum number of three measures for the Safety domain for FY 2017 and 
subsequent years. We believe this proposal balances our desire to be as 
inclusive as possible with the Hospital VBP Program and the need for 
reliable quality measurement data on which to base TPSs. We would also 
like to clarify that we will continue to score hospitals on NHSN 
measures if, as we discussed with respect to the CLABSI measure (77 FR 
53608) and the SSI measure (78 FR 50684), the hospital has met CDC's 
minimum case criteria, or one predicted infection during the applicable 
period.
    We welcome public comments on this proposal.
c. Proposed Minimum Number of Measures--Clinical Care Domain
(1) Background
    In the FY 2014 IPPS/LTCH PPS final rule, we adopted a new domain 
structure for the FY 2017 Hospital VBP Program and subsequent years 
based on the National Quality Strategy. In that final rule, we adopted 
a Clinical Care domain that was subdivided into the Clinical Care--
Process and Clinical Care--Outcomes subdomains. We adopted these 
subdomains in order to ensure that we place the appropriate domain 
weighting on measures of clinical processes and measures of clinical 
outcomes. We believe the same consideration is appropriate for 
determining minimum numbers of measures for each subdomain, and based 
on prior independent analyses conducted of the appropriate minimum 
numbers for the Clinical Process of Care and Outcome domains whose 
measures formed the basis for the new Clinical Care domain, are 
proposing separate minimum numbers for each of these subdomains below. 
As described further above, we also attempted to balance our desire to 
be as inclusive as possible with the Hospital VBP Program and the need 
for reliable quality measurement data on which to base Total 
Performance Scores.
(2) Clinical Care--Outcomes Subdomain
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707), we adopted a 
minimum number of two measures in the former Outcome domain. We stated 
our belief that this minimum number is appropriate for the expanded 
Outcome domain that formed the basis for the Clinical Care--Outcomes 
subdomain because adding measure scores beyond the minimum number of 
measures has the effect of enhancing the domain score's reliability.
    As noted above, the Clinical Care--Outcomes subdomain now contains 
the three 30-day mortality measures, and based on previous independent 
analysis of the appropriate minimum number of measures for the Outcome 
domain that formed the basis for the Clinical Care--Outcomes domain 
(available on our Web site at: http://cms.hhs.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf), we continue to 
believe that a minimum number of two measures within the subdomain 
appropriately balances scoring reliability with inclusiveness under the 
Program. As noted above, we intend to post a summary of the reliability 
and minimum numbers analysis on the CMS Web site during the public 
comment period. Therefore, we are proposing to adopt a minimum number 
of two measures in the Clinical Care--Outcomes subdomain for FY 2017 
and subsequent years.
    We welcome public comment on this proposal.
(3) Clinical Care--Process Subdomain
    We have reconsidered the finalized minimum number of measures given 
the significant reduction in Clinical Care--Process measures due to 
``topped-out'' removals that we are proposing in this proposed rule. We 
are concerned that requiring hospitals to report on all three proposed 
Clinical Care--Process measures for the FY 2017 Hospital VBP Program, 
or even requiring two out of three measures, could prevent a 
significant proportion of participating hospitals from receiving a 
Clinical Care--Process subdomain score. We are aware that relatively 
few hospitals report data for the AMI-7a measure, and the proposed PC-
01 measure will only include hospitals that provide maternity services. 
In accordance with our preference for including as many hospitals as 
possible in the Hospital VBP Program while ensuring the reliability of 
the domain score and based on a prior independent analysis conducted 
with respect the Clinical Process of Care domain that formed the basis 
for the Clinical Care--Process domain, we are proposing to require 
hospitals to report a minimum of one measure in the Clinical Care--
Process subdomain for the FY 2017 Hospital VBP Program and subsequent 
years to receive a domain score.
    We welcome public comment on this proposal.
d. Proposed Minimum Number of Measures--Efficiency and Cost Reduction 
Domain
    Because the MSPB measure remains the only measure within the 
Efficiency and Cost Reduction domain for FY 2017, we are proposing to 
require that hospitals receive a MSPB measure score in order to receive 
an Efficiency and Cost Reduction domain score. If we adopt additional 
measures for this domain in the future, we will consider if we should 
revisit this policy.
    We welcome public comments on this proposal.
e. Proposed Minimum Number of Measures--Patient and Caregiver Centered 
Experience of Care/Care Coordination (PEC/CC) Domain
    As with the MSPB measure adopted for the Efficiency and Cost 
Reduction domain described further above, we have not adopted 
additional measures for the PEC/CC domain. Because the HCAHPS survey 
measure remains the only measure within the PEC/CC domain for FY 2017, 
we are proposing to require that hospitals receive a HCAHPS survey 
measure score in order to receive a PEC/CC domain score. If we adopt 
additional measures for this domain in the future, we will consider if 
we should revisit this policy.
    We welcome public comments on this proposal.
13. Applicability of the Hospital VBP Program to Maryland Hospitals
    Section 1886(o)(1)(C) of the Act specifies the hospitals for which 
the Hospital VBP Program applies. 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. 
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 annual report to the Secretary describing how a 
similar program in the State for a participating

[[Page 28134]]

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 have interpreted the reference to section 
1814(b)(3) of the Act to mean those Maryland hospitals that were paid 
under section 1814(b)(3) of the Act and that, absent the ``waiver'' 
provided by section 1814(b)(3) of the Act, would have been paid under 
the IPPS.
    The State of Maryland entered into an agreement with CMS, effective 
January 1, 2014, to participate in CMS' new Maryland All-Payer Model, a 
5-year hospital payment model. This model is being implemented under 
section 1115A of the Act, as added by section 3021 of the Affordable 
Care Act, which authorizes the testing of innovative payment and 
service delivery models, including models that allow States to ``test 
and evaluate systems of all-payer payment reform for the medical care 
of residents of the State, including dual-eligible individuals.'' 
Section 1115A of the Act authorizes the Secretary to waive such 
requirements of titles XI and XVIII of the Act as may be necessary 
solely for purposes of carrying out section 1115A of the Act with 
respect to testing models.
    Under the agreement with CMS, Maryland will limit per capita total 
hospital cost growth for all payers, including Medicare. In order to 
implement the new model, effective January 1, 2014, Maryland elected to 
no longer have Medicare pay Maryland hospitals in accordance with 
section 1814(b)(3) of the Act. Maryland also represented that it is no 
longer in continuous operation of a demonstration project reimbursement 
system since July 1, 1977, as specified under section 1814(b)(3) of the 
Act. Because Maryland hospitals are no longer paid under section 
1814(b)(3) of the Act, they are no longer subject to those provisions 
of the Act and related implementing regulations that are specific to 
hospitals paid under section 1814(b)(3)of the Act, including but not 
limited to section 1886(o)(1)(C)(iv) of the Act, which provides an 
exemption for hospitals paid under section 1814(b)(3) of the Act from 
the application of the Hospital VBP Program if the State which is paid 
under that section meets certain requirements.
    In order to implement the Maryland All-Payer Model, we have waived 
certain provisions of the Act, and the corresponding implementing 
regulations, as set forth in the agreement between CMS and Maryland and 
subject to Maryland's compliance with the terms of the agreement. The 
effect of Maryland hospitals no longer being paid under 1814(b)(3) is 
that they are not entitled to be exempted from the Hospital VBP Program 
under section 1886(o)(1)(C)(iv) of the Act and, but for the model, 
would be included in the Hospital VBP Program. In other words, although 
the exemption from the Hospital VBP Program no longer applies, Maryland 
hospitals will not be participating in the Hospital VBP Program because 
section 1886(o) of the Act and its implementing regulations have been 
waived for purposes of the model, subject to the terms of the 
agreement.
    Accordingly, we are proposing to make conforming revisions to Sec.  
412.160, in the definition of ``base-operating DRG payment amount'' and 
to Sec.  412.161, which describes the applicability of the Hospital VBP 
Program. We are proposing to delete references in these regulations to 
hospitals paid under section 1814(b)(3) of the Act because, at this 
time, there are no hospitals paid under that section.
    We welcome public comment on these proposals.
14. Disaster/Extraordinary Circumstance Exception Under the Hospital 
VBP Program
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50704 through 
50706), we adopted a disaster/extraordinary circumstance exception. We 
refer readers to that final rule for the policy's details.
    We note that we are currently in the process of revising the 
Extraordinary Circumstances/Disaster Extension or Waiver Request form, 
previously approved under OMB control number 0938-1171.

J. Proposed Changes to the Hospital-Acquired Condition (HAC) Reduction 
Program

1. Background
    We refer readers to section V.I.1.a. of the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50707 through 50708) for a general overview of the 
HAC Reduction Program.
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 the 
incidence of 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 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

[[Page 28135]]

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 for FY 2015
a. Overview
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 
50729), we presented the general framework for implementation of the 
HAC Reduction Program for the FY 2015 implementation. We included the 
following provisions 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 the FY 2014 IPPS/LTCH PPS final rule (78 FR 50967), we 
established 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 amended 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.
    In accordance with the provisions of section 1886(p) of the Act, in 
the FY 2014 IPPS/LTCH PPS final rule, we included, under Sec.  412.170, 
definitions for the terms ``hospital-acquired condition,'' ``applicable 
hospital,'' and ``applicable time period'' (78 FR 50967). In Sec.  
412.170, we defined ``hospital-acquired condition'' as 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 defined 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) 
as long as the hospital meets the criteria specified under Sec.  
412.172(e)'' (78 FR 50967). We specified that this definition does not 
include hospitals and hospital units excluded from the IPPS, such as 
LTCHs, cancer hospitals, children's hospitals, IRFs, IPFs, CAHs, and 
Puerto Rico hospitals. We defined the ``applicable period'' as, with 
respect to a fiscal year, the 2-year period (as specified by the 
Secretary) from which data are collected in order to calculate the 
Total HAC Score for the HAC Reduction Program.
    Below we summarize the specific provisions for the HAC Reduction 
Program that were established in the FY 2014 IPPS/LTCH PPS final rule 
for implementation in FY 2015.
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 IV.I. of 
the preamble of this proposed rule and the Hospital Readmissions 
Reduction Program is discussed in section IV.H. of the preamble of this 
proposed 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 hospitals that 
report conditions acquired during the applicable period, as determined 
by the Secretary.
    Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR50967), we 
specified in Sec.  412.172(b) of the regulations that, for applicable 
hospitals, beginning with discharges occurring during FY 2015, the 
amount of payment under 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 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 VBP Program 
under Sec.  412.162, and section 1814(l)(4) but without regard to this 
section 1886(p) of the Act.
(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 stated in 
section IV.J.3. of the preamble of this proposed rule, because 
hospitals paid under section 1814(b)(3) of the Act are subsection (d) 
hospitals, they are 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 final rule (78 FR 50967 through 
50968), we established criteria for evaluation to determine whether 
Maryland will be exempted from the application of the payment 
adjustments under the HAC Reduction Program for a given fiscal year. 
Under Sec.  412.172(c), we specified 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

[[Page 28136]]

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 specified in the 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 specified that Maryland's annual report to the 
Secretary and request for exemption from the HAC Reduction Program must 
be resubmitted and reconsidered annually. We provided that, for FY 
2015, Maryland must submit a preliminary report to us by January 15, 
2014 and a final report to us by June 1, 2014.
    We noted that our 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.
    The State of Maryland entered into an agreement with CMS, effective 
January 1, 2014, to participate in CMS' new Maryland All-Payer Model, a 
5-year hospital payment model. This model is being implemented under 
section 1115A of the Social Security Act (``Act''), as added by section 
3021 of the Affordable Care Act, which authorizes the testing of 
innovative payment and service delivery models, including models that 
allow states to ``test and evaluate systems of all-payer payment reform 
for the medical care of residents of the State, including dual eligible 
individuals.'' Section 1115A of the Act authorizes the Secretary to 
waive such requirements of titles XI and XVIII of the Act as may be 
necessary solely for purposes of carrying out Section 1115A with 
respect to testing models.
    Under the agreement with CMS, Maryland will limit per capita total 
hospital cost growth for all payers, including Medicare. In order to 
implement the new model, effective January 1, 2014, Maryland elected to 
no longer have Medicare reimburse Maryland hospitals in accordance with 
section 1814(b)(3) of the Act. Maryland also represented that it is no 
longer in continuous operation of a demonstration project reimbursement 
system since July 1, 1977, as specified under Section 1814(b)(3) of the 
Act. Because Maryland hospitals are no longer reimbursed under section 
1814(b)(3) of the Act, they are no longer subject to those provisions 
of the Act and related implementing regulations that are specific to 
section 1814(b)(3) hospitals, including but not limited to section 
1886(p)(2)(C) of the Act, which provides exemptions for hospitals paid 
under section 1814(b)(3) from the application of the HAC Reduction 
Program.
    However, in order to implement the Maryland All-Payer Model, CMS 
has waived certain provisions of the Act for Maryland hospitals, 
including section 1886(p), and the corresponding implementing 
regulations, as set forth in the agreement between CMS and Maryland and 
subject to Maryland's compliance with the terms of the agreement. In 
other words, although section 1886(p)(2)(C) of the Act no longer 
applies to Maryland hospitals, Maryland hospitals will not be 
participating in the HAC Reduction Program because section 1886(p) of 
the Act and its implementing regulations have been waived for purposes 
of the model, subject to the terms of the agreement. Consequently, we 
are proposing that the Total HAC scores for Maryland hospitals will not 
be included when identifying the top quartile of all hospitals with 
respect to their Total HAC Score during the applicable period.
    As a result of changes to the status of Maryland hospitals under 
1814(b)(3) of the Act described above, we are proposing conforming 
changes to these regulations and seek public comment on this proposal. 
Specifically, we are proposing to remove the entire contents of 
paragraph (c) under Sec.  412.172 and reserve the paragraph (c) 
designation.
c. Measure Selection and Conditions, Including a Risk-Adjustment 
Scoring Methodology
(1) General Selection of Measures
    We are not proposing any new measures for the HAC Reduction Program 
in this FY 2015 proposed rule. Although we are not required under 
section 1886(p) of the Act to address specific measure scoring 
methodologies and domain weights regarding the HAC Reduction Program in 
notice-and-comment rulemaking, as required under the Hospital VBP 
program, 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 adopted in previous rulemaking relate to 
the performance methodology used to determine the applicable hospitals 
subject to the payment adjustment under the HAC Reduction Program. 
However, below we set forth the specific measure scoring methodology 
and domain weights regarding the HAC Reduction Program for FY 2015 as 
finalized in the FY 2014 IPPS/LTCH PPS final rule.
(2) Updates on AHRQ PSI-90, and CDC NHSN CLABSI and CAUTI Measures
    For FY 2015, we will keep the AHRQ PSI-90 composite measure (in 
Domain 1) that we adopted in the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50717) as it is currently endorsed by NQF. However, we note that the 
AHRQ PSI-90 composite measure is currently undergoing NQF maintenance 
review. The PSI-90 composite consists of eight component indicators: 
PSI-3 Pressure ulcer rate; PSI-6 Iatrogenic pneumothorax rate; PSI-7 
Central venous catheter-related blood stream infections rate; PSI-8 
Postoperative hip fracture rate; PSI-12 Postoperative PE/DVT rate; PSI-
13 Postoperative sepsis rate; PSI-14 Wound dehiscence rate; and PSI-15 
Accidental puncture & laceration rate. AHRQ is considering the addition 
of PSI-9 (Perioperative hemorrhage rate), PSI-10 (Perioperative 
physiologic metabolic derangement rate) and PSI-11 (Post-operative 
respiratory failure rate) or a combination of these three measures into 
the PSI-90 composite. We consider the inclusion of measures in the PSI-
90 composite to be a significant change to the PSI-90 composite that we 
finalized in the FY 2014 IPPS/LTCH PPS final rule. Should the changes 
be significant, we will issue notice-and-comment rulemaking prior to 
requiring reporting of this composite.
    Similarly, the CDC NHSN Catheter-Associated Urinary Tract Infection 
(CAUTI) and Central Line-Associated Blood Stream Infection (CLABSI) 
measures in Domain 2 that we adopted in the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50717) for FY 2015 also are currently undergoing NQF 
maintenance review. Should the changes be significant, we will issue 
notice-and-comment rulemaking prior to requiring reporting of the 
changes made to CDCs NHSN CLABSI and CAUTI measures. For FY 2015, we 
will keep CDC's NHSN CAUTI and CLABSI measures in Domain 2 as they are 
currently endorsed.

[[Page 28137]]

(3) Measure Selection
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we finalized 
the following measures for selection: (i) The AHRQ PSI-90 composite 
measure for Domain 1 and the CDC NHSN measures CAUTI and CLABSI for 
Domain 2 for FY 2015; (ii) addition of CDC NHSN Surgical Site Infection 
(SSI) measure for FY 2016; and (iii) addition of CDC NHSN Methicillin-
Resistant Staphylococcus aureus (MRSA) Bactremia and C. difficile 
measures for FY 2017. Several of these measures are already part of the 
Hospital IQR Program and are reported on the Hospital Compare Web site.
(4) Measure Risk-Adjustment Methodology
    In the FY 2014 IPPS/LTCH PPS final rule, we established that we 
will use the existing measure-level risk-adjustment that is already 
part of the methodology for the individual measures for Domains 1 and 2 
in order to fulfill this requirement (78 FR 50719). We codified the use 
of this methodology under Sec.  412.172(d) of the regulations. The AHRQ 
PSI-90 composite measure and the CDC NHSN measures selected for the 
program are risk-adjusted and reliability-adjusted. Specifically, risk 
factors such as the patient's age, gender, comorbidities, and 
complications will be considered in the calculation of the measure 
rates so that hospitals serving a large proportion of sicker patients 
are not unfairly penalized. We noted that the risk-adjustment 
methodology for these measures meets NQF endorsement criteria. We 
believe that such risk-adjustment is appropriate, pursuant to section 
1886(p) of the Act.
    We will continue to examine the impact of the additional measures 
in the program, and propose refinements to the program if necessary. 
Should changes to the risk-adjustment models for the measures be 
adopted during NQF endorsement maintenance processes, we will propose 
adopting these changes as soon as possible through rulemakings.
(5) Measure Calculations
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717 through 
50719), we established that we will perform measure calculations for 
the AHRQ PSI-90 composite measure under Domain 1 and the CDC NHSN 
measures under Domain 2. We stated that measure calculations for the 
AHRQ PSI-90 composite measures included using ICD-9-CM diagnosis and/or 
procedure codes and, for the principal and secondary diagnoses, a 
present on admission (POA) indicator value associated with all 
diagnoses on the claim. We also stated that subsection (d) Maryland 
hospitals paid under the waiver at section 1814(b)(3) of the Act also 
must report on whether a diagnosis is present on admission (78 FR 
50718). (As noted in section IV.J.3.b.(2) of the preamble of this 
proposed rule, in order to implement the new Maryland All-Payer Model, 
Maryland elected to no longer have Medicare payment made to Maryland 
hospitals in accordance with section 1814(b)(3) of the Act, effective 
January 1, 2014. Although CMS has waived certain provisions of the Act 
for Maryland hospitals as set forth in the agreement between CMS and 
Maryland and subject to Maryland's compliance with the terms of the 
agreement, CMS has not waived the POA indicator reporting requirement. 
In other words, the changes to the status of Maryland hospitals under 
section 1814(b)(3) of the Act as described above do not in any way 
change the POA indicator reporting requirement for Maryland hospitals.) 
We also finalized that the same rules under the Hospital IQR Program be 
applied to determine how the AHRQ PSI-90 composite measure and CDC NHSN 
measures are applied and calculated.
(6) Applicable Time Period
    In the FY 2014 IPPS/LTCH final rule (78 FR 50717), we adopted a 2-
year applicable period to collect data that would be used to calculate 
the Total HAC Score for FY 2015. For Domain 1 (AHRQ PSI-90 composite 
measure), we established a 2-year data period to calculate the measures 
based on recommendations from AHRQ, the measure developer, as we 
believed that the 24-month data period will provide hospitals and the 
general public the most current data available. The 24-month data 
period also will 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.
    As such, for FY 2015, we will use the 24-month period from July 1, 
2011 through June 30, 2013 as the applicable time period for the AHRQ 
PSI-90 composite measure. The claims for all Medicare FFS beneficiaries 
discharged during this period will 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 CDC NHSN measures, CAUTI and CLABSI, are currently collected 
and calculated on a quarterly basis. However, for the purpose of the 
HAC Reduction Program, we will use 2 years of data to calculate the 
Domain 2 score. For FY 2015, we will use calendar years 2012 and 2013 
for the HAC Reduction Program. As noted above, we codified the 
definition of ``applicable time period'' in the FY 2014 IPPS/LTCH PPS 
final rule at Sec.  412.170.
d. Criteria for Applicable Hospitals and Performance Scoring Policy
    The HAC Reduction Program does not contain specific statutory 
directives on scoring methods, as found with other programs. Therefore, 
our main concern when establishing scoring methods for the HAC 
Reduction Program was to align with existing scoring methodologies in 
similar hospital programs. Accordingly, in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50721), we finalized a scoring methodology that 
aligns with the achievement scoring methodology currently used under 
the Hospital VBP Program (78 FR 27629). We believe aligning the scoring 
methodologies reduces confusion associated with multiple scoring 
methodologies. Additionally, we note that alignment benefits the 
hospital stakeholders who have prior experience with the Hospital VBP 
Program.
    In the FY 2014 IPPS/LTCH PPS proposed rule (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.
    We reviewed the public input on the proposed 75th percentile 
benchmark. Several commenters requested that a change to the proposed 
minimum benchmark for scoring each measure was necessary. We agreed 
with these commenters, and in the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50722), we modified our proposal and established that the scoring 
will begin at the minimum value for each measure rather than the 75th 
percentile. The methodology finalized in the FY 2014

[[Page 28138]]

IPPS/LTCH PPS final rule will assess the top quartile of applicable 
hospitals for HACs based on the Total HAC Score. The support for Domain 
2 measures in general, coupled with multiple recommendations, and 
specifically those from MedPAC, to provide more weight to Domain 2 
measures led us to conclude that such scoring changes are necessary. 
Therefore, we finalized a different weight for each Domain than 
originally proposed (78 FR 50721).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50722), we further 
specified that 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 multiply each domain score 
by the following weights: Domain 1--(AHRQ PSI-90 composite measure), 35 
percent; and Domain 2--(CDC NHSN measures), 65 percent; and combine the 
weighted domain scores to determine the Total HAC Score (Sec.  
412.172(e)(3)). We use each hospital's Total HAC Score to determine the 
top quartile of subsection (d) hospitals (applicable hospitals) that 
are subject to the payment adjustment beginning with discharges on or 
after October 1, 2014. With respect to a subsection (d) hospital, we 
identify 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)). We use a Total HAC Score to identify 
applicable hospitals and identify the 25 percent of hospitals with the 
highest Total HAC Scores as applicable hospitals (Sec.  412.172(e)(2)).
    We finalized the PSI-90 composite measure for Domain 1. Because 
hospitals may not have complete data for every AHRQ indicator in the 
composite measure for this Domain 1 measure, we finalized 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.
    Additionally, we finalized the following rules 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 that the 
facility have a [gteqt] 1 predicted HAI event. The predicted number of 
events is calculated using the national HAI rate and the denominator 
counts (that is, number of device days, procedure days, or patient days 
depending on the HAI). In the event an SIR cannot be calculated because 
the facility has <1 predicted infection, Domain 1 scores exclusively 
will be used to calculate 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 for the HAC Reduction 
Program and the distribution of measure results, simply adding up the 
measure results to calculate the domain or Total HAC Score will make 
the scores less meaningful to hospitals and the general public. As a 
result, as we indicated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50720 through 50725), points will be assigned to hospitals' performance 
for each measure. 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 
performance. For the HAC Reduction Program, we finalized use of a 
slightly different methodology for scoring points, depending on the 
specific measure (Table C in the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50723), which is also included below). 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.
     For the PSI-90 composite measure, 1 to 10 points will be 
assigned to the hospital.
     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, 1 to 10 points will be assigned 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
----------------------------------------------------------------------------------------------------------------
          Measure name                Measure result           Scenario        Individual measure score (points)
----------------------------------------------------------------------------------------------------------------
Domain 1 AHRQ PSI-90 ***........  Weighted average of    Composite value.....  1--10.
                                   rates of component
                                   indicators.
Domain 2 CDC NHSN CAUTI CLABSI..  Standard Infection     SIR.................  1--10 (refer to 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 to determine the number of points assigned to a 
measure (78 FR 50723 through 50725). Based 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 11th and 
20th percentile) will be given 2 points, and so forth.

        Figure A--Point Assignment for Hospital A's PSI-90 Score
------------------------------------------------------------------------
                                                            Then assign
 If Hospital A's PSI-90 rate falls into this percentile   this number of
                                                              points
------------------------------------------------------------------------
1st-10th................................................               1
11th-20th...............................................               2
21st-30th...............................................               3

[[Page 28139]]

 
31st-40th...............................................               4
41st-50th...............................................               5
51st-60th...............................................               6
61st-70th...............................................               7
71st-80th...............................................               8
81st-90th...............................................               9
91st-100th..............................................              10
------------------------------------------------------------------------

    For Domain 2, we will obtain measure results that hospitals 
submitted to the CDC NHSN for the Hospital IQR Program. The CDC NHSN 
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 FY 2014 IPPS/LTCH PPS final rule, we noted 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, we 
finalized the following rules (Figure B in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50724), which is included below):
     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.
BILLING CODE 4120-01-P

[[Page 28140]]

[GRAPHIC] [TIFF OMITTED] TP15MY14.001

BILLING CODE 4120-01-C
(1) Clarification of Finalized Measure Result Scoring for FY 2015 and 
Subsequent Years
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50723), we finalized 
for the HAC Reduction Program a scoring methodology that divides the 
measure results into percentiles in increments of 10 and assigns points 
(1 to 10) in accordance with the percentile into which the hospital's 
measure result falls. Our preliminary analysis of the measures showed 
that multiple hospitals had the same measure results, and that in 
certain instances, the number of hospitals with the same measure 
results exceeded the number of hospitals for their appropriate 
percentile. Consequently a few hospitals with the same measure results 
fall into

[[Page 28141]]

the next higher percentile. In these instances, we will assign the same 
point for all hospitals with the same measure results, and that point 
will be based on the prior or the lowest appropriate percentile.
    For example, if, for the CAUTI measure, 13 percent of hospitals 
have an SIR of 0, we will assign a point of 1 to all 13 percent of 
hospitals, even though, arguably, 10 percent of them fall into the 
first percentile, and 3 percent of the 13 percent fall into the second 
percentile. Because each percentile range ideally represents 10 percent 
of hospitals, we will assign a point of 2 to the remaining 7 percent of 
hospitals in the second percentile because their SIR is larger than 0. 
We believe this is the most favorable method for scoring measure 
results for hospitals. We note that randomly assigning some hospitals 
with the same SIR a higher (for example, less favorable) score would be 
both arbitrary and capricious, which are prohibited by the 
Administrative Procedure Act.
(2) Proposed Clarification of FY 2015 Finalized Narrative of Rules To 
Calculate the Total HAC Score
    In the FY 2014 IPPS/LTCH PPS final rule, we finalized a series of 
rules to determine how to calculate the Domain 2 score and ultimately 
the Total HAC Score when there were waivers for the collection of CDC 
NHSN HAI measures (78 FR 50723). We also illustrated and finalized 
these rules in Figure B of the final rule (78 FR 50724). We are 
proposing to clarify that the narrative for Figure B should also 
include ``other waivers'' that waive hospitals from collecting CDC HAI 
measure data. The clarified rules that we are proposing are as follows 
for the collection of CDC HAI measures:
     If a hospital has an ICU waiver or other waiver for the 
CDC NHSN 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 or other waiver 
for the CDC HAI measures:
    [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.
    As discussed earlier, if a hospital has enough data to calculate 
the PSI-90 composite score 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 percent for Domain 1 and 65 
percent for Domain 2. However, if a hospital does not have enough data 
to calculate the PSI-90 composite score 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 the PSI-90 composite score 
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 the PSI-90 composite score 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 final rule, we finalized the provision of 
confidential reports for the HAC Reduction Program to include 
information related to claims-based measure data for the PSI measures, 
the domain score for each domain, and the Total HAC Score (78 FR 
50725). We noted that we 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 stated that we believe that this method would reduce 
the burden on hospitals, by alleviating the need to correct data 
present in two different programs.
(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 final rule, we finalized policies that the 
following information will 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 50725).
(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 final rule, we codified the reporting 
of hospital-specific information at Sec.  412.172(f) (78 FR 50968), in 
which CMS will 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 (paragraph (f)). As noted in 
section IV.J.3.b.(2) of the preamble of this proposed rule, in order to 
implement the new Maryland All-Payer Model, Maryland elected to no 
longer have Medicare pay Maryland hospitals in accordance with section 
1814(b)(3) of the Act, effective January 1, 2014.
    In summary, we established that CMS will provide each hospital with 
confidential hospital-specific reports and discharge level information 
used in the calculation of its Total HAC Score (paragraph (f)(1) of 
Sec.  412.172). Hospitals will have a period of 30 days after receipt 
of the information provided under paragraph (f)(1) 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. The administrative claims data used to calculate a hospital's 
Total HAC Score for those conditions for a fiscal year will not be 
subject to review and correction

[[Page 28142]]

(paragraph (f)(2)). CMS will post the Total HAC Score for the 
applicable conditions for a fiscal year for each applicable hospital on 
the Hospital Compare Web site. We refer readers to the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50725 through 50728) for detailed 
discussions of the above provisions.
(4) Preliminary Analysis of the HAC Reduction Program
    In order to model estimated payment changes for this FY 2015 IPPS/
LTCH PPS proposed rule, we conducted a preliminary analysis of the HAC 
Reduction Program using currently available historical data as a proxy 
for the actual data that will be used to determine hospital performance 
under the program. The results of this preliminary analysis can be 
found on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html under the FY 2015 IPPS 
Proposed Rule Home Page link as Table 17.--FY 2015 Preliminary Analysis 
of the Hospital-Acquired Condition Reduction Program. When the actual 
data for the performance periods finalized in the FY 2014 IPPS/LTCH PPS 
rule for each measure are available, hospitals will have an opportunity 
to review and submit corrections as discussed in section IV.J.3.e.(3) 
of the preamble of this proposed rule.
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 final rule, we included these 
statutory provisions under Sec.  412.172(g) of the regulations (78 FR 
50729 and 50968). 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 in section IV.I.3.e. of the 
preamble of this proposed rule will provide hospitals with the 
opportunity to correct data prior to its release on the Hospital 
Compare Web site.
4. Proposed Maintenance of Technical Specifications for Quality 
Measures
    Technical specifications of the HAC measures for the Agency for 
Health Research and Quality (AHRQ) Patient Safety Indicator 90 (PSI-90) 
in Domain 1 can be found at AHRQ's Web site at: http://qualityindicators.ahrq.gov/Modules/PSI_TechSpec.aspx. Technical 
specifications for the CDC NHSN's HAI measures in Domain 2 can be found 
at CDC's NHSN Web site at: http://www.cdc.gov/nhsn/acute-care-hospital/index.html. Both Web sites provide measure updates and other 
information necessary to guide hospitals participating in the 
collection of HAC Reduction Program data.
    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.
    We note that NQF's annual or triennial maintenance processes for 
endorsed measures may result in the NQF requiring updates to the 
measures. We believe that it is important to have in place a 
subregulatory process to incorporate nonsubstantive updates required by 
the NQF into the measure specifications we have adopted for the HAC 
Reduction Program, so that these measures remain up-to-date.
    For the HAC Reduction Program, we are proposing to follow the 
finalized processes outlined for addressing changes to adopted measures 
in the Hospital IQR Program ``Maintenance of Technical Specifications 
for Quality Measures'' section found in section IX.A.1.b. of the 
preamble of this proposed rule.
    We believe this proposal adequately balances our need to 
incorporate updates to HAC Reduction 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 
invite public comments on this proposal.
5. Extraordinary Circumstances Exceptions/Exemptions
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50711), we indicated 
that we had received public comments requesting a potential waiver or 
exemption process for hospitals located in areas that experience 
disasters or other extraordinary circumstances (EC), even though we did 
not propose an extraordinary circumstance exceptions/exemptions (ECE) 
policy for the HAC Reduction Program. We stated in the FY 2014 IPPS/
LTCH PPS final rule that we were reviewing this issue and might 
consider such a proposal in future rulemaking. We also noted that 
should we consider a policy we intend to focus on several policy and 
operational considerations in developing a disaster exemption process 
for the HAC Reduction Program. We welcome public comments on whether an 
exemption process should be implemented and the policy and operational 
considerations for a potential HAC Reduction Program ECE policy.
6. Implementation of the HAC Reduction Program for FY 2016
a. Measure Selection and Conditions, Including a Risk-Adjustment 
Scoring Methodology
(1) General Selection of Measures
    In the FY 2014 IPPS/LTCH PPS final rule, we finalized measures for 
FY 2015 and onwards, but only finalized a scoring methodology for FY 
2015 for the HAC Reduction Program (78 FR 50712 through 50713). We are 
not proposing any new additional measures for the HAC Reduction Program 
for FY 2016 in this proposed rule. We note that AHRQ's PSI-90 Composite 
measure and CDC's NHSN CLABSI (NQF 0138) and CAUTI (NQF 
0139) measures were submitted in January 2014 and December 
2013, respectively, as part of the NQF maintenance endorsement process. 
As noted in the FY 2014 IPPS/

[[Page 28143]]

LTCH PPS final rule (78 FR 50719), 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. Finally, although we are not required under section 1886(p) 
of the Act to address specific measure scoring methodologies regarding 
the HAC Reduction Program in notice-and-comment rulemaking, as required 
under the Hospital VBP Program, 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 for FY 2016
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50713), we finalized 
for FY 2016 and onwards CDC's NHSN Surgical Site Infection measure (NQF 
0753) and its measure methodology. The SSI and other measure 
specifications are available at: http://www.qualityforum.org/QPS/QPSTool.aspx. To locate a specific measure, search by the NQF number: 
(1) for the SSI measure use NQF 0753; (2) for the CLABSI 
measure use NQF 0139; and (3) for the CAUTI measure use NQF 
0138. For SSI updates related to CMS programs and the use of 
CDC's NHSN measures, we refer readers to the Web site at: http://www.cdc.gov/nhsn/acute-care-hospital/ssi. The SSI measure explanation 
of SIR in the NHSN e-newsletter is available at: http://www.cdc.gov/nhsn/PDFs/Newsletters/NHSN_NL_OCT_2010SE_final.pdf.
    CDC's SSI measure was finalized as a Domain 2 measure in the 
calculation of the Total HAC Score. We are not proposing to change 
CDC's measure methodology for the SSI measure.
b. Measure Risk-Adjustment
    In the FY 2014 IPPS/LTCH PPS final rule, we finalized the measure 
risk-adjustment for AHRQ's PSI-90 Composite for Domain 1 and the risk-
adjustment for CDC's NHSN measures for Domain 2. In this proposed rule, 
we are not proposing any risk-adjustment changes for any of the 
measures finalized in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50718 
through 50719).
c. Measure Calculations
    In the FY 2014 IPPS/LTCH PPS final rule, we finalized the measure 
calculations for AHRQ's PSI-90 Composite measure for Domain 1 and the 
measure calculations for CDC's NHSN measures for Domain 2. In this 
proposed rule, we are not proposing any measure calculation changes for 
any of the measures finalized in the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50718 through 50719).
d. Applicable Time Period
    In the FY 2014 IPPS/LTCH PPS final rule, we finalized and codified 
policy at Sec.  412.170 that there will be a 2-year applicable time 
period to collect data used to calculate the Total HAC Score (78 FR 
50717).
    For the Domain 1 AHRQ PSI-90 Composite measure, we are proposing 
for FY 2016 a 24-month period from July 1, 2012 through June 30, 2014 
as the applicable time period. The claims for all Medicare FFS 
beneficiaries discharged during this period would be included in the 
calculation of measure results for FY 2016. This includes claims data 
from the 2012, 2013, and 2014 Inpatient Standard Analytic Files (SAFs).
    The Domain 2 CDC NHSN measures (CAUTI, CLABSI, and SSI) are 
currently collected and calculated on a quarterly basis. However, for 
the purpose of the HAC Reduction Program, we will use 2 years of data 
to calculate the Domain 2 score. For FY 2016, we are proposing to use 
calendar years 2013 and 2014 for all three Domain 2 measures in the HAC 
Reduction Program.
e. Criteria for Applicable Hospitals and Performance Scoring
    For FY 2016, we are proposing a change to the scoring methodology 
of the Total HAC Score. This proposal is intended to address the 
implementation of CDC's NHSN SSI measure in Domain 2 finalized for 
implementation in FY 2016.
(1) Finalized Scoring Methodology for Domains 1 and 2 for FY 2015
    We finalized a scoring methodology for the Total HAC Score in the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50722). This finalized scoring 
methodology is similar to the achievement scoring methodology currently 
used under the Hospital VBP Program. With respect to an applicable 
hospital, we finalized that CMS will identify the top quartile of all 
hospitals with respect to their Total HAC Score during the applicable 
period (Sec.  412.170). In addition, we finalized that the Total HAC 
Score will be determined by the following three steps: (1) Each measure 
result will be scored as outlined in the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50723); (2) Domain scores will be determined by the scores 
assigned to the measures within the domain; and (3) the Total HAC Score 
will be determined by the sum of the weighted domains. For FY 2015, the 
Total HAC Score is the sum of the Domain 1 score multiplied by 35 
percent plus the Domain 2 score multiplied by 65 percent. For further 
details of the general scoring methodology finalized for the HAC 
Reduction Program, we refer readers to the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50719 through 50725).
(2) Proposed Scoring Methodology of Domain 2 and New Weighting of 
Domains 1 and 2 for FY 2016
    We are proposing to adjust the scoring methodology of Domain 2 and 
the weighting of Domains 1 and 2 beginning in FY 2016 due to the 
addition of CDC's NHSN SSI measure. For the scoring of CDC's NHSN SSI 
measure, we are proposing an identical process of assigning points to 
the SSI measure results. We note that the SSI measure, reported via 
CDC's NHSN, is currently specified under the Hospital IQR program and 
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 performed by laparoscope. The SSI measure assesses SSIs 
based on the type of surgery procedures (that is, the SSI measure is 
stratified into infections that occur with colonic procedures and those 
that occur in abdominal hysterectomy procedures). We also note that 
patient age and a preoperative health score are risk factors taken into 
account using the Standardized Infection Ratio (SIR) (78 FR 20625). Use 
of an SIR is consistent with CDC's NHSN CLABSI and CAUTI measures that 
also report SIRs. In order to calculate an SSI measure score for Domain 
2, we are proposing to calculate an abdominal hysterectomy procedure 
SSI SIR and a colonic procedure SSI SIR and pool both SIRs for each 
hospital. We are proposing pooling the abdominal hysterectomy SSI SIR 
and colonic procedure SSI SIR as this would provide a single SSI SIR, 
which is consistent with reporting a single SSI SIR as meant by design 
of the NQF endorsed measure (NQF 0753), and would allow a 
risk-adjusted weighting of the surgical volume among the two 
procedures. We are proposing that a pooled SSI SIR for an applicable 
hospital is the sum of all observed infections among abdominal 
hysterectomy and colonic procedures divided by the sum of all predicted

[[Page 28144]]

infections among abdominal hysterectomy and colonic procedures 
performed at the applicable hospital. The pooled SSI SIR would be 
scored in the same manner as all measures finalized for the HAC 
Reduction Program (refer to Figure A in the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50723), which is also included above in this proposed 
rule). To determine a Domain 2 score, we are proposing taking the 
average of the three CDC HAI SIR scores. We noted in the FY 2014 IPPS/
LTCH PPS final rule that there will be instances in which applicable 
hospitals may not have data on all four measures and therefore a set of 
rules was finalized to determine how to score each Domain. We are 
proposing to follow the same finalized rules used to determine scoring 
of Domains 1 and 2 (FY 2014 IPPS/LTCH PPS final rule (78 FR 50723 
through 50725)0 and the proposed changes in section IV.I.6.b. of this 
proposed rule. We invite public comments on this proposal.
    In addition, for FY 2016 we are proposing to weight Domain 1 at 25 
percent, and Domain 2 at 75 percent. We are proposing to decrease 
Domain 1's weight from 35 percent to 25 percent for two reasons. First, 
with the implementation of CDC's SSI measure, we believe the weighting 
of both domains needs to be adjusted to reflect the addition of a 
fourth measure; and second, in keeping with public comments from the FY 
2014 IPPS/LTCH PPS final rule, MedPAC and others stated that Domain 2 
should be weighted more than Domain 1. Finally, the Total HAC Score for 
applicable hospitals would be the sum of the weighted scores from 
Domain 1 (weighted at 25 percent) and Domain 2 (weighted at 75 
percent). We invite public comments on this proposal.
f. Proposed Rules To Calculate the Total HAC Score for FY 2016
    We are proposing to adopt the ``Proposed Clarification of FY 2015 
Finalized Narrative of Rules to Calculate the Total HAC Score'' as 
discussed in section IV.I.3.e. of the preamble of this proposed rule. 
We invite public comments on this proposal.
7. Future Considerations for the Use of Electronically Specified 
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 submitted to CMS for the Hospital 
IQR Program. CMS has become aware of some hospitals and health systems 
that have developed or adopted a methodology to identify and measure 
all-cause harm through their electronic health record (EHR) systems. 
Some hospitals and health systems are able to use the results of these 
electronic measures to address adverse events at the point of care and 
to track improvement over time. Many of these measures capture a broad 
range of common hospital-acquired conditions that may not be captured 
by existing national measures (examples include measures of adverse 
drug events and hypoglycemia). Given that these measures are captured 
using clinical data from EHR systems, collection of HAC data will allow 
CMS to align measures across multiple settings.
    We are seeking comment as to whether the use of a standardized 
electronic composite measure of all-cause harm should be used in the 
HAC reduction program in future years in addition to, or in place of, 
claims-based measures assessing HACs. We welcome any suggestions of 
specific all-cause harm electronic measures, including detailed measure 
specifications. Specifically, we invite public comments on the 
feasibility and the perceived value of such a measure, and what would 
be the most appropriate weighting of this measure in the Total HAC 
Performance Score. In addition, we are requesting suggestions on the 
timeframe for which such standardized electronic composite measure of 
all-cause harm should be proposed.
    We intend for the future direction of electronic quality measure 
reporting to significantly enhance the tracking of HACs under the HAC 
Reduction Program. We will continue to work with measure stewards and 
developers to develop new measure concepts, and conduct pilot, 
reliability and validity testing as part of efforts to promote the 
adoption of Certified Electronic Health Record Technology in hospitals.

K. Payments for Indirect and 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. Therefore, 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

[[Page 28145]]

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. Proposed Changes in the Effective Date of the FTE Resident Cap, 3-
Year Rolling Average, and Intern- and Resident-to-Bed (IRB) Ratio Cap 
for New Programs in Teaching Hospitals
    Section 1886(h)(4)(H)(i) of the Act requires the Secretary to 
establish rules for calculating the direct GME caps for new teaching 
hospitals that are training residents in new medical residency training 
programs established on or after January 1, 1995. Under section 
1886(d)(5)(B)(viii) of the Act, such rules also apply to the 
establishment of a hospital's IME cap on the number of FTE residents 
training in new programs. We implemented these statutory requirements 
in rules published in the August 29, 1997 Federal Register (62 FR 46002 
through 46008) and in the May 12, 1998 Federal Register (63 FR 26323 
through 26325 and 26327 through 26336). Generally, under existing 
regulations at 42 CFR 413.79(e)(1) (for direct GME) and 42 CFR 
412.105(f)(1)(vii) (for IME), if a hospital did not train any 
allopathic or osteopathic residents in its most recent cost reporting 
period ending on or before December 31, 1996, and it begins to 
participate in training residents in a new medical residency training 
program (allopathic or osteopathic) on or after January 1, 1995, the 
hospital's unweighted FTE resident cap (which would otherwise be zero) 
may be adjusted based on the sum of the product of the highest number 
of FTE residents in any program year during the third year of the first 
new program's existence, for each new residency training programs 
established during that 3-year period, and the minimum accredited 
length for each type of program. The number of FTE resident cap slots 
that a teaching hospital receives for each new program may not exceed 
the number of accredited slots that are available for each new program. 
Once a hospital's FTE resident cap is established, no subsequent cap 
adjustments may be made for new programs, unless the teaching hospital 
is a rural hospital. A rural hospital's FTE resident caps may be 
adjusted for participation in subsequent new residency training 
programs. A hospital that did not train any allopathic or osteopathic 
residents in its most recent cost reporting period ending on or before 
December 31, 1996, may only receive a permanent FTE resident cap 
adjustment for training residents in a truly ``new'' residency training 
program; no permanent cap adjustment would be given for training 
residents associated with an existing program. That is, if a hospital 
that did not train any allopathic or osteopathic residents in its most 
recent cost reporting period ending on or before December 31, 1996, 
serves as a training site for residents in a program that exists or 
existed previously at another teaching hospital that remains open, that 
``new'' teaching hospital does not receive a ``new program'' cap 
adjustment because it is not participating in training residents in a 
truly ``new'' program. However, it may be possible for that ``new'' 
teaching hospital to receive a temporary cap adjustment if it enters 
into a Medicare GME affiliation agreement with the existing teaching 
hospital as specified at Sec.  413.79(f) (for direct GME) and Sec.  
412.105(f)(1)(vi) (for IME). (For a detailed discussion of the 
distinctions between a new medical residency training program and an 
existing medical residency training program, we refer readers to the 
August 27, 2009 final rule (74 FR 43908 through 43920). For a detailed 
discussion regarding participation in Medicare GME affiliation 
agreements, we refer readers to 74 FR 43574.)
    For new programs started prior to October 1, 2012, hospitals that 
did not yet have an FTE resident cap established had a ``3-year 
window'' in which to participate in and ``grow'' new programs, before 
the FTE resident caps for IME and direct GME were permanently set for 
the hospital beginning with the fourth program year of the first new 
program start. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53415 
through 53425), we revised the regulations at Sec.  413.79(e) to 
increase the cap-building period for new programs from 3 years to 5 
years. That is, for a hospital that did not yet have an FTE resident 
cap established, the hospital's FTE resident cap is effective beginning 
with the sixth program year of the first new program's existence. This 
revised policy is effective for urban hospitals that first begin to 
participate in training residents in their first new program on or 
after October 1, 2012, and for rural hospitals that start a new program 
on or after October 1, 2012. In that final rule, we also finalized a 
methodology used to calculate a cap adjustment for an individual 
hospital if residents in a new program rotate to more than one hospital 
(or hospitals). The methodology is based on the sum of the products of 
the following three factors: (1) The highest total number of FTE 
residents trained in any program year, during the fifth year of the 
first new program's existence at all of the hospitals to which the 
residents in that program rotate; (2) the number of years in which 
residents are expected to complete the program, based on the minimum 
accredited length for each type of program; and (3) the ratio of the 
number of FTE residents in the new program that trained at the hospital 
over the entire 5-year period to the total number of FTE residents that 
trained at all hospitals over the entire 5-year period. Finally, we 
made minor revisions to the regulation text at Sec. Sec.  413.79(e)(2) 
through (e)(4) for purposes of maintaining consistency throughout Sec.  
413.79(e). We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53415 through 53425) for further details regarding the methodology 
for calculating the FTE resident caps.
    While the FY 2013 IPPS/LTCH PPS final rule discussed the 
methodology for calculating the FTE resident caps to be effective 
beginning with the sixth program year of the first new program's 
existence, for hospitals that do not yet have FTE resident caps 
established, that final rule did not discuss when the 3-year rolling 
average for IME and direct GME or the intern- and resident-to-bed (IRB) 
ratio cap for IME is effective for FTE residents training in new 
programs. The regulations regarding the 3-year rolling average and the 
IRB ratio cap with respect to new medical residency training programs 
were established in the following Federal Register rules: the FY 1998 
IPPS final rule with comment period (62 FR 46002 through 46008); the 
May 12, 1998 final rule (63 FR 26323 through 26325 and 26327 through 
26336); FY 2000 IPPS final rule (64 FR 41518 through 41523); and the FY 
2002 IPPS final rule (66 FR 39878 through 39883). Specifically, the 
regulations at Sec.  412.105(f)(1)(v) regarding the 3-year rolling 
average and new medical residency training programs for IME state: ``If 
a hospital qualified for an adjustment to the limit established under 
paragraph (f)(1)(iv) of this section for new medical residency programs 
created under paragraph (f)(1)(vii) of

[[Page 28146]]

this section, the count of residents participating in new medical 
residency training programs above the number included in the hospital's 
FTE count for the cost reporting period ending during calendar year 
1996 is added after applying the averaging rules in this paragraph 
(f)(l)(v) for a period of years. Residents participating in new medical 
residency training programs are included in the hospital's FTE count 
before applying the averaging rules after the period of years has 
expired. For purposes of this paragraph, for each new program started, 
the period of years equals the minimum accredited length for each new 
program. The period of years for each new program begins when the first 
resident begins training in each new program.'' In addition, the 
regulations for the interaction of the IRB ratio cap and new medical 
residency training programs for IME at Sec.  412.105(a)(1)(ii) state: 
``The exception for new programs described in paragraph (f)(1)(vii) of 
this section applies to each new program individually for which the 
full-time equivalent cap may be adjusted based on the period of years 
equal to the minimum accredited length of each new program.''
    The regulations at Sec.  413.79(d)(5) regarding the interplay of 
the 3-year rolling average with new medical residency training programs 
for direct GME similarly state: ``If a hospital qualifies for an 
adjustment to the limit established under paragraph (c)(2) of this 
section for new medical residency programs created under paragraph (e) 
of this section, the count of the residents participating in new 
medical residency training programs above the number included in the 
hospital's FTE count for the cost reporting period ending during 
calendar year 1996 is added after applying the averaging rules in this 
paragraph (d), for a period of years. Residents participating in new 
medical residency training programs are included in the hospital's FTE 
count before applying the averaging rules after the period of years has 
expired. For purposes of this paragraph (d), for each new program 
started, the period of years equals the minimum accredited length for 
each new program. The period of years begins when the first resident 
begins training in each new program.''
    Therefore, the FTE resident caps for IME and direct GME are always 
effective beginning with the start of the sixth program year of the 
first new program started for urban hospitals that do not yet have FTE 
resident caps established (Sec.  413.79(e)(1)(iii)), and for rural 
hospitals, beginning with the start of the sixth program year of each 
new individual program started (Sec.  413.79(e)(3)), regardless of the 
fact that other new programs may have started after the start of the 
first new program. However, the timing of when the 3-year rolling 
average for IME and direct GME and the IRB ratio cap for IME are first 
applied is dependent upon the minimum accredited length of each new 
program started within the 5-year window. For example, new teaching 
Hospital A participates in training residents in new medical residency 
training programs for the first time beginning on July 1, 2013. On July 
1, 2013, Hospital A participates in training residents in a new family 
medicine program (minimum accredited length is 3 years), on July 1, 
2014, it also participates in training residents in a new sports 
medicine fellowship (minimum accredited length is 1 year), and on July 
1, 2015, it also participates in training residents in a new general 
surgery program (minimum accredited length is 5 years). For the purpose 
of establishing Hospital A's FTE resident caps, the 5-year growth 
window for Hospital A closes on June 30, 2018, and the IME and direct 
GME FTE resident caps for Hospital A are effective on July 1, 2018, the 
beginning of the sixth program year of the first new program's 
existence; that is, family medicine. However, the 3-year rolling 
average and the IRB ratio cap are effective at different points in 
time. Because the family medicine residency is 3 years in length, FTE 
residents in the new family medicine program are subject to the 3-year 
rolling average and the IRB ratio cap beginning on July 1, 2016. 
Because the sports medicine fellowship is a 1-year program, and it 
started on July 1, 2014, the number of sports medicine FTE residents 
must be included in the 3-year rolling average and is subject to the 
IRB ratio cap effective on July 1, 2015. Lastly, the FTE residents in 
the new general surgery program would only be subject to the rolling 
average and the IRB ratio cap effective July 1, 2020. The Medicare cost 
report worksheets on CMS Form 2552-10 for IME (Worksheet E, Part A) and 
for direct GME (Worksheet E-4) currently can accommodate reporting of 
FTE residents separately based on whether those FTE residents are in 
new medical residency training programs and are not subject to the FTE 
resident cap (line 16 of Worksheet E, Part A, and line 15 of Worksheet 
E-4). However, these cost report worksheets are not designed to 
accommodate reporting of FTE residents that are exempt from the FTE 
resident cap, but are subject to the rolling average and IRB ratio cap, 
because the ``period of years'' equal to the minimum accredited length 
of each new program started has already expired. The reverse also may 
occur, as in the example above with the new general surgery program 
started by Hospital A, where the FTE resident caps are effective July 
1, 2018, but the number of FTE residents in the general surgery program 
would not be subject to the rolling average or the IRB ratio cap until 
July 1, 2020. Complicating matters further is the fact that, while the 
effective dates of these policies associated with new medical residency 
training program FTE residents are effective on a program year basis 
(that is, July 1), many teaching hospitals do not have a fiscal year 
that begins on July 1. Therefore, under the existing policy, the number 
of FTE residents needs to be prorated, and special accommodations need 
to be made to calculate the portion of FTE residents that are subject 
to the FTE resident cap, the 3-year rolling average, and the IRB ratio 
cap for the respective portions of the hospital's cost reporting period 
occurring on and after July 1. Integrating the rolling average, the IRB 
ratio cap, and the FTE resident caps for residents in new medical 
residency training programs in an accurate manner on the Medicare cost 
report has proved challenging to the point where we have had to deal 
with each instance brought to our attention by the new teaching 
hospital or by a Medicare contractor on an individual and manual basis 
(in order to ensure application of a consistent methodology). In fact, 
the Medicare cost report instructions direct the hospital to do the 
following: for CMS Form 2552-10, Worksheet E, Part A, line 10--``. . . 
Contact your contractor for instructions on how to complete this line 
if you have a new program for which the period of years is less than or 
more than three years. . . .''; for CMS Form 2552-10, Worksheet E-4, 
line 6--``. . . Contact your contractor for instructions on how to 
complete this line if you have a new program for which the period of 
years is less than or greater than 3 years. . . .''
    The Medicare contractors, in turn, have been instructed to contact 
CMS for instructions on how to report the number of FTE residents that 
are still within the ``period of years'' of the new program. The 
``three years'' referenced in the Form 2552-10 cost report instructions 
are based on the 3-year growth window for new medical residency 
training programs that is in effect for new programs started prior to 
October 1, 2012, when, within the 3-year growth window, new teaching 
hospitals also may have started new

[[Page 28147]]

medical residency training programs with different minimum accredited 
lengths. (We note that while the previous Form 2552-96 cost report did 
not include the same instructions, CMS did deal with the reporting of 
the number of FTE residents in new medical residency training programs 
on an individual basis when requests for assistance were brought to its 
attention.) However, these instructions also apply for new medical 
residency training programs started with different minimum accredited 
lengths on and after October 1, 2012.
    In this proposed rule, we are proposing to simplify and streamline 
the timing of when FTE residents in new medical residency training 
programs are subject to the FTE resident cap, the 3-year rolling 
average, and the IRB ratio cap, both for urban teaching hospitals that 
have not yet had FTE resident caps established under Sec.  413.79(e)(1) 
and for rural teaching hospitals that may or may not have FTE resident 
caps established under Sec.  413.79(e)(3). That is, we are proposing 
that the methodology for calculating the FTE resident caps for 
hospitals that participate in training residents in new medical 
residency training programs would continue to be the same methodology 
instituted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53415 through 
53425) for new medical residency training programs started on or after 
October 1, 2012, specified at Sec.  413.79(e)(1). However, once the FTE 
resident caps are calculated, we are proposing to change the timing of 
when the FTE resident caps would be effective, to synchronize the 
effective dates and the application of the 3-year rolling average and 
the IRB ratio cap with each applicable hospital's fiscal year begin 
date. Specifically, we are proposing that the FTE resident caps would 
continue to be calculated as finalized in the FY 2013 IPPS/LTCH PPS 
final rule--the methodology is based on the sum of the products of the 
following three factors: (1) The highest total number of FTE residents 
trained in any program year, during the fifth year of the first new 
program's existence at all of the hospitals to which the residents in 
that program rotate; (2) the number of years in which residents are 
expected to complete the program, based on the minimum accredited 
length for each type of program; and (3) the ratio of the number of FTE 
residents in the new program that trained at the hospital over the 
entire 5-year period to the total number of FTE residents that trained 
at all hospitals over the entire 5-year period. However, once 
calculated in this manner, we are proposing that, instead of the FTE 
resident caps being effective beginning with the sixth program year of 
the first new program start, those FTE resident caps, rolling average, 
and IRB ratio cap would be effective beginning with the applicable 
hospital's cost reporting period that precedes the start of the sixth 
program year of the first new program started. Using the example of 
Hospital A that we presented earlier, assume Hospital A has a January 1 
to December 31 cost reporting year. The first new program started, 
family medicine, was started on July 1, 2013. A sports medicine 
fellowship and a general surgery program also were started timely 
within the 5-year growth window. Hospital A has 5 program years to grow 
its FTE resident caps, from July 1, 2013 through June 30, 2018. The FTE 
resident caps would be calculated based on the 5 program years in 
accordance with the methodology established at Sec.  413.79(e)(1) in 
the FY 2013 IPPS/LTCH PPS final rule; therefore, the hospital would 
wait until after June 30, 2018 to obtain the FTE counts to calculate 
the FTE resident caps. However, we are proposing that those IME and 
direct GME FTE resident caps, once calculated after June 30, 2018, 
instead of being effective on July 1, 2018, would be effective at the 
beginning of Hospital A's cost reporting period that precedes July 1, 
2018; that is, the FTE resident caps for Hospital A would be effective 
permanently on January 1, 2018, the start of Hospital A's cost 
reporting period that precedes the start of the sixth program year of 
the first new program started. The hospital could file its fiscal year 
end December 31, 2018 cost report including the FTE resident caps 
applicable to the entire cost reporting period accordingly.
    As noted earlier, we are proposing that, for all new medical 
residency training programs in which the hospital participates during 
the 5-year growth window, the FTEs in those new programs also would be 
subject to the 3-year rolling average and the IRB ratio cap 
simultaneously with the effective date of the FTE resident caps, at the 
beginning of the applicable hospital's cost reporting period that 
precedes the beginning of the sixth program year of the first new 
program started. Again, using the example of Hospital A that we 
presented earlier, the FTE residents in the family medicine program, 
the sports medicine fellowship, and the general surgery program would 
all be subject to the 3-year rolling average and IRB ratio cap 
beginning on January 1, 2018. With regard to reporting on the Medicare 
cost report, for Hospital A's fiscal year end dates of December 31, 
2013 through and including December 31, 2017, we are proposing that the 
number of FTE residents in the family medicine program, the sports 
medicine fellowship, and the general surgery program would be reported 
so as not to be included in the IME rolling average or the IRB ratio 
cap, and so as not to be included in the direct GME rolling average. 
(On the CMS Form 2552-10, for Hospital A's fiscal year end dates of 
December 31, 2013 through and including December 31, 2017, this means 
that the number of FTE residents in the family medicine program, the 
sports medicine fellowship, and the general surgery program would be 
reported on Worksheet E, Part A, line 16, and on Worksheet E-4, line 
15). However, on Hospital A's cost report for fiscal year ending 
December 31, 2018, the number of FTE residents in these three programs 
would be subject to the FTE resident cap, the 3-year rolling average, 
and the IRB ratio cap, and would be reported accordingly. (On the CMS 
Form 2552-10, for Hospital A's cost report for fiscal year ending 
December 31, 2018, this means that none of the FTE residents in these 
three programs would be reported on Worksheet E, Part A, line 16 for 
IME, and Worksheet E-4, line 15 for direct GME. Instead, all of the FTE 
residents would be reported on Worksheet E, Part A, line 10 for IME, 
and Worksheet E-4, line 6 for direct GME, in order to be subject to the 
FTE resident cap, the 3-year rolling average, and the IRB ratio cap.) 
We note that once the 3-year rolling average is effective in that cost 
reporting period that includes the sixth program year of the first new 
program started, the number of FTE residents in the new programs also 
must be reported both as part of the prior year FTE resident counts and 
the penultimate FTE resident counts, in order to effectuate the 3-year 
rolling average calculation on the IME Worksheet E, Part A, and the 
direct GME Worksheet E-4, respectively.
    In the example that we presented earlier, Hospital A has a fiscal 
year that begins on January 1. If Hospital A's fiscal year begin date 
would have been October 1, then, as proposed, while the sixth program 
year of the first new program started would still be July 1, 2018, the 
FTE residents caps, the 3-year rolling average, and the IRB ratio cap 
would be effective on October 1, 2017, the fiscal year begin date that 
precedes July 1, 2018, the sixth program year. If Hospital A's fiscal 
year begin date would have been July 1, the FTE

[[Page 28148]]

residents caps, the 3-year rolling average, and the IRB ratio cap would 
instead be effective on July 1, 2017, the fiscal year begin date that 
precedes July 1, 2018, the sixth program year.
    We understand that this proposal, if finalized, would reduce the 
amount of time that the new medical residency training programs would 
be exempt from the FTE resident caps. However, even though we are 
proposing to make the effective date of the FTE resident caps earlier 
than under current policy, because we also are proposing that the 
calculation of the FTE resident caps would still be based on the 
highest total number of FTE residents trained in any program year, 
during the fifth year of the first new program's existence at all of 
the hospitals to which the residents in that program rotate, a new 
teaching hospital would still have the full 5 program years to grow its 
program(s), and its FTE resident caps would reflect a full 5 years of 
growth. Therefore, because, by the fifth program year, a program 
should, in most typical circumstances, have grown to its full capacity, 
barring unusual circumstances, the FTE resident caps that would take 
effect under the proposed policy at the beginning of the fiscal year 
that precedes the sixth program year should accommodate the FTE 
resident count training in the fifth and subsequent program years. 
Therefore, we believe that this proposal to streamline and synchronize 
the effective dates of the FTE resident caps, the 3-year rolling 
average, and the IRB ratio cap not only is easier to comprehend and to 
implement, but also is reasonable and equitable in its effect on the 
IME and direct GME payments of hospitals establishing FTE resident 
caps. Specifically, if this proposal is finalized, there would no 
longer be a need for CMS Form 2552-10, Worksheet E, Part A, line 10 and 
Worksheet E-4, line 6 to instruct hospitals to contact their contractor 
for instructions on how to complete those lines, as both hospitals and 
Medicare contractors would understand how to report the number of FTE 
residents in new programs, even when those programs have different 
accredited lengths. Instead, hospitals and Medicare contractors would 
follow the methodology instituted in the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53415 through 53425) to calculate the FTE resident caps for 
new medical residency training programs started on or after October 1, 
2012, and once the FTE resident caps are calculated, hospitals and 
Medicare contractors would implement the FTE resident caps, the 3-year 
rolling average, and the IRB ratio cap effective beginning with the 
applicable hospital's cost reporting period that precedes the start of 
the sixth program year of the first new program started. Under this 
proposed methodology, FTE residents and FTE resident caps would no 
longer need to be prorated, and we would no longer need to make special 
accommodations to calculate the portion of FTE residents that are 
subject to the FTE resident cap, the 3-year rolling average, and the 
IRB ratio cap for the respective portions of the hospital's cost 
reporting period occurring on and after July 1. The existing CMS Form 
2552-10 already accommodates this proposed methodology, unlike the 
complicated process currently in place. Thus, clarity, efficiency, and 
payment accuracy would be improved for hospitals, contractors, and CMS.
    With regard to rural hospitals that, under Sec.  413.79(e)(3) of 
the regulations, may receive FTE resident cap adjustments at any time 
for participating in training residents in new programs, we are 
proposing a similar policy, with modifications reflecting the fact that 
each new program in which the rural hospital participates receives its 
own 5-year growth window before the rural hospital's FTE resident cap 
is adjusted based on that new program. That is, we are proposing that, 
for rural hospitals, the FTE resident caps, the 3-year rolling average, 
and the IRB ratio cap for each new program started would be effective 
beginning with the applicable hospital's cost reporting period that 
precedes the start of the sixth program year of each new program 
started. For example, rural Hospital B has a fiscal year that begins on 
January 1. It starts a family medicine program on July 1, 2013, and a 
general surgery program on July 1, 2016. The sixth program year for the 
family medicine program begins on July 1, 2018. The sixth program year 
for the general surgery program begins on July 1, 2021. With regard to 
Medicare cost reporting, during Hospital B's fiscal years end dates of 
December 31, 2013 through and including December 31, 2017, the number 
of family medicine FTE residents would be reported so as not to be 
included in the IME 3-year rolling average or the IRB ratio cap, and so 
as not to be included in the direct GME 3-year rolling average. (This 
means that on CMS Form 2552-10, during Hospital B's fiscal year end 
dates of December 31, 2013 through and including December 31, 2017, the 
number of family medicine FTE residents would be reported on Worksheet 
E, Part A, line 16 for IME, and on Worksheet E-4, line 15, for direct 
GME. Instead, the number of family medicine FTE residents would be 
reported on Worksheet E, Part A, line 16, and Worksheet E-4, line 15.) 
Then, beginning with Hospital B's cost report for fiscal year ending 
December 31, 2018, the number of FTE residents in only the family 
medicine program would be subject to the FTE residents caps, the 3-year 
rolling average, and the IRB ratio cap, and would be reported 
accordingly in order to be subject to the FTE resident cap, the 3-year 
rolling average, and the IRB ratio cap. (This means that on CMS Form 
2552-10, beginning with Hospital B's cost report ending December 31, 
2018, the number of family medicine FTE residents would be reported on 
Worksheet E, Part A, line 10 for IME, and Worksheet E-4, line 6 for 
direct GME.) Because the general surgery program started on July 1, 
2016, for Hospital B's fiscal year end dates of December 31, 2016 
through and including fiscal year end date of December 31, 2020, the 
number of general surgery FTE residents would be reported (on Worksheet 
E, Part A, line 16) so as not to be included in the IME 3-year rolling 
average or the IRB ratio cap, and (on Worksheet E-4, line 15), so as 
not to be included in the direct GME 3-year rolling average. Then, 
beginning with Hospital B's cost report for fiscal year ending December 
31, 2021, the number of FTE residents in the general surgery program 
would be subject to the FTE resident caps, the 3-year rolling average, 
and the IRB ratio cap, and would be reported accordingly (on Worksheet 
E, Part A, line 10 for IME, and Worksheet E-4, line 6 for direct GME), 
in order to be subject to the FTE resident cap, the 3-year rolling 
average, and the IRB ratio cap. We note that once the 3-year rolling 
average is effective in that cost reporting period that includes the 
sixth program year of each new program started, the number of FTE 
residents in the new programs also must be reported as part of the 
prior year FTE resident counts, and the penultimate FTE resident 
counts, in order to effectuate the 3-year rolling average calculation 
on the IME Worksheet E, Part A, and the direct GME Worksheet E-4, 
respectively.
    We are proposing that this policy regarding the effective dates of 
the FTE residency caps, the 3-year rolling average, and the IRB ratio 
cap for FTE residents in new medical residency training programs would 
be consistent with the methodology for calculation of the FTE resident 
caps as described in the FY 2013 IPPS/LTCH PPS final rule, and 
implemented in the regulations at

[[Page 28149]]

Sec. Sec.  413.79(e)(1) and (e)(3). That is, because the policy 
providing a 5-year growth period for establishing the FTE resident caps 
(Sec. Sec.  413.79(e)(1) and (e)(3)) is effective for new programs 
started on or after October 1, 2012, this proposal is effective for 
urban hospitals that first begin to participate in training residents 
in their first new medical residency training program, and for rural 
hospitals, on or after October 1, 2012. We also are proposing to revise 
the regulations for IME and direct GME, respectively, at Sec.  
412.105(a)(1)(ii) for the IME IRB ratio cap, at Sec.  412.105(f)(1)(v) 
for the IME 3-year rolling average, and at Sec.  413.79(d)(5) for the 
direct GME 3-year rolling average to reflect that the exception from 
the IRB ratio cap and the 3-year rolling average for new programs 
applies to each new program individually during the cost reporting 
periods prior to the beginning of the applicable hospital's cost 
reporting period that precedes the start of the sixth program year of 
the first new program started, for hospitals for which the FTE cap may 
be adjusted in accordance with Sec.  413.79(e)(1), and prior to the 
beginning of the applicable hospital's cost reporting period that 
precedes the start of the sixth program year of each individual new 
program started, for hospitals for which the FTE cap may be adjusted in 
accordance with Sec.  413.79(e)(3). After the applicable hospital's 
cost reporting period that precedes the start of the sixth program year 
of the first new program started for hospitals for which the FTE cap 
may be adjusted in accordance with Sec.  413.79(e)(1), and after the 
applicable hospital's cost reporting period that precedes the start of 
the sixth program year of each individual new program started for 
hospitals for which the FTE cap may be adjusted in accordance with 
Sec.  413.79(e)(3), FTE residents participating in new medical 
residency training programs are included in the hospital's IRB ratio 
cap and the 3-year rolling average.
3. Proposed Changes to IME and Direct GME Policies as a Result of New 
OMB Labor Market Area Delineations
a. New Program FTE Resident Cap Adjustment for Rural Hospitals 
Redesignated as Urban
    As stated earlier in this proposed rule, under existing 
regulations, a new teaching hospital that starts training residents for 
the first time on or after October 1, 2012, has 5 years from when it 
first begins training residents in its first new program to build its 
FTE resident cap. If the teaching hospital is a rural teaching 
hospital, it can continue to receive permanent cap adjustments for 
training residents in new programs after the initial 5-year cap-
building period that applies to new teaching hospitals ends. (We refer 
readers to section IV.K.2. of the preamble of this proposed rule for a 
discussion of our proposal to change the effective dates for when the 
FTE resident cap, the 3-year rolling average, and the IRB ratio cap are 
applied to new teaching hospitals and to new programs at rural teaching 
hospitals.)
    In section III.B. of the preamble of this proposed rule, we discuss 
the policies we are proposing to implement as a result of the new OMB 
labor market area delineations announced in the February 28, 2013 OMB 
Bulletin No. 13-01. As a result of the new OMB delineations, some 
teaching hospitals may be redesignated from being located in a rural 
area to an urban area, thereby losing their ability to increase their 
FTE resident caps for new programs started after their initial 5-year 
cap-building period ends. We have been asked whether a rural teaching 
hospital that already has a cap and is redesignated as urban while it 
is in the process of establishing another new program(s) can still 
receive a permanent cap adjustment for that new program(s). We believe 
that because the hospital had already started training residents in the 
new program(s) while it was rural, the former rural hospital should be 
permitted to continue building its new program(s) and receive a 
permanent FTE resident cap adjustment for that new program(s). 
Therefore, we are proposing to revise the regulations to allow a 
hospital that was rural as of the time it started training residents in 
a new program(s) and is redesignated as urban for Medicare payment 
purposes during its cap-building period for that program(s) to be able 
to continue building that program(s) for the remainder of the cap-
building period and receive a permanent FTE resident cap adjustment for 
that new program(s). Once the cap-building period for the new 
program(s) that was started while the hospital was still rural expires, 
the teaching hospital that has been redesignated as urban would no 
longer be able to receive any additional permanent cap adjustments. We 
are proposing that the teaching hospital must be actively training 
residents in the new program while it is still rural, that is, prior to 
the redesignation taking effect, in order for the hospital to continue 
receiving a cap adjustment for the new program. For example, if a rural 
hospital begins training residents in a new internal medicine program 
on July 1, 2013, and begins training residents in a new general surgery 
program on July 1, 2014, and the rural hospital is redesignated as 
urban effective on October 1, 2014, the teaching hospital would be able 
to continue receiving a cap adjustment for both the new internal 
medicine program and the new general surgery program after it has been 
redesignated as urban. However, if the rural hospital is redesignated 
as urban effective on October 1, 2014, and started training residents 
in a new internal medicine program on July 1, 2013, but did not start 
training residents in a new general surgery program while it was still 
rural, that is, prior to October 1, 2014, the teaching hospital would 
receive a permanent cap adjustment for the new internal medicine 
program, but would not receive a cap adjustment for the new general 
surgery program. We are proposing to revise the regulations at Sec.  
412.105(f)(1)(iv)(D) for IME and Sec.  413.79(c)(6) for direct GME to 
implement this proposed change. We are proposing that these regulatory 
revisions be effective for cost reporting periods beginning on or after 
October 1, 2014. The proposed regulations at Sec.  412.105(f)(1)(iv)(D) 
read as follows: ``A rural hospital redesignated as urban after 
September 30, 2004, as a result of the most recent census data and 
implementation of the new labor market area definitions announced by 
OMB on June 6, 2003, may retain the increases to its FTE resident cap 
that it received under paragraphs (f)(1)(iv)(A) and (f)(1)(vii) of this 
section while it was located in a rural area. Effective for cost 
reporting periods beginning on or after October 1, 2014, if a rural 
hospital is redesignated as urban due to the most recent OMB standards 
for delineating statistical areas adopted by CMS and was training 
residents in a new program prior to the redesignation becoming 
effective, the redesignated urban hospital may retain any existing 
increases to its FTE resident cap and receive an increase to its FTE 
resident cap for the new program in which it was training residents 
when the redesignation became effective, in accordance with paragraph 
(f)(1)(vii) of this section.'' The proposed regulations at Sec.  
413.79(c)(6) read as follows: ``A rural hospital redesignated as urban 
after September 30, 2004, as a result of the most recent census data 
and implementation of the new MSA definitions announced by OMB on June 
6, 2003, may retain the increases to its FTE resident cap that it 
received under paragraphs (c)(2)(i), (e)(1)(iii), and (e)(3) of this 
section while it was located in a rural area. Effective for cost 
reporting

[[Page 28150]]

periods beginning on or after October 1, 2014, if a rural hospital is 
redesignated as urban due to the most recent OMB standards for 
delineating statistical areas adopted by CMS, and was training 
residents in a new program prior to the redesignation becoming 
effective, the redesignated urban hospital may retain any existing 
increases to its FTE resident cap, and receive an increase to its FTE 
resident cap for the new program in which it was training residents 
when the redesignation became effective, in accordance with paragraph 
(e) of this section.''
b. Participation of Redesignated Hospital in Rural Training Track
    To encourage the training of residents in rural areas, section 
407(c) of Public Law 106-113 amended section1886(h)(4)(H) of the Act to 
add a provision that, in the case of a hospital that is not located in 
a rural area (an urban hospital) that establishes separately accredited 
approved medical residency training programs (or rural tracks) in a 
rural area or has an accredited training program with an integrated 
rural track, the Secretary shall adjust the urban hospital's cap on the 
number of FTE residents under subparagraph (F), in an appropriate 
manner in order to encourage training of physicians in rural areas. 
Section 407(c) of Public Law 106-113 was made effective for direct GME 
payments to hospitals for cost reporting periods beginning on or after 
April 1, 2000, and for IME payments applicable to discharges occurring 
on or after April 1, 2000. We refer readers to the August 1, 2000 
interim final rule with comment period (65 FR 47033 through 47037) and 
the FY 2002 IPPS final rule (66 FR 39902 through 39909) where we 
implemented section 407(c) of Public Law 106-113.
    The regulations at Sec.  413.79(k) specify that, subject to certain 
criteria, an urban hospital may count the FTE residents in the rural 
track in addition to those FTE residents subject to its cap up to a 
``rural track FTE limitation'' for that hospital. In the FY 2006 IPPS 
final rule, we revised the regulations at Sec.  413.79(k) to add a new 
paragraph (7) to state that if an urban hospital had established a 
rural track program with a rural hospital and that hospital 
subsequently becomes urban due to the implementation of the new labor 
market area definitions announced by OMB on June 6, 2003, the urban 
hospital may continue to adjust its FTE resident limit for rural track 
programs established before the implementation of the new labor market 
area definitions. We also stated that, in order for the urban hospital 
to receive a cap adjustment for a new rural track program, the urban 
hospital must establish a rural track program with hospitals that are 
designated rural based on the most recent geographical location 
designations adopted by CMS (70 FR 47456; 47489).
    As discussed earlier in this section, we are proposing to 
implement, effective October 1, 2014, the new OMB labor market area 
delineations announced in the February 28, 2013 OMB Bulletin No. 13-01. 
As a result of the new delineations, certain areas can be redesignated 
from urban to rural or from rural to urban, which may, in turn, affect 
GME policies that require the participation of rural teaching 
hospitals. For example, as noted above, in order for an urban teaching 
hospital to receive a FTE resident cap adjustment for training 
residents in a rural track, the residents must rotate for more than 
one-half of the duration of the program to a rural hospital(s) or rural 
nonprovider(s) site. We have received a question as to what happens to 
a rural track when a rural hospital that is participating as the rural 
site is redesignated as urban, while the rural track for the urban 
hospital is in the process of being established. That is, what happens 
to the rural track when the rural hospital is redesignated as urban 
during the period that is used to establish the urban hospital's rural 
track FTE limitation, prior to the effective date of the urban 
hospital's rural track FTE limitation being established?
    Existing regulations at Sec.  413.79(k)(7) address the scenario 
where a rural hospital that is participating as the rural site is 
redesignated as urban, after the rural track FTE limitation for the 
urban hospital has already become effective. Specifically, the 
regulations at Sec.  413.79(k)(7) state that if an urban hospital had 
established a rural track with a hospital located in a rural area and 
that rural area subsequently becomes an urban area due to the most 
recent census data and implementation of new labor market area 
definitions announced by OMB June 6, 2003, the urban hospital may 
continue to adjust its FTE resident limit for the rural track programs 
established prior to the adoption of the new labor market area 
definitions. Therefore, consistent with the existing regulations at 
Sec.  413.79(k)(7) and with our proposal to allow rural hospitals 
redesignated as urban to continue receiving a FTE resident cap 
adjustment for new programs that started while the redesignated 
hospital was still rural, we are proposing to revise the existing 
regulations applicable to urban hospitals generally. Specifically, we 
are proposing to address the status of the ``original'' urban 
hospital's rural track FTE limitation, in the situation where a rural 
hospital that is participating in the original urban hospital's rural 
track is located in an area redesignated by OMB as urban during the 3-
year period that is used to calculate the urban hospital's rural track 
FTE limitation. We are proposing that, in these situations, the 
original urban hospital's opportunity to receive a rural track FTE 
limitation would not be negatively impacted by the fact that the rural 
hospital with which it has partnered to be the rural site for its rural 
training track is located in an area redesignated by OMB as urban 
during the 3-year period that is used to calculate the urban hospital's 
rural track FTE limitation. That is, we are proposing that the original 
urban hospital may receive a rural track FTE limitation for that new 
rural track program.
    With regard to the status of the rural hospital that is partnered 
with the urban hospital to serve as a rural training site for the rural 
training track program, as mentioned earlier, existing regulations at 
Sec.  413.79(k)(7) address the scenario where a rural hospital that is 
participating as the rural site is redesignated as urban, after the 
rural track FTE limitation for the urban hospital has already become 
effective. (We note that we are proposing to apply the existing policy 
at Sec.  413.79(k)(7), which applies to redesignations that occurred on 
June 6, 2003, in a similar manner, to redesignations announced by OMB 
after June 6, 2003, as well.) In addition, we are proposing that once 
the rural hospital is redesignated as located in an urban area due to 
the implementation of the new OMB labor market area delineations, 
regardless of whether that redesignation occurs during the 3-year 
period that is used to establish the rural track FTE limitation for the 
urban hospital, or after the 3-year period that is used to establish 
the rural track FTE limitation for the urban hospital, the redesignated 
urban hospital can no longer qualify as the rural site and the 
``original'' urban hospital would not be able to count those residents 
under its rural track FTE limitation if it continues to use the 
redesignated urban hospital as the rural site for purposes of the rural 
track. However, because the redesignated urban hospital was rural when 
residents started training in the rural track, we are proposing to 
provide for a 2-year transition period during which either of the 
following two conditions must be met in order for the ``original'' 
urban hospital to be able to count the residents under its rural track 
FTE limitation

[[Page 28151]]

when the 2-year transition period ends: (1) the redesignated newly 
urban hospital must reclassify back to rural under Sec.  412.103 of the 
regulations; or (2) the ``original'' urban hospital must find a new 
geographically rural site to participate as the rural site for purposes 
of the rural track. We note that we are proposing to apply these two 
criteria both in the case where the rural hospital is redesignated as 
urban after the urban hospital already has its rural track FTE limit 
established, and also in the case where the rural hospital is 
redesignated as urban during the 3-year period when the rural track 
program is still growing, prior to the rural track FTE limit being 
established. This 2-year transition period would begin when new OMB 
labor market area delineations take effect for Medicare payment 
purposes and would end exactly 2 years from that date. During this 2-
year transition period, we would hold the ``original'' urban hospital 
harmless and would pay the ``original'' urban hospital for the FTE 
residents in the rural track. At the end of the 2-year transition 
period, in order for the urban hospital to receive payment for a rural 
track program under Sec.  413.79(k)(1) or (k)(2), either the 
redesignated urban hospital must be granted reclassification as rural 
under Sec.  412.103 or the ``original'' urban hospital must already be 
training FTE residents at a geographically rural site. We note that, 
because the rural reclassification provision of Sec.  412.103 only 
applies to IPPS hospitals and for purposes of section 1886(d) of the 
Act, it only applies to IPPS hospitals for IME payment purposes and not 
for direct GME payment purposes because direct GME is authorized under 
section 1886(h) of the Act. Therefore, if the redesignated hospital 
reclassifies as rural under Sec.  412.103, the ``original'' urban 
hospital would only be able to count FTE residents towards its rural 
track FTE limitation for IME payment purposes, but not for direct GME 
payment purposes. In addition, we note that this discussion has 
centered on the scenario where a rural hospital that is the rural site 
for purposes of the rural track has been redesignated as urban. Under 
such a scenario, the redesignated urban hospital does have an option to 
reclassify as rural. However, as noted above, the reclassification only 
applies to IPPS hospitals for IME payment purposes. If a nonprovider 
site is functioning as the rural site under Sec.  413.79(k)(2) for 
purposes of the rural track and the area where that nonprovider site is 
located is redesignated as urban, the nonprovider site would not have 
the option of reclassifying as rural and, therefore, the ``original'' 
urban hospital would be required to find a new geographically rural 
site within the 2-year transition period in order for the ``original'' 
urban hospital to receive payment for a rural track program under Sec.  
413.79(k)(1) or (k)(2).
    The following examples illustrate how the proposed policy would be 
applied to a rural track in which the rural site is a hospital and the 
rural hospital has been redesignated as urban:
     An urban teaching hospital and a rural teaching hospital 
are participating in training residents in a new rural track program 
that begins July 1, 2014. Effective October 1, 2014, the rural hospital 
is redesignated as urban. We are proposing that the timeframe for the 
urban hospital to build the rural track program for purposes of 
calculating its rural track FTE limitation would continue to be through 
June 30, 2017. During the time period of October 1, 2014 to September 
30, 2016, the redesignated urban hospital would continue participating 
as a rural hospital and the urban hospital would count FTE residents it 
is training that are in the rural track for IME and direct GME. 
However, in order for the ``original'' urban hospital to continue to 
get paid for its rural track program after September 30, 2016, then, by 
September 30, 2016, the redesignated urban hospital must either 
reclassify as rural under Sec.  412.103 of the regulations for purposes 
of IME payment only, or the urban hospital must find a new 
geographically rural hospital or nonprovider site to train the 
residents in the rural track for more than one-half of their training. 
If neither of these conditions is met, by September 30, 2016, the 
``original'' urban hospital would not able to receive payment for that 
specific program as a rural training track under Sec.  413.79(k)(1) or 
(k)(2) because it would no longer meet the requirement that more than 
one-half of the training must be provided in a rural setting.
     Another scenario could be one in which the rural hospital 
is redesignated as urban after the 3-year cap-building period for the 
rural track has passed. For example, the rural track program began July 
1, 2007, but effective October 1, 2014, the rural hospital is 
redesignated as urban. We are proposing in this scenario that, by 
September 30, 2016, either the redesignated urban hospital must 
reclassify to rural under Sec.  412.103 for purposes of IME payment 
only, or the ``original'' urban hospital must find a new geographically 
rural site that can participate as the rural site for purposes of the 
rural track. If neither of these conditions is met by September 30, 
2016, the ``original'' urban hospital would not be able to receive 
payment for that specific program as a rural track under Sec.  
413.79(k)(1) or (k)(2) because it would no longer meet the requirement 
that more than one-half of the training must be provided in a rural 
setting.
    We note that if the ``original'' urban hospital was not able to 
meet one of the two proposed conditions noted earlier in this section 
by the end of the 2-year transition period, but at some point later is 
able to meet one of the two proposed conditions, we are proposing that 
the ``original'' urban hospital would be able to ``revive'' and use its 
already established rural track FTE limitation from that point forward. 
In the instance where the ``original'' urban hospital's rural track FTE 
limitation was not set because the hospital was not able to meet one of 
the two proposed conditions by the end of the 2-year transition period, 
which fell within the 3-year cap-building timeframe, but at some point 
later is able to meet one of the two proposed conditions, we are 
proposing that the ``original'' urban hospital would be able to have a 
rural track FTE limitation calculated and established based on the 
highest number of FTE residents in any program year training in the 
rural track in the third year of the program, even if during the third 
year of the program, the ``original'' urban hospital was not in 
compliance with the two proposed conditions. Consistent with similar 
policy discussed in the FY 2002 IPPS final rule (66 FR 39905), it would 
be the responsibility of the hospitals involved to provide the 
necessary information regarding the rotations of the residents in the 
third program year to the Medicare contractor in order for the 
calculation to be completed and the rural track FTE limit to be set.
    In summary, we are proposing that any time a rural hospital 
participating in a rural track is in an area redesignated by OMB as 
urban after residents started training in the rural track and during 
the 3-year period that is used to calculate the urban hospital's rural 
track FTE limitation, the urban hospital may receive a cap adjustment 
for that rural track after it has been redesignated as urban. 
Furthermore, we are proposing that, regardless of whether the 
redesignation of the rural hospital occurs during the 3-year period 
that is used to calculate the urban hospital's rural track FTE 
limitation, or after the 3-year period used to calculate the urban 
hospital's rural track FTE limitation, the redesignated urban hospital 
can continue to be considered a rural hospital for purposes of the 
rural track

[[Page 28152]]

for up to 2 years. However, by the end of those 2 years, either the 
redesignated urban hospital must reclassify as rural under Sec.  
412.103 for purposes of IME payment only (in addition, this 
reclassification option only applies to IPPS hospitals, not nonprovider 
sites) or the ``original'' urban hospital must have found a new site in 
a geographically rural area that will serve as the rural site for 
purposes of the rural track in order for the ``original'' urban 
hospital to receive payment under Sec.  413.79(k)(1) or (k)(2).
    We are proposing to revise the regulations at Sec.  413.79(k)(7) to 
implement these provisions and to establish that these changes would be 
effective for cost reporting periods beginning on or after October 1, 
2014. The proposed regulations at Sec.  413.79(k)(7) read as follows: 
``(i) Effective for cost reporting periods beginning prior to October 
1, 2014, if an urban hospital had established a rural track training 
program under the provisions of this paragraph (k) with a hospital 
located in a rural area and that rural area subsequently becomes an 
urban area due to the most recent census data and implementation of the 
new labor market area definitions announced by OMB on June 6, 2003, the 
urban hospital may continue to adjust its FTE resident limit in 
accordance with this paragraph (k) for the rural track programs 
established prior to the adoption of such new labor market area 
definitions. In order to receive an adjustment to its FTE resident cap 
for a new rural track residency program, the urban hospital must 
establish a rural track program with hospitals that are designated 
rural based on the most recent geographical location designations 
adopted by CMS. (ii) Effective for cost reporting periods beginning on 
or after October 1, 2014, if an urban hospital had started a rural 
track training program under the provisions of this paragraph (k) with 
a hospital located in a rural area and, during the 3-year period that 
is used to calculate the urban hospital's rural track FTE limit, that 
rural area subsequently becomes an urban area due to the most recent 
OMB standards for delineating statistical areas adopted by CMS and the 
most recent Census Bureau data, the urban hospital may continue to 
adjust its FTE resident limit in accordance with this paragraph (k) and 
subject to paragraph (k)(7)(iii) for the rural track programs 
established prior to the adoption of such new OMB standards for 
delineating statistical areas. (iii) Effective for cost reporting 
periods beginning on or after October 1, 2014, if an urban hospital had 
established a rural track training program under the provisions of this 
paragraph (k) with a hospital located in a rural area and that rural 
area subsequently becomes an urban area due to the most recent OMB 
standards for delineating statistical areas adopted by CMS and the most 
recent Census Bureau data, regardless of whether the redesignation of 
the rural hospital occurs during the 3-year period that is used to 
calculate the urban hospital's rural track FTE limit, or after the 3-
year period used to calculate the urban hospital's rural track FTE 
limit, the urban hospital may continue to adjust its FTE resident limit 
in accordance with this paragraph (k) based on the rural track programs 
established prior to the change in the hospital's geographic 
designation. In order for the urban hospital to receive or use the 
adjustment to its FTE resident cap for training FTE residents in the 
rural track residency program that was established prior to the most 
recent OMB standards for delineating statistical areas adopted by CMS, 
one of the following two conditions must be met by the end of a 2-year 
period that begins when the most recent OMB standards for delineating 
statistical areas are adopted by CMS: The hospital that has been 
redesignated from rural to urban must reclassify as rural under Sec.  
412.103 of this chapter, for purposes of IME only; or the urban 
hospital must find a new site that is geographically rural consistent 
with the most recent geographical location delineations adopted by CMS. 
In order to receive an adjustment to its FTE resident cap for an 
additional new rural track residency program, the urban hospital must 
establish a rural track program with sites that are geographically 
rural based on the most recent geographical location delineations 
adopted by CMS.''
    We also have determined that there is an outdated, incorrect 
reference included in the definition of ``Rural track FTE limitation'' 
under Sec.  413.75(b). The reference included in the definition is 
``Sec.  413.79(l)''. The correct reference is ``Sec.  413.79(k)''. 
Therefore, we are proposing to make a technical correction to the 
definition of ``Rural track FTE limitation'' so that it reads ``means 
the maximum number of residents (as specified in Sec.  413.79(k)) 
training in a rural track residency program that an urban hospital may 
include in its FTE count and that is in addition to the number of FTE 
residents already included in the hospital's FTE cap.''
4. Proposed Clarification of Policies on Counting Resident Time in 
Nonprovider Settings Under Section 5504 of the Affordable Care Act
    In the November 24, 2010 final rule with comment period (75 FR 
71808, 72134 through 72141, and 72153), we implemented section 5504 of 
the Affordable Care Act regarding counting resident time in nonprovider 
settings. We also mentioned the scope of section 5504 of the Affordable 
Care Act in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27638) and 
final rule (78 FR 50735). Section 5504(a) of the Affordable Care Act 
made changes to section 1886(h)(4)(E) of the Act to reduce the costs 
that hospitals must incur for residents training in nonprovider sites 
in order to count the FTE residents for purposes of Medicare direct GME 
payments on a prospective basis. Notably, section 5504(a)(3) of the 
Affordable Care Act amended the Act effective for ``cost reporting 
periods beginning on or after July 1, 2010,'' for direct GME, 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. Section 5504(b)(2) of the Affordable Care Act made 
similar changes to section 1886(d)(5)(B)(iv) of the Act for IME payment 
purposes, with the provision being effective for discharges occurring 
on or after July 1, 2010, for IME. In connection with those periods and 
discharges, if more than one hospital incurs the residency training 
costs in a nonprovider setting, under certain circumstances, sections 
5504(a)(3) and (b)(2) of the Affordable Care Act allow 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.'' In doing so, 
Congress also revised the statutory language in sections 5504(a)(1) and 
(b)(1) to explicitly make this longstanding substantive standard and 
requirement applicable to ``cost reporting periods beginning before 
July 1, 2010'' for direct GME, and to ``discharges occurring on

[[Page 28153]]

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). Beginning at 
least as early as 1988, the Secretary consistently noted in the 
preamble of various rules that the statute only allowed a hospital to 
count the time that its residents spent training in a nonprovider site 
in the FTE resident count for direct GME and IME purposes if that 
single hospital incurred ``all of substantially all'' of the costs of 
the training program in that setting. For a full discussion of the 
longstanding substantive standard and requirement that a hospital can 
only count residents training if that one single hospital incurs all or 
substantially all of the costs for the training, we refer readers to 
the discussion in the November 24, 2010 final rule with comment period 
(75 FR 72134 through 72141), in the May 11, 2007 final rule (72 FR 
26953 and 26969), and in the August 1, 2003 final rule (68 FR 45439).
    Section 5504(c) of the Affordable Care Act specifies that the 
amendments made by the provisions of sections 5504(a) and (b) ``shall 
not be applied in a manner that requires reopening of any settled 
hospital cost reports as to which there is not a jurisdictionally 
proper appeal pending as of the date of the enactment of this Act on 
the issue of payment for indirect costs of medical education . . . or 
for direct graduate medical education costs. . . .'' The date of 
enactment of the Affordable Care Act was March 23, 2010.
    In the November 24, 2010 final rule with comment period, we revised 
the regulations at Sec.  412.105(f)(1)(ii)(E) for IME and Sec. Sec.  
413.78(f) and (g) for direct GME to reflect the changes made by section 
5504 of the Affordable Care Act. Section 413.78(g) is the implementing 
regulation that corresponds to the statutory amendments set forth in 
sections 5504(a)(3) and (b)(2) of the Affordable Care Act. The 
introductory regulatory language of Sec.  413.78(g) explicitly states 
that paragraph (g) governs only ``cost reporting periods beginning on 
or after July 1, 2010.'' Paragraph (g)(5) of Sec.  413.78 also 
expressly states that the paragraph is limited to ``cost reporting 
periods beginning on or after July 1, 2010.'' Accordingly, we have 
repeatedly stated, and we believe that the existing regulation makes 
plain, that paragraph (g) of Sec.  413.78 ``is explicitly made 
applicable only to `cost reporting periods beginning on or after July 
l, 2010,' whereas earlier cost reporting periods are governed by other 
preceding paragraphs of Sec.  413.78'' (78 FR 50735). In addition, we 
also revised the definition of ``all or substantially all of the costs 
for the training program in the nonhospital setting'' in the 
regulations at Sec.  413.75(b) to reflect that both the statute and 
regulations require that, for cost reporting periods beginning on and 
after July 1, 2007 and before July 1, 2010, one hospital must by itself 
incur ``all or substantially all of the costs'' of the residents 
training in the nonprovider site in order for the hospital to receive 
Medicare IME and direct GME payment for that training. Finally, we also 
revised the IME regulations at Sec.  412.105 to reflect these statutory 
amendments, by incorporating by reference Sec.  413.78(g).
    Despite the fact that sections 5504(a) and (b) of the Affordable 
Care Act provide clear effective dates with respect to the amendments 
provided therein to sections 1886(h)(4)(E) and 1886(d)(5)(B)(iv) of the 
Act, and that the preamble discussion of the implementation of these 
provisions and further discussion of the statutory amendments in the 
November 24, 2010 final rule with comment period and in the August 19, 
2013 final rule provide further explanation that, specifically, nothing 
in section 5504(c) overrides those effective date (75 FR 72136), we 
have received questions about the applicability of section 5504(c) and 
the associated regulation text at Sec.  413.78(g)(6). Specifically, 
questions have been raised with respect to the applicability of 
sections 5504(c) of the Affordable Care Act and Sec.  413.78(g)(6) of 
the regulations to periods prior to July 1, 2010, particularly if a 
hospital had, as of March 23, 2010, appealed an IME or direct GME issue 
for a settled cost reporting period occurring prior to July 1, 2010. As 
noted earlier, section 5504(c) of the Affordable Care Act provides that 
the amendments made by the provisions of sections 5504(a) and (b) 
``shall not be applied in a manner that requires reopening of any 
settled hospital cost reports as to which there is not a 
jurisdictionally proper appeal pending as of . . . [March 23, 2010] on 
the issue of payment for indirect costs of medical education . . . or 
for direct graduate medical education costs. . . .''
    Upon revisiting the existing regulation text, we determined that 
Sec.  413.78(g)(6) was not written in a manner that is as consistent 
with section 5504(c) of the Affordable Care Act and reflective of our 
reading of that provision and our policy as it could be. Specifically, 
Sec.  413.78(g)(6) states, ``The provisions of paragraphs (g)(1)(ii), 
(g)(2), (g)(3), and (g)(5) of this section cannot be applied in a 
manner that would require the reopening of settled cost reports, except 
those cost reports on which there is a jurisdictionally proper appeal 
pending on direct GME or IME payments as of March 23, 2010.'' In this 
proposed rule, we are reiterating our existing interpretation of the 
statutory amendments made by sections 5504(a), (b), and (c) of the 
Affordable Care Act and also proposing to clarify the regulation text 
implementing these provisions by revising the language at Sec.  
413.78(g)(6) to read more consistently with the language in section 
5504(c) of the Affordable Care Act and to ensure no further confusion 
with respect to the applicability of section 5504(c) of the Affordable 
Care Act and Sec.  413.78(g)(6) of the regulations.
    We believe that sections 5504(a) and (b) of the Affordable Care Act 
contained three primary directives (a fourth regarding recordkeeping 
requirement is tangential to this discussion): (1) Under sections 
5504(a)(1) and (b)(1) of the Affordable Care Act (sections 
1886(h)(4)(E)(i) and 1886(d)(5)(B)(iv)(I) of the Act), for ``cost 
reporting periods beginning before July 1, 2010'' for direct GME, and 
for ``discharges occurring on or after October 1, 1997, and before July 
1, 2010'' for IME, these sections explicitly retained the statutory 
language that 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 a hospital by itself ``incurs all, or substantially 
all, of the costs for the training program in that setting''; (2) under 
sections 5504(a)(3) and (b)(2) of the Affordable Care Act (sections 
1886(h)(4)(E)(ii) and 1886(d)(5)(B)(iv)(II) of the Act), for ``cost 
reporting periods beginning on or after July 1, 2010'' for direct GME, 
and for ``discharges occurring on or after July 1, 2010'' for IME, 
these sections eliminated the ``all or substantially all'' requirement, 
instead requiring a hospital to incur the residents' salaries and 
fringe benefits for the time spent at the nonprovider site; and (3) 
under sections 5504(a)(3) and (b)(2) of the Affordable Care Act 
(sections 1886(h)(4)(E)(ii) and 1886(d)(5)(B)(iv)(II) of the Act), for 
``cost reporting periods beginning on or after July 1, 2010'' for 
direct GME, and for ``discharges occurring on or after July 1, 2010'' 
for IME, these sections created a new provision with regard to allowing 
more than one hospital to share the costs of residents training in a 
nonprovider setting under certain circumstances, in order for each 
hospital to count a proportional share of the FTE training time in the 
nonprovider setting.
    Separately from sections 5504(a) and (b) of the Affordable Care 
Act, section 5504(c) of the Affordable Care Act, as mentioned earlier, 
specifies that the

[[Page 28154]]

amendments made by the provisions of sections 5504(a) and (b) ``shall 
not be applied in a manner that requires reopening of any settled 
hospital cost reports as to which there is not a jurisdictionally 
proper appeal pending as of'' March 23, 2010, the date of the enactment 
of the Affordable Care Act, on the issue of payment for IME and direct 
GME. When we proposed to implement section 5504(c) in the August 3, 
2010 proposed rule (75 FR 46385) and when we implemented section 
5504(c) in the November 24, 2010 final rule with comment period (75 FR 
72136), we had to consider what new meaning it was adding to sections 
5504(a) and (b) of the Affordable Care Act because unlike, for example, 
section 5505 of the Affordable Care Act which has an effective date 
prior to enactment of the Affordable Care Act and, therefore, would 
apply to prior cost reporting periods, section 5504's applicable 
effective date for the new standards it creates was July 1, 2010, a 
date that came after enactment of the Affordable Care Act and was fully 
prospective. As we stated in the November 24, 2010 final rule with 
comment period (75 FR 72136), ``Section 5504(c) is fully prospective 
with an explicit effective date of July 1, 2010, for the new standards 
it creates. Nothing in section 5504(c) overrides that effective date. 
Section 5504(c) merely notes that the usual discretionary authority of 
Medicare contractors to reopen cost reports is not changed by the 
provisions of section 5504; it simply makes clear that Medicare 
contractors are not required by reason of section 5504 to reopen any 
settled cost report as to which a provider does not have a 
jurisdictionally proper appeal pending. It does not require reopening 
in any circumstance; and the new substantive standard is, in any event, 
explicitly prospective. We believe if Congress had wanted to require 
such action or to apply the new standards to cost years or discharges 
prior to July 1, 2010, it would have done so in far more explicit 
terms.'' We also noted in that rule (75 FR 72139) that ``[the] statute 
does not provide CMS discretion to allow the counting of resident time 
spent in shared nonprovider site rotations for cost reporting periods 
beginning prior to July l, 2010.'' We continue to believe that Congress 
was clear in amending sections 1886(h)(4)(E) and 1886(d)(5)(B)(iv) of 
the Act to provide for new standards to be applied only prospectively, 
effective for cost reporting periods beginning on or after, and 
discharges occurring on or after, July 1, 2010. We also continue to 
believe that the plain meaning of section 5504(c) of the Affordable 
Care Act is that the Secretary is not required to reopen a cost report 
when there is no jurisdictionally proper appeal pending as of March 23, 
2010, the date of the enactment of the Affordable Care Act, on the 
issue of payment for IME and direct GME. Therefore, we believe that 
section 5504(c) of the Affordable Care Act is merely a confirmation of 
the Secretary's existing discretionary authority in one particular 
context, and that sections 5504(a) and (b) of the Affordable Care Act 
and their effective dates become all the more prominent, and are not 
affected by section 5504(c).
    As noted earlier, we revised 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 in 
the November 24, 2010 final rule with comment period. We reiterate here 
that the introductory language of Sec.  413.78(g) explicitly states 
that paragraph (g) governs only ``cost reporting periods beginning on 
or after July 1, 2010'' and paragraph (g)(5) also expressly states that 
the paragraph is limited to ``cost reporting periods beginning on or 
after July 1, 2010'' (78 FR 50735 and 78 FR 27639). As we noted before, 
we believe that the paragraphs of the regulations which precede 
paragraph (g), particularly paragraphs (c) through (f), consistent with 
the statute, make clear that a hospital may only count the time so 
spent by a resident under an approved medical residency training 
program in its FTE count, in connection with its pre-July l, 2010 cost 
reporting periods and pre-July l, 2010 patient discharges, if that one 
single hospital by itself ``incurs all, or substantially all, of the 
costs for the training program in that setting.'' Separately, we 
believe that the new standards set forth in sections 5504(a)(3) and 
(b)(2) of the Affordable Care Act and implemented by regulation at 
Sec. Sec.  413.78(g) and 412.105(f)(1)(ii)(E), allowing cost sharing 
under certain circumstances do not ever apply to pre-July 1, 2010 cost 
reporting periods and pre-July l, 2010 patient discharges. Moreover, we 
continue to believe the language in paragraph (g)(6) (along with the 
remainder of paragraph (g)) only applies to cost reporting periods 
beginning on or after July 1, 2010 and does not apply retroactively to 
cost reporting periods beginning before July 1, 2010. We had intended 
that the language under Sec.  413.78(g) do no more than simply 
paraphrase the language in section 5504(c) of the Affordable Care Act.
    Accordingly, we believe that it is apparent that the provisions of 
sections 5504(a)(3) and (b)(2) of the Affordable Care Act are not to be 
applied prior to July l, 2010, irrespectively of whether a hospital may 
have had a jurisdictionally proper appeal pending as of March 23, 2010, 
on an IME or direct GME issue from a cost reporting period occurring 
prior to July 1, 2010.
    In this proposed rule, we are reiterating our existing 
interpretation of the statutory amendments made by sections 5504(a) and 
(b) of the Affordable Care Act and also are proposing to clarify the 
regulatory text that implements these provisions by revising the Sec.  
413.78(g)(6) to be more consistent with the language at section 5504(c) 
of the Affordable Care Act. We are proposing to revise the regulatory 
language to read as follows: ``The provisions of paragraphs (g)(1)(ii), 
(g)(2), (g)(3), and (g)(5) of this section shall not be applied in a 
manner that requires reopening of any settled cost reports as to which 
there is not a jurisdictionally proper appeal pending as of March 23, 
2010, on direct GME or IME payments. Cost reporting periods beginning 
before July 1, 2010 are not governed by paragraph (g) of this 
section.'' The IME regulations at Sec.  412.105(f)(1)(ii)(E) include a 
reference to Sec.  413.78(g)(6); therefore, no proposed change is 
needed to this section.
5. Proposed Changes to the Review and Award Process for Resident Slots 
Under Section 5506 of the Affordable Care Act
    In the past, if a teaching hospital closed, its direct GME and IME 
FTE resident cap slots would be ``lost'' because those cap slots are 
associated with a specific hospital's Medicare provider agreement, 
which would be retired upon the hospital's closure. Under existing 
regulations at Sec.  413.79(h) for direct GME and Sec.  
412.105(f)(1)(ix) for IME, a hospital that is training FTE residents at 
or in excess of its FTE resident caps and takes in residents displaced 
by the closure of another teaching hospital may receive a temporary 
increase to its FTE resident caps so that it may receive direct GME and 
IME payment associated with those displaced FTE residents. However, 
those temporary FTE resident caps are tied to those specific displaced 
FTE residents, and the temporary caps expire when those displaced 
residents complete their training program.
    Section 5506 of the Affordable Care Act amended section 
1886(h)(4)(H) of the Act to add a new clause (vi) that instructs the 
Secretary to establish a process by regulation under which, in the 
event a teaching hospital closes, the

[[Page 28155]]

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 shall be equal 
to the aggregate number of slots in the closed hospital's direct GME 
and IME FTE resident caps, respectively. For a detailed discussion of 
the regulations implementing section 5506 of the Affordable Care Act, 
we refer readers to the November 24, 2010 final rule with comment 
period (75 FR 72212 through 72238) and the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53434 through 53448).
a. Effective Date of Slots Awarded Under Section 5506 of the Affordable 
Care Act
    In distributing slots permanently under the provisions of section 
5506 of the Affordable Care Act, section 5506(d) provides that ``the 
Secretary shall give consideration to the effect of the amendments made 
by this section on any temporary adjustment to a hospital's FTE cap 
under Sec.  413.79(h) . . . (as in effect on the date of enactment of 
this Act) in order to ensure that there is no duplication of FTE slots 
. . .'' In consideration of this statutory language, in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53437), we stated that in distributing 
slots permanently under section 5506, we would be cognizant of the 
number of FTE residents for whom a temporary FTE cap adjustment was 
provided under existing regulations at Sec.  413.79(h), and when those 
residents will complete their training, at which point the temporary 
slots associated with those displaced residents would then be available 
for permanent redistribution. Therefore, in initially developing 
ranking criteria and application materials that we would use to award 
available slots, we considered how to interpret this statutory language 
at section 5506(d) of the Affordable Care Act within the context of our 
existing GME regulations and section 5506's amendment to section 
1886(h) of the Act generally.
    In the November 24, 2010 final rule with comment period and the FY 
2013 IPPS/LTCH PPS final rule (75 FR 72216 and 77 FR 53436, 
respectively), we discussed the various ranking criteria that we would 
use for hospitals applying for slots from closed hospitals. Currently, 
if after distributing the slots from a closed hospital to increase the 
FTE caps for applying hospitals that fall within Ranking Criteria One, 
Two, and Three, there are still excess slots available and any of those 
excess slots are associated with displaced residents for whom temporary 
cap adjustments under Sec.  413.79(h) are in place, any slots awarded 
to hospitals that fall within Ranking Criteria Four through Eight are 
permanently assigned only once the displaced residents have completed 
their training and the temporary cap adjustments associated with those 
residents have expired. That is, in applying the requirement for ``no 
duplication of FTE slots'' set forth in section 5506(d), we currently 
consider all temporary cap adjustments received by hospitals on a 
national basis and not specifically the hospital that is applying for 
cap slots under section 5506, when deciding the effective date for 
slots permanently awarded to hospitals applying under Ranking Criteria 
Four through Eight. Specifically, in the November 24, 2010 final rule 
with comment period, we stated that we believe the ``no duplication of 
FTE slots'' requirement applies across all hospitals. Therefore, 
although a hospital may not have received a temporary cap adjustment 
under Sec.  413.79(h), other hospitals may have taken in residents and 
received temporary cap adjustments for the same program, and we 
believed that the appropriate policy was to delay the slots associated 
with that program from being permanently distributed until it is known 
that any and all temporary cap adjustments for those slots have expired 
(75 FR 72227) Applying this policy to an example, if Hospital A is 
training displaced residents and is receiving a temporary cap 
adjustment under Sec.  413.79(h) for training those residents and 
Hospital B, which is not receiving a temporary cap adjustment for 
training any displaced residents, has applied under Ranking Criterion 
Five to expand its internal medicine program, as explained in the 
November 24, 2010 final rule with comment period, we would only award 
permanent slots under section 5506 to Hospital B on a flow basis; that 
is, effective after each displaced resident completes his/her training, 
and, therefore, the temporary cap adjustments associated with that 
resident expire at Hospital A.
    However, the policy of applying the ``no duplication of FTE slot'' 
requirement at section 5506(d) of the Affordable Care Act to all 
hospitals rather than simply to each specific hospital that is applying 
for slots has thus far proven to be a very complex process due to the 
number of displaced residents and the timing of multiple graduation 
dates which must be tracked and considered when awarding slots on a 
permanent basis. We believe this practice has delayed the awarding of 
slots and is also unnecessarily burdensome for hospitals applying under 
Ranking Criteria Four through Eight that are not receiving any cap 
adjustments for training displaced residents under Sec.  413.79(h). We 
believe the current policy that we apply for ``no duplication of FTE 
slots'' is unnecessarily burdensome for these hospitals because, 
instead of receiving their permanent slots under section 5506 as soon 
as possible, the hospitals may receive their section 5506 awards with 
staggered effective dates due to the graduation dates of displaced FTE 
residents training at other hospitals that did receive temporary 
adjustments under Sec.  413.79(h). While we believe that awarding 
permanent slots to a hospital that is simultaneously receiving a 
temporary cap adjustment for training displaced FTE residents under 
Sec.  413.79(h) would clearly be a duplication of FTE slots and 
contrary to the statutory directive, we believe there is flexibility in 
interpreting this statutory language and that the statute does not 
require such a policy to be applied to hospitals that are not receiving 
temporary cap adjustments under Sec.  413.79(h). Furthermore, in 
considering the specific statutory language regarding ``no duplication 
of FTE slots,'' section 5506(d) in part provides that ``The Secretary 
of Health and Human Services shall give consideration to the effect of 
the amendments made by this section on any temporary adjustment to a 
hospital's FTE cap under section 413.79(h) of title 42, Code of Federal 
Regulations (as in effect on the date of enactment of this Act) in 
order to ensure that there is no duplication of FTE slots.'' Because 
this language refers to ``a hospital,'' we believe the statute provides 
us with the flexibility to apply the ``no duplication of FTE slots'' 
requirement on a hospital-specific basis, considering separately 
whether each hospital did or did not receive a temporary cap adjustment 
under Sec.  413.79(h), rather than on a national all-hospital basis. 
Bearing in mind the statutory language and our experience to date in 
awarding slots as well as the unnecessary burden placed on hospitals 
that are receiving section 5506 slots, but are not receiving temporary 
cap adjustments under Sec.  413.79(h), we believe it is appropriate to 
propose a policy that would provide for a more efficient and faster 
method for awarding of slots to hospitals applying under Ranking 
Criteria Four through Eight. Therefore, we are proposing that, 
effective for section 5506 application

[[Page 28156]]

rounds announced on or after October 1, 2014, for purposes of applying 
the requirement for ``no duplication of FTE slots,'' we would only 
require that there be no duplication of FTE slots on a hospital-
specific basis. That is, in determining the effective date for slots 
awarded permanently under section 5506, we would only be concerned with 
whether the hospital that is applying for slots is also receiving a 
temporary cap adjustment under Sec.  413.79(h) for training displaced 
residents. When awarding slots to the applying hospital, we would not 
be concerned whether any other hospital is receiving a temporary cap 
adjustment for training displaced residents under Sec.  413.79(h). For 
example, if Hospital A is receiving a temporary cap adjustment under 
Sec.  413.79(h) for training displaced residents in its general surgery 
program but is applying under Ranking Criterion Five to start a 
pediatrics program and Hospital B is not receiving a temporary cap 
adjustment for training displaced residents and is applying under 
Ranking Criterion Eight to expand a cardiology program, in awarding 
section 5506 slots, we would only allow Hospital A to receive a 
permanent adjustment to its FTE cap for training residents in its 
pediatrics program once its temporary adjustments for the displaced 
residents training in the general surgery program have expired. We 
would not consider displaced residents when awarding section 5506 slots 
to Hospital B.
    In conjunction with our proposal to interpret the ``no duplication 
of FTE slots'' requirement to apply on a hospital-specific basis to 
hospitals that are receiving temporary cap adjustments under Sec.  
413.79(h), we are proposing to amend the effective dates of section 
5506 slots received under Ranking Criteria Four through Eight for those 
hospitals that are not receiving temporary cap adjustments under Sec.  
413.79(h). (We refer readers to section IV.K.5.c. of the preamble of 
this proposed rule where we discuss our proposal to amend Ranking 
Criteria Seven and Eight.) Existing policy requires that slots awarded 
under Ranking Criteria Four through Eight for expanding an existing 
residency training program or starting a new residency training program 
are effective the later of when a hospital can demonstrate to the MAC 
that the slots associated with a new program or program expansion are 
actually filled and, therefore, are needed as of a particular date 
(usually July 1, possibly retroactive), or the July 1 after displaced 
residents complete their training. If a hospital is awarded slots under 
Ranking Criterion Eight for cap relief, slots are effective the date of 
CMS' award announcement, or the July 1 after displaced residents 
complete their training, whichever is later. However, because we are 
proposing an alternative approach to interpreting section 5506(d) that 
would permit us to apply the ``no duplication of FTE slots'' 
requirement on a hospital-specific basis, we are proposing to change 
the effective date for slots received under Ranking Criteria Four 
through Eight so that if a hospital is not receiving a temporary cap 
adjustment under Sec.  413.79(h), the slots awarded under section 5506 
would be effective when the hospital can demonstrate to its MAC that 
the slots needed for a new program or program expansion are actually 
filled and, therefore, are needed as of a particular date (usually July 
1, possibly retroactive). If a hospital is awarded slots under Ranking 
Criteria Four through Eight and is receiving a temporary cap adjustment 
to train displaced residents under Sec.  413.79(h), the current policy 
would apply such that the slots are awarded on a permanent basis, the 
later of when a hospital can demonstrate to the MAC that the slots 
associated with a new program or program expansion are actually filled 
and, therefore, are needed as of a particular date (usually July 1, 
possibly retroactive), or the July 1 after an equivalent amount of a 
displaced FTE resident(s) complete their training. For example, assume 
in a hypothetical situation that there is a closed teaching hospital, 
and that another hospital takes in two displaced FTE residents, for 
which the hospital is receiving a temporary cap adjustment under Sec.  
413.79(h). One resident is graduating on June 30, 2016, and the second 
resident is graduating on June 30, 2018. Assume that when the section 
5506 Round is announced, the hospital also applies for two slots to 
expand an internal medicine program under Ranking Criterion Five. In 
January of 2017, CMS awards two permanent slots to the hospital under 
Ranking Criterion Five. For the program year starting July 1, 2017, the 
hospital successfully demonstrates to the MAC that it filled the two 
additional internal medicine positions. Because one displaced FTE 
resident already graduated on June 30, 2016, the MAC may approve one 
slot on a permanent basis effective July 1, 2017. However, the hospital 
would have to wait until July 1, 2018, to receive from the MAC the 
permanent slot for the second displaced internal medicine resident 
because the second displaced FTE resident is not graduating until June 
30, 2018.
    We are not proposing any changes to the effective date for slots 
awarded under Ranking Criterion One, Ranking Criterion Two, or Ranking 
Criterion Three. Consistent with existing policy, if a hospital is 
applying under Ranking Criterion One or Ranking Criterion Three and is 
not receiving a temporary cap adjustment for training displaced 
residents under Sec.  413.79(h), the effective date of the section 5506 
slots is the date of the hospital closure. If a hospital is applying 
under Ranking Criterion One or Ranking Criterion Three and is receiving 
a temporary cap for training displaced residents under Sec.  413.79(h), 
the effective date of the section 5506 slots is after the displaced 
resident(s) graduate. If a hospital is receiving a temporary cap for 
training displaced residents under Sec.  413.79(h), and is applying 
under Ranking Criterion One or Ranking Criterion Three and is also 
separately applying under Ranking Criterion Four or subsequent Ranking 
Criteria, for slots awarded under Ranking Criteria One or Three, the 
effective date of the section 5506 slots is after the displaced 
resident(s) graduate. For slots awarded under Ranking Criteria Four or 
subsequent Ranking Criteria, the slots are awarded the later of when a 
hospital can demonstrate to the MAC that the slots associated with a 
new program or program expansion are actually filled and, therefore, 
are needed as of a particular date (usually July 1, possibly 
retroactive), or the July 1 after an equivalent amount of a displaced 
FTE resident(s) at the hospital complete their training. Therefore, for 
such a hospital, the effective dates of slots awarded under Ranking 
Criteria One/Three, and Ranking Criteria Four through Eight might 
coincide. Also, consistent with existing policy, if a hospital is 
applying under Ranking Criterion Two, the effective date of the 
permanent award of section 5506 slots is the date of the hospital 
closure. We discuss these existing policies in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53437 through 53445).
    The following list includes the current and proposed ranking 
criteria along with the current and proposed effective dates.
     Current Ranking Criterion One: The applying hospital is 
requesting the increase in its FTE resident cap(s) because it is 
assuming (or assumed) an entire program (or programs) from the hospital 
that closed, and the applying hospital is continuing to operate the 
program(s) exactly as it had been operated by the hospital that closed

[[Page 28157]]

(that is, same residents, possibly the same program director, and 
possibly the same (or many of the same) teaching staff).
     Proposed Ranking Criterion One: The applying hospital is 
requesting the increase in its FTE resident cap(s) because it is 
assuming (or assumed) an entire program (or programs) from the hospital 
that closed, and the applying hospital is continuing to operate the 
program(s) exactly as it had been operated by the hospital that closed 
(that is, same residents, possibly the same program director, and 
possibly the same (or many of the same) teaching staff). The applying 
hospital's FTE resident caps were erroneously reduced by CMS under 
section 1886(h)(8)(A)(i) of the Act, contrary to the statutory 
exception at section 1886(h)(8)(A)(ii)(I) of the Act, and CMS Central 
Office was made aware of the error prior to posting of the FY 2015 IPPS 
proposed rule on the CMS Web site. (This language reflects the proposed 
modification of Ranking Criterion One. We refer readers to section 
IV.K.5.c. of the preamble of this proposed rule where we discuss this 
proposed modification.)
    [cir] Current Policy: If the hospital is receiving a temporary cap 
adjustment, slots are effective the day after the graduation date(s) of 
actual displaced resident(s). If the hospital is not receiving a 
temporary cap adjustment, slots are effective with the date of the 
hospital closure.
    [cir] Proposed Policy: No change.
     Current Ranking Criterion Two: The applying hospital was 
listed as a participant of a Medicare GME affiliated group on the most 
recent Medicare GME affiliation agreement of which the closed hospital 
was a member before the hospital closed, and under the terms of that 
Medicare GME affiliation agreement, the applying hospital received 
slots from the hospital that closed, and the applying hospital will use 
the additional slots to continue to train at least the number of FTE 
residents it had trained under the terms of the Medicare GME 
affiliation agreement. If the most recent Medicare GME affiliation 
agreement of which the closed hospital was a member before the hospital 
closed was with a hospital that itself has closed or is closing, 
preference would be given to an applying hospital that was listed as a 
participant in the next most recent Medicare GME affiliation agreement 
(but not one which was entered into more than 5 years prior to the 
hospital's closure) of which the first closed hospital was a member 
before the hospital closed, and that applying hospital received slots 
from the closed hospital under the terms of that affiliation agreement.
     Clarified Ranking Criterion Two: The applying hospital was 
listed as a participant of a Medicare GME affiliated group on the most 
recent Medicare GME affiliation agreement or emergency Medicare GME 
affiliation agreement of which the closed hospital was a member before 
the hospital closed, and under the terms of that Medicare GME 
affiliation agreement or emergency Medicare GME affiliation agreement, 
the applying hospital received slots from the hospital that closed, and 
the applying hospital will use the additional slots to continue to 
train at least the number of FTE residents it had trained under the 
terms of the Medicare GME affiliation agreement, or emergency Medicare 
GME affiliation agreement. If the most recent Medicare GME affiliation 
agreement or emergency Medicare GME affiliation agreement of which the 
closed hospital was a member before the hospital closed was with a 
hospital that itself has closed or is closing, preference would be 
given to an applying hospital that was listed as a participant in the 
next most recent Medicare GME affiliation agreement or emergency 
Medicare GME affiliation agreement (but not one which was entered into 
more than 5 years prior to the hospital's closure) of which the first 
closed hospital was a member before the hospital closed, and that 
applying hospital received slots from the closed hospital under the 
terms of that affiliation agreement. (This language reflects our 
clarification in this proposed rule regarding inclusion of emergency 
Medicare GME affiliation agreements in Ranking Criterion Two. We refer 
readers to section IV.K.5.d. of the preamble of this proposed rule 
where we discuss this clarification.)
    [cir] Current Policy: Slots are effective with the date of the 
hospital closure.
    [cir] Proposed Policy: No change.
     Ranking Criterion Three: The applying hospital took in 
residents displaced by the closure of the hospital, but is not assuming 
an entire program or programs, and will use the additional slots to 
continue training residents in the same programs as the displaced 
residents, even after those displaced residents complete their training 
(that is, the applying hospital is permanently expanding its own 
existing programs).
    [cir] Current Policy: If the hospital is receiving temporary cap 
adjustment, slots are effective the day after the graduation date(s) of 
actual displaced resident(s). If the hospital is not receiving a 
temporary cap adjustment, slots are effective with the date of the 
hospital closure.
    [cir] Proposed Policy: No change.
     Ranking Criterion Four: The program does not meet Ranking 
Criteria 1, 2, or 3, and the applying hospital will use additional 
slots to establish a new or expand an existing geriatrics residency 
program.
     Ranking Criterion Five: The program does not meet Ranking 
Criteria 1 through 4, the applying hospital is located in a HPSA, and 
will use all the additional slots to establish or expand a primary care 
or general surgery residency program.
     Ranking Criterion Six: The program does not meet Ranking 
Criteria 1 through 5, and the applying hospital is not located in a 
HPSA, and will use all the additional slots to establish or expand a 
primary care or general surgery residency program.
     Current Ranking Criterion Seven: The applying hospital 
will use additional slots to establish or expand a primary care or 
general surgery program, but the program does not meet Ranking 
Criterion 5 or 6 because the hospital is also separately applying under 
Ranking Criterion 8 for slots to establish or expand a nonprimary care 
or nongeneral surgery program and/or for cap relief.
     Proposed Ranking Criterion Seven: The applying hospital 
will use additional slots to establish or expand a primary care or 
general surgery program, but the program does not meet Ranking 
Criterion 5 or 6 because the hospital is also separately applying under 
Ranking Criterion 8 for slots to establish or expand a nonprimary care 
or nongeneral surgery program. (This language reflects our proposal in 
this proposed rule to revise Ranking Criteria Seven and Eight. We refer 
readers to section IV.K.5.c. of the preamble of this proposed rule 
where we discuss our proposals to amend Ranking Criteria Seven and 
Eight.)
    [cir] Current Policy for Ranking Criteria Four through Seven: The 
later of when the hospital can demonstrate to the MAC that the slots 
associated with a new program or program expansion are actually filled, 
and therefore, are needed as of a particular date (usually July 1, 
possibly retroactive), or the July 1 after displaced residents complete 
their training.
    [cir] Proposed Policy for Ranking Criterion Four through Proposed 
Ranking Criterion Seven: If the hospital is receiving a temporary cap 
adjustment for training displaced residents, the later of when the 
hospital can demonstrate to the MAC that the slots associated with a 
new program or program expansion are actually filled, and therefore, 
are needed as of a particular date (usually

[[Page 28158]]

July 1, possibly retroactive), or the July 1 after displaced residents 
complete their training. If the hospital is not receiving a temporary 
cap adjustment, when the hospital can demonstrate to the MAC that the 
slots needed for a new program or program expansion are actually 
filled, and therefore, are needed as of a particular date (usually July 
1, possibly retroactive).
     Current Ranking Criterion Eight: The program does not meet 
Ranking Criteria 1 through 7, and the applying hospital will use 
additional slots to establish or expand a nonprimary care or a 
nongeneral surgery program or for cap relief.
     Proposed Ranking Criterion Eight: The program does not 
meet Ranking Criteria 1 through 7, and the applying hospital will use 
additional slots to establish or expand a nonprimary care or a 
nongeneral surgery program. (This language reflects our proposal in 
this proposed rule to revise Ranking Criterion Eight. We refer readers 
to section IV.K.5.c. of the preamble of this proposed rule where we 
discuss our proposals to amend Ranking Criterion Eight.)
    [cir] Current Policy: If slots are for starting or expanding a 
nonprimary care or nongeneral surgery program, the effective date is 
same as that for Ranking Criteria Four through Seven. If slots are for 
cap relief (under current policy), the effective date is the effective 
date of CMS' award announcement, or after displaced residents complete 
their training, whichever is later.
    [cir] Proposed Policy for Proposed Ranking Criterion Eight: If the 
hospital is receiving a temporary cap adjustment for training displaced 
residents, the later of when the hospital can demonstrate to the MAC 
that the slots associated with a new program or program expansion are 
actually filled and, therefore, are needed as of a particular date 
(usually July 1, possibly retroactive), or the July 1 after displaced 
residents complete their training. If the hospital is not receiving a 
temporary cap adjustment, when the hospital can demonstrate to the MAC 
that the slots needed for a new program or program expansion are 
actually filled, and therefore, are needed as of a particular date 
(usually July 1, possibly retroactive).
    In summary, we are proposing that, effective for section 5506 
application rounds announced on or after October 1, 2014, the statutory 
provision at section 5506(d) requiring the Secretary to consider 
temporary cap adjustments under Sec.  413.79(h) and to ensure no 
duplication of FTE slots, be interpreted in a manner such that the 
requirement for ``no duplication of FTE slots'' is applied on a 
hospital-specific basis rather than across all hospitals receiving 
temporary cap adjustments under Sec.  413.79(h). Consistent with this 
proposed change, we are proposing to amend the effective date for slots 
received under Ranking Criteria Four through Eight so that if a 
hospital is not receiving a temporary cap adjustment under Sec.  
413.79(h), the slots awarded under section 5506 would be effective when 
the hospital can demonstrate to its MAC that the slots needed for a new 
program or program expansion are actually filled and, therefore, are 
needed as of a particular date (usually July 1, possibly retroactive).
b. Proposal To Remove Seamless Requirement
    Under current policy, if a hospital is applying under Ranking 
Criterion One or Three, the hospital must show that it is seamlessly 
replacing displaced FTE residents with new FTE residents once the 
displaced residents graduate (75 FR 72219 and 72221 through 72222). We 
have stated that in instances where a hospital seamlessly operates an 
entire program or part of a program from the closed hospital (or takes 
over an entire program prior to the hospital's closure), such a 
hospital is demonstrating a strong commitment to maintain GME programs 
in the community for the long term and should we awarded slots under 
higher ranking criteria (75 FR 72216). Therefore, we required that, in 
order to receive slots under Ranking Criterion One and Three, the 
applying hospital must demonstrate that upon graduation of the 
displaced FTE residents that it is training, the slots held by those 
displaced FTEs are seamlessly replaced with new FTE residents (75 FR 
72219 and 72221 through 72222). In the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53441), in response to concerns associated with the seamless 
requirement and timeline used by the National Resident Match Program or 
other resident match services, we revised the seamless requirement. We 
stated that in the instance where a teaching hospital closed after 
December 31 of an academic year, in order for a hospital to qualify 
under Ranking Criterion One or Three for cap slots associated with 
displaced FTE residents who will graduate June 30 of the academic year 
in which the applying hospital took in the displaced FTE residents, the 
applying hospital must be able to demonstrate that it will fill slots 
vacated by displaced FTE residents by July 1 of the second academic 
year following the hospital closure. However, in the instance where a 
teaching hospital closed before December 31 of an academic year, in 
order for a hospital to qualify under Ranking Criterion One or Three 
for cap slots associated with displaced FTE residents who will graduate 
June 30 of the academic year in which the applying hospital took in the 
displaced FTE residents, the applying hospital must be able to 
demonstrate that it will seamlessly fill slots vacated by displaced FTE 
residents by that July 1; that is, the day immediately after the June 
30 that the displaced FTE residents graduate (77 FR 53441 through 
53442). We also revised the CMS Application Form to instruct a hospital 
applying under Ranking Criterion One or Three to list the names and 
graduation dates of specific displaced residents who, upon their 
graduation, have been or will be seamlessly replaced by new residents 
(77 FR 53446). Because Ranking Criteria One and Three fall under 
Demonstrated Likelihood Criterion 2, the hospital is taking over all of 
part of an existing residency program from the closed hospital, or 
expanding an existing residency training program, the requirement to 
include a list with the names and graduation dates of specific 
displaced residents who have been or will be seamlessly replaced was 
added under Demonstrated Likelihood Criterion 2 on the CMS Application 
Form.
    In addition to the match deadlines associated with the National 
Resident Matching Program and match deadlines associated with matching 
into osteopathic programs, we have recently been made aware of other 
match deadlines associated with certain fellowship programs. From the 
experience we have had so far in reviewing section 5506 applications, 
where we have observed the complexity of tracking various match 
deadlines as well as the intersection between these deadlines and when 
the section 5506 awards are announced by CMS, we are proposing to 
remove the seamless requirement for slots awarded under Ranking 
Criterion One and Three effective for section 5506 application rounds 
announced on or after October 1, 2014. We are not proposing to make any 
other additional changes to Ranking Criterion One or Three; that is, 
the hospital must still be training displaced residents and must either 
take over or have taken over an entire program from the closed hospital 
and continue operating that program in the same manner in which it was 
operated by the closed hospital or the hospital must take over part of 
a closed hospital's program and permanently expand its own program as a 
result of training displaced

[[Page 28159]]

residents. Hospitals would continue to be required to submit supporting 
documentation when applying under Ranking Criterion One or Three that 
indicates that they have made a commitment to take over the closed 
hospital's program or that they have made the commitment to permanently 
expand their own residency training program resulting from taking over 
part of a closed hospital's program.
    In determining the effective date of slots awarded under Ranking 
Criterion One or Three where the hospital has been training residents 
that were displaced by the closed hospital and receiving a temporary 
cap adjustment under Sec.  413.79(h), the hospital would work with its 
MAC to determine when it could be permanently awarded the slots based 
on the graduation dates of the displaced residents it is training. 
Consistent with our proposal, we are proposing to remove the following 
requirement under Demonstrated Likelihood Criterion 2 on the CMS 
Application Form: ``Hospitals applying for slots under option (a) which 
correlates to Ranking Criterion 1 or (b) which correlates to Ranking 
Criterion 3 must list the names and graduation dates of specific 
displaced residents who, upon their graduation, have been or will be 
seamlessly replaced by new residents. The list may be added as an 
attachment to this application.'' We are proposing to replace this 
requirement with the following requirement under Demonstrated 
Likelihood Criteria 1 and 2'' ``Please indicate Y or N: As of the time 
of submitting this application, are you receiving a temporary cap 
adjustment for IME and/or direct GME under 42 CFR 413.79(h) for 
residents displaced by the closure of the hospital subject to this 
Round of section 5506? (Y/N)'' so that we are aware which hospitals are 
receiving temporary cap adjustments for training displaced residents 
under Sec.  413.79(h), and when we award slots, we would know which 
hospitals to instruct to work with their MACs to determine when the 
slots could be permanently awarded to them based on the graduation 
dates of the displaced residents they are training.
    In summary, we are proposing to remove the seamless requirement 
currently included as part of Ranking Criterion One or Three. We also 
are proposing to remove from the CMS Application Form, the following 
requirement: ``Hospitals applying for slots under option a) which 
correlates to Ranking Criterion 1 or b) which correlates to Ranking 
Criterion 3 must list the names and graduation dates of specific 
displaced residents who, upon their graduation, have been or will be 
seamlessly replaced by new residents. This list may be added as an 
attachment to this application.''
c. Proposed Revisions to Ranking Criteria One, Seven, and Eight for 
Applications Under Section 5506
    In the November 24, 2010 final rule with comment period (75 FR 
72223), we finalized the Ranking Criteria within each of the three 
first statutory priority categories (that is, same or contiguous CBSAs, 
same State, and same region) to be used to rank applications for 
assignment of slots under section 5506 of the Affordable Care Act. For 
each application, we assigned slots based on Ranking Criteria, with 
Ranking Criterion One being the highest ranking and Ranking Criterion 
Seven being the lowest. For a detailed discussion of the ranking 
categories, we refer readers to the November 24, 2010 final rule with 
comment period (75 FR 72212 through 72240).
    After reviewing applications submitted during the first section 
5506 application process (those applications that were due to CMS on 
April 1, 2011), we observed that the overwhelming majority of 
applications fell under Ranking Criterion Seven; that is, the applying 
hospital seeks the slots for purposes that do not fit into any of 
Ranking Criterion One through Ranking Criterion Six. These applications 
included applications from hospitals that applied for FTE cap slots for 
both primary care and/or general surgery and for nonprimary care 
specialties as well as applications for general cap relief. The sheer 
number of applications we received under Ranking Criterion Seven 
indicate a need to further prioritize among the applicants that would 
have qualified under Ranking Criterion Seven. Therefore, in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53434 through 53437), we finalized 
changes to the Ranking Criteria, replacing Ranking Criterion Seven with 
two separate Ranking Criteria (Ranking Criterion Seven and Ranking 
Criterion Eight) resulting in a total of eight Ranking Criteria. Under 
the Ranking Criteria, as modified by the FY 2013 IPPS/LTCH PPS final 
rule, a hospital that is applying both for the purpose of establishing 
or expanding primary care or general surgery programs, and in addition 
is requesting slots for the purpose of establishing or expanding 
nonprimary care or nongeneral surgery programs and/or for cap relief 
must submit an application requesting additional FTE slots for its 
primary care or general surgery programs under Ranking Criterion Seven. 
The hospital's request for additional FTE slots to establish or expand 
a nonprimary care or nongeneral surgery program and/or for additional 
FTE slots for cap relief would then be made under Ranking Criterion 
Eight. Prior to this change, if a hospital applied for additional FTE 
slots to establish or expand both a primary care or general surgery 
program in addition to a nonprimary care or nongeneral surgery program 
and/or for additional FTE slots for cap relief, all of its applications 
(with the exception of Ranking Criteria One through Three) would fall 
under Ranking Criteria Seven. For a complete list of the Ranking 
Criteria, we refer readers to section IV.K.5.a. of the preamble of this 
proposed rule, which discusses the background for preservation of 
resident cap positions from closed hospitals under section 5506 of the 
Affordable Care Act.
    After reviewing applications and making awards under several more 
rounds of section 5506 applications, we have observed that, as hospital 
closings continue to occur, there has been a significant increase in 
the time between a hospital's closure and the announcement of section 
5506 awards by CMS. We believe that this delay is partly due to the 
administratively burdensome task of processing, reviewing, and 
responding to such a large number of applications for each hospital 
closure, or each round of section 5506 awards. When implementing 
section 5506 in the November 24, 2010 final rule with comment period 
(75 FR 72212 through 72249), we initially envisioned the reviewing of 
applications and awarding of section 5506 FTE slots as being a more 
streamlined and expedient process. However, as a practical matter, we 
have found that process has been much more resource and time intensive 
than we had originally anticipated. This is partly due to the time and 
resources needed to properly apply the process established by CMS in 
reviewing section 5506 applications and awarding FTE cap slots. Since 
the initial implementation of section 5506, we have attempted to be 
responsive to these unexpected delays by refining the ranking criteria 
to make the review process less administratively burdensome. However, 
these changes did not alleviate the process to the desired extent. 
Furthermore, we have observed that, while many of the applications 
submitted to CMS are applications requesting FTE slots for purposes of 
general cap relief, we have more often than not awarded no slots at all 
for cap relief. This is due in large part to the limited number of 
slots

[[Page 28160]]

available (many of the closed teaching hospitals did not have large FTE 
resident caps) and an overwhelming demand for those slots from 
applicants who apply for FTE slots for reasons other than cap relief. 
Since we finalized the modified Ranking Criterion Seven and added 
Ranking Criterion Eight in the FY 2013 IPPS/LTCH PPS final rule, we 
have announced three new rounds of section 5506 applications due to the 
closures of six hospitals. We have received a total of 424 applications 
from hospitals seeking cap relief. Of those 424 applications, only 6 
applications were ultimately awarded FTE slots, which is only 1.42 
percent of the total cap relief applications. We believe that the ratio 
of cap relief awardees to cap relief applications does not warrant the 
administrative burden and the delay in announcements of section 5506 
awards that result from the large number of cap relief applications 
submitted to CMS that are invariably denied. Therefore, in an effort to 
streamline the review process and to facilitate publishing section 5506 
awards in a more timely manner, we are proposing to modify Ranking 
Criterion Eight so that Ranking Criterion Eight would only apply to 
hospitals seeking FTE slots to establish or expand a nonprimary care or 
nongeneral surgery program. Ranking Criterion Eight would no longer be 
applicable to hospitals seeking FTE cap slots for cap relief. Our 
proposal to eliminate section 5506 awards of FTE slots for cap relief 
is consistent with current policy goals to increase training in primary 
care and general surgery. By proposing to eliminate awarding of FTE 
slots for residents that are already being trained by a hospital, there 
will be more FTE resident slots available to award to other hospitals 
seeking to establish or expand a primary care or general surgery 
program under Ranking Criteria Four through Seven.
    Accordingly, we are proposing to revise Ranking Criterion Eight so 
that it reads as follows:
    Proposed Ranking Criterion Eight: The program does not meet Ranking 
Criteria 1 through 7, and the applying hospital will use additional 
slots to establish or expand a nonprimary care or a nongeneral surgery 
program.
    In light of the modifications we are proposing to Ranking Criterion 
Eight, we believe it is also necessary to modify the language of 
proposed Ranking Criterion Seven to specify the types of applications 
that would properly be made under this Ranking Criterion; that is, we 
are proposing to remove the reference to cap relief from Ranking 
Criterion Seven so that it read as follows:
    Proposed Ranking Criterion Seven: The applying hospital will use 
additional slots to establish or expand a primary care or general 
surgery program, but the program does not meet Ranking Criterion 5 or 6 
because the hospital is also separately applying under Ranking 
Criterion 8 for slots to establish or expand a nonprimary care or 
nongeneral surgery program.
    Separately, we also are proposing a change related to Ranking 
Criterion One. Current ranking Criterion One is for an applying 
hospital that assumed an entire program or programs from the hospital 
that closed. We are proposing to revise Ranking Criterion One to 
provide priority to hospitals in one scenario. Section 5503 of the 
Affordable Care Act amended section 1886(h) of the Act by adding new 
paragraph (8), which provided for the permanent reduction and 
distribution of residency slots. Section 1886(h)(8)(A)(ii) of the Act 
provides specific exceptions to the application of the reduction at 
section 1886(h)(8)(A)(i) of the Act, and expressly states: 
``Exceptions--This subparagraph shall not apply to (I) a hospital 
located in a rural area (as defined in subsection (d)(2)(D)(ii)) with 
fewer than 250 acute care inpatient beds.'' The November 24, 2010 final 
rule with comment period (75 FR 72147) describes the agency's 
interpretation of this statutory provision. As of the time that this 
proposed rule is posted on the CMS Web site, we are aware of one 
instance in which CMS erroneously reduced a hospital's FTE resident cap 
contrary to this statutory exception. We are proposing to amend Ranking 
Criterion One under section 5506 to provide priority to a hospital 
which had FTE resident cap slots erroneously removed under section 5503 
contrary to the statutory exception at section 1886(h)(8)(A)(ii)(I) of 
the Act. We are proposing to revise Ranking Criterion One as follows:
    [ballot] Ranking Criterion One. The applying hospital is requesting 
the increase in its FTE resident cap(s) because it is assuming (or 
assumed) an entire program (or programs) from the hospital that closed, 
and the applying hospital is continuing to operate the program(s) 
exactly as it had been operated by the hospital that closed (that is, 
same residents, possibly the same program director, and possibly the 
same (or many of the same) teaching staff). The applying hospital's FTE 
resident caps were erroneously reduced by CMS under section 
1886(h)(8)(A)(i) of the Act, contrary to the statutory exception at 
section 1886(h)(8)(A)(ii)(I) of the Act, and CMS Central Office was 
made aware of the error prior to posting of the FY 2015 IPPS proposed 
rule on the CMS Web site.
d. Clarification to Ranking Criterion Two Regarding Emergency Medicare 
GME Affiliation Agreements
    Ranking Criterion Two gives preference to applying hospitals that 
received slots under the terms of a Medicare GME affiliation agreement 
from the closed hospital. Under section 1886(h)(4)(H)(ii) of the Act, 
hospitals may form a Medicare GME affiliated group and elect to 
aggregate their respective FTE resident caps and apply them on an 
aggregate basis. The regulations at 42 CFR 413.75(b) and 413.79(f) 
implemented this statutory provision, providing specific rules for 
sharing FTE resident cap slots among members of the Medicare GME 
affiliated group, one such rule being that member hospitals must have a 
``shared rotational arrangement.'' A ``shared rotational arrangement'' 
is defined at 42 CFR 413.75(b) as a residency training program under 
which a resident(s) participates in training at two or more hospitals 
in that program. Specifically, Ranking Criterion Two states the 
following:
    Ranking Criterion Two. The applying hospital was listed as a 
participant of a Medicare GME affiliated group on the most recent 
Medicare GME affiliation agreement of which the closed hospital was a 
member before the hospital closed, and under the terms of that Medicare 
GME affiliation agreement, the applying hospital received slots from 
the hospital that closed, and the applying hospital will use the 
additional slots to continue to train at least the number of FTE 
residents it had trained under the terms of the Medicare GME 
affiliation agreement. If the most recent Medicare GME affiliation 
agreement of which the closed hospital was a member before the hospital 
closed was with a hospital that itself has closed or is closing, 
preference would be given to an applying hospital that was listed as a 
participant in the next most recent Medicare GME affiliation agreement 
(but not one which was entered into more than 5 years prior to the 
hospital's closure) of which the first closed hospital was a member 
before the hospital closed, and that applying hospital received slots 
from the closed hospital under the terms of that affiliation agreement.
    A question has been raised as to whether hospitals that were 
members of an emergency Medicare GME affiliation agreement with the 
closed hospital prior to its closure may be considered under Ranking 
Criterion Two as well. The regulations at 42 CFR 413.79(f)(7)

[[Page 28161]]

govern emergency Medicare GME affiliation agreements, which are 
applicable in the instance where a statutory section 1135 waiver is 
invoked. In this situation, due to emergency conditions, the ``home'' 
hospital is unable to continue to train its residents. Therefore, under 
the terms of the emergency Medicare GME affiliation agreement, the 
``home'' hospital may agree to temporarily transfer FTE resident cap 
slots to ``host'' hospitals that would train the displaced residents 
during the emergency period.
    In the November 24, 2010 final rule with comment period (75 FR 
72216), we stated that ``section 1886(h)(4)(H)(vi) of the Act, as added 
by section 5506(a) of the Affordable Care Act, directs the Secretary to 
give preference to hospitals that are members of the same affiliated 
group as the hospital that closed. We believe that, generally, if the 
applying hospital was affiliated to receive slots from the hospital 
that closed, then the applying hospital was relying on that number of 
FTE resident slots that it received in order to maintain its fair share 
of the cross-training of the residents in the jointly operated 
programs. In the absence of those slots received from the closed 
hospital, the applying hospital may not be able to continue training 
that number of FTE residents, and those same residents would not only 
be displaced from the closed hospital, but might essentially become 
`displaced' from the affiliated hospitals in which they were used to 
doing a portion of their training. Accordingly, we proposed this 
ranking criterion to allow hospitals that were affiliated with the 
closed hospitals to at least maintain their fair share of the training 
of the residents in the programs that they had jointly operated with 
the closed hospital.''
    In determining whether Ranking Criterion Two may encompass 
emergency Medicare GME affiliation agreements, we considered the key 
differences and similarities between regular Medicare GME affiliation 
agreements and emergency Medicare GME affiliation agreements. Regarding 
the differences, in the case of emergency affiliations, there may not 
have been historical cross-training or jointly operated programs 
between the applicant hospital and the hospital that closed. 
Furthermore, after the natural disaster that precipitates the section 
1135 waiver, the ``home'' hospital would be in no condition to train 
its share of residents, which is why the ``shared rotational 
arrangement'' requirements at 42 CFR 413.79(f)(2) for regular Medicare 
GME affiliation agreements are waived for emergency Medicare GME 
affiliation agreements. However, it is often true with emergency 
affiliations that a hospital agrees to take over the training of the 
hospital in need, ``receiving'' FTE cap slots and residents from the 
``home'' hospital, thereby creating the training relationship. In the 
event where, following the disaster that triggers the section 1135 
waiver, a hospital should actually close, the ``host'' hospital that 
accepted the residents perhaps might even continue to train its share 
of the residents in the program after the hospital closes. Therefore, 
emergency affiliation agreements are similar to regular affiliation 
agreements in that the ``host'' hospital received FTE cap slots from 
the ``home'' hospital to train the ``home'' hospital's residents. 
Further, in the event that the ``home'' hospital closes, triggering a 
Round of section 5506, the ``host'' hospital also would need those FTE 
cap slots in order to continue training the share of its program for 
which it had taken responsibility under the emergency Medicare GME 
affiliation agreement before the ``home'' hospital closed.
    As we stated in the November 24, 2010 final rule with comment 
period (75 FR 72219 through 72220), ``we believe the intent of section 
5506 is to promote continuity and limit disruption in residency 
training. In that light, we believe it is logical to give preference to 
a hospital that received slots under the terms of the Medicare GME 
affiliation agreement so that the hospital could continue to train at 
least the number of FTE residents it had trained under the terms of the 
Medicare GME affiliation agreement, avoiding the displacement of even 
more residents. . . .'' We further stated that we ``. . . are only 
giving preference to hospitals that received slots from the closed 
hospital under the terms of the Medicare GME affiliation agreement, so 
that the hospital could continue to train at least the number of FTE 
residents it had trained under the terms of the Medicare GME 
affiliation agreement. . . .'' Finally, we stated ``that the hospital 
or hospitals that were most recently affiliated with and received slots 
from the closed hospital would have the most immediate need for those 
slots.''
    While the circumstances may vary, we believe that ``host'' 
hospitals under emergency Medicare GME affiliation agreements could 
fulfill much of the same role as hospitals that received slots from the 
hospital that closed under regular Medicare GME affiliation agreements. 
That is, continuity of training would be encouraged and disruption 
would be mitigated, to the extent that the ``host'' hospital could 
document to CMS that it would continue to ``train at least the number 
of FTE residents it had trained under the terms of the'' emergency 
Medicare GME affiliation agreement, and in doing so, would demonstrate 
it has the ``most immediate need for those slots'' as compared to 
another hospital. Given these similarities between regular Medicare GME 
affiliation agreements and emergency Medicare GME affiliation 
agreements, we believe that the existing Ranking Criterion Two may be 
read to already encompass emergency Medicare GME affiliation 
agreements. Accordingly, we are clarifying the existing Ranking 
Criterion Two to include emergency Medicare GME affiliation agreements, 
to read as follows:
    [ballot] Ranking Criterion Two. The applying hospital was listed as 
a participant of a Medicare GME affiliated group on the most recent 
Medicare GME affiliation agreement or emergency Medicare GME 
affiliation agreement of which the closed hospital was a member before 
the hospital closed, and under the terms of that Medicare GME 
affiliation agreement or emergency Medicare GME affiliation agreement, 
the applying hospital received slots from the hospital that closed, and 
the applying hospital will use the additional slots to continue to 
train at least the number of FTE residents it had trained under the 
terms of the Medicare GME affiliation agreement, or emergency Medicare 
GME affiliation agreement. If the most recent Medicare GME affiliation 
agreement or emergency Medicare GME affiliation agreement of which the 
closed hospital was a member before the hospital closed was with a 
hospital that itself has closed or is closing, preference would be 
given to an applying hospital that was listed as a participant in the 
next most recent Medicare GME affiliation agreement or emergency 
Medicare GME affiliation agreement (but not one which was entered into 
more than 5 years prior to the hospital's closure) of which the first 
closed hospital was a member before the hospital closed, and that 
applying hospital received slots from the closed hospital under the 
terms of that affiliation agreement.
    We are making these changes to Ranking Criterion Two in the Section 
5506 Application Form.
    We are including below a revised Section 5506 Application Form that 
reflects all of the proposed changes discussed above.

[[Page 28162]]

CMS Application Form

As Part of the Application for the Increase in a Hospital's FTE Cap(s) 
under Section 5506 of the Affordable Care Act: Preservation of FTE Cap 
Slots from Teaching Hospitals that Close

Directions: Please fill out the information below for each residency 
program for which the applicant hospital intends to use the increase in 
its FTE cap(s). If the hospital is applying for slots for a particular 
program, but the requested slots in that program qualify under two 
different ranking criteria, submit two separate application forms 
accordingly. If the hospital is applying for slots associated with a 
Medicare GME affiliation agreement with a hospital that closed, that 
application must be submitted separately from an individual program 
request.

NAME OF HOSPITAL:------------------------------------------------------

MEDICARE PROVIDER NUMBER (CCN):----------------------------------------

NAME OF MEDICARE CONTRACTOR:-------------------------------------------

-----------------------------------------------------------------------
CORE-BASED STATISTICAL AREA (CBSA in which the hospital is physically 
located--write the 5 digit code here):---------------------------------

COUNTY NAME (in which the hospital is physically located):-------------

Complete the following, as applicable:

1. Name of Specialty Training Program:---------------------------------

2. Medicare GME Affiliated Group:--------------------------------------

(Check one): [ballot] Allopathic Program [ballot] Osteopathic Program
NUMBER OF FTE SLOTS REQUESTED FOR SPECIFIC PROGRAM (OR OVERALL IF 
SEEKING SLOTS ASSOCIATED WITH A MEDICARE GME AFFILIATED GROUP) AT YOUR 
HOSPITAL:
Direct GME:--------
IME:--------

Section A: Demonstrated Likelihood Criteria (DLC) of Filling the FTE 
Slots

    The applicant hospital must provide documentation to demonstrate 
the likelihood of filling requested slots under section 5506 within the 
3 academic years immediately following the application deadline to 
receive slots after a particular hospital closes. Please indicate the 
specific use for which you are requesting an increase in your 
hospital's FTE cap(s). If you are requesting an increase in the 
hospital's FTE cap(s) for a combination of DLC1, DLC2, or DLC3, you 
must complete a separate CMS Application Form for each DLC and specify 
the distinct criterion from the list below within each Form.

Demonstrated Likelihood Criterion 1: Establishing a New Residency 
Program

    The hospital does not have sufficient room under its direct GME FTE 
cap or IME FTE cap, or both, and will establish a new residency program 
in the specialty.
    Please indicate Y or N: As of the time of submitting this 
application, are you receiving a temporary cap adjustment for IME and/
or direct GME under 42 CFR 413.79(h) for residents displaced by the 
closure of the hospital subject to this Round of section 5506? (Y/N)--
------
    The hospital must check at least one of the following:
    Application for approval of the new residency program has been 
submitted to the ACGME, AOA or the ABMS (The hospital must attach a 
copy.)
    The hospital has submitted an institutional review document or 
program information form concerning the new program in an application 
for approval of the new program. (The hospital must attach a copy.)
    The hospital has received written correspondence from the ACGME, 
AOA or ABMS acknowledging receipt of the application for the new 
program, or other types of communication from the accrediting bodies 
concerning the new program approval process (such as notification of 
site visit). (The hospital must attach a copy.)
    The hospital has other documentation demonstrating that it has made 
a commitment to start a new program (The hospital must attach a copy.)

Demonstrated Likelihood Criterion 2: Taking Over All or Part of an 
Existing Residency Program from the Closed Hospital, or Expanding an 
Existing Residency Program

    The hospital does not have sufficient room under its direct GME FTE 
cap or IME FTE cap, or both, and (a) has permanently taken over the 
closed hospital's entire residency program, or (b) is permanently 
expanding its own previously established and approved residency program 
resulting from taking over part of a residency program from the closed 
hospital, or (c) is permanently expanding its own existing residency 
program.
    Please indicate Y or N: As of the time of submitting this 
application, are you receiving a temporary cap adjustment for IME and/
or direct GME under 42 CFR 413.79(h) for residents displaced by the 
closure of the hospital subject to this Round of section 5506? (Y/N) --
------
    The hospital must check at least one of the following:
    Application for approval to take over the closed hospital's 
residency program has been submitted to the ACGME, AOA, or the ABMS, or 
approval has been received from the ACGME, AOA, or the ABMS. (The 
hospital must attach a copy.)
    Application for approval of an expansion of the number of approved 
positions in its residency program resulting from taking over part of a 
residency program from the closed hospital has been submitted to the 
ACGME, AOA or the ABMS, or approval has been received from the ACGME, 
AOA, or the ABMS. (The hospital must attach a copy.)
    Application for approval of an expansion of the number of approved 
positions in its residency program has been submitted to the ACGME, AOA 
or the ABMS, or approval has been received from the ACGME, AOA, or the 
ABMS. (The hospital must attach a copy.)
    The hospital currently has unfilled positions in its residency 
program that have previously been approved by the ACGME, AOA, or the 
ABMS, and is now seeking to fill those positions. (The hospital must 
attach documentation clearly showing its current number of approved 
positions, and its current number of filled positions).
    The hospital has submitted an institutional review document or 
program information form concerning the program in an application for 
approval of an expansion to the program (The hospital must attach a 
copy).

Demonstrated Likelihood Criterion 3: Receiving Slots by Virtue of 
Medicare GME Affiliated Group Agreement or Emergency Medicare GME 
Affiliated Group Agreement With Closed Hospital

    The hospital was listed as a participant of a Medicare GME 
affiliated group on the most recent Medicare GME affiliation agreement 
or emergency Medicare GME affiliation agreement of which the closed 
hospital was a member before the hospital closed, and under the terms 
of that Medicare GME affiliation agreement or emergency Medicare GME 
affiliation agreement, the applying hospital received slots from the 
hospital that closed, and the applying hospital will use the additional 
slots to continue to train at least the number of FTE residents it had 
trained under the terms of the Medicare GME affiliation agreement or 
emergency Medicare GME affiliation agreement. If the most recent 
Medicare GME affiliation agreement or emergency Medicare

[[Page 28163]]

GME affiliation agreement of which the closed hospital was a member 
before the hospital closed was with a hospital that itself has closed 
or is closing, the applying hospital was listed as a participant in the 
next most recent Medicare GME affiliation agreement or emergency 
Medicare GME affiliation agreement (but not one which was entered into 
more than 5 years prior to the hospital's closure) of which the first 
closed hospital was a member before the hospital closed, and that 
applying hospital received slots from the closed hospital under the 
terms of that affiliation agreement. (Copies of EACH of the following 
must be attached.)
    Copies of the recent Medicare GME affiliation agreement (or 
emergency Medicare GME affiliation agreement) of which the applying 
hospital and the closed hospital were a member of before the hospital 
closed.
    Copies of the most recent accreditation letters for all of the 
hospital's training programs in which the hospital had a shared 
rotational arrangement (as defined at Sec.  413.75(b)) with the closed 
hospital.

Section B. Level Priority Category

    (Place an ``X'' in the appropriate box that is applicable to the 
level priority category that describes the applicant hospital.)
    First, to hospitals located in the same core-based statistical area 
(CBSA) as, or in a CBSA contiguous to, the hospital that closed.
    Second, to hospitals located in the same State as the closed 
hospital.
    Third, to hospitals located in the same region as the hospital that 
closed.
    Fourth, if the slots have not yet been fully distributed, to 
qualifying hospitals in accordance with the criteria established under 
section 5503, ``Distribution of Additional Residency Positions''

    Section C. Ranking Criteria

    (Place an ``X'' in the box for each criterion that is appropriate 
for the applicant hospital and for the program for which the increase 
in the FTE cap is requested.)
    [ballot] Ranking Criterion One. The applying hospital is requesting 
the increase in its FTE resident cap(s) because it is assuming (or 
assumed) an entire program (or programs) from the hospital that closed, 
and the applying hospital is continuing to operate the program(s) 
exactly as it had been operated by the hospital that closed (that is, 
same residents, possibly the same program director, and possibly the 
same (or many of the same) teaching staff). The applying hospital's FTE 
resident caps were erroneously reduced by CMS under section 
1886(h)(8)(A)(i) of the Act, contrary to the statutory exception at 
section 1886(h)(8)(A)(ii)(I) of the Act, and CMS Central Office was 
made aware of the error prior to posting of the FY 2015 IPPS proposed 
rule on the CMS Web site.
    Ranking Criterion Two. The applying hospital was listed as a 
participant of a Medicare GME affiliated group on the most recent 
Medicare GME affiliation agreement or emergency Medicare GME 
affiliation agreement of which the closed hospital was a member before 
the hospital closed, and under the terms of that Medicare GME 
affiliation agreement or emergency Medicare GME affiliation agreement, 
the applying hospital received slots from the hospital that closed, and 
the applying hospital will use the additional slots to continue to 
train at least the number of FTE residents it had trained under the 
terms of the Medicare GME affiliation agreement, or emergency Medicare 
GME affiliation agreement. If the most recent Medicare GME affiliation 
agreement or emergency Medicare GME affiliation agreement of which the 
closed hospital was a member before the hospital closed was with a 
hospital that itself has closed or is closing, preference would be 
given to an applying hospital that was listed as a participant in the 
next most recent Medicare GME affiliation agreement or emergency 
Medicare GME affiliation agreement (but not one which was entered into 
more than 5 years prior to the hospital's closure) of which the first 
closed hospital was a member before the hospital closed, and that 
applying hospital received slots from the closed hospital under the 
terms of that affiliation agreement.
    Ranking Criterion Three. The applying hospital took in residents 
displaced by the closure of the hospital, but is not assuming an entire 
program or programs, and will use the additional slots to continue 
training residents in the same programs as the displaced residents, 
even after those displaced residents complete their training (that is, 
the applying hospital is permanently expanding its own existing 
programs).
    Ranking Criterion Four. The program does not meet Ranking Criteria 
1, 2, or 3, and the applying hospital will use additional slots to 
establish a new or expand an existing geriatrics residency program.
    [ballot] Ranking Criterion Five: The program does not meet Ranking 
Criteria 1 through 4, the applying hospital is located in a HPSA, and 
will use all the additional slots to establish or expand a primary care 
or general surgery residency program.
    Ranking Criterion Six: The program does not meet Ranking Criteria 1 
through 5, and the applying hospital is not located in a HPSA, and will 
use all the additional slots to establish or expand a primary care or 
general surgery residency program.
    Ranking Criterion Seven: The applying hospital will use additional 
slots to establish or expand a primary care or general surgery program, 
but the program does not meet Ranking Criterion 5 or 6 because the 
hospital is also separately applying under Ranking Criterion 8 for 
slots to establish or expand a nonprimary care or non-general surgery 
program.
    Ranking Criterion Eight: The program does not meet Ranking Criteria 
1 through 7, and the applying hospital will use additional slots to 
establish or expand a nonprimary care or a nongeneral surgery program.

    Application Process and CMS Central Office Mailing Address for 
Receiving Increases in FTE Resident Caps

    In order for hospitals to be considered for increases in their FTE 
resident caps, each qualifying hospital must submit a timely 
application. The following information must be submitted on 
applications to receive an increase in FTE resident caps:
    [ssquf] The name and Medicare provider number, and Medicare 
contractor (to which the hospital submits its cost report) of the 
hospital.
    The total number of requested FTE resident slots for direct GME or 
IME, or both.
    A completed copy of the CMS Application Form for each residency 
program for which the hospital intends to use the requested increase in 
FTE residents.
    Source documentation to support the assertions made by the hospital 
on the CMS Application Form.
    FTE resident counts for direct GME and IME and FTE resident caps 
for direct GME and IME reported by the hospital in the most recent as-
filed cost report. Include copies of Worksheets E, Part A, and E-4.
    An attestation, signed and dated by an officer or administrator of 
the hospital who signs the hospital's Medicare cost report, with the 
following information:

``I hereby certify that I understand that misrepresentation or 
falsification of any information contained in this application may be 
punishable by criminal, civil, and administrative action, fine and/or 
imprisonment under

[[Page 28164]]

federal law. Furthermore, I understand that if services identified in 
this application were provided or procured through payment directly or 
indirectly of a kickback or were otherwise illegal, criminal, civil, 
and administrative action, fines and/or imprisonment may result. I also 
certify that, to the best of my knowledge and belief, it is a true, 
correct, and complete application prepared from the books and records 
of the hospital in accordance with applicable instructions, except as 
noted. I further certify that I am familiar with the laws and 
regulations regarding Medicare payment to hospitals for the training of 
interns and residents.''

CMS Central Office Mailing Address
Centers for Medicare & Medicaid Services (CMS)
Director, Division of Acute Care
7500 Security Boulevard
Mailstop C4-08-06
Baltimore, MD 21244-1850
6. Proposed Clarification and Policy Change Applicable To Direct GME 
Payments to Federally Qualified Health Centers (FQHCs) and Rural Health 
Clinics (RHCs) for Training Residents in Approved Programs
    Under section 1886(k) of the Act, and as implemented in the 
regulations at 42 CFR 405.2468(f), federally qualified health centers 
(FQHCs) and rural health clinics (RHCs) may receive payment for the 
costs of direct GME for training residents in an approved program under 
certain circumstances. Specifically, the regulations at Sec.  
405.2468(f)(1) state: ``Effective for that portion of cost reporting 
periods occurring on or after January 1, 1999, if an RHC or an FQHC 
incurs `all or substantially all' of the costs for the training program 
in the nonhospital setting as defined in Sec.  413.75(b) of this 
chapter, the RHC or FQHC may receive direct graduate medical education 
payment for those residents.'' We refer readers to the July 31, 1998 
final rule (63 FR 40986) for a detailed discussion of this longstanding 
policy. As noted earlier, the regulatory text of Sec.  405.2468(f)(1) 
incorporates the definition of ``all or substantially all of the costs 
for the training program in a nonhospital setting'' that is defined at 
Sec.  413.75(b), as part of a number of definitions applicable 
generally to hospital direct GME payments and those regulations at 
Sec.  413.76 through Sec.  413.83. Section 413.75(b) is based on the 
statutory provision at section 1886(h)(4)(E) of the Act, which 
establishes the requirements that hospitals must meet in order to 
receive direct GME payment for residents training in nonprovider 
settings.
    The statutory use of the phrase ``all or substantially all of the 
costs for the training program in that setting'' is located in section 
1886(h)(4)(E) of the Act, as added by section 9314 of the Omnibus 
Budget Reconciliation Act of 1986 (Pub. L. 99-509) (OBRA `86). For a 
detailed discussion of the implementation of section 9314 of OBRA `86, 
we refer readers to the September 29, 1989 final rule (54 FR 40292). 
Section 1886(h)(4)(E) of the Act, as added by OBRA '86, established the 
requirements that hospitals must meet in order to receive direct GME 
payment for residents training in nonprovider settings. However, 
section 5504(a) of the Affordable Care Act made changes to section 
1886(h)(4)(E) of the Act to reduce the costs that hospitals must incur 
for residents training in nonprovider sites in order to count the FTE 
residents for purposes of direct GME payments. In making these changes 
to section 1886(h)(4)(E) of the Act, section 5504(a) of the Affordable 
Care Act amended the Act prospectively, effective with ``cost reporting 
periods beginning on or after July 1, 2010'' for direct GME, by 
removing the phrase ``all or substantially all of the costs for the 
training program in that setting'' and instead permitting hospitals to 
count the time that residents train in activities related to patient 
care in a nonprovider site 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 effect, this amendment 
reduced the costs that hospitals must incur for residents training in 
nonprovider settings.
    Based on this statutory amendment, in the November 24, 2010 final 
rule with comment period (75 FR 72134), we revised the regulations at 
Sec.  412.105(f)(1)(ii)(E) for IME and Sec. Sec.  413.78(f) and (g) for 
direct GME to reflect the changes made by section 5504(a) of the 
Affordable Care Act. In addition, we revised the regulatory definition 
of ``all or substantially all of the costs for the training program in 
the nonhospital setting'' in order to implement the statutory amendment 
and apply the effective date as set forth in the statute to cost 
reporting periods beginning on or after July 1, 2010. Specifically, the 
regulations at Sec.  413.75(b), which define ``all or substantially all 
of the costs for the training program in the nonhospital setting'' were 
revised as follows:
    ``(1) Effective on or after January 1, 1999 and for cost reporting 
periods beginning before July 1, 2007, the residents' salaries and 
fringe benefits (including travel and lodging where applicable) and the 
portion of the cost of teaching physicians' salaries and fringe 
benefits attributable to direct graduate medical education (GME); and
    ``(2) Effective for cost reporting periods beginning on or after 
July 1, 2007 and before July 1, 2010, at least 90 percent of the total 
of the costs of the residents' salaries and fringe benefits (including 
travel and lodging where applicable) and the portion of the cost of 
teaching physicians' salaries attributable to nonpatient care direct 
GME activities.''
    Ultimately, with regard to the costs that hospitals must incur for 
residents training in nonprovider sites in order to count the FTE 
residents for purposes of direct GME payments, the phrase ``all or 
substantially all of the costs for the training program in the 
nonhospital setting'' no longer applies, effective for cost reporting 
periods beginning on and after July 1, 2010.
    In the November 24, 2010 final rule with comment period (75 FR 
72134), we amended the regulations applicable to direct GME payments to 
hospitals at Sec. Sec.  413.75(b) and 413.78(g) to reflect the changes 
made by section 5504(a) of the Affordable Care Act. However, at that 
time, we inadvertently did not make conforming changes to the 
regulations at Sec.  405.2468(f)(1) to clarify the requirements that 
FQHCs and RHCs must meet in order to receive direct GME payment for 
training residents in their facilities. Therefore, in compliance with 
our longstanding policy that FQHCs and RHCs must meet the same 
requirements applicable to teaching hospitals for direct GME payments 
with respect to training residents in nonprovider settings, in this 
proposed rule, we are providing clarification that, based on statutory 
amendments discussed earlier, the applicable policy cross-referenced in 
Sec.  405.2468(f)(1) has changed for cost reporting periods beginning 
on or after July 1, 2010. In addition, to ensure statutory and 
regulatory consistency, we are proposing to revise the regulations at 
Sec.  405.2468(f)(1) to add a sentence at the end of the paragraph as 
follows: ``However, in connection with cost reporting periods for which 
`all or substantially all of the costs for the training program in the 
nonhospital setting' is not defined in Sec.  413.75(b) of this chapter, 
if an RHC or an FQHC incurs the salaries and fringe benefits (including 
travel and lodging where applicable) of residents training at the RHC 
or FQHC, the RHC or FQHC may receive direct graduate medical education 
payment for those residents.''

[[Page 28165]]

L. 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 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 seven 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 Pub. L. 108-173, as added by section 3123(a) of the 
Affordable Care Act and further amended by section 10313 of such Act).
    In addition, the Affordable Care Act provides that, during the 5-
year extension period, the Secretary shall expand the number of States 
with low population densities determined by the Secretary to 20 
(section 410A(g)(2) of Pub. L. 108-173, as added by section 3123(a) and 
amended by section 10313 of the Affordable Care Act). Further, the 
Secretary is required to use the same criteria and data that the 
Secretary used to determine the States under section 410A(a)(2) of 
Public Law 108-173 for purposes of the initial 5-year period. The 
Affordable Care Act also allows not more than 30 rural community 
hospitals in such States to participate in the demonstration program 
during the 5-year extension period (section 410A(g)(3) of Pub. L. 108-
173, as added by section 3123(a) of the Affordable Care Act and as 
further amended by section 10313 of such Act).
    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 were 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. During CY 2013, one additional hospital among the 
set selected in 2011 withdrew from the demonstration, similarly citing 
a relative financial advantage to returning to the customary SCH 
payment methodology, which left 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

[[Page 28166]]

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 10 IPPS final regulations, spanning the period for 
which the demonstration program has been implemented, we have adjusted 
the national inpatient PPS rates by an amount sufficient to account for 
the added costs of this demonstration program, thus applying budget 
neutrality across the payment system as a whole rather than merely 
across the participants in the demonstration program. As we discussed 
in the FYs 2005 through 2014 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, 77 FR 53449, and 78 FR 50740, 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 
this FY 2015 IPPS/LTCH PPS proposed rule, we are proposing to continue 
to use the methodology we finalized in FY 2013 to calculate a budget 
neutrality adjustment factor to the FY 2015 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, 2013, and 
2014, 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 Pub. L. 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 in the FYs 
2011, 2012, and 2013 IPPS final rules 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

[[Page 28167]]

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 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.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50739 through 
50744), we determined the final budget neutrality offset amount to be 
applied to the FY 2014 IPPS rates to be $52,589,741. This amount was 
comprised of two distinct components: (1) the final resulting 
difference between the estimated reasonable cost amount to be paid 
under the demonstration to the 22 participating hospitals in FY 2014 
for covered inpatient hospital services and the estimated amount that 
would otherwise be paid to such hospitals in FY 2014 without the 
demonstration (this amount was $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 (this amount, 
$6,039,880, was 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).
2. Proposed FY 2015 Budget Neutrality Offset Amount
    For the reasons discussed in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53449 through 53453), we are proposing in this FY 2015 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 2015 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 2015 demonstration cost for the participating hospitals is 
as follows:
    Step 1: For each of the participating hospitals, we are proposing 
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 2012). 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 2012 are the most 
recent available cost reports, we believe they would be an accurate 
predictor of the costs of the demonstration in FY 2015 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 
are proposing 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 2012 reasonable cost amount for covered 
inpatient hospital services under the demonstration. As indicated 
above, we are proposing to use ``as submitted'' cost reports for the 
hospital's cost reporting period ending in CY 2012 for this 
calculation.
    We are proposing to sum the two above-referenced amounts to 
calculate the general total estimated FY 2012 reasonable cost amount 
for covered inpatient hospital services for all participating 
hospitals.
    We are proposing to multiply this sum (that is, the general total 
estimated FY 2012 reasonable cost amount for covered inpatient hospital 
services for all participating hospitals) by the FY 2013, FY 2014, and 
FY 2015 IPPS market basket percentage increases, which are formulated 
by the CMS Office of the Actuary. In this proposed rule, the current 
estimate of the FY 2015 IPPS market basket percentage increase provided 
by the CMS Office of the Actuary is specified in section IV.B.1. of the 
preamble of this proposed rule. We are proposing to use the final FY 
2015 IPPS market basket percentage increase in the final rule. We also 
are proposing to then multiply the product of the general total 
estimated FY 2012 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 FYs 2013 
through 2015--the result would be the general total estimated FY 2015 
reasonable cost amount for covered inpatient hospital services for all 
participating hospitals.
    We are proposing to apply the IPPS market basket percentage 
increases applicable for FYs 2013 through 2015 to the FY 2012 
reasonable cost amount described above to model the estimated FY 2015 
reasonable cost amount under the demonstration. We are proposing 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 is being 
proposed because it is intended to

[[Page 28168]]

accurately reflect the tendency of hospitals' inpatient caseloads to 
increase. We acknowledge the possibility that inpatient caseloads for 
small hospitals may fluctuate, and are proposing 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 are proposing 
to identify the general estimated amount that would otherwise be paid 
in FY 2012 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 2012) if the 
demonstration was not implemented. Similarly, as in Step 1, for the 
hospitals that provide swing-bed services, we are proposing 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 2012) and include it in the total FY 
2012 general estimated amount that would otherwise be paid for covered 
inpatient hospital services without the demonstration. We are proposing 
to sum these two amounts in order to calculate the estimated FY 2012 
total payments that generally would otherwise be paid for covered 
inpatient hospital services for all participating hospitals without the 
demonstration.
    We are proposing to multiply the above amount (that is, the 
estimated FY 2012 total payments that generally would otherwise be paid 
for covered inpatient hospital services for all participating hospitals 
without the demonstration) by the FYs 2013 through 2015 IPPS applicable 
percentage increases. In this proposed rule, the current estimate of 
the FY 2015 applicable percentage increase is specified in section 
IV.B. of this preamble. This methodology differs from Step 1, in which 
we are proposing to apply the market basket percentage increases to the 
sum of the hospitals' general total FY 2012 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. (We are proposing to use the final FY 2015 applicable 
percentage increase in the final rule.) Then we are proposing to 
multiply the product of the estimated FY 2012 total payments that 
generally would otherwise be made without the demonstration and the 
applicable IPPS percentage increases for the years involved by a 3-
percent annual volume adjustment for FYs 2013 through 2015. The result 
would be the general total estimated FY 2015 costs that would otherwise 
be paid without the demonstration for covered inpatient hospital 
services to the participating hospitals.
    Step 3: We are proposing 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 2015 if the demonstration were 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 2015). We are proposing that the resulting 
difference would be one component of the estimated amount for which an 
adjustment to the national IPPS rates would be calculated (as further 
discussed below).
    For this proposed rule, the resulting difference is $53,673,008. 
This estimated amount is based on the specific assumptions identified 
regarding the data sources used, that is, ``as submitted'' recently 
available cost reports. Also, we note that if updated data become 
available prior to the FY 2015 IPPS/LTCH PPS final rule, we would use 
them to the extent appropriate to estimate the costs of the 
demonstration program in FY 2015. Therefore, 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 are proposing 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. For this FY 2015 IPPS/LTCH PPS 
proposed rule, we have calculated the amount by which the actual costs 
of the demonstration in FY 2008 (that is, the costs of the 
demonstration for the 10 hospitals that participated in FY 2008, as 
shown in these hospitals' finalized cost reports for the cost report 
period beginning in that fiscal year), exceeded the budget neutrality 
offset amount that was finalized in the FY 2008 IPPS final rule. We 
have calculated this amount to be $10,389,771 for this proposed rule. 
However, we are noting that if updated data become available prior to 
the FY 2015 IPPS/LTCH PPS final rule, we would use them to the extent 
appropriate to determine this amount. Therefore, this amount might 
change in the final rule, depending on the availability of updated 
data. We also are currently working with the MACs that service the 
hospitals participating in the demonstration to obtain finalized cost 
reports for FYs 2009, 2010, and 2011. Similar to previous years, we are 
proposing that if settled cost reports for all of the demonstration 
hospitals that participated in an applicable year (FYs 2009, 2010, or 
2011) are available prior to the FY 2015 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 (FYs 2009, 2010, or 2011) exceed the budget neutrality offset 
amount applicable to such year as finalized in the respective year's 
IPPS final rule.
    Therefore, the total budget neutrality offset amount that we are 
proposing to be applied to the FY 2015 IPPS rates is $64,062,779. This 
is the sum of two separate components: (1) The difference between the 
total estimated FY 2015 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 2015 without the 
demonstration ($53,673,008); and (2) the amount by which the actual 
costs of the demonstration for FY 2008 (as shown in the finalized cost 
reports for cost reporting periods beginning in FY 2008 for the 
hospitals that participated in the demonstration during FY 2008) exceed 
the budget neutrality offset amount that was finalized in the FY 2008 
IPPS final rule ($10,389,771). We are proposing that the resulting 
total ($64,062,779) would be the amount for which an adjustment to the 
national IPPS rates would be calculated.

[[Page 28169]]

M. Requirement for Transparency of Hospital Charges Under the 
Affordable Care Act

1. Overview
    Hospitals determine their charges for items and services provided 
to patients. While Medicare does not pay billed charges, hospital 
reported charges are used in determining Medicare's national payment 
rates (for example, billed charges are adjusted to cost to determine 
how much to pay for one type of case relative to another). Although the 
Medicare payment amount for a discharge under the IPPS or a service 
furnished under the OPPS is not based directly on the hospital's 
charges for the individual services provided, we believe that hospital 
charges nevertheless remain an important component of our healthcare 
system. For example, hospital charges are often billed, in full, to 
uninsured patients who cannot benefit from discounts negotiated by 
insurance companies. Hospital charges also vary significantly by 
hospital, making it challenging for patients to compare the cost of 
similar services across hospitals.
    In 2013, we released data that demonstrated significant variation 
across the country and within communities in what hospitals charge for 
a number of common inpatient and outpatient services. These data also 
showed that hospital charges for services furnished in both the 
inpatient setting and the outpatient setting were, in general, 
significantly higher than the amount paid by Medicare under the IPPS or 
the OPPS. The data that we released are posted on the Web site at: 
https://www/cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Medicare-Provider-Charge-Data/index.html. Our intent 
in releasing these data was to enable the public to examine the 
relationship between the amounts charged by individual hospitals for 
comparable services and Medicare's payment for that inpatient or 
outpatient care. We believe that providing charge data comparisons is 
introducing both transparency and accountability to hospital pricing, 
and we are continuing to pursue opportunities to report on hospital 
charging practices.
2. Transparency Requirement Under the Affordable Care Act
    The Affordable Care Act contains a provision that is consistent 
with our effort to improve the transparency of hospital charges. As a 
result of the Affordable Care Act, section 2718(e) of the Public Health 
Service Act requires that ``[e]ach hospital operating within the United 
States shall for each year establish (and update) and make public (in 
accordance with guidelines developed by the Secretary) a list of the 
hospital's standard charges for items and services provided by the 
hospital, including for diagnosis-related groups established under 
section 1886(d)(4) of the Social Security Act.''
    In this proposed rule, we are reminding hospitals of their 
obligation to comply with the provisions of section 2718(e) of the 
Public Health Service Act. Hospitals are responsible for establishing 
their charges and are in the best position to determine the exact 
manner and method by which to make those charges available to the 
public. Therefore, we are providing hospitals with the flexibility to 
determine how they make a list of their standard charges public. Our 
guidelines for implementing section 2718(e) of the Public Health 
Service Act are that hospitals either make public a list of their 
standard charges (whether that be the chargemaster itself or in another 
form of their choice), or their policies for allowing the public to 
view a list of those charges in response to an inquiry. We encourage 
hospitals to undertake efforts to engage in consumer friendly 
communication of their charges to help patients understand what their 
potential financial liability might be for services they obtain at the 
hospital, and to enable patients to compare charges for similar 
services across hospitals. We expect that hospitals will update the 
information at least annually, or more often as appropriate, to reflect 
current charges.
    We are confident that hospital compliance with this statutory 
transparency requirement will greatly improve the public accessibility 
of charge information. As hospitals make data publicly available in 
compliance with section 2718(e) of the Public Health Service Act, we 
also will continue to review and post relevant charge data in a 
consumer friendly way, as we previously have done by posting on the CMS 
Web site the following hospital and physician charge information: May 
and June 2013 hospital charge data releases; 2013 physician data 
requests for information; and the April 2014 physician data releases 
and data provided on geographic variation in payments and payments per 
beneficiary.

N. Medicare Payment for Short Inpatient Hospital Stays

    Some members of the hospital community have expressed support for 
the general concept of an alternative payment methodology under the 
Medicare program for short inpatient hospital stays. We are interested 
in public comments on such a payment methodology, specifically how it 
might be designed. There are several issues of consideration that would 
inform how such a payment methodology would be devised. Below we 
outline some specific questions and considerations that we have 
identified as critical for developing such a methodology. This list of 
questions and considerations is not exhaustive, and we welcome 
additional questions, suggestions, and input from stakeholders.
     Defining short or low cost inpatient hospital stays:
    One issue would be how to define a short inpatient hospital stay 
for the purpose of determining the appropriate Medicare payment. For 
instance, would a short inpatient hospital stay be one where the 
average length of stay for the MS-DRG is short or would it be 
atypically short or low cost cases relative to other cases within same 
MS-DRG? There are significant differences in mean lengths of stay among 
MS-DRGs. (We refer readers to Table 5.--List of Proposed Medicare 
Severity Diagnosis-Related Groups (MS-DRGs), Relative Weighting 
Factors, and Geometric and Arithmetic Mean Length of Stay for this 
proposed rule, which is available via the Internet on the CMS Web 
site.) For example, many frequently billed MS-DRGs have historically 
had mean lengths of stay of approximately 2 days, such as MS-DRG 313 
(Chest Pain). Other MS-DRGs such as MS-DRG 871 (Septicemia or Severe 
Sepsis without Mechanical Ventilation 96+ hours with MCC) have had 
longer lengths of stay.
    If we adopted a policy that paid less for atypically low-cost or 
short-stay cases relative to the average case in the same MS-DRG, we 
believe such a policy is more likely to affect an MS-DRG like MS-DRG 
871 that has a longer average length of stay or higher average cost 
associated with the typical patient. Such a policy is less likely to 
apply to MS-DRG 313 because the typical case is already low cost or 
short stay.
     Determining appropriate payment for short inpatient 
hospital stays:
    Another issue would be how to determine the appropriate payment 
once a short stay has been identified. Some have suggested a per diem 
based payment amount, perhaps modelled on the existing transfer payment 
policy. Again, such a policy is far more likely to affect payment for 
an atypically short-stay or low-cost case in an MS-DRG with a longer 
average length of stay. For short-stay cases in an MS-DRG where the 
average length of stay for the MS-DRG is short, this methodology would

[[Page 28170]]

be unlikely to affect payment as the full IPPS payment would be made in 
1 or 2 days.
    For these types of short-stay cases, one relevant issue to address 
may be that payment for the same case will be very different under the 
OPPS and the IPPS depending upon whether the patient has been formally 
admitted to the hospital as an inpatient, pursuant to a physician 
order. Under what circumstances should the IPPS payment amount be 
limited to the OPPS payment amount and under what circumstances might 
it be appropriate for the payment amount to be higher? If it were 
appropriate for the payment amount to be higher, how would the amount 
of the additional payment be determined?
    We welcome input on these and other issues related to an 
alternative payment methodology under the Medicare program for short 
inpatient hospital stays.

O. Suggested Exceptions to the 2-Midnight Benchmark

    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50943 through 
50954), we discussed modifications and clarifications to CMS' 
longstanding policy on how Medicare contractors review inpatient 
hospital and CAH admissions for payment purposes. Under that final 
rule, we established a 2-midnight benchmark for determining the 
appropriateness of an inpatient hospital admission versus treatment on 
an outpatient basis. We provided in regulations at Sec.  412.3(e)(1) 
that, in addition to services designated as inpatient only, surgical 
procedures, diagnostic tests, and other treatments are generally 
appropriate for inpatient hospital admission and payment under Medicare 
Part A when the physician (1) expects the beneficiary to require a 
medically necessary hospital stay that crosses at least 2 midnights and 
(2) admits the beneficiary to the hospital based upon that expectation. 
The FY 2014 policy responded to both hospital calls for more guidance 
about when an inpatient admission and Part A payment are appropriate, 
and beneficiaries' concerns about increasingly long stays as 
outpatients due to hospital uncertainties about payment.
    In the FY 2014 IPPS/LTCH PPS final rule, at Sec.  412.3(e)(2), we 
recognized that 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. We also 
clarified, in both the final rule and subsequent subregulatory 
guidance, that the unforeseen circumstances specified at Sec.  
412.3(e)(2) are not all-inclusive and could also include additional 
circumstances such as unexpected clinical improvement, election of 
hospice care, or departure against medical advice.
    The FY 2014 IPPS/LTCH PPS final rule also indicated that there are 
exceptions to the 2-midnight benchmark. In other words, we expect there 
to be cases in which an admitting practitioner expects the 
beneficiary's length of stay to last less than 2 midnights and yet 
inpatient admission would still be appropriate. For example, we 
specified 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.
    In addition to procedures contained on the OPPS inpatient only 
list, we noted in the FY 2014 IPPS/LTCH PPS final rule that there may 
be other rare and unusual circumstances in which a hospital stay 
expected to last less than 2 midnights would nonetheless be appropriate 
for inpatient hospital admission and Part A payment. We indicated that 
we would explore other potential exceptions to the generally applicable 
benchmark and would detail any such rare and unusual circumstances in 
subregulatory guidance. As part of this process, throughout the year, 
we have accepted and considered suggestions from stakeholders on this 
topic.
    In January 2014, we identified medically necessary, newly initiated 
mechanical ventilation (excluding anticipated intubations related to 
minor surgical procedures or other treatment) as the first rare and 
unusual exception to the 2-midnight rule and announced it on the CMS 
Web site.
    We recognize that there could be additional rare and unusual 
circumstances that we have not identified that justify inpatient 
admission and Part A payment absent an expectation of care spanning at 
least 2 midnights and are inviting further feedback on this issue. 
Suggestions can be sent to CMS via written correspondence or emailed to 
[email protected] with ``Suggested Exceptions to the 2-
Midnight Benchmark'' in the subject line. We will continue to respond 
to these suggestions through subregulatory guidance, such as postings 
on the CMS Web site or manual instruction.

V. Proposed 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)

[[Page 28171]]

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 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. Proposed Annual Update for FY 2015

    The proposed annual update to the capital PPS Federal and Puerto 
Rico-specific rates, as provided for at Sec.  412.308(c), for FY 2015 
is discussed in section III. of the Addendum to this proposed rule.
    We note that, in section II.D. of the preamble of this proposed 
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 proposing for FY 
2015 in accordance with the amendments made to section 7(b)(1)(B) of 
Public Law 110-90 by section 631 of the ATRA. Because section 631 of 
the ATRA requires CMS to make a recoupment adjustment only to the 
operating IPPS standardized amount, we are not proposing 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 section II.D.7. of the preamble of this proposed rule, we also 
note our discussion in the FY 2014 IPPS/LTCH PPS final rule of the 
possibility of applying an additional prospective adjustment to account 
for the cumulative MS-DRG documentation and coding effect through FY 
2010. In that same final rule (78 FR 50515 through 50517 and 50747), we 
stated that 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. We did not apply an additional prospective adjustment in FY 
2014 for the cumulative MS-DRG documentation and coding effect through 
FY 2010, consistent with the approach taken for the operating IPPS 
standardized amount (and hospital-specific rates). We continue to 
believe that if we were to apply an additional prospective adjustment 
for the cumulative MS-DRG documentation and coding effect through FY 
2010, the most appropriate additional adjustment is -0.55 percent. 
However, we are not proposing such an adjustment to the capital Federal 
rate in FY 2015, consistent with the approach taken for the operating 
IPPS standardized amount (and hospital-specific rates) as discussed in 
section II.D.7. of the preamble of this proposed rule. We will consider 
whether such an adjustment to the capital IPPS Federal rate is 
appropriate in future years' rulemaking.

VI. Proposed Changes for Hospitals Excluded from the IPPS

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 
2015

    Certain hospitals excluded from a prospective payment system, 
including children's hospitals, 11 cancer hospitals, and hospitals 
located outside the 50 States, the District of Columbia, and Puerto 
Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa) receive payment for 
inpatient hospital services they furnish 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) is 
set for each hospital based on the hospital's own cost experience in 
its base year, and updated annually by a rate-of-increase percentage. 
For each cost reporting period, the updated target amount is multiplied 
by total Medicare discharges during that period and applies as an 
aggregate upper limit (the ceiling as defined in Sec.  413.40(a) of 
total inpatient operating costs for a hospital's cost reporting period. 
In accordance with Sec.  403.752(a) of the regulations, RNHCIs also are 
subject to the rate-of-increase limits established under Sec.  413.40 
of the regulations discussed above.
    As explained in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50747), 
beginning with FY 2006, we have used the percentage increase in the 
IPPS operating market basket to update the target amounts for 
children's hospitals, cancer hospitals, and RNHCIs. Consistent with 
Sec. Sec.  412.23(g), 413.40(a)(2)(ii)(A), and 413.40(c)(3)(viii), we 
also have used the percentage increase in the IPPS operating market 
basket to update the target amounts for short-term acute care hospitals 
located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, 
and American Samoa. For the reasons explained in the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50747), we are proposing to continue to use the 
percentage increase in the IPPS operating market basket to update the 
target amounts for children's hospitals, cancer hospitals, RNHCIs, and 
short-term acute care hospitals located in the U.S. Virgin Islands, 
Guam, the Northern

[[Page 28172]]

Mariana Islands, and American Samoa for FY 2015 and subsequent fiscal 
years.
    In addition, because we have revised and rebased the IPPS operating 
market basket to a FY 2010 base year, we are proposing to continue to 
use the percentage increase in the FY 2010-based IPPS operating market 
basket to update these target amounts for FY 2015 and subsequent fiscal 
years. (We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50596 through 50603) for a further discussion of the revision and 
rebasing of the IPPS operating market to a FY-2010 base year.) 
Accordingly, for FY 2015, the rate-of-increase percentage to be applied 
to the target amount for these children's hospitals, cancer hospitals, 
RNHCIs, and short-term acute care hospitals located in the U.S. Virgin 
Islands, Guam, the Northern Mariana Islands, and American Samoa would 
be the FY 2015 percentage increase in the FY 2010-based IPPS operating 
market basket.
    For this proposed rule, based on IHS Global Insight, Inc.'s 2014 
first quarter forecast, we estimated that the FY 2010-based IPPS 
operating market basket update for FY 2015 is 2.7 percent (that is, the 
estimate of the market basket rate-of-increase). We are proposing that 
if more recent data become available for the final rule, we would use 
them to calculate the IPPS operating market basket update for FY 2015.

B. Proposed Updates to the Reasonable Compensation Equivalent (RCE) 
Limits on Compensation for Physician Services Provided in Providers 
(Sec.  415.70)

1. Background
    Under section 1848 of the Act and 42 CFR Parts 414 and 415, medical 
or surgical services furnished by physicians to individual Medicare 
beneficiaries generally are billed and paid under Medicare Part B on a 
fee-for-service basis under the Medicare Physician Fee Schedule (MPFS). 
As required by section 1887(a)(2)(B) of the Act, the amount of 
allowable compensation for services furnished by physicians to 
providers that are paid by Medicare on a reasonable cost basis is 
subject to reasonable compensation equivalent (RCE) limits. Under these 
limits, Medicare recognizes as reasonable, for purposes of payment to 
the provider, the lower of the actual cost of the services furnished by 
the physician to the provider (that is, any form of compensation to the 
physician) or an RCE. The allowable compensation costs for physicians' 
services to a provider are described in Sec.  415.55 of the 
regulations. Under Sec.  415.60(a) of the regulations, for purposes of 
applying the RCE limits, ``physician compensation costs means monetary 
payments, fringe benefits, deferred compensation, and any other items 
of value (excluding office space and billing and collection services) 
that a provider or other organization furnishes a physician in return 
for the physician's services'' to the provider.
    On March 2, 1983, we published a final rule in the Federal Register 
that codified regulations to implement section 1887(a)(2)(B) of the Act 
(currently at 42 CFR 415.70) and established the first set of RCE 
limits (48 FR 8902). In accordance with Sec.  415.70(a)(2), RCE limits 
do not apply to the costs of physician compensation attributable to 
furnishing inpatient hospital services for which payment is made under 
the IPPS or to the costs of physician compensation attributable to 
approved GME programs that are payable under Sec. Sec.  413.75 through 
413.83 of the regulations. In addition, under Sec.  415.70(a)(3), 
compensation that a physician receives for activities that may not be 
paid for under either Medicare Part A or Part B is not considered in 
applying these RCE limits. Furthermore, in accordance with Sec.  
413.70, RCE limits are not used in determining the reasonable costs 
that CAHs incur in compensating physicians for services furnished to 
the CAH.
    The RCE limits apply equally to all physicians' services to 
providers that are payable on a reasonable cost basis under Medicare. 
If a physician receives any compensation from one or more providers for 
his or her services to the provider (that is, those services that 
benefit patients generally), payment to those providers for the costs 
of such compensation is subject to the RCE limits. The RCE limits are 
not applied to payment for services that are identifiable medical or 
surgical services to individual patients and paid under the MPFS, even 
if the physician agrees to accept compensation (for example, from a 
hospital) for those services. Payments to teaching hospitals that have 
elected to be paid for physicians' services to the provider on a 
reasonable cost basis in accordance with section 1861(b)(7) of the Act 
are subject to the limits (68 FR 45458).
2. Overview of the Current RCE Limits
a. Application of the RCE Limits
    Currently, we use the RCE limits to compute Medicare payments when 
a physician is compensated by a provider that is subject to the RCE 
limits. We also use these limits when the physician is compensated by 
any other provider-related organization for physician administrative, 
supervisory, and other services to the provider under Medicare. In 
applying the RCE limits, we compute the Medicare payments using 
information submitted on the cost report, and ensure that each 
compensated physician is assigned to the most appropriate specialty 
category. The current physician specialty categories for RCE limits are 
General/Family Practice, Internal Medicine, Surgery, Pediatrics, OB/
GYN, Radiology, Psychiatry, Anesthesiology, Pathology, and Total. If 
there is no specific specialty category (for example, for an emergency 
room physician), we use the ``Total'' category, for which the RCE 
limits are calculated based on mean annual income data for all 
physicians.
    If the physician's contractual compensation covers all duties, 
activities, and services furnished to the provider and, under a 
reassignment, all physicians' services furnished to individual patients 
of the provider, and the physician is employed by the provider full 
time, we use the RCE limit for the appropriate specialty, adjusted by 
the physician's allocation agreement (which reflects the percentage of 
total time spent performing services furnished to the provider) to 
arrive at the Medicare program's share of the provider's allowable 
physician compensation costs (Sec.  415.60). In the absence of an 
allocation agreement, we would assume that 100 percent of the 
compensation paid to the physician by the provider is related to 
physicians' services for which payment is made under the MPFS and that 
there are no allowable physician compensation costs to the provider 
(Sec.  415.60(f)(2)).
    If a physician's compensation from the provider represents payment 
only for services that benefit patients generally (that is, the 
physician bills for all services furnished to individual patients), we 
use the appropriate specialty RCE limit. If a physician is employed by 
a provider to furnish services of general benefit to patients on other 
than a full-time basis, the RCE limit will be adjusted to reflect the 
hours the physician actually worked, as reported on the provider's cost 
report, related to a full work year of 2,080 hours.
b. Exceptions to the RCE Limits
    Some providers such as small or rural hospitals may be unable to 
recruit or maintain an adequate number of physicians at a compensation 
level within the prescribed RCE limits. In accordance with section 
1887(a)(2)(C) of the Act and Sec.  415.70(e) of the regulations, if a 
provider can demonstrate to the MAC its inability to

[[Page 28173]]

recruit or maintain physicians at a compensation level allowable under 
the RCE limits (as documented, for example, by unsuccessful advertising 
through national medical or health care publications), the MAC may 
grant the provider an exception to the RCE limits established under 
these rules. Such exceptions would allow the provider to be paid based 
on costs for compensation higher than the RCE limit.
c. Methodology for Establishing the RCE Limits
    In the March 2, 1983 final rule with comment period (48 FR 8902), 
we published the initial RCE limits, along with the methodology used to 
calculate those limits, that were applicable to cost reporting periods 
beginning during CYs 1982 and 1983. As part of that same rule, we 
established regulations that outline our general authority to develop, 
publish, and apply RCE limits (currently at Sec.  415.70). Section 
415.70(b) of the regulations specifies that we establish the 
methodology for determining annual RCE limits, considering, to the 
extent possible, average physician incomes by specialty and type of 
location, using the best available data.
    The methodology for establishing the initial RCE limits was based 
on the analysis contained in an internal working paper, ``A Methodology 
for Determination of Reasonable FTE Compensation for Hospital-Based 
Physicians.'' \43\ (Copies of this working paper are available on the 
CMS Web site at: http://www.cms.gov/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.) As outlined in this working paper, our 
methodology for establishing the initial reasonable levels of 
compensation includes the following five steps (for additional 
discussion of this methodology, we refer readers to the March 2, 1983 
final rule with comment period (48 FR 8902)):
---------------------------------------------------------------------------

    \43\ Cantwell, James R. and Sobaski, William J., A Methodology 
for Determination of Reasonable FTE Compensation for Hospital-Based 
Physicians, Working Paper No. OR-32, revised December 1982.
---------------------------------------------------------------------------

    Step 1: We estimated the national average (mean) income for all 
physicians using 1979 physician net incomes from the American Medical 
Association (AMA) Periodic Survey of Physicians (PSP), published by the 
AMA in its Profile of Medical Practices, 1981.
    Step 2: We projected physicians' 1979 base net income levels to the 
appropriate future year to account for changes in net income levels 
occurring after the period for which we have data using the Consumer 
Price Index for All Urban Consumers (CPI-U), and projected the results 
using forecasts of the CPI-U for future years.
    Step 3: We determined the relationship between average net income 
for all physicians (estimated in the first step above) and net income 
of certain categories of specialist physicians that are commonly 
compensated by providers for services that generally benefit Medicare 
beneficiaries resulting in separate specialty adjusters for nine 
physician specialties as well as the adjuster for the ``Total'' 
category.
    Step 4: We also adjusted each of these specialty (including the 
``Total'') adjusters for differences in costs between types of 
geographic locations using Standard Metropolitan Statistical Areas 
(SMSAs) as defined by the Office of Management and Budget (OMB).
    Step 5: Using the AMA PSP data, we calculated the average hours 
practiced per year for each specialty and location adjuster 
combination, which we then related to a standard full-time equivalent 
(FTE) work year of 2,080 hours. We used these ratios to weight the 
specialty-location adjusters from the previous step.
    This same methodology was used to update the RCE limits published 
in a notice in the Federal Register on May 5, 1997 (62 FR 24483). These 
updated RCE limits were effective for cost reporting periods beginning 
on or after May 5, 1997.
    For RCE limits established prior to January 1, 1998, we used the 
CPI-U to update the RCE limits. In a final rule with comment period 
published in the Federal Register on October 31, 1997 (62 FR 59075), we 
finalized a policy to use the Medicare Economic Index (MEI) to update 
the RCE limits (rather than the CPI-U), effective for cost reporting 
periods beginning on or after January 1, 1998. We adopted the MEI as 
the applicable update factor in order to achieve a measure of 
consistency in the methodologies used to determine payments to 
physicians for medical and surgical services furnished to individual 
patients and reasonable compensation levels for services that are of 
general benefit to a provider's patients. However, we did not update 
the RCE limits at that time.
    In the FY 2004 IPPS final rule published in the Federal Register on 
August 1, 2003 (68 FR 45458), we published updated RCE limits that were 
effective for cost reporting periods beginning on or after January 1, 
2004. We updated the RCE limits using the CPI-U to adjust the data to 
1997, and the MEI to adjust the data from 1998 to 2004. In addition, we 
continued to adjust the RCE limits to account for differences in salary 
levels by location, as well as by specialty. For the location 
adjustment, we continued to base the geographical classifications of 
the providers on Metropolitan Statistical Areas (MSAs) (the OMB changed 
the area name to describe metropolitan areas in the 1980's from SMSAs 
to MSAs, but the definition of MSAs differed only slightly from the 
previously used SMSAs).
3. Proposed Changes to the RCE Limits
    In accordance with Sec.  415.70(b), when establishing the 
methodology to determine the RCE limits, we consider, to the extent 
possible, the average physician incomes by specialty and type of 
location using the best available data. Since the initial RCE limits 
were developed, we have adjusted the RCE data to account for specialty 
and location (as discussed earlier in this section). In this proposed 
rule, we are proposing to use the most recent MEI data to update the 
RCE limits and to replace the RCE limits that have been in effect since 
January 1, 2004. We believe that doing so will enhance the accuracy of 
the RCE limits. In addition, for the reasons discussed below, we are 
proposing to eliminate the location adjustment to the RCE data, while 
continuing to adjust the RCE limits by specialty. We are not proposing 
changes to any of the other existing policies with respect to the 
application of and exceptions to the RCE limits.
    In establishing the initial and subsequently updated RCE limits, we 
included an adjustment to account for differences in salary levels 
based on the location of the provider using geographic classifications 
based on the MSAs as defined by the OMB. We assigned an appropriate MSA 
designation based on the State/county in which the provider is located. 
We included a table in each of the previous RCE limit notices and 
rules, whereby each MSA designation was grouped into one of three 
categories: Metropolitan areas with a population greater than 1 
million, metropolitan areas with a population less than 1 million, and 
non-metropolitan areas. The MSA designation of the provider is then 
used to identify the appropriate RCE limit.
    To update the current RCE limits by location under the current 
methodology, we would need to use, as in past updates, the MSA 
designations that correspond with the update period. However, since 
2003, the OMB no longer updates or uses MSAs. We considered continuing 
to use the MSA designations, as we have in the past, but we would have 
no way to account for

[[Page 28174]]

shifts in populations among MSAs because the OMB no longer updates 
geographic classifications based on MSA designations. The OMB regularly 
updates the geographic definitions, and the counties included in each 
area, to account for population shifts due to migrations, birth, and 
death rates but currently the OMB uses Core-Based Statistical Area 
(CBSA) designations rather than MSAs. If we were to continue to use the 
MSA designation, providers could potentially be underpaid or overpaid 
if the population of their MSA changed significantly from 2004. 
Therefore, we determined that, because the MSA designations are no 
longer updated, it would not be appropriate to continue using the 
previous location adjustment methodology. The most recent geographic 
delineations used by the OMB are CBSAs, a term used to refer to both 
Metropolitan and Micropolitan Statistical Areas. However, CBSA 
delineations do not match the MSA definitions that were used to develop 
the initial and subsequently updated RCE limits. As noted above, we 
have used the AMA PSP data to develop previous and current RCE limits. 
The AMA PSP data were collected from 1970 to 1980 and included 
physicians' income, hours worked, and MSA-based population information. 
The data that have been used to develop and update the RCE limits were 
developed using MSAs as the geographic unit. It is not possible to 
exactly crosswalk the MSA designations to the CBSA designations in 
order to update the RCE limits using the current location adjustment 
methodology. Even if it was possible to crosswalk the MSAs to the 
CBSAs, it would not be appropriate to use the MSA-based AMA PSP data to 
develop CBSA-based RCE limits. There have been significant changes in 
the populations of the MSA-based locations contained in the AMA PSP 
data that could not be translated into CBSAs. As such, that data would 
no longer be valid as the basis to develop RCE limits based on CBSAs
    The OMB has cautioned users about using the new CBSA designations. 
For instance, in OMB's 2010 ``Standards for Delineating Metropolitan 
and Micropolitan Statistical Areas (CBSAs)'' published on June 28, 2010 
in the Federal Register (75 FR 37246), OMB states:
    ``OMB establishes and maintains these areas solely for statistical 
purposes. In reviewing and revising these areas, OMB does not take into 
account or attempt to anticipate any public or private sector 
nonstatistical uses that may be made of the delineations. These areas 
are not designed to serve as a general-purpose geographic framework 
applicable for nonstatistical activities or for use in program funding 
formulas.
    ``Furthermore, the Metropolitan and Micropolitan Statistical Area 
Standards do not produce an urban-rural classification, and confusion 
of these concepts can lead to difficulties in program implementation. 
Counties included in Metropolitan and Micropolitan Statistical Areas 
and many other counties may contain both urban and rural territory and 
populations. . . . OMB urges agencies, organizations, and policy makers 
to review carefully the goals of nonstatistical programs and policies 
to ensure that appropriate geographic entities are used to determine 
eligibility for the allocation of Federal funds.'' (Emphasis in 
original.)
    For CMS to accurately update the location-adjusted RCE limits using 
the CBSAs, we believe it would be necessary to use a new data source 
for information on physician salaries, specialties, location, and hours 
worked; and the data would need to be allocated to different geographic 
areas based on CBSAs. The AMA PSP collected data from a large sample of 
office-based physicians. We considered using data that are currently 
collected and publicly available. We could not find a reliable dataset 
that contained all of the necessary data elements needed to update the 
location-adjusted RCE limits based on CBSAs. The most reliable data we 
could find came from the Bureau of Labor Statistics (BLS) Occupational 
Employment Statistics (OES). The BLS OES data are collected annually, 
and capture a large and diverse population of physicians and 
corresponding CBSA. We believe the BLS OES data are the most current, 
reliable source of income data for physicians. Although, the BLS OES is 
very reliable and collects data points for physician specialties, 
salary, and location, it does not collect detailed information for all 
10 specialties; the ``Radiology'' and ``Pathology'' specialties are not 
separately captured. As such, we did not believe it was appropriate to 
use the BLS OES data to create an updated RCE limit if we would not 
have data available for two specialties.
    We also weighed the benefit of collecting updated information from 
physicians (through use of a new nationwide survey) in order to obtain 
the data necessary for application of an appropriate locality 
adjustment based on CBSAs against the burden placed on such physicians 
in providing such data. In order to have a dataset that could 
accurately capture all the necessary information, we would need to 
collect data from a large population of physicians, including a 
sufficient sample size for each physician specialty in each CBSA. We 
weighed the burden that such a nationwide survey would entail for all 
physicians, including office-based physicians, to be asked to respond 
to an in-depth survey regarding their salary, specialty, location, 
hours worked, and other practice information against the benefit of 
using updated, CBSA-based information to include a location adjustment 
for the providers that are subject to the RCE limits.
    When the RCE limits were developed in 1983, other than inpatient 
acute care hospitals paid under the IPPS, most provider types were 
reimbursed on a reasonable cost basis. Since then, providers such as 
skilled nursing facilities (SNFs), long-term care hospitals (LTCHs), 
inpatient rehabilitation facilities (IRFs), inpatient psychiatric 
facilities (IPFs), and home health agencies (HHAs) that previously were 
paid on a reasonable cost basis have transitioned to prospective 
payment systems and are no longer subject to the RCE limits. As of FY 
2011 (the most recent cost report year for which we have complete 
data), our data show that there were only 59 children's hospitals and 
cancer hospitals and 46 teaching hospitals (that have elected to be 
paid for physicians' services to the provider on a reasonable cost 
basis) that are subject to the RCE limits. As such, we believe the 
benefit that could be gained by gathering the new data that would be 
necessary to maintain a location adjustment for the RCE limits is 
outweighed by the burden of conducting such a comprehensive survey of 
physicians.
    Furthermore, we analyzed how the elimination of the location 
adjustment would affect the accuracy and appropriateness of the 
proposed RCE limits. To perform this analysis, we needed a reliable 
source of physician income data (without a location adjustment) which 
could be compared to the RCE limits without a location adjustment. We 
determined that the best available source of physician income data is 
the mean annual income data for similar RCE physician specialties 
collected by the BLS OES. As mentioned above, the BLS OES data are 
collected annually and capture a large and diverse population of 
physicians. These data are the most current, reliable source of income 
data by physician specialties. In addition, when comparing salaries, it 
is important to compare salary amounts that reflect the same number of 
hours worked per year. Because many physicians do not work

[[Page 28175]]

a 2,080 hour work year, their salary may seem higher or lower due to 
the number of hours actually worked. The RCE limits are based on 
physicians who worked a 2,080 hour work year. The BLS OES data also are 
based on a 2,080 hour work year; therefore, we believe that comparing 
the RCE limits to these BLS OES data is appropriate for purposes of our 
analysis.
    We performed an analysis comparing RCE limits for 2012, calculated 
without a location adjustment and solely for purposes of the analysis, 
to the most recently published (at the time of the analysis) BLS OES 
physician mean annual income data for the same year, to determine 
whether RCE limits based on the AMA PSP data, but without a location 
adjustment, would continue to reasonably reflect mean annual physician 
income data. For 2012, the BLS OES had income information for 8 of the 
10 RCE specialties, which include the ``Total'' category; the BLS OES 
data did not capture the ``Radiology'' and ``Pathology'' specialties. 
We searched for another reliable data source for ``Radiology'' and 
``Pathology'' but we could not find one with sufficient data elements 
to compare with the RCE limits. We used the MEI to update the RCE 
limits for these eight specialties to 2012 without including the 
location factor. We then compared these 2012 RCE limits to the 2012 BLS 
OES data for these same eight specialties. As shown in the table below, 
we found that the RCE limits ranged from 10.41 percent above the BLS 
OES mean annual income data to 3.58 percent below the BLS OES data. 
Only three of the eight specialties had RCE limits slightly less than 
the current BLS OES mean annual wages for their specialty. The 
remaining five specialties had RCE limits above the current BLS OES 
mean annual wages for the specialties.

                                                 Analysis Chart
----------------------------------------------------------------------------------------------------------------
                                                                    RCE limits     BLS OES mean
                            Specialty                               updated to      2012 annual       Percent
                                                                       2012*           wage         difference
----------------------------------------------------------------------------------------------------------------
Total...........................................................        $206,300        $184,820           10.41
General/Family Practice.........................................         174,600         180,850           -3.58
Internal Medicine...............................................         192,700         191,520            0.61
Surgery.........................................................         240,300         230,540            4.06
Pediatrics......................................................         165,500         167,640           -1.29
OB/GYN..........................................................         231,200         216,760            6.25
Radiology.......................................................         265,200             N/A             N/A
Psychiatry......................................................         176,800         177,520           -0.41
Anesthesiology..................................................         233,500         232,820            0.29
Pathology.......................................................         253,900             N/A             N/A
----------------------------------------------------------------------------------------------------------------
* These limits were calculated using the proposed methodology only for purposes of this impact analysis.

    The RCE amounts updated to 2012 and the BLS OES numbers for 2012 
varied only slightly, and in most cases, the RCE limit was higher than 
the BLS OES mean annual wage. Based on this analysis, we believe that 
RCE limits calculated using the AMA PSP data, and our proposed 
elimination of the location adjustment for the updated RCE limits, 
would result in RCE limits that are a reasonable reflection of mean 
annual physician income and would continue to ensure that providers 
subject to the RCE limits are paid in a fair and accurate manner.
    Because there are a relatively small number of providers currently 
affected by the RCE limits and because, as discussed above, we believe 
the revised RCE limits without a location adjustment would continue to 
ensure appropriate payment to such providers, we believe that 
eliminating the location adjustment would have a minimal overall effect 
on providers subject to the RCE limits and on the industry as a whole.
    For the reasons discussed above, we are proposing to eliminate the 
location adjustment under the RCE limit methodology, and to revise 
Sec.  415.70(b) of the regulations to remove consideration of the 
``type of location'' as part of the methodology used to establish RCE 
limits.
    Set forth below are the proposed updated RCE limits on the amount 
of allowable compensation for services furnished by physicians to 
providers for cost reporting periods beginning on or after January 1, 
2015. To calculate these proposed RCE limits, we used the same 
methodology that was used to calculate the original and previous 
updates to the RCE limits, but did not apply an adjustment based on 
geographical classification. As noted earlier, this methodology was 
derived from the 1982 working paper. We used the mean physician income 
by specialty from that working paper to calculate the RCE limits 
without adjusting for geographical classification. We then updated 
these data by the CPI-U (from 1982 to 1997) and then by the MEI (from 
1998 to 2015) to compute the proposed updated RCE limits. The proposed 
RCE limits effective for cost reporting periods beginning on or after 
January 1, 2015 are shown in the chart below.

                       Proposed CY 2015 RCE Limits
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total......................................................     $212,100
General/Family Practice....................................      179,500
Internal Medicine..........................................      198,100
Surgery....................................................      247,100
Pediatrics.................................................      170,200
OB/GYN.....................................................      237,800
Radiology..................................................      272,700
Psychiatry.................................................      181,800
Anesthesiology.............................................      240,100
Pathology..................................................      261,100
------------------------------------------------------------------------

    We are inviting public comments on our proposals to update the RCE 
limits and to eliminate the location adjustment for the RCE limits for 
cost reporting periods beginning on or after January 1, 2015. In 
addition, we are inviting public comments on our proposal to revise 
Sec.  415.70(b) of the regulations to eliminate consideration of the 
type of location as part of the methodology to establish RCE limits for 
cost reporting periods beginning on or after January 1, 2015.

C. Critical Access Hospitals (CAHs)

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),

[[Page 28176]]

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 govern the conditions of participation (CoPs) 
for CAHs under the statutory requirements of section 1820 are codified 
at 42 CFR Part 485, Subpart F.
2. Proposed Changes Related to Reclassification as Rural for CAHs
    Under section 1820(c)(2)(B)(i) of the Act, a facility is eligible 
for designation as a CAH only if it is located in a county or 
equivalent unit of local government in a rural area (as defined in 
section 1886(d)(2)(D) of the Act), or is being treated as being located 
in a rural area in accordance with section 1886(d)(8)(E) of the Act. 
The regulations implementing this location requirement are located at 
Sec.  485.610(b). The regulations governing the process for a facility 
located in an urban area to apply for reclassification as a rural 
facility under section 1886(d)(8)(E) of the Act are located at Sec.  
412.103.
    In this proposed rule, we are proposing to implement the most 
recently published OMB delineations (we refer readers to section III.B. 
of the preamble of this proposed rule for a discussion of the changes 
that were announced in OMB Bulletin No. 13-01). As previously stated, a 
facility must be located in a rural area in order to be eligible for 
designation as a CAH. Therefore, a new OMB delineation that 
redesignates an area from rural to urban, affects the status of a 
facility that is currently a CAH and had met the CAH location 
requirements prior to the new OMB delineation. A facility that is 
located in an urban area cannot remain a CAH unless it is reclassified 
as rural under Sec.  412.103 of the regulations. In both the FY 2005 
IPPS final rule (69 FR 49221 and 69 FR 60252) and the FY 2010 IPPS/LTCH 
PPS final rule (74 FR 43940), we amended the regulations at Sec.  
412.103(a) and Sec.  485.610(b) to provide for a transition period 
during which CAHs that had previously been located in rural areas but, 
as a result of new OMB delineations, were now located in urban areas, 
could reclassify as rural under Sec.  412.103. Specifically, in both 
the FY 2005 IPPS final rule and the FY 2010 IPPS/LTCH PPS final rule, 
we provided for a 2-year period during which a CAH located in an urban 
area as a result of the new OMB delineations could continue 
participating without interruption as a CAH, thereby allowing the CAH 
sufficient time to reclassify as rural under Sec.  412.103. If the 
facility did not reclassify as a rural facility by the end of that 2-
year period, the CAH would not be able to retain its CAH status beyond 
that 2-year period. However, under the FY 2005 IPPS final rule and the 
FY 2010 IPPS/LTCH PPS final rule, the application of the regulation was 
limited to October 1, 2004 through September 30, 2006, and October 1, 
2009 through September 30, 2011, respectively. As a result, in the 
absence of a new amendment to the regulations each time there are new 
OMB delineations, a CAH that becomes located in an urban area as a 
result of those OMB delineations would not be given 2 years to 
reclassify as rural under Sec.  412.103 of the regulations.
    In the FY 2010 IPPS/LTCH PPS final rule (74 FR 43940), we stated 
that we would consider whether it would be appropriate to propose, in 
future IPPS rulemaking, to revise Sec.  485.610 and Sec.  412.103 to 
provide for a transition period any time a CAH that was formerly 
located in a rural area is designated as being located in an urban area 
as a result of the redesignation of its county from rural to urban. 
After further consideration, we believe that it is appropriate to 
propose to change the regulations to provide for a transition period 
that is not restricted to a timeframe, but rather can be applied any 
time a facility that is currently designated as a CAH becomes located 
in an urban area as a result of a new OMB delineation.
    Therefore, we are proposing that, effective October 1, 2014, a CAH 
that was previously located in a rural area but is now located in an 
urban area as a result of a new OMB labor market area delineation will 
continue to be treated as rural for 2 years from the date the OMB 
delineation is implemented. Accordingly, if the OMB delineations 
announced in OMB Bulletin No. 13-01 on February 28, 2013 discussed in 
section III.B. of the preamble of this proposed rule are implemented in 
the FY 2015 IPPS/LTCH PPS final rule, effective October 1, 2014, any 
CAH affected by the new OMB delineations in OMB Bulletin No. 13-01 
would retain its rural status through September 30, 2016. An affected 
CAH would be required to reclassify as a rural facility under Sec.  
412.103 within that 2-year period in order to continue participating in 
the Medicare program as a CAH after the 2-year transition period ends. 
Therefore, taking into consideration the example above, any CAH 
affected by a new OMB delineation that is implemented in the FY 2015 
IPPS/LTCH PPS final rule would be required to reclassify as rural by 
September 30, 2016, in order to retain its CAH status after September 
30, 2016.
    To implement this proposed change, we are proposing to revise Sec.  
412.103 by adding a new paragraph (a)(6), and to revise Sec.  485.610 
by making a conforming change to the introductory text of paragraph (b) 
and adding a new paragraph (b)(5) to provide for a 2-year transition 
period that will apply any time a new OMB delineation causes a facility 
that was previously located in a rural area and is designated as a CAH 
to be located in an urban area. We believe that this proposal to revise 
the regulations to automatically provide for a 2-year transition period 
following the implementation of new OMB delineations is more efficient 
than providing for a regulatory change limited to a timeframe, and, as 
a result, will be more effective in reducing any disruption caused by 
new OMB delineations.
3. Proposed Revision of the Requirements for Physician Certification of 
CAH Inpatient Services
    For inpatient CAH services to be payable under Medicare Part A, 
section 1814(a)(8) of the Act requires that a physician certify ``that 
the individual may reasonably be expected to be discharged or 
transferred to a hospital within 96 hours after admission to the 
critical access hospital.'' The regulations implementing this statutory 
requirement are located at 42 CFR 424.15.
    Prior to FY 2014, this physician certification was required no 
later than 1 day before the date on which the claim for payment for the 
inpatient CAH service is submitted. In the FY 2014 IPPS/LTCH PPS final 
rule, we revised the CAH regulations concerning the timing requirements 
for certification of inpatient CAH services. Specifically, we revised 
Sec.  424.15(b) to state: ``Certification begins with the order for 
inpatient admission. The certification must be completed, signed, and 
documented in the medical record prior to discharge'' (78 FR 50970). 
This change was effective October 1, 2013.
    However, in order to provide CAHs with greater flexibility in 
meeting this certification requirement, we are now proposing to amend 
the regulations governing the timing of the 96-hour certification 
requirement at Sec.  424.15(b) such that physician certification is 
required no later than 1 day before the date on which the claim for 
payment for the inpatient CAH service is submitted. That is, we are 
proposing to remove the requirement that certification of the 96-

[[Page 28177]]

hour requirement must be completed prior to discharge and are proposing 
to reinstate the timing requirement that was in place prior to October 
1, 2013.
    We are proposing to revise Sec.  424.15(b) to remove the phrase 
``prior to discharge'' and replace it with ``no later than 1 day before 
the date on which the claim for payment for the inpatient CAH service 
is submitted''. In addition, we are proposing to make a conforming 
amendment to Sec.  424.11(d)(5). Section 424.11(d)(5) states ``[f]or 
all inpatient hospital or critical access hospital inpatient services, 
including inpatient psychiatric facility services, a delayed 
certification may not extend past discharge.'' Because we are proposing 
to change the timing requirement for physician certification of CAH 
inpatient services at Sec.  424.15(b), such that the certification 
could be completed past discharge, we are proposing to revise Sec.  
424.11(d)(5) to remove the phrase ``or critical access hospital 
inpatient''. We are seeking public comment on these proposed changes to 
the regulations governing the requirement for physician certification 
of CAH inpatient services.

VII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2015

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 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 VII. of the preamble of this 
proposed rule, 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 2014 rulemaking cycle. In 
addition, in this proposed rule, we discuss the provisions of the 
Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), enacted on 
December 26, 2013, that affect the LTCH PPS. In section VII.I.2. of the 
preamble of this proposed rule, we discuss the provisions of section 
1206(a) of Public Law 113-67, which amended section 1886(m) of the Act 
by adding paragraph (6) and established, among other things, patient-
level criteria for payments under the LTCH PPS for implementation

[[Page 28178]]

beginning with FY 2016. In section VII.E. of the preamble of this 
proposed rule, we discuss the provisions of section 1206(b)(1) of 
Public Law 113-67, which provide for the retroactive reinstatement and 
extension, for an additional 4 years, of the moratorium on the full 
implementation of the 25-percent threshold payment adjustment policy 
(except for ``grandfathered'' hospitals-within-hospitals (HwHs), which 
are permanently exempt from this policy). In section VII.G. of the 
preamble of this proposed rule, we discuss the provisions of section 
1206(b)(2) of Public Law 113-67 (as amended by section 112(b) of the 
Protecting Access to Medicare Act (Pub. L. 113-93), which, subject to 
certain defined exceptions, provide for statutory moratoria on the 
establishment of new LTCHs and LTCH satellite facilities and a new 
statutory moratorium on the increase in the number of hospital beds in 
LTCHs or LTCH satellite facilities for the period beginning April 1, 
2014 and ending September 30, 2017. In section IX.C. of the preamble of 
this proposed rule, we discuss the provisions of section 1206(c) of 
Public Law 113-67, which amended the LTCH Quality Reporting Program 
established under section 1886(m)(5) of the Act by requiring the 
Secretary to establish a functional status quality measure to evaluate 
the in mobility among inpatients requiring ventilator support no later 
than October 1, 2015. In section VII.H. of the preamble of this 
proposed rule, we discuss the findings of a review of payments to 
certain LTCHs (that is, LTCHs classified under subclause (II) of 
section 1886(d)(1)(B)(iv) of the Act) that was conducted in accordance 
with section 1206(d) of Public Law 113-67, and propose to apply a 
payment adjustment under the LTCH PPS to ``subclause (II)'' LTCHs 
beginning in FY 2015 that would result in payments to this type of LTCH 
resembling payments under the reasonable cost TEFRA payment system 
model.
2. Criteria for Classification as an LTCH
a. Classification as an LTCH
    Under the regulations at Sec.  412.23(e)(1), to qualify to be paid 
under the LTCH PPS, a hospital must have a provider agreement with 
Medicare. Furthermore, Sec.  412.23(e)(2)(i), which implements section 
1886(d)(1)(B)(iv)(I) of the Act, requires that a hospital have an 
average Medicare inpatient length of stay of greater than 25 days to be 
paid under the LTCH PPS. 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, 
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 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).
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 under 45 CFR Parts 160 and 162 (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.
    The Department of Health and Human Services has a number of 
initiatives designed to encourage and support the adoption of health 
information technology and promote nationwide health information 
exchange to improve health care. The Office of the National Coordinator 
for Health Information Technology (ONC) leads these efforts in 
collaboration with other agencies, including CMS and the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE). Through a 
number of activities, including several open government initiatives, 
HHS is promoting the adoption of electronic health record (EHR) 
technology certified under the ONC Health Information Technology (HIT) 
Certification Program developed to support secure, interoperable, 
health information exchange. While certified EHR technology is not yet 
available for LTCHs and other types of providers that are not eligible 
for the Medicare and Medicaid EHR Incentive Programs, ONC has requested 
the HIT Policy Committee (a Federal Advisory Committee) to explore the 
expansion of EHR

[[Page 28179]]

certification under the ONC HIT Certification Program, focusing on EHR 
certification criteria needed for long-term and postacute care 
(including LTCHs) and behavioral health care providers. ONC has issued 
a proposed rule concerning a voluntary 2015 Edition of EHR 
certification criteria that would more easily accommodate HIT 
certification for health care settings where individual or 
institutional health care providers are not typically eligible to 
qualify for meaningful use incentive payments under Medicare or 
Medicaid, such as behavioral health or long-term postacute care 
settings. We believe that the use of certified EHRs by LTCHs (and other 
types of providers that are ineligible for the Medicare and Medicaid 
EHR Incentive Programs) can effectively and efficiently help providers 
improve internal care delivery practices, support the exchange of 
important information across care partners and during transitions of 
care, and could enable the reporting of electronically specified 
clinical quality measures (eCQMs) (as described elsewhere in this 
rule). More information on the proposed rule concerning a voluntary 
2015 Edition of EHR certification criteria, identification of EHR 
certification criteria and development of standards applicable to LTCHs 
can be found at:
     http://www.healthit.gov/policy-researchers-implementers/standards-and-certification-regulations;
     http://www.healthit.gov/facas/FACAS/health-it-policy-committee/hitpc-workgroups/certificationadoption;
     http://wiki.siframework.org/LCC+LTPAC+Care+Transition+SWG; 
and
     http://wiki.siframework.org/Longitudinal+Coordination+of+Care.

B. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group 
(MS-LTC-DRG) Classifications and Relative Weights for FY 2015

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. There are currently 751 MS-DRG 
groupings. If we finalize the proposed changes to the MS-DRG groupings 
described in section II.G. of this preamble, there would be a total of 
753 MS-DRG groupings for FY 2015. 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 proposed MS-
LTC-DRG relative weights.
    In a departure from the IPPS, and as discussed in greater detail 
below in section VII.B.3.f. of this preamble, we are proposing to 
continue to use proposed low-volume MS-LTC-DRGs (that is, proposed MS-
LTC-DRGs with less than 25 LTCH cases) in determining the proposed 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 proposed relative weights for the large number of 
proposed low-volume MS-LTC-DRGs, we are proposing to 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 
are proposing to account for adjustments to payments for short-stay 
outlier (SSO) cases (that is, cases where the covered length of stay at 
the LTCH is less than or equal to five-sixths of the geometric average 
length of stay for the MS-LTC-DRG). Furthermore, we are proposing to 
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 proposed relative weights 
should increase monotonically with severity from the lowest to highest 
severity level. (We discuss nonmonotonicity in greater detail and our 
proposed methodology to adjust the proposed MS-LTC-DRG relative weights 
to account for nonmonotonically increasing proposed relative weights in 
section VII.B.3.g. (Step 6) of this preamble.)

[[Page 28180]]

2. Patient Classifications into MS-LTC-DRGs
a. Background
    The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under 
the LTCH PPS) are based on the CMS DRG structure. As noted above in 
this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs 
although they are structurally identical to the MS-DRGs used under the 
IPPS.
    The MS-DRGs are organized into 25 major diagnostic categories 
(MDCs), most of which are based on a particular organ system of the 
body; the remainder involve multiple organ systems (such as MDC 22, 
Burns). Within most MDCs, cases are then divided into surgical DRGs and 
medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy 
that orders operating room (O.R.) procedures or groups of O.R. 
procedures by resource intensity. The GROUPER software program does not 
recognize all ICD-9-CM procedure codes as procedures affecting DRG 
assignment. That is, procedures that are not surgical (for example, 
EKGs), or minor surgical procedures (for example, a 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.13. of the 
preamble of this proposed rule for additional information on the annual 
revisions to the ICD-9-CM codes.)
    Providers use the code sets under the ICD-9-CM coding system to 
report diagnoses and procedures for Medicare hospital inpatient 
services under the MS-DRG system. We have been discussing the 
conversion to the ICD-10 coding system for many years. We refer readers 
to section II.G.1. of the preamble of this proposed rule for additional 
information on the implementation of the ICD-10 coding system.
    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 administrative contractors (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. Proposed Changes to the MS-LTC-DRGs for FY 2015
    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, we are proposing to update the MS-LTC-DRG classifications 
effective October 1, 2014, through September 30, 2015 (FY 2015) 
consistent with the proposed changes to

[[Page 28181]]

specific MS-DRG classifications presented in section II.G. of this 
preamble (that is, proposed GROUPER Version 32.0). Therefore, the 
proposed MS-LTC-DRGs for FY 2015 presented in this proposed rule are 
the same as the proposed MS-DRGs that are being proposed for use under 
the IPPS for FY 2015. In addition, because the proposed MS-LTC-DRGs for 
FY 2015 are the same as the proposed MS-DRGs for FY 2015, the other 
proposed changes that affect MS-DRG (and by extension MS-LTC-DRG) 
assignments under proposed GROUPER Version 32.0 as discussed in section 
II.G. of the preamble of this proposed rule, including the proposed 
changes to the MCE software and the ICD-9-CM coding system, also are 
applicable under the LTCH PPS for FY 2015.
3. Development of the Proposed FY 2015 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. Proposed Development of the MS-LTC-DRG Relative Weights for FY 2015
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50755 through 
50760), we presented our policies for the development of the MS-LTC-DRG 
relative weights for FY 2014. The basic methodology we used to develop 
the FY 2014 MS-LTC-DRG relative weights was the same as the methodology 
we used to develop the FY 2013 MS-LTC-DRG relative weights in the FY 
2013 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 this FY 
2015 IPPS/LTCH PPS proposed rule, we are proposing to continue to apply 
our established methodology to develop the FY 2015 MS-LTC-DRG relative 
weights for FY 2015, 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 are 
proposing to continue to use to determine the MS-LTC-DRG relative 
weights for FY 2015, which is consistent with the methodology presented 
in the FY 2014 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), we are 
proposing to 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 proposing to continue 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 2015 are based on the FY 2014 MS-LTC-DRG classifications 
and relative weights established in Table 11 listed in section VI. of 
the Addendum to the FY 2014 IPPS/LTCH PPS final rule (78 FR 51002). 
(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 final rule (78 FR 50755), 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 finalized Version 31.0 of the GROUPER 
to classify LTCH cases. Consistent with our historical practice, to 
calculate the proposed MS-LTC-DRG relative weights for FY 2015 in this 
proposed rule, we are proposing to obtain total charges from the FY 
2013 Medicare LTCH bill data from the December 2013 update of the FY 
2013 MedPAR file, which are the best available data at this time, and 
to use Version 32.0 of the GROUPER to classify LTCH cases.
    In this FY 2015 IPPS/LTCH PPS proposed rule and consistent with our 
historical methodology, we are proposing to exclude 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 are proposing 
to exclude Medicare Advantage (Part C) claims, which are now included 
in the MedPAR files, in the calculations for the proposed relative 
weights under the LTCH PPS that are used to determine payments for 
Medicare fee-for-service claims. Specifically, we are proposing not to 
use any claims from the MedPAR files that have a GHO Paid indicator 
value of ``1,'' which effectively removes Medicare Advantage claims 
from the proposed relative weight calculations. Accordingly, in the 
development of the proposed FY 2015 MS-LTC-DRG relative weights in this 
proposed rule, we excluded the data of 12 all-inclusive rate providers 
and one LTCH that is

[[Page 28182]]

paid in accordance with demonstration projects that had claims in the 
December 2013 update of the FY 2013 MedPAR file, as well as any 
Medicare Advantage claims.
d. Hospital-Specific Relative Value (HSRV) Methodology
    By nature, LTCHs often specialize in certain areas, such as 
ventilator-dependent patients and 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. In this 
proposed rule, 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 are proposing to continue 
to use a hospital-specific relative value (HSRV) methodology to 
calculate the proposed MS-LTC-DRG relative weights for FY 2015. 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 proposed MS-LTC-DRG relative weight by 
converting each LTCH's charge for a case to a relative value based on 
that LTCH's average charge.
    Under the HSRV methodology, we standardize charges for each LTCH by 
converting its charges for each case to hospital-specific relative 
charge values and then adjusting those values for the LTCH's case-mix. 
The adjustment for case-mix is needed to rescale the hospital-specific 
relative charge values (which, by definition, average 1.0 for each 
LTCH). The average relative weight for a LTCH is its case-mix, so it is 
reasonable to scale each LTCH's average relative charge value by its 
case-mix. In this way, each LTCH's relative charge 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 are proposing to 
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 VII.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 Proposed MS-LTC-DRG 
Relative Weights
    For purposes of determining the proposed 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. Proposed MS-LTC-DRGs with at least 25 cases are each assigned a 
unique proposed relative weight; proposed low-volume MS-LTC-DRGs (that 
is, proposed 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 proposed relative weight of the quintile. 
Proposed no-volume MS-LTC-DRGs (that is, no cases in the given year's 
claims data are assigned to those proposed MS-LTC-DRGs) are cross-
walked to other proposed MS-LTC-DRGs based on the clinical similarities 
and assigned the proposed relative weight of the cross-walked MS-LTC-
DRG (as described in greater detail below). In this proposed rule, we 
are proposing to continue to utilize these same three categories of MS-
LTC-DRGs for purposes of the treatment of severity levels in 
determining the proposed MS-LTC-DRG relative weights for FY 2015. (We 
provide in-depth discussions of our policy regarding weight-setting for 
proposed low-volume MS-LTC-DRGs in section VII.B.3.f. of the preamble 
of this proposed rule and for proposed no-volume MS-LTC-DRGs, under 
Step 5 in section VII.B.3.g. of the preamble of this proposed rule.)
    Furthermore, in determining the proposed FY 2015 MS-LTC-DRG 
relative weights, when necessary, we are proposing to make adjustments 
to account for nonmonotonicity, as discussed in greater detail below in 
Step 6 of section VII.B.3.g. of this preamble. We refer readers to the 
discussion in the FY 2010 IPPS/RY 2010 LTCH PPS final rule for our 
rationale for including an adjustment for nonmonotonicity (74 FR 43953 
through 43954).
f. Proposed Low-Volume MS-LTC-DRGs
    In order to account for proposed MS-LTC-DRGs with low volume (that 
is, with fewer than 25 LTCH cases), consistent with our existing 
methodology for purposes of determining the proposed FY 2015 MS-LTC-DRG 
relative weights, we are proposing to continue to employ the quintile 
methodology for proposed low-volume MS-LTC-DRGs, such that we group the 
proposed ``low-volume MS-LTC-DRGs'' (that is, proposed 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 proposed FY 2015 MS-LTC-DRG 
relative weights in this proposed rule, in cases where the initial 
assignment of a proposed low-volume MS-LTC-DRG to a quintile results in 
nonmonotonicity within a base-DRG, in order to ensure appropriate 
Medicare payments, consistent with our historical methodology, we are 
proposing to make adjustments to the treatment of proposed low-volume 
MS-LTC-DRGs to preserve monotonicity, as discussed in detail below in 
section VII.B.3.g. (Step 6) of the preamble of this proposed rule.
    In this proposed rule, using LTCH cases from the December 2013 
update of the FY 2013 MedPAR file (which is currently the best 
available data), we identified 297 proposed MS-LTC-DRGs that contained 
between 1 and 24 cases. This list of proposed MS-LTC-DRGs was then 
divided into one of the 5 low-

[[Page 28183]]

volume quintiles, each containing 59 proposed MS-LTC-DRGs (297/5 = 59 
with two proposed MS-LTC-DRGs as the remainder). We are proposing to 
assign a proposed low-volume MS-LTC-DRG to a specific low-volume 
quintile by sorting the proposed low-volume MS-LTC-DRGs in ascending 
order by average charge in accordance with our established methodology. 
Based on the data available for this proposed rule, the number of 
proposed MS-LTC-DRGs with less than 25 cases is not evenly divisible by 
5. Therefore, consistent with our historical approach, we are proposing 
to use the average charge of the low-volume quintile to determine which 
of the low-volume quintiles contain the additional proposed low-volume 
MS-LTC-DRG. Specifically for this proposed rule, after organizing the 
proposed MS-LTC-DRGs by ascending order by average charge, we are 
proposing to assign the first fifth (1st through 59th) of proposed low-
volume MS-LTC-DRGs (with the lowest average charge) into proposed 
Quintile 1. The proposed MS-LTC-DRGs with the highest average charge 
cases were assigned into proposed Quintile 5. Because the average 
charge of the 119th proposed low-volume MS-LTC-DRG in the sorted list 
was closer to the average charge of the 118th proposed low-volume MS-
LTC-DRG (assigned to proposed Quintile 2) than to the average charge of 
the 120th proposed low-volume MS-LTC-DRG (assigned to proposed Quintile 
2), we are proposing to assign it to proposed Quintile 2 (such that 
proposed Quintile 2 contains 60 proposed low-volume MS- LTC-DRGs before 
any adjustments for nonmonotonicity, as discussed below). This resulted 
in 3 of the 5 proposed low-volume quintiles containing 59 proposed MS-
LTC-DRGs (proposed Quintiles 1, 3, and 4) and two proposed low-volume 
quintiles containing 60 proposed MS-LTC-DRGs (Quintiles 2 and 5). Table 
13A, which is listed in section VI. of the Addendum to this proposed 
rule and is available via the Internet, lists the proposed composition 
of the low-volume quintiles for proposed MS-LTC-DRGs for FY 2015.
    Accordingly, in order to determine the proposed FY 2015 relative 
weights for the proposed MS-LTC-DRGs with low volume, we are proposing 
to use the five proposed low-volume quintiles described above. We 
determined a proposed relative weight and (geometric) average length of 
stay for each of the five proposed low-volume quintiles using the 
methodology that we are proposing to apply to the proposed MS-LTC-DRGs 
(25 or more cases), as described below in section VII.B.3.g. of the 
preamble of this proposed rule. We are proposing to assign the same 
proposed relative weight and average length of stay to each of the 
proposed low-volume MS-LTC-DRGs that make up an individual proposed 
low-volume quintile. We note that, as this system is dynamic, it is 
possible that the number and specific type of proposed 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 proposed low-volume 
quintiles to ensure that our proposed quintile assignments used in 
determining the proposed 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 Proposed FY 2015 MS-LTC-DRG Relative 
Weights
    In this proposed rule, we are proposing to determine the proposed 
FY 2015 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 
proposed FY 2015 MS-LTC-DRG relative weights, we are proposing to group 
LTCH cases to the appropriate proposed MS-LTC-DRG, while taking into 
account the proposed low-volume quintile (as described above). After 
grouping the cases to the appropriate proposed MS-LTC-DRG (or proposed 
low-volume quintile), we are proposing to calculate the FY 2015 
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 are 
proposing to adjust the number of cases in each proposed MS-LTC-DRG (or 
proposed 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 proposed MS-LTC-DRG 
(or proposed low-volume quintile) using the HSRV method.
    Below we discuss in detail the steps for calculating the proposed 
FY 2015 MS-LTC-DRG relative weights. We note that, as we discussed in 
section VII.B.3.c. of the preamble of this proposed rule, 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 
December 2013 update of the FY 2013 MedPAR file.
    Step 1--Remove statistical outliers.
    The first step in the calculation of the proposed FY 2015 MS-LTC-
DRG relative weights is to remove statistical outlier cases. Consistent 
with our historical relative weight methodology, we are proposing to 
continue to define statistical outliers as cases that are outside of 
3.0 standard deviations from the mean of the log distribution of both 
charges per case and the charges per day for each proposed MS-LTC-DRG. 
These statistical outliers are removed prior to calculating the 
proposed relative weights because we believe that they may represent 
aberrations in the data that distort the measure of average resource 
use. Including those LTCH cases in the calculation of the proposed 
relative weights could result in an inaccurate proposed relative weight 
that does not truly reflect relative resource use among the proposed 
MS-LTC-DRGs. (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 proposed MS-LTC-DRG relative weights reflect the average of 
resources used on representative cases of a specific type. Generally, 
cases with a length of stay of 7 days or less do not belong in a LTCH 
because these stays do not fully receive or benefit from treatment that 
is typical in a LTCH stay, and full resources are often not used in the 
earlier stages of admission to a LTCH. If we were to include stays of 7 
days or less in the computation of the proposed FY 2015 MS-LTC-DRG 
relative weights, the value of many proposed relative weights would 
decrease and, therefore, payments would decrease to a level that may no 
longer be appropriate. We do not believe that it would be appropriate 
to compromise the integrity of the payment determination for those LTCH 
cases that actually benefit from and receive a full course of treatment 
at a LTCH by including data from these very short stays. Therefore, 
consistent with our historical relative weight methodology, in 
determining the proposed FY 2015 MS-LTC-DRG relative weights, we are 
proposing to remove LTCH cases with a length of stay of 7 days or less. 
(For additional

[[Page 28184]]

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 proposed FY 
2015 MS-LTC-DRG relative weights, consistent with our historical 
relative weight methodology, we are proposing to adjust each LTCH's 
charges per discharge for those remaining cases for the effects of SSOs 
(as defined in Sec.  412.529(a) in conjunction with Sec.  412.503).
    In this proposed rule, we are proposing to make 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 
proposed 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 proposed MS-LTC-DRG. 
This process produces the same result as if the actual charges per 
discharge of an SSO case were adjusted to what they would have been had 
the patient's length of stay been equal to the average length of stay 
of the MS-LTC-DRG.
    Counting SSO cases as full discharges with no adjustment in 
determining the proposed FY 2015 MS-LTC-DRG relative weights would 
lower the proposed FY 2015 MS-LTC-DRG relative weight for affected 
proposed MS-LTC-DRGs because the relatively lower charges of the SSO 
cases would bring down the average charge for all cases within a 
proposed MS-LTC-DRG. This would result in an ``underpayment'' for non-
SSO cases and an ``overpayment'' for SSO cases. Therefore, we are 
proposing to adjust 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 proposed FY 2015 MS-LTC-DRG relative weights 
on an iterative basis.
    Consistent with our historical relative weight methodology, we are 
proposing to calculate the proposed FY 2015 MS-LTC-DRG relative weights 
using the HSRV methodology, which is an iterative process. First, for 
each LTCH case, we are proposing to calculate 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 proposed MS-LTC-DRG, we calculated the proposed FY 2015 
relative weight by dividing the average of the adjusted hospital-
specific relative charge values (from above) for the proposed MS-LTC-
DRG by the overall average hospital-specific relative charge value 
across all cases for all LTCHs. Using these recalculated proposed MS-
LTC-DRG relative weights, each LTCH's average relative weight for all 
of its cases (that is, its case-mix) was calculated by dividing the sum 
of all the LTCH's proposed 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 proposed MS-LTC-DRG relative 
weights across all LTCHs. This iterative process was continued until 
there was convergence between the relative weights produced at adjacent 
steps, for example, when the maximum difference was less than 0.0001.
    Step 5--Determine a proposed FY 2015 relative weight for proposed 
MS-LTC-DRGs with no LTCH cases.
    As we stated above, we determined the proposed FY 2015 relative 
weight for each proposed MS-LTC-DRG using total Medicare allowable 
total charges reported in the best available LTCH claims data (that is, 
the December 2013 update of the FY 2013 MedPAR file for this proposed 
rule). Using these data, we identified the proposed 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 2013 and, therefore, no charge data were available for 
these proposed MS-LTC-DRGs. Therefore, in the process of determining 
the proposed MS-LTC-DRG relative weights, we were unable to calculate 
proposed relative weights for the proposed MS-LTC-DRGs with no LTCH 
cases using the methodology described in Steps 1 through 4 above. 
However, because patients with a number of the diagnoses under these 
proposed MS-LTC-DRGs may be treated at LTCHs, consistent with our 
historical methodology, we are proposing to assign a proposed relative 
weight to each of the proposed no-volume MS-LTC-DRGs based on clinical 
similarity and relative costliness (with the exception of proposed 
``transplant'' MS-LTC-DRGs and proposed ``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 proposed FY 2015 relative weights for the 
proposed MS-LTC-DRGs with no LTCH cases in the December 2013 update of 
the FY 2013 MedPAR file used in this proposed rule (that is, proposed 
``no-volume'' MS-LTC-DRGs) by cross-walking each proposed no-volume MS-
LTC-DRG to another proposed MS-LTC-DRG with a calculated proposed 
relative weight (determined in accordance with the methodology 
described above). Then, the proposed ``no-volume'' MS-LTC-DRG was 
assigned the same proposed relative weight (and average length of stay) 
of the proposed MS-LTC-DRG to which it was cross-walked (as described 
in greater detail below).
    Of the 753 proposed MS-LTC-DRGs for FY 2015, we identified 237 
proposed MS-LTC-DRGs for which there are no LTCH cases in the database 
(including the 8 proposed ``transplant'' MS-LTC-DRGs and 2 proposed 
``error'' MS-LTC-DRGs). As stated above, we are proposing to assign 
proposed relative weights for each of the 237 proposed no-volume MS-
LTC-DRGs (with the exception of the 8 proposed ``transplant'' MS-LTC-
DRGs and the 2 proposed ``error'' MS-LTC-DRGs, which are discussed 
below) based on clinical similarity and relative costliness to one of 
the remaining 516 (753 - 237 = 516) proposed MS-LTC-DRGs for which we 
were able to determine proposed relative weights based on FY 2013 LTCH 
claims data using the steps described above. (For the remainder of this 
discussion, we refer to the proposed ``cross-walked'' MS-LTC-DRGs as 
the proposed MS-LTC-DRGs to which we cross-walked one of the 237 
proposed ``no volume'' MS-LTC-DRGs, with the exception of the 8 
proposed ``transplant'' MS-LTC-DRGs and the 2 proposed ``error'' MS-
LTC-DRGs, for purposes of determining a proposed relative weight.) 
Then, we are proposing to assign the proposed no-volume MS-LTC-DRG the 
proposed relative weight of the proposed cross-walked MS-LTC-DRG. (As 
explained below in Step 6, when necessary, we are proposing to make 
adjustments to account for nonmonotonicity.)

[[Page 28185]]

    For this proposed rule, we cross-walked the proposed no-volume MS-
LTC-DRG to a proposed MS-LTC-DRG for which there were LTCH cases in the 
December 2013 update of the FY 2013 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 proposed MS-LTC-DRG to which a proposed no-volume MS-LTC-DRG 
was cross-walked in order to assign an appropriate proposed relative 
weight for the proposed no-volume MS-LTC-DRGs in FY 2015. (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 proposed no-volume MS-LTC-DRGs in FY 2015, the 
proposed relative weights assigned based on the proposed 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 proposed relative weight of the proposed 
cross-walked MS-LTC-DRG as the proposed relative weight for the 
proposed no-volume MS-LTC-DRG such that both of these proposed MS-LTC-
DRGs (that is, the proposed no-volume MS-LTC-DRG and the proposed 
cross-walked MS-LTC-DRG) have the same proposed relative weight for FY 
2015. We note that if the proposed cross-walked MS-LTC-DRG had 25 cases 
or more, its proposed relative weight, which was calculated using the 
methodology described in Steps 1 through 4 above, was assigned to the 
proposed no-volume MS-LTC-DRG as well. Similarly, if the proposed MS-
LTC-DRG to which the proposed no-volume MS-LTC-DRG was cross-walked had 
24 or less cases and, therefore, was designated to one of the proposed 
low-volume quintiles for purposes of determining the proposed relative 
weights, we assigned the proposed relative weight of the applicable 
proposed low-volume quintile to the proposed no-volume MS-LTC-DRG such 
that both of these proposed MS-LTC-DRGs (that is, the proposed no-
volume MS-LTC-DRG and the proposed cross-walked MS-LTC-DRG) have the 
same proposed relative weight for FY 2015. (As we noted above, in the 
infrequent case where nonmonotonicity involving a proposed no-volume 
MS-LTC-DRG resulted, additional adjustments as described in Step 6 were 
required in order to maintain monotonically increasing proposed 
relative weights.)
    For this proposed rule, a list of the proposed no-volume MS-LTC-
DRGs and the proposed MS-LTC-DRGs to which each was cross-walked (that 
is, the proposed cross-walked MS-LTC-DRGs) for FY 2015 is shown in 
Table 13B, which is listed in section VI. of the Addendum to this 
proposed rule and is available via the Internet.
    To illustrate this methodology for determining the proposed 
relative weights for the proposed FY 2015 MS-LTC-DRGs with no LTCH 
cases, we are providing the following example, which refers to the 
proposed no-volume MS-LTC-DRGs crosswalk information for FY 2015 
provided in Table 13B.
    Example: There were no cases in the FY 2013 MedPAR file used for 
this proposed rule for proposed MS-LTC-DRG 61 (Acute Ischemic Stroke 
with Use of Thrombolytic Agent with MCC). We determined that proposed 
MS-LTC-DRG 70 (Nonspecific Cerebrovascular Disorders with MCC) was 
similar clinically and based on resource use to proposed MS-LTC-DRG 61. 
Therefore, we assigned the same proposed relative weight of proposed 
MS-LTC-DRG 70 of 0.8657 for FY 2015 to proposed MS-LTC-DRG 61 (obtained 
from Table 11, which is listed in section VI. of the Addendum to this 
proposed rule and is available via the Internet).
    Again, we note that, as this system is dynamic, it is entirely 
possible that the number of proposed MS-LTC-DRGs with no volume of LTCH 
cases based on the system will vary in the future. We used the most 
recent available claims data in the MedPAR file to identify proposed 
no-volume MS-LTC-DRGs and to determine the proposed relative weights in 
this proposed rule.
    Furthermore, for FY 2015, consistent with our historical relative 
weight methodology, we are proposing to establish a relative weight of 
0.0000 for the following proposed transplant MS-LTC-DRGs: Heart 
Transplant or Implant of Heart Assist System with MCC (proposed MS-LTC-
DRG 1); Heart Transplant or Implant of Heart Assist System without MCC 
(proposed MS-LTC-DRG 2); Liver Transplant with MCC or Intestinal 
Transplant (proposed MS-LTC-DRG 5); Liver Transplant without MCC 
(proposed MS-LTC-DRG 6); Lung Transplant (proposed MS-LTC-DRG 7); 
Simultaneous Pancreas/Kidney Transplant (proposed MS-LTC-DRG 8); 
Pancreas Transplant (proposed MS-LTC-DRG 10); and Kidney Transplant 
(proposed 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 
proposed transplant MS-LTC-DRGs in the proposed GROUPER program for 
administrative purposes only. Because we use the same proposed GROUPER 
program for LTCHs as is used under the IPPS, removing these proposed 
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 proposed FY 2015 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, proposed relative weights should increase by severity, from 
lowest to highest. If the proposed relative weights decrease as 
severity

[[Page 28186]]

increases (that is, if within a base proposed MS-LTC-DRG, a proposed 
MS-LTC-DRG with CC has a higher proposed relative weight than one with 
MCC, or the proposed MS-LTC-DRG ``without CC/MCC'' has a higher 
proposed relative weight than either of the others), they are 
nonmonotonic. We continue to believe that utilizing nonmonotonic 
proposed 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 proposed 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 
proposed MS-LTC-DRG (which are generally expected to have lower 
resource use and costs). Consequently, in determining the proposed FY 
2015 MS-LTC-DRG relative weights in this proposed rule, consistent with 
our historical methodology, we are proposing to combine MS-LTC-DRG 
severity levels within a base proposed MS-LTC-DRG for the purpose of 
computing a proposed 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 proposed FY 2015 MS-LTC-DRG relative weights in this 
proposed rule by applying this methodology are denoted in Table 11, 
which is listed in section VI. of the Addendum to this proposed rule 
and is available via the Internet.
    Step 7-- Calculate the proposed FY 2015 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 estimated aggregate payments under 
the LTCH PPS would not be affected (that is, decreased or increased). 
Consistent with that provision, we are proposing to update the MS-LTC-
DRG classifications and relative weights for FY 2015 based on the most 
recent available LTCH data, and apply a budget neutrality adjustment in 
determining the proposed FY 2015 MS-LTC-DRG relative weights.
    To ensure budget neutrality in the update to the MS-LTC-DRG 
classifications and relative weights under Sec.  412.517(b), we are 
proposing to continue to use our established two-step budget neutrality 
methodology. In this proposed rule, in the first step of our proposed 
MS-LTC-DRG budget neutrality methodology, for FY 2015, we are proposing 
to calculate and apply a normalization factor to the recalibrated 
proposed relative weights (the result of Steps 1 through 6 above) to 
ensure that estimated payments were not affected by changes in the 
composition of case types or the changes to the classification system. 
That is, the proposed normalization adjustment is intended to ensure 
that the recalibration of the proposed MS-LTC-DRG relative weights 
(that is, the process itself) neither increases nor decreases the 
average CMI.
    To calculate the proposed normalization factor for FY 2015 (the 
first step of our proposed budget neutrality methodology), we are 
proposing to use the following three steps: (1.a.) we use the most 
recent available LTCH claims data (FY 2013) and group them using the 
proposed FY 2015 GROUPER (Version 32.0) and the recalibrated proposed 
FY 2015 MS-LTC-DRG relative weights (determined in Steps 1 through 6 of 
the Steps for Determining the Proposed FY 2015 MS-LTC-DRG Relative 
Weights above) to calculate the average CMI; (1.b.) we group the same 
LTCH claims data (FY 2013) using the FY 2014 GROUPER (Version 31.0) and 
FY 2014 MS-LTC-DRG relative weights and calculated the average CMI; and 
(1.c.) we compute the ratio of these average CMIs by dividing the 
average CMI for FY 2014 (determined in Step 1.b.) by the average CMI 
for FY 2015 (determined in Step 1.a.). In determining the proposed MS-
LTC-DRG relative weights for FY 2015, each recalibrated proposed MS-
LTC-DRG relative weight was multiplied by 1.12619 (determined in Step 
1.c.) in the first step of the proposed budget neutrality methodology, 
which produced proposed ``normalized relative weights.''
    In the second step of our proposed MS-LTC-DRG budget neutrality 
methodology, we are proposing to determine 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 proposed FY 2015 MS-LTC-DRG classifications 
and relative weights) are equal to estimated aggregate LTCH PPS 
payments before reclassification and recalibration (that is, the FY 
2014 MS-LTC-DRG classifications and relative weights). Accordingly, 
consistent with our existing methodology, we are proposing to use FY 
2013 discharge data to simulate payments and compared estimated 
aggregate LTCH PPS payments using the FY 2014 MS-LTC-DRGs and relative 
weights to estimate aggregate LTCH PPS payments using the proposed FY 
2015 MS-LTC-DRGs and relative weights. Specifically, for this proposed 
rule, as discussed previously in section VII.B.3.c. of this preamble, 
we are proposing to use LTCH claims data from the December 2013 update 
of the FY 2013 MedPAR file, as these are the best available data at 
this time.
    For this proposed rule, we are proposing to determine the proposed 
FY 2015 budget neutrality adjustment factor using the following three 
steps: (2.a.) we simulate estimated total LTCH PPS payments using the 
proposed normalized relative weights for FY 2015 and proposed GROUPER 
Version 32.0 (as described above); (2.b.) we simulate estimated total 
LTCH PPS payments using the FY 2014 GROUPER (Version 31.0) and the FY 
2014 MS-LTC-DRG relative weights in Table 11 of the Addendum to the FY 
2014 IPPS/LTCH PPS final rule available on the Internet (78 FR 51002); 
and (2.c.) we calculate the ratio of these estimated total LTCH PPS 
payments by dividing the estimated total LTCH PPS payments using the FY 
2014 GROUPER (Version 31.0) and the FY 2014 MS-LTC-DRG relative weights 
(determined in Step 2.b.) by the estimated total LTCH PPS payments 
using the proposed FY 2015 GROUPER (Version 32.0) and the proposed 
normalized MS-LTC-DRG relative weights for FY 2015 (determined in Step 
2.a.). In determining the proposed FY 2015 MS-LTC-DRG relative weights, 
each proposed normalized relative weight was multiplied by a proposed 
budget neutrality factor of 0.995275 (determined in Step 2.c.) in the 
second step of the proposed budget neutrality methodology to determine 
the proposed

[[Page 28187]]

budget neutral FY 2015 relative weight for each proposed MS-LTC-DRG.
    Accordingly, in determining the proposed FY 2015 MS-LTC-DRG 
relative weights in this proposed rule, consistent with our existing 
methodology, we are proposing to apply a proposed normalization factor 
of 1.12619 and a proposed budget neutrality factor of 0.995275 
(computed as described above). Table 11, which is listed in section VI. 
of the Addendum to this proposed rule and is available via the 
Internet, lists the proposed MS-LTC-DRGs and their respective proposed 
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 2015 (and 
reflect both the proposed normalization factor of 1.12619 and the 
proposed budget neutrality factor of 0.995275).

C. Proposed LTCH PPS Payment Rates for FY 2015

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 are proposing to use to 
update the LTCH PPS standard Federal rate for FY 2015, that is, 
effective for LTCH discharges occurring on or after October 1, 2014 
through September 30, 2015.
    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); 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53479 through 53481); and FY 
2014 IPPS/LTCH PPS final rule (78 FR 50760 through 50765).
    The proposed update to the LTCH PPS standard Federal rate for FY 
2015 is presented in section V.A. of the Addendum to this proposed 
rule. The components of the proposed annual market basket update to the 
LTCH PPS standard Federal rate for FY 2015 are discussed below, 
including the reduction to the annual update for LTCHs that fail to 
submit quality reporting data for fiscal year FY 2015 as required by 
the statute (as discussed below in section VII.C.2.c. of the preamble 
of this proposed rule). Furthermore, as discussed below in section 
VII.C.3. of the preamble of this proposed rule, for FY 2015, in 
addition to the proposed update factor, under the final year of the 3-
year phase-in under the current regulations at Sec.  412.523(d)(3), we 
are proposing to make a one-time prospective adjustment to the standard 
Federal rate for FY 2015 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 proposed rule, we are proposing to make an 
adjustment to the standard Federal rate to account for the estimated 
effect of the changes to the area wage level adjustment for FY 2015 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 
under section VII.C.2.c. of the preamble of this proposed rule, the 
proposed application of the one-time prospective adjustment under the 
final year of the 3-year phase-in under section VII.C.3. of this 
preamble, and the proposed budget neutrality adjustment for changes in 
the area wage levels under section V.A. of the Addendum of this 
proposed rule.)
2. Proposed FY 2015 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 VII.C.2.b. of the 
preamble of this proposed rule.) 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. Proposed 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

[[Page 28188]]

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 2015, we are proposing to continue to use our methodology 
for calculating and applying the proposed MFP adjustment to determine 
the annual update to the LTCH PPS standard Federal rate for FY 2015. 
(For details on the development of the proposed 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. Proposed 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 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. For additional information on the history of the 
LTCHQR Program, including the statutory authority and the selected 
measures, we refer readers to section IX.C. of the preamble of this 
proposed rule.
2. Proposed 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, 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, is 
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, is further reduced by 2.0 percentage points 
for LTCHs that fail to submit quality reporting data under the LTCHQR 
Program. 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 is codified under Sec.  
412.523(c)(4) of the regulations.
    Specifically, consistent with section 1886(m)(5)(A)(i) of the Act, 
under Sec.  412.523(c)(4)(i), 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. In addition, consistent with section 
1886(m)(5)(A)(ii) of the Act, Sec.  412.523(c)(4)(ii) specifies 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 
will 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), 
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 discuss the application of the 2.0 percentage point reduction 
under Sec.  412.523(c)(4)(i) in our discussion of the proposed annual 
market basket update to the LTCH PPS standard Federal rate for FY 2015 
below in section VII.C.2.e. of the preamble of this proposed rule.
d. Proposed Market Basket Under the LTCH PPS for FY 2015
    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 2015, we are proposing to continue to use the FY 2009-based 
LTCH-specific market basket to update

[[Page 28189]]

the LTCH PPS for FY 2015. 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. Proposed Annual Market Basket Update for LTCHs for FY 2015
    Consistent with our historical practice, we are proposing to 
estimate the market basket update and the proposed MFP adjustment based 
on IGI's forecast using the most recent available data. Based on IGI's 
first quarter 2014 forecast, the proposed FY 2015 full market basket 
estimate for the LTCH PPS using the FY 2009-based LTCH-specific market 
basket is 2.7 percent. Using our established methodology for 
determining the MFP adjustment, the current estimate of the proposed 
MFP adjustment for FY 2015 based on IGI's first quarter 2014 forecast 
is 0.4 percent, as discussed in section IV.B. of the preamble of this 
proposed rule. In addition, consistent with our historical practice of 
using the best available data, we are proposing that if more recent 
data is available, we would use such data to estimate the market basket 
update and the MFP adjustment for FY 2015 in the final rule.
    For FY 2015, 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, we are 
proposing to reduce the full FY 2015 market basket update by the 
proposed FY 2015 MFP adjustment. To determine the market basket update 
for LTCHs for FY 2015, as reduced by the MFP adjustment, consistent 
with our established methodology, we are proposing to subtract the 
proposed FY 2015 MFP adjustment from the proposed FY 2015 market basket 
update. Furthermore, sections 1886(m)(3)(A)(ii) and 1886(m)(4)(E) of 
the Act requires that any annual update to the standard Federal rate 
for FY 2015 be reduced by the ``other adjustment'' described in 
paragraph (4), which is 0.2 percentage point for FY 2015. Therefore, 
following application of the proposed productivity adjustment, we are 
proposing to reduce the adjusted market basket update (that is, the 
proposed full market basket increase less the proposed 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 VII.C.2.c. of the preamble of 
this proposed rule, for FY 2015, 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 
proposed update to the LTCH PPS standard Federal rate for FY 2015 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, would also be further reduced by 2.0 percentage 
points.
    In this proposed rule, in accordance with the statute, we are 
proposing to reduce the proposed FY 2015 full market basket estimate of 
2.7 percent (based on IGI's first quarter 2014 forecast of the FY 2009-
based LTCH-specific market basket) by the proposed FY 2015 MFP 
adjustment (that is, the 10-year moving average of MFP for the period 
ending FY 2015, as described in section IV.B. of the preamble of this 
proposed rule) of 0.4 percentage point (based on IGI's first quarter 
2014 forecast). Following application of the proposed productivity 
adjustment, the adjusted market basket update of 2.3 percent (2.7 
percent minus 0.4 percentage point) would then be reduced by 0.2 
percentage point, as required by sections 1886(m)(3)(A)(ii) and 
1886(m)(4)(E) of the Act. Therefore, in this proposed rule, under the 
authority of section 123 of the BBRA as amended by section 307(b) of 
the BIPA, we are proposing to establish an annual market basket update 
under the LTCH PPS for FY 2015 of 2.1 percent (that is, the most recent 
estimate of the LTCH PPS proposed market basket update at this time of 
2.7 percent, less the proposed MFP adjustment of 0.4 percentage point, 
and less the 0.2 percentage point required under section 1886(m)(4)(E) 
of the Act), provided the LTCH submits quality reporting data in 
accordance with section 1886(m)(5) of the Act. Accordingly, we are 
proposing to revise Sec.  412.523(c)(3) by adding a new paragraph (xi), 
which specifies that the standard Federal rate for FY 2015 would be the 
standard Federal rate for the previous LTCH PPS year updated by 2.7 
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 proposed Sec.  412.523(c)(3)(xi) in 
conjunction with Sec.  412.523(c)(4), we are proposing to 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. 
Accordingly, we are proposing to establish an annual update to the LTCH 
PPS standard Federal rate of 0.1 percent (that is, 2.1 percent minus 
2.0 percentage points) for FY 2015 for LTCHs that fail to submit 
quality reporting data under the LTCHQR Program. As stated above, 
consistent with our historical practice of using the best available 
data, we are proposing that if more recent data is available, we would 
use such data to establish an annual update to the LTCH PPS standard 
Federal rate for FY 2015 under Sec.  412.523(c)(3)(xi) in the final 
rule. (We note that, we also are proposing to adjust the proposed FY 
2015 standard Federal rate by applying a one-time prospective 
adjustment under the final year of the 3-year phase-in under Sec.  
412.523(d)(3) (discussed in section VII.C.3. of the preamble of this 
proposed rule) and by a proposed 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 proposed rule).)
3. Proposed Adjustment for the Final 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

[[Page 28190]]

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 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, under Sec.  412.523(d)(3), we 
applied a permanent factor of 0.98734 to the standard Federal rate in 
both FY 2013 and FY 2014 under the established 3-year phase-in of the 
one-time prospective adjustment.
    In this proposed rule, for FY 2015, we are proposing to apply a 
permanent one-time prospective adjustment factor of 0.98734 to the 
standard Federal rate for FY 2015 under the last year of the 3-year 
phase-in of the one-time prospective adjustment, in accordance with the 
existing regulations under Sec.  412.523(d)(3).

D. Proposed Revision of LTCH PPS Geographic Classifications

1. Background
    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 standard Federal payment rate 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, which is codified under existing Sec.  412.525(c) of 
the regulations, is based on the location of the LTCH--either in an 
``urban'' area or a ``rural'' area. Currently, under the LTCH PPS, as 
codified under Sec.  412.503 of the regulations, an ``urban area'' is 
defined as a Metropolitan Statistical Area (which includes 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), we 
revised Sec.  412.525(c) to update 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 Core-Based Statistical Area 
(CBSA) designations (``CBSA designations''), which are based on 2000 
Census data. We made this revision because we believed that the CBSA 
designations (geographic classifications) would 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 
noted that these were the same CBSA designations implemented for acute 
care hospitals under the IPPS, which were codified under Sec.  
412.64(b) of the regulations, beginning in FY 2005. (For a further 
discussion of the CBSA-based labor market area designations 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 designations 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

[[Page 28191]]

LTCH PPS in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50444 through 
50445), effective October 1, 2010. We continued to use these CBSA 
designations for FYs 2012 and 2013 (76 FR 51808 and 77 FR 53710, 
respectively). New OMB labor market area delineations (which we refer 
to in this section as ``new OMB delineations'') based on 2010 standards 
and the 2010 Decennial Census data were announced by OMB on February 
28, 2013. OMB issued Bulletin No. 13-01, which announced revisions to 
the delineation of Metropolitan Statistical Areas, Micropolitan 
Statistical Areas, and Combined Statistical Areas, and provided 
guidance on the uses of the delineation of these labor market areas. 
(For a copy of this bulletin, we refer readers to the following Web 
site: http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. This bulletin specifically provides the delineations of 
all Metropolitan Statistical Areas (MSAs), 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 2010 Census data. (We note that, as 
discussed in section III.B. of the preamble of this proposed rule, 
consistent with the terminology used in the OMB Bulletin No. 13-01 and 
the standards published in the Federal Register on June 28, 2010, when 
referencing the new OMB geographic boundaries of Metropolitan 
Statistical Areas (MSAs) based on 2010 standards, we are using the term 
``new OMB delineations'' rather than the term ``CBSA-based labor market 
area definitions'' that we have used in the past to refer to OMB 
geographic boundaries of statistical areas (75 FR 37249).)
    As discussed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50994 
through 50995), in order to implement these changes for the LTCH PPS 
(as in the case of the IPPS), it is necessary to identify the new OMB 
delineations 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, under the new OMB 
delineations, there are new CBSAs, urban counties that have become 
rural, rural counties that have become urban, and existing CBSAs that 
have been split apart and moved to other CBSAs. Because the update was 
not issued until February 28, 2013, and it was necessary for the 
changes made by the update and their ramifications to be extensively 
reviewed and verified, we were unable to undertake such a lengthy 
process before publication of the FY 2014 rulemaking cycle. That is, by 
the time the update was issued, the FY 2014 IPPS/LTCH PPS proposed rule 
was in the advanced stages of development, and the proposed FY 2014 
LTCH PPS wage indexes based on the CBSA designations that are currently 
used under the LTCH PPS had been developed. Therefore, we did not 
propose to use the changes to the LTCH PPS CBSA designations for FY 
2014 based on the new OMB delineations. Rather, to allow for sufficient 
time to assess the new changes and their ramifications, we stated that 
we intended to propose the adoption of the new OMB delineations and the 
corresponding changes to the wage index based on those delineations 
under the LTCH PPS for FY 2015 through notice and comment rulemaking, 
consistent with the approach used under the IPPS (78 FR 50994 through 
50995). As discussed below, in this proposed rule, under the authority 
of section 123 of the BBRA, as amended by section 307(b) of the BIPA, 
we are proposing to adopt the new OMB delineations announced in the 
February 28, 2013 OMB Bulletin No. 13-01, effective for FY 2015 under 
the LTCH PPS, consistent with the approach proposed for the IPPS as 
discussed in section III.B. of the preamble of this proposed rule.
2. Proposed Use of the New OMB Labor Market Area Delineations (``New 
OMB Delineations'')
    Historically, Medicare prospective payment systems have utilized 
labor market area definitions developed by the OMB. As discussed above, 
the CBSA designations currently used under the LTCH PPS are based on 
the most recent market area definitions issued by the OMB. The OMB 
reviews its market area definitions/delineations based on data from the 
preceding decennial census to reflect more recent population changes. 
As discussed above and in section III.B. of the preamble of this 
proposed rule, the new OMB delineations are based on the OMB's latest 
market area delineations based on the 2010 Decennial Census data. 
Because we believe that the OMB's latest labor market area delineations 
are the best available data that reflect the local economies and wage 
levels of the areas in which hospitals are currently located, we are 
proposing to adopt the new OMB delineations based on the 2010 Decennial 
Census data under the LTCH PPS, beginning in FY 2015, for the reasons 
discussed below (which are consistent with the IPPS proposal discussed 
in section III.B. of the preamble of this proposed rule).
    When we implemented the wage index adjustment under Sec.  
412.525(c) for the LTCH PPS, and updated the LTCH PPS labor market area 
definitions based on the CBSA designations beginning in RY 2006, we 
explained that the LTCH PPS wage index adjustment was intended to 
reflect the relative hospital wage levels in the geographic area of the 
hospital as compared to the national average hospital wage level. (We 
refer readers to the RY 2003 LTCH PPS final rule (67 FR 56016) and the 
RY 2006 LTCH PPS final rule (70 FR 24184).) Because we believe that the 
new OMB delineations based on 2010 Decennial Census data reflect the 
most recent available geographic classifications (market area 
delineations), we are proposing to revise the geographic 
classifications used under the LTCH PPS based on these new OMB 
delineations to ensure that the LTCH PPS wage index adjustment 
continues to most appropriately account for and reflect the relative 
hospital wage and wage-related costs in the geographic area of the 
hospital as compared to the national average hospital wage and wage-
related costs. Specifically, we are proposing to adopt the new OMB 
delineations (as discussed in greater detail below), effective for LTCH 
PPS discharges occurring on or after October 1, 2014 (that is, 
effective for FY 2015). We note that, because the application of the 
LTCH PPS area wage-level adjustment under existing Sec.  412.525(c) is 
made on the basis of the location of the LTCH--either in an ``urban'' 
area or a ``rural'' area as those terms are defined under existing 
Sec.  412.503. Under Sec.  412.503, an ``urban area'' is defined as a 
Metropolitan Statistical Area as defined by the Executive OMB. A 
``rural area'' is defined as any area outside of an urban area. 
Therefore, we are not proposing any changes to the existing regulations 
under this proposal.
    As discussed in section III.B. of this preamble, while CMS and 
other stakeholders have explored potential alternatives to the current 
CBSA-based labor market system, no consensus has been achieved 
regarding how best to implement a replacement system. While we 
recognize that MSAs are not designed specifically to define labor 
market areas, we believe that they do represent a useful proxy for this 
purpose. Consistent with the approach taken for the IPPS, we have used 
MSAs to define labor market areas for

[[Page 28192]]

purposes of Medicare wage indices under the LTCH PPS since its 
implementation in FY 2003. MSAs also are used to define labor market 
areas for purposes of the wage index for many of the other Medicare 
payment systems (for example, the IRF PPS, the SNF PPS, the HHA PPS, 
the OPPS, and the IPF PPS). (We refer readers to the RY 2006 LTCH PPS 
final rule (70 FR 24184).) Therefore, under the authority of section 
123 of the BBRA, as amended by section 307(b) of the BIPA, we are 
proposing to adopt the new OMB delineations as described in the 
February 28, 2013 OMB Bulletin No. 13-01, effective under the LTCH PPS 
for FY 2015. In addition, we are proposing to use these new OMB 
delineations to calculate area wage indexes in a manner that is 
consistent with the CBSA-based methodologies finalized in the RY 2006 
LTCH PPS final rule, as refined in subsequent rulemaking. We also are 
proposing a wage index transition policy (as discussed in more detail 
below) for LTCHs that would experience a negative payment impact due to 
the proposed use of the new OMB delineations. This proposal, including 
the proposed wage index transition policy, is consistent with the 
proposal under the IPPS presented in section III.B. of the preamble of 
this proposed rule. The discussion below is focused on issues related 
to the proposed use of the new OMB delineations to define labor market 
areas for purposes of the wage index adjustment under the LTCH PPS, and 
is consistent with what is being proposed for the IPPS.
a. Micropolitan Statistical Areas
    When we adopted the CBSA designations under the LTCH PPS in RY 
2006, we discussed CMS' consideration of whether to use Micropolitan 
Statistical Areas to define the labor market areas for the purpose of 
the LTCH PPS wage index. OMB defines a ``Micropolitan Statistical 
Area'' as a Consolidated Metropolitan Statistical Area (CMSA) 
``associated with at least one urban cluster that has a population of 
at least 10,000, but less than 50,000'' (70 FR 24183). We refer to 
these areas as ``Micropolitan Areas.'' After conducting an extensive 
impact analysis, we determined that the best course of action would be 
to treat all hospitals located in ``Micropolitan Areas'' as ``rural,'' 
and to include these hospitals in the calculation of each State's rural 
wage index. Because Micropolitian Areas tend to encompass smaller 
population centers and contain fewer hospitals than MSAs, we determined 
that if Micropolitan Areas were to be treated as separate labor market 
areas, the IPPS wage index would include drastically more single-
provider labor market areas. This larger number of labor market areas 
with fewer providers could create instability in year-to-year wage 
index values for a large number of hospitals; could reduce the 
averaging effect of the wage index, lessening some of the efficiency 
incentive inherent in a system based on the average hourly wages for a 
large number of hospitals; and could arguably create an inequitable 
system when so many hospitals would have wage indexes based solely on 
their own wage data while other hospitals' wage indexes would be based 
on an average hourly wage across many hospitals. For these reasons, we 
adopted a policy to include Micropolitan Areas in the State's rural 
wage area, and have continued this policy through the present. (We 
refer reader to the RY 2006 LTCH PPS final rule (70 FR 24187).)
    Based upon the 2010 Decennial Census data, a number of rural and 
urban counties have joined or have become Micropolitan Areas, while 
other counties that once were part of a Micropolitan Area under 
previous OMB CBSA designations, have become either urban or rural under 
the new OMB delineations. Overall, there are fewer Micropolitan Areas 
(541) under the new OMB delineations based on 2010 Decennial Census 
data than existed under the data from the 2000 Census (581). We believe 
that it is appropriate to continue the policy established in the RY 
2006 LTCH PPS final rule, and we are proposing to treat Micropolitan 
Areas as rural labor market areas under the LTCH PPS. These areas 
continue to be defined as having relatively small urban cores 
(populations of 10,000-49,999). We do not believe that it would be 
appropriate to calculate a separate wage index for areas that typically 
may include only a few hospitals for the reasons set forth in the RY 
2006 LTCH PPS final rule, as discussed above. Therefore, in conjunction 
with our proposal to use the new OMB labor market area delineations, 
under the authority of section 123 of the BBRA, as amended by section 
307(b) of the BIPA, for FY 2015, we are proposing to continue to treat 
Micropolitan Areas as ``rural,'' and to assign the Micropolitan Area 
the statewide rural wage index for the State in which the LTCH is 
located. We also are proposing that, beginning in FY 2015, the wage 
data for any IPPS hospitals located in the Micropolitan Areas would be 
included in the calculation of each State's LTCH PPS rural area wage 
index. (As discussed in section V.B.2. of the Addendum to this proposed 
rule, the LTCH PPS area wage index values are calculated using the wage 
data of IPPS hospitals.) We note that this proposal is consistent with 
the proposal for the IPPS discussed in section III.B.2.a. of the 
preamble of this proposed rule. We refer readers to section VII.D.2.e. 
of this preamble for a discussion of our proposals to moderate the 
impact of our proposed use of the new OMB delineations under the LTCH 
PPS.
b. Urban Counties That Became Rural Under the New OMB Labor Market Area 
Delineations
    In proposing to use the new OMB delineations, which are based upon 
2010 Decennial Census data, for FY 2015, we found that there are a 
number of counties (or county equivalents) that are defined as 
``urban'' under the previous CBSA designations that are now defined as 
``rural'' under the new OMB delineations. As discussed in section 
III.B. of this preamble, an analysis of the new OMB delineations shows 
that a total of 37 counties (and county equivalents) that were 
considered to be part of an ``urban'' CBSA are now considered to be 
located in a ``rural'' area, beginning in FY 2015, based on the new OMB 
delineations. We refer readers to a table presented in section 
III.B.2.b. of the preamble of this proposed rule that lists the 37 
urban counties that would be defined as rural if we finalize our 
proposal to use the new OMB delineations. Under our proposal to use the 
new OMB delineations for the LTCH PPS, we are proposing that LTCHs 
located in any of the 37 counties listed in the table under section 
III.B.2.b. of the preamble of this proposed rule would be considered 
``rural,'' and would receive their respective State's rural area wage 
index for FY 2015 under the LTCH PPS. We note that, currently, there 
are no LTCHs located in any of the 37 counties listed in the table that 
are currently considered to be part of an ``urban'' CBSA and that would 
be considered to be located in a ``rural'' area, beginning in FY 2015, 
if the proposed adoption of the new OMB delineations is finalized. We 
also proposing that, if finalized, the wage data for any IPPS hospitals 
located in those 37 counties listed in the table now would be 
considered ``rural'' when calculating the respective State's LTCH PPS 
rural area wage index beginning in FY 2015. (As discussed in section 
V.B.2. of the Addendum to this proposed rule, the LTCH PPS area wage 
index values are calculated using the area wage data of IPPS 
hospitals.) We note that this proposal is consistent with the proposal 
under the IPPS discussed in section

[[Page 28193]]

III.B.2.b. of the preamble of this proposed rule. We refer readers to 
section VII.D.2.e. of the preamble of this proposed rule for a 
discussion of our proposals to moderate the impact of our proposal to 
implement the new OMB delineations under the LTCH PPS.
c. Rural Counties That Became Urban Under the New OMB Labor Market Area 
Delineations
    In proposing to use the new OMB labor market area delineations 
(which are based upon 2010 Decennial Census data) for FY 2015, we found 
that there are a number of counties (or county equivalents) that are 
defined as ``rural'' under the previous OMB definitions (that is, CBSA 
designations) that would be considered ``urban'' if the proposed 
adoption of the new OMB delineations is finalized. As discussed in 
section III.B.2.c. of the preamble of this proposed rule, an analysis 
of the new OMB labor market area delineations shows that a total of 105 
counties (and county equivalents) that were previously located in 
``rural'' areas now are located in an ``urban'' area under the new OMB 
delineations. We refer readers to a table in section III.B.2.c. of the 
preamble of this proposed rule that lists the 105 ``rural'' counties 
that would be located in an ``urban'' area, if we finalize our proposal 
to adopt the new OMB delineations presented in section III.B.2.c. of 
the preamble of this proposed rule. There are currently no LTCHs 
located in the 105 ``rural'' counties listed in that table.
    Under our proposal to adopt the new OMB labor market area 
delineations, we are proposing that LTCHs located in any of those 105 
counties now would be included in their new respective ``urban'' CBSAs 
and would receive the respective ``urban'' CBSA's area wage index. We 
also are proposing that, beginning in FY 2015, the wage data for any 
IPPS hospitals located within those 105 counties now would be included 
in the calculation of the LTCH PPS area wage index for those hospitals' 
respective ``urban'' CBSAs. (As discussed in section V.B.2. of the 
Addendum to this proposed rule, the LTCH PPS area wage index values are 
calculated using the area wage data of IPPS hospitals.) We note that 
this proposal is consistent with the proposal for the IPPS discussed in 
section III.B.2.c. of the preamble of this proposed rule. We refer 
readers to section VII.D.2.e. of the preamble of this proposed rule for 
a discussion of our proposals to moderate the impact of our proposal to 
implement the new OMB delineations under the LTCH PPS.
d. Urban Counties Moved to a Different Urban CBSA Under the New OMB 
Labor Market Area Delineations
    In addition to ``rural'' counties that would become ``urban'' and 
``urban'' counties that would become ``rural'' under the new OMB 
delineations, we found that several urban counties shifted from one 
urban CBSA to another urban CBSA. In certain cases, the new OMB 
delineations involved a change only in the CBSA name or code, while the 
CBSA continued to encompass the same constituent counties. However, in 
other cases, under the new OMB delineations, some counties are shifted 
between existing urban CBSAs and new urban CBSAs, changing the 
constituent makeup of those CBSAs. For example, in some cases, entire 
CBSA are subsumed by another CBSA. In other cases, some CBSAs have 
counties that are split off as part of a different urban CBSA, or to 
form entirely new labor market areas. We refer readers to section 
III.B.2.d. of the preamble of this proposed rule for additional 
information, including examples, on urban counties that are moved from 
one urban CBSA to a different urban CBSA under the new OMB 
delineations. LTCHs located in these affected counties that would move 
from one urban CBSA to a different urban CBSA under our proposal to 
adopt the new OMB delineations would experience both negative and 
positive impacts in regard to the LTCH's specific area wage index 
values. We refer readers to section VII.D.2.e. of the preamble of this 
proposed rule for a discussion of our proposals to moderate the impact 
imposed upon hospitals because of our proposal to adopt the new OMB 
labor market area delineations under the LTCH PPS.
e. Proposed Transition Period
    As indicated above, overall, we believe that our proposal to adopt 
the new OMB delineations would result in LTCH PPS wage index values 
being more representative of the actual costs of labor in a given area. 
However, we also recognize that some LTCHs would experience decreases 
in their area wage index values as a result of our proposal. We also 
realize that many LTCHs would have higher area wage index values under 
our proposal. To mitigate the impact imposed upon hospitals, we have in 
the past provided for transition periods when adopting changes that 
have significant payment implications, particularly large negative 
impacts. While we believe that using the new OMB delineations would 
create a more accurate payment adjustment for differences in area wage 
levels, we also recognize that adopting such changes may cause some 
short-term instability in LTCH PPS payments. Therefore, under the 
authority of section 123 of the BBRA, as amended by section 307(b) of 
the BIPA, we are proposing a transition policy for LTCHs that would 
experience a decrease in their area wage index values due to our 
proposal to adopt the new OMB delineations under the LTCH PPS. 
Specifically, for FY 2015, we are proposing to compute a blended area 
wage index value for any LTCH that would experience a decrease in its 
area wage index value solely due to the proposed adoption of the new 
OMB delineations beginning in FY 2015. That is, for purposes of 
determining an LTCH's area wage index for FY 2015, we are proposing to 
compute LTCH PPS wage index values using the proposed area wage data 
discussed above and in section V.B.4. of the Addendum to this proposed 
rule under both the current (FY 2014) CBSA designations and the 
proposed (FY 2015) new OMB delineations based on the 2010 OMB Decennial 
Census data. For each LTCH, we are proposing to compare these two 
proposed wage indexes. If an LTCH's proposed wage index under the 
proposed adoption for FY 2015 of the new OMB delineations is lower than 
the LTCH's proposed wage index under the FY 2014 CBSA designations, we 
are proposing that, for FY 2015, the LTCH would be paid based on a 
blended wage index that would be computed as the sum of 50 percent of 
each of the two proposed wage index values described above (referred to 
as the proposed 50/50 blended wage index). If an LTCH's proposed wage 
index under the proposed adoption for FY 2015 of the new OMB 
delineations is higher than the LTCH's proposed wage index under the FY 
2014 CBSA designations, we are proposing that, for FY 2015, the LTCH 
would be paid based on 100 percent of the proposed wage index under the 
proposed FY 2015 new OMB delineations (and would not receive the 
proposed 50/50 blended wage index).
    Furthermore, we are proposing that the proposed transitional area 
wage index policy be used in a budget neutral manner. Under Sec.  
412.525(c)(2), any changes to the adjustment for differences in area 
wage levels are made in a budget neutral manner such that estimated 
aggregate FY 2015 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

[[Page 28194]]

adjustment budget neutrality factor that is applied to the standard 
Federal rate (under Sec.  412.523(d)(4)) to ensure that any changes to 
the area wage-level adjustments are budget neutral such that any 
changes to the wage index values or labor-related share would not 
result in any change (increase or decrease) in estimated aggregate LTCH 
PPS payments. Because our proposed transition policy for LTCHs that 
would experience a decrease in their area wage index values solely as a 
result of our finalized policy to adopt the new OMB delineations under 
the LTCH PPS would result in an increase in estimated aggregate LTCH 
PPS payments without such changes, we are proposing to include the 
proposed 50/50 blended wage index in our calculations for the proposed 
area wage-level adjustment budget neutrality factor that would be 
applied to the proposed standard Federal rate to ensure that any 
changes to the area wage-level adjustment are budget neutral. 
Specifically, consistent with our established methodology, we are 
proposing to use the following methodology to determine a proposed area 
wage-level adjustment budget neutrality factor for FY 2015:
     Proposed Step 1--We are proposing to simulate estimated 
aggregate LTCH PPS payments using the FY 2014 wage index values as 
established in Tables 12A and 12B for the FY 2014 IPPS/LTCH PPS final 
rule (which is available via the Internet on the CMS Web site) and the 
FY 2014 labor-related share of 62.537 percent as established in the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50996).
     Proposed Step 2--We are proposing to simulate estimated 
aggregate LTCH PPS payments using the proposed FY 2015 wage index 
values as shown in Tables 12A through 12D for this proposed rule (which 
are available via the Internet on the CMS Web site), including the 
proposed transitional 50/50 blended wage index values, if applicable 
(as discussed in section V.B.4. of the Addendum of this proposed rule), 
and the proposed FY 2015 labor-related share of 62.571 percent (as 
discussed in section V.B.3. of the Addendum to this proposed rule).
     Proposed Step 3--We are proposing to determine the ratio 
of these estimated total LTCH PPS payments by dividing the estimated 
total LTCH PPS payments using the FY 2014 area wage-level adjustments 
(calculated in proposed Step 1) by the estimated total LTCH PPS 
payments using the proposed FY 2015 area wage-level adjustments 
(calculated in proposed Step 2) to determine the proposed FY 2015 area 
wage-level adjustment budget neutrality factor.
     Proposed Step 4--We are proposing to then apply the 
proposed FY 2015 area wage-level adjustment budget neutrality factor 
from proposed Step 3 to the proposed FY 2015 LTCH PPS standard Federal 
rate after the application of the proposed FY 2015 annual update as 
discussed in section V.A.2. of the Addendum to this proposed rule.
    As explained above, we are proposing to apply this factor in 
determining the proposed FY 2015 standard Federal rate to ensure that 
the proposed updates to the area wage-level adjustment for FY 2015 
would be implemented in a budget neutral manner. For this proposed 
rule, using the steps in the methodology described above, we determined 
a FY 2015 area wage-level adjustment budget neutrality factor of 
1.0002034.
    We note that this proposed transitional area wage index policy 
under our proposal to adopt the new OMB delineations for FY 2015 under 
the LTCH PPS is consistent with the proposals under the IPPS presented 
in sections III.B.2.e.(5) and (6) of the preamble of this proposed 
rule. As noted previously in section VII.D.2.b. of the preamble of this 
proposed rule, there are currently no LTCHs located in an ``urban'' 
county that would become ``rural'' under the proposal to adopt the new 
OMB delineations. Therefore, we are not proposing a transitional area 
wage index policy that is consistent with the IPPS proposal presented 
in section III.B.2.e.(2). of the preamble of this proposed rule for 
hospitals that are currently located in an ``urban'' county that would 
become ``rural'' under the proposed adoption of the new OMB 
delineations. We also note that we are not proposing any transitional 
policies under the LTCH PPS that would be consistent with those 
presented under the IPPS for hospitals with a reclassification or 
redesignation as discussed in section III.B.2.e.(3). of the preamble of 
this proposed rule, or for hospitals deemed urban under section 
1886(d)(8)(B) of the Act as discussed in section III.B.2.e.(4) of the 
preamble of this proposed rule, as those reclassifications, 
redesignations, and statutory deems are not applicable to LTCHs.

E. Reinstatement and Extension of Certain Payment Rules for LTCH 
Services--The 25-Percent Threshold Payment Adjustment

1. Background
    Section 1206(b)(1)(A) of the Pathway for SGR Reform Act of 2013 
(Pub. L. 113-67), enacted on December 26, 2013, provides for the 
retroactive reinstatement and extension, for an additional 4 years, of 
the moratorium on the full implementation of the 25-percent threshold 
payment adjustment (hereinafter referred to as ``the 25-percent 
policy'') under the LTCH PPS established under 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. In addition, section 
1206(b)(1)(B) of Public Law 113-67 provides for a permanent exemption 
from the application of the 25-percent policy for certain grandfathered 
co-located LTCHs and LTCH satellite facilities.
    Section 1206(b)(1)(C) of Public Law 113-67 also requires that ``. . 
. [n]ot later than 1 year before the end of the 9-year period referred 
to in section 114(c)(1) of the Medicare, Medicaid, and SCHIP Extension 
Act of 2007 (42 U.S.C. 1395ww note), as amended by subparagraph (B) [of 
section 1206 of Pub. L. 113-67], the Secretary of Health and Human 
Services shall submit to Congress a report on the need for any further 
extensions (or modifications of the extensions) of the 25 percent rule 
described in sections 412.534 and 412.536 of title 42, Code of Federal 
Regulations, particularly taking into account the application of 
section 1886(m)(6) of the Social Security Act, as added by subsection 
(a)(1) [of section 1206 of Pub. L. 113-67].'' We refer readers to 
section VII.I.2. of the preamble of this proposed rule for further 
discussion of this report.
    The 25-percent policy is a payment adjustment under the LTCH PPS, 
originally established in our regulations at 42 CFR 412.534 for LTCHs 
and LTCH satellite facilities and their co-located referring hospitals 
in the FY 2005 IPPS final rule (69 FR 49191), and at 42 CFR 412.536 for 
all other LTCHs and referring hospitals in the RY 2007 LTCH PPS final 
rule (72 FR 26870), based on analyses of Medicare discharge data that 
indicated that patterns of patient shifting appeared to be occurring 
more for provider financial advantage than for patient benefit. In 
order to discourage such activity, a payment adjustment was applied for 
LTCH discharges of patients who were admitted to the LTCH from the same 
referring hospital in excess of an applicable percentage threshold, 
which was to transition to a 25-percent threshold after specified 
phase-in periods. (For rural and single-urban LTCHs and those with MSA-
dominant referring hospitals, a 50-percent threshold was applied.). 
Under this policy, discharges in excess of the threshold are paid at an 
``IPPS equivalent'' rate, instead of the much higher LTCH PPS rate. (We 
refer readers to detailed discussions of the 25-percent

[[Page 28195]]

policy for LTCH HwHs and LTCH satellite facilities 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).)
    The results of the different rulemaking schedules in effect when 
Sec. Sec.  412.534 and 412.536 were implemented (FY 2005 (October 1, 
2004) and RY 2007 (July 1, 2006), respectively) are as follows: for co-
located LTCHs and LTCH satellite facilities governed under Sec.  
412.534, the 25-percent policy was effective for cost reporting periods 
beginning on or after October 1, 2005 (``October'' LTCHs); for LTCHs 
and LTCH satellite facilities governed under Sec.  412.536, the 25-
percent policy was effective for cost reporting periods beginning on or 
after July 1, 2007 (``July'' LTCHs). In addition, even though 
grandfathered LTCH HwHs and LTCH satellite facilities are governed 
under Sec.  412.534(h), they are ``July'' LTCHs because the 25-percent 
policy was applied to these facilities in the RY 2008 LTCH PPS final 
rule.
    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 policy that expired for some LTCHs and LTCH satellite 
facilities 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). (For a detailed description of the moratorium on 
the application of the 25-percent policy, we refer readers to the May 
22, 2008 Interim Final Rule with Comment Period (73 FR 29699 through 
29704) and the August 27, 2009 Interim Final Rule with Comment Period 
for the ARRA, which was published in the FY 2010 IPPS final rule and 
Changes to the LTCH PPS and Rate Years 2010 and 2009 Rates final rule 
(74 FR 43990 through 43992).
    The expiration of the statutory moratorium for both ``July'' and 
``October'' LTCHs was delayed because CMS established regulatory 
extensions 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). 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 policy for ``October'' LTCHs. 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 the 
LTCHs' 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 
LTCH's 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). Therefore, by providing for the above described regulatory 
extension for ``July'' LTCHs, we eliminated the distinction between 
``July'' and ``October'' LTCHs, which resulted in the 25-percent policy 
being applied for all cost reporting periods beginning on or after 
October 1, 2012, following the expiration of the moratorium. For more 
details about these moratoria, we refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53483 through 53484).
    Because we did not extend the regulatory moratorium on the 25-
percent policy in the FY 2014 IPPS/LTCH PPS final rule, the full 
application of the payment adjustment policy was effective for all 
LTCHs (both ``October'' and ``July'' LTCHs) for cost reporting periods 
beginning on or after October 1, 2013 (78 FR 50772).
2. Proposed Implementation of Section 1206(b)(1) of Public Law 113-67
    As stated earlier, section 1206(b)(1)(A) of Public Law 113-67 
provides an additional amendment to 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, that extends the ``original'' 
statutory moratorium on the full implementation of the 25-percent 
policy to a total of 9 years from the original effective dates 
established by the MMSEA (July 1 or October 1, 2007, as applicable). As 
a result, the lapse of the regulatory moratorium on the full 
implementation of the 25-percent policy is moot. This ``seamless'' 
statutory moratorium provides relief until cost reporting periods 
beginning on or after July 1, or October 1, 2016, as applicable. 
Section 1206(b)(1)(B) provides a permanent exemption from the 25-
percent policy for certain grandfathered co-located LTCHs and LTCH 
satellite facilities.
    In this proposed rule, based on the statutory changes made by 
sections 1206(b)(1)(A) and (b)(1)(B) of Public Law 113-67, we are 
proposing to make conforming amendments to the regulations governing 
application of the 25-percent policy. Specifically, we are proposing to 
revise Sec. Sec.  412.534(c)(1)(i) and (c)(1)(ii), (c)(2), (c)(3), 
(d)(1) and (d)(1)(i), (d)(2), (d)(3), (e)(1) and (e)(1)(i), (e)(2), 
(e)(3), the introductory text of paragraph (h), (h)(4), and (h)(5) and 
to remove paragraph (h)(6); and removing paragraphs (a)(1)(iii) and 
(a)(2)(ii), revising (a)(2), and removing paragraph (a)(3) of Sec.  
412.536 to reflect the statutory changes.

F. Proposed Changes to the Fixed-Day Thresholds Under the ``Greater 
Than 3-Day Interruption of Stay'' Policy Under the LTCH PPS

1. Background
    The interrupted stay policy is a payment adjustment that was 
included under the LTCH PPS from the inception; that is, for cost 
reporting periods beginning on or after October 1, 2002 (FY 2003). In 
this discussion, we use the terms ``interrupted stay'' and 
``interruption of stay'' interchangeably. An ``interruption of stay'' 
occurs when during the course of an LTCH hospitalization, a patient is 
discharged to an inpatient acute care hospital, an IRF, or a SNF for 
treatment or services not available at the LTCH for a specified period 
followed by a readmittance to the same LTCH. We refer readers to the RY 
2003 LTCH PPS final rule (67 FR 56002). When we established this 
policy, we believed that the readmission to the LTCH represented a 
continuation of the initial treatment, a stay in which an 
``interruption'' occurred, rather than a new admission if the length of 
stay at the intervening facility was within a specified number of days. 
If an ``interruption of stay'' occurred, payment for both ``halves'' of 
the LTCH discharge were then ``bundled,'' and Medicare would make one 
payment based on the second date of discharge. Specifically, under this 
policy, we established a fixed-day threshold, which applied to the 
specified number of days

[[Page 28196]]

a Medicare beneficiary spends as an inpatient at an acute care 
hospital, an IRF, or a SNF. In the RY 2003 LTCH PPS final rule, we 
explained that we were implementing this policy because we wanted ``. . 
.to reduce the incentives inherent in a discharged-based prospective 
payment system of ``shifting'' patients between Medicare-covered sites 
of care in order to maximize Medicare payments. This policy is 
particularly appropriate for LTCHs because, as a group, these hospitals 
differ considerably in the range of services offered such that where 
some LTCHs may be able to handle certain acute conditions, others will 
need to transfer their patients to acute care hospitals.
    ``For instance, some LTCHs are equipped with operating rooms and 
intensive care units and are capable of performing minor surgeries. 
However, other LTCHs are unable to provide those services and will need 
to transfer the beneficiary to an acute care hospital. We believed that 
our policy also provided for a patient . . . ``who no longer requires 
hospital-level care, but is not ready to return to the community,'' and 
who ``. . . could be transferred to a SNF.'' (We refer readers to the 
RY 2003 LTCH PPS final rule (67 FR 56002).)
    Therefore, in the regulations under 42 CFR 412.531, we defined two 
types of interruptions of stays. Under Sec.  412.531(a)(1), ``[a] 3-day 
or less interruption of stay'' means a stay at a LTCH during which a 
Medicare inpatient is discharged from the LTCH to an acute care 
hospital, IRF, SNF, or the patient's home and readmitted to the same 
LTCH within 3 days of the discharge from the LTCH. Whereas under the 
``3 day or less interruption of stay policy,'' the fixed-day threshold 
period begins with the calendar date of discharge from the LTCH and 
ends not later than midnight of the third day, if an LTCH patient's 
``interruption'' exceeds this threshold, payment is governed by the 
``greater than 3-day interruption of stay'' policy. (We refer readers 
to the RY 2005 LTCH PPS final rule (69 FR 25690 through 25700), the RY 
2006 LTCH PPS final rule (70 FR 24206), and the RY 2007 LTCH PPS final 
rule (71 FR 27872 through 27875) for detailed discussions of the 3-day 
or less interruption of stay policy.) We are not proposing to revise 
the 3-day or less category of interrupted stays, but we make mention of 
the policy for clarity in making a distinction between the 3-day or 
less interruption of stay policy and the greater than 3-day 
interruption of stay policy that we are proposing to revise.
    The ``greater than 3-day interruption of stay policy,'' is defined 
under Sec.  412.531(a)(2) as a stay ``. . . during which a Medicare 
inpatient is transferred upon discharge to an acute care hospital, an 
IRF, or a SNF for treatment or services that are not available in the 
long-term care hospital and returns to the same long-term care hospital 
within the applicable fixed-day period specified in regulations under 
Sec.  412.531(a)(2)(i) through (a)(2)(iii).'' For a discharge to an 
acute care hospital, the applicable fixed-day period is between 4 and 9 
consecutive days; the counting of the days begins on the calendar day 
of discharge from the LTCH and ends on the 9th day when the patient is 
readmitted to the LTCH. For a discharge to an IRF, the applicable 
fixed-day period is between 4 and 27 consecutive days; the counting of 
the days begins on the calendar day of discharge from the LTCH and ends 
on the 27th day. For a discharge to a SNF, the applicable fixed-day 
period is between 4 and 45 consecutive days; the counting of the days 
begins on the calendar day of discharge from the LTCH and ends on the 
45th day.
    These timeframes reflect our policy of only paying for more than 
one discharge if the patient's length of stay exceeds one standard 
deviation from the average length of stay. As we stated in the RY 2003 
LTCH PPS final rule, this policy was established with the intent of 
``balanc[ing] the payment incentives of both the LTCH and the acute 
care hospital, IRF, or SNF to which the LTCH patient is discharged 
before being readmitted to the LTCH,'' and is intended to ensure ``that 
discharges from LTCHs are based on clinical considerations and not 
financial incentives'' (67 FR 56002). As we stated at that time, we 
believed that a threshold of one standard deviation from the average 
length of stay would address the cost-based disincentives inherent in 
cases that significantly exceed the average length of stay. 
Furthermore, the threshold would ``capture the majority of the 
discharges that are similar to the average length of stay for the 
respective DRG, combination CMG and comorbidity tier, or for all 
Medicare SNF cases.'' Specifically, in establishing this policy, we 
calculated the average length of stay plus one standard deviation for 
each inpatient setting in which an ``interruption'' could occur in 
order to determine a fixed-day threshold. This use of a standard 
deviation as the justification for additional payment is consistent 
with our use of a standard deviation measure as the measure for paying 
additional amounts for new technologies under the acute care hospital 
inpatient prospective payment system. Under that system, ``the cost of 
a new technology must exceed one standard deviation beyond the mean 
standardized charge for all cases in the DRG to which the new 
technology is assigned in order to receive additional payments'' (67 FR 
56002).
    Therefore, if an LTCH readmission occurs within the fixed-day 
period both halves of the LTCH discharge are treated as a single 
discharge for the purposes of payment under the LTCH PPS. In such 
instances, the beneficiary's readmittance to the LTCH is paid for with 
a single LTC-DRG payment that covers the initial admission to the LTCH, 
and the subsequent readmission. That is, a single Medicare payment is 
made for the entire two-part discharge. Payment to the acute care 
hospital, the IRF, or the SNF is then made in accordance with the 
applicable payment policies for those providers when the interruption 
of stay exceeds 3 days. Therefore, we balanced the payment incentives 
of both the LTCH and the acute care hospital, IRF, or SNF to which the 
LTCH patient might be discharged before being readmitted to the LTCH.
    As we discussed in the RY 2003 LTCH PPS final rule (67 FR 56007), 
our concerns about patient shifting were significantly increased in the 
context of transfers between co-located LTCHS and LTCH satellite 
facilities, or for LTCH hospital-within-hospital transfers. 
Collectively, we refer to these arrangements as transfers to ``onsite'' 
providers. In the regulations under Sec.  412.532(b), we define a 
facility that is ``co-located or ``on-site'' as ``a hospital, satellite 
facility, unit, or SNF that occupies space in a building also used by 
another hospital or unit or in one or more buildings on the same 
campus, as defined in Sec.  413.65(a)(2) of this subchapter, as 
buildings used by another hospital or unit.'' Under this LTCH PPS 
policy, if more than 5 percent of the Medicare patients discharged from 
an LTCH during a cost reporting period were discharged to an ``onsite'' 
SNF, IRF, or psychiatric facility, or to an ``onsite'' acute care 
hospital, and directly readmitted to the same LTCH, the LTCH would be 
paid one MS-LTC-DRG payment to cover both LTCH discharges, regardless 
of the length of the interrupted stay. As is the case in regard to the 
greater than 3-day interruption of stay policy, payment to an acute 
care hospital, an IRF, or a SNF would not be affected under the 5-
percent policy. We refer readers to the RY 2003 LTCH PPS final rule for 
a

[[Page 28197]]

detailed description of the 5-percent policy (67 FR 56007 through 
56014).
    Our concern about patient shifting among ``onsite'' providers did 
not originate with the implementation of the LTCH PPS. The LTCH 5-
percent policy under Sec.  412.532 was recodified from an earlier 
regulation under Sec.  413.40(a)(3), which applied a payment adjustment 
to hospitals paid under the TEFRA payment system, including LTCHs, to 
address inappropriate discharges of patients to a host hospital paid 
under the inpatient prospective payment system from an excluded 
hospital-within-a-hospital (such as a LTCH), that culminated in a 
readmission to the hospital-within-a-hospital. (We refer readers to the 
RY 1999 LTCH PPS final rule (64 FR 41353) and the RY 2003 LTCH PPS 
final rule (67 FR 56007).) In the RY 2003 LTCH PPS final rule, we 
adopted this payment adjustment under the LTCH PPS to ``address 
inappropriate shifting of patients among these providers without 
clinical justification to maximize Medicare payment'' due to 
inappropriate incentives to prematurely discharge patients to one of 
these other onsite providers once their lengths of stay at the LTCH 
exceeded the thresholds established by the short-stay outlier 
policies.'' Therefore, we sought to ensure that discharges would not be 
based on ``payment considerations rather than on a clinical basis as an 
extension of the normal progression of appropriate patient care.''
2. Thresholds Used in Recent Statutory Programs
    Two previously implemented Medicare initiatives, the Hospital IQR 
Program, established by section 501(b) of the Medicare Prescription 
Drug, Improvement, and Modernization Act (MMA) of 2003, and the 
Readmission Reduction Program, established by section 3025 of the 
Affordable Care Act, include measures that focus, among other things, 
on the implied relationships between quality patient care and payment 
consequences for the Medicare program resulting from patient 
readmissions. The Hospital IQR Program, which we discuss in detail in 
section IX.A. of the preamble of this proposed rule, publicly reports, 
among other things, inpatient outcome measures, including 30-day 
readmissions for specific medical conditions (acute myocardial 
infarction, heart failure, pneumonia, total hip/knee arthroplasty, 
hospital-wide all-cause unplanned, stroke, and COPD). The Hospital 
Readmissions Reduction Program, which we discuss in section IV.H. of 
the preamble of this proposed rule, requires CMS to reduce payments to 
IPPS hospitals with excess readmissions, effective for discharges 
beginning on October 1, 2012. Under that program, we define a 
``readmission'' as an admission to a subsection (d) hospital within 30 
days of a discharge from the same or another subsection (d) hospital. 
As noted in our response to a public comment in the FY 2012 IPPS/LTCH 
PPS final rule, the ``timeframe of 30 days from the date of the initial 
discharge from the index hospitalization is the timeframe that has been 
NQF[National Quality Forum]-endorsed as part of the three readmission 
measures. The timeframe of 30 days is considered an acceptable standard 
[for quality measurement] in both the research and measurement 
communities, as this time period is long enough to capture a 
substantial proportion of readmissions attributable to an index 
hospitalization . . . and yet it is short enough that outcomes can be 
attributed to and influenced by hospital care and the early transition 
to the outpatient setting. The use of the 30-day timeframe is also a 
clinically meaningful period for hospitals to collaborate with their 
communities in an effort to reduce readmissions.'' (We refer readers to 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51669 through 51670).)
    In light of the 30-day threshold established for the Hospital IQR 
Program and the Hospital Readmissions Reduction Program, we conducted 
an evaluation of our greater than 3-day interruption of stay policy. A 
review of claims data indicates that interrupted stays at acute care 
hospitals constitute the vast majority of the intervening stays under 
the interruption of stay policy. When implementing policies under the 
Hospital IQR Program and the Hospital Readmissions Reduction Program, 
we have, in effect, asserted that a second inpatient episode of care 
that occurs within 30 days of an initial (index) hospitalization is 
likely linked to the first stay. Under the LTCH PPS, the application of 
the payment adjustment specified in the ``greater than 3-day 
interruption of stay'' policy is based on the number of days that 
elapsed between the initial LTCH discharge and the beneficiary's 
readmission to the same LTCH. An interruption of stay that does not 
exceed the fixed-day threshold would result in one ``bundled'' 
discharge-based payment to cover both LTCH discharges. An interruption 
of stay that exceeds the fixed-day threshold would currently result in 
two separate Medicare payments under the LTCH PPS. However, we believe 
that it would be more appropriate to use a 30-day interval as the 
fixed-day threshold under the greater than 3-day interruption of stay 
policy under the LTCH PPS because that is consistent with the intervals 
used in the Hospital Readmissions Reductions Program and the Hospital 
Inpatient Quality Reporting Program. As such, we are proposing to 
revise the fixed-day thresholds under the greater than 3-day 
interruption of stay policy to provide for a 30-day fixed threshold as 
an ``acceptable standard'' for determining a linkage between an index 
discharge and a readmission from an inpatient facility as specified 
under this policy, that is, an IPPS hospital, an IRF, or a SNF.
3. Proposed Changes to the Greater Than 3-Day Interruption of Stay 
Policy
    We are proposing to adopt a 30-day standard as the fixed-day 
threshold under the LTCH PPS ``greater than 3-day interruption of 
stay'' policy. To do so, we are proposing to amend our regulations by 
revising Sec. Sec.  412.531(a)(2) and (b)(4) and adding new paragraphs 
(a)(3) and (b)(5) to reflect this proposed policy change.
    Under our proposed policy revision, Medicare payments to LTCHs for 
patients discharged on or after October 1, 2014, who are treated in an 
acute care hospital, IRF, or SNF and readmitted to the same LTCH within 
30 days of the index LTCH discharge, both discharges from the LTCH 
would be treated as one episode of care and a single discharge payment 
would be made to the LTCH. In addition, because we believe that this 
30-day fixed-day threshold policy would address ``onsite'' concerns, we 
are proposing to remove Sec.  412.532, that currently governs 
discharges from LTCHs to ``onsite'' providers that subsequently readmit 
the patient to the same LTCH. If we finalize our proposal to adopt the 
30-day fixed-day threshold under the LTCH PPS greater than 3-day 
interruption of stay policy, we no longer believe that the regulatory 
requirements under Sec.  412.532 are necessary and, therefore, we are 
proposing to remove that section in its entirety. Furthermore, a 
determination as to whether an LTCH has exceeded its 5-percent 
threshold under the LTCH PPS 5-percent policy occurs only upon cost 
report settlement, and as such, reflects an ``after the fact'' payment 
adjustment rather than an ``up front'' payment adjustment, such as the 
payment adjustments that would be applied under our proposed greater 
than 3-day interruption of stay policy. As such, we believe that the 5-
percent policy has a limited impact on provider behavior, and we do not 
believe that retaining it has significant value to the Medicare 
program.

[[Page 28198]]

    In summary, we are proposing to revise the regulations under 
Sec. Sec.  412.531(a)(2) and (b)(4) and to add new Sec. Sec.  
412.531(a)(3) and (b)(5) to reflect this proposed payment policy 
revision. In addition, we are proposing to remove Sec.  412.532 in its 
entirety and make a conforming change to Sec.  412.525 by removing and 
reserving paragraph (d)(3), which references payments under Sec.  
412.532.

G. Moratoria on the Establishment of LTCHs and LTCH Satellite 
Facilities and on the Increase in the Number of Beds in Existing LTCHs 
or LTCH Satellite Facilities

    As previously noted, Public Law 113-67 was enacted on December 26, 
2013. Section 1206(b)(2) of Public Law 113-67 amended section 114(d) of 
the MMSEA of 2007, as previously amended by section 4302 of the 
American Recovery and Reinvestment Act (ARRA) of 2009 (Pub. L. 111-5) 
and sections 3106(b) and 10312(b) of the Affordable Care Act (Pub. L. 
111-148). As further amended by section 112(b) of the Protecting Access 
to Medicare Act of 2014 (Pub. L. 113-93), section 114(d) of the MMSEA 
includes a ``new'' statutory moratoria on the establishment of new 
LTCHs and LTCH satellite facilities, and on the increase in the number 
of hospital beds in existing LTCHs and LTCH satellite facilities, ``for 
the period beginning April 1, 2014 and ending September 30, 2017,'' 
which mirrors nearly identical provisions of the ``expired'' moratoria 
under section 114(d)(1) of the MMSEA, as amended by sections 4302 of 
the ARRA and sections 3106(b) and 10312(b) of the Affordable Care Act. 
These prior, yet nearly identical, provisions of section 114(d)(1) of 
the MMSEA, as amended by the ARRA and the Affordable Care Act, expired 
on December 28, 2012. For clarity and brevity, we will refer to the 
``expired'' moratoria or moratorium to reference those that expired on 
December 28, 2012, and the ``new'' moratoria or moratorium to reference 
those that began on April 1, 2014, as applicable, throughout this 
discussion.
    The primary difference between the ``expired'' moratoria and the 
``new'' moratoria is that, while the ``expired moratoria'' provided for 
specific exceptions to both the moratorium on the establishment of new 
LTCHs and LTCH satellite facilities and on increases in the number of 
beds in existing LTCHs and LTCH satellite facilities, the ``new'' 
moratoria only provides exceptions to the moratorium on the 
establishment of new LTCHs and LTCH satellite facilities. No exceptions 
are provided under the ``new'' moratorium on increases in the number of 
hospital beds in existing LTCHs and LTCH satellite facilities. (For a 
detailed description of the ``expired'' moratoria provisions (including 
the applicable exceptions) that were in effect from December 29, 2007 
through December 28, 2012, we refer readers to the May 22, 2008 Interim 
Final Rule with Comment Period (73 FR 29705 through 29708).
    In light of the expiration date of the ``expired'' moratoria on 
December 28, 2012, and the effective date of the ``new'' moratoria on 
April 1, 2014, there has been a period of time in which new LTCHs and 
LTCH satellite facilities have been allowed to be established, and 
during which time there may have been increases in the number of 
hospital beds in LTCHs and LTCH satellite facilities. In accordance 
with section 114(d)(1) of the MMSEA, as amended by section 112(b) of 
Public Law 113-93, for the period beginning April 1, 2014 through 
September 30, 2017, CMS will be unable to designate any hospital as an 
LTCH, unless one of the exceptions (described below) is met.
    Additionally, as of April 1, 2014, in accordance with sections 
114(d)(6) and (d)(7) of the MMSEA, as amended by section 112(b) of 
Public Law 113-93, an existing LTCH may not increase the number of its 
hospital beds. This moratorium will extend through September 30, 2017, 
and is not subject to any exceptions.
    To qualify for an exception under the ``new'' moratorium to 
establish a new LTCH or LTCH satellite facility during the timeframe 
between April 1, 2014, and September 30, 2017, a hospital or entity 
must meet the following criteria:
     The hospital or entity must have begun its qualifying 
period for payment as an LTCH under 42 CFR 412.23(e).
     The hospital or entity must have a binding written 
agreement with an outside, unrelated party for the actual construction, 
renovation, lease, or demolition for an LTCH, and must have expended 
before April 1, 2014, at least 10 percent of the estimated cost of the 
project or, if less, $2,500,000.
     The hospital or entity must have obtained an approved 
certificate of need in a State where one is required.
    While this exception only applies to the ``new'' moratorium on the 
establishment of new LTCHs and LTCH satellite facilities under section 
114(d)(7) of the MMSEA, as amended by section 112(b) of Public Law 113-
93, the mechanics of the exception are analogous to those established 
under the ``expired'' moratorium, which ended in 2012. The ``expired'' 
moratoria were implemented in a May 22, 2008 Interim Final Rule with 
Comment Period (73 FR 29704 through 29707). As discussed in that rule, 
some of the terminology in the statutory provision was internally 
inconsistent. A strictly literal reading of the statutory language 
under section 114(d)(2) of the MMSEA, as amended by section 4302 of the 
ARRA and sections 3106(b) and 10312(b) of the Affordable Care Act, 
presented practical challenges for implementation in light of the 
established LTCH classification criteria under Sec.  412.23(e) of the 
regulations. Therefore, we adopted interpretations that we believed 
would reasonably reconcile seemingly inconsistent provisions and that 
would result in a logical and workable mandate. Specifically, as 
drafted, the exception only applies to a hospital or entity when it is 
already classified as an ``LTCH.'' Such entities would not need an 
exception to the moratorium on becoming an ``LTCH'' because they would 
already be an LTCH. As such, we are proposing to interpret this 
provision under the new exception as we interpreted the exceptions to 
the ``expired'' moratorium. We discuss our interpretations below.
    At the outset of this discussion, we want to clarify which 
provisions of section 114(d) of the MMSEA, as amended, were subject to 
the ``expired'' moratoria, and which are subject to the ``new'' 
moratoria. Sections 114(d)(2) and (3) of the MMSEA, as amended, only 
address exceptions under the ``expired'' moratoria. Section (d)(6) of 
the MMSEA, as amended, defines when the exceptions addressed in 
sections 114(d)(2) and (3) expired. Section (d)(7) of the MMSEA 
addresses the exception under the ``new'' moratorium on the 
establishment of new LTCHs and LTCH satellite facilities. There are no 
exceptions to the ``new'' moratorium on the increases in the number of 
beds in existing LTCHs and LTCH satellite facilities, as noted above.
    Section 114(d)(7)(A) of the MMSEA, as amended, mirrors the expired 
provisions of section 114(d)(2)(A). Both provisions refer to an LTCH 
that began its qualifying period for payment as a ``long-term care 
hospital'' on or before a given date. However, a hospital would not be 
classified as an LTCH during that qualifying period; the facility or 
entity would typically be classified as an IPPS hospital. For a full 
discussion of our rationale for interpreting section 114(d)(2)(A) of 
the MMSEA to refer to an IPPS hospital meeting the stated requirements, 
we refer readers to our May 22, 2008 Interim Final Rule with Comment 
Period (73 FR 20704 through 29707) regarding the implementation of the 
``expired'' moratorium. We are proposing to apply the same rationale in

[[Page 28199]]

regard to the interpretation of section 114(d)(7)(A), that is, we are 
proposing to interpret the provision to refer to an acute care hospital 
meeting the stated requirements as the hospital or entity seeks 
classification as an LTCH. As we did when interpreting the same 
language under the ``expired'' moratorium exception under section 
114(d)(2)(A) of the MMSEA, as amended by section 4302 of the ARRA and 
sections 3106(b) and 10312(b) of the Affordable Care Act, we note that 
the exception under section 114(d)(7)(A) of the MMSEA cannot provide 
any relief to LTCH satellite facilities because there is no 
``qualifying period'' for the establishment of a LTCH satellite 
facility for payment as a LTCH under Sec.  412.23(e). Therefore, an 
LTCH satellite facility cannot meet the stated requirements for an 
exception under section 114(d)(7)(A) of the MMSEA.
    Section 114(d)(7)(B) of the MMSEA specifies the conditions for an 
exception to the moratorium on the establishment of new LTCHs and LTCH 
satellite facilities having: (1) A binding written agreement with an 
outside, unrelated party for the actual construction, renovation, 
lease, or demolition for an LTCH; and (2) expended, before the date of 
enactment of Public Law 113-93, April 1, 2014, ``at least 10 percent of 
the estimated cost of the project (or, if less, $2,500,000).'' As 
drafted, this provision is also problematic. In cases in which a 
hospital has not yet been built, but there is a binding written 
agreement for the actual construction of a hospital that intends to be 
classified as an LTCH, the entity hiring those who would complete the 
construction would not be classified as an LTCH. Prior to the 
designation or classification of a hospital or an entity as an LTCH, a 
hospital must first be established and certified and must then complete 
the procedures specified under Sec.  412.23(e) in order to qualify as 
an LTCH, at which point the hospital would be reclassified as an LTCH.
    In accordance with our interpretation of section 114(d)(2)(B) of 
the MMSEA, as amended by section 4302 of the ARRA and sections 3106(b) 
and 10312(b) of the Affordable Care Act, we are proposing to interpret 
the contracting and expenditure provisions under section 114(d)(7)(B) 
of the MMSEA, as added by section 112(b) of Public Law 113-93, to apply 
to the hospital/entity requesting an exception to the moratorium on the 
establishment of new LTCHs and LTCH satellite facilities between April 
1, 2014, and September 30, 2017--the entity that would be classified as 
an LTCH if it meets the stated requirements. That entity must have a 
binding written agreement with an outside unrelated party for the 
actual construction, renovation, lease, or demolition for converting 
the hospital to an LTCH, and it must have expended at least 10 percent 
of the estimated cost of the project (or, if less, $2,500,000) by the 
date of enactment of Public Law 113-93--April 1, 2014.
    Furthermore, with regard to the first prong, as when we implemented 
the ``expired'' moratoria, we continue to believe that the use of the 
term ``actual'' in the context of the ``actual construction, 
renovation, lease, or demolition'' indicates that the provision focuses 
only on the specific actions cited in the statute, and does not include 
those actions that are being contemplated or are not yet substantially 
underway. Although we are aware that a hospital or some other type of 
entity may enter into binding written agreements regarding services and 
items (for example, feasibility studies or land purchase) and incur 
costs for those services and items prior to actual construction, 
renovation, lease or demolition, we believe that those services or 
items are not included in what we are permitted to consider under the 
statutory language of the exception requirements.
    With respect to the second prong, the statute specifies that the 
hospital or entity must have ``expended'' at least 10 percent of the 
estimated cost of the project (or, if less, $2,500,000) by April 1, 
2014. As we did in regard to the interpretation of section 114(d)(2)(B) 
of the MMSEA, as amended by section 4302 of the ARRA and section 
3106(b) and 10312(b) of the Affordable Care Act, we are proposing to 
interpret the phrase ``cost of the project'' to mean the activities 
enumerated in the first prong: ``The actual construction, renovation, 
lease, or demolition for a long-term care hospital.'' That is, the 
statute requires the hospital or entity to have spent the amount 
specified in the statute on the actual construction, renovation, lease, 
or demolition for the contemplated LTCH. Furthermore, as we did 
previously in regard to the interpretation of section 114(d)(2)(B) of 
the MMSEA, as amended by section 4302 of the ARRA and sections 3106(b) 
and 10312(b) of the Affordable Care Act, because the statute uses the 
phrase ``has expended'' (that is, a past tense phrase), we are 
proposing to limit funds counting toward the 10 percent or $2,500,000 
minimum to those funds that have actually been transferred as payment 
for the stated aspects of the project prior to April 1, 2014, as 
opposed to merely obligating capital and posting the cost of the 
project on its books. We believe that the provision addressed the 
concept of ``obligate'' in the first prong of the test where the 
statute specifies ``a binding written agreement . . . for the actual 
construction, renovation, lease, or demolition of the long-term care 
hospital . . .'' and there is no reason to believe that the second 
prong of the test, which requires the ``expenditure'' of 10 percent of 
the project or, if less, $2,500,000, was intended as a redundancy. The 
ability to post the expense on the hospital's or entity's books could 
be satisfied by merely having a binding written agreement under the 
first prong of section 114(d)(7)(B) of the MMSEA. The fact that a 
second requirement is included that involves an expenditure indicates 
that an additional threshold must be met.
    Finally, section 114(d)(7)(C) of the MMSEA includes an exception to 
the moratorium if an LTCH, as of April 1, 2014, has ``obtained an 
approved certificate of need in a State where one is required.'' As 
discussed above, we are proposing to apply this exception requirement 
to the entity that is requesting approval for an exception to the 
moratorium on the establishment of new LTCHs and LTCH satellite 
facilities between April 1, 2014, and September 30, 2017--the entity 
that would be classified as an ``LTCH'' if the stated requirements are 
met.
    However, with that said, we are clarifying what kind of certificate 
of need we are proposing to accept under the provisions of section 
114(d)(7) of the MMSEA. We believe that the certificate of need 
exception applies to a ``hospital'' or entity that was actively engaged 
in developing an LTCH, as evidenced by the fact that either an entity 
that wanted to create a LTCH but did not exist as a hospital as of 
April 1, 2014, had obtained a certificate of need for a hospital by the 
date of enactment, or an existing hospital had obtained a certificate 
of need to convert the hospital into a new LTCH by that date. We are 
proposing not to apply this exception requirement to a hospital that 
was already in existence prior to the date of enactment of Public Law 
113-93, and that had previously obtained an approved certificate of 
need for a hospital (other than a LTCH) on or before April 1, 2014. We 
believe that Congress intended the exception to the moratorium to save 
those entities that were already actively engaged in becoming an LTCH. 
The fact that a hospital may have had a certificate of need issued to 
it years before April 1, 2014, to operate a hospital (other than a 
LTCH) is not indicative of such active engagement, and, we believe, is 
outside

[[Page 28200]]

of what is contemplated in these LTCH-specific statutory provisions. We 
are proposing to only apply this exception requirement where the 
certificate of need was specifically for an LTCH. Because the 
certificate of need process is controlled at the State level, in 
determining whether the hospital or entity has obtained an approved 
certificate of need on or before April 1, 2014, we would consult the 
applicable State on a case-by-case basis for that determination.
    Decisions regarding the application of these moratoria and 
exceptions provided within the provisions of section 114(d) of the 
MMSEA will be handled on a case-by-case basis by the applicant's MAC 
and the CMS Regional Office.
    In accordance with these proposals, we also are proposing to revise 
our regulations under Sec.  412.23(e)(6) and (e)(7) to include a 
description of the ``new'' moratoria, which is in effect from April 1, 
2014, through September 30, 2017, on the establishment of new LTCHs and 
LTCH satellite facilities (with specific exceptions), and on increasing 
the number of beds in existing LTCHs and existing LTCH satellite 
facilities.

H. Evaluation and Proposed Treatment of LTCHs Classified Under Section 
1886(d)(1)(B)(iv)(II) of the Act

    Section 1206(d) of the Pathway for SGR Reform Act (Pub. L. 113-67) 
instructs the Secretary to evaluate payments and regulations governing 
``hospitals which are classified under subclause (II) of subsection 
(d)(1)(B)(iv) . . .'' as part of the annual rulemaking for payment 
rates under subsection (d) of section 1886 of the Act for FY 2015 or FY 
2016. (We refer to hospitals ``classified under subclause (II) of 
subsection (d)(1)(B)(iv) . . .'' as ``subclause (II) LTCHs.'') Based on 
the results of this evaluation, the Secretary is authorized to adjust 
the payment rates under section 1886(b)(3) of the Act for this type of 
hospital (such as by applying a payment adjustment such that the 
payments resemble those under a ``TEFRA-payment model''). To implement 
such a payment adjustment, the Secretary would have to propose changes 
to the existing regulations governing subclause (II) LTCHs.
    For this proposed rule, under the requirements of section 
1206(d)(1) of Public Law 113-67 to evaluate the payment rates and 
regulations governing subclause (II) LTCHs, we have reviewed Medicare 
data from the only hospital meeting the statutory definition of a 
subclause (II) LTCH. As a result of these analyses, we are proposing to 
apply a payment adjustment to subclause (II) LTCHs beginning in FY 
2015, which would result in payments for this category of LTCHs that 
resemble a payment based upon a TEFRA payment model (that is, a 
reasonable cost payment, subject to a ceiling).
    Section 4417(b) of the BBA established the meaning of ``subsection 
(d) hospitals,'' which are paid under the IPPS, and in doing so, 
excluded two categories of hospitals that experience extended average 
inpatient length of stays. It also authorized the Secretary to define 
how an average inpatient length of stay would be calculated for these 
excluded hospitals. These provisions are included under sections 
1886(d)(1)(B)(iv)(I) and (d)(1)(B)(iv)(II) of the Act, and the two 
categories of hospitals are generally referred to as subclause (I) and 
subclause (II) LTCHs.
    Subclause (I) LTCHs are required to have an average inpatient 
length of stay that is greater than 25 days. Subclause (II) LTCHs are 
only required to have an average inpatient length of stay of greater 
than 20 days. The subclause (II) LTCH definition further limited the 
classification of a subclause (II) LTCH by including the requirement 
that the LTCH must have been first excluded from the IPPS in CY 1986, 
and treated a Medicare inpatient population in which 80 percent of the 
discharges in the 12-month reporting period ending in Federal FY 1997 
had a principal diagnosis that reflected a finding of neoplastic 
disease. This statutory requirement is implemented under 42 CFR 
412.23(e)(2)(ii).
    In establishing the category of subclause (II) LTCHs, Congress 
essentially authorized special treatment of a hospital that, since 
1986, had focused on the provision of palliative care to Medicare 
beneficiaries diagnosed with end-stage cancer. In consideration of the 
distinction between hospitals qualifying as LTCHs, either as a 
subclause (I) LTCH or a subclause (II) LTCH, we established different 
standards for counting the average inpatient length of stay values for 
these two categories of LTCHs. We calculate the greater than 25-day 
average length of stay criteria using only Medicare claims data for 
subclause (I) LTCHs. However, for subclause (II) LTCHs, we calculate 
the average length of stay based on its entire patient population. We 
refer readers to the RY 2003 LTCH PPS final rule (67 FR 55974) for a 
full discussion of our rationale for implementing these average length 
of stay calculation methodologies.
    The theoretical foundations of any PPS are based on a system of 
averages, where the costs of some cases may exceed the payment, while 
other cases' costs will be less than the payment, creating an adequate 
balance in payments. Therefore, it is assumed that a hospital paid 
under a PPS would be able to maintain a balance of patients that will 
allow the hospital to achieve fiscal stability. With that said, in 
developing the LTCH PPS we were aware that a per discharge PPS system 
that pays the same amount for every case in a specific MS-LTC-DRG could 
encourage hospitals to make decisions based on financial considerations 
(such as prematurely discharging patients to reduce the cost of such 
cases). As per discharge payments under the LTCH PPS are based on the 
extended lengths of stay that characterize LTCHs, at the outset of the 
LTCH PPS, we established a short-stay outlier (SSO) policy under which 
we apply a payment adjustment for LTCH discharges with lengths of stay 
that do not exceed \5/6\ of the geometric average length of stay of the 
MS-LTC-DRG. Equally, we were aware that there would be exceptionally 
expensive cases that could create financial disincentives to treat such 
patients and, therefore, we adopted a high-cost outlier (HCO) policy as 
well. However, given the nature of a subclause (II) LTCH's patient 
population, it may not be reasonable to expect a balancing of more and 
less costly cases, as these LTCHs are generally only treating a subset 
of very sick patients. As such, we modified our original SSO payment 
policy for subclause (II) LTCHs, and we exempted this category of LTCHs 
from additional changes to the SSO policy to account for the extremely 
high percentage of cases that our data analysis revealed would have 
been subject to our SSO policy if that policy were to be applied to 
subclause (II) LTCHs.
    In accordance with the requirements of section 1206(d)(1) of Public 
Law 113-67, we conducted an evaluation of the payment rates and 
regulations governing subclause (II) LTCHs. We analyzed MedPAR claims 
data for FY 2010 and estimated Medicare costs incurred by the one LTCH 
currently classified as a subclause (II) LTCH, a 225-bed LTCH located 
in New York. We also evaluated the same metrics for two comparison 
groups of LTCHs, that is, approximately 40 LTCHs located in the same 
census region (that is, the Northeast Census Region, which includes 
Connecticut, Maine, New Jersey, and Pennsylvania), and approximately 25 
LTCHs with the same bed size category (that is, between 150 and 250 
beds) in order to assess the distinctions between a subclause (I) LTCH 
and a subclause (II) LTCH. For purposes of this analysis, LTCH PPS

[[Page 28201]]

payments were calculated from the payment field in the MedPAR claims 
data, and the estimated costs for those claims were calculated using 
the covered charges and CCRs in the Provider-Specific File (PSF) that 
correlate to the discharge date on each claim. We calculated the 
aggregate average margins (ratio of payment to costs) for the subclause 
(II) LTCH and for the two sets of comparison groups of LTCHs using the 
calculated FY 2010 costs and payments. Our analysis found that, under 
current LTCH PPS payment policy, the subclause (II) LTCH has much lower 
margins than comparable LTCHs located in the Northeast Census Region or 
LTCHs with 150-250 beds. Specifically, the subclause (II) LTCH had a 
negative margin for its Medicare patients paid under LTCH PPS in FY 
2010, while both the Northeast Census Region LTCHs and LTCHs with 150-
250 beds had positive aggregate margins for its Medicare patients paid 
under LTCH PPS for the same period.
    In our evaluation of subclause (II) LTCHs under the LTCH PPS, in 
accordance with the requirements of section 1206(d) of Public Law 113-
67, we also compared the types of patients treated at subclause (I) and 
subclause (II) LTCHs. The top five MS-LTC-DRGs for patients treated at 
the subclause (II) LTCH in FY 2010 account for almost one-third of all 
of its Medicare discharges. Four of the top five MS-LTC-DRGs for the 
subclause (II) LTCH involve a neoplastic disease, and its case-mix 
differs significantly from the subclause (I) LTCHs, which had large 
proportions of ventilator and respiratory patients. The five most 
common MS-LTC-DRGs for the subclause (I) LTCHs were: Respiratory system 
diagnosis with ventilator support 96+ hours (MS-LTC-DRG 207); Pulmonary 
edema and respiratory failure (MS-LTC-DRG 189); Septicemia or severe 
sepsis without ventilator support 96+ hours with MCC (MS-LTC-DRG 870); 
Skin ulcers with MCC (MS-LTC-DRG 592); and Respiratory system diagnosis 
with ventilator support < 96 hours (MS-LTC-DRG 208). In comparison, for 
the subclause (II) LTCH, the five most common MS-LTC-DRGs were: 
Respiratory neoplasms with CC (MS-LTC-DRG 181); Digestive malignancy 
with CC (MS-LTC-DRG 375); Respiratory neoplasms with MCC (MS-LTC-DRG 
180); Organic disturbances & mental retardation (MS-LTC-DRG 884); and 
Malignancy, female reproductive system w CC (MS-LTC-DRG 755). These 
data highlight significant differences between a subclause (I) LTCH and 
a subclause (II) LTCH based on patient-mix and Medicare margins, 
notwithstanding the considerations that have been made in structuring 
the current LTCH regulations to acknowledge the uniqueness of an LTCH 
meeting the statutory definition of a subclause (II) LTCH.
    In evaluating ``both the payment rates and regulations governing 
hospitals which are classified under subclause (II) . . .,'' as 
required by section 1206(d) of Public Law 113-67, we also analyzed the 
impacts of upcoming changes to the LTCH PPS under section 1206(a) of 
Public Law 113-67. In discussing these analyses, we note that, as 
discussed in section VII.I.2. of the preamble of this proposed rule, we 
are not proposing any specific policy and payment changes in this 
proposed rule to implement the provisions of section 1206(a) of Public 
Law 113-67. We intend to establish policies related to the types of 
LTCH cases expected to meet the legislative patient-level criteria for 
the ``standard LTCH PPS payment'' and cases expected to meet the 
criteria for the ``site neutral'' payments under the LTCH PPS in the FY 
2016 rulemaking cycle. Although we are not making any proposals in this 
proposed rule related to the provisions of section 1206(a) of Public 
Law 113-67 at this time, we discuss these provisions in this section 
because they relate to our analysis of the LTCH PPS payment rates and 
regulations governing subclause (II) LTCHs.
    Absent policy proposals for the implementation of section 1206(d) 
of Public Law 113-67, the payment changes required by section 1206(a) 
of Public Law 113-67 would apply to subclause (II) LTCHs beginning with 
discharges occurring in cost reporting periods beginning on or after 
October 1, 2015 (that is, FY 2016 and beyond). Due to the changes 
required by the provisions of section 1206(a) of Public Law 113-67 
(discussed at greater length under section VII.I. of the preamble of 
this proposed rule), beginning in FY 2016, only those LTCH discharges 
meeting specified patient-level clinical criteria will be paid a 
``standard LTCH PPS payment amount.'' Discharges not meeting those 
criteria will be paid based on a ``site neutral'' payment amount (the 
lesser of the ``IPPS comparable'' amount, as applied under our SSO 
policy at Sec.  412.529, or 100 percent of the estimated costs of the 
case). The statutory requirements to be paid the ``standard LTCH PPS 
payment amount'' are that the LTCH discharge does not have a principal 
diagnosis relating to a psychiatric diagnosis or to rehabilitation, 
and:
     The stay in the LTCH was immediately preceded by a 
discharge from an acute care hospital that included at least 3 days in 
an intensive care unit (ICU); or
     The stay in the LTCH was immediately preceded by a 
discharge from an acute care hospital and the patient's LTCH stay is 
assigned to an MS-LTC-DRG based on the receipt of ventilator services 
of at least 96 hours.
    Furthermore, section 1206(a)(1)(C)(ii)(II) of Public Law 113-67 
specifies that, effective with cost reporting periods beginning on or 
after FY 2020, any LTCH with an ``LTCH discharge payment percentage'' 
that demonstrates that more than 50 percent of that LTCH's discharges 
were paid for based on the ``site neutral'' payment rate will 
subsequently be paid for all discharges at the rate ``. . . that would 
apply under subsection (d) for the discharge if the hospital were a 
subsection (d) hospital.'' We refer readers to section VII.I. of the 
preamble of this proposed rule for a further discussion of the 
provisions of section 1206(a) of Public Law 113-67.
    In light of these forthcoming statutory changes, we evaluated 
MedPAR claims data from the only hospital meeting the statutory 
definition of a subclause (II) LTCH for FY 2010 to project the impact 
of the revisions to the LTCH PPS made by section 1206(a) of Public Law 
113-67. Our simulations included analyses of the potential financial 
impact of applying the patient-level criteria and ``site neutral'' 
payment policies to a subclause (II) LTCH, and the financial impact on 
payments if that LTCH were to be paid for more than 50 percent of its 
discharges at the ``site neutral'' payment rate. In conducting this 
analysis in the absence of rules implementing the changes mandated by 
section 1206(a) of Public Law 113-67, we assumed that there would be no 
changes in LTCH admission patterns in response to the LTCH PPS payment 
changes required by section 1206(a) of Public Law 113-67. Furthermore, 
we used the FY 2010 claims data for the subclause (II) LTCH and the two 
LTCH comparison groups described above in order to compare the 
potential effects of the payment changes under the LTCH PPS required by 
section 1206(a) of Public Law 113-67 between subclause (I) LTCHs and 
subclause (II) LTCHs. We simulated payments for those discharges that 
would be expected to meet the legislative patient-level criteria for 
the ``standard LTCH PPS payment'' and for discharges that would be 
expected to receive ``site neutral'' payments under the LTCH PPS. Our 
analysis found that the subclause (II) LTCH would be

[[Page 28202]]

expected to have significantly fewer (approximately 5 times fewer) 
discharges that would be expected meet the legislative patient-level 
criteria for the ``standard LTCH PPS payment'' than the comparison 
groups of subclause (I) LTCHs (that is, Northeast Census Region LTCHs 
and LTCHs with 150-250 beds).
    Additionally, we analyzed the potential effects of the ``LTCH 
discharge payment percentage'' provision under the requirements of 
section 1206(a)(1)(C)(ii)(II) of Public Law 113-67, as noted above. We 
evaluated FY 2010 claims data from the subclause (II) LTCH to project 
the potential impact of this provision. Based on our simulations in 
which we projected which FY 2010 LTCH claims would be expected to 
receive ``site neutral'' payments under the LTCH PPS (as described 
above), and having found a significant number, we project that a 
significant negative financial impact would be imposed upon the 
subclause (II) LTCH's payments. Without considerable behavioral 
changes, the subclause (II) LTCH would be expected to have more than 50 
percent of its discharges paid based on a ``site neutral'' payment and, 
therefore, would receive a payment adjustment under the provisions of 
section 1206(a)(1)(C)(ii)(II) of Public Law 113-67 for all of its 
discharges. Furthermore, our analysis revealed that, given the 
particular medical profile of their patient population, that the 
``subsection (d)'' comparable payment amount under the payment 
adjustment required by section 1206(a)(1)(C)(ii)(II) of Public Law 113-
67 would not likely cover the costs for a significant number of their 
discharges. Consequently, our analysis shows that the subclause (II) 
LTCH is projected to experience a large negative aggregate average 
margin for its Medicare discharges under the payment changes required 
by section 1206(a) of Public Law 113-67.
    Based on our findings under our evaluation of payments to subclause 
(II) LTCHs under the LTCH PPS and consistent with the provisions of 
section 1206(d) of Public Law 113-67, we evaluated adjustments that 
could be applied to ensure appropriate payments under the LTCH PPS for 
a subclause (II) LTCH under the LTCH PPS. This analysis included 
consideration of a reasonable-cost based model, such as the TEFRA 
payment system under which certain PPS-excluded hospitals (such as 
children's and cancer hospitals) are currently paid. The TEFRA payment 
system, which was established under the provisions of Public Law 97-
248, is implemented under the regulations at 42 CFR 413.40.
    In addition to governing the current payment of certain PPS-
excluded hospitals, the TEFRA payment system was also previously used 
to pay LTCHs prior to the implementation of the LTCH PPS. As described 
in the RY 2003 LTCH PPS final rule (67 FR 55957), the TEFRA payment 
system was ``. . . established [to make] payments based on hospital-
specific limits for inpatient operating costs. A ceiling on payments to 
such hospitals is determined by calculating the product of a facility's 
base year costs (the year on which its target reimbursement limit is 
based) per discharge, updated to the current year by a rate-of-increase 
percentage, and multiplied by the number of total current year 
discharges.'' (A detailed discussion of target amount payment limits 
under Public Law 97-248 can be found in the September 1, 1983 final 
rule published in the Federal Register (48 FR 39746).)'' Under the 
TEFRA payment system, in accordance with section 1886(g) of the Act, 
Medicare allowable capital costs are paid on a reasonable cost basis.
    To evaluate reasonable cost-based payments under a TEFRA-payment 
model for subclause (II) LTCHs, we estimated operating and capital 
payments under the TEFRA payment system principles using FY 2010 cost 
report data for the one LTCH currently classified as a subclause (II) 
LTCH (the 225-bed LTCH located in New York noted previously). As 
described above, payments for operating costs under the TEFRA payment 
system are based on hospital-specific limits (that is, a ceiling). The 
ceiling on payments is determined as the product of a hospital's base 
year costs (the year on which its target reimbursement limit is based) 
per discharge (``target amount per discharge''), updated to the current 
year by a rate-of-increase percentage, and multiplied by the number of 
its Medicare discharges for the year. For purposes of this analysis, we 
determined the subclause (II) LTCH's TEFRA-based target amount per 
discharge by updating its FY 2000 target amount per discharge (prior to 
the implementation of the LTCH PPS) using the annual update factors as 
established under Sec.  413.40(c)(3). We used the FY 2000 target amount 
per discharge in order to calculate a target amount per discharge that 
does not include the increased target amounts and caps on the target 
amounts provided to LTCHs under section 307(a) of the BIPA. 
Specifically, section 307(a) of the BIPA provided a 2-percent increase 
to the wage-adjusted 75th percentile cap on the TEFRA target amounts 
for existing LTCHs for cost reporting periods beginning in FY 2001, and 
a 25-percent increase to the hospital-specific TEFRA target amounts for 
LTCHs, subject to the increased 75th percentile cap. These provisions 
were promulgated prior to the implementation of the LTCH PPS. However, 
as required by section 307(a)(2) of the BIPA, the 2-percent increase to 
the 75th percentile cap and the 25-percent increase to the TEFRA target 
amounts were not to be taken into account in the development and 
implementation of the LTCH PPS. To ensure that these increases would 
not be included in the LTCH PPS payments to subclause (II) LTCHs, 
consistent with the statutory requirement under section 307(a)(2) of 
the BIPA, for purposes of our analysis, we determined the subclause 
(II) LTCH's updated target amount by starting with its target amount 
from the FY 2000 cost report, the year prior to when these increases 
were effective. Then we updated its FY 2000 target amount per discharge 
using the annual update factors established under Sec.  413.40. This 
approach is consistent with the methodology we used to estimate each 
LTCH's FY 2003 payment per discharge for inpatient operating costs 
under the TEFRA payment system in determining the one-time prospective 
adjustment under Sec.  412.523(d)(3) in the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53498). For payments for capital-related costs, we used the 
hospital's capital cost data from Worksheets D, Parts I and II, as 
reported on their FY 2000 cost report. As described previously, 
Medicare allowable capital costs are paid on a reasonable cost basis 
under the TEFRA payment system, in accordance with the regulations 
underSec.  413.40. This approach is also consistent with the 
methodology we used to estimate each LTCH's FY 2003 payment per 
discharge for inpatient capital-related costs under the TEFRA payment 
system in determining the one-time prospective adjustment at Sec.  
412.523(d)(3), in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53499). 
Our analysis of the subclause (II) LTCH's projected payments under a 
TEFRA-payment model indicated that such payments would reasonably cover 
the costs for most of their discharges, and consequently, the subclause 
(II) LTCH is not projected to experience a negative aggregate margin 
for its Medicare discharges, unlike our projections under both the 
current LTCH PPS and the forthcoming payment changes to the LTCH PPS 
required by section 1206(a) of Public Law 113-67.

[[Page 28203]]

    In the above analyses, we evaluated the current regulations as well 
as anticipated payment rates under various statutorily mandated 
policies for FY 2016 on a subclause (II) LTCH under the LTCH PPS based 
on FY 2010 discharge data, including payments, costs and case-mix. As 
discussed above, our evaluation indicates that, given the required 
patient-mix for a subclause (II) LTCH, the forthcoming changes to the 
LTCH PPS are likely to result in a financial situation that is not 
sustainable for the subclause (II) LTCH evaluated above. Furthermore, 
our analysis also shows that current LTCH PPS payments for a subclause 
(II) LTCH, even with taking into account the considerations that have 
been made in structuring current LTCH PPS policies to acknowledge the 
uniqueness of a subclause (II) LTCH, may not be sufficient to cover the 
costs incurred for the treatment of patients of the particular medical 
profile of the subclause (II) patient population prescribed by the 
statute. Furthermore, we believe that in establishing subclause (II) 
LTCHs, Congress endorsed the support of the unique mission of this 
particular category of hospital. In fact, while mandating a significant 
revision to the LTCH PPS under section 1206(a) of Public Law 113-67, 
under section 1206(d) of the same statute, Congress directed the 
Secretary to evaluate the impact of the LTCH PPS on subclause (II) 
LTCHs, and, based on those findings, authorized the Secretary to adjust 
payment rates and other regulations, as appropriate, for this category 
of LTCHs.
    Accordingly, in recognition of the subclause (II) LTCH's current 
estimated payment-to-cost ratio under the LTCH PPS and further 
anticipated losses that would likely otherwise occur under the 
forthcoming statutory changes to the LTCH PPS, which would render this 
type of specially recognized facility fiscally untenable, we believe 
that it is appropriate to exercise the authority under section 
1206(d)(2) of Public Law 113-67. Therefore, in this proposed rule, for 
cost reporting periods beginning on or after October 1, 2014 (FY 2015 
and beyond), we are proposing to apply a payment adjustment to 
subclause (II) LTCH payments under the LTCH PPS such that these LTCH 
PPS payments would resemble payments made under the reasonable cost-
based TEFRA payment system. We believe that it would be appropriate to 
apply this proposed payment adjustment for a subclause (II) LTCH's 
first cost reporting period beginning on or after October 1, 2014, 
rather than discharges occurring on or after October 1, 2014, because 
it is consistent with the annual update of the hospital-specific limits 
(ceiling) for inpatient operating costs under the TEFRA payment system 
(as described below). We are proposing to implement this proposed 
payment adjustment for subclause (II) LTCHs in the regulations by 
adding new Sec.  412.526 under 42 CFR Part 412, Subpart O.
    Specifically, we are proposing to establish new regulations under 
Sec.  412.526 that would provide that, for cost reporting periods 
beginning on or after October 1, 2014, payments to a ``subclause (II)'' 
LTCH that are made under the LTCH PPS and under Subpart O of Part 412, 
as adjusted. This adjusted payment amount would generally be equivalent 
to an amount determined under the reasonable cost-based reimbursement 
rules for both operating and capital-related costs under 42 CFR Part 
413. As described above, Medicare payments for inpatient operating 
costs under the reasonable-cost based TEFRA payment system are subject 
to a hospital-specific ceiling on payments that is determined as the 
product of a hospital's base year costs per discharge (``target amount 
per discharge''), updated to the current year by a rate-of-increase 
percentage, and multiplied by the number of its Medicare discharges for 
the year. Medicare allowable inpatient capital-related costs are paid 
on a reasonable cost basis, in accordance with section 1886(g) of the 
Act.
    Under this proposed payment adjustment under new Sec.  412.526 for 
inpatient operating costs, the adjusted payment amount would generally 
be determined in accordance with the cited provisions of Sec.  413.40. 
Accordingly, we are proposing to establish a ``target amount'' for a 
subclause (II) LTCH for purposes of calculating a hospital-specific 
ceiling on payments for inpatient operating costs under this proposed 
payment adjustment. We are proposing to determine such a target amount 
based on the subclause (II) LTCH's target amount that was used to 
determine its payments for inpatient operating costs under the TEFRA 
payment system prior to the implementation of the LTCH PPS, updated by 
the TEFRA payment system rate-of-increase percentages under Sec.  
413.40(c)(3). Furthermore, in determining a subclause (II) LTCH's 
target amount for purposes of this proposed payment adjustment, 
consistent with the statute (as explained below), we are proposing not 
to include the increases to LTCHs' TEFRA target amounts and caps 
provided for by section 307(a) of the BIPA. As discussed previously, 
prior to the implementation of the LTCH PPS, section 307(a) of the BIPA 
provided a 2-percent increase to the wage-adjusted 75th percentile cap 
on the TEFRA target amounts for existing LTCHs for cost reporting 
periods beginning in FY 2001 and a 25-percent increase to the hospital-
specific TEFRA target amounts for LTCHs, subject to the increased 75th 
percentile cap. Section 307(a)(2) of the BIPA also specifies that the 
2-percent increase to the 75th percentile cap and the 25-percent 
increase to the TEFRA target amounts were not to be taken into account 
in the development and implementation of the LTCH PPS. Therefore, 
consistent with the statutory requirement under section 307(a)(2) of 
the BIPA, under new Sec.  412.526, we are proposing to determine a 
subclause (II) LTCH's updated target amount based on its FY 2000 TEFRA 
payment system target amount, the year prior to when the increases 
under section 307(a) of the BIPA were effective. Using its FY 2000 
TEFRA payment system target amount would ensure that the increases 
provided for by section 307(a) of the BIPA would not be included in the 
LTCH PPS payments to subclause (II) LTCHs under this proposed LTCH PPS 
payment adjustment. This approach for excluding those increases to the 
TEFRA payment system target amounts is consistent with the methodology 
that was used to develop the one-time prospective adjustment to the 
standard Federal rate in which we calculated what amount would have 
been paid under the TEFRA payment system had the LTCH PPS not been 
implemented (77 FR 53497 through 53500). Therefore, under the proposed 
payment adjustment for subclause (II) LTCHs under new Sec.  412.526, we 
are proposing to determine a FY 2015 TEFRA-based target amount by 
updating the subclause (II) LTCH's FY 2000 TEFRA target amount using 
the applicable rate-of-increase percentages for FYs 2001 through 2015 
established under Sec.  413.40(c)(3).
    In addition to payment for inpatient operating costs, the proposed 
adjusted payment amount for subclause (II) LTCHs that would be 
equivalent to an amount determined under the reasonable cost-based 
reimbursement rules under 42 CFR Part 413 would also include payment 
for inpatient capital-related costs. Under the TEFRA payment system, in 
accordance with the regulations under 42 CFR Part 413, Medicare 
allowable capital costs are paid on a reasonable cost basis, consistent 
with section 1886(g) of the Act. Therefore, we are proposing that

[[Page 28204]]

the payment adjustment to subclause (II) LTCHs under new Sec.  412.526 
would include reasonable cost-based payments for capital-related costs. 
Payments under the LTCH PPS encompass both inpatient operating and 
capital-related costs of furnishing covered inpatient LTCH services, 
including routine and ancillary costs (67 FR 55983). Accordingly, under 
new Sec.  412.526, the proposed adjusted payment amount that would be 
equivalent to an amount determined under the reasonable cost-based 
reimbursement rules is based only on inpatient operating and capital-
related costs incurred by the subclause (II) LTCH for furnishing 
covered inpatient LTCH services, and does not include any other TEFRA 
system payment amounts, such as bonus and relief payments, continuous 
improvement bonus payments, or adjustments to the rate-of-increase 
limits.
    In summary, for cost reporting periods beginning on or after 
October 1, 2014, we are proposing that payment to a ``subclause (II)'' 
LTCH be made under the LTCH PPS, as adjusted. The adjusted payment 
amount would be equivalent to an amount determined under the reasonable 
cost-based reimbursement rules for both operating and capital-related 
costs in accordance with the cited portions of Part 413. Under this 
proposed payment adjustment, Medicare inpatient operating costs would 
be reimbursed on a reasonable cost basis, subject to a ceiling; that 
is, an aggregate upper limit on the amount of a hospital's net Medicare 
inpatient operating costs that would be recognized for payment 
purposes. For each cost reporting period, the ceiling on payments for 
Medicare inpatient operating costs would be determined by multiplying 
the updated target amount for that period by the number of LTCH PPS 
discharges during that period. For cost reporting periods beginning 
during FY 2015, the target amount would be equal to the hospital's 
target amount determined under Sec.  413.40(c)(4) for its cost 
reporting period beginning during FY 2000, updated by the applicable 
annual rate-of-increase percentages specified in Sec.  413.40(c)(3) to 
the subject period (that is, for FYs 2001 through 2015). For subsequent 
cost reporting periods, the target amount would equal the hospital's 
target amount for the previous cost reporting period updated by the 
applicable annual rate-of-increase percentage specified in Sec.  
413.40(c)(3) for the subject cost reporting period. Payment for 
Medicare allowable inpatient capital-related costs under this proposed 
payment adjustment would be paid on a reasonable cost basis, in 
accordance with the cited portions of 42 CFR Part 413. We are proposing 
to codify the provisions of this proposed payment adjustment to 
subclause (II) LTCHs under new Sec.  412.526 of the regulations. In 
addition, we are proposing to make conforming changes to Sec.  
412.521(a)(2) to refer to this proposed payment adjustment under new 
Sec.  412.526.

I. Description of Statutory Framework for Patient-Level Criteria-Based 
Payment Adjustment Under the LTCH PPS Under Public Law 113-67

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-level and facility-level criteria for LTCHs and a potential 
framework for developing changes to the LTCH PPS. The framework was 
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 group of patients 
under the LTCH PPS (that is, a chronically critical ill/medically ill 
(CCI/MC) framework for the LTCH PPS). Although this research was not 
completed at the time of issuance of the FY 2014 IPPS/LTCH PPS proposed 
rule, we solicited feedback from LTCH stakeholders in the FY 2014 IPPS/
LTCH PPS proposed rule on the description of the interim framework, and 
indicated that any public comments submitted would be evaluated and 
considered by our contractors with the expectation of formulating a 
proposal for FY 2015 based on this research (78 FR 27668 through 
27676).
    Section 1206(a) of Public Law 113-67 amended section 1886(m) of the 
Act by adding paragraph (6), which establishes patient-level criteria 
for payments under the LTCH PPS for implementation beginning in FY 
2016. Therefore, our prior intention to present a proposal for a CCI/MC 
framework for the LTCH PPS (as discussed in the FY 2014 IPPS/LTCH PPS 
proposed and final rules) in this FY 2015 IPPS/LTCH PPS proposed rule 
has been superseded. Accordingly, we are not proposing revisions to the 
LTCH PPS based upon the Kennell/RTI framework for FY 2015. Rather, we 
intend to propose to implement the requirements established by section 
1206(a) of Public Law 113-67 in the FY 2016 LTCH PPS rulemaking cycle. 
(We note that the final report on the CCI/MC framework developed by 
Kennell/RTI under our research contract is expected to be available 
later this year and will be made available to the public through a Web 
site.)
    In section VII.I.2. of the preamble of this proposed rule, we 
summarize the statutory provisions of section 1206(a) of Public Law 
113-67, and in section VII.I.3. of the preamble of this proposed rule, 
we discuss several significant issues arising from these statutory 
changes to the LTCH PPS, on which we are interested in receiving 
stakeholder feedback prior to developing our proposals for FY 2016 
implementation.
2. Provisions of Section 1206(a) of Public Law 113-67
    Section 1206(a) of Public Law 113-67 added a new section 
1886(m)(6), which establishes patient-level clinical criteria that must 
be met in order for a standard LTCH PPS payment to be made and provides 
that patients stays that do not meet those criteria that will be paid 
based on an adjusted or ``site neutral'' payment rate. The provisions 
of section 1206(a) are effective for LTCH discharges occurring during 
cost reporting periods beginning on or after October 1, 2015 (FY 2016).
    Specifically, the patient-level clinical criteria that must be met 
in order for a standard LTCH PPS payment to be made under section 
1886(m)(6) of the Act, as added by section 1206(a) of Public Law 113-
67, are that:
     The stay in the LTCH is immediately preceded by a 
discharge from an acute care hospital that included at least 3 days in 
an intensive care unit (ICU); or the stay in the LTCH is immediately 
preceded by a discharge from an acute care hospital and the patient's 
LTCH stay was assigned to an MS-LTC-DRG based on the receipt of 
ventilator services of at least 96 hours; and
     The LTCH discharge does not have a principal diagnosis 
relating to a psychiatric diagnosis or to rehabilitation.
    Section 1886(m)(6)(A) of the Act, as added by section 1206(a) of 
Public Law 113-67, specifies that payments for LTCH discharges that do 
not meet the clinical criteria will be made at the applicable ``site 
neutral payment rate.'' The statute defines ``site neutral payment 
rate'' as the lower of the ``IPPS comparable'' amount or 100 percent of 
the ``estimated cost'' of the case. The ``IPPS comparable'' amount, 
which the statute specifies is calculated based on

[[Page 28205]]

the methodology applied under the short stay outlier (SSO) policy at 42 
CFR 412.529(d)(4), is an amount comparable to the hospital inpatient 
prospective payment system per diem capped at an amount comparable to 
the full MS-DRG payment rate, including any applicable outlier payments 
under Sec.  412.525. We expect to propose calculating the ``cost of the 
case,'' as specified in the regulations at Sec.  412.529(d)(2), by 
multiplying the applicable hospital-specific CCR by the Medicare 
allowable charges for a case, consistent with how we currently estimate 
the cost of the case under both the SSO and high-cost outlier policies.
    Section 1886(m)(6)(B) of the Act also requires a phase-in of this 
payment policy change under the LTCH PPS over 2 years. Therefore, for 
LTCH discharges occurring in cost reporting periods during FYs 2016 and 
2017 that do not meet the patient level clinical criteria, the total 
payment amount for LTCH services will be based on one-half of the 
calculated ``site neutral'' payment rate and one-half of the standard 
LTCH PPS payment rate. The full payment adjustment based on the 
requirements of Public Law 113-67 will begin to effect payments to 
LTCHs and LTCH satellite facilities for discharges beginning with 
LTCHs' and LTCH satellite facilities' FY 2018 cost reporting period. 
Therefore, for cost reporting periods beginning during FY 2018, LTCHs 
will be paid the standard LTCH PPS payment amount only for LTCH 
discharges that meet the statutory clinical criteria under section 
1886(m)(6) of the Act. LTCH discharges that do not meet the clinical 
criteria will be paid based on the ``site neutral'' payment rate.
    Section 1886(m)(6)(C) of the Act, as added by section 1206(a)(1) of 
Public Law 113-67, also includes a limit on payments for all hospital 
discharges occurring in cost reporting periods during or after FY 2021 
if a hospital fails to meet the applicable LTCH discharge threshold. In 
anticipation of this limit on payments, section 1886(m)(6)(C)(i) of the 
Act specifies that, for cost reporting periods beginning on or after 
October 1, 2015 (FY 2016), the Secretary is required to notify each 
LTCH of its ``discharge payment percentage,'' which is defined under 
section 1886(m)(6)(C)(iv) of the Act as the percentage resulting from 
the ratio of the LTCH's discharges paid based on the standard LTCH PPS 
payment amount to the LTCH's total discharges for each cost reporting 
period.
    Section 1886(m)(6)(C)(ii) of the Act specifies that, for cost 
reporting periods during or after FY 2020, the Secretary is required to 
provide notice to LTCHs with a ``discharge payment percentage'' that 
indicates that the LTCH does not meet the ``at least 50 percent'' 
threshold. An LTCH that does not meet the required threshold for a cost 
reporting period in FY 2020 will be paid for services as if the 
hospital were an acute care hospital until such time as that facility 
is reinstated under section 1886(m)(6)(C)(iii) of the Act. 
Specifically, section 1886(m)(6)(C)(ii) of the Act provides that LTCHs 
that are determined to be treating a Medicare population with less than 
50 percent of patients for whom a standard LTCH PPS payment is made, 
that is, LTCHs for whom 50 percent or more Medicare beneficiary 
discharges are paid at the ``site neutral'' payment rate will receive 
``. . . the payment amount that would apply under subsection (d) for 
all discharges as if the hospital were a subsection (d) hospital.'' In 
other words, LTCHs failing to meet the applicable discharge threshold 
will be paid an IPPS equivalent payment rate.
    Section 1886(m)(6)(C)(iii) of the Act provides that the Secretary 
is authorized to establish a ``reinstatement'' process through which an 
LTCH that fails to meet the required discharge threshold percentage can 
be ``reinstated'' and resume receiving payments under the new payment 
policy for LTCH services established by section 1206(a)(1) of Public 
Law 113-67, that is, standard LTCH PPS payments or ``site neutral'' 
payments, as applicable.
    Section 1886(m)(6)(D) of the Act, as added by section 1206(a)(1) of 
Public Law 113-67, specifies that subsection (d) hospitals in Puerto 
Rico are deemed to be included in any reference in section 1886(m) of 
the Act to a subsection (d) hospital.
    Section 1206(a)(3) of Public Law 113-67 revised the existing policy 
for calculating whether an LTCH or LTCH satellite facility meets the 
greater than 25-day average length of stay requirement in sections 
1886(d)(1)(B)(iv)(I) and 1861(ccc)(2) of the Act, which is implemented 
in the regulations at Sec.  412.23(e)(2) and (e)(3). Specifically, 
section 1206(a)(3) provides that cases for which Medicare paid the 
provider under the ``site neutral'' rate, as well as any paid under a 
Medicare Advantage plan (that is, Medicare Part C) shall be excluded 
from the calculations of the average length of stay of an LTCH or an 
LTCH satellite facility. LTCHs that had not attained their LTCH 
designation by December 10, 2013, are exempt from this statutorily 
mandated change.
    As previously stated, section 1206(a)(1) of Pub. L 113-67 provides 
for ``site neutral'' payments to an LTCH for certain specified patient 
discharges effective for discharges occurring in cost reporting periods 
beginning on or after October 1, 2015. We intend to propose the 
specific policy and payment changes that will be necessary to implement 
the Public Law 113-67 provisions for cost reporting periods beginning 
on or after October 1, 2015, during the FY 2016 rulemaking cycle. 
Although we are not proposing the changes mandated by section 
1206(a)(1) of Public Law 113-67 in this proposed rule, in light of the 
degree of forthcoming changes, in section VII.I.3. we discuss some of 
the changes in this proposed rule, and request public feedback to 
inform our proposals for FY 2016.
3. Additional LTCH PPS Issues
    The LTCH PPS was originally established for cost reporting periods 
beginning on or after October 1, 2002, by section 123(a) of the BBRA 
(Pub. L. 106-113) and section 307(b) of the BIPA (Pub. L. 106-554). (We 
also refer readers to section 1886(m) of the Act, as added by section 
114(e) of the MMSEA.) Section 307(b) of the BIPA granted the Secretary 
considerable authority in developing the LTCH PPS, specifying that the 
Secretary shall ``. . . examine and may provide for appropriate 
adjustments to the long-term hospital payment system, including 
adjustments to DRG weights, area wage adjustments, geographic 
reclassification, outliers, updates, and a disproportionate share 
adjustment. . . .''
    Accordingly, as we evaluate the revisions to the LTCH PPS required 
by section 1206(a)(1) of Public Law 113-67, we believe that the broad 
authority permitted by the original statutory mandates continues to 
grant us the authority to modify, if appropriate, methodologies for our 
payment determinations under the LTCH PPS. (We refer readers to the RY 
2003 LTCH PPS final rule (67 FR 55954), which describes the development 
and implementation of the LTCH PPS for FY 2003.) Specifically, section 
1206(a) of Public Law 113-67 establishes two distinct payment groups 
for LTCH discharges under the revised system: discharges meeting 
specified patient-level criteria that will be paid under the ``standard 
LTCH PPS payment amount'' and all other patient discharges that will be 
paid under the ``site neutral'' payment rate and methodology (discussed 
above). In setting the payment rates and factors under the LTCH PPS as 
required by section 1206(a) of Public Law 113-67 for certain LTCH PPS 
payment adjustments, such as the MS-LTC-DRG relative weights and high-
cost outlier payments, we plan

[[Page 28206]]

to evaluate whether it would be appropriate to modify our historical 
methodology to account for the establishment of the two distinct 
payment methodologies for LTCHs. For example, we intend to examine 
whether, beginning in FY 2016, it is still appropriate to include data 
for all LTCH PPS cases, including ``site neutral'' payment cases, in 
our methodology for setting relative payment weights for MS-LTC-DRGs. 
We also intend to explore the need for changes to the LTCH PPS high-
cost outlier payment policies. Given the fact that, for a number of 
LTCH patients, payment will be made based on the lower of the ``IPPS 
comparable'' per diem payment and the estimated cost of the case, we 
will need to decide whether to maintain a single high-cost outlier 
``target'' for all LTCH PPS cases (including ``site neutral'' payment 
cases) or whether it may be more appropriate to establish separate 
high-cost outlier ``targets'' for each of the two payment groups under 
the revised LTCH PPS. Our existing methodology for calculating the MS-
LTC-DRG relative weights is discussed during the annual rulemaking 
cycle and was, most recently, included in the FY 2014 IPPS/LTCH final 
rule (78 FR 50753 through 50760). Our detailed description of our 
existing high-cost outlier payment policy, which has remained the same 
since being implemented, can be found in the RY 2003 LTCH PPS final 
rule (67 FR 56022 through 56027). (We note that our proposed 
methodology for calculating the MS-LTC-DRG relative payment weights for 
FY 2015 can be found in section VII.B.3. of the preamble of this 
proposed rule, and our proposals under the high-cost outlier payment 
policy for FY 2015 can be found in section V.D. of the Addendum to this 
proposed rule.)
    We are interested in receiving feedback from LTCH stakeholders on 
our plans to evaluate whether it would be appropriate to modify any of 
our historical methodologies as we implement the payment changes to the 
LTCH PPS under section 1206(a) of Public Law 113-67. In particular, we 
are interested in public feedback on the issues mentioned earlier (that 
is, policies relating to establishing the relative payment weights and 
high-cost outliers) so that we may evaluate various options in 
preparation for developing proposals to implement the statutory changes 
beginning in FY 2016.

J. Proposed Technical Change

    In this proposed rule, we are proposing to update the legislative 
basis for the regulations governing the LTCH PPS under Subpart O of 
Part 412. Specifically, we are proposing to add references under new 
paragraphs (a)(4), (a)(5), and (a)(6) of Sec.  412.500 of the 
regulations to the revisions to the Act made by section 4302(a) of 
Public Law 111-5, sections 3106(a) and 10312(a) of Public Law 111-148, 
and section 1206 of Public Law 113-67, respectively.

VIII. Appropriate Claims in Provider Cost Reports; Administrative 
Appeals by Providers and Judicial Review

    In this proposed rule, we are proposing to revise the cost 
reporting regulations in 42 CFR Part 413, Subpart B by requiring a 
provider to include an appropriate claim for a specific item in its 
Medicare cost report in order to receive or potentially qualify for 
Medicare payment for the specific item. If the provider's cost report 
does not include an appropriate claim for a specific item, payment for 
the item will not be included in the notice of program reimbursement 
(NPR) issued by the Medicare Administrative Contractor (MAC) (formerly 
known as fiscal intermediary and herein referred to as ``contractor'') 
or in any decision or order issued by a reviewing entity (as defined in 
42 CFR 405.1801(a) of the regulations) in an administrative appeal 
filed by the provider. In addition, we are proposing to revise the 
appeals regulations in 42 CFR Part 405, Subpart R, by eliminating the 
requirement that a provider must include an appropriate claim for a 
specific item in its cost report in order to meet the dissatisfaction 
requirement for jurisdiction before the Provider Reimbursement Review 
Board (Board), and by specifying the procedures for Board review of 
whether the provider's cost report meets the proposed substantive 
reimbursement requirement of an appropriate cost report claim for a 
specific item. We also are proposing technical revisions to other Board 
appeal regulations to conform those regulations to the main revisions 
(described above) to the cost reporting regulations and the provider 
appeal regulations, in addition to proposing similar revisions to the 
Part 405, Subpart R regulations for appeals before the contractor 
hearing officers. In addition, we are proposing to conform the 
terminology in Part 405, Subpart R and all subparts of Part 413 from 
``intermediary'' or ``fiscal intermediary'' to ``contractor'' pursuant 
to sections 1816, 1874A and 1878 of the Act. All of these proposed 
revisions to the cost reporting regulations and the provider appeals 
regulations would apply to provider cost reporting periods beginning on 
or after the effective date of the final IPPS annual update rule.

A. Background

1. Payments and Cost Reporting Requirements
    For cost reporting years beginning before October 1, 1983, all 
providers were reimbursed on a reasonable cost basis for Part A 
(hospital insurance) covered items and services that were furnished to 
Medicare beneficiaries. Reasonable cost is defined at section 
1861(v)(1)(A) of the Act and implementing regulations at 42 CFR Part 
413. In the Social Security Amendments of 1983 (Pub. L. 98-21), 
Congress added section 1886(d) to the Act, which, effective with cost 
reporting periods beginning on or after October 1, 1983, changed the 
payment method for inpatient hospital services furnished by short-term 
acute care hospitals to a prospective payment system (PPS). In 
accordance with section 1886(d) of the Act and implementing regulations 
at 42 CFR Part 412, a PPS payment is made at a predetermined specific 
rate for each hospital discharge (classified according to a list of 
diagnosis-related groups (DRGs)), excluding certain costs that are paid 
on a reasonable cost basis.
    Later statutory amendments expanded the types of providers and 
services that are subject to a PPS. The various prospective payment 
systems for inpatient hospital services are summarized in Sec.  412.1 
of the regulations. Other prospective payment systems for different 
types of providers and services are summarized in Sec. Sec.  413.170, 
413.300, 413.330, and 419.1 of the regulations. As explained in Sec.  
413.1(b) of the regulations, if a service is not subject to a PPS when 
it is furnished, the provider is paid on the basis of reasonable cost. 
(For ease of reference, we will use the terms ``reimbursement'' and 
``payment'' interchangeably unless a particular context calls for the 
use of one of these terms instead of the other.)
    Before October 1, 2005, payments to providers were ordinarily made 
through private organizations known as fiscal intermediaries, under 
contracts with the Secretary. After a 6-year transition period (Sec.  
421.400(a)), the claims processing and payment functions of the fiscal 
intermediaries are now performed by MACs, under contracts with the 
Secretary.
    For covered items and services paid on a reasonable cost basis, the 
contractor pays a provider during its cost reporting period interim 
payments that approximate the provider's actual costs. Under a PPS, 
providers are generally paid for each patient discharge after a bill is 
submitted.

[[Page 28207]]

    Sections 1815(a) and 1833(e) of the Act provide that no payments 
will be made to a provider unless it has furnished the information, 
requested by the Secretary, needed to determine the amount of payments 
due the provider under the Medicare program. In general, providers 
submit this information through annual cost reports that cover a 12-
month period of time.
    All providers participating in the Medicare program are required 
under Sec.  413.20(a) to ``maintain sufficient financial records and 
statistical data for proper determination of costs.'' Moreover, 
providers must use standardized definitions and follow accounting, 
statistical, and reporting practices that are widely accepted in the 
hospital and related fields. Under the provisions of Sec. Sec.  
413.20(b) and 413.24(f), providers are required to submit cost reports 
annually, with the reporting period based on the provider's accounting 
year. For cost years beginning on or after October 1, 1989, section 
1886(f)(1) of the Act and Sec.  413.24(f)(4) of the regulations require 
hospitals to submit cost reports in a standardized electronic format, 
and the same requirement was later imposed for other types of 
providers. In addition, Sec.  412.52 of the regulations requires all 
PPS hospitals to meet the recordkeeping and cost reporting requirements 
of Sec. Sec.  413.20 and 413.24, which include submitting a cost report 
for each 12-month period.
2. Administrative Appeals by Providers and Judicial Review
    Upon receipt of a provider's cost report, the contractor reviews or 
audits the cost report, makes any necessary adjustments to the 
provider's Medicare reimbursement for the cost reporting period, and 
finally determines the total amount of payment due the provider. This 
year-end reconciliation of Medicare payment for the provider's cost 
reporting period constitutes a contractor determination, as defined in 
Sec.  405.1801(a). Under Sec. Sec.  405.1801(a)(1), (2) and 405.1803, 
the contractor must give the provider written notice of the final 
contractor determination for the cost period in a notice of the total 
amount of program reimbursement (NPR). The NPR is an appealable 
determination, and the contractor determination is final and binding 
unless it is revised on appeal or reopening (Sec.  405.1807).
    Under section 1878(a) of the Act, a provider that has submitted a 
timely cost report may appeal to the Provider Reimbursement Review 
Board (the Board) a final determination of program reimbursement made 
by a contractor, as well as certain final determinations by the 
Secretary involving payment under the IPPS. The Secretary's delegate, 
the Administrator of CMS, may review certain Board decisions under 
section 1878(f)(1) of the Act and Sec.  405.1875 of the regulations. 
The final decision of the Board or the Administrator is subject to 
judicial review under section 1878(f)(1) of the Act and Sec.  405.1877 
of the regulations. In addition, by regulation, providers are given the 
right to appeal to the Board or to contractor hearing officers certain 
other determinations. A CMS reviewing official may review some 
contractor hearing officer decisions under Sec.  405.1834 of the 
regulations, but there is no judicial review of decisions by contractor 
hearing officers or a CMS reviewing official.
    Under sections 1878(a)(1)(A), (a)(2), and (a)(3) of the Act, and 
Sec.  405.1835(a)(1), (a)(2), and (a)(3)(i) of the regulations, a 
provider may obtain a Board hearing if: (1) the provider is 
``dissatisfied'' with a final determination of the contractor [formerly 
intermediary] or the Secretary; (2) the amount in controversy is at 
least $10,000; and (3) the provider files a request for a hearing to 
the Board within 180 days of notice of the final determination of the 
contractor or the Secretary. The same jurisdictional requirements 
govern provider appeals to contractor hearing officers under Sec.  
405.1811(a)(1), (a)(2), and (a)(3)(i) of the regulations, except that 
the amount in controversy requirement is at least $1,000 but less than 
$10,000.
    However, the statutory requirements for Board jurisdiction are 
somewhat different if the provider does not receive a final 
determination of the contractor on a timely basis. Under sections 
1878(a)(1)(B), (a)(2), and (a)(3) of the Act, a provider may obtain a 
Board hearing if: (1) The provider does not receive a final 
determination of the contractor on a timely basis, after the provider 
filed a cost report that complied with the cost reporting regulations; 
(2) the amount in controversy is at least $10,000; and (3) the provider 
files a request for a hearing to the Board within 180 days after notice 
of the contractor's final determination would have been received if 
such contractor determination had been issued on a timely basis. 
Moreover, Sec.  405.1835(a)(3)(ii) of the regulations provides that a 
contractor determination is not timely if it is not issued, through no 
fault of the provider, within 12 months of the contractor's receipt of 
the provider's perfected cost report or amended cost report (as 
specified in Sec.  413.24(f) of the regulations). The same 
jurisdictional requirements govern provider appeals to contractor 
hearing officers, based on an untimely contractor determination, under 
Sec.  405.1811(a), except that the amount in controversy requirement is 
at least $1,000 but less than $10,000.
3. Appropriate Claims in Provider Cost Reports
    Under longstanding Medicare policy as set forth in Sec.  413.24 of 
the regulations and section 115 of the Provider Reimbursement Manual 
(PRM), Part 2 (CMS Pub. 15-2), a provider must make an appropriate cost 
report claim for a specific item in order to be reimbursed for the 
item, whether through the NPR issued by the contractor or as the result 
of an administrative appeal or judicial review. For example, as set 
forth in Sec.  413.24, providers receiving payment on the basis of 
reimbursable cost are required to provide adequate cost data to the 
contractor to support payments made for services furnished to 
beneficiaries. In addition, as set forth in section 115 of the PRM, 
Part 2, we also require that providers make a specific claim for an 
item in its cost report, in order to meet the dissatisfaction 
requirement for Board jurisdiction. The Medicare cost report has always 
included particular ``lines'' for specific allowable costs such as 
interest expense and depreciation. If a provider makes a cost report 
claim for a cost that is allowable, and reimbursement is claimed in 
accordance with Medicare payment policy, the NPR will include 
appropriate reimbursement for the cost. (For ease of reference, we will 
use the terms ``specific item'' or ``item'' to refer to a particular 
aspect of reasonable cost-based payment or a specific aspect of payment 
under a prospective payment system unless a particular context calls 
for the use of more specific terms (for example, the term ``allowable 
cost'' as used in determining reasonable cost-based payment).)
    If the NPR does not include reimbursement for a specific item or if 
the provider believes it should have received more reimbursement for 
the item, the provider can request a hearing before the Board or the 
contractor hearing officers (if the amount in controversy is at least 
$1,000 but less than $10,000). However, our longstanding policy is that 
an appropriate cost report claim is a jurisdictional requirement for an 
appeal to the Board or the contractor hearing officers. As explained 
above, section 1878(a)(1)(A) of the Act provides for a hearing before 
the Board if the provider has filed a timely cost report with the

[[Page 28208]]

contractor, and the provider is ``dissatisfied'' with a final 
determination of the contractor or the Secretary. Our view has been 
that, in order for a provider to be dissatisfied with a specific aspect 
of the contractor determination, the provider must include an 
appropriate cost report claim for the specific item so that the 
contractor can respond to the provider's claim in the NPR and thereby 
potentially produce a specific reimbursement result about which the 
provider is dissatisfied.
    Under our policy for Board jurisdiction, we required a provider to 
make a specific claim for an item in its cost report, in order to meet 
the dissatisfaction requirement for Board jurisdiction. We did not 
permit a provider to ``self-disallow'' a specific item, even if the 
Medicare contractor had no discretion to award payment for the item. 
(In self-disallowing an item, the provider submits a cost report that 
complies with Medicare policy for the item and then appeals the item to 
the Board; the contractor's NPR then would not include any disallowance 
of the item, and therefore the provider would effectively self-disallow 
the item.) However, the Supreme Court rejected our longstanding policy 
in Bethesda Hospital Association v. Bowen, 485 U.S. 399 (1988). The 
Court held that, despite the providers' failure to claim all the 
reimbursement they believed should have been made, the plain language 
of the dissatisfaction requirement in section 1878(a)(1)(A) of the Act 
supported Board jurisdiction because the contractor had no authority to 
award reimbursement in excess of a regulation by which it was bound, 
and thus it would have been futile for the providers to try to persuade 
the contractor otherwise. The Court also stated in dicta, however, that 
the dissatisfaction requirement might not be met if providers were to 
``bypass a clearly prescribed exhaustion requirement or . . . fail to 
request from the intermediary reimbursement for all costs to which they 
are entitled under applicable rules'' (Bethesda Hosp., 485 U.S. at 404-
05).
    Following the Bethesda decision, we no longer required providers to 
make a cost report claim for reimbursement of items for which the 
contractor did not have the discretion to award payment due to a 
regulation or manual provision but, consistent with the dicta in 
Bethesda, we continued to require providers to include cost report 
claims for allowable costs. However, our policy, as revised in response 
to Bethesda, was also challenged in the courts, and a ``circuit split'' 
resulted. Compare Little Co. of Mary Hosp. v. Shalala, 165 F.3d 1162 
(7th Cir. 1999) (sustaining our interpretation of the statutory 
dissatisfaction requirement for Board jurisdiction) with Loma Linda 
Univ. Med. Ctr. v. Leavitt, 492 F.3d 1065 (9th Cir. 2007) (rejecting 
our interpretation of the dissatisfaction requirement); Maine General 
Med. Ctr. v. Shalala, 205 F.3d 493 (1st Cir. 2000) (same).
    In response to the Supreme Court's Bethesda decision and the 
ensuing circuit split, we then addressed the dissatisfaction 
requirement in notice and comment rulemaking. In a 2008 final rule, we 
revised Sec.  405.1811(a)(1) and Sec.  405.1835(a)(1) for contractor 
and Board hearings, respectively (73 FR 30190, 30195 through 30200, 
30244 through 30245, 30249 through 30250 (May 23, 2008)). Under the 
revised regulations, in order to preserve its appeal rights, a provider 
must either claim an item in its cost report where it is seeking 
reimbursement that it believes to be in accordance with Medicare 
policy, or self-disallow the item if it is seeking reimbursement that 
it believes may not comport with Medicare policy (for example, where 
the contractor does not have the discretion to award the reimbursement 
sought by the provider). In order to self-disallow an item, the 
provider must follow the applicable procedures for filing a cost report 
under protest, which are contained currently in section 115 of the PRM, 
Part 2.
    As explained in the preamble to the 2008 final rule, we believe the 
revised dissatisfaction policy set forth in Sec.  405.1835(a)(1) is a 
reasonable interpretation of the dissatisfaction requirement for Board 
jurisdiction in section 1878(a)(1)(A) of the Act (73 FR 30195 through 
30200). The dissatisfaction requirement in Sec.  405.1835(a)(1) 
comports with the Supreme Court's statement (discussed above) that the 
statutory dissatisfaction requirement might not be met if a provider 
bypassed a clearly prescribed exhaustion requirement or failed to ask 
the contractor for reimbursement of all costs to which it is entitled 
under applicable rules. (Bethesda Hosp., 485 U.S. at 404-05; Little Co. 
of Mary, 165 F.3d 1162 (sustaining our interpretation of the statutory 
dissatisfaction requirement for Board jurisdiction on the basis of the 
forgoing statements by the Supreme Court); Little Co. of Mary Hosp. v. 
Shalala, 24 F.3d 984 (7th Cir. 1994) (same).
    Upon further reflection, however, we believe that the requirement 
that a provider either claim reimbursement for a specific cost, or 
expressly self-disallow the cost, in its cost report is more 
appropriately treated as a cost reporting requirement under sections 
1815(a) and 1833(e) of the Act, as the agency cannot make payments to a 
provider without sufficient information on all claims for which the 
provider believes it should be paid. Indeed, it is eminently reasonable 
for the Secretary to require a provider to make an appropriate cost 
report claim for a specific item if the provider wants to be paid for 
the item. As we explain in detail in the next section, requiring a cost 
report claim for full reimbursement or an express self-disallowance of 
the cost enables the contractor to review and audit the claim, make any 
adjustments that seem appropriate, and include final payment for the 
cost as part of the NPR. Accordingly, we are proposing to revise the 
cost reporting regulations in Part 413, Subpart B by adding the 
substantive reimbursement requirement that a provider must include an 
appropriate claim for an item in its cost report. The failure to 
account appropriately for the item in its cost report will foreclose 
payment for the item in the NPR issued by the contractor and in any 
decision, order, or other action by a reviewing entity (as defined in 
Sec.  405.1801(a) of the regulations) in an administrative appeal filed 
by the provider.
    However, we recognize that the proposed addition to the cost 
reporting regulations of the substantive reimbursement requirement of 
an appropriate cost report claim for a specific item would be 
potentially duplicative of the existing jurisdictional requirement in 
the Board appeals regulations of an appropriate cost report claim. In 
order to avoid such duplication, we also are proposing to revise the 
appeals regulations in Part 405, Subpart R by eliminating the 
requirement that a provider must include an appropriate claim for an 
item in its cost report in order to meet the dissatisfaction 
requirement for Board jurisdiction. Our longstanding requirement of an 
appropriate cost report claim would be made a substantive reimbursement 
requirement in the cost reporting regulations and the existing Board 
jurisdiction requirement of an appropriate cost report claim would be 
eliminated. These proposed revisions to the cost reporting regulations 
and the provider appeals regulations would apply on a prospective-only 
basis, to provider cost reporting periods beginning on or after the 
effective date of the final IPPS annual update rule.

[[Page 28209]]

B. Proposed Changes Regarding the Claims Required in Provider Cost 
Reports, and for Provider Administrative Appeals

1. Proposed Addition to the Cost Reporting Regulations of the 
Substantive Reimbursement Requirement of an Appropriate Cost Report 
Claim
a. Specific Provisions of Proposed Paragraph (j) of Sec.  413.24
    We are proposing to add a new paragraph (j) to Sec.  413.24 of the 
regulations. Proposed paragraph (j)(1) of Sec.  413.24 provides that in 
order to receive or potentially qualify for payment for a specific 
item, the provider must include in its cost report an appropriate claim 
for the specific item. In order to make an appropriate claim for an 
item in its cost report, the provider must either claim payment for the 
item in its cost report where it is seeking payment that it believes is 
consistent with Medicare policy, or self-disallow the item if the 
provider is seeking payment that it believes may not comport with 
Medicare policy (for example, where the contractor does not have the 
authority or discretion to award the payment sought by the provider). 
In order to self-disallow a specific item, the provider would have to 
follow the applicable procedures for filing a cost report under 
protest, which are now contained in section 115 of the PRM, Part 2 and 
are included in proposed paragraph (j)(2) of Sec.  413.24. 
Specifically, the provider would have to include an estimated payment 
amount for each self-disallowed item in the ``protested amount'' line 
of the cost report, and attach a worksheet explaining why a self-
disallowance is necessary (instead of claiming payment for the item in 
its cost report) and describing how it determined the estimated payment 
amount for each self-disallowed item.
    Proposed paragraph (j)(3) of Sec.  413.24 specifies the procedures 
for determining whether there is an appropriate cost report claim for a 
specific item. The default rule is that the question of whether the 
provider's cost report includes an appropriate claim for the specific 
item must be determined by reference to the cost report that the 
provider submits originally to, and is accepted by, the contractor, 
unless one of three exceptions applies. The first exception is that if 
the provider submits an amended cost report that is accepted by the 
contractor, the question of whether there is an appropriate cost report 
claim for the specific item must be determined by reference to such 
amended cost report, unless one of the two remaining exceptions 
applies. The second exception is that if the contractor adjusts the 
provider's cost report, as submitted originally by the provider and 
accepted by the contractor or as amended by the provider and accepted 
by the contractor, whichever is applicable, with respect to the 
specific item, the question of whether there is an appropriate cost 
report claim for the specific item must be determined by reference to 
the provider's cost report, as such cost report is adjusted for the 
specific item in the contractor's initial determination (as defined in 
Sec.  405.1801(a)), unless the remaining exception applies. The third 
exception is that if the contractor reopens either the initial 
contractor determination for the provider's cost reporting period 
(pursuant to Sec.  405.1885) or a revised contractor determination for 
such period (issued pursuant to Sec.  405.1889) and adjusts the 
provider's cost report with respect to the specific item, the question 
of whether there is an appropriate cost report claim for the specific 
item must be determined by reference to the provider's cost report, as 
such cost report is adjusted for the specific item in the contractor's 
most recent revised contractor determination for such period.
    Providers should make every effort to comply with the default rule 
set forth in proposed paragraph (j)(3) of Sec.  413.24, even though one 
of the exceptions to the default rule might come into play later. In 
order to ensure compliance with the substantive requirement of an 
appropriate cost report claim for a specific item, the provider should 
either claim full payment for, or properly self-disallow, the item in 
the cost report that the provider submits originally to the contractor. 
However, failure to include an appropriate claim for the specific item 
in the provider's original ``as submitted'' cost report does not 
necessarily foreclose any further opportunity to meet the requirement 
of an appropriate cost report claim for the specific item. Under the 
first exception to the default rule under proposed paragraph (j)(3), 
the provider could include an appropriate cost report claim for the 
specific item in an amended cost report, but the contractor has 
discretion whether to accept an amended cost report by the provider. 
Under the second and third exceptions to the default rule under 
proposed paragraph (j)(3), the requirement of an appropriate cost 
report claim could be met through the contractor's adjustment of the 
provider's cost report, either in the contractor's initial 
determination for the provider's cost reporting period (as defined in 
Sec.  405.1801(a)) or, if the initial contractor determination is 
reopened, in the contractor's revised determination. However, in 
preparing the initial contractor determination for a provider's cost 
reporting period, the contractor has discretion whether to adjust the 
provider's cost report with respect to the specific item and, if so, 
how to adjust the cost report for such item. Similarly, after the 
initial contractor determination is issued, the contractor has 
discretion whether to reopen the initial contractor determination and, 
if the specific item is reopened, whether to adjust the cost report for 
such item and how to make any such adjustment.
    In order to exemplify the workings of proposed paragraph (j)(3) of 
Sec.  413.24, consider a hospital that seeks a Medicare DSH payment 
adjustment that, on the provider's view, should be calculated on the 
basis of 2,000 Medicaid eligible patient days in the numerator of the 
DSH Medicaid fraction (42 CFR 412.106(b)(4)). If the hospital's as 
submitted cost report claimed only 1,000 Medicaid eligible patient days 
for the numerator of the DSH Medicaid fraction, and the number of 
Medicaid eligible patient days was not changed in an amended cost 
report by the provider or through adjustments to the cost report by the 
contractor, the hospital would have made an appropriate cost report 
claim for only 1,000 Medicaid eligible patient days (instead of 2,000 
such days). However, if the provider submitted, and the contractor 
accepted, an amended cost report that claimed a total of 1,500 Medicaid 
eligible patient days, the provider would have made a valid cost report 
claim for 1,500 Medicaid eligible patient days (instead of 2,000 such 
days). However, if the hospital asked the contractor, during the 
contractor's review and settlement of the provider's cost report, to 
count 250 more Medicaid eligible patient days, and the contractor 
agreed to consider those days in the contractor's initial intermediary 
determination, the provider would have made a valid cost report claim 
of 1,750 Medicaid eligible patient days (instead of 2,000 such days). 
Finally, if the provider next requested, or the contractor initiated on 
its own motion, the reopening of the initial contractor determination 
on the specific issue of the number of Medicaid eligible patient days 
for the DSH Medicaid fraction's numerator, and the contractor did 
reopen for that specific issue, the provider would have a valid cost 
report claim of 2,000 Medicaid eligible patient days. At that juncture,

[[Page 28210]]

the hospital would have met the requirement of an appropriate cost 
report claim for all of the 2,000 Medicaid eligible patient days, which 
is the number of such days that the provider believed from the outset 
should be used in determining the numerator of the DSH Medicaid 
fraction.
    We believe proposed paragraph (j)(3) of Sec.  413.24 appropriately 
reflects the usual process in which a cost report claim that is first 
made in the cost report that is submitted originally to, and accepted 
by, the contractor, might be altered through an amended cost report by 
the provider (if the amended cost report is accepted by the contractor) 
or through adjustments of the provider's cost report claim that are 
made in the contractor's initial determination or, in the event of a 
reopening, in the contractor's revised determination. This process 
enables a provider to ensure compliance with the substantive 
requirement of an appropriate cost report claim for a specific item, by 
including in the cost report that the provider submits originally to, 
and is accepted by, the contractor, either a full claim for payment for 
a specific item or a proper self-disallowance of the item. In addition, 
this process gives a provider additional opportunities to meet the 
requirement of an appropriate cost report claim through an amended cost 
report by the provider (if the amended cost report is accepted by the 
contractor) and adjustments to the provider's cost report claim that 
are included in the contractor's initial contractor determination or, 
if there is a reopening, in the revised contractor determination. 
Unlike with the provider's original as submitted cost report, however, 
the contractor has discretion whether to accept an amended cost report; 
whether to include particular cost report claim adjustments in the 
initial contractor determination and, if so, how to determine such 
adjustments; and whether to reopen a contractor determination and, if 
there is a reopening, how to determine any cost report claim 
adjustments that may be included in the revised contractor 
determination. This ``back and forth'' process between the provider and 
the contractor, which is reflected in proposed paragraph (j)(3) of 
Sec.  413.24, facilitates appropriate determinations of program payment 
and enhances administrative efficiency. Each of the Medicare 
contractors has substantial experience in reviewing and auditing cost 
reports and in properly determining payment amounts. The back and forth 
process between the provider and the contractor eliminates, or 
minimizes and sharpens, potential disagreements, which obviates the 
need to file some administrative appeals or narrows the issues in many 
cases.
    In addition, proposed paragraph (j)(4) of Sec.  413.24 provides 
that, to the extent a provider fails to claim a specific item 
appropriately in its cost report, the final contractor determination 
(as defined in Sec.  405.1801(a)) may not include payment for the item. 
However, if the contractor determines that the provider made an 
appropriate cost report claim for a specific item but the contractor 
disagrees with material aspects of the provider's claim for the item, 
the contractor must make appropriate adjustments to the provider's cost 
report and include payment for the specific item in the final 
contractor determination in accordance with the contractor's 
adjustments to the cost report and to the extent permitted by program 
policy.
    Proposed paragraph (j)(5) of Sec.  413.24 provides that if a party 
to an administrative appeal questions whether the provider's cost 
report included an appropriate claim for the specific item under 
appeal, the reviewing entity (as defined in Sec.  405.1801(a)) must 
follow the procedures (which we discuss in detail below) that are set 
forth in proposed Sec.  405.1873 (if the appeal was filed originally 
with the Board), or the procedures in Sec.  405.1832 (if the appeal was 
filed initially with the contractor), for review of whether the 
substantive reimbursement requirement of an appropriate cost report 
claim for the specific item is satisfied. Those regulations require the 
reviewing entity to follow the procedures (discussed above) that are 
set forth in paragraph (j)(3) of this section for determining whether 
the provider's cost report included an appropriate claim for the 
specific item under appeal. Also, the reviewing entity may permit 
payment for the specific item under appeal solely to the extent 
authorized by Sec.  405.1873(f) (if the appeal was filed originally 
with the Board) or by Sec.  405.1832(f) (if the appeal was filed 
initially with the contractor).
b. Statutory and Policy Bases for Proposed Paragraph (j) of Sec.  
413.24
    We believe the Medicare statute provides ample authority for the 
above-described proposal to add a new paragraph (j) to Sec.  413.24 of 
the regulations. This proposal is well within the Secretary's general 
rulemaking authority under sections 1102 and 1871 of the Act. Moreover, 
proposed Sec.  413.24(j) is an appropriate exercise of the Secretary's 
broad authority under sections 1815(a), 1833(e), and 1886(f)(1) of the 
Act to require providers to furnish the information needed to determine 
the amount of payment due a provider under the Medicare program. As 
described above, we have relied on these particular statutory 
provisions in adopting regulations that require providers to submit 
annual cost reports; specify the requisite contents of cost reports; 
and impose various procedural requirements for cost reports (such as 
time periods for timely submission of cost reports and certification 
requirements for cost reports). Moreover, we have invoked the same 
statutory provisions in requiring providers to report other specific 
information as a condition for Medicare payment (we refer readers to, 
for example, Community Hosp. of Monterey Peninsula v. Thompson, 323 
F.3d 782, 790, 795-800 (9th Cir. 2003) (sustaining Medicare's policy 
that providers must bill ``crossover bad debts'' to the State Medicaid 
agency because 42 U.S.C. 1395g(a) (that is, section 1815(a) of the Act) 
``specifically granted the Secretary broad discretion as to what 
information to require as a condition of payment to providers under the 
Medicare program''). Indeed, as explained above, the Secretary's broad 
discretion with respect to cost reporting requirements is also 
reflected in the Board appeals provisions of section 1878(a) of the 
Act, which makes provider compliance with cost reporting requirements a 
prerequisite of Board jurisdiction.
    In addition to the plainly sufficient statutory authority for 
proposed Sec.  413.24(j), we believe there are sound policy reasons for 
requiring a provider to include an appropriate claim for an item in its 
cost report by either claiming payment for the item (where the provider 
believes such claim would comport with Medicare policy), or by self-
disallowing the item (if the provider is seeking payment that it 
believes may not be consistent with Medicare policy). This proposal has 
three main parts, each of which we address separately.
    First, we believe that if a cost is allowable and the provider does 
not disagree with how Medicare determines payment for the cost, the 
provider's cost report should include a claim for full payment of the 
cost in accordance with the program's payment policy. In such cases, a 
cost report claim for full payment of the cost enables the contractor 
to review the claim, make any adjustments that seem appropriate, and 
include final payment for the cost as part of the NPR. Requiring a cost 
report claim for full payment of allowable costs (where the provider

[[Page 28211]]

does not disagree with how Medicare determines payment for the cost) 
facilitates the contractor's discharge of some of its principal 
responsibilities, which include using the contractor's expertise and 
experience to review and audit payment claims, make any necessary 
adjustments, and include final payment for the cost in the NPR. Absent 
some misstep by the contractor in reviewing such a cost report claim 
and determining final payment for the item, there would be no need for 
the provider to later request reopening or to file an administrative 
appeal regarding the item. Even if the provider disagreed with some 
aspect of the contractor's payment determination for the specific item, 
any such disagreement would be narrowed and delineated more precisely 
because our proposal, to require a full cost report claim for payment 
of allowable costs, will give the contractor an opportunity to review 
and audit the claim and determine the extent to which (if at all) to 
include payment for the claim in the NPR. Therefore, the interests of 
administrative finality and efficiency will be advanced if providers 
are required to include a cost report claim for full payment of 
allowable costs.
    Proposed Sec.  413.24(j)'s requirement of a cost report claim for 
full payment of allowable cost also comports with the division of 
responsibilities between the contractors and the Board and the other 
reviewing entities (as defined in Sec.  405.1801(a)). At present, there 
are 12 contractors, each of which has a fairly large staff with 
substantial experience and expertise in reviewing and auditing cost 
reports and determining final payment in accordance with Medicare 
policy. By contrast, the Board has only five members and a relatively 
small staff. We believe it is a waste of scarce resources and very 
inefficient for a provider to first raise a clearly allowable cost in 
an appeal to the Board when the contractor could have reviewed and 
finally determined payment for such an allowable cost in the NPR, if 
the provider had simply made a timely cost report claim for full 
payment of the allowable cost. As indicated by the very name of the 
Provider Reimbursement Review Board, it is a ``Review Board'' or 
administrative appeals tribunal, not the Medicare program's front line 
auditors charged with making the initial determination of program 
reimbursement for such allowable costs.
    Second, there are also sound policy reasons for proposing, under a 
new paragraph (j) in Sec.  413.24, that a provider must self-disallow a 
specific item if it is seeking payment that it believes may not comport 
with Medicare policy (for example, because the provider believes the 
contractor does not have the discretion to make the payment sought by 
the provider), by following the applicable procedures for filing a cost 
report under protest (procedures that, as explained above, are now 
contained in section 115 of the PRM, Part 2 and would be set forth in 
proposed paragraph (j)(2) of Sec.  413.24). When a provider self-
disallows an item by accounting for it appropriately in the ``protested 
amount'' line of the cost report (instead of claiming payment for the 
item), the contractor has an opportunity to correct any misconceptions 
that the provider may have had about the item. For example, the 
contractor could determine, contrary to the provider's apparent 
understanding in self-disallowing a specific item, that the item in 
question is actually an allowable cost that is reimbursable in 
accordance with program policy. Another example: the contractor might 
determine, despite the provider's understanding of Medicare policy and 
its concomitant self-disallowance, that program policy has changed and 
the item is now an allowable cost or a new payment policy now applies 
that permits the payment methodology used by the provider in support of 
its self-disallowance of the item (for example, 75 FR 50042; 50275 
through 50286 (August 16, 2010) (discussing CMS Ruling 1498-R, which 
revised Medicare disproportionate share hospital (DSH) payment policy 
in response to adverse judicial precedent, and made such revisions 
applicable to open cost reports and certain pending administrative 
appeals). In such cases, the contractor's deep expertise and experience 
and its resources can be brought to bear in reviewing self-disallowed 
items, making any necessary corrections, and finally allowing payment 
for corrected items in the NPR. Indeed, these kinds of contractor 
actions comport with section 1874A(a)(4) of the Act and Sec.  413.20(b) 
of the regulations, which require the contractors to furnish providers 
with consultative services, education, training, information and 
instructions, and technical assistance regarding the interpretation and 
application of payment principles and other program policies; be 
available to address provider questions and problems on a daily basis; 
and facilitate communication between the agency and providers. 
Accordingly, we believe our proposed addition of a self-disallowance 
requirement to the cost reporting regulations will facilitate 
exhaustion of administrative remedies through the contractor's review 
and final settlement of the provider's cost report, and when the 
contractor corrects errors in a provider's self-disallowance, the 
erstwhile need to appeal to the Board or request reopening could be 
obviated (we refer readers to Little Co. of Mary Hosp. v. Shalala, 165 
F.3d 1162, 1165 (7th Cir. 1999) (the Secretary's requirement of an 
appropriate cost report claim for an item ensures that the contractor 
will have the ``first shot'' at determining any reimbursement for the 
item, before any appeal to the Board need be filed).
    By requiring the self-disallowance of items that providers believe 
may not comport with Medicare policy, proposed Sec.  413.24(j) would 
also contribute importantly to other aspects of program administration. 
For example, this proposal would facilitate provider compliance with 
the existing requirements in Sec.  413.24(f) that each provider submit 
a complete, accurate, and timely cost report, and that the provider's 
administrator or chief financial officer certify that the submitted 
cost report is complete and accurate. Our proposed self-disallowance 
requirement would also enhance CMS' ability to accurately estimate the 
program's potential liabilities (for example, for purposes of the 
agency's preparation of required financial statements). Similarly, this 
proposal would improve the contractors' ability to establish audit and 
other workload priorities. The proposed addition of a self-disallowance 
requirement (for items that providers believe may not comport with 
Medicare policy) to the cost reporting regulations would also enable us 
to better monitor Medicare policy and potentially adjust our policies 
in response to a pattern of provider self-disallowances of a given 
item. Indeed, the importance of requiring complete and accurate cost 
report information is highlighted by the fact that we use cost report 
data for a wide variety of purposes such as setting and refining 
prospective payment rates; establishing hospital market basket weights; 
calculating Medicare and total facility margins; determining payment 
for graduate medical education (GME) and indirect medical education 
(IME); creating projections for the President's annual budget and for 
the annual Medicare Trustees Report; for various research projects; and 
for responding to requests from the public, the Congress, the Executive 
Office of Management and Budget (EOMB), and other parts of the 
Administration.
    Third, we believe there also are sound reasons for our proposal 
that, under a new Sec.  413.24(j), if a provider fails to account 
appropriately for an item in its cost report (by making a full claim 
for

[[Page 28212]]

payment for the item or self-disallowing the item if the provider 
believes a payment claim would not comport with Medicare policy), the 
NPR issued by the contractor may not include payment for the item and 
payment also may not be permitted in any decision, order, or other 
action by a reviewing entity (as defined in Sec.  405.1801(a)) in an 
administrative appeal filed by the provider. Under existing Sec. Sec.  
405.1835(a)(1) and 405.1840(b)(3), the consequence of not making an 
appropriate cost report claim for an item is that the Board would not 
have jurisdiction over the provider's appeal of the item. (Similarly, 
under Sec. Sec.  405.1811(a)(1) and 405.1814(b)(3), the contractor 
hearing officers would lack jurisdiction for an item if the provider 
did not make an appropriate cost report claim for the item.) As 
explained below, however, we are proposing to eliminate the 
jurisdictional requirement of an appropriate cost report claim in 
existing Sec. Sec.  405.1835(a)(1) and 405.1840(b)(3) for Board appeals 
(and the corresponding jurisdictional requirement in Sec. Sec.  
405.1811(a)(1) and 405.1814(b)(3) for contractor hearing officer 
appeals), because we believe it is a requirement more appropriately 
placed in the cost reporting regulations. Given that our longstanding 
policy of requiring an appropriate cost report claim for an item would 
be added to the cost reporting regulations, in proposed paragraph (j) 
of Sec.  413.24, this provision is a natural place to spell out the 
consequences of not abiding by this cost reporting requirement. In this 
regard, we note that the proposed addition of a new paragraph (j) to 
Sec.  413.24 is like the existing paragraph (e) in Sec.  413.20, which 
provides for the suspension of Medicare payments if a provider fails to 
maintain the records necessary for proper determination of Medicare 
reimbursement. Similarly, if a provider fails to include an appropriate 
claim for an item in its cost report, the NPR issued by the contractor 
will not include payment for the item and payment also will not be 
permitted in any decision, order, or other action by a reviewing entity 
(as defined in Sec.  405.1801(a)) in an administrative appeal filed by 
the provider.
2. Proposed Revisions to the Provider Reimbursement Appeal Regulations
a. Elimination of the Jurisdictional Requirement of an Appropriate Cost 
Report Claim
    In this proposed rule, we are proposing to eliminate the 
requirement in existing Sec. Sec.  405.1835(a)(1) and 405.1840(b)(3) of 
the regulations that a provider must include an appropriate claim for 
an item in its cost report in order to meet the dissatisfaction 
requirement for Board jurisdiction. We believe there is a sound basis 
in law and policy for this proposal. Our proposal to eliminate an 
appropriate cost report claim as a requirement for Board jurisdiction 
is well within the Secretary's general rulemaking authority under 
sections 1102 and 1871 of the Act. Moreover, this specific proposal is 
a reasonable interpretation of the ``dissatisfied'' provision in 
section 1878(a)(1)(A) of the Act. In our view, this statutory provision 
is ambiguous and the interpretation in the existing appeal regulations, 
which requires providers to make appropriate cost report claims in 
order to meet the dissatisfaction prerequisite of Board jurisdiction 
with respect to a specific item, is a permissible interpretation of the 
statute. As described above, however, providers have challenged our 
interpretation of the statutory dissatisfaction provision in litigation 
spanning more than 30 years, and in public comments on current 
Sec. Sec.  405.1835(a)(1) and 405.1840(b)(3) of the regulations which 
were adopted in the FY 2008 IPPS final rule (73 FR 30195 through 30200; 
CMS' response to public comments on the current Board appeals 
regulations that are based on our interpretation of the statutory 
dissatisfaction provision). Providers have maintained throughout this 
litigation and in the referenced public comments that the statutory 
dissatisfaction provision does not support our policy of requiring an 
appropriate cost report claim as a prerequisite of Board jurisdiction. 
We continue to disagree with this view of the statute, and still 
believe that the existing Board appeals regulations are based on a 
permissible interpretation of the statutory dissatisfaction provision. 
As explained above, existing Sec.  405.1835(a)(1) comports with the 
Supreme Court's statement that the statutory dissatisfaction 
requirement might not be met if a provider bypassed a clearly 
prescribed exhaustion requirement or failed to ask the contractor for 
payment of all costs to which it is entitled under applicable rules 
(Bethesda Hosp., 485 U.S. at 404-05). Furthermore, the U.S. Court of 
Appeals for the Seventh Circuit has twice sustained our interpretation 
of the statutory dissatisfaction provision, on the basis of the 
forgoing statements by the Supreme Court (Little Co. of Mary, 165 F.3d 
1162; Little Co. of Mary, 24 F.3d 984). Nonetheless, we believe our 
proposal, to eliminate Sec.  405.1835(a)(1)'s jurisdictional 
requirement of an appropriate cost report claim certainly does not 
conflict with the ``dissatisfied'' provision in section 1878(a)(1)(A) 
of the Act.
    This particular proposal is supported by section 1878(a)(1)(B) of 
the Act, which authorizes certain Board appeals if the provider does 
not receive a final contractor determination on a timely basis. 
(Section 405.1835(a)(3)(ii) of the regulations specifies the time 
period and other conditions for Board appeals where the provider does 
not receive a final contractor determination on a timely basis.) 
Section 1878(a)(1)(B) of the Act does not include an express 
dissatisfaction provision. Thus, our proposal, to eliminate existing 
Sec.  405.1835(a)(1)'s dissatisfaction jurisdictional requirement of an 
appropriate cost report claim, would result in Board appeals 
regulations that more closely track the express terms of section 
1878(a)(1)(B) of the Act.
    In addition to the sufficient statutory authority for our proposed 
elimination of an appropriate cost report claim as a requirement for 
Board jurisdiction, there are sound policy reasons for this proposal. 
As explained above, we believe that, by requiring appropriate cost 
report claims in proposed Sec.  413.24(j), complete and accurate 
determinations of provider reimbursement will be facilitated as will 
the many other important aspects of program administration. Thus, 
because we would require an appropriate cost report claim in proposed 
Sec.  413.24(j), it is reasonable to eliminate the Board jurisdiction 
requirement in existing Sec. Sec.  405.1835(a)(1) and 405.1840(b)(3) of 
an appropriate cost report claim. We note that once this amendment to 
the Board appeals regulations becomes effective, this proposal will 
facilitate an orderly end to any litigation regarding the Board 
jurisdiction requirement of an appropriate cost report claim.
    As explained above, our proposed revisions to the cost reporting 
regulations and the provider appeals regulations would apply on a 
prospective-only basis, to provider cost reporting periods beginning on 
or after the effective date of the final IPPS annual update rule. Until 
these proposed regulations take effect, however, the requirement of an 
appropriate cost report claim in Sec. Sec.  405.1835(a)(1) and 
405.1840(b)(3) of the regulations will continue to be a requirement for 
Board jurisdiction. Thus, until these proposed regulations become 
effective, the Board and the Administrator of CMS will continue to 
determine Board jurisdiction by

[[Page 28213]]

reference to the appropriate cost report claim requirements of 
Sec. Sec.  405.1835(a)(1) and 405.1840(b)(3), along with other 
applicable jurisdictional provisions of section 1878 of the Act and 
Sec. Sec.  405.1835 and 405.1840 of the regulations. We believe that, 
because it is essential to require appropriate cost report claims for 
the various reasons that we discussed above, it is necessary and proper 
to continue to require an appropriate cost report claim as a 
prerequisite of Board jurisdiction under Sec. Sec.  405.1835(a)(1) and 
405.1840(b)(3) until the proposed addition to the cost reporting 
regulations, of the substantive reimbursement requirement of an 
appropriate cost report claim, takes effect.
b. Proposed Addition of Sec.  405.1873 Regarding Board Review of 
Compliance with Cost Report Claim Requirements in Proposed Sec.  
413.24(j)
    We are proposing to add a new Sec.  405.1873 to the Board appeal 
regulations, which will address how the Board should proceed when any 
party to an appeal questions whether a provider made an appropriate 
cost report claim (as required by proposed Sec.  413.24(j)) for a 
specific item under appeal. We believe this new regulation is necessary 
to forestall potential confusion about how the substantive 
reimbursement requirement in proposed Sec.  413.24(j) of an appropriate 
cost report claim for a specific item will pertain to Board appeals of 
the same item.
    Under paragraph (b)(1) of proposed new Sec.  405.1873, the Board 
will consider timely submitted factual evidence and legal argument on, 
and then prepare written specific findings of fact and conclusions of 
law regarding, the question of whether the provider's cost report 
complied with proposed Sec.  413.24(j). The Board will give these 
written specific factual findings and legal conclusions to each party 
to the appeal, and they must be included in the record of 
administrative proceedings for the appeal. Paragraph (b)(2) of proposed 
Sec.  405.1873 provides that, upon giving the parties to the appeal the 
Board's written factual findings and legal conclusions on the question 
of whether the provider's cost report included an appropriate cost 
claim for the specific item under appeal, the Board then must proceed 
to issue one of four types of overall decisions with respect to such 
item. As discussed below, paragraph (d) of proposed Sec.  405.1873 
provides that, if the Board issues either of two types of overall Board 
decisions regarding the specific item under appeal (that is, a hearing 
decision or an expedited judicial review (EJR) decision where EJR is 
granted), the Board's written specific factual findings and legal 
conclusions (reached under proposed Sec.  405.1873(b)) about whether 
there was an appropriate cost report claim for the item, must be 
included in such overall Board decision regarding the specific item, 
along with the other matters that are already required for a Board 
hearing decision or a Board EJR decision where EJR is granted. However, 
under paragraph (e) of proposed Sec.  405.1873, if the Board issues 
either of two other types of overall Board decisions regarding the 
specific item under appeal (that is, a jurisdictional dismissal 
decision or an EJR decision where EJR is denied), the Board's written 
specific factual findings and legal conclusions (pursuant to proposed 
Sec.  405.1873(b)) must not be included in the overall Board decision 
regarding the specific item. In any event, the Board's factual findings 
and legal conclusions about whether there was an appropriate cost 
report claim for the item must be included in the record of 
administrative proceedings for the appeal in accordance with Sec.  
405.1865 of the regulations.
    We believe that, in order to ensure full and appropriate 
implementation of both the addition of the substantive reimbursement 
requirement of an appropriate cost report claim (in proposed Sec.  
413.24(j)) and the elimination of the Board jurisdiction requirement of 
an appropriate cost report claim (in existing Sec. Sec.  405.1835(a)(1) 
and 405.1840(b)(3)), it is necessary to foreclose certain types of 
Board decisions, orders, and other actions. Accordingly, in order to 
give full force and effect to our proposed elimination of the Board 
jurisdiction requirement of an appropriate cost report claim, paragraph 
(c)(1) of new Sec.  405.1873 would prohibit a denial of jurisdiction, a 
declination to exercise jurisdiction, the imposition of a sanction, and 
various other actions by the Board, if any such jurisdictional 
decision, order, sanction, or other specified action is based on (in 
whole or in part) the Board's determination that the provider's cost 
report did not meet proposed Sec.  413.24(j)'s substantive 
reimbursement requirement of an appropriate cost report claim for the 
specific item.
    In some cases, the Board jurisdiction requirement of an appropriate 
cost report claim has been addressed in different but related terms. 
For example, Board jurisdiction has been denied based on the absence, 
in the final contractor determination or Secretary determination under 
appeal, of an adjustment, revision, correction, or other change to the 
specific item under appeal. Another example: Board jurisdiction has 
also been denied due to the lack of a particular determination by the 
contractor or the Secretary regarding the specific item under appeal, 
in the final contractor determination or Secretary determination under 
appeal. We believe that, in order to give full force and effect to the 
proposed elimination of the Board jurisdiction requirement of an 
appropriate cost report claim, it is also necessary to address related 
terms such as the absence of specific adjustments and the lack of 
particular determinations regarding the specific item under appeal. 
Accordingly, paragraph (c)(2) of proposed new Sec.  405.1873 would 
prohibit a denial of jurisdiction, a declination to exercise 
jurisdiction, the imposition of a sanction, and various other actions 
by the Board, if any such jurisdictional decision, sanction, or other 
specified action is based on (in whole or in part) the absence, in the 
final contractor determination or Secretary determination under appeal, 
of an adjustment, revision, correction, or other change to the specific 
item under appeal, or the lack of a particular determination by the 
contractor or the Secretary regarding the specific item in the final 
contractor determination or Secretary determination under appeal. 
However, paragraph (c)(2)(i)(A) of proposed new Sec.  405.1873 would 
provide for an important exception: if the provider's appeal of the 
specific item is based on the reopening of such item (pursuant to Sec.  
405.1885 of the regulations) where the specific item is not revised, 
adjusted, corrected, or otherwise changed in a revised final contractor 
determination or Secretary determination, the Board must deny 
jurisdiction over the specific item under appeal (as prescribed in 
Sec. Sec.  405.1887(d) and 405.1889(b) of the regulations). The 
reopening regulations are an exercise of the Secretary's general 
rulemaking authority under sections 1102 and 1872 of the Act, and this 
exception (in proposed Sec.  405.1873(c)(2)(i)(A)) is necessary to 
ensure consistency with the above-referenced reopening regulations, our 
longstanding ``issue specific'' interpretation of the reopening 
regulations, and the interests of administrative finality and 
efficiency (we refer readers, for example, to HCA Health Servs. of 
Okla. v. Shalala, 27 F.3d 614 (D.C. Cir. 1994) (the reopening 
regulations are based on the Secretary's general rulemaking authority, 
and the issue specific interpretation of the reopening rules is 
reasonable and supportive of administrative finality).

[[Page 28214]]

    Under paragraph (d) of proposed Sec.  405.1873, there are two types 
of Board decisions that must include any specific findings of fact and 
conclusions of law by the Board (reached under paragraph (b) of 
proposed Sec.  405.1873), on the question of whether the provider's 
cost report included an appropriate claim for the specific item under 
appeal. First, paragraph (d)(1) of proposed Sec.  405.1873 provides 
that, if the Board issues a hearing decision on the specific item under 
appeal (pursuant to Sec.  405.1871 of the regulations), the Board's 
specific findings of fact and conclusions of law about whether there 
was an appropriate cost report claim for the specific item, must be 
included in such a hearing decision along with the other matters 
prescribed in existing Sec.  405.1871(a). A Board hearing decision 
addresses whether the provider has established that it should receive 
relief on the matter at issue (as specified in Sec.  405.1871(a)(3)). 
Under proposed Sec.  413.24(j), the requirement of an appropriate cost 
report claim is a substantive prerequisite of any payment for the 
specific item, which applies in addition to other payment requirements 
for the particular item (for example, the specific requirements for 
payment of interest expense under Sec.  413.153 of the regulations). We 
believe that, because a Board hearing decision addresses whether the 
provider has established that it meets the substantive requirements for 
payment of the item under appeal whereas an appropriate cost report 
claim is a substantive prerequisite of any payment for the specific 
item (under proposed Sec.  413.24(j)), any factual findings and legal 
conclusions about whether there was an appropriate cost report claim 
should be included in any hearing decision that might be issued by the 
Board regarding the specific item. In addition, we note that if the 
Board elects to issue a hearing decision that also includes factual 
findings and legal conclusions about whether the other payment 
requirements for the specific item were satisfied (in addition to the 
Board's findings and conclusions about whether there was an appropriate 
cost report claim for the item), such a hearing decision (addressing 
all the substantive reimbursement requirements for the specific item) 
will safeguard against piecemeal proceedings before the Board and 
potentially before the Administrator of CMS and a Federal court. 
However, paragraph (d)(1)(ii) of proposed Sec.  405.1873 provides that, 
if the Board determines that the provider's cost report did not include 
an appropriate claim for the specific item under appeal, the Board has 
discretion whether or not to address in its hearing decision whether 
the other substantive reimbursement requirements for the specific item 
are also satisfied.
    Second, paragraph (d)(2) of proposed Sec.  405.1873 provides that, 
if the Board issues an expedited judicial review (EJR) decision where 
EJR is granted regarding the specific item under appeal (pursuant to 
Sec.  405.1842(f)(1) of the regulations), any specific findings of fact 
and conclusions of law by the Board (reached under paragraph (b) of 
proposed Sec.  405.1873) about whether there was an appropriate cost 
report claim for the specific item, must be included in such an EJR 
decision. Section 1878(f)(1) of the Act and Sec.  405.1842 of the 
regulations authorize EJR if the requirements for Board jurisdiction 
over a specific item are satisfied, and the Board determines that it 
lacks the authority to decide a legal question that is relevant to the 
specific item under appeal. The Administrator of CMS may review the 
Board's determination as to whether there is Board jurisdiction over 
the specific item, but the Administrator may not review the Board's 
determination as to whether it has the authority to decide a relevant 
legal question. We believe that paragraph (d)(2) of proposed Sec.  
405.1873 will also safeguard against piecemeal proceedings before the 
Board, the Administrator of CMS, and a Federal court. By requiring a 
Board EJR decision that grants EJR to include any factual findings and 
legal conclusions (reached under proposed Sec.  405.1873(b)) about 
whether there was an appropriate cost report claim for the specific 
item under appeal, along with the Board's determinations that the two 
requirements for EJR were satisfied (that is, a finding of Board 
jurisdiction plus the Board's determination that it lacks the authority 
to decide a legal question relevant to the specific item under appeal), 
piecemeal proceedings would be minimized or eliminated because the 
Board EJR decision will encompass both the question of whether there 
was an appropriate cost report claim for the specific item and the 
relevant legal question for which EJR was granted (and for which the 
Board determined that it has no authority to decide such legal 
question). Piecemeal proceedings before the Administrator of CMS would 
also be minimized or eliminated because, under proposed Sec.  
405.1875(a)(2)(v) (which we discuss separately below), if the 
Administrator reviews and issues an EJR decision on the question of 
whether there is Board jurisdiction over the specific item under 
appeal, the Administrator will also review, and any decision will 
address, the Board's specific findings of fact and conclusions of law 
about whether there was an appropriate cost report claim for the 
specific item. In turn, our proposal to require an EJR decision that 
grants EJR to include any specific factual findings and legal 
conclusions under proposed Sec.  405.1873(b) would ensure that when a 
Federal court exercises its EJR authority under section 1878(f)(1) of 
the Act and Sec.  405.1842 of the regulations by reviewing a relevant 
legal question (for which the Board determined it has no decisional 
authority), the court's review can also potentially encompass the final 
specific findings of fact and conclusions of law by the Board or the 
Administrator, as applicable, about whether there was an appropriate 
cost report claim for the specific item. If it is determined, in a 
final EJR decision that grants EJR, that there was an appropriate cost 
report claim for the specific item under appeal, the court may have no 
occasion to review the final specific findings of fact and conclusions 
of law on the question of whether there was an appropriate cost report 
claim for the specific item. However, if it is instead determined, in a 
final EJR decision that grants EJR, that the provider's cost report did 
not include an appropriate claim for the specific item under appeal, 
the court can potentially review in one proceeding the final specific 
findings of fact and conclusions of law about whether there was an 
appropriate cost report claim for the specific item, along with the 
relevant legal question for which EJR was granted (and for which the 
Board determined that it has no authority to decide such legal 
question).
    However, paragraph (e) of proposed new Sec.  405.1873 would provide 
that there are two other types of Board decisions that must not include 
any specific findings of fact and conclusions of law by the Board 
(reached under proposed Sec.  405.1873(b)), on the question of whether 
the provider's cost report included an appropriate claim for the 
specific item under appeal. On the one hand, paragraph (e)(1) of 
proposed new Sec.  405.1873 would provide that if the Board issues a 
jurisdictional dismissal decision on the specific item under appeal 
(pursuant to Sec.  405.1840(c)), the Board's specific findings of fact 
and conclusions of law about whether there was an appropriate cost 
report claim for the specific item must not be included in such a 
jurisdictional dismissal decision. When the Board issues a 
jurisdictional dismissal decision on a specific item under appeal, the 
Board's

[[Page 28215]]

denial of jurisdiction obviates any need to address the question of 
whether the substantive reimbursement requirements that are specific to 
the particular item (for example, the specific requirements for payment 
for certain depreciation under Sec.  413.134) are satisfied. Because 
the requirement of an appropriate cost report claim for each specific 
item is also a substantive prerequisite of any payment for the specific 
item (as prescribed in proposed Sec.  413.24(j)), a denial of 
jurisdiction over the specific item also obviates any need to address 
the substantive reimbursement requirement of an appropriate cost report 
claim in the Board's jurisdictional dismissal decision.
    Similarly, under paragraph (e)(2) of proposed new Sec.  405.1873, 
if the Board issues an EJR decision where EJR is denied on the specific 
item under appeal (pursuant to Sec.  405.1842(f)(2)), the Board's 
specific findings of fact and conclusions of law (reached under 
paragraph (b) of proposed new Sec.  405.1873) about whether there was 
an appropriate cost report claim for the specific item, must not be 
included in such an EJR decision. If EJR is denied solely because the 
Board determines that it does have the authority to decide the legal 
question relevant to the specific item under appeal, the Board would 
conduct further proceedings and issue another decision (as specified in 
Sec.  405.1842(h)(2)(i)). If such further decision is a hearing 
decision, under proposed Sec.  405.1873(d)(1), the Board's factual 
findings and legal conclusions (under proposed Sec.  405.1873(b)) about 
whether there was an appropriate cost report claim must be included in 
the Board's hearing decision; if the Board elects to also include in 
the hearing decision its factual findings and legal conclusions about 
whether the other reimbursement requirements for the specific item are 
satisfied, piecemeal proceedings before the Board and potentially 
before the Administrator of CMS and a Federal court would be minimized 
or eliminated. However, if EJR is denied because the Board lacked 
jurisdiction over the specific item under appeal, the Board's factual 
findings and legal conclusions about whether there was an appropriate 
cost report claim must not be included in such an EJR decision; as 
explained above regarding Board jurisdictional dismissal decisions, the 
denial of Board jurisdiction in such an EJR decision obviates the need 
to address the substantive reimbursement requirement of an appropriate 
cost report claim, just as there is no need to consider other payment 
requirements for the particular item under appeal.
    Paragraph (f) of proposed new Sec.  405.1873 addresses the various 
effects of the Board's factual findings and legal conclusions (reached 
under paragraph (b) of proposed Sec.  405.1873) regarding whether there 
was an appropriate cost report claim in the two types of Board 
decisions where such factual findings and legal conclusions must be 
included: Board hearing decisions, and Board EJR decisions where EJR is 
granted. An appropriate cost report claim for a specific item is a 
necessary, but not sufficient, condition for Medicare payment for the 
specific item. This is because the requirement of an appropriate cost 
report claim for each specific item is a substantive prerequisite of 
any payment for the specific item (as prescribed in proposed Sec.  
413.24(j)), but all other payment requirements (for example, the 
particular requirements for payment for certain bad debts under Sec.  
413.89) also must be satisfied. Accordingly, under paragraph (f)(1) of 
proposed new Sec.  405.1873, if the Board determines, as part of a 
final hearing decision, that the provider's cost report included an 
appropriate claim for the specific item under appeal (as prescribed in 
Sec.  413.24(j)), payment for the specific item is made in accordance 
with Medicare policy, but only if the Board further determines in such 
hearing decision that all the other substantive reimbursement 
requirements for the specific item are also satisfied. Conversely, if 
the Board determines, in a final hearing decision, that the cost report 
lacked an appropriate claim for the specific item under appeal, payment 
for the specific item is not made, regardless of whether the Board 
further determines in such hearing decision that the other substantive 
reimbursement requirements for the specific item are satisfied.
    Similarly, paragraph (f)(2) of proposed new Sec.  405.1873 provides 
that, if the Board or the Administrator of CMS (as applicable) 
determines, as part of a final EJR decision where EJR is granted, the 
provider's cost report included an appropriate claim for the specific 
item under appeal (as prescribed in Sec.  413.24(j)), payment for the 
specific item is made in accordance with Medicare policy, but only to 
the extent permitted by the final decision of a Federal court pursuant 
to the EJR provisions of section 1878(f)(1) of the Act (see also 
Sec. Sec.  405.1842 and 405.1877) regarding the legal question that is 
relevant to the specific item (but for which the Board determined it 
has no decisional authority). By contrast, if the Board or the 
Administrator of CMS (as applicable) determines, in a final EJR 
decision where EJR is granted, that the cost report lacked an 
appropriate claim for the specific item under appeal, payment for the 
specific item is not made unless: (i) The specific factual findings and 
legal conclusions by the Board or the Administrator of CMS, as 
applicable, about whether there was an appropriate cost report claim 
for the specific item are reversed or modified by the final decision of 
a Federal court (pursuant to section 1878(f)(1) of the Act and Sec.  
405.1877 of the regulations)); and (ii) only to the extent permitted by 
the final decision of a Federal court pursuant to the EJR provisions of 
section 1878(f)(1) of the Act (see also Sec. Sec.  405.1842 and 
405.1877 of the regulations) regarding the legal question that is 
relevant to the specific item (but for which the Board determined it 
has no decisional authority).
c. Related Proposed Revisions to Sec.  405.1875 Regarding Administrator 
Review
    We are proposing two revisions to Sec.  405.1875 of the 
regulations, which provides for review by the Administrator of CMS of 
certain Board decisions, orders, and other actions. We believe these 
revisions will facilitate the full and appropriate implementation of 
our proposals (discussed above) to add the substantive reimbursement 
requirement of an appropriate cost report claim (in proposed Sec.  
413.24(j)), eliminate the Board jurisdiction requirement of an 
appropriate cost report claim (in existing Sec. Sec.  405.1835(a)(1) 
and 405.1840(b)(3)), and to add specific procedures for Board review of 
questions about compliance with the substantive reimbursement 
requirement of an appropriate cost report claim (in proposed new Sec.  
405.1873).
    First, under existing Sec.  405.1875(a)(2) of the regulations, the 
Administrator may review a Board hearing decision, a Board dismissal 
decision, the Board's jurisdictional determination in an EJR decision 
(but not the Board's determination, in an EJR decision, of whether it 
has the authority to decide a relevant legal question), and any other 
Board decision or action deemed to be final by the Administrator. We 
are proposing to add a new paragraph (a)(2)(v) to Sec.  405.1875, which 
would provide that if the Administrator reviews a Board hearing 
decision, or the jurisdictional component of a Board EJR decision where 
EJR is granted, regarding a specific item, the Administrator's review 
of such a hearing decision or such an EJR decision, as applicable, will

[[Page 28216]]

include, and any decision issued by the Administrator under Sec.  
405.1875(e) of the regulations will address, the Board's specific 
findings of fact and conclusions of law in such hearing decision or EJR 
decision (as prescribed in proposed Sec.  405.1873(b) and (d)) on the 
question of whether the provider's cost report included an appropriate 
claim for the specific item under appeal (as prescribed in Sec.  
413.24(j)). We believe this proposed revision to Sec.  405.1875(a)(2) 
is an important additional safeguard against piecemeal administrative 
appeal proceedings and potentially before a Federal court. As explained 
above with respect to proposed Sec.  405.1873(d)(1), if the Board 
elects to issue a hearing decision that also includes factual findings 
and legal conclusions about whether the other payment requirements for 
the specific item were satisfied (in addition to the Board's findings 
and conclusions about whether there was an appropriate cost report 
claim for the item), all of the payment requirements for the specific 
item will be presented in one Board hearing decision for purposes of 
any review by the Administrator under proposed Sec.  405.1875(a)(2)(v) 
and a Federal court. Moreover, for the specific reasons set forth above 
regarding proposed Sec.  405.1873(d)(2), our proposal to require that 
the Board's factual findings and legal conclusions about whether there 
was an appropriate cost report claim for the item be included in an EJR 
decision where EJR is granted will also minimize or eliminate piecemeal 
proceedings before the Board and, given the proposed addition of Sec.  
405.1875(a)(2)(v), before the Administrator of CMS and a Federal court.
    Second, existing Sec.  405.1875(a) requires the Board to promptly 
send copies of hearing decisions and EJR decisions to the Office of the 
Attorney Advisor. Although the Board often (perhaps typically) sends 
copies of dismissal decisions to the Office of the Attorney Advisor, 
the Board is not required to so. We are proposing to amend the last 
sentence of paragraph (a) of Sec.  405.1875 by requiring the Board to 
promptly send copies of dismissal decisions to the Office of the 
Attorney Advisor. This revision will facilitate the Administrator's 
exercise of her discretion under Sec.  405.1875(a)(2)(ii) as to whether 
to review specific Board dismissal decisions. Also, given our proposals 
to eliminate the Board jurisdiction requirement of an appropriate cost 
report claim (in existing Sec. Sec.  405.1835(a)(1) and 405.1840(b)(3)) 
and to add procedures for Board review of compliance with the 
substantive reimbursement requirement of an appropriate cost report 
claim (in proposed Sec.  405.1873)), our further proposal to require 
the Board to promptly send copies of dismissal decisions to the Office 
of the Attorney Advisor will enhance the Administrator's ability to 
ensure full and appropriate implementation of our proposed revisions to 
the Board appeal regulations.

C. Proposed Conforming Changes to the Board Appeal Regulations and 
Corresponding Revisions to the Contractor Hearing Regulations

    We are proposing technical revisions to several other Board appeal 
regulations. We believe these other technical revisions are necessary 
and appropriate to maintain consistency with our principal proposals 
(discussed above) to add the substantive reimbursement requirement of 
an appropriate cost report claim (in proposed Sec.  413.24(j)); 
eliminate the Board jurisdiction requirement of an appropriate cost 
report claim (in existing Sec. Sec.  405.1835(a)(1) and 
405.1840(b)(3)); and add procedures for Board review of compliance with 
the substantive reimbursement requirement of an appropriate cost report 
claim (in proposed Sec.  405.1873)). Finally, we are proposing similar 
revisions to the existing regulations for appeals to the contractor 
hearing officers. Specifically, we are proposing to eliminate an 
appropriate cost report claim as a jurisdictional requirement for 
contractor hearing officer appeals (in existing Sec. Sec.  
405.1811(a)(1) and 405.1814(b)(3)); add a new Sec.  405.1832 that (like 
new Sec.  405.1873 for Board appeals) will detail the procedures for 
contractor hearing officer review of compliance with the substantive 
reimbursement requirement of an appropriate cost report claim (as 
prescribed in proposed Sec.  413.24(j)). These proposed revisions to 
the existing regulations for appeals to the contractor hearing officers 
comport with our usual practice of adopting similar regulations for 
both Board appeals and for contractor hearing officer appeals unless 
there is a sufficient reason to do otherwise.
1. Technical Corrections and Conforming Changes to Sec. Sec.  405.1801 
and 405.1803
    We are proposing to revise the definition of ``intermediary 
determination'' in Sec.  405.1801(a) to clarify that the determination 
is final as set forth in 1878(a) of the Act and to reflect the 
conforming technical correction to ``contractor determination''. We are 
proposing to revise Sec.  405.1801(b) to more appropriately refer to 
Sec.  413.24 generally (following the proposed addition of paragraph 
(j) to Sec.  413.24). We are proposing to revise Sec.  405.1803 to 
refer to the final contractor (instead of intermediary) determination 
as set forth in Sec.  405.1801 and to appropriately cross-reference the 
proposed newly revised Sec.  405.1835(a).
2. Technical Corrections and Conforming Changes to Sec. Sec.  405.1811, 
405.1813, and 405.1814
    As we are proposing to eliminate the jurisdictional requirement of 
an appropriate cost report claim in existing Sec. Sec.  405.1835(a)(1) 
and 405.1840(b)(3) for Board appeals, we are similarly proposing to 
eliminate the corresponding jurisdictional requirement in Sec. Sec.  
405.1811(a)(1) and 405.1814(b)(3) for contractor hearing officer 
appeals. Specifically, we are proposing to eliminate an appropriate 
cost report claim as a jurisdictional requirement for contractor 
hearing officer appeals. In addition, we are proposing to revise Sec.  
405.1813 to add an appropriate cross-reference to Sec.  405.1811, 
pursuant to the proposed technical correction in Sec.  405.1811. We are 
proposing technical corrections to Sec. Sec.  405.1836 and 405.1837 in 
conformance with the proposed revision to Sec.  405.1835(a)(1) to 
eliminate the reference to the jurisdictional requirement of an 
appropriate cost report claim.
3. Proposed New Sec.  405.1832
    We are proposing to add new Sec.  405.1832 which will detail the 
procedures for contractor hearing officer review of compliance with the 
substantive reimbursement requirement of an appropriate cost report 
claim (as prescribed in proposed Sec.  413.24(j)) in appeals first 
filed with contractor hearing officers.
4. Proposed Revisions to Sec.  405.1834
    We are proposing to amend Sec.  405.1834, which provides for review 
of contractor hearing officer decisions by the CMS reviewing official, 
by adding a new paragraph (b)(2)(iii). Under proposed Sec.  
405.1834(b)(2)(iii), the CMS reviewing official will review, and 
address in any decision, the specific factual findings and legal 
conclusions of contractor hearing officers regarding compliance with 
the substantive requirement of an appropriate cost report claim (as 
prescribed in proposed Sec.  413.24(j)), as part of the CMS reviewing 
official's review of a contractor hearing decision.

[[Page 28217]]

5. Technical Corrections and Conforming Changes to Sec. Sec.  405.1836, 
405.1837, and 405.1839
    We are proposing technical and conforming changes to Sec. Sec.  
405.1836, 405.1837, and 405.1839 to comport and maintain consistency 
with the principal proposed regulation changes discussed above.
6. Technical Corrections to 42 CFR Part 405, Subpart R and All Subparts 
of 42 CFR part 413
    We are proposing to conform the terminology in 42 CFR part 405 
Subpart R and all subparts of 42 CFR part 413 by replacing the term 
``intermediary'' and its various deviations to ``contractor'', and its 
various deviations, pursuant to sections 1816, 1874A, and 1878 of the 
Act.

IX. Proposed Quality Data Reporting Requirements for Specific Providers 
and Suppliers

    We seek 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. We have worked with relevant 
stakeholders to define quality measures 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.
    We have implemented quality reporting programs for multiple care 
settings, 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,
     Hospice facilities under the Hospice Quality Reporting 
Program.
    We have also implemented the End-Stage Renal Disease Quality 
Incentive Program and Hospital Value-Based Purchasing Program 
(described further below) that link 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 reporting burden on providers 
will be reduced. As appropriate, we will consider the adoption of 
clinical quality 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 
adoption of standards for capturing, formatting, and transmitting the 
data elements that make up the measures. However, once these activities 
are accomplished, 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 reporting burden to hospitals. We 
believe that in the near future, 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 data 
reporting for many measures that are currently manually chart-
abstracted and submitted to CMS for the Hospital IQR Program.
    We also have 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 most recently adopted additional policies for the Hospital VBP 
Program in section XIV. of the CY 2014 OPPS/ASC final rule with comment 
period (78 FR 75120 through 75121). We are proposing additional 
policies for this program in section IV.I. of the preamble of this 
proposed rule. Under the Hospital VBP Program, hospitals will receive 
value-based incentive payments based on their quality performance with 
respect to performance standards 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 we have described for the Hospital VBP 
Program. The Hospital IQR Program is linked with the Hospital VBP 
Program because many of the measures and the reporting infrastructure 
for the programs overlap. We view the Hospital VBP Program as the next 
step in promoting higher quality care for Medicare 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.
    We also view the Hospital-Acquired Condition (HAC) payment 
adjustment program authorized by section 1886(p) of the Act, as added 
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 
HAC Reduction Program creates a payment adjustment resulting in payment 
reductions for the lowest performing hospitals based on their rates of 
HACs. Proposed policies for the Hospital VBP Program are included in 
section IV.I. of the preamble of this proposed rule. Proposed policies 
for the HAC Reduction Program are included in section IV.J. of the 
preamble of this proposed 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

[[Page 28218]]

programs that could potentially affect a hospital's Medicare payment.
    In the preamble of this proposed rule, we are proposing 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 addition, in section IX.D. of the preamble of this proposed 
rule, we are proposing changes to the Medicare EHR Incentive Program.

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background
a. History of 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 2014 IPPS/LTCH PPS final rule (78 FR 50789 through 50807) for the 
measures we have adopted for the Hospital IQR measure set through the 
FY 2016 payment determination and subsequent years.
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 http://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.
    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). 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 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.
    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 Hospital 
IQR Program so that these measures remain up-to-date. We also recognize 
that some changes the NQF might make to its endorsed measures are 
substantive in nature and might not be appropriate for adoption using a 
subregulatory process.
    Therefore, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53504 
through 53505), we finalized a policy under which we use a 
subregulatory process to make nonsubstantive updates to 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 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 
nonsubstantive changes may include updates to NQF-endorsed measures 
based upon changes to guidelines upon which the measures are based.
    We will continue to use rulemaking to adopt substantive updates 
made to 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. These 
policies regarding what is considered substantive versus nonsubstantive 
would apply to all measures in the Hospital IQR Program. We also note 
that the NQF process incorporates an opportunity for public comment and 
engagement in the measure maintenance process.
    We believe this policy adequately balances our need to incorporate 
updates to 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.
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 this 
proposed rule, we are not proposing to change 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.medicare.gov/hospitalcompare) and/or the interactive https://data.medicare.gov Web site, after a 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. For more information on 
measures reported to Hospital Compare, please see http://www.medicare.gov/hospitalcompare. Other information not reported to 
Hospital Compare may be made

[[Page 28219]]

available on other CMS Web sites such as http://www.cms.hhs.gov/HospitalQualityInits/ or https://data.medicare.gov.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50777 through 50778) 
we responded to public comments on what additional quality measures and 
information featured on Hospital Compare may be highly relevant to 
patients and other consumers of health care, and how we may better 
display this information on the Hospital Compare Web site.
2. Removal and Suspension of Hospital IQR Program Measures
a. Considerations in Removing Quality Measures From the Hospital IQR 
Program
    As discussed further below, we generally retain measures from the 
previous year's Hospital IQR Program measure set for subsequent years' 
measure sets except when we specifically propose to remove or replace 
them. As we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50185), the criteria that we consider when determining whether to 
remove Hospital IQR Program measures are the following: (1) Measure 
performance among hospitals is so high and unvarying that meaningful 
distinctions and improvements in performance can no longer be made 
(``topped out'' measures); (2) availability of alternative measures 
with a stronger relationship to patient outcomes; (3) a measure does 
not align with current clinical guidelines or practice; (4) the 
availability of a more broadly applicable (across settings, 
populations, or the availability of a measure that is more proximal in 
time to desired patient outcomes for the particular topic; (6) the 
availability of a measure that is more strongly associated with desired 
patient outcomes for the particular topic; and (7) collection or public 
reporting of a measure leads to negative unintended consequences other 
than patient harm. We also take into account the views of the Measure 
Applications Partnership (MAP) when determining when a measure should 
be removed, and we strive to eliminate redundancy of similar measures 
(77 FR 53505 through 53506).
    In this proposed rule, we are proposing to change the criteria for 
determining when a measure is ``topped-out.'' A measure is ``topped-
out'' when measure performance among hospitals is so high and unvarying 
that meaningful distinctions and improvements in performance can no 
longer be made (``topped out'' measures) (77 FR 53505 through 53506). 
We do not believe that measuring hospital performance on ``topped-out'' 
measures provides meaningful information on the quality of care 
provided by hospitals. We further believe that quality measures, once 
``topped out,'' represent care standards that have been widely adopted 
by hospitals. We believe such measures should be considered for removal 
from the Hospital IQR Program because their associated reporting burden 
may outweigh the value of the quality information they provide.
    In order to determine ``topped out'' status, we are proposing to 
apply the following two criteria, the first of which was previously 
adopted by the HVBP Program in the Hospital Inpatient VBP Program final 
rule (76 FR 26496 through 26497), to Hospital IQR measures. The second 
criterion is a modified version of what was previously adopted by the 
Hospital VBP Program in the above mentioned final rule, with the change 
from the ``less than'' operator (<) to the ``less than or equal to'' 
operator (<=):
     Statistically indistinguishable performance at the 75th 
and 90th percentiles; and
     Truncated coefficient of variation <= 0.10.
    The coefficient of variation (CV) is a common statistic that 
expresses the standard deviation as a percentage of the sample mean in 
a way that is independent of the units of observation. Applied to this 
analysis, a large CV would indicate a broad distribution of individual 
hospital scores, with large and presumably meaningful differences 
between hospitals in relative performance. A small CV would indicate 
that the distribution of individual hospital scores is clustered 
tightly around the mean value, suggesting that it is not useful to draw 
distinctions among individual hospitals' measure performance. By 
adopting ``less than or equal to'' in our ``topped out'' test, we are 
clarifying the interpretation of the CV when a tie at 0.1 occurs due to 
rounding. We believe that the proposed criteria distinguish measures 
with significant variation in performance among hospitals.
    In the Hospital VBP Program context, we used a modified version of 
the CV, namely a truncated CV, for each measure, in which the 5 percent 
of hospitals with the lowest scores, and the 5 percent of hospitals 
with highest scores were first truncated (set aside) before calculating 
the CV. This was done to avoid undue effects of the highest and lowest 
outlier hospitals, which if included, would tend to greatly widen the 
dispersion of the distribution and make the measure appear to be more 
reliable or discerning.
    We welcome public comments on this proposal.
b. Proposed Removal of Hospital IQR Program Measures for the FY 2017 
Payment Determination and Subsequent Years
    As we continue moving towards including more clinical outcomes 
measures as opposed to process-of-care measures in the Hospital IQR 
Program measure set, we have considered removing additional measures 
using our previously-adopted removal criteria. We are proposing to 
remove five measures from the Hospital IQR Program for the FY 2017 
payment determination and subsequent years, which begins in the CY 2015 
reporting period: (1) AMI-1 Aspirin at arrival (NQF 0132); (2) 
AMI-3 ACEI/ARB for left ventricular systolic dysfunction (NQF 
0137); (3) AMI-5 Beta-blocker prescribed at discharge (NQF 
0160); (4) SCIP INF-6 Appropriate Hair Removal; and (5) 
Participation in a systematic database for cardiac surgery (NQF 
0113).
    We are proposing to remove the first four process measures because 
they were previously determined to be ``topped out'' and suspended (77 
FR 53509). We are proposing to remove the fifth measure because the MAP 
recommended the measure's removal in its MAP Pre-Rulemaking Report: 
2014 Recommendations on Measures for More than 20 Federal Programs, 
which is available at: http://www.qualityforum.org/Publications/2014/01/MAP_Pre-Rulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Federal_Programs.aspx. The MAP report states that 
the measure's NQF endorsement has been placed on reserve status because 
the measure is ``topped-out.'' The purpose of reserve status is to 
retain endorsement of reliable and valid quality performance measures 
that have overall high levels of performance with little variability so 
that performance could be monitored in the future if necessary to 
ensure that performance does not decline. This status would apply only 
to highly credible, reliable, and valid measures that have high levels 
of performance due to quality improvement actions (often facilitated or 
motivated through public reporting and other accountability programs). 
More information about NQF reserve status is available at: https://www.qualityforum.org/docs/Reserve_Endorsement_Status.aspx.
    By removing these measures, we would alleviate the maintenance 
costs and administrative burden to hospitals

[[Page 28220]]

associated with retaining them. Should we determine that hospital 
adherence to these practices has unacceptably declined, we would 
propose to resume data collection in future rulemaking. In addition, we 
would comply with any requirements imposed by the Paperwork Reduction 
Act before re-proposing these measures.
    We also analyzed the remainder of the Hospital IQR measure set for 
other potential ``topped out'' measures using the previously adopted 
criteria. The analysis was based on the most recent two quarters of 
clinical process of care data available in the CMS Clinical Data 
Warehouse for IPPS eligible hospitals, which covers a measurement 
period from 01/01/2013 to 06/30/2013 (Q1 2013-Q2 2013). Based on this 
analysis and using the previously adopted criteria, we believe that an 
additional 15 chart-abstracted measures are ``topped out,'' and we are 
proposing to remove them from the measure set for the FY 2017 payment 
determination and subsequent years. However, we are proposing to retain 
the electronic clinical quality measure version of 10 of these chart-
abstracted measures for Hospital IQR Program reporting as discussed 
further in section IX.A.7.f. of the preamble of this proposed rule. We 
believe that retaining ``topped out'' measures under certain 
circumstances enables us to continue monitoring the clinical topic 
covered by the measure to ensure that hospitals continue to maintain 
high levels of performance. Further, we believe the additional 
reporting burden associated with retaining these measures is mitigated 
by retaining electronic versions of those measures, which are more 
easily reported by hospitals. These 10 measures are denoted in the 
chart below by an asterisk.

``Topped Out'' Chart-Abstracted Measures Proposed for Removal for the FY
                       2017 Payment Determination
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
 AMI-1: Aspirin at Arrival (previously suspended).
 AMI-3: ACEI or ARB for left ventricular systolic dysfunction--
 Acute Myocardial Infarction (AMI) Patients (previously suspended) (NQF
 0137).
 AMI-5: Beta-Blocker Prescribed at Discharge for AMI (previously
 suspended) (NQF 0160).
 AMI-8a: Primary PCI received within 90 minutes of hospital
 arrival * (NQF 0163).
 HF-2: Evaluation of left ventricular systolic function (NQF
 0135).
 PN-6: Initial antibiotic selection for community-acquired
 pneumonia (CAP) in immunocompetent patients* (NQF 0147).
 SCIP-Inf-1: Prophylactic antibiotic received within one hour
 prior to surgical incision* (NQF 0527).
 SCIP-Inf-2: Prophylactic antibiotic selection for surgical
 patients* (NQF 0528).
 SCIP-Inf-3: Prophylactic antibiotics discontinued within 24
 hours after surgery end time (48 hours for cardiac surgery) (NQF 0529).
 SCIP-Inf-4: Cardiac surgery patients with controlled
 postoperative blood glucose (NQF 0300).
 SCIP-Inf-6: Surgery patients with appropriate hair removal
 (previously suspended) (NQF 0301).
 SCIP-Inf-9: Urinary catheter removed on Postoperative Day 1
 (POD1) or Postoperative Day 2 (POD2) with day of surgery being day
 zero.* (NQF 0453).
 SCIP-Card-2: Surgery patients on beta blocker therapy prior to
 arrival who received a beta blocker during the perioperative period
 (NQF 0284).
 SCIP-VTE-2: Surgery Patients Who Received Appropriate Venous
 Thromboembolism (VTE) Prophylaxis Within 24 Hours Prior to Surgery to
 24 Hours After Surgery (NQF 0218).
 STK-2: Discharged on antithrombotic therapy * (NQF 0435).
 STK-3: Anticoagulation therapy for atrial fibrillation/flutter*
 (NQF 0436).
 STK-5: Antithrombotic therapy by the end of hospital day two*
 (NQF 0438).
 STK-10: Assessed for rehabilitation* (NQF 0441).
 VTE-4: Patients receiving un-fractionated Heparin with doses/
 labs monitored by protocol*.
 Participation in a systematic database for cardiac surgery (NQF
 0113).
------------------------------------------------------------------------
* Proposed to be retained as an electronic clinical quality measure.

    We welcome public comments on our proposal to remove these 
measures.
3. Process for Retaining Previously Adopted Hospital IQR Program 
Measures for Subsequent Payment Determinations
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53512 through 53513), for our finalized measure retention policy. 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.
    We are not proposing any changes to our policy for retaining 
previously adopted measures for subsequent payment determinations.
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. We 
are not proposing any changes to the considerations in expanding or 
updating quality measures.
5. Previously Adopted Hospital IQR Program Measures for the FY 2016 
Payment Determination and Subsequent Years
    For currently adopted and future condition-specific, claims-based 
measures, beginning with the FY 2017 payment determination and 
subsequent years, we would like to propose to use 3 years of data to 
calculate measures unless otherwise specified. In other words, this 
reporting period would apply to all future calculations of condition 
specific measures already adopted in the Hospital IQR Program and any 
condition-specific measures that may be subsequently adopted in future 
years. The currently adopted, applicable measures are:

 Hospital 30-day, all-cause, risk-standardized mortality rate 
(RSMR) following acute myocardial infarction (AMI) hospitalization for 
patients 18 and older (NQF 0230)
 Hospital 30-day, all-cause, risk-standardized mortality rate 
(RSMR) following heart failure (HF) hospitalization for patients 18 and 
older (NQF 0229)
 Hospital 30-day, all-cause, risk-standardized mortality rate 
(RSMR) following pneumonia hospitalization (NQF 0468)
 Stroke 30-day mortality rate
 Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 
(RSMR)

[[Page 28221]]

following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization 
(NQF 1893)
 30-day all-cause, Acute Myocardial Infarction (AMI) 30-day 
risk standardized readmission rate (RSMR) following Acute Myocardial 
Infarction (AMI) hospitalization (NQF 0505)
 30-day all-cause, risk standardized readmission rate (RSMR) 
following Heart Failure (HF) hospitalization (NQF 0330)
 30-day all-cause, risk standardized readmission rate (RSMR) 
following Pneumonia (PN) hospitalization (NQF 0506)
 30-day risk standardized readmission rate (RSMR) following 
Total Hip/Total Knee Arthroplasty (NQF 1551)
 30-day risk standardized readmission rate (RSMR) following 
Stroke hospitalization
 30-day risk standardized readmission rate (RSMR) following 
COPD hospitalization (NQF 1891)
 Hip/Knee Complication: Hospital-level Risk-Standardized 
Complication Rate (RSCR) following Elective Primary Total Hip 
Arthroplasty (NQF 1550)

    We welcome public comments on our proposal to use 3 years of data 
to calculate current and future condition-specific, claims-based 
measures.
    The Influenza Vaccination Coverage Among Healthcare Personnel (HCP) 
(NQF 0431) was finalized for the Hospital IQR program in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51633) and the Hospital 
Outpatient Quality Reporting (HOQR) in the CY 2014 OPPS/ASC final rule 
(78 FR 75099). We received public comments regarding the burden of 
separately collecting and reporting HCP influenza vaccination statuses 
for both the inpatient and outpatient settings. In response to these 
concerns, we clarified that beginning with the 2014-2015 influenza 
season (CY 2014 reporting period and FY 2016 payment determination), 
facilities should collect and report a single vaccination count for 
each healthcare facility by CMS Certification Number (CCN), instead of 
separately by inpatient or outpatient setting, in order to reduce 
burden. We announced this clarification regarding how to designate HCP 
for this measure in an Operational Guidance document which can be found 
on our on our Web page at: http://origin.glb.cdc.gov/nhsn/PDFs/HCP/Operational-Guidance-ACH-HCP-Flu.pdf. Using the CCN will allow 
healthcare facilities with multiple care settings to simplify data 
collection and submit a single count applicable across the inpatient 
and outpatient settings. We will then publicly report the percentage of 
HCP who received an influenza vaccination per CCN. This single count 
per CCN will inform the public of the percentage of vaccinated HCP at a 
particular healthcare facility, which would still provide meaningful 
data and help to improve the quality of care. Specific details on data 
submission for this measure can be found at: http://www.cdc.gov/nhsn/acute-care-hospital/hcp-vaccination/ and at http://www.cdc.gov/nhsn/acute-care-hospital/index.html.
    The following table shows measures currently adopted for the 
Hospital IQR Program, including suspended measures.

------------------------------------------------------------------------
                                        Hospital IQR program measures
                                     previously adopted for the FY 2016
               Topic                payment determination and subsequent
                                                    years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI) Measures
------------------------------------------------------------------------
                                     AMI-1: Aspirin at Arrival
                                     (previously suspended).
                                     AMI-3: ACEI or ARB for left
                                     ventricular systolic dysfunction--
                                     Acute Myocardial Infarction (AMI)
                                     Patients (previously suspended)
                                     (NQF 0137).
                                     AMI-5: Beta-Blocker
                                     Prescribed at Discharge for AMI
                                     (previously suspended) (NQF 0160).
                                     AMI-7a Fibrinolytic therapy
                                     received within 30 minutes of
                                     hospital arrival (NQF 0164).
                                     AMI-8a: Primary PCI
                                     received within 90 minutes of
                                     hospital arrival (NQF 0163) *.
------------------------------------------------------------------------
Heart Failure (HF) Measure
------------------------------------------------------------------------
                                     HF-2 Evaluation of left
                                     ventricular systolic function (NQF
                                     0135) *.
------------------------------------------------------------------------
Stroke (STK) Measure Set
------------------------------------------------------------------------
                                     STK-1 Venous
                                     thromboembolism (VTE) prophylaxis
                                     (NQF 0434).
                                     STK-2 Discharged on
                                     antithrombotic therapy (NQF 0435) *.
                                     STK-3 Anticoagulation
                                     therapy for atrial fibrillation/
                                     flutter (NQF 0436) *.
                                     STK-4 Thrombolytic therapy
                                     (NQF 0437).
                                     STK-5 Antithrombotic
                                     therapy by the end of hospital day
                                     two (NQF 0438).
                                     STK-6 Discharged on statin
                                     medication (NQF 0439).
                                     STK-8 Stroke education.
                                     STK-10 Assessed for
                                     rehabilitation (NQF 0441).
------------------------------------------------------------------------
Venous Thromboembolism (VTE) Measure Set
------------------------------------------------------------------------
                                     VTE-1 Venous
                                     thromboembolism prophylaxis (NQF
                                     0371).
                                     VTE-2 Intensive care unit
                                     venous thromboembolism prophylaxis
                                     (NQF 0372).
                                     VTE-3 Venous
                                     thromboembolism patients with
                                     anticoagulation overlap therapy
                                     (NQF 0373).
                                     VTE-4 Patients receiving un-
                                     fractionated Heparin with doses/
                                     labs monitored by protocol.
                                     VTE-5 VTE discharge
                                     instructions.
                                     VTE-6 Incidence of
                                     potentially preventable VTE.
------------------------------------------------------------------------
Pneumonia (PN) Measure
------------------------------------------------------------------------
                                     PN-6 Initial antibiotic
                                     selection for community-acquired
                                     pneumonia (CAP) in immunocompetent
                                     patients (NQF 0147).
------------------------------------------------------------------------
Surgical Care Improvement Project (SCIP) Measures
------------------------------------------------------------------------
                                     SCIP INF-1 Prophylactic
                                     antibiotic received within one hour
                                     prior to surgical incision (NQF
                                     0527) *.
                                     SCIP INF-2 Prophylactic
                                     antibiotic selection for surgical
                                     patients (NQF 0528).

[[Page 28222]]

 
                                     SCIP INF-3 Prophylactic
                                     antibiotics discontinued within 24
                                     hours after surgery end time (48
                                     hours for cardiac surgery) (NQF
                                     0529).
                                     SCIP INF-4 Cardiac surgery
                                     patients with controlled
                                     postoperative blood glucose (NQF
                                     0300).
                                     SCIP INF-9 Urinary catheter
                                     removed on Postoperative Day 1
                                     (POD1) or Postoperative Day 2
                                     (POD2) with day of surgery being
                                     day zero (NQF 0453).
                                     SCIP Card-2 Surgery
                                     patients on beta blocker therapy
                                     prior to arrival who received a
                                     beta blocker during the
                                     perioperative period (NQF 0284).
                                     SCIP-VTE[dash]2 Surgery
                                     Patients Who Received Appropriate
                                     Venous Thromboembolism (VTE)
                                     Prophylaxis Within 24 Hours Prior
                                     to Surgery to 24 Hours After
                                     Surgery (NQF 0218).
------------------------------------------------------------------------
Mortality Measures
------------------------------------------------------------------------
                                     Hospital 30-day, all-cause,
                                     risk-standardized mortality rate
                                     (RSMR) following acute myocardial
                                     infarction (AMI) hospitalization
                                     for patients 18 and older (NQF
                                     0230).
                                     Hospital 30-day, all-cause,
                                     risk-standardized mortality rate
                                     (RSMR) following heart failure (HF)
                                     hospitalization for patients 18 and
                                     older (NQF 0229).
                                     Hospital 30-day, all-cause,
                                     risk-standardized mortality rate
                                     (RSMR) following pneumonia
                                     hospitalization (NQF 0468).
                                     Stroke 30-day mortality
                                     rate.
                                     Hospital 30-Day, All-Cause,
                                     Risk-Standardized Mortality Rate
                                     (RSMR) following Chronic
                                     Obstructive Pulmonary Disease
                                     (COPD) Hospitalization (NQF 1893).
------------------------------------------------------------------------
Patient Experience of Care Measure
------------------------------------------------------------------------
                                     HCAHPS survey (NQF 0166) (expanded to include two
                                     new ``About You'' items and the 3-
                                     item Care Transition Measure) (NQF
                                     0228).
------------------------------------------------------------------------
Readmission Measures
------------------------------------------------------------------------
                                     Hospital 30-day all-cause
                                     risk-standardized readmission rate
                                     (RSRR) following acute myocardial
                                     infarction (AMI) hospitalization
                                     (NQF 0505).
                                     Hospital 30-day, all-cause,
                                     risk-standardized readmission rate
                                     (RSRR) following heart failure
                                     hospitalization (NQF 0330).
                                     Hospital 30-day, all-cause,
                                     risk-standardized readmission rate
                                     (RSRR) following pneumonia
                                     hospitalization (NQF 0506).
                                     Hospital-level 30-day, all-
                                     cause risk-standardized readmission
                                     rate (RSRR) following elective
                                     primary total hip arthroplasty
                                     (THA) and/or total knee
                                     arthroplasty (TKA) (NQF 1551).
                                     Hospital-Wide All-Cause
                                     Unplanned Readmission (HWR) (NQF
                                     1789).
                                     30-day risk standardized
                                     readmission rate (RSMR) following
                                     Stroke hospitalization.
                                     Hospital 30-Day, All-Cause,
                                     Risk-Standardized Readmission Rate
                                     (RSRR) following Chronic
                                     Obstructive Pulmonary Disease
                                     (COPD) Hospitalization (NQF 1891).
------------------------------------------------------------------------
AHRQ Patient Safety Indicators (PSIs) Composite Measure
------------------------------------------------------------------------
                                     PSI-90 Patient safety for
                                     selected indicators (composite)
                                     (NQF 0531).
------------------------------------------------------------------------
AHRQ PSI and Nursing Sensitive Care Measure
------------------------------------------------------------------------
                                     PSI-4 Death among surgical
                                     inpatients with serious treatable
                                     complications (NQF 0351).
------------------------------------------------------------------------
Structural Measures
------------------------------------------------------------------------
                                     Participation in a
                                     Systematic Database for Cardiac
                                     Surgery (NQF 0113).
                                     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.
------------------------------------------------------------------------
Healthcare-Associated Infections (HAI) Measures
------------------------------------------------------------------------
                                     National Healthcare Safety
                                     Network (NHSN) Central line-
                                     associated Bloodstream Infection
                                     (CLABSI) Outcome Measure (NQF
                                     0139).
                                     American College of
                                     Surgeons--Centers for Disease
                                     Control and Prevention (ACS-CDC)
                                     Harmonized Procedure Specific
                                     Surgical Site Infection (SSI)
                                     Outcome Measure (NQF 0753).
                                    --SSI following Colon Surgery.
                                    --SSI following Abdominal
                                     Hysterectomy.
                                     National Healthcare Safety
                                     Network (NHSN) Catheter-associated
                                     Urinary Tract Infection (CAUTI)
                                     Outcome Measure (NQF 0138).
                                     National Healthcare Safety
                                     Network (NHSN) Facility-wide
                                     Inpatient Hospital-onset
                                     Methicillin-resistant
                                     Staphylococcus aureus (MRSA)
                                     Bacteremia Outcome Measure (NQF
                                     1716).
                                     National Healthcare Safety
                                     Network (NHSN) Facility-wide
                                     Inpatient Hospital-onset
                                     Clostridium difficile Infection
                                     (CDI) Outcome Measure (NQF 1717).
                                     Influenza vaccination
                                     coverage among healthcare personnel
                                     (HCP) (NQF 0431).
------------------------------------------------------------------------
Surgical Complications Measures
------------------------------------------------------------------------

[[Page 28223]]

 
                                     Hospital-level risk-
                                     standardized complication rate
                                     (RSCR) following elective primary
                                     total hip arthroplasty (THA) and/or
                                     total knee arthroplasty (TKA) (NQF
                                     1550).
------------------------------------------------------------------------
Emergency Department (ED) Throughput Measures
------------------------------------------------------------------------
                                     ED-1 Median time from ED
                                     arrival to ED departure for
                                     admitted ED patients (NQF 0495).
                                     ED-2 Admit Decision Time to
                                     ED Departure Time for Admitted
                                     Patients (NQF 0497).
------------------------------------------------------------------------
Prevention: Global Immunization (IMM) Measures
------------------------------------------------------------------------
                                     IMM-1 Pneumococcal
                                     Immunization (previously suspended)
                                     (NQF 1653).
                                     IMM-2 Influenza
                                     Immunization (NQF 1659).
------------------------------------------------------------------------
Cost Efficiency Measures
------------------------------------------------------------------------
                                     Payment-Standardized
                                     Medicare Spending Per Beneficiary
                                     (MSPB) (NQF 2158).
                                     AMI Payment per Episode of
                                     Care.
------------------------------------------------------------------------
Perinatal Care (PC) Measure
------------------------------------------------------------------------
                                     PC-01 Elective delivery
                                     (NQF 0469)
------------------------------------------------------------------------
* Measures proposed for removal for the FY 2016 payment determination
  and subsequent years.

6. Proposed Refinements to Existing Measures in the Hospital IQR 
Program
    We are proposing to incorporate refinements for several measures 
that were previously 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 measure 
approaches. The measure refinements include the following: (1) Refining 
the planned readmission algorithm for all seven readmission measures 
included in the Hospital IQR Program; (2) modifying the hip/knee 
readmission and complication measure cohorts to exclude index 
admissions with a secondary fracture diagnosis; and (3) modifying the 
hip/knee complication measure to not count as complications coded as 
``present on admission'' (POA) during the index admission.
a. Proposed Refinement of Planned Readmission Algorithm for 30-Day 
Readmission Measures
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50785 through 50787) 
we adopted the CMS Planned Readmission Algorithm Version 2.1 (the 
Algorithm) for the Hospital IQR Program. In the same final rule (78 FR 
50785 through 50787, 50790 through 50792, and 50794 through 50798), we 
also finalized the use of the CMS Planned Readmission Algorithm Version 
2.1 in the AMI, HF, PN, THA/TKA, HWR, and COPD measures. This algorithm 
identifies readmissions that are planned and occur within 30 days of 
discharge from the hospital. A complete description of the Algorithm, 
which includes lists of planned diagnoses and procedures, is available 
at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html in the 
``Planned Readmission'' folder. NQF has endorsed the use of the 
Algorithm for these measures.
    In that final rule (78 FR 50652), in response to comments, we 
agreed to continually review the Algorithm and make updates as needed. 
Since its development, we have identified and made improvements. As a 
result, we are now proposing to use an updated, revised version, the 
CMS Planned Readmission Algorithm Version 3.0, for the AMI, HF, PN, 
THA/TKA, HWR, COPD, and Stroke readmission measures for the FY 2015 
payment determination and subsequent years. As discussed further below, 
we are also proposing to use Version 3.0 of this algorithm for the CABG 
readmission measure that we are proposing to include in the Hospital 
IQR Program starting in FY 2017, proposed in section IX.A.7.a. of the 
preamble of this proposed rule.
    Version 3.0 incorporates improvements made based on a validation 
study of the algorithm. Researchers reviewed 634 patients' charts at 7 
hospitals, classified readmission as planned or unplanned based on the 
chart review, and compared the results to the claims-based algorithm's 
classification of the readmissions. The findings suggested the 
algorithm was working well but could be improved.
    Specifically, the study suggested the need to make small changes to 
the tables of procedures and conditions used in the algorithm to 
classify readmission as planned or unplanned. The algorithm uses the 
Agency for Healthcare Research and Quality's (AHRQ's) Clinical 
Classification Software (CCS) to group thousands of procedure and 
diagnosis codes into fewer categories of related procedures or 
diagnoses. The algorithm then uses four tables of procedures and 
diagnoses categories and a flow diagram to classify tables as planned 
or unplanned. Additional information on this software is available at: 
http://www.hcup-us.ahrq.gov/toolssoftware/ccs/ccs.jsp. For all 
measures, the first table identifies procedures that, if present in a 
readmission, classify the readmission as planned. The second table 
identifies primary discharge diagnoses that always classify 
readmissions as planned. Because almost all planned admissions are for 
procedures or surgeries, a third table identifies procedures for which 
patients are typically admitted; if any of these procedures is coded in 
the readmission, we classify a readmission as planned as long as that 
readmission does not have an acute (unplanned) primary discharge 
diagnosis. The fourth table lists the acute (unplanned) primary 
discharge diagnoses that disqualify readmissions that include one or 
more of the potentially planned procedure in the third table as 
planned. These tables are structured the same across all measures but 
the specific procedure and conditions they contain vary slightly for 
certain measures based on clinical considerations for each cohort. The 
current tables for each measure can be found in the measure methodology 
reports at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

[[Page 28224]]

    Version 3.0 modifies two of these tables by removing or adding 
procedures or conditions to improve the accuracy of the algorithm. 
First, the validation study revealed that the algorithm could be 
improved by removing two procedure CCS categories from the third table, 
the potentially planned procedure table: CCS 211--Therapeutic Radiation 
and CCS 224--Cancer Chemotherapy. Typically, patients do not require 
admission for scheduled Therapeutic Radiation treatments (CCS 211). The 
study found that readmissions that were classified as planned because 
they included Therapeutic Radiation were largely unplanned.
    The algorithm was also more accurate when CCS 224--Cancer 
Chemotherapy was removed from the potentially planned procedure table. 
The second table of the algorithm classifies all readmissions with a 
principal diagnosis of Maintenance Chemotherapy as planned. Most 
patients who receive cancer chemotherapy have both a code for Cancer 
Chemotherapy (CCS 224) and a principal discharge diagnosis of 
Maintenance Chemotherapy (CCS 45). In the validation study, the 
readmissions for patients who received Cancer Chemotherapy (CCS 224) 
but who did not have a principal diagnosis of Maintenance Chemotherapy 
were largely unplanned, therefore removing CCS 224 from the potentially 
planned procedure table improved the algorithm's accuracy. Therefore, 
Version 3.0 removes CCS 211 and CCS 224 from the list of potentially 
planned procedures to improve the accuracy of algorithm.
    As noted above, the algorithm uses a table of acute principal 
discharge diagnoses to help identify unplanned readmissions. 
Readmissions that have a principal diagnosis listed in the table are 
classified as unplanned, regardless of whether they include a procedure 
in the potentially planned procedure table. The validation study 
identified one diagnosis CCS that should be added to the table of acute 
diagnoses to more accurately identify truly unplanned admissions as 
unplanned: Hypertension with Complications (CCS 99). Hypertension with 
complications is a diagnosis that is rarely associated with planned 
readmissions.
    In addition, the validation study identified a subset of ICD-9 
diagnosis codes within two CCS diagnosis categories that should be 
added to the acute diagnosis table to improve the algorithm. CCS 149, 
Pancreatic Disorders, includes the code for acute pancreatitis; 
clinically there is no situation in which a patient with this acute 
condition would be admitted for a planned procedure. Therefore, Version 
3.0 adds the ICD-9 code for acute pancreatitis, 577.0, to the acute 
primary diagnosis table to better identify unplanned readmissions. 
Finally, CCS 149, Biliary Tract Disease, is a mix of acute and non-
acute diagnoses. Adding the subset of ICD-9 codes within this CCS group 
that are for acute diagnoses to the list of acute conditions improves 
the accuracy of the algorithm for these acute conditions while still 
ensuring that readmissions for planned procedures, like 
cholecystectomies, are counted accurately as planned. For more detailed 
information on how the algorithm is structured and the use of tables to 
identify planned procedures and diagnoses, we refer readers to CMS's 
Planned Readmission Algorithm Version 2.1: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. As noted above, readers 
can find the specific Version 3.0 tables for each measure in the 
measure updates and specifications reports at the above link.
    We invite public comment on our proposal to use the CMS Planned 
Readmission Algorithm Version 3.0, for the AMI, HF, PN, THA/TKA, HWR, 
COPD, and Stroke readmission measures for the FY 2015 payment 
determination and subsequent years.
b. Proposed Refinement of Total Hip Arthroplasty and Total Knee 
Arthroplasty (THA/TKA) 30-Day Complication and Readmission Measures
    In this proposed rule, for the FY 2015 payment determination and 
subsequent years, we are proposing to refine: (1) The measure outcome 
and cohort for the Elective Primary THA/TKA All-Cause 30-Day Risk-
Standardized Complication Measure (NQF 1550); and (2) the 
measure cohort for the Elective Primary THA/TKA All-Cause Unplanned 30-
Day Risk-Standardized Readmission Measure (NQF 1551).
    As part of measure implementation, CMS conducted a dry run for both 
the THA/TKA readmission and complication measures in September/October 
of 2012. More information on the dry run is available at: https://www.qualitynet.org/dcs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1228889945763&blobheader=multipart%2Foctet-stream&blobheadername1=Content-Disposition&blobheadervalue1=attachment%3Bfilename%3DDryRun_HWR-HK_SummRept_122112.pdf&blobcol=urldata&blobtable=MungoBlobs.
    During the dry run, several commenters suggested CMS evaluate the 
use of Present on Admission (POA) codes for both the hip/knee 
readmission and complication measures. We agreed with the suggestion 
and have been monitoring POA data collection and testing its readiness 
for use in claims-based measures. We also noted our intent to evaluate 
the use of POA codes in Hospital IQR Program measures, such as the 
stroke mortality rate measure, in the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50801). We have since tested the use of the POA codes and 
propose to incorporate POA codes into the hip/knee complication measure 
for FY 2015 payment determination and subsequent years in order to 
prevent identifying a condition as a complication of care if it was 
present during admission.
    In addition, currently, the THA/TKA Readmission Measure (NQF 
1551) adopted for the Hospital IQR Program is intended to only 
include patients who have an elective THA or TKA. Currently, this 
measure excludes patients who have a principal discharge diagnosis of 
femur, hip, or pelvic fracture on their index admission since hip 
replacement for hip fracture is not an elective procedure. However, 
after hospitals reviewed their hospital-specific THA/TKA Readmission 
Measure data during the national dry-run, CMS learned that hospitals 
code hip fractures that occur during the same admission as a THA as not 
only a principal diagnosis, but also alternatively, a secondary 
diagnosis, instead of just a principal diagnosis as currently specified 
by the measure. According to feedback received from hospitals 
participating in the dry-run, the measure methodology failed to 
identify, and, appropriately exclude, a small number of patients (that 
is, 0.42 percent of patients in 2009-2010 data) with a hip fracture 
that had non-elective total hip arthroplasty as captured by these 
secondary diagnoses.
    Therefore, to ensure that all such non-elective hip fracture 
patients are excluded from the measure, we are proposing to refine the 
measure to exclude patients with hip fractures coded as either a 
principal or secondary diagnosis during the index admission beginning 
with the FY 2015 payment determination and subsequent years. We believe 
this refinement is responsive to comments from hospitals (78 FR 50709) 
and will allow us to accurately exclude patients who were initially 
admitted for a hip fracture and who then subsequently underwent total 
hip

[[Page 28225]]

arthroplasty, making their procedure non-elective.
    We invite public comment on these proposed refinements.
c. Anticipated Effect of Proposed Refinements to Existing Measures
    Based on our analyses of discharges between July 2009 and June 
2012, our proposal to use the Planned Readmission Algorithm Version 3.0 
would have the following effects on measures had these changes been 
applied for the FY 2014 payment determination as an example. We are 
sharing this information to provide the public with a sense of the 
extent to which these refinements to the measures will change the 
measure scores. As the results show, while the refinements improve the 
accuracy of the measures, the changes in actual scores are very slight.
    The proposed 30-day readmission rate (excluding the planned 
readmissions) would increase by 0.1 percentage points for AMI; 0.2 
percentage points for HF; 0.1 percentage points for PN; 0.1 percentage 
points for COPD; 0.0 percentage points for hip/knee; 0.1 percentage 
points for HWR; and 0.0 percentage points for stroke.
    The new national measure (unplanned) rate for each condition would 
have been 18.4 percent for AMI; 23.2 percent for HF; 17.7 percent for 
PN; 21.1 percent for COPD; 5.4 percent for hip/knee; 16.1 percent for 
HWR; and 13.8 percent for stroke.
    The number of readmissions considered planned (and, therefore, not 
counted as a readmission) would decrease by 334 for AMI; 1,375 for HF; 
981 for PN, 574 for COPD; 309 for hip/knee; 7,417 for HWR; and 242 for 
stroke.

[[Page 28226]]



                                            Comparison of Planned Readmission Algorithms V 2.1 and 3.0 for AMI/HF/PN/COPD/HK/HWR/Stroke Readmission Measures (Based on 2009-2012 Discharges)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           AMI                     HF                        PN                      COPD                 Hip/Knee                   HWR                   Stroke
                                                                 -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    V 3.0      V 2.1       V 3.0        V 2.1        V 3.0        V 2.1        V 3.0       V 2.1      V 3.0      V 2.1       V 3.0        V 2.1       V 3.0      V 2.1
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Discharges............................................    513,331    513,331    1,262,826    1,262,826    1,089,758    1,089,758      989,381    989,381    879,641    879,641    6,918,467    6,918,467    502,376    502,376
Number of Unplanned Readmissions................................     94,453     93,940      292,976      290,450      192,887      191,797      208,759    207,770     47,236     47,236    1,112,885    1,105,378     69,323     69,081
Readmission Rate................................................      18.4%      18.3%        23.2%        23.0%        17.7%        17.6%        21.1%      21.0%       5.4%       5.4%        16.1%        16.0%      13.8%      13.8%
Number of Planned Readmissions..................................     11,947     12,281       16,230       17,605        6,545        7,526        6,447      7,021      2,326      2,635       85,673       93,180      5,750      5,992
Planned Readmission Rate........................................       2.3%       2.4%         1.3%         1.4%         0.6%         0.7%         0.7%       0.7%       0.3%       0.3%         1.2%         1.3%       1.1%       1.2%
% of Readmissions that are Planned..............................      11.2%      11.6%         5.3%         5.7%         3.3%         3.8%         3.0%       3.3%       4.7%       5.3%         7.1%         7.8%       7.7%       8.0%
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 28227]]

7. Proposed Additional Hospital IQR Program Measures for the FY 2017 
Payment Determination and Subsequent Years
    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 are proposing to add a total of eleven measures to measure set 
for the FY 2017 payment determination and subsequent years. The first 
nine new measures are: (1) Hospital 30-day, all-cause, unplanned, risk-
standardized readmission rate (RSRR) following coronary artery bypass 
graft (CABG) surgery (claims-based); (2) Hospital 30-day, all-cause, 
risk-standardized mortality rate (RSMR) following coronary artery 
bypass graft (CABG) surgery (claims-based); (3) Hospital-level, risk-
standardized 30-day episode-of-care payment measure for pneumonia 
(claims-based); (4) Hospital-level, risk-standardized 30-day episode-
of-care payment measure for heart failure (claims-based); (5) Severe 
Sepsis and Septic Shock: Management Bundle (NQF 0500) (chart-
abstracted); (6) EHDI-1a Hearing Screening Prior to Hospital Discharge 
(NQF 1354) (electronic health record-based); (7) PC-05 
Exclusive Breast Milk Feeding and the subset measure PC-05a Exclusive 
Breast Milk Feeding Considering Mother's Choice (NQF 0480) 
(electronic health record-based); (8) CAC-3 Home Management Plan of 
Care (HMPC) Document Given to Patient/Caregiver (electronic health 
record-based); and, (9) Healthy Term Newborn (NQF 0716) 
(electronic health record-based).
    In addition, to align the Hospital IQR Program with the Medicare 
EHR Incentive Program for Eligible Hospitals and Critical Access 
Hospitals and allow hospitals as many measure options as possible that 
overlap both programs, we are proposing to readopt two measures 
previously removed from the Hospital IQR Program as voluntary 
electronic clinical quality measures: (10) AMI-2 Aspirin Prescribed at 
Discharge for AMI (NQF 0142) (electronic clinical quality 
measure); and (11) AMI-10 Statin Prescribed at Discharge (NQF 
0639) (electronic clinical quality measure). These two 
measures are part of the Stage 2 Medicare EHR Incentive Program measure 
set for eligible hospitals and CAHs.
    The four proposed claims-based measures (1-4, above) were included 
on a publicly available document entitled ``List of Measures Under 
Consideration for December 1, 2013'' in compliance with section 
1890A(a)(2) of the Act, and they were reviewed by the MAP in its MAP 
2014 Recommendations on Measures for More Than 20 Federal Programs 
final report, available at: http://www.qualityforum.org/Publications/2014/01/MAP_Pre-Rulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Federal_Programs.aspx.
    The proposed chart-abstracted measure (5 above) Severe Sepsis and 
Septic Shock: Management Bundle (NQF 0500) was included in the 
MAP Pre-Rulemaking Report: 2013 Recommendations on Measures Under 
Consideration by HHS final report, available at: https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738.
    The proposed measures 6-9 above 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 final 
report, available at: https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738.
    Measures 10 and 11 were included on a publicly available document 
entitled ``Measures Under Consideration for Calendar Year 2012'' in 
compliance with section 1890A(a)(2) of the Act, and they were reviewed 
by the MAP in its Pre-Rulemaking Report: Input on Measures Under 
Consideration by HHS for 2012 Rulemaking available at https://www.qualityforum.org/Publications/2012/02/MAP_Pre-Rulemaking_Report__Input_on_Measures_Under_Consideration_by_HHS_for_2012_Rulemaking.aspx.
a. Proposed Hospital 30-day, All-cause, Unplanned, Risk-Standardized 
Readmission Rate (RSRR) Following Coronary Artery Bypass Graft (CABG) 
Surgery
(1) Background
    CABG is a priority area for outcomes measure development, because 
it is a common procedure associated with considerable morbidity, 
mortality, and health care spending. In 2007, there were 114,028 
hospitalizations for CABG surgery and 137,721 hospitalizations for 
combined surgeries for CABG and valve procedures (``CABG plus valve'' 
surgeries) in the U.S.\44\
---------------------------------------------------------------------------

    \44\ Drye E, Krumholz H, Vellanky S, Wang Y. Probing New 
Conditions and Procedures for New Measure Development: Yale New 
Haven Health Systems Corporation; Center for Outcomes Research and 
Evaluation.; 2009:1-7.
---------------------------------------------------------------------------

    Readmission rates following CABG surgery are high and vary across 
hospitals. For example, in 2009 Medicare fee-for-service (FFS) data, 
the median hospital-level risk-standardized readmission rate after CABG 
was 17.2 percent and ranged from 13.9 percent to 22.1 percent.\45\ This 
is consistent with published data as the average 30-day all-cause, 
hospital-level readmission rate in New York state was 16.5 percent and 
ranged from 8.3 percent to 21.1 percent among all patients who 
underwent CABG surgery between January 1, 2005 and November 30, 
2007.\46\ Among patients readmitted within 30 days, 87.3 percent of 
readmissions were for reasons related to CABG surgery, with a 30-day 
rate of readmissions due to complications of CABG surgery of 14.4 
percent. Patients readmitted within 30 days also experienced a 2.8 
percent in-hospital mortality rate during their readmission(s), three-
fold higher than the 30-day mortality rate for patients without 
readmissions.\47\ Hence, addressing the causes of readmission will 
improve outcomes for patients.
---------------------------------------------------------------------------

    \45\ Suter L.G., Wang, C., Vellanky S., Potteiger J., Curtis J., 
Lin Z., Geary L.L., Krumholz H.M., Drye E.D. Hospital-level 30-day 
All-Cause Unplanned Readmission Following Coronary Artery Bypass 
Graft Surgery: Report prepared for the Centers for Medicare & 
Medicaid Services. 2012.
    \46\ Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions 
after coronary artery bypass graft surgery in New York State. JACC 
Cardiovasc Interv. 2011;4(5):569-576.
    \47\ Ibid.
---------------------------------------------------------------------------

    Readmissions after CABG also impose significant health care costs. 
In 2007, the Medicare Payment Advisory Committee (MedPAC) published a 
report to Congress in which it identified the seven conditions 
associated with the most costly potentially preventable

[[Page 28228]]

readmissions in the U.S.\48\ Among these seven, CABG ranked as having 
the highest potentially preventable readmission rate within 15 days 
following discharge (13.5 percent) and the second highest average 
Medicare payment per readmission ($8,136).\49\ The annual cost to 
Medicare for potentially preventable CABG readmissions was estimated at 
$151 million.
---------------------------------------------------------------------------

    \48\ Medicare Payment Advisory Committee. Report to the 
Congress: Promoting Greater Efficiency in Medicare, 2007.
    \49\ Ibid.
---------------------------------------------------------------------------

    High readmission rates and wide variation in these rates suggest 
that there is room for improvement. Reducing readmissions after CABG 
surgery has been identified as a target for quality measurement. An 
all-cause readmission measure for patients who undergo CABG surgery 
will provide hospitals with an incentive to reduce readmissions through 
prevention and/or early recognition and treatment of postoperative 
complications, and improved coordination of peri-operative care and 
discharge planning.
    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.
    We are proposing to include this non-NQF-endorsed 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.7. of the preamble of this proposed rule. Although the proposed 
measure is not currently NQF-endorsed, we considered available measures 
that have been endorsed or adopted by the NQF. We also are not aware of 
any other 30-day, all-cause, unplanned, risk-standardized readmission 
rate (RSRR) following coronary artery bypass graft (CABG) surgery 
measures that have been endorsed or adopted by a consensus 
organization, and found no other feasible and practical measures on 
this topic. The measure has been reviewed by the MAP and was 
conditionally supported pending NQF endorsement as detailed in its Pre-
Rulemaking 2014 Map Recommendations Report available at: https://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. This measure was submitted to NQF on February 5, 2014 and 
is currently under review.
(2) Overview of Measure
    The CABG readmission measure assesses hospitals' 30-day, all-cause 
risk-standardized rate of unplanned readmission following admission for 
a CABG procedure. In general, the measure uses the same approach to 
risk adjustment and hierarchical logistic modeling (HLM) methodology 
that is specified for CMS's other readmission measures previously 
adopted for this program. Information on how the measure employs HLM 
can be found in the 2012 CABG Readmission Measure Methodology Report 
(available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(3) Data Sources
    The proposed measure is claims-based. It uses Medicare 
administrative data from hospitalizations for Medicare FFS 
beneficiaries hospitalized for a CABG procedure.
(4) Outcome
    The outcome for this measure is 30-day, all-cause readmission, 
defined as an unplanned subsequent inpatient admission to any 
applicable acute care facility for any cause within 30 days of the date 
of discharge from the index hospitalization. This outcome period is 
consistent with other NQF-endorsed publicly reported readmission 
measures (AMI, HF, PN, COPD, HWR and, THA/TKA).
    The measure assesses all-cause unplanned readmissions (excluding 
planned readmissions) rather than readmissions for CABG only 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 
CABG-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 who underwent a CABG surgery and 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 their CABG surgery. Finally, while 
the measure does not presume that each readmission is preventable, 
interventions generally have shown reductions in all types of 
readmissions.50 51
---------------------------------------------------------------------------

    \50\ 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.
    \51\ 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 measure does not count planned readmissions as readmissions. 
Planned readmissions would be identified in claims data using the CMS 
Planned Readmission Algorithm Version 3.0 that detects planned 
readmissions that may occur within 30 days of discharge from the 
hospital. Version 2.1 of the algorithm was finalized for use in the 
current Hospital IQR Program readmission measures in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50785 through 50787, 50790 through 50792 and 
50794 through 50798). However, we are proposing to update the algorithm 
to version 3.0, and details on the updates to this algorithm can be 
found in section IX.A.6.a. of the preamble of this proposed rule. The 
proposed CABG readmission measure uses the planned readmission 
algorithm tailored for CABG patients. We adapted the algorithm for this 
group of patients with input from CABG surgeons and other experts, 
narrowing the types of readmissions considered planned since planned 
readmissions following CABG are less common and less varied than among 
patients discharged from the hospital following a medical admission. 
More detailed information on how the CABG measure incorporates the 
Planned Readmission Algorithm Version 3.0 can be found on the CMS Web 
site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. 
Once at the Web site go to the Coronary Artery Bypass Graft (CABG) 
Readmission zip file. Open the file labeled, ``Version10--Readmission--
CABG--Measure--Methodology--Report--3 19 2014'' and refer to Section 
2.3.3. For the CABG 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.
(5) Cohort
    The cohort includes patients aged 65 years and older who received a 
qualifying CABG procedure at an acute care facility. Patients are 
eligible for

[[Page 28229]]

inclusion if they had a qualifying CABG procedure and continuous 
enrollment in Medicare FFS one year prior to the first day of the index 
hospital stay and through 30 days post-discharge. The index stay is the 
stay that triggers the 30-day measurement period.
    In order to include a clinically-coherent set of patients in the 
measure, we sought input from clinical experts regarding the inclusion 
of other concomitant cardiac and non-cardiac procedures, such as valve 
replacement and carotid endarterectomy. Adverse clinical outcomes 
following such procedures are higher than those following ``isolated'' 
CABG procedures, that is, CABG procedures performed without concomitant 
high-risk cardiac and non-cardiac procedures.\52\ Limiting the measure 
cohort to ``isolated'' CABG patients is consistent with published 
reports of CABG outcomes; \9\ therefore, the measure cohort considers 
only patients undergoing isolated CABG as eligible for inclusion in the 
measure. We defined isolated CABG patients as those undergoing CABG 
procedures without concomitant valve or other major cardiac, vascular 
or thoracic procedures. In addition, our clinical experts, consultants, 
and Technical Expert Panel (TEP) members agreed that an isolated CABG 
cohort is a clinically coherent cohort for quality measurement. For 
detailed information on the cohort definition, we refer readers to the 
2012 CABG Readmission Measure Methodology Report on the CMS Web site 
at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    \52\ Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions 
after coronary artery bypass graft surgery in New York State. JACC 
Cardiovasc Interv. 2011;4(5):569-576.
---------------------------------------------------------------------------

(6) Inclusion and Exclusion Criteria
    The 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 FFS enrollment to allow for adequate 
risk adjustment. The measure excludes the following admissions from the 
measure cohort: (1) Admissions for patients who are discharged against 
medical advice (excluded because providers do not have the opportunity 
to deliver full care and prepare the patient for discharge); (2) 
admissions for patients who die during the initial hospitalization 
(these patients are not eligible for readmission); (3) admissions for 
patients with subsequent qualifying CABG procedures during the 
measurement period (a repeat CABG procedure during the measurement 
period very likely represents a complication of the original CABG 
procedure and is a clinically more complex and higher risk surgery, 
therefore we select the first CABG admission for inclusion in the 
measure and exclude subsequent CABG admissions from the cohort); and 
(4) admissions for patients without at least 30 days post-discharge 
enrollment in Medicare FFS (excluded because the 30-day readmission 
outcome cannot be assessed in this group).
(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. 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. 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 Readmission Ratio (RSRR)
    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 CABG 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 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 readmissions 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/QualityInitiativesPatientAssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.
    We invite public comment on this proposal.
b. Proposed Hospital 30-Day, All-Cause, Risk-Standardized Mortality 
Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery \53\
---------------------------------------------------------------------------

    \53\ Krumholz H. CABG Mortality Measure Methodology Report 
Section 1, Subtask 3.1, Deliverable 49a: Yale New Haven 
Systems Corporation; Center for Outcomes Research and Evaluation; 
2012.
---------------------------------------------------------------------------

(1) Background
    CABG is a priority area for outcomes measure development because it 
is a common procedure associated with considerable morbidity, 
mortality, and health care spending. In 2007, there were 114,028 
hospitalizations for CABG surgery and 137,721 hospitalizations for 
combined surgeries for CABG and valve procedures (``CABG plus valve'' 
surgeries) among Medicare FFS patients in the U.S.\54\
---------------------------------------------------------------------------

    \54\ Drye E, Krumholz H, Vellanky S, Wang Y. Probing New 
Conditions and Procedures for New Measure Development: Yale New 
Haven Systems Corporation; Center for Outcomes Research and 
Evaluation; 2009:7.
---------------------------------------------------------------------------

    CABG surgeries are costly procedures that account for the majority 
of major cardiac surgeries performed nationally. In FY 2009, isolated 
CABG surgeries accounted for almost half (47.6 percent) of all cardiac 
surgery hospital

[[Page 28230]]

admissions in Massachusetts.\55\ This provides an example of the 
frequency in which a CABG Is performed for a patient admitted for 
cardiac surgery. In 2008, the average Medicare payment was $30,546 for 
CABG without valve and $47,669 for CABG plus valve surgeries.\56\
---------------------------------------------------------------------------

    \55\ Massachusetts Data Analysis Center. Adult Coronary Artery 
Bypass Graft Surgery in the Commonwealth of Massachusetts: Hospital 
and Surgeons Risk-Standardized 30-Day Mortality Rates. In: Health 
MDoP, ed. Boston; 2009:77.
    \56\ Pennsylvania Health Care Cost Containment Council. Cardiac 
Surgery in Pennsylvania 2008-2009. Harrisburg; 2011:60.
---------------------------------------------------------------------------

    Mortality rates following CABG surgery are not insignificant and 
vary across hospitals. For example, in 2009 Medicare FFS data indicated 
that the median hospital-level, risk-standardized mortality rate after 
CABG was 3.0 percent and ranged from 1.5 percent to 7.9 percent.\57\ 
Even within a single state, the observed in-hospital, 30-day all-cause, 
hospital-level mortality rate was 1.81 percent and ranged from 0.0 
percent to 5.6 percent among patients who were discharged after CABG 
surgery (without any other major heart surgery earlier in the hospital 
stay) in New York in 2008. The risk-adjusted mortality rate ranged from 
0.0 percent to 8.2 percent.\58\
---------------------------------------------------------------------------

    \57\ Ibid.
    \58\ New York State Department of Health. Adult Cardiac Surgery 
in New York State 2006-2008; 2010:54.
---------------------------------------------------------------------------

    Variation in these rates suggests that there is room for 
improvement. An all-cause mortality measure for patients who undergo 
CABG surgery will provide hospitals with an incentive to reduce 
mortality through improved coordination of perioperative care and 
discharge planning. This is further supported by the success of 
registry-based mortality measures in reducing CABG mortality rates. For 
example, California reports that CABG mortality in that state has 
steadily declined from 2.9 percent in 2003, the first year of mandatory 
reporting of their state registry measure, to 2.2 percent in 2008.\59\
---------------------------------------------------------------------------

    \59\ California CABG Outcomes Reporting Program. The California 
Report on Coronary Artery Bypass Graft Surgery: 2007-2008 Hospital 
and Surgeon Data. 2011:119.
---------------------------------------------------------------------------

    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.
    We are proposing to include this non-NQF-endorsed 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.7. of the preamble of this proposed 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 30-day, all-cause, risk-
standardized mortality rate (RSMR) following coronary artery bypass 
graft (CABG) surgery. We also are not aware of any other 30-day, all-
cause, RSMR measures that have been endorsed or adopted by a consensus 
organization, and found no other feasible and practical measures on 
this topic. The measure has been reviewed by the MAP and was 
conditionally supported pending NQF endorsement as detailed in its Pre-
Rulemaking 2014 Map Recommendations Report available at: https://www.qualityforum.org/Publications/2014/01/MAP_Pre-Rulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Federal_Programs.aspx. This measure was submitted to NQF on March 17, 2014 and 
is currently under review.
(2) Overview of Measure
    The CABG mortality measure assesses hospitals' 30-day, all-cause 
risk-standardized rate of mortality following admission for a CABG 
procedure. In general, the measure uses the same approach to risk 
adjustment and hierarchical logistic modeling (HLM) methodology that is 
specified for CMS's other mortality measures previously adopted for 
this program. Information on how the measure employs HLM can be found 
in the 2012 CABG Mortality Measure Methodology Report (available at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(3) Data Sources
    The proposed measure is claims-based. It uses Medicare 
administrative data from hospitalizations for Medicare FFS 
beneficiaries hospitalized for a CABG procedure.
(4) Outcome
    The outcome for this measure is 30-day, all-cause mortality, 
defined as death for any cause within 30 days of the date of the index 
procedure date. We use a standard period of assessment so that the 
outcome for each patient is measured consistently. Without a standard 
period, variation in length of stay would have an undue influence on 
mortality rates, and institutions would have an incentive to adopt 
strategies to shift deaths out of the hospital without improving 
quality. The measure differs from the timeframe used in the other 30-
day mortality measures in the Hospital IQR Program by starting the 
outcome window from the procedure date rather than the admission date. 
Data from 2009 Medicare FFS patients demonstrates that 25 percent of 
CABG procedures occurred more than 3 days after the admission date. 
Therefore, dating the measurement period from admission would 
potentially underestimate the period of risk for a substantial number 
of hospitals.
    We chose 30-day mortality because it is an outcome that can be 
strongly influenced by hospital care and the early transition to the 
outpatient setting. Clinical experts concur that a 30-day timeframe is 
clinically sensible for measuring outcomes following CABG surgery.
    The measure assesses all-cause mortality rather than CABG-specific 
mortality for several reasons. First, limiting the measure to CABG-
related mortalities may limit the focus of efforts to improve care to a 
narrow set of approaches 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. Finally, from a patient perspective, death due to any cause 
is the outcome that matters.
(5) Cohort
    The cohort includes patients aged 65 years and older who received a 
qualifying CABG procedure at an acute care facility. Patients are 
eligible for inclusion if they had a qualifying CABG procedure and 
continuous enrollment in Medicare FFS one year prior to the first day 
of the index hospital stay and through 30 days post-procedure.
    In order to include a clinically-coherent set of patients in the 
measure, we sought input from clinical experts regarding the inclusion 
of other concomitant cardiac and non-cardiac procedures, such as valve 
replacement and carotid endarterectomy. Adverse clinical outcomes 
following such procedures are higher than those following ``isolated'' 
CABG procedures, that is, CABG procedures performed without concomitant 
high-risk cardiac and non-cardiac procedures.\60\ Limiting

[[Page 28231]]

the measure cohort to ``isolated'' CABG patients is consistent with 
published reports of CABG outcomes; \61\ therefore, the measure cohort 
considers only patients undergoing isolated CABG as eligible for 
inclusion in the measure. We defined isolated CABG patients as those 
undergoing CABG procedures without concomitant valve or other major 
cardiac, vascular or thoracic procedures. In addition, our clinical 
experts, consultants, and Technical Expert Panel (TEP) members agreed 
that an isolated CABG cohort is a clinically coherent cohort for 
quality measurement. For detailed information on the cohort definition, 
we refer readers to the 2012 CABG Mortality Measure Methodology Report 
on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    \60\ Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions 
after coronary artery bypass graft surgery in New York State. JACC 
Cardiovasc Interv. 2011;4(5):569-576.
    \61\ Ibid.
---------------------------------------------------------------------------

(6) Inclusion and Exclusion Criteria
    The 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 FFS enrollment to allow for adequate 
risk adjustment. The measure excludes the following admissions from the 
measure cohort: (1) Admissions for patients who leave hospital against 
medical advice excluded because providers do not have the opportunity 
to deliver full care and prepare the patient for discharge); and (2) 
admissions for patients with subsequent qualifying CABG procedures 
during the measurement period (a repeat CABG procedure during the 
measurement period very likely represents a complication of the 
original CABG procedure and is a clinically more complex and higher 
risk surgery, therefore we select the first CABG admission for 
inclusion in the measure and exclude subsequent CABG admissions from 
the cohort).
(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. 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 
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 CABG 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 than 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, we refer readers to our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    We invite public comment on this proposal.
c. Proposed Hospital-Level, Risk-Standardized 30-Day Episode-of-Care 
Payment Measure for Pneumonia
(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 pneumonia 
patients; mean 30-day risk-standardized payment among Medicare FFS 
patients aged 65 or older hospitalized for pneumonia in 2008-2009 was 
$13,237, and ranged from $8,281 to $27,975 across 4,155 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 
value of hospital care is more clearly assessed when pairing hospital 
payments with hospital quality. Therefore, we are proposing to include 
this non-NQF-endorsed 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.7. of the preamble of this 
proposed 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 pneumonia. We also are not aware of any other 30-
day episode-of-care pneumonia 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 but 
reiterated the need for this measure to be submitted for NQF-
endorsement: https://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. This measure was submitted to the 
NQF for endorsement on April 18, 2014.
    We believe it is important to adopt this measure as pneumonia is 
one of the leading causes of hospitalization for

[[Page 28232]]

Americans 65 and over, and pneumonia patients incur roughly $10 billion 
in aggregate health care costs.\62\ Furthermore, because 30-day all-
cause mortality and readmission measures for pneumonia are already 
publicly reported, pneumonia serves as a model condition for assessing 
relative value for an episode of care that begins with an acute 
hospitalization 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 pneumonia. The measure reflects differences in the 
management of care for patients with pneumonia both during 
hospitalization and immediately post-discharge. By focusing on one 
specific condition, value assessments may provide actionable feedback 
to hospitals and incentivize targeted improvements in care.
---------------------------------------------------------------------------

    \62\ Lindenauer PK, Lagu T, Shieh M, Pekow PS, Rothberg MB. 
Association of diagnostic coding with trends in hospitalizations and 
mortality of patients with pneumonia, 2003-2009. JAMA: The Journal 
of the American Medical Association. 2012;307(13):1405-1413.
---------------------------------------------------------------------------

(2) Overview of Measure and Rationale for Examining Payments for a 30-
Day Episode-of-Care
    The pneumonia payment measure assesses hospital risk-standardized 
payment associated with a 30-day episode-of-care for pneumonia for any 
hospital participating in the Hospital IQR Program. The measure 
includes Medicare FFS patients aged 65 or older admitted for pneumonia 
and calculates payments for these patients over a 30-day episode-of-
care beginning with the index admission. In general, the measure uses 
the same approach to risk-adjustment as our 30-day outcome measures 
previously adopted for the Hospital IQR Program. We refer readers to 
our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    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 pneumonia payment measure 
is intended to be paired with our 30-day pneumonia mortality and 
readmission measures and capture payments for Medicare patients across 
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) Data Sources
    The proposed measure is claims-based and uses Medicare 
administrative data that contain hospitalizations and payments for 
Medicare FFS beneficiaries hospitalized with pneumonia.
(4) Outcome
    The primary outcome of the pneumonia payment measure is the 
hospital-level risk-standardized payment for a pneumonia 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 pneumonia 
payment to other hospitals with the same case-mix. The analytic time 
frame for the pneumonia payment measure begins with the index admission 
for pneumonia and ends 30 days post-admission.
    In order to isolate payment variation that reflects practice 
patterns rather than CMS payment adjustments, the pneumonia 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 pneumonia.
(5) Cohort
    We created the pneumonia payment measure cohort to be aligned with 
the publicly reported pneumonia mortality measure cohort. Consistent 
with these measures, the pneumonia payment measure includes 
hospitalizations with a principal hospital discharge diagnosis of 
pneumonia using the International Classification of Diseases, Ninth 
revision, Clinical Modification (ICD-9-CM). These measures will use 
data from July 2010-Jun 2013 which does not yet include the period for 
which ICD-10 codes are mandatory. ICD-10 will officially be implemented 
on October 1, 2015. 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://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. 
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).
(6) Inclusion and Exclusion Criteria
    The pneumonia 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. An index admission/hospitalization is the initial 
pneumonia admission that triggers the 30-day episode-of-care for this 
payment calculation. 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 pneumonia 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 pneumonia 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

[[Page 28233]]

suffered a clinically significant pneumonia; (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. There are two portions of the DRG system that determine how much 
a provider is reimbursed. The first is the DRG itself which indicates 
the reason a patient was admitted. The second is the DRG weight which 
determines the severity of the admission. Without either of these, we 
were unable to calculate the payment for the index admission.
(7) 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.
(8) Calculating the Risk-Standardized Payment (RSP)
    The measure is calculated using a hierarchical generalized linear 
model with a log link and a Poisson error distribution. This is a 
widely accepted statistical method that enables fair evaluation of 
relative hospital performance by taking into account patient risk 
factors as well as the number of patients that a hospital treats. This 
statistical model accounts for the structure of the data (patients 
clustered within hospitals) and calculates: (1) How much variation in 
hospital payment overall is accounted for by patients' individual risk 
factors (such as age and other medical conditions); and (2) how much 
variation is accounted for by hospital-specific performance. 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 sample sizes vary across hospitals. 
Clustered patients are within the same hospital, and the quality of 
care of the hospital affects all patients, so the outcomes for each 
hospital's patients are not fully independent (that is, completely 
unrelated) as is assumed by many statistical models. 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 pneumonia 
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 ``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. To calculate 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). 
The interval estimate indicates that the true value of the payment 
ratio lies between the lower limit and the upper limit of the interval. 
For more detailed information on the calculation methodology, we refer 
readers to our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    This measure is meant to be paired with our 30-day pneumonia 
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 invite public comment on this proposal.
d. Proposed Hospital-Level, Risk-Standardized 30-day Episode-of-Care 
Payment Measure for Heart Failure
(1) Background
    There is evidence of variation in payments at hospitals for heart 
failure patients; mean 30-day risk-standardized payment among Medicare 
FFS patients aged 65 or older hospitalized for heart failure in 2008-
2009 was $13,922, and ranged from $9,630 to $20,646 across 3,714 
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 value of hospital care is more clearly assessed when pairing 
hospital payments with hospital quality. Therefore, we are proposing to 
include this non-NQF-endorsed measure: hospital risk-standardized 
payment associated with a 30-day episode-of-care for heart failure 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.7. of the preamble of this proposed 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 heart failure. We also are 
not aware of any other 30-day episode-of-care heart failure 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 but reiterated the need for this measure to be 
submitted for NQF-endorsement:

[[Page 28234]]

https://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. The HF measure was submitted to NQF and is 
currently under review as part of the cost and resource use project.
    We believe it is important to adopt this measure as heart failure 
is one of the leading causes of hospitalization for Americans 65 and 
over and costs roughly $34 billion annually.63 64 
Furthermore, because 30-day all-cause mortality and readmission 
measures for heart failure are already publicly reported, heart failure 
serves as a model condition for assessing relative value for an episode 
of care that begins with an acute hospitalization. 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 heart failure. The measure 
reflects differences in the management of care for patients with heart 
failure both during hospitalization and immediately post-discharge. By 
focusing on one specific condition, value assessments may provide 
actionable feedback to hospitals and incentivize targeted improvements 
in care.
---------------------------------------------------------------------------

    \63\ Russo CA, Elixhauser, A. Hospitalizations in the Elderly 
Population, 2003. Agency for Healthcare Research and Quality. 2006.
    \64\ Heidenriech PA, Trogdon JG, Khavjou OA, Butler J, Dracup K, 
Ezekowitz MD, et al. Forecasting the future of cardiovascular 
disease in the United States: a policy statement from the American 
Heart Association. Circulation. 2011;123(8):933-44.
---------------------------------------------------------------------------

(2) Overview of Measure and Rationale for Examining Payments for a 30-
Day Episode-of-Care
    The heart failure payment measure assesses hospital risk-
standardized payment associated with a 30-day episode-of-care for heart 
failure for any hospital participating in the Hospital IQR Program. The 
measure includes Medicare FFS patients aged 65 or older admitted for 
heart failure and calculates payments for these patients over a 30-day 
episode-of-care beginning with the index admission. In general, the 
measure uses the same approach to risk-adjustment as our 30-day outcome 
measures previously adopted for the Hospital IQR Program. We refer 
readers to the measure methodology report on our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    When examining variation in payments, consideration of the episode-
of-care triggered by admission is meaningful for several reasons. 
First, hospitalizations represent brief periods of illness that require 
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. The term preset window means that every 
admission will be tracked 30 days post admission in order to apply a 
standardized measurement window. In order to compare payments across 
providers it is important that the comparison window is identical for 
each admission at each hospital. Lastly, the heart failure payment 
measure is intended to be paired with our 30-day heart failure 
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) Data Sources
    The proposed measure is claims-based and uses Medicare 
administrative data that contain hospitalizations and payments for 
Medicare FFS beneficiaries hospitalized with heart failure.
(4) Outcome
    The primary outcome of the heart failure payment measure is the 
hospital-level risk-standardized payment for a heart failure 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 heart failure 
payment to other hospitals with the same case-mix. The analytic time 
frame for the heart failure payment measure begins with the index 
admission for heart failure and ends 30 days post-admission. The index 
admission is any admission included in the measure calculation that 
begins the 30-day AMI episode of care.
    In order to isolate payment variation that reflects practice 
patterns rather than CMS payment adjustments, the heart failure 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. These concepts were 
also discussed previously in the proposed hospital-level, risk-
standardized 30-day episode-of-care payment measure for pneumonia 
measure in section IX.A.7.c.(4) of the preamble of this proposed rule.
(5) Cohort
    We created the heart failure payment measure cohort to be aligned 
with the publicly reported heart failure mortality measure cohort. 
Consistent with these measures, the heart failure payment measure 
includes hospitalizations with a principal hospital discharge diagnosis 
of heart failure using 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. The measure 
will be using data from July 2010-Jun 2013 which does not yet include 
the period where ICD-10 codes are mandatory. ICD-10-CM/PCS will 
officially be implemented on October 1, 2015; therefore, the measure 
will not include ICD-10 data for another three reporting periods. An 
index admission/hospitalization is the initial heart failure 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). These hospitalizations are the admissions which were 
included in the measure after applying all inclusion/exclusion 
criteria.
(6) Inclusion and Exclusion Criteria
    The heart failure 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

[[Page 28235]]

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 heart failure 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 heart failure 
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 heart 
failure; (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; (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; and (8) admissions for patients who receive 
a heart transplant or LVAD during the index admissions or episode of 
care because these patients are clinically distinct, generally very 
high payment cases, and not representative of the typical heart failure 
patient that this measure aims to capture.
(7) 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. 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 Payment (RSP)
    The measure is calculated using hierarchical generalized linear 
statistical models with a log link and a Gamma 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 heart failure 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 ``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.
    This measure is meant to be paired with our 30-day heart failure 
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 invite public comment on this proposal.
e. Proposed Severe Sepsis and Septic Shock: Management Bundle Measure 
(NQF 0500)
(1) Background
    Sepsis, severe sepsis, and septic shock can arise from a simple 
infection, such as pneumonia or urinary tract infection. Although it 
can affect anyone at any age, it is more common in infants, the 
elderly, and patients with chronic health conditions such as diabetes 
and immunosuppressive disorders seen in transplant patients. 
Information for this measure comes from the NQF Measure Information-
Composite for the severe sepsis and septic shock: management bundle 
(NQF 0500).\65\ More information on this issue is available 
from the Surviving Sepsis Campaign: International Guidelines for 
Management of Severe Sepsis and Septic Shock: 2012.\66\ Sepsis is 
associated with mortality rates of over 16 to 49 percent, which is more 
than 8 times higher than the rate for inpatient stays for other 
hospital admissions. Findings from the National Hospital Discharge 
Survey indicate that the number of hospital stays for septicemia more 
than doubled between the years of 2000 and 2008, and patients with this 
condition were more severely ill than patients hospitalized for other 
conditions. Severe sepsis and septic shock are frequent causes of re-
hospitalizations, especially during the first year after the initial 
hospitalization.
---------------------------------------------------------------------------

    \65\ National Quality Forum (NQF). Measure Information-
Composite. 500 Severe Sepsis and Septic Shock: Management 
Bundle. Updated 2014 Jan 2. NQF: Washington, DC http://www.qualityforum.org/Home.aspx.
    \66\ Dellinger RP, Levy MM, Rhodes A, Annane D, et al. Surviving 
Sepsis Campaign: international guidelines for management of severe 
sepsis and septic shock: 2012. Crit Care Med. 2013 Feb; 41(2):580-
637.
---------------------------------------------------------------------------

    Based on national discharge data reported by the Agency for 
Healthcare Research and Quality (AHRQ), sepsis was the sixth most 
common principal reason for hospitalization in the United States in 
2009, accounting for 836,000 hospital stays. There were an additional 
829,500 stays with a secondary diagnosis of sepsis for a total of 
1,665,400 inpatient stays and 258,000

[[Page 28236]]

deaths. From 1993 to 2009, sepsis-related hospital stays increased by 
153 percent, with an average annual increase of 6 percent. Medicare was 
the predominant payer for sepsis-related hospital stays, covering 58.1 
percent of patients. Sepsis cases and sepsis-related deaths are 
expected to continue to increase with the aging of the population.
    In a landmark study by Rivers et al.,\67\ it has been shown that an 
absolute and relative reduction in mortality from sepsis can be reduced 
16 percent and 30 percent, respectively, when aggressive care is 
provided within 6 hours of hospital arrival. Furthermore, a recent 
study of the 2008 Healthcare Cost and Utilization Project (HCUP) 
Nationwide Inpatient Sample \68\ determined that patients admitted 
through the Emergency Department had a 17 percent lower likelihood of 
dying from sepsis than when directly admitted.
---------------------------------------------------------------------------

    \67\ Rivers E, Nguyen B, Havstad S et al. Early goal-directed 
therapy in the treatment of severe sepsis and septic shock. N Engl J 
Med. 2001; 345: 1368-77.
    \68\ HCUP Nationwide Inpatient Sample (NIS). Healthcare Cost and 
Utilization Project (HCUP). 2007-2009. Agency for Healthcare 
Research and Quality, Rockville, MD. http://www.hcup-us.ahrq.gov/nisoverview.jsp.
---------------------------------------------------------------------------

    The severe sepsis and septic shock: management bundle measure (NQF 
0500) is NQF endorsed and is conditionally supported by the 
MAP in its Pre-Rulemaking Report: 2013 Recommendations on Measures 
Under Consideration by HHS, available at: https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738. The MAP noted the 
measure addresses an NQS priority not adequately addressed in the 
program measure set, but conditionally supported this measure stating, 
``Not ready for implementation; measure concept is promising but 
requires modification or further development.'' In addition, ``MAP 
noted the need for continued development of electronic specifications 
for NQF 0500 Severe Sepsis and Septic Shock: Management 
Bundle. We are recommending this measure because we believe severe 
sepsis and septic shock are important conditions to monitor. While some 
workgroup members challenged the feasibility and evidence behind this 
measure, MAP deferred to the recent endorsement review of this measure 
and conditionally supported it for the Meaningful Use Program. Public 
comment from Edwards Lifesciences supports MAP's conclusion.''
(2) Overview of Measure
    The purpose of the proposed severe sepsis and septic shock: 
management bundle measure is to support the efficient, effective, and 
timely delivery of high quality sepsis care in support of the Institute 
of Medicine's (IOM) aims for quality improvement. This is consistent 
with the Department of Health and Human Service National Quality 
Strategy's priorities directed at one of the leading causes of 
mortality. By providing timely, patient-centered care, and making 
sepsis care more affordable through early intervention, reduced 
resource use and complication rates can result. The severe sepsis and 
septic shock early management bundle provides a standard operating 
procedure for the early risk stratification and management of a patient 
with severe infection. Through applying this standard operating 
procedure, a clinically and statistically significant decrease in organ 
failure, mortality, and the utilization of health care resources has 
been demonstrated for over 10 years. Additional information about this 
measure is available on the NQF's Web site at http://www.qualityforum.org/QPS/0500.
(3) Data Sources
    The proposed measure is chart-abstracted data of patients 
presenting with septic shock who received treatment detailed in the 
Calculations section below.
(4) Outcome
    The outcome criteria for this measure consists of: measure lactate; 
blood cultures; timely antibiotics; fluid resuscitation; lactate 
clearance; vasopressors, central venous pressure (CVP), central venous 
oxygen saturation (ScvO2); and overall bundle compliance. These are 
discussed in more detail below:
 Measure Lactate
    Measurement of lactate levels is specifically associated with 
improved outcomes in sepsis, and an elevated lactate value identifies 
patients at higher risk for poor outcomes. Up to 10 percent of in-
hospital cardiac arrest in the United States per year is secondary to 
sepsis (pneumonia). These patients are often misdiagnosed and sent to 
the medical floors only to suffer acute hemodynamic deterioration. 
These outcomes could be potentially avoided with lactate measurement 
upon admission providing risk stratification triggering alternative 
dispositions.
    Levy et al. (2010) conducted an international, multisite 
``Surviving Sepsis Campaign'' (SSC) initiative (Levy et al. SSC 
initiative) to determine the rate of change at which the sites reached 
the SSC guideline targets. In the first quarter of this initiative, 
only 61.0 percent of patients had lactate values measured consistent 
with guidelines. In addition, prior studies have shown that care 
prompted by measurement of lactate levels in sepsis patients reduced 
resource utilization and cost. This leads to lower likelihood of 
hospital-acquired conditions. This performance measure has been 
previously used as a core component of multicenter and national quality 
improvement initiatives. Formalizing it as a national performance 
measure will provide direct targets for intervention that are closely 
linked with improvements in mortality and cost.
 Blood Cultures
    In the first quarter of the Levy et al. SSC initiative, only 64.5 
percent of patients had blood cultures collected prior to antibiotic 
administration. Collecting blood cultures prior to antibiotic 
administration is specifically associated with improved outcomes in 
sepsis, and pathogens identified by blood cultures allow for customized 
therapy. As a result, blood cultures continue as a recommendation of 
the current Surviving Sepsis Guidelines.
    By obtaining blood cultures, antibiotic regimens can be customized 
to treat the specific infecting organism. This will result in less 
unnecessary exposure to antibiotics, reducing complications associated 
with antibiotic use, including drug reactions, allergies and adverse 
events, the development of drug-resistant organisms, and the occurrence 
of Clostridium difficile colitis. The performance measure for 
collecting blood cultures for suspected sepsis has been previously used 
and continues as a core component of the SSC guidelines.
 Timely Antibiotics
    Kumar et al.\69\ found the median time to appropriate antibiotics 
was 6 hours after shock. In the first quarter of the Levy et al.\70\ 
SSC initiative, only 60.4 percent of patients received timely 
antibiotics. Multiple studies, for example, have demonstrated that 
delays in administration of appropriate antibiotics in patients with 
sepsis and other severe infections are associated with longer lengths 
of stay, higher costs,

[[Page 28237]]

and higher mortality. In septic shock, the Kumar et al. study 
demonstrated that every hour in delay of appropriate antibiotics was 
associated with a 7.6 percent higher mortality. The timely 
administration of broad-spectrum antibiotics was associated with 
significantly higher risk adjusted survival. Based on a preponderance 
of data, the current recommendations in the international guidelines 
for the management of severe sepsis and septic shock includes the 
administration of broad-spectrum antibiotic therapy within 1 hour of 
diagnosis of septic shock and severe sepsis.
---------------------------------------------------------------------------

    \69\ Kumar A, Roberts D, Wood K, Light B, et al. Duration of 
Hypotension before Initiation of Effective Antimicrobial Therapy is 
the Critical Determinant of Survival in Human Septic Shock. Crit 
Care Med. 2006;34 (6):1589-96.
    \70\ Levy MM, Dellinger RP, et al.; Surviving Sepsis Campaign. 
The Surviving Sepsis Campaign: results of an international guideline 
based performance improvement program targeting severe sepsis. Crit 
Care Med. 2010 Feb;38(2):367-74.
---------------------------------------------------------------------------

 Fluid Resuscitation
    A common finding in patients with septic shock, manifested by low 
blood pressure and/or other signs of organ hypoperfusion, such as 
elevated serum lactate levels, is intravascular volume depletion. The 
degree of the intravascular volume deficit in sepsis varies, yet nearly 
all patients require initial volume resuscitation and many patients 
require continuing fluid resuscitation over the first 24 hours.
    Early fluid resuscitation is associated with improved outcomes for 
patients with acute lung injury due to septic shock. International 
guidelines recommend that patients with suspected hypovolemia be 
initially treated with at least 30 mL/kg of crystalloid (for example, 
Ringer's solution) to determine clinical response. In the first quarter 
of the Levy et al.\71\ SSC initiative, only 59.8 percent of patients 
received fluid resuscitation consistent with guidelines. Timely fluid 
resuscitation avoids an error of omission in which indicated therapy is 
delayed or omitted. By improving outcomes, length of stay is reduced. 
This leads to lower likelihood of hospital-acquired conditions. This 
performance measure has been previously used as a core component and 
continues as a core component of the SSC guidelines. Formalizing it as 
a national performance measure will provide direct targets for 
intervention that are closely linked with improvements in mortality and 
cost.
---------------------------------------------------------------------------

    \71\ Ibid.
---------------------------------------------------------------------------

 Lactate Clearance
    Elevated lactate levels prompt the consideration of specific care 
practices toward hemodynamic optimization guided by either central 
venous oxygen saturation or lactate clearance. International guidelines 
recommend that patients with sepsis and continued elevated lactate 
values have additional therapies until lactate levels are normalized. 
However, normal lactate levels can be seen in septic shock, especially 
in children.
 Vasopressors, Central Venous Pressure (CVP), and Central 
Venous Oxygen Saturation (ScvO2)
    Performance gaps in individual bundle elements can range from 79 
percent (Confidence Interval (CI) (69-89 percent) for vasopressors, to 
27 percent (CI 18-36 percent) for Central Venous Pressure (CVP) 
measurement, and as low as 15 percent (CI 7-23 percent) for Central 
Venous Oxygen Saturation (ScvO2) in some community emergency 
departments. These numbers increase (50-75 percent) in larger hospital 
settings. CVP has been shown to have a significant association with 
mortality \72\ and multiple studies and meta-analysis have shown a 
significant association with reaching an ScvO2 of 70 percent and 
improved mortality.
---------------------------------------------------------------------------

    \72\ Varpula M, Tallgren M, Saukkonen K, Voipio-Pulkki LM, 
Pettila V. Hemodynamic variables related to outcome in septic shock. 
Intensive Care Med. Jun 23 2005;31:1066-1071.
---------------------------------------------------------------------------

 Overall Bundle Compliance
    Multiple initiatives promoting bundles of care for severe sepsis 
and septic shock were associated with improved guideline compliance and 
lower hospital mortality. Even with compliance rates of less than 30 
percent, absolute reductions in mortality of 4-6 percent have been 
noted. Coba et al.\73\ found that when all bundle elements were 
completed within 18 hours and compared with patients who did not have 
bundle completion, the mortality difference was 10.2 percent. Thus, 
there is a direct association between bundle compliance and improved 
mortality. Additionally, a continuous quality improvement (CQI) 
initiative, can improve compliance rates. CQI is a quality management 
process that encourages continually assessing performance and whether 
improvements can be made.\74\ Multiple studies have shown that 
standardized order sets, enhanced bedside monitor display, telemedicine 
and comprehensive CQI feedback is feasible, modifies clinician behavior 
and is associated with decreased hospital mortality.
---------------------------------------------------------------------------

    \73\ Coba V, Whitmill M, Mooney R, et al. Resuscitation Bundle 
Compliance in Severe Sepsis and Septic Shock: Improves Survival, Is 
Better Late than Never. J Intensive Care Med. Jan 10 2011.
    \74\ Edwards PJ, et al. Maximizing your investment in EHR: 
Utilizing EHRs to inform continuous quality improvement. JHIM 
2008;22(1):32-7.
---------------------------------------------------------------------------

(5) Cohort
    This measure will focus on patients aged 18 years and older who 
present with symptoms of severe sepsis or septic shock. These patients 
will be eligible for the 3 hour (severe sepsis) and/or 6 hour (septic 
shock) early management measures.
(6) Inclusion and Exclusion Criteria
    Numerator Statement: the numerator is: Patients from the 
denominator who received all the following: Step 1, Step 2, and Step 3 
within 3 hours of time of presentation, and if septic shock is present 
(as either defined as hypotension or lactate >=4 mmol/L), who also 
received Step 4, Step 5, Step 6, and Step 7 within 6 hours of time of 
presentation. The steps are described in detail below.

Step 1: Measure lactate level
Step 2: Obtain blood cultures prior to antibiotics
Step 3: Administer broad spectrum antibiotics
Step 4: Administer 30 ml/kg crystalloid for hypotension or lactate >= 4 
mmol/L
Step 5: Apply vasopressors (for hypotension that does not respond to 
initial fluid resuscitation to maintain a mean arterial pressure >= 65)
Step 6: In the event of persistent arterial hypotension despite volume 
resuscitation (septic shock) or initial lactate >= 4 mmol/L (36 mg/dl), 
measure central venous pressure and central venous oxygen saturation
Step 7: Re-measure lactate if initial lactate is elevated

    Denominator: The denominator is the number of patients presenting 
with severe sepsis or septic shock. The following patients presenting 
with severe sepsis or septic shock will be excluded from the 
denominator:
     Patients with advanced directives for comfort care;
     Patients with clinical conditions that preclude total 
measure completion;
     Patients for whom a central line is clinically 
contraindicated;
     Patients for whom a central line was attempted but could 
not be successfully inserted;
     A patient or a surrogate decision maker declines or is 
unwilling to consent to such therapies or central line placement; and
     Patients who are transferred to an acute care facility 
from another acute care facility.
(7) Calculations
    In calculating this measure, the denominator is the number of 
patients presenting with severe sepsis or septic shock. The numerator 
in this measure is patients from the denominator who had their lactate 
levels measured, had blood cultures obtained prior to receiving

[[Page 28238]]

antibiotics, and who received broad spectrum antibiotics within 3 hours 
of presentation. If septic shock is present, the patients also must 
receive 30 ml/kg crystalloid for hypotension or lactate >=4 mmol/L, 
apply vasopressors (for hypotension that does not respond to initial 
fluid resuscitation to maintain a mean arterial pressure >= 65), in the 
event of persistent arterial hypotension despite volume resuscitation 
(septic shock) or initial lactate >=4 mmol/L (36mg/dl) measure central 
venous pressure and central venous oxygen saturation, and the patient's 
lactate level must be re-measured if the initial lactate level is 
elevated.
    We invite public comment on this proposal.
f. Electronic Health Record-Based Voluntary Measures
(1) Overview of New Electronic Health Record-Based Voluntary Measures
    We are proposing four new voluntary electronic health record-based 
measures to be submitted as electronically specified measures: (1) 
Hearing Screening Prior to Hospital Discharge (NQF 1354); (2) 
PC-05 Exclusive Breast Milk Feeding and the Subset Measure PC-05a 
Exclusive Breast Milk Feeding Considering Mother's Choice (Collectively 
Referred to as NQF 0480); (3) Home Management Plan of Care 
(HMPC) Document Given to Patient/Caregiver (measure de-endorsed 
therefore not appropriate to associate with an NQF ); (4) and 
Healthy Term Newborn (NQF 0716). The four proposed electronic 
health record-based 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. The final MAP 
report is available at: https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746. We considered the input and 
recommendations provided by the MAP in selecting measures to propose 
for the Hospital IQR Program.
    The specifications for the electronic clinical quality measures for 
eligible hospitals are found at: http://cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/eCQM_Library.html.
(2) Proposed Voluntary Electronically Specified Measure: Hearing 
Screening Prior to Hospital Discharge (NQF 1354)
    The Hearing Screening Prior to Hospital Discharge (NQF 
1354) measure assesses the proportion of all live births born 
at a hospital that have been screened for hearing loss before hospital 
discharge. The Joint Committee on Infant Hearing encourages early 
screening and intervention in infants with hearing loss to maximize 
linguistic competence and literacy development in children with hearing 
loss or who are hard of hearing. Early intervention improves 
developmental and social outcomes for children. The States and CDC have 
collected this measure as a population-based measure for more than 10 
years.
    This measure is NQF-endorsed and was supported by the MAP in their 
Pre Rulemaking Report: 2013 Recommendations on Measures Under 
Consideration by HHS, available at: https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738. The MAP noted that 
the measure addresses a high-impact condition not adequately addressed 
in the program measure set.
    The numerator is all live births during the measurement period born 
at a facility and screened for hearing loss prior to discharge, or 
screened but still not discharged, or not screened due to medical 
reasons or a medical exclusion.
    The denominator includes all live births during the measurement 
period born at a facility and discharged without being screened, or 
screened prior to discharge, or screened but still not discharged.
    The measure excludes any patient deceased prior to discharge and 
has not received hearing screening.
(3) Proposed Voluntary Measure: PC-05 Exclusive Breast Milk Feeding and 
the Subset Measure PC-05a Exclusive Breast Milk Feeding Considering 
Mother's Choice (Collectively Referred to as NQF 0480)
    Exclusive breast milk feeding for the first 6 months of neonatal 
life has long been the expressed goal of World Health Organization 
(WHO), HHS, American Academy of Pediatrics (AAP) and American College 
of Obstetricians and Gynecologists (ACOG).
    The PC-05 Exclusive Breast Milk Feeding measure and the subset 
measure PC-05a Exclusive Breast Milk Feeding Considering Mother's 
Choice (NQF 0480) is endorsed by the NQF and supported by the 
MAP in its Pre Rulemaking Report: 2013 Recommendations on Measures 
Under Consideration by HHS, available at: https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738. The MAP noted that 
the measure addresses a high-impact condition not adequately addressed 
in the program measure set.
    This measure assesses the number of newborns exclusively fed breast 
milk during the newborn's entire hospitalization; and the subset 
measure only includes those newborns whose mothers chose to exclusively 
feed breast milk.
    The numerator is the same for both the measure and subset measure--
newborns that were fed breast milk only since birth. However, the 
denominators differ. For PC-05, the denominator is defined as single 
term liveborn newborns discharged alive from the hospital with ICD-9-CM 
Principal Diagnosis Code for single liveborn newborn. The denominator 
for the subset measure, PC-05a, is defined as single term newborns 
discharged alive from the hospital excluding those whose mothers chose 
not to breast feed with ICD-9-CM Principal Diagnosis Code for single 
liveborn newborn. The ICD-9-CM Principal Diagnosis Codes for single 
liveborn newborns are found in Appendix A, Table 11.20.1: Single Live 
Newborn in the Specifications Manual for Joint Commission National 
Quality Measures available at: http://manual.jointcommission.org/releases/TJC2013A/AppendixATJC.html.
    Excluded populations:
     Admitted to the Neonatal Intensive Care Unit (NICU) at 
this hospital during the hospitalization.
     ICD-9-CM Other Diagnosis Codes for galactosemia as defined 
in Appendix A, Table 11.21 in the Specifications Manual for Joint 
Commission National Quality Measures found at: http://manual.jointcommission.org/releases/TJC2013A/AppendixATJC.html.
     ICD-9-CM Principal Procedure Code or ICD-9-CM Other 
Procedure Codes for parenteral infusion as defined in Appendix A, Table 
11.22 in the Specifications Manual for Joint Commission National 
Quality Measures found at: http://manual.jointcommission.org/releases/TJC2013A/AppendixATJC.html.
     Experienced death.
     Length of Stay >120 days.
     Enrolled in clinical trials.
     Patients transferred to another hospital.
     ICD-9-CM Other Diagnosis Codes for premature newborns as 
defined in Appendix A, Table 11.23 in the Specifications Manual for 
Joint Commission National Quality Measures found at: http://
manual.joint

[[Page 28239]]

commission.org/releases/TJC2013A/AppendixATJC.html.
     Documented Reason for Not Exclusively Feeding Breast Milk.
    The maternal reasons for not exclusively breastfeeding are limited 
to the following situations:
     HIV infection;
     Human t-lymphotrophic virus type I or II;
     Substance abuse and/or alcohol abuse;
     Active, untreated tuberculosis;
     Taking certain medications, that is, prescribed cancer 
chemotherapy, radioactive isotopes, antimetabolites, antiretroviral 
medications and other medications where the risk of morbidity outweighs 
the benefits of breast milk feeding;
     Undergoing radiation therapy;
     Active, untreated varicella;
     Active herpes simplex virus with breast lesions; and
     Admission to Intensive Care Unit (ICU) post-partum.
    We invite public comments on this proposal.
(4) Proposed Voluntary Measure CAC-3: Home Management Plan of Care 
(HMPC) Document Given to Patient/Caregiver
    Asthma is the most common chronic disease in children and a major 
cause of morbidity and health care costs nationally. For children, 
asthma is one of the most frequent reasons for admission to hospitals. 
There were approximately 157,000 admissions for childhood asthma in the 
United States in 2009. Under-treatment and/or inappropriate treatment 
of asthma are recognized as major contributors to asthma morbidity and 
mortality. Guidelines developed by the National Asthma Education and 
Prevention Program (NAEPP) of the National Heart, Lung and Blood 
Institute (NHLBI), as well as by the American Academy of Pediatrics 
(AAP) for the diagnosis and management of asthma in children, recommend 
establishing a plan for maintaining control of asthma and for 
establishing plans for managing exacerbations.
    The CAC-3: Home Management Plan of Care (HMPC) Document Given to 
Patient/Caregiver measure is no longer endorsed by the NQF and was not 
supported by the MAP in its Pre-Rulemaking Report: 2013 Recommendations 
on Measures Under Consideration by HHS available at: https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738, because the measure no 
longer meets the NQF endorsement criteria. However, based on the 
prevalence of asthma among children, as well as the risks associated 
with under-treatment or over-treatment described above, we believe the 
measure is appropriate for voluntary collection. Because asthma is a 
serious, and potentially life-threatening disease, we believe that it 
is important to allow hospitals to voluntarily report this data, which 
may help inform our policy.
    This measure assesses the proportion of pediatric asthma patients 
(aged 2-17 years) discharged from an inpatient hospital stay with a 
HMPC document in place. The numerator is the number of pediatric asthma 
inpatients with documentation that they or their caregivers were given 
a written HMPC document that addresses: (1) arrangements for follow-up 
care, (2) environmental control and control of other triggers, (3) 
method and timing of rescue actions, (4) use of controllers, and (5) 
use of relievers.
    The denominator is the number of pediatric asthma inpatients (age 2 
years through 17 years) discharged with a principal diagnosis of 
asthma.
    The measure excludes: (1) Patients with an age less than 2 years or 
18 years or greater; (2) patients who have a length of stay greater 
than 120 days; and (3) patients enrolled in clinical trials.
    We invite public comments on this proposal.
(5) Proposed Voluntary Measure: Healthy Term Newborn (NQF 
0716)
    This measure assesses the optimal outcome of pregnancy and 
childbirth, specifically a healthy term newborn. It evaluates the 
impact of any changes in the management or intervention on the positive 
outcome for the newborn.
    The measure is NQF endorsed. The MAP recommended removal of this 
measure in its Pre Rulemaking Report: 2013 Recommendations on Measures 
under Consideration by HHS available at: https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738, because the 
measure required modification or further development. However, the MAP 
strongly supported the measure concept for inclusion once technical 
issues were resolved. Given its endorsement by NQF, as well as the 
MAP's strong support for the measure concept, we believe the measure is 
appropriate for voluntary reporting.
    The result of the measure calculation is the percentage of term 
singleton live births (excluding those with diagnoses originating in 
the fetal period) that do not have significant complications during 
birth or the nursery care.\75\
---------------------------------------------------------------------------

    \75\ National Quality Forum. National Voluntary Consensus 
Standards for Patient Outcomes 2009. Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=67546.
---------------------------------------------------------------------------

    The numerator of this measure is the absence of conditions or 
procedures reflecting morbidity that happened during birth and nursery 
care to an otherwise normal infant.
    The denominator is composed of singleton, term (>=37 weeks), 
inborn, live births in their birth admission. The denominator further 
has eliminated fetal conditions likely to be present before labor. 
Maternal and obstetrical conditions (for example, hypertension, prior 
cesarean, malpresentation) are not excluded unless there is evidence of 
fetal effect prior to labor (for example, Intrauterine Growth 
Restriction (IUGR)/Small for Gestational Age (SGA)).
    This measure excludes: (1) Multiple gestations; (2) preterm, 
congenital anomalies; and, (3) fetuses affected by selected maternal 
conditions.
    We invite public comments on this proposal.
g. Proposed Readoption of Measures as Voluntarily Reported Electronic 
Clinical Quality Measures
    In order to align with the EHR Incentive Program for eligible 
hospitals (EHs) and critical access hospitals (CAHs), we are proposing 
to re-adopt two measures previously removed from the Hospital IQR 
Program; (a) AMI-2 Aspirin Prescribed at Discharge for AMI (acute 
myocardial infarction) (NQF 0142) (electronic clinical quality 
measure); and (b) AMI-10 Statin Prescribed at Discharge (NQF 
0639) (electronic clinical quality measure). We are proposing 
to add these measures to the list of voluntarily reported electronic 
clinical quality measures as described in section IX.A.7.f. of the 
preamble of this proposed rule. We believe we should continue aligning 
the Hospital IQR Program and the EHR Incentive Program in order to 
minimize reporting burden and continue the transition to reporting of 
electronic clinical quality measures, and we believe voluntary adoption 
of these measures will further that aim. Further, allowing hospitals 
the option to electronically report topped-out measures will provide 
hospitals with an opportunity to test the accuracy of their electronic 
health record reporting systems.
    We welcome public comments on this proposal.
(1) Proposed Readoption of AMI-2 Aspirin Prescribed at Discharge (NQF 
0142)
    The AMI-2 Aspirin Prescribed at Discharge (NQF 0142) 
assesses the

[[Page 28240]]

percentage of acute myocardial infarction (AMI) patients who are 
prescribed aspirin at hospital discharge.
    The measure is NQF endorsed, but has been placed in reserve status, 
as the performance on this measure is topped out. The MAP recommended 
the measure should be suspended and phased out in its Pre-Rulemaking 
Report: 2013 Recommendations on Measures under Consideration by HHS 
available at: https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738. However, as stated above, 
we intend to continue aligning the Hospital IQR Program and EHR 
Incentive Program, and we believe collecting this measure on a 
voluntary basis enables us to continue collecting quality data on this 
topic while working to minimize reporting burden on participating 
hospitals. Further, allowing hospitals the option to electronically 
report topped-out measures will provide hospitals with an opportunity 
to test the accuracy of their electronic health record reporting 
systems.
    The numerator includes AMI patients in the denominator who are 
prescribed aspirin at hospital discharge. The denominator includes 
patients with the following ICD-9-CM principal diagnosis codes of AMI: 
410.00, 410.01, 410.10, 410.11, 410.20, 410.21, 410.30, 410.31, 410.40, 
410.41, 410.50, 410.51, 410.60, 410.61, 410.70, 410.71, 410.80, 410.81, 
410.90, and 410.91.
    The following patients are excluded from this measure:
     Patients less than 18 years of age;
     Patients who have a length of stay greater than 120 days;
     Patients enrolled in clinical trials;
     Patients who were discharged to another hospital;
     Patients who expired;
     Patients who left the hospital against medical advice;
     Patients who were discharged to home for hospice care;
     Patients who were discharged to a health care facility for 
hospice care;
     Patients with comfort measures only documented; and
     Patients with a documented reason for no aspirin at 
discharge.
    We invite public comments on this proposal.
(2) Proposed Readoption of AMI-10 AMI-Statin Prescribed at Discharge 
(NQF 0639)
    AMI-10 AMI-Statin Prescribed at Discharge (NQF 0639) 
assesses the percent of acute myocardial infarction (AMI) patients who 
are prescribed a statin at hospital discharge.
    The measure is NQF endorsed. The MAP recommended phased removal in 
its Pre-Rulemaking Report: 2013 Recommendations on Measures under 
Consideration by HHS available at: https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738 because the 
performance on this measure is likely topped out. However, as stated 
above, we intend to continue aligning the Hospital IQR Program and EHR 
Incentive Program, and we believe collecting this measure on a 
voluntary basis enables us to continue collecting quality data on this 
topic while working to minimize reporting burden on participating 
hospitals. Further, allowing hospitals the option to electronically 
report topped-out measures will provide hospitals with an opportunity 
to test the accuracy of their electronic health record reporting 
systems.
    The numerator includes AMI patients in the denominator who are 
prescribed a statin medication at hospital discharge. The denominator 
includes patients with the following ICD-9-CM principal diagnosis codes 
of AMI: 410.00, 410.01, 410.10, 410.11, 410.20, 410.21, 410.30, 410.31, 
410.40, 410.41, 410.50, 410.51, 410.60, 410.61, 410.70, 410.71, 410.80, 
410.81, 410.90, and 410.91.
    The following patients are excluded from this measure:
     Patients less than 18 years of age;
     Patients who have a length of stay greater than 120 days;
     Patients with comfort measures only documented;
     Patients enrolled in clinical trials;
     Patients who were discharged to another hospital;
     Patients who left the hospital against medical advice;
     Patients who expired;
     Patients who were discharged to their home for hospice 
care;
     Patients who were discharged to a health care facility for 
hospice care;
     Patients with low-density lipoprotein less than 100 mg/dL 
within the first 24 hours after hospital arrival or 30 days prior to 
hospital arrival and not discharged on a statin; and
     Patients with a reason for not prescribing statin 
medication at discharge.
    We invite public comments on this proposal.
    In summary, for FY 2017 payment determination and subsequent years, 
we are proposing to: (1) Adopt 11 total measures--9 new measures (4 of 
which are voluntary electronic clinical quality measures) and 2 
previously removed measures re-adopted as voluntary electronic clinical 
quality measures, and (2) remove 10 measures (4 of which were 
previously suspended). If finalized, this would give a total of 62 
measures (46 required and 16 voluntary electronic clinical quality 
measures) in the Hospital IQR Program measure set.
    Set out below is a table showing both the previously adopted and 
the proposed quality measures for the FY 2017 payment determination and 
subsequent years. Please note that this table does not include 
suspended measures or measures proposed for removal.

------------------------------------------------------------------------
                                       Previously adopted hospital IQR
                                        program measures and measures
               Topic                 proposed in this proposed rule for
                                      the FY 2017 payment determination
                                            and subsequent years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)    AMI-2 Aspirin Prescribed at
 Measures.                           Discharge for AMI */[ballot]/
                                     [dagger] (NQF 0142).
                                     AMI-7a Fibrinolytic therapy
                                     received within 30 minutes of
                                     hospital arrival [ballot] (NQF
                                     0164).
                                     AMI-8a Primary PCI received
                                     within 90 minutes of hospital
                                     arrival [ballot]/[dagger] (NQF
                                     0163).
                                     AMI-10 Statin Prescribed at
                                     Discharge */[ballot]/[dagger] (NQF
                                     0639).
Stroke Measure (STK) Set..........   STK-1 Venous
                                     thromboembolism (VTE) prophylaxis
                                     (NQF 0434).
                                     STK-2 Discharged on
                                     antithrombotic therapy [ballot]/
                                     [dagger] (NQF 0435).
                                     STK-3 Anticoagulation
                                     therapy for atrial fibrillation/
                                     flutter [ballot]/[dagger] (NQF
                                     0436).
                                     STK-4 Thrombolytic therapy
                                     [ballot] (NQF 0437).
                                     STK-5 Antithrombotic
                                     therapy by the end of hospital day
                                     two [ballot]/[dagger] (NQF 0438).
                                     STK-6 Discharged on statin
                                     medication [ballot] (NQF 0439).
                                     STK-8 Stroke education
                                     [ballot].
                                     STK-10 Assessed for
                                     rehabilitation [ballot]/[dagger]
                                     (NQF 0441).
Venous Thromboembolism (VTE)         VTE-1 Venous
 Measure Set.                        thromboembolism prophylaxis
                                     [ballot] (NQF 0371).
                                     VTE-2 Intensive care unit
                                     venous thromboembolism prophylaxis
                                     [ballot] (NQF 0372).
                                     VTE-3 Venous
                                     thromboembolism patients with
                                     anticoagulation overlap therapy
                                     [ballot] (NQF 0373).

[[Page 28241]]

 
                                     VTE-4 Patients receiving un-
                                     fractionated Heparin with doses/
                                     labs monitored by protocol [ballot]/
                                     [dagger].
                                     VTE-5 VTE discharge
                                     instructions [ballot].
                                     VTE-6 Incidence of
                                     potentially preventable VTE
                                     [ballot] (NQF 0376).
Sepsis Measure....................   Severe sepsis and septic
                                     shock: management bundle * (NQF
                                     0500).
Pneumonia (PN) Measure............   PN-6 Initial Antibiotic
                                     Selection for community-acquired
                                     pneumonia (CAP) in Immunocompetent
                                     Patients [ballot]/[dagger] (NQF
                                     0147).
Surgical Care Improvement Project    SCIP INF-1 Prophylactic
 (SCIP) Measures.                    antibiotic received within one hour
                                     prior to surgical incision [ballot]/
                                     [dagger] (NQF 0527).
                                     SCIP INF-2 Prophylactic
                                     antibiotic selection for surgical
                                     patients [ballot]/[dagger] (NQF
                                     0528).
                                     SCIP INF-9 Urinary catheter
                                     removed on Postoperative Day 1
                                     (POD1) or Postoperative Day 2
                                     (POD2) with day of surgery being
                                     day zero [ballot]/[dagger] (NQF
                                     0453).
Mortality Measures................   Hospital 30-day, all-cause,
                                     risk-standardized mortality rate
                                     (RSMR) following acute myocardial
                                     infarction (AMI) hospitalization
                                     for patients 18 and older (NQF
                                     0230).
                                     Hospital 30-day, all-cause,
                                     risk-standardized mortality rate
                                     (RSMR) following heart failure (HF)
                                     hospitalization for patients 18 and
                                     older (NQF 0229).
                                     Hospital 30-day, all-cause,
                                     risk-standardized mortality rate
                                     (RSMR) following pneumonia
                                     hospitalization (NQF 0468).
                                     Stroke 30-day mortality
                                     rate.
                                     Hospital 30-Day, All-Cause,
                                     Risk-Standardized Mortality Rate
                                     (RSMR) following Chronic
                                     Obstructive Pulmonary Disease
                                     (COPD) Hospitalization (NQF 1893).
                                     Hospital 30-day, all-cause,
                                     risk-standardized mortality rate
                                     (RSMR) following coronary artery
                                     bypass graft (CABG) surgery (NQF
                                     1893).*
Patient Experience of Care Measure   HCAHPS survey (NQF 0166) (expanded to include two
                                     new ``About You'' items and the 3-
                                     item Care Transition Measure) (NQF
                                     0228).
Readmission Measures..............   Hospital 30-day all-cause
                                     risk-standardized readmission rate
                                     (RSRR) following acute myocardial
                                     infarction (AMI) hospitalization
                                     (NQF 0505).
                                     Hospital 30-day, all-cause,
                                     risk-standardized readmission rate
                                     (RSRR) following heart failure
                                     hospitalization (NQF 0330).
                                     Hospital 30-day, all-cause,
                                     risk-standardized readmission rate
                                     (RSRR) following pneumonia
                                     hospitalization (NQF 0506).
                                     Hospital-level 30-day, all-
                                     cause risk-standardized readmission
                                     rate (RSRR) following elective
                                     primary total hip arthroplasty
                                     (THA) and/or total knee
                                     arthroplasty (TKA) (NQF 1551).
                                     Hospital-Wide All-Cause
                                     Unplanned Readmission (HWR) (NQF
                                     1789).
                                     Stroke 30-day Risk
                                     Standardized Readmission.
                                     Hospital 30-Day, All-Cause,
                                     Risk-Standardized Readmission Rate
                                     (RSRR) following Chronic
                                     Obstructive Pulmonary Disease
                                     (COPD) Hospitalization (NQF 1891).
                                     Hospital 30-day, all-cause,
                                     unplanned, risk-standardized
                                     readmission rate (RSRR) following
                                     coronary artery bypass graft (CABG)
                                     surgery.*
AHRQ Patient Safety Indicators       PSI-90 Patient safety for
 (PSIs) Composite Measure.           selected indicators (composite)
                                     (NQF 0531).
AHRQ PSI and Nursing Sensitive       PSI-4 Death among surgical
 Care.                               inpatients with serious treatable
                                     complications (NQF 0351).
Structural Measures...............   Participation in a
                                     Systematic Clinical Database
                                     Registry for Nursing Sensitive Care
                                     (NQF 0113).
                                     Participation in a
                                     Systematic Clinical Database
                                     Registry for General Surgery (NQF
                                     0493).
                                     Safe Surgery Checklist Use.
Healthcare-Associated Infections     National Healthcare Safety
 (HAI) Measures.                     Network (NHSN) Central line-
                                     associated Bloodstream Infection
                                     (CLABSI) Outcome Measure (NQF
                                     0139).
                                     American College of
                                     Surgeons--Centers for Disease
                                     Control and Prevention (ACS-CDC)
                                     Harmonized Procedure Specific
                                     Surgical Site Infection (SSI)
                                     Outcome Measure (NQF 0753).
                                    --SSI following Colon Surgery.
                                    --SSI following Abdominal
                                     Hysterectomy.
                                     National Healthcare Safety
                                     Network (NHSN) Catheter-associated
                                     Urinary Tract Infection (CAUTI)
                                     Outcome Measure (NQF 0138).
                                     National Healthcare Safety
                                     Network (NHSN) Facility-wide
                                     Inpatient Hospital-onset
                                     Methicillin-resistant
                                     Staphylococcus aureus (MRSA)
                                     Bacteremia Outcome Measure (NQF
                                     1716).
                                     National Healthcare Safety
                                     Network (NHSN) Facility-wide
                                     Inpatient Hospital-onset
                                     Clostridium difficile Infection
                                     (CDI) Outcome Measure (NQF 1717).
                                     Influenza vaccination
                                     coverage among healthcare personnel
                                     (HCP) (NQF 0431).
Surgical Complications............   Hospital-level risk-
                                     standardized complication rate
                                     (RSCR) following elective primary
                                     total hip arthroplasty (THA) and/or
                                     total knee arthroplasty (TKA) (NQF
                                     1550).
Emergency Department (ED)            ED-1 Median time from ED
 Throughput Measures.                arrival to ED departure for
                                     admitted ED patients (NQF 0495). [ballot]
                                     ED-2 Admit Decision Time to
                                     ED Departure Time for Admitted
                                     Patients (NQF 0497).
                                     [ballot]
Prevention: Global Immunization      Influenza Immunization (NQF
 (IMM) Measure.                      1659).
Cost Efficiency...................   Payment-Standardized
                                     Medicare Spending Per Beneficiary
                                     (MSPB) (NQF 2158).
                                     AMI Payment per Episode of
                                     Care.
                                     Hospital-level, risk-
                                     standardized 30-day episode-of-care
                                     payment measure for heart failure.*
                                     Hospital-level, risk-
                                     standardized 30-day episode-of-care
                                     payment measure for pneumonia.*

[[Page 28242]]

 
Perinatal Care (PC)...............   PC-01 Elective delivery
                                     [ballot] (NQF 0469).
                                     PC-05 Exclusive Breast Milk
                                     Feeding and the subset measure PC-
                                     05a Exclusive Breast Milk Feeding
                                     Considering Mother's Choice (NQF
                                     0480). */[ballot]/[dagger]
                                     Children's Asthma Care-3
                                     Home Management Plan of Care (HMPC)
                                     document given to patient/
                                     caregiver. */[ballot]/[dagger]
                                     Healthy Term Newborn (NQF
                                     0716). */[ballot]/[dagger]
                                     Hearing Screening Prior to
                                     Hospital Discharge (NQF 1354). */[ballot]/[dagger]
------------------------------------------------------------------------
* New or expanded measures for FY 2017 payment determination and
  subsequent years.
[ballot] Electronic clinical quality measure.
[dagger] Voluntary measure.


  Previously Adopted Voluntary Electronic Clinical Quality Measures and Proposed Voluntary Electronic Clinical
                Quality Measures for the FY 2017 Payment Determination and Associated NQF Domains
----------------------------------------------------------------------------------------------------------------
                                                                      Domain as assigned in Stage 2 final rule
       Short name               Measure name         NQF                       \76\
----------------------------------------------------------------------------------------------------------------
ED-1....................  Emergency Department                0495  Patient and Family Engagement.
                           Throughput--Median time
                           from ED arrival to ED
                           departure for admitted
                           ED patients.
ED-2....................  Emergency Department                0497  Patient and Family Engagement.
                           Throughput--admitted
                           patients--Admit
                           decision time to ED
                           departure time for
                           admitted patients.
STK-2...................  Discharged on                       0435  Clinical Process/Effectiveness.
                           antithrombotic therapy.
STK-3...................  Anticoagulation therapy             0436  Clinical Process/Effectiveness.
                           for atrial fibrillation/
                           flutter.
STK-4...................  Thrombolytic Therapy....            0437  Clinical Process/Effectiveness.
STK-5...................  Antithrombotic therapy              0438  Clinical Process/Effectiveness.
                           by end of hospital day
                           two.
STK-6...................  Discharged on Statin                0439  Clinical Process/Effectiveness.
                           Medication.
STK-8...................  Stroke education........             N/A  Patient and Family Engagement.
STK-10..................  Assessed for                        0441  Care Coordination.
                           rehabilitation.
VTE-1...................  Venous thromboembolism              0371  Patient Safety.
                           prophylaxis.
VTE-2...................  Intensive care unit                 0372  Patient Safety.
                           venous thromboembolism
                           prophylaxis.
VTE-3...................  Venous thromboembolism              0373  Clinical Process/Effectiveness.
                           patients with
                           anticoagulation overlap
                           therapy.
VTE-4...................  Patients receiving un-               N/A  Clinical Process/Effectiveness.
                           fractionated Heparin
                           with doses/labs
                           monitored by protocol.
VTE-5...................  VTE discharge                        N/A  Patient and Family Engagement.
                           instructions.
VTE-6...................  Incidence of potentially            0376  Patient Safety.
                           preventable VTE.
PC-01...................  Elective Delivery.......            0469  Clinical Process/Effectiveness.
PC-05...................  Exclusive Breast Milk               0480  Clinical Process/Effectiveness.
                           Feeding and the subset
                           measure PC-05a
                           Exclusive Breast Milk
                           Feeding Considering
                           Mother[acute]s Choice.*
EHDI-1a.................  Hearing screening prior             1354  Clinical Process/Effectiveness.
                           to hospital discharge *.
                          Healthy Term Newborn *..            0716  Patient Safety.
CAC-3...................  Home Management Plan of              N/A  Patient and Family Engagement.
                           Care (HMPC) Document
                           Given to Patient/
                           Caregiver.
AMI-2...................  Aspirin Prescribed at               0142  Clinical Process/Effectiveness.
                           Discharge for AMI *.
AMI-7a..................  Fibrinolytic Therapy                0164  Clinical Process/Effectiveness.
                           Received Within 30
                           minutes of Hospital
                           Arrival.
AMI-8a..................  Primary PCI Received                0163  Clinical Process/Effectiveness.
                           Within 90 Minutes of
                           Hospital Arrival.
AMI-10..................  Statin Prescribed at                0639  Clinical Process/Effectiveness.
                           Discharge *.
PN-6....................  Initial Antibiotic                  0147  Efficient Use of Healthcare Resources.
                           Selection for Community-
                           Acquired Pneumonia
                           (CAP) in
                           Immunocompetent
                           Patients.
SCIP-Inf-1a.............  Prophylactic Antibiotic             0527  Patient Safety.
                           Received within one
                           Hour Prior to Surgical
                           Incision.
SCIP-Inf-2a.............  Prophylactic Antibiotic             0528  Efficient Use of Healthcare Resources.
                           Selection for Surgical
                           Patients.
SCIP-Inf-9..............  Urinary catheter removed            0453  Patient Safety.
                           on Postoperative Day 1
                           (POD1) or Postoperative
                           Day 2 (POD2) with day
                           of surgery being day
                           zero.
----------------------------------------------------------------------------------------------------------------
* Measure proposed for adoption or readoption in Hospital IQR Program.

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

    \76\ Medicare EHR Incentive Program Stage 2 final rule (77 FR 
54083 through 54087).
---------------------------------------------------------------------------

h. Electronic Clinical Quality Measures
(1) Data Submission Requirements for Quality Measures That May Be 
Voluntarily Electronically Reported for the FY 2017 Payment 
Determination
    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 CMS 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 a total of 29 clinical quality 
measures from which hospitals must select at least 16 measures covering 
three National Quality Strategy (NQS) domains to report beginning in FY 
2014. We anticipate that, as health information technology evolves and 
infrastructure is

[[Page 28243]]

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.
    In the FY 2014 IPPS/LTCH PPS final rule, for the STK (with the 
exception of STK-1), VTE, ED, and PC measure sets, we allowed hospitals 
to either: (1) electronically report at least one quarter of CY 2014 
(Q1, Q2, or Q3) quality measure data for each measure in one or more of 
those four measure sets; or (2) continue reporting all measures in 
those four measure sets using chart-abstracted data for all four 
quarters of CY 2014 (78 FR 50818).
    For the FY 2017 payment determination, we are proposing to expand 
this policy, such that providers may select to voluntarily report any 
16 of the 28 Hospital IQR Program electronic clinical quality measures 
that align with the Medicare EHR Incentive Program as long as those 16 
measures span three different NQS domains. The 28 measures are listed 
in the table below. Only 28 of the 29 measures adopted in the Medicare 
EHR Incentive Program are applicable for the Hospital IQR Program, 
because the measure ED-3 Median time from ED arrival to ED departure 
for discharged ED patients (NQF 0496) is an outpatient setting 
measure. We expect eligible hospitals to select measures that best 
apply to their patient mix.
    For the FY 2017 payment determination, we also are proposing to 
expand the reporting requirement of electronic clinical quality 
measures to require a full year's data collection and submission 
instead of a minimum of one quarter. In addition, for the FY 2017 
payment determination, we are proposing to require data submission 
within approximately 60 days after the end of a calendar year quarter. 
We have listed the proposed submission deadlines in the table below. We 
also refer readers to section IX.D.2. of the preamble of this proposed 
rule for a description of the electronic clinical quality measures data 
reporting periods and proposed submission deadlines.

  CY 2015/FY 2017 Electronic Clinical Quality Measures Data Reporting Periods and Proposed Submission Deadlines
----------------------------------------------------------------------------------------------------------------
                                    Reporting period
        CY 2015 quarter                  (2015)                   Proposed  submission  deadline  (2015)
----------------------------------------------------------------------------------------------------------------
1..............................  January 1-March 31....  May 30.
2..............................  April 1-June 30.......  Aug 30.
3..............................  July 1-September 30...  Nov 30.
4..............................  October 1-December 31.  Feb 28.
----------------------------------------------------------------------------------------------------------------

    As an incentive for hospitals to voluntarily submit electronically-
specified clinical quality measures, we are proposing that for the FY 
2017 payment determination, hospitals successfully submitting 
electronic clinical quality measures according to our procedures will 
not have to validate those electronic clinical quality measures by 
submitting chart-abstracted data to validate the accuracy of the 
measure data submitted electronically.
    By proposing these changes, we would further align the Hospital IQR 
Program and the Medicare EHR Incentive Program and promote greater 
electronic clinical quality measure data reporting for hospitals. In 
addition, we believe that these changes would ease hospitals' 
administrative burden, as they will be able to report the same clinical 
quality measures once to partially satisfy both the Hospital IQR and 
Medicare EHR Incentive Programs' requirements.
    (2) Public Reporting of Electronic Clinical Quality Measures
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50813 through 
50818), we adopted a policy under which we would only publicly report 
electronic clinical quality measure data under the Hospital IQR Program 
if we determined that the data are accurate enough to be reported. 
However, we noted that the majority of public commenters had opposed 
our proposal to withhold the electronically reported data from 
publication on Hospital Compare, and instead urged us to publicly 
display it (78 FR 50815). Therefore, for electronic clinical quality 
measure data submitted for the FY 2016 payment determination, we will 
publically report the data as previously finalized. However, for the FY 
2017 payment determination, we now propose to provide hospitals that 
voluntarily report one year of electronic clinical quality measure data 
(as proposed above) an option to have their data reported on Hospital 
Compare with a preview period prior to public reporting. We also 
propose to add a footnote next to that publically reported data 
indicating that it is a result of electronically-specified measures.
    We welcome public comments on these proposals.
8. Possible New Quality Measures and Measure Topics for Future Years
a. Mandatory Electronic Clinical Quality Measure Reporting for FY 2018 
Payment Determination
    We anticipate that, as EHR technology changes and improves, 
hospitals will electronically report all 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 
voluntary reporting option will provide hospitals and CMS with the 
ability to test systems in CY 2015 for future quality program proposals 
that, if finalized, will make electronic reporting a requirement 
instead of voluntary. 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 to require reporting of electronic clinical 
quality measures for the Hospital IQR Program beginning for the CY 2016 
reporting period or FY 2018 payment determination. We considered 
proposing to require hospitals to electronically report some Hospital 
IQR Program quality measures in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27695). After considering public comments, we made electronic 
reporting voluntary in CY 2014 in the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50813 through 50814). However, after two years, we believe that 
hospitals

[[Page 28244]]

are more prepared and should be required to report Hospital IQR Program 
measures as electronic clinical quality measures beginning in CY 2016. 
We intend to propose this policy in future rulemaking, but request 
comments on this intention here.
b. Possible Future Electronic Clinical Quality Measures
    We intend to continue to support the following measure domains in 
the Hospital IQR Program measure set: effective clinical care (for 
example, the AMI, PN, STK, and VTE measures), communication and care 
coordination (for example, the readmission measures), patient safety 
(for example, the HAI measures), person and caregiver-centered 
experience (for example, the HCAHPS measure), community/population 
health (for example, the global immunization measure), and efficiency 
and cost reduction (for example, the Medicare Spending per Beneficiary 
measure). This approach will enhance better patient care while aligning 
the Hospital IQR Program with our other established quality reporting 
and pay-for-performance programs, such as the Hospital VBP Program.
    Based on the above approach, we intend to propose to adopt the 
following electronic clinical quality measures with data collection 
beginning with October 1, 2016 discharges (or, as described further 
above, January 1, 2017, if the proposal to align reporting under the 
Hospital IQR Program and Medicare EHR Incentive Program is finalized) 
to coincide with EHR Incentive Program Stage 3 collection:
 Hepatitis B Vaccine Coverage Among All Live Newborn Infants 
Prior to Hospital or Birthing Facility Discharge NQF 0475
    The Hepatitis B Vaccine Coverage Among All Live Newborn Infants 
Prior to Hospital or Birthing Facility Discharge NQF 0475 
measure is NQF-endorsed, supported by the MAP and conditionally 
supported by the MAP as an electronic clinical quality measure for the 
EHR Incentive Program by the MAP in its 2014 Recommendations on 
Measures for More Than 20 Federal Programs final report available at: 
http://www.qualityforum.org/Publications/2014/01/MAP_Pre-Rulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Federal_Programs.aspx. However, the MAP recommends a review of the 
electronic specifications of this measure through the NQF endorsement 
process.
    This measure requires each hospital/birthing facility to measure 
its administration of a dose of hepatitis B vaccine to all infants born 
in their hospital/birthing facility prior to discharge for a specific 
time period (for example, one calendar year). Hospitals are required to 
assess infants whose parents refused vaccination for exclusion from the 
coverage estimate.
 PC-02 Cesarean Section NQF 0471
    The PC-02 Cesarean Section NQF 0471 is NQF-endorsed and 
supported by the MAP in its 2014 Recommendations on Measures for More 
Than 20 Federal Programs final report available at: http://www.qualityforum.org/Publications/2014/01/MAP_Pre-Rulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Federal_Programs.aspx. The MAP noted that there is an important public 
education piece to the reporting of PC-02 and recommended that CMS work 
with others to ensure consumers understand what the results mean and 
why the measure is important.
    This measure assesses the number of nulliparous women with a term, 
singleton baby in a vertex position delivered by cesarean section.
 Adverse Drug Events--Hyperglycemia
    Adverse Drug Events--Hyperglycemia is conditionally supported by 
the MAP in its 2014 Recommendations on Measures for More Than 20 
Federal Programs final report available at: http://www.qualityforum.org/Publications/2014/01/MAP_Pre-Rulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Federal_Programs.aspx. Use of this measure would address a very common 
condition. The MAP expressed concerns over the feasibility of using 
this measure in the Hospital IQR Program as it has been tested using 
electronic data and stated that the NQF endorsement process should 
resolve this issue.
    This measure assesses the average percentage of hyperglycemic 
hospital days for individuals with a diagnosis of diabetes mellitus, 
anti-diabetic drugs (except metformin) administered, or at least one 
elevated glucose level during the hospital stay. The measure's 
numerator is the sum of the percentage of hospital days in 
hyperglycemia for all admissions in the denominator. The measure's 
denominator is the total number of admissions with a diagnosis of 
diabetes mellitus, at least one administration of insulin or any oral 
anti-diabetic medication except metformin, or at least one elevated 
blood glucose value (>200 mg/dL [11.1 mmol/L]) at any time during the 
entire hospital stay.
    Exclusions include: (1) Admissions with a diagnosis of diabetic 
ketoacidosis (DKA) or hyperglycemic hyperosmolar syndrome (HHS); (2) 
admissions without any hospital days included in the analysis; (3) 
admissions with lengths of stay greater than 120 days.
 Adverse Drug Events--Hypoglycemia
    Adverse Drug Events--Hypoglycemia is conditionally supported by the 
MAP in its 2014 Recommendations on Measures for More Than 20 Federal 
Programs final report, which is available at: http://www.qualityforum.org/Publications/2014/01/MAP_Pre-Rulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Federal_Programs.aspx. Use of this measure would address a common condition 
that is very dangerous to patients. The MAP expressed concerns over the 
feasibility of using this measure in the Hospital IQR Program as it has 
been tested using electronic data and that the NQF endorsement process 
should resolve this issue.
    This measure assesses the rate of hypoglycemic events following the 
administration of an anti-diabetic agent. The measure's numerator is 
the total number of hypoglycemic events (<40 mg/dL) that were preceded 
by administration of a short/rapid-acting insulin within 12 hours or an 
anti-diabetic agent other than a short/rapid-acting insulin within 24 
hours, were not followed by another glucose value greater than 80 mg/dL 
within 5 minutes, and were at least 20 hours apart. The measure's 
denominator is total number of hospital days with at least one anti-
diabetic agent administered. Exclusions include admissions with length 
of stay greater than 120 days.
    We request comments on these possible future measures.
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

[[Page 28245]]

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. We note that, in accordance with this 
section, the FY 2015 payment determination begins the first year that 
the Hospital IQR Program will reduce the applicable percentage increase 
by one-quarter of such applicable percentage increase. 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. 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 Web site. 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 2017 Payment Determination and 
Subsequent Years
    The Hospital IQR Program procedural requirements are codified in 
regulation at 42 CFR 412.140. We refer readers to the codified 
regulations for participation requirements, as further explained by the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50810 through 50811).
c. Data Submission Requirements for Chart-Abstracted Measures
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51640 through 51641), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53536 
through 53537), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50811) 
for details on the Hospital IQR Program data submission requirements 
for chart-abstracted measures.
    We are not proposing any changes to data submission requirements 
for chart-abstracted measures at this time.
d. Alignment of the EHR Incentive Program Reporting and Submission 
Timelines for Clinical Quality Measures With Hospital IQR Program 
Reporting and Submission Timelines
    The Hospital IQR Program and the EHR Incentive Program have 
different reporting and submission periods for clinical quality 
measures, with hospitals reporting data to the Hospital IQR Program 
based on calendar year deadlines while the EHR Incentive Program is 
based on fiscal year deadlines. In addition, the Hospital IQR Program 
generally requires quarterly reporting and submission of data for 
chart-abstracted measures while the EHR Incentive Program requires 
annual submission of clinical process of care measure data.
    As a result of the different and incongruent Hospital IQR and 
Medicare EHR Incentive Programs' schedules, hospitals reporting and 
submitting measure data to both programs would have to do so multiple 
times in a calendar year. This discrepancy may create confusion and 
additional burden for hospitals attempting to report data to both 
programs. To alleviate this possible confusion and reduce provider 
burden, beginning with the CY 2015 reporting period/FY 2017 payment 
determination, we are proposing to incrementally align the data 
reporting and submission periods for clinical quality measures for the 
Medicare EHR Incentive Program and the Hospital IQR Program on a 
calendar year basis.
    This proposed change also would also move us closer to meeting our 
commitment to align quality measurement and reporting among our 
programs, as we described in the Electronic Health Record Incentive 
Program -Stage 2 final rule (77 FR 54049 through 54051), the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53502 and 53534), and the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50811 through 50819 and 78 FR 50903 through 
50904).
    In order to ease the transition and prevent the delay of Medicare 
EHR Incentive Program payments, we are proposing to incrementally shift 
the Medicare EHR Incentive Program reporting and submission periods for 
clinical quality measures to align with that of the Hospital IQR 
Program. We refer readers to section IX.E.2. of the preamble of this 
proposed rule for a detailed discussion of this proposal in the EHR 
Incentive Program. Specifically, for the CYs 2015 and 2016, we are 
proposing in the EHR Incentive Program to require CY reporting, but 
only for the first three calendar quarters (that is, January through 
September). This proposal will allow us to align data reporting and 
submission periods without shifting the EHR incentive payments.
    We note that for the Hospital IQR Program, for the FY 2017 payment 
determination, we are proposing to change the November 30th submission 
deadline to require data submission within approximately 60 days of the 
close of a quarter. We refer readers to section IX.A.7.h.(1) of the 
preamble of this proposed rule where this proposal is made. We are also 
proposing this change in the Medicare EHR Incentive Program in order to 
align the two programs. We refer readers to section IX.D.2. of the 
preamble of this proposed rule where this proposal is made. In summary, 
we are proposing to align the reporting and submission periods of the 
Medicare EHR Incentive Program clinical quality measures with that of 
the Hospital IQR Program for CYs 2015 and 2016.

  Proposed Reporting Timeline to Align the EHR Incentive Program With Proposed Hospital IQR Program Submission
                                                     Periods
----------------------------------------------------------------------------------------------------------------
                                                    EHR incentive     Hospital IQR program
                                        CY       program  reporting         reporting       Submission period **
                                                    requirements*         requirements
----------------------------------------------------------------------------------------------------------------
2015 Reporting Period............  Q1.........  January 1--March 31,  January 1--March 31,  Data must be
                                                 2015.                 2015.                 submitted by May
                                                                                             31, 2015.
                                   Q2.........  April 1--June 30,     April 1--June 30,     Data must be
                                                 2015.                 2015.                 submitted by August
                                                                                             31, 2015.
                                   Q3.........  July 1--September     July 1--September     Data must be
                                                 30, 2015.             30, 2015.             submitted by
                                                                                             November 30, 2015.

[[Page 28246]]

 
                                   Q4.........  N/A for EHR           October 1--December   For Hospital IQR
                                                 Incentive Program.    31, 2015.             Program, Data must
                                                                                             be submitted by
                                                                                             February 28, 2016.
2016 Reporting Period............  Q1.........  January 1--March 31,  January 1--March 31,  Data must be
                                                 2016.                 2016.                 submitted by May
                                                                                             31, 2016.
                                   Q2.........  April 1--June 30,     April 1--June 30,     Data must be
                                                 2016.                 2016.                 submitted by August
                                                                                             31, 2016.
                                   Q3.........  July 1--September     July 1--September     Data must be
                                                 30, 2016.             30, 2016.             submitted by
                                                                                             November 30, 2016.
                                   Q4.........  N/A for EHR           October 1--December   For Hospital IQR
                                                 Incentive Program.    31, 2016.             Program, Data must
                                                                                             be submitted by
                                                                                             February 28, 2017.
----------------------------------------------------------------------------------------------------------------
* Calendar year alignment and quarterly reporting for 2015 and 2016 would apply for electronically reported CQM
  data only.
** Proposed EHR Incentive Program and Hospital IQR submission period would allow data submission on an ongoing
  basis starting January 2 of the reporting year, and ending approximately 60 days after the end of the quarter.

    The Medicare EHR Incentive Program also clarifies case threshold 
denominator and reporting zero denominators are included in the 
Medicare EHR Incentive Program at sections IX.D.5. and IX.D.6. of the 
preamble of this proposed rule.
    We invite public comments on these proposals.
e. Sampling and Case Thresholds for the FY 2017 Payment Determination 
and Subsequent Years
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (75 FR 
50230), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641), the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53537), and the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50819) for details on our sampling and case 
thresholds for the FY 2016 payment determination and subsequent years.
    We are not proposing any changes to sampling or case thresholds.
f. HCAHPS Requirements for the FY 2017 Payment Determination and 
Subsequent Years
    We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50220), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641 through 
51643), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53537 through 
53538), the FY 2014 IPPS/LTCH PPS final rule and (78 FR 50819 through 
50820) for details on HCAHPS requirements.
    We are not proposing any changes to HCAHPS requirements at this 
time.
    Hospitals and HCAHPS survey vendors should, however, 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.
g. Data Submission Requirements for Structural Measures for the FY 2017 
Payment Determination and Subsequent Years
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51643 through 51644), and the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53538 through 53539) for details on the data submission requirements 
for structural measures.
    We are not proposing any changes to data submission requirements 
for structural measures at this time.
h. Data Submission and Reporting Requirements for Healthcare-Associated 
Infection (HAI) Measures Reported via NHSN
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51631 through 51633; 51644 through 51645), the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53539), and the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50820 through 50822) for details on the data submission and 
reporting requirements for healthcare-associated infection (HAI) 
measures reported via the CDC's National Healthcare Support Network 
(NHSN) Web site. The data submission deadlines are posted on the 
QualityNet Web site at: http://www.QualityNet.org org/.
    We are not proposing any changes to data submission and reporting 
requirements for healthcare-associated infection measures reported via 
the NHSN.
    10. Submission and Access of HAI Measures Data Through the CDC's 
NHSN Web site
    As finalized in the FY 2014 Hospital IPPS/LTCH PPS final rule (78 
FR 50805 through 50807), the Hospital IQR Program requires hospitals to 
report data via the CDC's NHSN Web site for the following HAI measures: 
(1) CLABSI (NQF 0139); (2) CAUTI (NQF 0138); (3) SSI 
following colon surgery; (4) SSI following abdominal hysterectomy; (5) 
laboratory-identified MRSA bacteremia infection (NQF 1716); 
(6) laboratory-identified Clostridium difficile infection (NQF 
1717); and, (7) healthcare personnel vaccination (NQF 
0413). 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 specific HAI measures to NHSN.
    For the FY 2016 payment determination and subsequent years, for the 
Hospital IQR program, we are clarifying our data reporting and 
submission requirements for the above stated HAI measures. By adopting 
the data reporting and submission procedures set forth by the CDC, we 
intended that hospitals report, through the existing NHSN process, any 
and all data elements at the patient-level that are designated as 
``required'' on NHSN forms (such as, the ``primary bloodstream 
infection'' or ``annual facility survey'' forms). Some examples of 
these ``required'' patient-level data elements include: patient 
identifier, date of birth, and gender; detailed event data, such as 
specific symptoms identified to meet case definitions and laboratory 
results; and risk factor data used to calculate the hospital-level 
measures. Hospitals may find a comprehensive list of required forms and 
data elements on the NHSN Web site (http://www.cdc.gov/nhsn/acute-care-hospital/index.html).

[[Page 28247]]

    We further wish to clarify that the NHSN required data collected by 
the CDC will be shared with CMS for Hospital IQR Program and Hospital 
VBP Program administration, monitoring and evaluation activities, 
including validation, appeals review, program impact evaluation, and 
development of quality measure specifications. CMS routinely uses 
submitted quality measure data for these types of program 
administration, monitoring and evaluation activities.
    In addition, we are proposing that we will also receive access from 
the CDC to voluntarily submitted name and race identifying information 
with respect to Hospital IQR Program required measures. These data will 
also be used for Hospital IQR Program and Hospital VBP Program 
administration, monitoring and evaluation activities, including 
validation, appeals review, program impact evaluation, and development 
of quality measure specifications. More specifically, for Hospital IQR 
Program validation, we propose to use these data to ensure accurate 
matching between patient charts submitted for HAI validation that 
cannot be matched to NHSN using Medicare beneficiary identification 
numbers. We also propose to use these data as appropriate for program 
evaluation.
    We invite public comment on this proposal.
11. Proposed Modifications to the Existing Processes for Validation of 
Chart-Abstracted Hospital IQR Program Data
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539 through 
53553), we finalized the processes and procedures for validation of 
chart-abstracted measures in the Hospital IQR Program for the FY 2015 
payment determination and subsequent years; this rule also contained a 
comprehensive summary of all procedures finalized in previous years and 
still in effect. Several modifications to these processes were 
finalized for the FY 2016 and FY 2017 payment determinations in the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50822 through 50835). For the FY 
2017 payment determination and subsequent years, we are proposing 
additional modifications to these processes. Proposed changes fall into 
the following categories: (a) Eligibility criteria for hospitals 
selected for validation; (b) number of charts to be submitted per 
hospital for validation; (c) combining scores for HAI and clinical 
process-of-care measures; (d) processes to submit medical records for 
chart-abstracted measures; and (e) plans to validate electronic 
clinical quality measure data.
a. Eligibility Criteria for Hospitals Selected for Validation
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50833 through 
50834), for the FY 2016 payment determination and subsequent years, we 
finalized our process to draw a random sample of 400 hospitals and an 
additional sample of up to 200 hospitals meeting specific targeting 
criteria for purposes of validation. For the FY 2017 payment 
determination and subsequent years, we are proposing one minor change 
to this process. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50227), 
we defined hospitals eligible for validation as the subset of 
subsection (d) hospitals that successfully submitted ``at least one 
case for the third calendar quarter of the year two years prior to the 
year to which validation applies.''
    For the FY 2017 payment determination and subsequent years, we are 
proposing to change the definition of validation-eligible hospitals to 
be the subset of subsection (d) hospitals that successfully submitted 
at least one case to the Hospital IQR Clinical Data Warehouse during 
the quarter containing the most recently available data. The quarter 
containing the most recently available data will be defined based on 
when the random sample is drawn. For example, for the FY 2017 payment 
determination, we intend to draw this sample in November or December of 
2014. The second quarter (Q2) of 2014 ends in June 2014, but hospitals 
participating in the Hospital IQR Program may submit quality data from 
this quarter until November 15, 2014 (see www.qualitynet.org for 
submission deadlines). If CMS draws its sample early in November 2014, 
before all the second quarter hospital data are submitted and processed 
by the Clinical Data Warehouse, the ``quarter containing the most 
recently available data'' will be first quarter (Q1) of 2014. On the 
other hand, if CMS draws its sample late November or early December 
2014 after the second quarter 2014 hospital data are processed, the 
second quarter of 2014 will contain the most recently available data.
    We are proposing this change because, in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50822 through 50825), for the FY 2017 annual payment 
determination and subsequent years, we changed the timing of quarters 
for validation of HAI measures, as illustrated in the three graphs (78 
FR 50824). To align with this change for HAI measures and to give 
hospitals more time to complete HAI validation template requirements 
once selected, we intend to draw the validation sample several months 
sooner than we have historically drawn it. Historically, we drew the 
sample early in each calendar year. This proposal provides us with 
greater flexibility for when we can sample hospital data and allows CMS 
to use the most recent data available to select hospitals.
    We invite public comment on this proposal.
b. Number of Charts To Be Submitted per Hospital for Validation
(1) Background
    In the sections that follow, we are proposing to: (1) Change the 
number of charts hospitals must submit for validation; (2) change the 
measure-specific sample sizes for HAI validation; and (3) change the 
topic areas and sample design for clinical process-of-care measures. We 
are proposing these changes because Section 1886(o) of the Act requires 
the Hospital VBP Program to use a subset of Hospital IQR Program 
measures and there is a declining number of measures and chart-
abstracted measure topic areas available to the Hospital VBP Program. 
Our proposals also will direct more resources to measures and topic 
areas that also overlap with the Hospital VBP Program. Finally, our 
proposals will ensure that all chart-abstracted measure topic areas 
containing required measures within the Hospital IQR Program are 
included in validation. A more detailed rationale accompanies each 
proposal.
    As described in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539 
through 53553), the Hospital IQR Program validates chart-abstracted 
data submitted to two different systems: clinical process-of-care data 
submitted to the Hospital IQR Program Clinical Data Warehouse and HAI 
data submitted to the NHSN. Different validation approaches are used 
for the data submitted to each of the systems. The process for 
selecting and validating HAI data was first introduced in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51646 through 51648) and has evolved 
annually in each successive IPPS/LTCH PPS rule. In contrast, validation 
of the clinical process of care measures, which involves separate 
samples for each topic area, has not substantively changed since it was 
first finalized for the FY 2012 payment determination in the FY 2010 
IPPS/LTCH PPS final rule (74 FR 43884 through 43889).

[[Page 28248]]

(2) Proposed Number of Charts to be Submitted for Validation
(A) Total Number of Charts Required for Validation
    Our current policy requires hospitals to submit 96 charts for 
validation (60 charts for clinical process-of-care measures and 36 
charts for HAIs) (78 FR 50825 through 50834). For the FY 2017 payment 
determination and subsequent years, we are proposing to require 
hospitals selected for Hospital IQR Program validation to submit 18 
patient charts per quarter for a total of 72 charts per year. A sample 
size of 72 charts is statistically estimated to be the number of charts 
needed to determine whether an individual hospital clearly passed 
validation and to assess hospital performance across both types of 
measures (HAIs and clinical process-of-care) combined. As finalized in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53551), hospitals may fall 
into three validation categories: (1) Hospitals pass validation with a 
lower bound of the confidence interval greater than or equal to 75 
percent; (2) hospitals fail validation with an upper bound for a 
hospital's confidence interval lower than 75 percent; and (3) hospitals 
neither pass nor fail validation with a 90 percent confidence interval 
that includes values above and below 75 percent. Hospitals in the third 
category that neither pass nor fail validation receive their annual 
payment update, but may be randomly sampled for inclusion in the 
targeted validation in the following year.
    We estimate that a sample of 72 charts will be sufficient to 
estimate a reliability of 75 percent +/- 10 percent with 90 percent 
confidence, assuming a design effect no greater than 1.4. Historical 
data suggests that most hospitals in the Hospital IQR Program pass 
validation and validated data have a high level of accuracy. For 
example, for the FY 2013 payment determination, approximately 95 
percent of hospitals validated had data reliability of 85 percent or 
higher. With a sample of 72 charts and an expected mean data 
reliability well above 85 percent, we should be able to identify most 
hospitals that pass validation. Of the remaining hospitals, we will use 
the same conservative approach to identify hospitals failing validation 
that we have used since the inception of the Hospital IQR Program.
(B) Number of Charts Required for HAI and Clinical Process-of-Care 
Measures
    As finalized in the FY 2014 IPPS/LTCH PPS final rule for the FY 
2017 payment determination and future years, we require hospitals to 
submit 9 charts for HAI measures per quarter (78 FR 50831) and for the 
FY 2016 payment determination and future years, we require hospitals to 
submit 15 charts for clinical process-of-care measures per quarter for 
validation (78 FR 50830). For the FY 2017 payment determination and 
subsequent years, we are proposing that of the 18 charts proposed to be 
submitted per quarter (above), 10 charts would be submitted to validate 
HAI measures and 8 charts would be submitted to validate clinical 
process-of-care measures. This would equal 72 charts per year with a 
mix of 40 HAI and 32 clinical process-of-care measure charts. We are 
proposing to require more HAI charts than clinical process-of-care 
measure charts because HAI measures now, as proposed, have a greater 
impact on the Hospital VBP and the Hospital-Acquired Condition (HAC) 
Reduction Programs. Considering only the relative importance of HAIs 
and clinical process-of-care charts to the Hospital VBP Program, which 
is about 4 times as great, CMS might choose a ratio larger than 10 HAI 
charts for every 8 clinical process-of-care charts. However, we 
estimate that CMS spends about 4 times as much money per chart to 
validate HAIs than clinical process-of-care measures. Moreover, the 
clinical process of care measures are still a critical part of the 
Hospital IQR Program. Therefore, CMS proposed this mix of 40 HAI and 32 
clinical process of care charts per year because we believe it to be 
optimal after considering both the relative importance of the two types 
of charts to the Hospital IQR Program and related payment incentive 
programs and the relative cost of validation for the two types of 
charts.
    We invite public comment on these proposals.
(3) HAI Validation: Measures and Measure-Specific Sample Sizes
    In the FY 2014 IPPS/LTCH final rule (78 FR 50828 through 50832) for 
the FY 2016 payment determination and subsequent years, we finalized 
the HAI measures to be included in validation, the processes for 
completing validation, and the specific sample sizes for each. To 
validate HAI data, hospitals must use Validation Templates to provide 
supplemental data to CMS. These supplemental data provide CMS with a 
set of candidate infections for each HAI. As finalized previously, 
hospitals sampled for validation will be randomly assigned to provide 
two Validation Templates, either: (1) CLABSI and CAUTI, or 2) MRSA and 
CDI. Consequently, up to 300 hospitals will provide data on each of 
these 4 measures. We also previously finalized a decision to validate a 
smaller number of patient charts for SSI from twice as many hospitals 
because of the smaller number of candidate SSIs expected per hospital 
per quarter. We are not proposing to change the process for validating 
individual measures.
    However, above in this section, we are proposing to increase the 
total HAI sample size by 1 chart per quarter for a total of 4 more 
charts per year. As explained below in this section, HAI measures have 
greater relative scoring weights in the Hospital VBP and HAC Reduction 
Programs than clinical process-of-care measures. Therefore, in order to 
align the Hospital IQR Program with the Hospital VBP and HAC Reduction 
Programs, we are proposing to increase measure-specific sample size 
targets to support this 1 chart per quarter increase in the Hospital 
IQR Program for the FY 2017 payment determination and subsequent years. 
Specifically, the total number of charts for CLABSI, CAUTI, MRSA, and 
CDI would increase by 1 from 15 to 16; and the total number of charts 
for SSI would increase by 2 from 6 to 8. The previously finalized and 
proposed specific sample-size charts are detailed in the tables below.

   Previously Finalized Number of Charts Required for HAI Validation for the FY 2017 Payment Determination and
                                                Subsequent Years
----------------------------------------------------------------------------------------------------------------
                                                                                                     Number of
                  HAI                      Number of hospitals       Number of    Charts/quarter/   charts per
                                                                     quarters        hospital        hospital
----------------------------------------------------------------------------------------------------------------
Previously Finalized:
    Central line associated bloodstream  Up to 300..............               4          * 3.75              15
     infections (CLABSI).
    Catheter-associated urinary tract    Up to 300..............               4          * 3.75              15
     infections (CAUTI).
    MRSA...............................  Up to 300..............               4          * 3.75              15

[[Page 28249]]

 
    CDI................................  Up to 300..............               4          * 3.75              15
    SSI................................  Up to 600..............               4           * 1.5               6
----------------------------------------------------------------------------------------------------------------
* As previously finalized, 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. As finalized, 2 additional charts per
  quarter per hospital were to be randomized to meet the fractional case targets on average.


     Proposed Number of Charts To Be Submitted for HAI Validation for the FY 2017 Payment Determination and
                                                Subsequent Years
----------------------------------------------------------------------------------------------------------------
                                                                                                     Number of
                  HAI                      Number of hospitals       Number of    Charts/quarter/   charts per
                                                                     quarters        hospital        hospital
----------------------------------------------------------------------------------------------------------------
Proposed:
    Central line associated bloodstream  Up to 300..............               4               4              16
     infections (CLABSI).
    Catheter-associated urinary tract    Up to 300..............               4               4              16
     infections (CAUTI).
    MRSA...............................  Up to 300..............               4               4              16
    CDI................................  Up to 300..............               4               4              16
    SSI................................  Up to 600..............               4               2               8
----------------------------------------------------------------------------------------------------------------

    We invite public comment on this proposal.
(4) Clinical Process of Care Measures: Topic Areas and Sample Design
    As discussed above in this section, we are proposing to sample 8 
total patient charts for clinical process-of-care measures per quarter 
per hospital included in validation for the Hospital IQR Program for 
the FY 2017 payment determination and subsequent years. Those 8 charts 
are discussed in greater detail below.
    As shown in the table below, two other Hospital IQR Program 
clinical process-of-care topic areas overlap with measures proposed for 
inclusion in the FY 2017 Hospital VBP Program. Regardless, we are not 
proposing to target those topic areas for the following reasons. One of 
these measures, PC-01, Elective delivery prior to 39 completed weeks of 
gestation, is reported in aggregate. We cannot use the same mechanism 
to validate PC-01 as we use for measures reported at the patient level, 
but we hope to include it in our validation program in the future 
should reporting PC-01 as an electronic clinical quality measure 
becomes a requirement. The second measure is AMI-7a. AMI-7a describes a 
process of care only performed in small rural hospitals. Of the 
approximately 3,300 hospitals participating in the Hospital IQR Program 
for the FY 2015 payment determination, only 113 submitted cases for 
this measure in the first two quarters of CY 2013. Therefore, targeting 
hospitals that report the AMI-7a measure would unduly single out small 
rural hospitals that disproportionately report relatively high AMI-7a 
measure denominator counts for validation, and would be inequitable.

   Number of Chart-Abstracted Clinical Process-of-Care Measures per Topic Area Proposed To Be Reported in the
                    Hospital IQR Program in the CY 2014 and CY 2015 Data Collection Periods *
----------------------------------------------------------------------------------------------------------------
                                                  Number of         Number of
                                                  required          required
                                                  measures          measures        Proposed to  include in the
                 Topic area                    reported in CY    proposed for CY   Hospital VBP  program for  FY
                                              2014 for FY 2016  2015 for FY 2017               2017
                                                hospital IQR      hospital IQR
                                                   program           program
----------------------------------------------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)...........                 2                 1  Yes.
Heart Failure (HF)..........................                 1                 0  No.
Pneumonia (PN)..............................                 1                 0  No.
Surgical Care Improvement Project (SCIP)....                 7                 0  No.
Venous thromboembolism (VTE)................                 6                 5  No.
Stroke (STK)................................                 8                 4  No.
Emergency department throughput (ED)........                 2                 2  No.
Prevention--global immunization (IMM).......                 1                 1  Yes.
Sepsis......................................                 0                 1  No.
Perinatal Care (PC) **......................                 1                 1  Yes.
----------------------------------------------------------------------------------------------------------------
* Data validated for the FY 2017 payment determination are Quarter 3, CY 2014, Quarter 4, CY 2014 Quarter 1, CY
  2015 and Quarter 2, CY 2015 (78 FR 50824).
** Not reported at the patient level and not proposed for inclusion in validation.

    For the FY 2017 payment determination and subsequent years, we are 
proposing that the remaining 5 of the 8 clinical process-of-care charts 
be drawn from a systematic random sample of charts across all topic 
areas

[[Page 28250]]

containing required measures other aside from those in the immunization 
and perinatal care topic areas. Across all hospitals included in 
validation, we believe this approach will ensure adequate numbers of 
patient charts are sampled for each topic area. Under this proposal, 
the pool of clinical process-of-care topic areas sampled for validation 
will include: STK, VTE, ED, and sepsis, as well as all other IQR 
required topic areas such as AMI. We received many comments in the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50807 through 50810; 78 FR 50825) 
regarding the importance of validating VTE, STK, and ED measures not 
included in validation for the FY 2016 payment determination. With this 
proposal, STK, VTE, ED, and sepsis measures would be included in the 
pool of clinical process-of-care measures for validation. The 
systematic random sample of topic areas from this pool would ensure 
that charts are sampled proportionate to the number of charts submitted 
for each topic. Thus, a sample of 20 charts per year would not be 
limited to only one topic area by random occurrence. In addition, 
across all hospitals included in validation, we believe this approach 
will ensure adequate numbers of patient charts are sampled for each 
topic area.\77\
---------------------------------------------------------------------------

    \77\ We used data submitted to the Clinical Data Warehouse for 
the Hospital IQR Program from quarters 1 and 2 of 2013 to estimate 
that at least 400 cases per topic area would be validated per year 
(across all hospitals).
---------------------------------------------------------------------------

    This proposal simultaneously simplifies the sampling plan for 
clinical process-of-care measures and gives us the flexibility of 
introducing or removing new topic areas into validation each year 
without having to redesign and propose a new sampling strategy. Using a 
random sample ensures that new topic areas are not excluded from the 
validation sample and we can more easily adjust as the topic areas 
change over the years. If this proposal is finalized, every time a new 
required topic area is added to the Hospital IQR Program, it will 
automatically be added to validation, and every time a topic is removed 
from the Hospital IQR Program, it will automatically be excluded from 
validation.
    We invite public comment on these proposals.
(5) Immunization Measure Validation
    We are proposing for the Hospital IQR Program for the FY 2017 
payment determination and subsequent years, that 3 of the 8 total 
patient charts each quarter be targeted from the Immunization topic 
area. Currently, this topic area only includes the Immunization for 
Influenza (NQF 1659) measure, which overlaps with the Hospital 
VBP Program. We want to ensure that every hospital included in 
validation is validated for this topic area because of the overlap.
c. Combining Scores for HAI and Clinical Process of Care Topic Areas
    We refer readers to the FY 2010 IPPS/LTCH PPS final rule (74 FR 
43885) for the process of scoring clinical process-of-care measures, 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50832 through 50833) for 
the process of scoring HAI measures, and FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50833) for the process to be used to compute the confidence 
interval. We are not proposing any changes to those established 
policies.
    However, for the FY 2017 payment determination and subsequent 
years, we are proposing to modify our approach to weighting the scores 
for each of the HAI, IMM and ``other topic areas'' with two proposals.
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50226) and the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53548 through 53553), we 
established a process to combine the HAI and clinical process-of-care 
measure scores by weighting them proportionate to the number of 
measures included in validation. For example, in section IX.A.11.b.4. 
of the preamble of this proposed rule, our proposal to validate all 
clinical process of care measures required by the Hospital IQR Program 
for the FY 2017 payment determination would yield 14 clinical process-
of-care measures in validation in CY 2015 and only 5 HAI measures in 
validation. Using the previously finalized weights, the clinical 
process of care measures score would contribute 14/19 and the HAI score 
would contribute only 5/19 to the combined score. This weighting does 
not reflect either the relative importance of HAIs to clinical process 
of care measures in the Hospital VBP Program nor the resources proposed 
to devote to their validation.
    In sections IV.I. and IV.J. of the preamble of this proposed rule 
(the Hospital VBP Program and the HAC Reduction Program, respectively), 
we are proposing to weight the patient safety domain (of which the HAI 
measures are part) more heavily in the Hospital VBP Program (20 percent 
for the patient safety domain versus 5 percent for the clinical process 
of care measures) and to use the HAI measures for the HAC Reduction 
Program. In this section, we are proposing to weight the HAI measures 
more heavily than the clinical process of care scores to align with 
these proposals in sections IV.I and IV.J. For the FY 2017 payment 
determination and subsequent years, we are proposing to weight the HAI 
score 66.7 percent (or 2/3) of the total score and the clinical 
process-of-care measures to weight 33.3 percent (or 1/3) of the total 
score. Further justification is provided after the second proposal.
    In addition, we are proposing to weight the IMM measures more 
heavily than other chart-abstracted clinical process-of-care measures 
validated in the Hospital IQR Program to align with the Hospital VBP 
Program. We are changing the process currently established to calculate 
the clinical process-of-care score, which is based on application of 
the formulas for the variance of a stratified single-stage cluster 
sample with unequal cluster sizes and the variance of a proportion in a 
stratified random sample (see reference to Cochran's ``Sampling 
Techniques'' at 75 FR 50226 and 78 FR 53550). We have previously 
applied this formula without consideration for the relative importance 
of different measures. When so applied, each topic area is weighted 
proportionate to the amount of data submitted to the warehouse for that 
topic area.
    However, we are proposing to modify the formulas as previously 
applied to weight the IMM topic area more heavily because of the 
overlap with the Hospital VBP Program. For the FY 2017 payment 
determination and subsequent years, we are proposing to weight the 
``IMM'' clinical topic area as 66.7 percent (2/3) and all other topic 
areas combined 33.3 percent (1/3) of the clinical process-of-care 
score. The weights reflect our policy preference to place greater 
relative weight on Hospital VBP Program included measures to better 
ensure accurate scores and payment. Emphasizing chart-abstracted 
clinical process of care measures validated in the Hospital IQR Program 
to align with the Hospital VBP Program will address the need to 
validate Hospital IQR Program data not currently included in Hospital 
VBP Program for public reporting and validation feedback to hospitals.
    The table below shows the effect of the two proposals combined (the 
first to weight the HAI score more heavily than the clinical process-
of-care score and the second to weight IMM data more heavily than other 
clinical process-of-care topic areas). The HAI topic area will count 3 
times as much as the IMM

[[Page 28251]]

topic area and 6 times as much as all other topic areas combined.

Proposed Weighting To Combine Scores Across Chart-Abstracted Topic Areas
    Included in Validation for the FY 2017 Payment Determination and
                            Subsequent Years
------------------------------------------------------------------------
                     Topic area                        Weight (percent)
------------------------------------------------------------------------
Health care associated infection (HAI)..............                66.7
Immunization (IMM)..................................                22.2
Other (AMI, ED, sepsis, STK, VTE)...................                11.1
                                                     -------------------
    Total...........................................                 100
------------------------------------------------------------------------

    Previously, the clinical process of care measures accounted for 20 
percent of the Hospital VBP Program score, whereas the HAI measures 
were a subset of the outcome measures weighted 30 percent (FR 53605 
through 53606). The proposed relative weights for the HAI (66 percent) 
and IMM (22 percent) topic areas better reflect the strong emphasis we 
are proposing for the HAI measures.
    These proposals will require adjustments to the formulas applied to 
compute the confidence intervals. As we have done in the past, we 
intend to post the specific formulas used to compute the confidence 
interval on the QualityNet Web site at least one year prior to final 
computation (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 were sampled and data were abstracted.
    We invite public comment on these proposals.
d. Processes To Submit Patient Medical Records for Chart-abstracted 
Measures
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50834 through 
50835), we finalized a process for the FY 2016 payment determination 
and subsequent years that allows hospitals to submit patient charts for 
validation via: (1) Paper patient medical records; or (2) secure 
transmission of electronic versions of patient information. The process 
previously finalized restricts electronic submission of patient 
information to digital images of patient medical records submitted 
using encrypted CD-ROMs, DVDs, or flash drives.
    We are proposing for the FY 2017 payment determination and 
subsequent years to expand the options for secure transmission of 
electronic versions of patient medical records. Specifically, we are 
proposing to allow hospitals to submit digital images (PDFs) of patient 
charts using a Secure File Transfer Portal on the QualityNet Web site. 
This portal would allow hospitals to transfer files through either a 
Web-based portal or directly from a client application using a secure 
file transfer protocol. The system provides a mechanism for securely 
exchanging documents containing sensitive information such as Protected 
Health Information (PHI) or Personally Identifiable Information (PII). 
Detailed instructions on how to use this system are available in the 
Secure File Transfer 1.0 User Manual available on QualityNet at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetBasic&cid=1228773343598. After July 2014, hospitals can submit all Hospital IQR Program 
validation data using this portal. This proposal responds to many 
commenters from the FY 2014 IPPS/LTCH PPS rulemaking that were 
concerned that encrypted CD-ROMs were cumbersome and requested viable 
alternatives. We believe that the burden associated with using this 
portal will be similar to or less than that involved with submitting 
patient medical records via portable electronic media (that is, 
encrypted CD-ROMS, DVDs, or flash drives). Therefore, we intend to 
reimburse hospitals according to the rate established for submitting 
patient medical records via portable electronic media (78 FR 50956).
    We invite public comment on this proposal.
e. Plans To Validate Electronic Clinical Quality Measure Data
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50807 through 
50810), we finalized a voluntary process allowing hospitals to 
partially meet Hospital IQR Program requirements for the FY 2014 
payment determination by submitting electronic clinical quality measure 
data via certified electronic health record technology. Many commenters 
expressed concern that we did not have an adequate methodology to 
validate these data.
    To respond to these concerns as well as to ensure that Hospital IQR 
Program data are accurate and reliable, we conducted an environmental 
scan, including review of prior public comments to CMS proposed rules 
and requests for information, review of the technical and academic 
literatures, numerous listening sessions, and interviews with nine 
hospitals. From these activities, we identified three key categories of 
threats to data accuracy: (1) The design of the EHR product, including 
both the manufacturer-provided EHR product and the hospital's 
customizations of that EHR product to support the hospital's specific 
workflows and processes, (2) hospital and provider documentation 
practice, and (3) EHR and electronic clinical quality measure standards 
and specifications. We understand the potential threats to validity in 
each of these categories. To respond to these concerns, we are 
currently conducting a small scale test of a remote real-time 
validation strategy for electronic clinical quality measures in 
approximately 9 hospitals.
    We are not proposing any requirements for validation of electronic 
clinical quality measures for the FY 2017 payment determination. 
However, we intend to conduct a larger scale pilot test of validation 
activities in FY 2015. The pilot test will engage up to 100 volunteer 
hospitals in a highly interactive test abstraction of their EHR systems 
using a secure remote access, real-time abstraction technology that 
meets the HIPAA Privacy and Security Rules' requirements. Hospitals 
that volunteer to participate must meet the EHR Incentive Program Stage 
2 criteria (77 FR 53968 through54162) and be able to produce QRDA 
Category 1 Revision 2 extracted data (individual patient data) for at 
least 6 of the 16 measures in the STK, VTE, ED, and PC topic areas. The 
Office of the National Coordinator for Health Information Technology 
(ONC) adopted QRDA as the standard to support both QRDA Category I

[[Page 28252]]

(individual patient) and QRDA Category III (aggregate) data submission 
approaches for meaningful use Stage 2 in the Health Information 
Technology: Standards, Implementation Specifications, and Certification 
Criteria for Electronic Health Record Technology, 2014 Edition; 
Revisions to the Permanent Certification Program for Health Information 
Technology rule (77 FR 54163 through 54292). Interested hospitals will 
be invited to attend a 30-minute pre-briefing session where they will 
be provided with detailed instructions about the process and a 
demonstration explaining how to install needed software and have any 
concerns about security or systems requirements addressed. The software 
to be installed, Bomgar, is approved by CMS and meets our security 
requirements allowing CDAC to remotely view isolated records in real-
time under hospital supervision, comparing all abstracted data with 
QRDA Category 1 file data and summarizing the results after the real-
time session.
    We implemented Bomgar software, a commercial product, in a CMS data 
center to allow for the review of medical records securely over the 
Internet. The product will allow the CDAC staff and Hospital medical 
record staff to easily set up remote support sessions for reviewing 
Hospital IQR Program-related EHR records under hospital supervision. 
The software was tested and passed our strict security standards. The 
electronic sessions do not require changes to a hospital's firewall or 
network because both the CDAC computer and the hospital computer 
connect to the product through secure outbound connections. The product 
will log and record every session and all session data will be safe-
guarded by federal government approved encryption.
    While CDAC has limited, remote viewing access, hospitals will be 
asked to:
     Generate separate lists of patients eligible for measures 
in each of the four topic areas (STK, VTE, ED, and PC);
     Generate QRDA Category 1 files extracted automatically 
from an EHR for all applicable measures for up to 3 records within each 
of the 4 topic areas (for a total of 12 records) as selected by CDAC; 
and
     Show selected records, such as laboratory records, and 
patient medical history, navigating through the EHR system as directed 
by CDAC.
    During this remote real-time session, CDAC will:
     Follow the specifications for the electronic measure to 
abstract relevant information related to each data element from up to 
10 different sources, for example, medication administration records, 
laboratory reports, and patient history, (including structured and 
unstructured fields) within each patient medical record.
    After concluding the real-time session with a hospital, CDAC will:
     Compare all abstracted data with QRDA Category 1 file 
data; and
     Summarize results identifying patterns of concern.
    Based on these results, CMS and our contractors will:
     Work with measure stewards to refine measure 
specifications based on conflicting findings;
     Share conflicting findings with individual hospitals to 
support improvement;
     Publicize de-identified patterns of conflicting findings 
that allow vendors to develop automated checks;
     Determine reliability (agreement) between QRDA Category 1 
extracted and abstracted data; and
     Produce descriptive statistics to estimate sample size 
requirements for future validation.
    To address the burden associated with this test, we intend to 
reimburse hospitals for the burden associated with their participation. 
Details about reimbursement are included in section XIII.B.6. of the 
preamble of this proposed rule. We will post on QualityNet a detailed 
draft of the operational procedures that volunteer hospitals will be 
expected to follow during the public comment period. We developed this 
process to attempt to meet all of our goals for validity, as further 
explained in the table below.

 Electronic Clinical Quality Measure Validation Strategy Summary for the
                          Hospital IQR Program
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
                Desired Attributes of Validation Strategy
------------------------------------------------------------------------
     Assesses accuracy including reliability and population
     representativeness.
     Employs a standardized process conducted by an objective
     third party.
     Minimizes burden to hospitals.
     Minimizes costs to CMS by being performed at a central
     location.
     Leverages the dynamic qualities of an EHR, including query
     functions.
     May ultimately integrate with validation of other IQR
     measures.
------------------------------------------------------------------------
                              Goals of Test
------------------------------------------------------------------------
     Assess the accuracy and completeness of electronic clinical
     quality measure data.
     Assess Hospital IQR Program readiness for electronic
     clinical quality measure reporting requirements.
     Identify the needs for and implement updates to measure
     specifications and standards.
     Plan future validation requirements, including detailed
     operational instructions and sample size.
------------------------------------------------------------------------
                        Planned Process Overview
------------------------------------------------------------------------
Hospitals will:
     Allow CMS' Clinical Data Abstraction Contractor (CDAC) to
     remotely view records in real-time.
     Generate separate lists of patients eligible for measures
     to be validated.
     Generate QRDA Category 1 extract files for all applicable
     measures for up to 12 records selected by CDAC.
     Show selected records, navigating through the EHR system as
     directed by CDAC.
CDAC will:
     Abstract data following the specifications for the
     electronic measure and relevant information related to each data
     element from up to 10 different sources (including structured and
     unstructured fields) within each medical record.
     Compare all abstracted data with QRDA Category 1 file data.
     Assess and refine operational processes.
CMS and its contractors will:
     Determine reliability (agreement) between extracted and
     abstracted measures.
     Work with measure stewards to refine measure specifications
     based on conflicting findings.
     Share conflicting findings with individual hospitals to
     support improvement.

[[Page 28253]]

 
     Publicize de-identified common patterns of conflicting
     findings that allow vendors to develop automated checks.
     Produce descriptive statistics to estimate sample size
     requirements for future validation.
     Reimburse hospitals for burden associated with
     participation in test.
------------------------------------------------------------------------

    We invite public comment on this voluntary pilot test for 
validation.
    We also considered other validation approaches including one that 
supplements the current procedures and compares quality data manually 
abstracted by the hospitals with QRDA Category 1 extracts from their 
EHRs. Although we are making no specific proposals related to these 
alternatives at this time, we invite comments on whether we should 
develop or identify existing computerized applications to assist 
hospitals in self-validation and on the specific functionalities that 
may be useful for self-validation. For example, as part of the 
validation process, should CMS develop or identify an existing 
application that would use natural language processing, to identify 
potential threats to validity that human abstractors might then review 
more closely. An example of such an application might be one that 
searches the unstructured fields for contraindications to VTE 
prophylaxis, even if such contraindications were not noted in a 
structured field within an EHR. We also invite comments any other types 
of applications that would be useful for self-validation.
12. Data Accuracy and Completeness Acknowledgement Requirements for the 
FY 2017 Payment Determination and Subsequent Years
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53554) for information for details on DACA requirements for the FY 2017 
payment determination and subsequent years.
    We are not proposing any changes to DACA form requirements at this 
time.
13. Public Display Requirements for the FY 2017 Payment Determination 
and Subsequent Years
    We refer readers to the FY 2008 IPPS final rule (72 FR 47360), the 
FY 2011 IPPS/LTCH PPS final rule (75 FR 50230), the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51650), the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53554), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50836) for 
details on public display requirements for the FY 2017 payment 
determination and subsequent years.
    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 are not proposing any changes to public display requirements at 
this time.
14. Reconsideration and Appeal Procedures for the FY 2017 Payment 
Determination and Subsequent Years
    We refer readers to the FY 2012 IPPS/LTCH final rule (76 FR 51650 
through 51651), the FY 2014 IPPS/LTCH final rule (78 FR 50836), and at 
42 CFR Sec.  412.140(e) for details on reconsideration and appeal 
procedures for the FY 2017 payment determination and subsequent years.
    We are not proposing any changes to the reconsideration and appeals 
procedures at this time.
15. Hospital IQR Program Extraordinary Circumstances Extensions or 
Exemptions
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51651 through 51652), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50836 
through 50837), and 42 CFR 412.140(c)(2) for details on the Hospital 
IQR Program extraordinary circumstances extensions or waivers. We are 
not proposing any substantive changes to these policies or the 
processes. However, in the future, we will refer to the process as the 
Extraordinary Circumstances Extensions or Exemptions process. We are 
currently in the process of revising the Extraordinary Circumstances/
Disaster Extension or Waiver Request form, previously approved under 
OMB control number 0938-1171.
    In addition, we are proposing to make a conforming change from the 
phrase ``extension or waiver'' to the phrase ``extension or exemption'' 
in 42 CFR 412.140(c)(2). Section 412.140(c)(2) currently states, 
``Exception. Upon request by a hospital, CMS may grant an extension or 
waiver of one or more data submission deadlines in the event of 
extraordinary circumstances beyond the control of the hospital. 
Specific requirements for submission of a request for an extension or 
waiver are available on QualityNet.org.'' We are proposing to revise 
this language to state, ``Exception. Upon request by a hospital, CMS 
may grant an extension or exemption of one or more data submission 
deadlines in the event of extraordinary circumstances beyond the 
control of the hospital. Specific requirements for submission of a 
request for an extension or exemption are available on 
QualityNet.org.''

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

1. Statutory Authority
    Section 3005 of the Affordable Care Act added new sections 
1866(a)(1)(W) and (k) to the Act. Section 1866(k) establishes a quality 
reporting program for hospitals 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 must 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 must 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 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 
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

[[Page 28254]]

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 PPS-
Exempt Cancer Hospital Quality Reporting (PCHQR) Program. Such 
procedures must ensure that a PCH has the opportunity to review the 
data that are 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 proposed rule covers only 
those PPS-excluded cancer hospitals meeting eligibility criteria 
specified in 42 CFR 412.23(f).
3. Previously Finalized PCHQR Program Quality Measures
    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 NHSN-based 
HAI quality measures (outcome measures): (1) CLABSI; and (2) 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 the American 
Joint Committee on Cancer (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. We also discussed the collection 
requirements and submission timeframes for these measures in the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53563 through 53566).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50838 through 
50840), we finalized one new quality measure for the FY 2015 program 
and subsequent years. Specifically, we finalized the CDC's NHSN HAI 
measure of Surgical Site Infection (SSI). We did not remove or replace 
any of the previously finalized measures from the PCHQR Program for the 
FY 2015 program and subsequent years.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50840 through 
50846), we finalized 12 new quality measures for the FY 2016 program 
and subsequent years. Specifically, we finalized six new SCIP measures, 
five new clinical process/oncology care measures and the HCAHPS Survey 
for reporting beginning with the FY 2016 program and subsequent years. 
We did not remove or replace any of the previously finalized measures 
from the PCHQR Program for the FY 2016 program and subsequent years. We 
also discussed the collection requirements and submission timeframes 
for these measures in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50850 
through 50853).
    We are not proposing to remove or replace any of the previously 
finalized measures from the PCHQR Program for the FY 2017 program and 
subsequent years.
4. Proposed Update to the Clinical Process/Oncology Care Measures 
Beginning With the FY 2016 Program
    Beginning with the FY 2016 program, we are proposing to update the 
specifications for each of the five clinical process/oncology care 
measures so that for each measure, PCHs must report all-patient data. 
We believe that the delivery of high quality care in the PCH setting is 
critically important and that collecting data on all patients will 
enable us to ensure that high quality care is delivered to Medicare 
beneficiaries in this setting. In addition, all-patient data increases 
transparency in the health care system, aligns with State and federal 
initiatives,\78\ and improves research efforts. Our proposal to require 
PCHs to collect all-patient data provides us with the data to inform 
the public with the most robust and accurate reflection of the quality 
of care and patient outcomes in the PCH setting. In addition, this 
proposal will align the specifications of the clinical process/oncology 
care measures with those of the SCIP PCHQR measures, for which all-
patient data are required for submission.
---------------------------------------------------------------------------

    \78\ All-Payer Claims Database (APCD) Fact Sheet; available at: 
http://www.apcdcouncil.org/issue-briefs-and-fact-sheets.
---------------------------------------------------------------------------

    We welcome public comments on this proposal for the clinical 
process/oncology care measures for the FY 2016 program and subsequent 
years.
5. Proposed New Quality Measure Beginning With the FY 2017 Program
a. Considerations in the Selection of Quality Measures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556) and in the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50837 through 50838), we indicated 
that we have taken a number of principles into consideration when 
developing and selecting measures for the PCHQR Program, and that many 
of these principles are modeled on those we use for measure development 
and selection 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 supports the 
National Quality Strategy (NQS), national priorities, HHS Strategic 
Plans and Initiatives, the CMS Quality Strategy, and strives for burden 
reduction whenever possible. The PCHQR Program also takes into 
consideration the recommendations of the Measure Applications 
Partnership (MAP). The MAP is a multi-stakeholder body convened by the 
NQF for the purpose of providing input to HHS on the selection of 
measures.
b. Proposed New Quality Measure Beginning With the FY 2017 Program
    We are proposing to adopt one new clinical effectiveness measure 
for the FY 2017 program and subsequent years:

[[Page 28255]]

External Beam Radiotherapy for Bone Metastases (NQF 1822). The 
proposed clinical effectiveness measure was included on a publicly 
available document entitled ``List of Measures under Consideration for 
December 1, 2013,'' a list of quality and efficiency measures being 
considered for use in various Medicare programs. The proposed measure 
was submitted to the MAP Hospital Workgroup for review. The MAP 
supported the inclusion of this measure in the PCHQR Program. The MAP's 
conclusions can be found in the ``MAP Pre-Rulemaking Report: 2014 
Recommendations on Measures Under Consideration by HHS,'' which is 
available at: https://www.qualityforum.org/Publications/2014/01/MAP_Pre-Rulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Federal_Programs.aspx. We considered the MAP's input 
and recommendations for this proposed measure for the PCHQR Program, 
and specifically, we note that the proposed measure addresses the MAP 
priority of palliative care for cancer patients. In addition, the 
proposed measure addresses the NQS domain of effective clinical care.
    We believe that this NQF-endorsed measure developed by the American 
Society for Radiation Oncology (ASTRO) meets the requirement under 
section 1866(k)(3)(A) of the Act that measures specified for the PCHQR 
generally be endorsed by the entity with a contract under section 
1890(a) of the Act (currently the NQF). This measure assesses the 
percentage of patients (both Medicare and non-Medicare) with painful 
bone metastases and no history of previous radiation who receive EBRT 
with an acceptable dosing schedule. The measure numerator includes all 
patients with painful bone metastases, and no previous radiation to the 
same site, who receive EBRT with any of the following recommended 
fractionation schemes: 30Gy/10fxns, 24Gy/6fxns, 20Gy/5fxns, or 8Gy/
1fxn. The measure denominator includes all patients with painful bones 
metastases and no previous radiation to the same site, who receive 
EBRT. The following patients are excluded from the denominator: 
Patients who have had previous radiation to the same site; patients 
with femoral axis cortical involvement greater than 3 cm in length; 
patients who have undergone a surgical stabilization procedure; and 
patients with spinal cord compression, cauda equina compression, or 
radicular pain. For the reasons explained more fully below, we believe 
that this measure will reduce the rate of EBRT services overuse, 
support our commitment to promoting patient safety, and support the NQS 
domains.
    Bone metastases are a common manifestation of malignancy. Some 
cancer types have a bone metastasis prevalence as high as 70 to 95 
percent.\79\ EBRT can provide significant pain relief in 50 to 80 
percent of patients with painful bone metastases.
---------------------------------------------------------------------------

    \79\ Coleman RE. Metastatic bone disease: Clinical features, 
pathophysiology and treatment strategies. Cancer Treat Rev. 
2001;27:165-176.
---------------------------------------------------------------------------

    In October 2009, ASTRO organized a Task Force to perform an 
assessment of existing recommendations in order to address a lack of 
palliative radiotherapy guidelines. Based on a review of the 
literature, the Task Force recommended the following EBRT dosing 
schedules for patients with previously un-irradiated painful bone 
metastases: 30 Gy over the course of 10 fractions, 24 Gy over the 
course of 6 fractions, 20 Gy over the course of 5 fractions, and a 
single 8 Gy fraction.\80\ Despite the recommendations, the actual doses 
applied for EBRT continue to include dosing schedules as high as 25 
fractions.\81\ Other studies support the conclusion that shorter EBRT 
schedules produce similar pain relief outcomes when compared to longer 
EBRT schedules, and that patients prefer shorter EBRT schedules because 
of their convenience, increased tolerability, and reduced side 
effects.\82\
---------------------------------------------------------------------------

    \80\ Lutz S, Berk L, Chang E, et al. Palliative radiotherapy for 
bone metastases: An ASTRO evidence-based guideline. Int J Radiat 
Oncol Biol Phys. 2011;79(4):965-976.
    \81\ Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=70374.
    \82\ Lutz S, Berk L, Chang E, et al. Palliative radiotherapy for 
bone metastases: An ASTRO evidence-based guideline. Int J Radiat 
Oncol Biol Phys. 2011;79(4):965-976.
---------------------------------------------------------------------------

    In addition, the ASTRO Task Force found that the frequency and 
severity of side effects associated with a single fraction were the 
same or less than those associated with multiple fraction regimens, 
indicating that shorter treatment schedules may be preferable.\83\ The 
proposed External Beam Radiotherapy for Bone Metastases measure seeks 
to address the performance gap in treatment variation, ensure 
appropriate use of EBRT, and prevent the overuse of radiation therapy. 
We believe that this measure is necessary to support patient 
preferences for shorter EBRT schedules as well as to ensure patient 
safety, given that shorter treatment courses show similar or fewer side 
effects while producing similar clinical outcomes.
---------------------------------------------------------------------------

    \83\ FY 2013 IPPS/LTCH PPS final rule 77 FR 53561 (NQF 
0223, 0559, and 0220).
---------------------------------------------------------------------------

    We believe the proposed measure is applicable to the PCH setting 
because it addresses cancer care associated with radiation therapy. The 
adoption of measures that apply to multiple health care settings is one 
of our objectives in promoting quality care consistently across all 
health care settings. Detailed specifications for this proposed measure 
can be found at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=70374.
    In summary, in addition to the 18 measures that we previously 
finalized for the PCHQR Program, we are proposing one new measure for 
reporting beginning with the FY 2017 program. The proposed policies 
regarding the form, manner, and timing of data collection for this 
measure are discussed in later sections. The table below lists all 
previously adopted measures as well as the proposed new measure for the 
PCHQR Program for the FY 2017 program and subsequent years. We welcome 
public comment on this proposal.

----------------------------------------------------------------------------------------------------------------
                                                 PCHQR program measures for the FY 2017 program and subsequent
                    Topic                                   years (including proposed new measure)
----------------------------------------------------------------------------------------------------------------
                                 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 *.
                                               (NQF 0753) Harmonized Procedure Specific
                                               Surgical Site Infection (SSI) Outcome Measure\*\ (currently
                                               includes SSIs following Colon Surgery and Abdominal Hysterectomy
                                               Surgery).
----------------------------------------------------------------------------------------------------------------
                                   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 *.

[[Page 28256]]

 
                                               (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 *.
----------------------------------------------------------------------------------------------------------------
                                                      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 *.
----------------------------------------------------------------------------------------------------------------
Clinical Effectiveness Measure
----------------------------------------------------------------------------------------------------------------
                                               (NQF 1822) External Beam Radiotherapy for Bone
                                               Metastases **.
----------------------------------------------------------------------------------------------------------------
* Previously finalized measures.
** Proposed for the FY 2017 program and subsequent years in this proposed rule.

6. Possible New Quality Measure Topics for Future Years
    We seek to develop a comprehensive set of quality measures for 
widespread use for informed decision-making and quality improvement in 
the PCH setting. Therefore, in future rulemaking, we intend to propose 
to adopt new or updated measures, such as measures that assess the 
safety and efficiency of the diagnosis and treatment of cancer, 
measures that take into account novel diagnostic and treatment 
modalities, measures that assess symptoms and functional status, and 
measures of appropriate disease management. Additional measure topics 
to be considered include patient centered care planning and care 
coordination, shared decision making, measures of quality of life 
outcomes, and measures of admissions for complications of cancer and 
treatment for cancer. We believe that such measures will 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 quality of care information.
    We welcome public comment and specific suggestions for measure 
topics for the following measure domains: outcomes, quality of life, 
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 NQS, and we believe 
that selecting measures to address these domains will promote better 
cancer care while aligning the PCHQR Program with other established 
quality reporting and pay for performance programs such as the Hospital 
IQR Program, the Hospital OQR Program and the Hospital VBP Program.
    Generally, we retain measures from the previous years' PCHQR 
Program measure sets for subsequent years. However, in future years we 
will consider developing criteria to determine whether or not to remove 
or replace measures from the PCHQR Program measure set. In developing 
removal criteria, we will consider those criteria used by other CMS 
quality reporting programs in order to align the PCHQR Program with 
those programs.
    We welcome public comments on the criteria for removal or 
replacement of measures from the PCHQR Program.
    In an effort to reduce the reporting burden for PCHs, in future 
years, we will consider proposing to require PCHs to report 
electronically specified clinical quality measures for the PCHQR 
Program. We believe that the collection and reporting of data through 
health information technology would greatly simplify and streamline 
reporting for many CMS quality reporting programs, including the PCHQR 
Program. Through electronic reporting, PCHs would 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 
PCHQR Program. In developing future proposals for electronic clinical 
quality measures adoption, we will consider the need to align and 
harmonize measures across various quality reporting programs to 
minimize the reporting burden imposed on PCHs.
    We welcome public comments on the development of electronic 
clinical quality measure reporting criteria for future years.
7. Maintenance of Technical Specifications for Quality Measures
    We maintain technical specifications for the PCHQR Program 
measures, and we periodically update those specifications. The 
specifications can be found on the QualityNet Web site at: https://qualitynet.org/dcs/ContentServer?cid=1228772356060&pagename=QnetPublic%2FPage%2FQnetTier2&c=Page.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53504 through 
53505), we finalized a policy under which we use

[[Page 28257]]

a subregulatory process to make nonsubstantive updates to measures used 
for the Hospital IQR Program. We also adopted this process for all 
measures adopted for the PCHQR Program. With respect to what 
constitutes substantive versus non-substantive changes, we expect to 
make this determination on a case-by-case basis. 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. We believe that 
nonsubstantive changes may include updates to measures based upon 
changes to guidelines upon which the measures are based.
    We will continue to use rulemaking to adopt substantive updates to 
the measures we have adopted for the PCHQR 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 also note 
that to the extent a PCHQR measure is endorsed by the NQF, the NQF 
measure maintenance process incorporates an opportunity for public 
comment and engagement.
    We believe the endorsement processes, as well as our treatment of 
substantive versus nonsubstantive measure changes, adequately balances 
our need to incorporate updates to PCHQR 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.
8. Public Display Requirements Beginning With the FY 2014 Program
    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 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. Section 1866(k)(4) of 
the Act also provides that the Secretary must 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 53563), 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.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50847 through 
50848), we finalized our proposal to display publicly in 2014 and 
subsequent years 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).
    This year we are proposing to publicly display in 2015 and 
subsequent years the data for the Adjuvant Hormonal Therapy measure 
(NQF 0220).
    We are also proposing to publicly display no later than 2017 and 
for subsequent years the data for the measures listed below:
     NHSN Catheter-Associated Urinary Tract Infections (CAUTI) 
Outcome Measure (NQF 0138); and
     NHSN Central Line-Associated Bloodstream Infection 
(CLABSI) Outcome Measure (NQF 0139).
    At present, all PCHs are reporting CLABSI and CAUTI data to the 
NHSN under the PCHQR Program. However, due to the low volume of data 
produced and reported by the small number of facilities (in fewer than 
2 years), the CDC is unable to calculate reasonable and reliable 
baseline estimates, or expected rates, which are needed for the purpose 
of calculating these measure rates. Therefore, we estimate that the 
first public posting of the CLABSI and CAUTI PCHQR Program data 
reported to the NHSN from the PCHs will be no later than 2017.
    We invite public comment on these proposals.
9. Form, Manner, and Timing of Data Submission Beginning With the FY 
2017 Program
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.
    Data submission requirements and deadlines for the PCHQR Program 
are generally posted on the QualityNet Web site at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772864228.
b. Proposed Reporting Requirements for the Proposed New Measure: 
External Beam Radiotherapy for Bone Metastases (NQF 1822) 
Beginning With the FY 2017 Program
    We are proposing that PCHs report the proposed External Beam 
Radiotherapy for Bone Metastases (NQF 1822) measure beginning 
with January 1, 2015 discharges and for subsequent years. We are 
proposing that PCHs would report this measure to CMS via a CMS Web-
based Measures Tool on an annual basis (July 1--August 15 of each 
respective year). This approach is consistent with the data submission 
deadlines finalized for the clinical process/oncology care measures (78 
FR 50850 through 50851) and PCHs are already preparing to begin 
submitting PCHQR data using this timeline. We also believe that annual 
data submission of once per year (as opposed to quarterly data 
submission of four times per year) will reduce PCH cost and burden. We 
believe that these proposed dates will provide enough advance notice 
for PCHs to prepare to report the measure.
    We are proposing to collect the EBRT for Bone Metastases measure 
rates for the FY 2017 program and subsequent years using all-patient 
(both Medicare and non-Medicare) data from the four quarters (Q1, Q2, 
Q3, and Q4) of CY 2015, and that PCHs must submit aggregated data for 
the measure for each of these quarters during a data submission window 
that would be open from July 1 through August 15, 2016. For the FY 2017 
program and subsequent years, we refer readers to the reporting periods 
and data submission window outlined in the table below in this section.
    For data collection, we are proposing that PCHs submit aggregate-
level data through the CMS Web-based Measures Tool or submit an 
aggregate data file through a vendor (via QualityNet infrastructure). 
We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50850 
through 50851) for more information on the CMS Web-based aggregated 
data collection tool.

[[Page 28258]]

    We welcome public comment on the proposed reporting periods, data 
submission timeframes, and data collection methods/modes for the 
proposed measure for the FY 2017 program and subsequent years.

    Proposed External Beam Radiotherapy for Bone Metastases (NQF 1822) Measure-Reporting Periods and
                       Submission Timeframes for the FY 2017 Program and Subsequent Years
----------------------------------------------------------------------------------------------------------------
      Program year  (FY)               Reporting periods  (CY)                 Data submission deadlines
----------------------------------------------------------------------------------------------------------------
2017..........................  Q1 2015 discharges (January 1, 2015-  July 1, 2016-August 15, 2016.
                                 March 31, 2015).
                                Q2 2015 discharges (April 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 (January 1, 2016-  July 1, 2017-August 15, 2017.
                                 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)
Subsequent Years..............  Q1 discharges (January 1-March 31 of  July 1-August 15 of each year before the
                                 each year 2 years before the          program year.
                                 program year).
                                Q2 discharges (April 1-June 30 of
                                 each year 2 years before the
                                 program year)
                                Q3 discharges (July 1-September 30
                                 of each year 2 years before the
                                 program year)
                                Q4 discharges (October 1-December 31
                                 of each year 2 years before the
                                 program year)
----------------------------------------------------------------------------------------------------------------

c. Proposed Reporting Options for the Clinical Process/Cancer Specific 
Treatment Measures Beginning with the FY 2015 Program and the SCIP and 
Clinical Process/Oncology Care Measures Beginning With the FY 2016 
Program
    We are proposing to modify the data submission requirements for the 
three clinical process/cancer specific treatment measures \84\ that we 
adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53564), and the 
six SCIP measures and five clinical process/oncology care measures that 
we adopted in the FY 2014 IPPS/LTCH final rule (78 FR 50846). Under 
those requirements, PCHs submit aggregate-level clinical process/cancer 
specific treatment measure data to a CMS contractor, aggregate-level 
clinical process/oncology care measure data through the CMS Web-based 
Measures Tool, and patient-level SCIP measure data through the 
QualityNet infrastructure. We are now proposing to allow PCHs to report 
the clinical process/cancer specific treatment, SCIP, and clinical 
process/oncology care data to CMS using one of two mechanisms. Under 
the first option, which is newly proposed for the SCIP and clinical 
process/oncology care measure sets, PCHs or their authorized vendors 
can enter aggregate numerator and denominator data into a CMS Web page 
located on the secure part of the CMS QualityNet infrastructure. Under 
the second option, which is newly proposed for the clinical process/
cancer specific treatment, SCIP, and clinical process/oncology care 
measures, PCHs or their authorized vendors can submit an aggregate data 
file through a CMS secure QualityNet file exchange process. We are 
proposing these options in order to decrease the reporting burden for 
PCHs.
---------------------------------------------------------------------------

    \84\ FY 2013 IPPS/LTCH PPS final rule; 77 FR 53561 (NQF 
0223, 0559, and 0220).
---------------------------------------------------------------------------

    We believe that the newly proposed submission option, which is 
further described below for the SCIP measures, will result in a 
considerable burden reduction for PCHs, as it includes once annually, 
rather than once quarterly, submission deadlines and submission of 
aggregate data as opposed to patient level data for the SCIP measures. 
We are proposing this update to the SCIP measures submission 
requirements in anticipation of a possible change to the Hospital IQR 
Program IT infrastructure to discontinue patient level SCIP data 
collection. This IT infrastructure change is due to the proposed 
removal of SCIP measures from the Hospital IQR Program, which we are 
proposing in section IX.A.2.b. of the preamble of this proposed rule. 
We believe that providing PCHs with a choice regarding how they submit 
data on these measures will result in a considerable burden reduction 
for PCHs because under both options, PCHs will be able to submit the 
data once annually and in an aggregate form.
    We are proposing that PCHs submit an annual data file stratified by 
four quarters for each of the SCIP measures. We believe that this 
proposal provides the public with sufficiently reliable quality measure 
information while reducing PCH burden through providing two data 
collection options. We will provide detailed technical file format 
specifications on the public QualityNet Web site (www.qualitynet.org) 
following publication of this year's final rule. The newly proposed 
submission deadlines for the SCIP measures are outlined in the table 
below.
    These proposed requirements would replace, for the purposes of the 
PCHQR Program, the update to the SCIP timeline and IT infrastructure 
that we finalized for the PCHQR Program in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50851 through 50852).

Proposed Update to the Six SCIP Measures-Reporting Periods and Submission Timeframes for the FY 2016 Program and
                                                Subsequent Years
----------------------------------------------------------------------------------------------------------------
       Program year (FY)               Reporting periods (CY)                  Data submission deadlines
----------------------------------------------------------------------------------------------------------------
2016..........................  Q1 2015 discharges (January 1, 2015-  July 1, 2015-August 15, 2015.
                                 March 31, 2015).
2017..........................  Q2 2015 discharges (April 1, 2015-    July 1, 2016-August 15, 2016.
                                 June 30, 2015).

[[Page 28259]]

 
                                Q3 2015 discharges (July 1, 2015-
                                 September 30, 2015)
                                Q4 2015 discharges (October 1, 2015-
                                 December 31, 2015)
Subsequent Years..............  Q1 discharges (January 1-March 31 of  July 1-August 15 of each year before the
                                 each year two years before the        program year.
                                 program year).
                                Q2 discharges (April 1-June 30 of
                                 each year two years before the
                                 program year)
                                Q3 discharges (July 1-September 30
                                 of each year two years before the
                                 program year)
                                Q4 discharges (October 1-December 31
                                 of each year two years before the
                                 program year)
----------------------------------------------------------------------------------------------------------------

    We invite public comment on the proposed new reporting mechanism 
that would apply to the three clinical process/cancer specific 
treatment measures, five clinical process/oncology care treatment 
measures, and six SCIP measures.
    We are not proposing any changes to the previously finalized 
procedural requirements, Notice of Participation (NOP) requirements, or 
Data Accuracy and Completeness Acknowledgement (DACA) requirements. We 
refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53563 
through 53567) for more information on these requirements.
d. Proposed New Sampling Methodology for the Clinical Process/Oncology 
Care Measures Beginning With the FY 2016 Program
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50842), we adopted a 
policy under which PCHs could report the five clinical process/oncology 
care measures finalized for the FY 2016 program and subsequent years 
using the same sampling methodology that we allow for the reporting of 
those measures under the PQRS. We are proposing to replace the 
previously adopted sampling methodology with a sampling methodology 
similar to the one we have allowed hospitals to use to report the SCIP 
measures under the Hospital IQR Program. The sampling methodology 
specified in the PQRS Specifications Manual is specific to the 
physician office setting. We believe that the methodology we are 
proposing in this proposed rule is more applicable to PCHs because it 
was developed for hospital level reporting.
    The proposed methodology will allow for different numbers of cases 
to be reported based on each PCH's cancer patient population size. This 
is necessary for the PCHQR Program because bed size varies among PCHs 
from 20 to >250 beds.\85\ The proposed sampling methodology for the 
clinical process/oncology care measures is shown below, and we believe 
it will decrease the reporting burden on PCHs while producing reliable 
measure rates.
---------------------------------------------------------------------------

    \85\ American Hospital Directory: http://www.ahd.com/freesearch.php.

------------------------------------------------------------------------
    Average quarterly initial
      population size ``N''         Minimum required sample size ``N''
------------------------------------------------------------------------
>125............................  25.
51-125..........................  20 percent of the initial patient
                                   population.
10-50...........................  10.
<10.............................  No sampling; 100 percent of the
                                   initial patient population.
------------------------------------------------------------------------

    We are also proposing that PCHs report population and sample size 
counts (by measure) for Medicare and non-Medicare discharges by quarter 
for the five clinical process/oncology care measures for the FY 2016 
program and subsequent years.
    We are proposing these requirements in order to support our effort 
to align with existing reporting requirements used in other CMS quality 
reporting programs, such as the Hospital IQR Program, which requires 
participating hospitals to submit population and sample size counts for 
certain measures in addition to the all payer data needed to calculate 
measure rates. We view it as vital for PCHs to accurately determine 
their aggregate population and appropriate sample size data in order 
for CMS to assess PCHs' data reporting accuracy and completeness for 
their total population of cases, including both Medicare and non-
Medicare patients.
    We welcome public comments on these proposals for the clinical 
process/oncology care measures for the FY 2016 program and subsequent 
years.
10. Exceptions From Program Requirements
    In our experience with other quality reporting and 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 final rule (78 FR 50848), we finalized our 
policy that, for the FY 2014 program and subsequent years, PCHs may 
request and we may grant exceptions (formerly referred to as waivers) 
with respect to the reporting of required quality data when 
extraordinary circumstances beyond the control of the PCH warrant. When 
exceptions are granted, we will notify the respective PCH. We are in 
the process of revising the Extraordinary Circumstances/Disaster 
Extension or Waiver Request form (CMS-10432), approved under OMB 
control number 0938-1171.
    We are not proposing any substantive changes to this PCHQR 
exception process.

C. 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. Under 
section 1886(m)(5)(A)(i) of the Act, for the rate year 2014 and each 
subsequent rate year, 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 (which we also 
refer to as a ``payment determination'') to a standard Federal rate for 
discharges for the hospital during the rate year, and after

[[Page 28260]]

application of section 1886(m)(3) of the Act, shall be reduced by two 
percentage points. As we discussed in the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51743 through 51744), for the purposes of the LTCH PPS, the 
term ``rate year'' and the term ``fiscal year'' both refer to the time 
period beginning October 1 and ending September 30. In order to 
eliminate any possible confusion, we will use the term ``fiscal year'' 
rather than ``rate year'' in our discussion of the LTCHQR Program.
    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 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 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 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, including 
public reporting of quality information, advance 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 is a 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), the HHS Strategic Plan (http://www.hhs.gov/secretary/about/priorities/priorities.html), the National 
Quality Strategy (NQS) (http://www.ahrq.gov/workingforquality/nqs/nqs2011annlrpt.htm), and the CMS Quality Strategy (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html).
    We also must consider input from the NQF MAP when selecting 
measures under the LTCHQR Program. The MAP is composed of multi-
stakeholder groups convened by the NQF, our current contractor under 
section 1890 of the Act. 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 MAP met in December 2013 and January 2014 and 
provided input to CMS as required under section 1890A(a)(3) of the Act. 
This input appears in the MAP's January 2014 Pre-Rulemaking Report 
available for download at: http://www.qualityforum.org/Publications/2014/01/MAP_Pre-Rulemaking_Report__2014_Recommendations_on_Measures_for_More_than_20_Federal_Programs.aspx. Measures 
proposed for the LTCHQR Program in this proposed rule are measures CMS 
included under the List of Measures under Consideration (MUC List) for 
December 1, 2013,\86\ a list that the Secretary must make available to 
the public by December 1 of each year, as part of the pre-rulemaking 
process, as described in section 1890A(a)(2) of the Act. The measures 
we are proposing in this rule for the LTCHQR Program are discussed in 
the MAP Pre-Rulemaking Report (pp. 192-193). The MAP reviewed each 
measure proposed in this rule. We refer readers to the following 
sections of the preamble of this proposed rule for more information on 
the MAP's recommendations: IX.C.7.a.(1), Functional Status Quality 
Measure: Percent of Long-Term Care Hospital Patients with an Admission 
and Discharge Functional Assessment and a Care Plan That Addresses 
Function; IX.C.7.a.(2), Functional Status Quality Measure: Functional 
Outcome Measure: Change in Mobility among Long-Term Care Hospital 
Patients Requiring Ventilator Support; and IX.C.7.b., Proposed Quality 
Measure: National Healthcare Safety Network (NHSN) Ventilator-
Associated Event (VAE) Outcome Measure.
---------------------------------------------------------------------------

    \86\ Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=74245.
---------------------------------------------------------------------------

    After due consideration to any measures that may have been endorsed 
or adopted by a consensus organization, including the NQF, for the LTCH 
setting, we are proposing measures that are either fully supported by 
the MAP for the LTCHQR Program, or that we believe most closely align 
with the national priorities discussed in this section of the proposed 
rule. In the absence of the MAP's full support, in some cases we are 
proposing measures for which there is MAP conditional support and that 
meet the exception criteria in section 1886(m)(5)(D)(ii) of the Act. 
Further discussion of why each proposed measure is a high priority in 
the LTCH setting is included below.
3. Policy for Retention of LTCHQR Program Measures Adopted for Previous 
Payment Determinations
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53614 through 
53615), for the LTCHQR Program, we adopted a policy that once a quality 
measure is adopted, it will be 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 the FY 2013 
IPPS/LTCH PPS final rule.
    We are not proposing any changes to this policy for retaining 
LTCHQR Program measures adopted for previous payment determinations.
4. Policy for Adopting Changes to LTCHQR Program Measures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 
53616), we adopted 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. With respect to

[[Page 28261]]

what constitutes a substantive versus a nonsubstantive change, we 
expect to make this determination on a measure-by-measure basis. 
Examples of such nonsubstantive changes might include updated diagnosis 
or procedure codes, medication updates for categories of medications, 
broadening of age ranges, and changes to exclusions for a measure. The 
subregulatory process for nonsubstantive changes will include revision 
of the LTCHQR Program Manual and posting of updates on our Web site at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html. 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, such as changes in acceptable timing of medication, 
procedure/process, test administration, or expansion of the measure to 
a new setting.
    We are not proposing any changes to this policy for adopting 
changes to LTCHQR Program measures.
5. Previously Adopted Quality Measures
a. Previously Adopted Quality Measures for the FY 2015 and FY 2016 
Payment Determinations and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 
53636), we retained the application of Percent of Residents with 
Pressure Ulcers That are New or Worsened (Short-Stay) (NQF 
0678) to the LTCH setting (initially adopted in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51745 through 51750)) for the FY 2015 
payment determination and subsequent years, and adopted updated 
versions of National Health Safety Network (NHSN) Catheter-Associated 
Urinary Tract Infection (CAUTI) Outcome Measure (NQF 0138) and 
NHSN Central Line-Associated Blood Stream Infection (CLABSI) Outcome 
Measure (NQF 0139), for the FY 2014 payment determination and 
subsequent years. We also adopted two new quality measures for the 
LTCHQR Program for the FY 2016 payment determination and subsequent 
years, in addition to the three previously adopted measures (the CAUTI 
measure, CLABSI measure, and Pressure Ulcer measure): (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) (77 FR 53624 through 53636).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50861 through 
50863), we adopted the NQF-endorsed version of the Pressure Ulcer 
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 2015 payment determination and subsequent years.
    Set out below are the quality measures, both previously adopted 
measures retained in the LTCHQR Program and measures adopted in FY 2013 
and FY 2014 IPPS/LTCH PPS final rules, for the FY 2015 and FY 2016 
payment determinations and subsequent years.

 LTCHQR Program Quality Measures Adopted for the FY 2015 and FY 2016 Payment Determinations and Subsequent Years
----------------------------------------------------------------------------------------------------------------
            NQF Measure ID                               Measure title                    Payment determination
----------------------------------------------------------------------------------------------------------------
NQF 0138....................  National Health Safety Network (NHSN) Catheter-   FY 2015 and Subsequent
                                        Associated Urinary Tract Infection (CAUTI)        FYs.
                                        Outcome Measure*.
NQF 0139....................  National Health Safety Network (NHSN) Central     FY 2015 and Subsequent
                                        Line-Associated Blood Stream Infection (CLABSI)   FYs.
                                        Outcome Measure*.
NQF 0678....................  Percent of Residents or Patients with Pressure    FY 2015 and Subsequent
                                        Ulcers That Are New or Worsened (Short-Stay)*.    FYs.
NQF 0680....................  Percent of Residents or Patients Who Were         FY 2016 and Subsequent
                                        Assessed and Appropriately Given the Seasonal     FYs.
                                        Influenza Vaccine (Short-Stay)**.
NQF 0431....................  Influenza Vaccination Coverage among Healthcare   FY 2016 and Subsequent
                                        Personnel**.                                      FYs.
----------------------------------------------------------------------------------------------------------------

b. Previously Adopted Quality Measures for the FY 2017 and FY 2018 
Payment Determinations and Subsequent Years
    In the FY 2014 IPPS/LTCH PPS final rule, we adopted three 
additional measures for the FY 2017 payment determination and 
subsequent years (78 FR 50863 through 50874) and one additional measure 
for the FY 2018 payment determination and subsequent years (78 FR 50874 
through 50877). These measures are set out in the table below.

    LTCHQR Program Quality Measures Previously Adopted for the FY 2017 and FY 2018 Payment Determinations and
                                                Subsequent Years
----------------------------------------------------------------------------------------------------------------
            NQF Measure ID                               Measure title                    Payment determination
----------------------------------------------------------------------------------------------------------------
NQF 1716....................  National Healthcare Safety Network (NHSN)         FY 2017 and Subsequent
                                        Facility-Wide Inpatient Hospital-Onset            Years.
                                        Methicillin-Resistant Staphylococcus aureus
                                        (MRSA) Bacteremia Outcome Measure.
NQF 1717....................  National Healthcare Safety Network (NHSN)         FY 2017 and Subsequent
                                        Facility-Wide Inpatient Hospital-Onset            Years.
                                        Clostridium difficile Infection (CDI) Outcome
                                        Measure.
NQF Review Pending (NQF 2512).                               Days Post[dash]Discharge from Long-Term Care      Years.
                                        Hospitals.
Application of NQF 0674.....  Percent of Residents Experiencing One or More     FY 2017 and Subsequent
                                        Falls with Major Injury (Long-Stay).              Years.
----------------------------------------------------------------------------------------------------------------


[[Page 28262]]

6. Proposed Revisions to Data Collection Timelines and Submission 
Deadlines for Previously Adopted Quality Measures
    We are proposing, for the FY 2016 payment determination and 
subsequent years, to revise data collection timelines and submission 
deadlines for a measure that we previously adopted for the LTCHQR 
Program: Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF 
0680). We are also reproposing, for the FY 2018 payment 
determination only, revised data collection timelines and submission 
deadlines for the Application of Percent of Residents Experiencing One 
or More Falls with Major Injury (Long-Stay) (Application of NQF 
0674) measure. For all subsequent years (FY 2019 and beyond), 
data collection for this measure would begin on January 1 and continue 
through December 31.
a. Proposed Revisions to Data Collection Timelines and Submission 
Deadlines for Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF 
0680)
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50858 through 
50861), we revised 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 
and subsequent years. Specifically, we finalized that for the FY 2016 
payment determination, LTCHs must collect data for any patient admitted 
or discharged during the influenza vaccination season, from October 1, 
2014, through April 30, 2015, and submit data for these patients by May 
15, 2015.
    We are seeking to better align the data collection timelines and 
submission deadlines of the Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short 
Stay) (NQF 0680) measure with the data collection timelines 
and submission deadlines of the Percent of Residents or Patients with 
Pressure Ulcers That Are New or Worsened (Short Stay) (NQF 
0678) measure because both measures are reported using the 
same data collection instrument, the LTCH Continuity Assessment Record 
and Evaluation (CARE) Data Set. Therefore, for the FY 2016 payment 
determination and subsequent years, we are proposing to revise the data 
collection timelines and submission deadlines for the Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short Stay) (NQF 0680) measure. 
Specifically, we are proposing that the first data collection timeline 
would take place during the fourth quarter of the CY preceding the 
applicable FY (for example, October 2014 through December 2014 for the 
FY 2016 payment determination), with data submission by February 15, 
2015 and the second data collection timeline would take place during 
the first quarter of the CY preceding the applicable FY (for example, 
January 2015 through March 2015 for the FY 2016 payment determination), 
with data submission by May 15, 2015. The proposed changes are 
illustrated below for the FY 2016 and FY 2017 payment determinations 
only, but similar collection timelines and submission deadlines would 
also apply to subsequent years. By taking into account the influenza 
vaccination season, these proposed changes would align data collection 
and submission for this measure (NQF 0680) with the rest of 
the LTCH CARE Data Set.

 Proposed Data Collection Timelines and Submission Deadlines for LTCHQR Program Quality Data for the FY 2016 and
 FY 2017 Payment Determinations: Percent of Residents or Patients Who Were Assessed and Appropriately Given the
                           Seasonal Influenza Vaccine (Short-Stay) (NQF 0680)
----------------------------------------------------------------------------------------------------------------
        Data collection timelines              Submission deadlines               Payment  determination
----------------------------------------------------------------------------------------------------------------
October 1, 2014-December 31, 2014........  February 15, 2015...........  FY 2016.
January 1, 2015-March 31, 2015...........  May 15, 2015.
October 1, 2015-December 31, 2015........  February 15, 2016...........  FY 2017.
January 1, 2016-March 31, 2016...........  May 15, 2016.
----------------------------------------------------------------------------------------------------------------

    We note that these proposed changes would only apply 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 would not be applicable to any other LTCHQR Program 
measures, proposed or adopted, unless explicitly stated.
    We invite public comments on our proposal to revise the data 
collection timelines and submission deadlines for this patient 
influenza vaccination measure (NQF 0680) for the FY 2016 
payment determination and subsequent years.
b. Proposed Revisions to Data Collection Timelines and Submission 
Deadlines for the Application of Percent of Residents Experiencing One 
or More Falls With Major Injury (Long-Stay) (NQF 0674)
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50874 through 
50877), we adopted this measure for the FY 2018 payment determination. 
We further finalized that LTCHs should begin to collect and submit data 
on this measure using the LTCH CARE Data Set starting January 1, 2016.
    To ensure the successful implementation of new and updated versions 
of LTCH CARE Data Set, we will be following an implementation cycle 
beginning April 1, 2016, which will allow for a predictable future 
release schedule. We believe that adherence to a predictable future 
release schedule that takes into account both the changes that must be 
made to the LTCH CARE Data Set, as well as requirements that are 
managed by LTCHs for such changes, will help ensure successful 
implementation. Therefore, we will be adhering to a date of April 1 of 
any given year, when releasing future iterations of the LTCH CARE Data 
Set. This change will effectively delay the implementation of the 
January 1, 2016, release by three months, allowing LTCHs additional 
time to become familiar with and to participate in trainings related to 
the revised LTCH CARE Data Set, as well as time to incorporate given 
changes into their existing IT infrastructure.
    Therefore, we are proposing that for the FY 2018 payment 
determination, data collection for this measure would begin on April 1, 
2016. For all

[[Page 28263]]

subsequent years, data collection for this measure would begin on 
January 1 and continue through December 31. The proposed changes are 
illustrated below for the FY 2018 and FY 2019 payment determinations.

 Proposed Data Collection Timelines and Submission Deadlines for LTCHQR Program Quality Data for the FY 2018 and
  FY 2019 Payment Determinations: Application of Percent of Residents Experiencing One or More Falls With Major
                                     Injury (Long-Stay) (NQF 0674)
----------------------------------------------------------------------------------------------------------------
        Data collection timelines              Submission deadlines               Payment  determination
----------------------------------------------------------------------------------------------------------------
April 1, 2016-June 30, 2016..............  August 15, 2016.............  FY 2018.
July 1, 2016-September 30, 2016..........  November 15, 2016...........
October 1, 2016-December 31, 2016........  February 15, 2017...........
January 1, 2017-March 31, 2017...........  May 15, 2017................  FY 2019
April 1, 2017-June 30, 2017..............  August 15, 2017.............
July 1, 2017-September 30, 2017..........  November 15, 2017...........
October 1, 2017-December 31, 2017........  February 15, 2018...........
----------------------------------------------------------------------------------------------------------------

    We note that these proposed changes would be applicable only to the 
Application of Percent of Residents Experiencing One or More Falls with 
Major Injury (Long-Stay) (NQF 0674) measure, and not 
applicable to any other LTCHQR Program measures, proposed or adopted, 
unless specifically proposed for such measures.
    We invite public comments on these proposals.
7. Proposed New LTCHQR Program Quality Measures for the FY 2018 Payment 
Determination and Subsequent Years
    We are proposing three new quality measures for the FY 2018 payment 
determination and subsequent years. Two of these are related to 
functional status, and one measure is related to ventilator-associated 
events (VAE). One of the proposed functional status quality measures is 
Percent of Long-Term Care Hospital Patients with an Admission and 
Discharge Functional Assessment and a Care Plan That Addresses 
Function. The second proposed functional status quality measure is 
Functional Outcome Measure: Change in Mobility among Long-Term Care 
Hospital Patients Requiring Ventilator Support. The quality measures 
are described in more detail below.
a. Proposed New LTCHQR Program Functional Status Quality Measures for 
the FY 2018 Payment Determination and Subsequent Years
    Patients in LTCHs present with clinically complex conditions. In 
addition to having complex medical care needs for an extended period of 
time, LTCH patients often have functional limitations due to the nature 
of their conditions, as well as deconditioning due to prolonged bed 
rest and treatment requirements (for example, ventilator use). These 
patients are therefore at high risk for functional decline during the 
LTCH stay that is both condition-related and iatrogenic.
    The National Committee on Vital and Health Statistics, Subcommittee 
on Health,\87\ noted: ``[i]nformation on functional status is becoming 
increasingly essential for fostering healthy people and a healthy 
population. Achieving optimal health and well-being for Americans 
requires an understanding across the life span of the effects of 
people's health conditions on their ability to do basic activities and 
participate in life situations in other words, their functional 
status.''
---------------------------------------------------------------------------

    \87\ Subcommittee on Health National Committee on Vital and 
Health Statistics, ``Classifying and Reporting Functional Status'' 
(2001).
---------------------------------------------------------------------------

    The functional assessment items included in the two functional 
status quality measures were originally developed and tested as part of 
the Post-Acute Care Payment Reform Demonstration version of the CARE 
Item Set, which was designed to standardize assessment of patients' 
status across acute and post-acute settings, including LTCHs, IRFs, 
SNFs, and HHAs. The functional status items on the CARE Item Set are 
daily activities that clinicians typically assess at the time of 
admission and/or discharge in order to determine patients' needs, 
evaluate patient progress and prepare patients and families for a 
transition to home or to another setting.
    The development of the CARE Item Set and a description and 
rationale for each item is described in a report entitled ``The 
Development and Testing of the Continuity Assessment Record and 
Evaluation (CARE) Item Set: Final Report on the Development of the CARE 
Item Set: Volume 1 of 3.'' \88\ Reliability and validity testing were 
conducted as part of CMS' Post-Acute Care Payment Reform Demonstration, 
and we concluded that the functional status items have acceptable 
reliability and validity. A description of the testing methodology and 
results are available in several reports, including the report entitled 
``The Development and Testing of the Continuity Assessment Record And 
Evaluation (CARE) Item Set: Final Report On Reliability Testing: Volume 
2 of 3'' \89\ and the report entitled ``The Development and Testing of 
The Continuity Assessment Record And Evaluation (CARE) Item Set: Final 
Report on Care Item Set and Current Assessment Comparisons: Volume 3 of 
3.'' \90\ The reports are available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/CARE-Item-Set-and-B-CARE.html.
---------------------------------------------------------------------------

    \88\ Barbara Gage et al., ``The Development and Testing of the 
Continuity Assessment Record and Evaluation (CARE) Item Set: Final 
Report on the Development of the CARE Item Set'' (RTI International, 
2012).
    \89\ Ibid.
    \90\ Ibid.
---------------------------------------------------------------------------

(1) Proposed Functional Status Quality Measure: Percent of Long-Term 
Care Hospital Patients With an Admission and Discharge Functional 
Assessment and a Care Plan That Addresses Function
    The first functional status quality measure we are proposing for 
the FY 2018 payment determination and subsequent years is a process 
quality measure entitled Percent of Long-Term Care Hospital Patients 
with an Admission and Discharge Functional Assessment and a Care Plan 
That Addresses Function. This quality measure reports the percent of 
LTCH patients with both an admission and a discharge functional 
assessment and a care plan that addresses function.
    This process measure requires the collection of admission and 
discharge functional status data by trained clinicians using 
standardized clinical assessment items, or data elements, that assess 
specific functional activities (that

[[Page 28264]]

is, self-care, mobility, cognition, communication, and bladder 
continence). The self-care and mobility function items are coded using 
a 6-level rating scale that indicates the patient's level of 
independence with the activity; higher scores indicate more 
independence. The codes for rating the cognition, communication and 
bladder items range from 2 to 7 levels. For this quality measure, 
inclusion of function in the patient's care plan is determined based on 
whether a functional goal is recorded at admission for at least one of 
the standardized self-care or mobility function items using the 6-level 
rating scale.
    An increasing body of reported evidence has supported the safety 
and feasibility of early mobilization and rehabilitation of critically 
ill but stable patients, with minimal adverse events and risk to the 
patient.91 92 93 94 95 96 Early mobility and rehabilitation 
in these settings have been associated with improved patient outcomes. 
Therefore, this quality measure addresses the importance of: (1) 
Conducting a functional assessment at the time of admission addressing 
self-care, mobility, cognition, communication, and bladder continence; 
(2) incorporating the functional assessment findings made at the time 
of admission into the patients' care plan and setting at least one 
discharge self-care or mobility functional status goal; and (3) 
conducting a functional assessment at the time of discharge addressing 
self-care, mobility, cognition, communication, and bladder continence.
---------------------------------------------------------------------------

    \91\ J. Adler and D. Malone, ``Early mobilization in the 
intensive care unit: a systematic review,'' Cardiopulm Phys Ther J 
23, no. 1 (2012).
    \92\ J.P. Kress, ``Clinical trials of early mobilization of 
critically ill patients,'' Crit Care Med 37, no. 10 Suppl (2009).
    \93\ W.D. Schweickert and J.P. Kress, ``Implementing early 
mobilization interventions in mechanically ventilated patients in 
the ICU,'' Chest 140, no. 6 (2011).
    \94\ W.D. Schweickert et al., ``Early physical and occupational 
therapy in mechanically ventilated, critically ill patients: a 
randomised controlled trial,'' Lancet 373, no. 9678 (2009).
    \95\ J.M. Zanni et al., ``Rehabilitation therapy and outcomes in 
acute respiratory failure: an observational pilot project,'' J Crit 
Care 25, no. 2 (2010).
    \96\ A. Drolet et al., ``Move to improve: the feasibility of 
using an early mobility protocol to increase ambulation in the 
intensive and intermediate care settings,'' Phys Ther 93, no. 2 
(2013).
---------------------------------------------------------------------------

    Functional limitations following critical illness are becoming 
increasingly prevalent as a result of improving critical care medicine 
and survival rates.\97\ Short-term and long-term adverse consequences 
among critically ill and chronically, critically ill patients in LTCH 
and Intensive Care Unit (ICU) settings include severe 
weakness,98 99 100 101 muscle atrophy,\102\ connective-
tissue shortening,\103\ loss of bone mass,\104\ increased risk for 
blood clots,\105\ increased risk for pressure ulcers,\106\ 
deconditioning,107 108 deficits in self-care and 
ambulation,\109\ and functional impairment,\110\ fatigue,\111\ as well 
as cognitive impairment, including profound and persistent deficits in 
memory, attention/concentration, and executive 
function,112 113 114 and the inability to return to work one 
year after hospital discharge.115 116 Cognitive impairment 
in survivors of critical illness has been associated with anxiety and 
depression, inability to return to work, and inability of older persons 
to return home.\117\ To mitigate these adverse consequences, 
traditional practices of bed rest and immobility have been challenged 
in recent years, and early mobility and rehabilitation have been 
increasingly recognized as important to improve patients' long-term 
functional outcomes,118 119 120 with recovery of function 
being described as both desirable and possible.\121\ The lack of early 
mobility initiation in ICU settings has also been described as a strong 
predictor of patient outcomes.\122\
---------------------------------------------------------------------------

    \97\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \98\ Ibid.
    \99\ S.L. Dang, ``ABCDEs of ICU: Early mobility,'' Crit Care 
Nurs Q 36, no. 2 (2013).
    \100\ E.H. Skinner et al., ``Development of a physical function 
outcome measure (PFIT) and a pilot exercise training protocol for 
use in intensive care,'' Crit Care Resusc 11, no. 2 (2009).
    \101\ Centre for Clinical Practice at NICE (UK), 
``Rehabilitation after critical illness [Internet].'' National 
Institute for Health and Clinical Excellence (NICE), http://www.nice.org.uk/nicemedia/live/12137/43564/43564.pdf.
    \102\ Zanni et al., ``Rehabilitation therapy and outcomes in 
acute respiratory failure: an observational pilot project.''
    \103\ Ibid.
    \104\ Dang, ``ABCDEs of ICU: Early mobility.''
    \105\ Ibid.
    \106\ Ibid.
    \107\ Schweickert and Kress, ``Implementing early mobilization 
interventions in mechanically ventilated patients in the ICU.''
    \108\ Zanni et al., ``Rehabilitation therapy and outcomes in 
acute respiratory failure: an observational pilot project.''
    \109\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \110\ Skinner et al., ``Development of a physical function 
outcome measure (PFIT) and a pilot exercise training protocol for 
use in intensive care.''
    \111\ Centre for Clinical Practice at NICE (UK), 
``Rehabilitation after critical illness [Internet].''
    \112\ Ibid.
    \113\ M.E. Wilcox et al., ``Cognitive dysfunction in ICU 
patients: risk factors, predictors, and rehabilitation 
interventions,'' Crit Care Med 41, no. 9 Suppl 1 (2013).
    \114\ N.E. Brummel et al., ``A combined early cognitive and 
physical rehabilitation program for people who are critically ill: 
the activity and cognitive therapy in the intensive care unit (ACT-
ICU) trial,'' Phys Ther 92, no. 12 (2012).
    \115\ Dang, ``ABCDEs of ICU: Early mobility.''
    \116\ H.J. Engel et al., ``ICU early mobilization: from 
recommendation to implementation at three medical centers,'' Crit 
Care Med 41, no. 9 Suppl 1 (2013).
    \117\ Wilcox et al., ``Cognitive dysfunction in ICU patients: 
risk factors, predictors, and rehabilitation interventions.''
    \118\ Drolet et al., ``Move to improve: the feasibility of using 
an early mobility protocol to increase ambulation in the intensive 
and intermediate care settings.''
    \119\ Dang, ``ABCDEs of ICU: Early mobility.''
    \120\ Z. Li et al., ``Active mobilization for mechanically 
ventilated patients: a systematic review,'' Arch Phys Med Rehabil 
94, no. 3 (2013).
    \121\ C.L. Rochester, ``Rehabilitation in the intensive care 
unit,'' Semin Respir Crit Care Med 30, no. 6 (2009).
    \122\ Dang, ``ABCDEs of ICU: Early mobility.''
---------------------------------------------------------------------------

    The clinical practice guideline Rehabilitation after Critical 
Illness \123\ from the National Institute for Health and Clinical 
Excellence (NICE) recommends performing clinical assessment to 
determine the patient's risk of developing physical and nonphysical 
morbidity during the critical care stay as early as clinically 
possible, identifying current rehabilitation needs for patients at risk 
of morbidity, establishing short-term and medium-term rehabilitation 
goals based on the clinical assessment, starting an individualized 
structured rehabilitation program as early as possible, and performing 
clinical reassessment before discharge.
---------------------------------------------------------------------------

    \123\ Centre for Clinical Practice at NICE (UK), 
``Rehabilitation after critical illness [Internet].''
---------------------------------------------------------------------------

    The importance of standardized functional assessment in LTCH 
settings is also supported by the high prevalence of therapy services 
provided in this setting, as well as the need for care coordination for 
patients returning home and receiving follow-up care in the community 
and patients receiving additional institutional healthcare services 
after discharge from an LTCH. A study \124\ of 1,419 ventilator-
dependent patients from 23 LTCHs reported that physical, occupational, 
and speech therapy were the most commonly provided services among a 
comprehensive list of 34 procedures, services, and treatments provided 
during the LTCH stay. The high frequency of physical (84.8 percent), 
occupational (81.5 percent), and speech (79.7 percent) therapy reflects 
use of the rehabilitative model of care adopted by many post-ICU 
ventilator weaning programs, which is important in restoration of 
function. This high utilization of therapy services supports the need 
for standardized functional

[[Page 28265]]

assessment at admission to document functional status, identify the 
need for therapy, set functional status goals and assist with discharge 
planning and care coordination.
---------------------------------------------------------------------------

    \124\ D.J. Scheinhorn et al., ``Post-ICU mechanical ventilation 
at 23 long-term care hospitals: a multicenter outcomes study,'' 
Chest 131, no. 1 (2007).
---------------------------------------------------------------------------

    Whether an LTCH patient is discharged home or to another care 
setting for continuing health care, functional status is an important 
aspect of a person's health status to document at the time of 
transition. The study \125\ also reported that 28.8 percent of patients 
were discharged directly home or to assisted living, further supporting 
the importance of functional assessment and early rehabilitation to 
facilitate discharge planning and home discharge, when possible.
---------------------------------------------------------------------------

    \125\ Ibid.
---------------------------------------------------------------------------

    Reported benefits of early mobility and rehabilitation include: (1) 
Improved strength 126 127 128 and functional status; 
129 130 131 (2) earlier achievement of mobilization 
milestones, such as out-of-bed mobilization; 132 133 (3) 
improvement in mobility and self-care function scores from admission to 
discharge; 134 135 (4) greater incidence of return to 
functional baseline in mobility and self-care, greater unassisted 
walking and walking distances, and improved self-reported physical 
function scores at hospital discharge compared with persons not 
participating in early mobility and rehabilitation; \136\ (5) enhanced 
recovery of functional exercise capacity; \137\ (6) improved self-
perceived functional status; \138\ and (7) reduced physiological and 
cognitive complications \139\ and improved cognitive function.\140\ 
Early mobility and rehabilitation have also been associated with 
reduced ICU and hospital length of stay; 
141 142 143 144 145 146 reduced incidence of delirium and 
improved patient awareness; 147 148 increased ventilator-
free days and improved weaning outcomes; 149 150 151 greater 
incidence of discharge home directly after hospitalization compared 
with patients not receiving early mobilization; 152 153 and 
reduced hospital readmission or death in the year following 
hospitalization.154 155
---------------------------------------------------------------------------

    \126\ Schweickert and Kress, ``Implementing early mobilization 
interventions in mechanically ventilated patients in the ICU.''
    \127\ Dang, ``ABCDEs of ICU: Early mobility.''
    \128\ Li et al., ``Active mobilization for mechanically 
ventilated patients: a systematic review.''
    \129\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \130\ Schweickert et al., ``Early physical and occupational 
therapy in mechanically ventilated, critically ill patients: a 
randomised controlled trial.''
    \131\ Li et al., ``Active mobilization for mechanically 
ventilated patients: a systematic review.''
    \132\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \133\ P.E. Morris, ``Moving our critically ill patients: 
Mobility barriers and benefits,'' Crit Care Clin 23, no. 1 (2007).
    \134\ Li et al., ``Active mobilization for mechanically 
ventilated patients: a systematic review.''
    \135\ Scheinhorn et al., ``Post-ICU mechanical ventilation at 23 
long-term care hospitals: a multicenter outcomes study.''
    \136\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \137\ Dang, ``ABCDEs of ICU: Early mobility.''
    \138\ Ibid.
    \139\ Ibid.
    \140\ Li et al., ``Active mobilization for mechanically 
ventilated patients: a systematic review.''
    \141\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \142\ Kress, ``Clinical trials of early mobilization of 
critically ill patients.''
    \143\ Schweickert et al., ``Early physical and occupational 
therapy in mechanically ventilated, critically ill patients: a 
randomised controlled trial.''
    \144\ Dang, ``ABCDEs of ICU: Early mobility.''
    \145\ Engel et al., ``ICU early mobilization: From 
recommendation to implementation at three medical centers.''
    \146\ Li et al., ``Active mobilization for mechanically 
ventilated patients: a systematic review.''
    \147\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \148\ Schweickert et al., ``Early physical and occupational 
therapy in mechanically ventilated, critically ill patients: a 
randomised controlled trial.''
    \149\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \150\ Dang, ``ABCDEs of ICU: Early mobility.''
    \151\ Li et al., ``Active mobilization for mechanically 
ventilated patients: a systematic review.''
    \152\ Schweickert et al., ``Early physical and occupational 
therapy in mechanically ventilated, critically ill patients: a 
randomised controlled trial.''
    \153\ Engel et al., ``ICU early mobilization: From 
recommendation to implementation at three medical centers.''
    \154\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \155\ Li et al., ``Active mobilization for mechanically 
ventilated patients: a systematic review.''
---------------------------------------------------------------------------

    Short-term and long-term cognitive impairment are very frequent 
complications of critical illness, and negatively influence survivors' 
abilities to function independently.156 157 158 Delirium 
during hospitalization is highly prevalent in critically ill patients 
and has been associated with longer lengths of stay, increased duration 
of mechanical ventilation, and higher risk of death.\159\ A longer 
duration of delirium has been associated with worse short- and long-
term cognition and executive function.160 161 Given these 
adverse consequences, the importance of early assessment of cognitive 
function, including possible delirium, and early initiation of 
cognitive rehabilitation in critical care settings, is being 
increasingly recognized.162 163 Also, given the positive 
effects of physical exercise on cognitive function in other 
populations, the potential positive influence of exercise on cognitive 
function in the critically ill population is being examined by 
researchers.
---------------------------------------------------------------------------

    \156\ Wilcox et al., ``Cognitive dysfunction in ICU patients: 
Risk factors, predictors, and rehabilitation interventions.''
    \157\ Brummel et al., ``A combined early cognitive and physical 
rehabilitation program for people who are critically ill: The 
activity and cognitive therapy in the intensive care unit (ACT-ICU) 
trial.''
    \158\ P.P. Pandharipande, T.D. Girard, and E.W. Ely, ``Long-term 
cognitive impairment after critical illness,'' N Engl J Med 370, no. 
2 (2014).
    \159\ Wilcox et al., ``Cognitive dysfunction in ICU patients: 
Risk factors, predictors, and rehabilitation interventions.''
    \160\ Ibid.
    \161\ Pandharipande, Girard, and Ely, ``Long-term cognitive 
impairment after critical illness.''
    \162\ Brummel et al., ``A combined early cognitive and physical 
rehabilitation program for people who are critically ill: The 
activity and cognitive therapy in the intensive care unit (ACT-ICU) 
trial.''
    \163\ R.S. Miller et al., ``Outcomes of trauma patients who 
survive prolonged lengths of stay in the intensive care unit,'' J 
Trauma 48, no. 2 (2000).
---------------------------------------------------------------------------

    A technical expert panel convened by our measure development 
contractor provided input on the technical specifications of this 
quality measure, including the items included in the quality measure, 
inclusion and exclusion criteria and risk adjustors. We also solicited 
public comment on the draft specifications of this quality measure on 
the CMS Quality Measures Public Comment Page (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html) between February 21 and March 14 2014, and 
received 22 responses from stakeholders with comments and suggestions. 
Additional information regarding these comments may be found on our Web 
site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/.
    Based on the evidence discussed above, we are proposing to adopt 
for the LTCHQR Program for the FY 2018 payment determination and 
subsequent years the quality measure entitled Percent of Long-Term Care 
Hospital Patients with an Admission and Discharge Functional Assessment 
and a Care Plan That Addresses Function. This quality measure was 
developed by CMS, and we plan to submit the quality measure to the NQF 
for review. The MAP met in December 2013 and January 2014, and provided 
input to CMS as required under section 1890A(a)(3) of the Act. In its 
January 2014 Pre-Rulemaking Report, the MAP

[[Page 28266]]

conditionally supported this proposed measure and stated that the 
measure concept is promising, but requires modification or further 
development, and that functional status is a critical area of 
measurement. Since the time of the MAP meeting, we have continued 
further development of the measure with input from technical experts, 
including empirical data analysis. Subsequently, we released draft 
specifications for the function quality measures, and requested public 
comment between February 21 and March 14, 2014. We received 22 
responses from stakeholders with comments and suggestions during the 
public comment period, and have updated the quality measures 
specifications based on these comments and suggestions. The updated 
specifications are available for review at the LTCHQR Program Web site 
at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html?redirect=/LTCH-Quality-
Reporting/. We refer readers to section IX.C.2. of the preamble of this 
proposed rule for more information on the MAP.
    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 the NQF's consensus endorsed 
measures and were unable to identify any NQF-endorsed quality measures 
focused on assessment of function for patients in the LTCH setting. We 
are unaware of any other quality measures for functional assessment 
that have been endorsed or adopted by another consensus organization 
for the LTCH setting. Therefore, we are proposing to adopt this 
functional assessment measure for use in the LTCHQR Program for the FY 
2018 payment determination and subsequent years under the Secretary's 
authority to select non-NQF-endorsed measures.
    Additional information regarding the quality measure may be found 
on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/.
    We are proposing that data for the proposed quality measure be 
collected through the LTCH CARE Data Set, with the submission through 
the Quality Improvement and Evaluation System (QIES) Assessment 
Submission and Processing (ASAP) system. For more information on LTCHQR 
Program reporting using the QIES ASAP system, we refer readers to our 
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 that assess functional status, should this 
proposed measure be adopted. These items, which assess specific 
functional activities (that is, self-care, mobility, cognition, 
communication, and bladder continence), would be based on functional 
items included in the Post-Acute Care Payment Reform Demonstration 
version of the CARE Item Set. The items have been carefully developed 
and tested for reliability and validity.
    We invite public comments on our proposal to adopt the quality 
measure entitled Percent of Long-Term Care Hospital Patients with an 
Admission and Discharge Functional Assessment and a Care Plan That 
Addresses Function for the LTCHQR Program, with data collection 
starting on April 1, 2016, for the FY 2018 payment determination and 
subsequent years. We refer readers to section IX.C.9.c. of the preamble 
of this proposed rule for more information on the proposed data 
collection and submission timeline for this proposed quality measure.
(2) Proposed Functional Status Quality Measure: Functional Outcome 
Measure: Change in Mobility Among Long-Term Care Hospital Patients 
Requiring Ventilator Support
    Section 1206(c) of Division B of Public Law 113-67, the Pathway to 
SGR Reform Act of 2013, amended section 1886(m)(5)(D) of the Act to add 
a new clause (iv) requiring the Secretary to establish by no later than 
October 1, 2015, ``a functional status quality measure for change in 
mobility among inpatients requiring ventilator support.'' Accordingly, 
the second functional status quality measure that we are proposing is 
an outcome quality measure entitled the Functional Outcome Measure: 
Change in Mobility among Long-Term Care Hospital Patients Requiring 
Ventilator Support. This measure estimates the risk-adjusted change in 
mobility score between the time of admission and the time of discharge 
among LTCH patients requiring ventilator support at the time of 
admission. As noted above, LTCH patients often have functional 
limitations and receive rehabilitation therapy services so that they 
can become more independent when performing functional activities. 
Functional improvement is particularly relevant for patients who 
require ventilator support because these patients have traditionally 
had limited mobility due to cardiovascular and pulmonary instability, 
delirium, sedation, lack of rehabilitation therapy staff, and lack of 
physician referral.\164\
---------------------------------------------------------------------------

    \164\ Zanni et al., ``Rehabilitation therapy and outcomes in 
acute respiratory failure: An observational pilot project.''
---------------------------------------------------------------------------

    Several studies have examined functional improvement among patients 
in the long-term care hospitals and setting. In a sample of 101 
patients in LTCHs (three-quarters were ventilator-dependent), median 
functional status scores using the Functional Status Score (FSS)-ICU 
(rolling, supine-to-sit transfers, unsupported sitting, sit-to-stand 
transfers, and ambulation) improved significantly from admission to 
discharge, with significant change in all five functional items.\165\ A 
separate study of 103 patients with respiratory failure examined 
functional improvement and found that by the end of the respiratory ICU 
stay, 69.4 percent of survivors ambulated more than 100 feet, 8.2 
percent ambulated less than 100 feet, 15.3 percent could sit in a 
chair, 4.7 percent could sit on the edge of the bed, and 2.4 percent 
did not accomplish any of these activities.\166\
---------------------------------------------------------------------------

    \165\ A. Thrush, M. Rozek, and J.L. Dekerlegand, ``The clinical 
utility of the functional status score for the intensive care unit 
(FSS-ICU) at a long-term acute care hospital: A prospective cohort 
study,'' Phys Ther 92, no. 12 (2012).
    \166\ P. Bailey et al., ``Early activity is feasible and safe in 
respiratory failure patients,'' Crit Care Med 35, no. 1 (2007).
---------------------------------------------------------------------------

    The importance of monitoring improvement in mobility skills among 
LTCH patients who require ventilator support at the time of admission 
is also supported by the high prevalence of therapy service provision 
as part of the treatment plan and the percent of patients discharged 
home after an LTCH stay. In a study of 1,419 ventilator-dependent 
patients from 23 LTCHs with weaning programs,\167\ physical therapy, 
occupational therapy, and speech therapy were the three most commonly 
provided services among 34 procedures, services, and treatments 
provided during the LTCH admission. The very high frequency of physical 
(84.8 percent), occupational (81.5 percent), and speech (79.7 percent) 
therapy reflects use of the rehabilitative model of care adopted by 
many post-ICU

[[Page 28267]]

weaning programs, which is important in the restoration of function. 
Improvement in functional status, including mobility and self-care was 
noted from admission to discharge. Nearly 30 percent of all patients 
discharged alive returned directly home or to assisted living.\168\
---------------------------------------------------------------------------

    \167\ Scheinhorn et al., ``Post-ICU mechanical ventilation at 23 
long-term care hospitals: A multicenter outcomes study.''
    \168\ Ibid.
---------------------------------------------------------------------------

    A technical expert panel convened by our measure development 
contractor provided input on the technical specifications of this 
quality measure. We also solicited public comment on the draft 
specifications of this quality measure, on the CMS Quality Measures 
Public Comment Page (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html) between 
February 21 and March 14, 2014 and received 22 responses from 
stakeholder with comments and suggestions.
    Additional information regard the quality measure may be found on 
our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/.
    We are proposing that data for the proposed quality measure be 
collected through the LTCH CARE Data Set, with the submission through 
the QIES ASAP system. For more information on LTCHQR Program reporting 
using the QIES ASAP system, we refer readers to our 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 that 
assess the functional status and the risk adjustors, should this 
proposed application of the measure be adopted. These items, which 
assess specific functional activities (that is, self-care, mobility, 
cognition, communication, and bladder continence), would be based on 
functional status items included in the Post-Acute Care Payment Reform 
demonstration version of the CARE Item Set. The items have been 
carefully developed and tested for reliability and validity.
    Based on the evidence discussed above, we are proposing to adopt 
for the LTCHQR Program for the FY 2018 payment determination and 
subsequent years the quality measure entitled Functional Outcome 
Measure: Change in Mobility among Long-Term Care Hospital Patients 
Requiring Ventilator Support. This quality measure is developed by CMS, 
and we plan to submit the quality measure to the NQF for review. The 
MAP met in December 2013 and January 2014, and the NQF provided the 
MAP's input to CMS as required under section 1890A(a)(3) of the Act. In 
its January 2014 Pre-Rulemaking Report, the MAP conditionally supported 
this proposed measure and stated that the measure concept is promising, 
but requires modification or further development, and that functional 
status is a critical area of measurement. Since the time of the MAP 
meeting, we have continued further development of the measure with 
input from technical experts, including empirical data analysis. 
Subsequently, we have released draft specifications for the function 
quality measures, and requested public comment between February 21 and 
March 14, 2014. We received 22 responses from stakeholders with 
comments and suggestions during the public comment period, and have 
updated the quality measures specifications based on these comments and 
suggestions. The updated specifications are available for review at the 
LTCHQR Program Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html?redirect=/LTCH-Quality-Reporting/. We refer readers to 
section IX.C.2. of the preamble of this proposed rule for more 
information on the MAP.
    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 the NQF's consensus endorsed 
measures and were unable to identify any NQF-endorsed quality measures 
focused on improvement of function among patients in the LTCH setting. 
We are unaware of any other quality measures for functional improvement 
that have been endorsed or adopted by another consensus organization 
for the LTCH setting. Moreover, as discussed above, the Secretary is 
now required to establish such a measure by October 1, 2015. Therefore, 
we are proposing to adopt this functional improvement measure for use 
in the LTCHQR Program for the FY 2018 payment determination and 
subsequent years under the Secretary's authority to select non-NQF-
endorsed measures.
    We invite public comments on our proposal to adopt the quality 
measure entitled Functional Outcome Measure: Change in Mobility among 
Patients Requiring Ventilator Support for the LTCHQR Program, with data 
collection starting on April 1, 2016, for the FY 2018 payment 
determination and subsequent years. We refer readers to section 
IX.C.9.c. of the preamble of this proposed rule for more information on 
the proposed data collection and submission timeline for this proposed 
quality measure.
b. Proposed Quality Measure: National Healthcare Safety Network (NHSN) 
Ventilator-Associated Event (VAE) Outcome Measure
    The third quality measure that we are proposing is the CDC-
developed National Healthcare Safety Network (NHSN) Ventilator-
Associated Event (VAE) outcome measure. The term ``Ventilator-
Associated Events'' incorporates a range of ventilator-associated 
events, including ventilator-associated pneumonia (VAP), pulmonary 
edema, acute respiratory distress syndrome, sepsis, and 
atelectasis.\169\ The NHSN VAE Outcome Measure provides increased 
measure sensitivity, more objective definitions for ventilator-
associated conditions, and the potential for automated outcome 
detection.\170\ The NHSN VAE Outcome Measure is designed for use across 
multiple inpatient care settings, including LTCHs. The measure 
specifications were created and tested in the acute care setting. 
During CY 2013, 105 LTCHs submitted VAE data to CDC's NHSN.\171\
---------------------------------------------------------------------------

    \169\ Klompas, M., Y. Khan, et al. (2011). ``Multicenter 
Evaluation of a Novel Surveillance Paradigm for Complications of 
Mechanical Ventilation.'' PLoS ONE 6(3): e18062.
    \170\ Magill, S. S., M. Klompas, et al. (2013). ``Developing a 
new, national approach to surveillance for ventilator-associated 
events*.'' Crit Care Med 41(11): 2467-2475.
    \171\ Data from CMS-CDC correspondence on February 10, 2014.
---------------------------------------------------------------------------

    According to the CDC, ``more than 300,000 patients receive 
mechanical ventilation in the United States each year.'' \172\ These 
patients are at increased risk for infections, such as pneumonia and 
sepsis, as well as other serious complications including pulmonary 
edema, pulmonary embolism, and death.173 174 175 These 
complications can

[[Page 28268]]

lead to longer stays in the ICU and hospital, increased health care 
costs and increased risk of disability (or death).\176\ The estimated 
mortality rate in patients aged 85 years and older with acute lung 
injury on mechanical ventilation is 60 percent.\177\
---------------------------------------------------------------------------

    \172\ Centers for Disease Control and Prevention (CDC). 
Ventilator-Associated Event (VAE). January 2014. http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf.
    \173\ Esteban, A., A. Anzueto, et al. (2002). ``Characteristics 
and outcomes in adult patients receiving mechanical ventilation: A 
28-day international study.'' JAMA 287(3): 345-355.
    \174\ Klompas, M., Y. Khan, et al. (2011). ``Multicenter 
Evaluation of a Novel Surveillance Paradigm for Complications of 
Mechanical Ventilation.'' PLoS ONE 6(3): e18062.
    \175\ Rubenfeld, G.D., E. Caldwell, et al. (2005). ``Incidence 
and outcomes of acute lung injury.'' N Engl J Med 353(16): 1685-
1693.
    \176\ Centers for Disease Control and Prevention (CDC). 
Ventilator-Associated Event (VAE). January 2014. http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf.
    \177\ Rubenfeld G.D, Caldwell E, Peabody E, et al. Incidence and 
outcomes of acute lung injury. N Engl J Med 2005: 353:1685-93.
---------------------------------------------------------------------------

    Ventilator-Associated Events represent a high-priority complication 
in the LTCH setting, given the older, medically complex population in 
LTCHs and the high prevalence of mechanical ventilation in this 
setting. A MedPAC analysis of MedPAR data found that 16 percent of LTCH 
patients used at least one ventilator-related service in 2012.\178\ In 
FY 2012, MS-LTC-DRG 207, a diagnosis-related group that refers to 
respiratory diagnosis with ventilator support for 96 or more hours, 
represented the most frequently occurring diagnosis among LTCH 
patients, at 11.3 percent of all LTCH discharges,\179\ and MS-LTC-DRG-
4, a diagnosis-related group that refers to tracheostomy with 
ventilator support for 96 or more hours or primary diagnosis except 
face, mouth, and neck without major OR procedure, represented an 
additional 1.3 percent of all LTCH discharges. Together, the two 
diagnosis-related groups account for a total of nearly 18,000 
discharges. Furthermore, the number of ventilated patients in LTCHs is 
increasing--the number of discharged patients with respiratory 
diagnosis with ventilator support for 96 or more hours increased 7.4 
percent between 2008 and 2011.\180\
---------------------------------------------------------------------------

    \178\ MedPAC ``Report to Congress: Medicare Payment Policy'' 
Chapter 11 ``Long-term care hospital services.'' March 2014. http://www.medpac.gov/chapters/Mar14_Ch11.pdf.
    \179\ Ibid.
    \180\ Ibid.
---------------------------------------------------------------------------

    Although there are no nationwide or LTCH-specific estimates of the 
prevalence of ventilator-associated conditions (VACs) and infection-
related ventilator-associated complications (IVACs), a recent study of 
mechanically ventilated patients in ICUs found that approximately 10 
percent developed a VAC and 5 percent developed an IVAC.\181\ Adherence 
to clinical practice guidelines for the prevention of VAP has been 
associated with decreased VAC rates in ICUs.\182\ Because VAP, one type 
of VAC, is considered preventable, surveillance and measurement of 
infection rates is important to improving quality of care and patient 
safety.
---------------------------------------------------------------------------

    \181\ Muscedere, J., T. Sinuff, et al. (2013). ``The clinical 
impact and preventability of ventilator-associated conditions in 
critically ill patients who are mechanically ventilated.'' Chest 
144(5): 1453-1460.
    \182\ Ibid.
---------------------------------------------------------------------------

    The importance of the NHSN VAE Outcome Measure in LTCHs was 
underscored by the MAP, which stated in its January 2014 Pre-Rulemaking 
Report that the measure addresses a National Quality Strategy aim or 
priority that is currently not adequately addressed. The MAP supported 
the addition of this measure addressing VAEs in the LTCH setting and 
stated that ``although this measure is not NQF-endorsed, it provides 
useful information for healthcare facilities to help them monitor 
ventilator use and identify improvements for preventing 
complications.'' \183\
---------------------------------------------------------------------------

    \183\ National Quality Forum. Measure Applications Partnership 
Pre-Rulemaking Report: Public Comment Draft: January 2014. 
Available: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

    The exception authority found in section 1886(m)(5)(D)(ii) of the 
Act provides that ``[i]n the case of a specified area or medical topic 
determined appropriate by the Secretary for which a feasible and 
practical measure has not been endorsed by the entity with a contract 
under section 1890(a) of the Act, the Secretary may specify a measure 
that is not so endorsed as long as due consideration is given to 
measures that have been endorsed or adopted by a consensus organization 
identified by the Secretary.'' We reviewed the NQF's consensus endorsed 
measures and were unable to identify any NQF-endorsed measures for VAEs 
in the LTCH setting (or a related setting). We are unaware of any other 
measures for VAEs that have been endorsed or adopted by another 
consensus organization for the LTCH setting (or a related inpatient 
setting). Therefore, we are proposing to adopt the NHSN VAE Outcome 
Measure for use in the LTCHQR Program for the FY 2018 payment 
determination and subsequent years under the Secretary's authority to 
select non-NQF-endorsed measures.
    We are proposing to use the CDC's NHSN reporting and submission 
infrastructure for reporting of the proposed NHSN VAE Outcome Measure. 
Details related to the procedures for using CDC's NHSN for data 
submission and information on definitions, numerator data, denominator 
data, data analyses, and measure specifications for the proposed NHSN 
VAE Outcome Measure can be found at: http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf.
    CDC's NHSN is the data collection and submission framework 
currently used for reporting the CAUTI (NQF 0138) and CLABSI 
(NQF 0139) measures for the LTCHQR Program. Further, CDC's 
NHSN is the data collection and submission framework adopted for data 
collection and reporting for the Influenza Vaccination Coverage among 
Healthcare Personnel measure (NQF 0431) starting on October 1, 
2014, and for the 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 Infection (CDI) Outcome Measure (NQF 
1717) starting on January 1, 2015. 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.d. of the preamble of this proposed rule for more information on 
the proposed data collection and submission timeline for this proposed 
quality measure.
    We invite public comments on our proposal to adopt the NHSN VAE 
Outcome Measure for the LTCHQR Program, with data collection beginning 
on January 1, 2016, for the FY 2018 payment determination and 
subsequent years. We also invite public comments on our proposal to use 
the CDC's NHSN for data collection and submission for this measure.
8. LTCHQR Program Quality Measures and Concepts Under Consideration for 
Future Years
    We are considering whether to propose one or more of the quality 
measures and quality measure topics listed in the table below for 
future years in the LTCHQR Program. We invite public comments on these 
measures and measure topics. We specifically invite public comments 
regarding the clinical importance of these measures and measure topics 
in LTCH setting, feasibility of data collection and implementation, 
current use of these measures and measure topics in the LTCH setting, 
and the usability of data for these measures and measure topics

[[Page 28269]]

to inform future quality improvements in the LTCH setting.

 Future Measures and Measure Topics Under Consideration for Proposal for
                   the LTCH Quality Reporting Program
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
National Quality Strategy Priority: Patient Safety:
     Measures addressing Ventilator Bundle.
     Measures addressing avoidable injuries secondary to
     polypharmacy.
     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: Effective Clinical Processes:
     Severe Sepsis and Septic Shock: Management Bundle.
     Venous Thromboembolism Prophylaxis (NQF 0371).
     Ventilator Weaning Rate.
     Pain Management.
National Quality Strategy Priority: Patient- and Caregiver-Centered
 Care:
     Depression Assessment and Management.
     Application of Hospital Consumer Assessment of Healthcare
     Providers and Systems (HCAHPS) (NQF 0166).
     Measures addressing patients' experience of care.
     Measures addressing pain control--patients' preference.
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
     (Discharges from an Inpatient Facility to Home/Self Care or Any
     Other Site of Care) (NQF 0646).
     Transition Record with Specified Elements Received by
     Discharged Patients (Discharges from an Inpatient Facility to Home/
     Self Care or Any Other Site of Care) (NQF 0647).
     Timely Transmission of Transition Record (Discharges from
     an Inpatient Facility to Home/Self Care or Any Other Site of Care)
     (NQF 0648).
     Measures addressing care transitions.
------------------------------------------------------------------------

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 given rate year, any 
annual update to the standard Federal rate for discharges for the 
hospital during the rate year must be reduced by two percentage points.
b. Finalized Timeline for Data Submission Under the LTCHQR Program for 
the FY 2016 and FY 2017 Payment Determinations (Except NQF 
0680 and NQF 0431)
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50857 through 50861 
and 50878 through 50881), we finalized the data submission timelines 
and submission deadlines for measures for the FY 2016 and FY 2017 
payment determinations. We refer readers to the FY 2014 IPPS/LTCH PPS 
final rule for a more detailed discussion of these timelines and 
deadlines. Specifically, we refer readers to the table at 78 FR 50878 
of the FY 2014 IPPS/LTCH PPS final rule for the data collection 
timelines and submission deadlines for the FY 2016 payment 
determination and the tables at 78 FR 50881 of that final rule for the 
data collection timelines and submission deadlines for the FY 2017 
payment determination.
c. Proposed Revision to the Previously Adopted Data Collection 
Timelines and Submission Deadlines 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 2014 IPPS/LTCH PPS final rule (78 FR 50858 through 
50861), we revised 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 
and subsequent years. In that rule (78 FR 50861, 50880 through 50882), 
we also revised the data collection timelines and submission deadlines 
for the FY 2016 through FY 2018 payment determinations for this 
measure.
    For the reasons discussed in section IX.C.6.a. of the preamble of 
this proposed rule, we are proposing to change to the data collection 
timeframes and submission deadlines for the FY 2016 payment 
determination and subsequent years. Specifically, as discussed in 
section IX.C.6.a. of the preamble of this proposed rule, for the FY 
2016 payment determination, we are proposing submission deadlines of 
February 15, 2015, and May 15, 2015, respectively, for this measure for 
data collection periods October 1-December 31, 2014, and January 1-
March 31, 2015, respectively, instead of the previously finalized 
submission deadline of May 15, 2015, for the data collection period of 
October 1, 2014-April 30, 2015. The proposed changes applicable to this 
measure (NQF 680) are illustrated below for the FY 2016 
payment determination. Please refer to section IX.C.6 of the preamble 
of this proposed rule for further information regarding this proposed 
revision.

[[Page 28270]]



  Proposed Data Collection Timelines and Submission Deadlines of LTCHQR
 Program Quality Data for the FY 2016 Payment Determination for Percent
 of Residents or Patients Who Were Assessed and Appropriately Given the
       Seasonal Influenza Vaccine (Short-Stay) (NQF 0680)
------------------------------------------------------------------------
                                      Final submission deadlines for the
   Data collection timelines (CY)       LTCHQR Program FY 2016 payment
                                                determination
------------------------------------------------------------------------
Q4 (October-December 2014).........  February 15, 2015.
Q1 (January-March 2015)............  May 15, 2015.
------------------------------------------------------------------------

    Further, as discussed in section IX.C.6.a. of the preamble of this 
proposed rule, we are proposing similar deadlines for the FY 2017 
payment determination and subsequent years for the LTCHQR Program. The 
proposed changes applicable to this measure (NQF 680) are 
illustrated below.

  Proposed Data Collection Timelines and Submission Deadlines of LTCHQR
     Program Quality Data for the FY 2017 Payment Determination and
 Subsequent Years for Percent of Residents or Patients Who Were Assessed
and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF
                             0680)
------------------------------------------------------------------------
                                      Final submission deadlines for the
   Data collection timelines (CY)          LTCHQR Program  payment
                                              determination (FY)
------------------------------------------------------------------------
Q4 of the CY two years before the    February 15, of the FY preceding
 payment determination year (for      the payment determination year
 example, October-December 2015 for   (for example, February 15, 2016
 the FY 2017 payment determination).  for the FY 2017 payment
                                      determination).
Q1 of the CY one year before the     May 15 of the FY preceding the
 payment determination year (for      payment determination year (for
 example, January-March 2016 for      example, May 15, 2016 for the FY
 the FY 2017 payment determination).  2017 payment determination).
------------------------------------------------------------------------

    We invite public comment on the proposed submission deadlines for 
this measure (NQF 0680) for the FY 2016 payment determination 
and subsequent years.
d. Proposed Data Submission Mechanisms for the FY 2018 Payment 
Determination and Subsequent Years for Proposed New LTCHQR Program 
Quality Measures and for Proposed Revisions to Previously Adopted 
Quality Measures
    For the two proposed functional status measures and the application 
of the Percent of Residents Experiencing One or More Falls with Major 
Injury (Long Stay) (NQF 0674) measure, we are proposing that 
all LTCHs would be required to collect data using the LTCH CARE Data 
Set (Version 3.00).\184\ We will release the technical data submission 
specifications and update LTCHQR Program Manual for the LTCH CARE Data 
Set (Version 3.00) to include items related to the functional status 
measures and the application of the Percent of Residents Experiencing 
One or More Falls with Major Injury (Long-Stay) (NQF 0674) 
measure in CY 2015. The QIES ASAP system would 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.
---------------------------------------------------------------------------

    \184\ 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. CMS 
will revise the LTCH CARE Data Set (Version 3.00) and submit for OMB 
review for PRA approval to support data collection for the two 
functional status measures and the application of the Percent of 
Residents Experiencing One or More Falls with Major Injury (Long 
Stay) (NQF 0674). LTCH CARE Data Set (Version 3.00) is 
proposed for April 1, 2016, implementation date.
---------------------------------------------------------------------------

    For the proposed VAE measure, we are proposing that LTCHs would be 
required to use the CDC's NHSN reporting and submission infrastructure. 
Details related to the procedures for using CDC's NHSN for data 
submission and information on definitions, numerator data, denominator 
data, data analyses, and measure specifications for the proposed NHSN 
VAE Outcome Measure can be found at: http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf.
    We invite public comments on these proposals.
e. Proposed Data Collection Timelines and Submission Deadlines Under 
the LTCHQR Program for the FY 2018 Payment Determination
    In sections IX.C.9.c. and f. of the preamble of this proposed rule, 
we are proposing, for the FY 2016 payment determination and subsequent 
years, to revise the data collection timelines and submission deadlines 
for the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF 
0680) measure and, for the FY 2018 payment determination and 
subsequent years, to revise the data collection timelines and 
submission deadlines for the application of the Percent of Residents 
Experiencing One or More Falls with Major Injury (Long-Stay) (NQF 
0674) measure. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50882), we adopted the data collection timelines and submission 
deadlines for the remaining quality measures applicable to the FY 2018 
payment determination as listed in the following tables.

Timeframes for Data Collection of LTCHQR Program Quality Data for the FY
                       2018 Payment Determination
------------------------------------------------------------------------
           NQF measure ID                 Data collection timelines
------------------------------------------------------------------------
NQF 0138..................  January 1, 2016-December 31, 2016.

[[Page 28271]]

 
NQF 0139..................  January 1, 2016-December 31, 2016.
NQF 0678..................  January 1, 2016-December 31, 2016.
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.
------------------------------------------------------------------------


 Timeline for Submission of LTCHQR Program Quality Data for the FY 2018
   Payment Determination for All Measures Except Influenza Vaccination
 Coverage Among Healthcare Personnel (NQF 0431) and Percent of
   Residents or Patients Who Were Assessed and Appropriately Given the
       Seasonal Influenza Vaccine (Short-Stay) (NQF 0680)
------------------------------------------------------------------------
                                      Final submission deadlines for the
 Data collection timeline: 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: Influenza Vaccination Coverage Among Healthcare
                      Personnel (NQF 0431)
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeline         LTCHQR Program  FY 2018 payment
                                                determination
------------------------------------------------------------------------
October 1 2016 (or when vaccine      May 15, 2017.
 becomes available)-March 31, 2017.
------------------------------------------------------------------------

    For the new measures that we are proposing to adopt for the FY 2018 
payment determination and subsequent years, we are proposing the 
following data collection timelines and submission deadlines.

 Proposed Data Collection Timelines for New LTCHQR Program Measures for
                    the FY 2018 Payment Determination
------------------------------------------------------------------------
   NQF Measure ID or Measure Name
(when NQF Measure ID not available)        Data collection timeline
------------------------------------------------------------------------
National Healthcare Safety Network   January 1, 2016-December 31, 2016.
 (NHSN) Ventilator-Associated Event
 (VAE) Outcome Measure.
Functional Outcome Measure: Change   April 1, 2016-December 31, 2016.
 in Mobility among Long-Term Care
 Hospital Patients Requiring
 Ventilator Support.
Percent of Long-Term Care Hospital   April 1, 2016-December 31, 2016.
 Patients with an Admission and
 Discharge Functional Assessment
 and a Care Plan That Addresses
 Function.
------------------------------------------------------------------------


 Proposed Submission Deadlines of LTCHQR Program Quality Data for the FY
  2018 Payment Determination: National Healthcare Safety Network (NHSN)
            Ventilator-Associated Event (VAE) Outcome Measure
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeline          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.
------------------------------------------------------------------------


[[Page 28272]]


 Proposed Submission Deadlines of LTCHQR Program Quality Data for the FY
    2018 Payment Determination: Functional Outcome Measure: Change in
  Mobility Among Long-Term Care Hospital Patients Requiring Ventilator
     Support and Percent of Long-Term Care Hospital Patients With an
   Admission and Discharge Functional Assessment and a Care Plan That
                           Addresses Function
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeline          LTCHQR Program FY 2018 payment
                                                determination
------------------------------------------------------------------------
Q2 (April-June 2016)...............  August 15, 2016.
Q3 (July-September 2016)...........  November 15, 2016.
Q4 (October-December 2016).........  February 15, 2017.
------------------------------------------------------------------------

    We invite public comments on these data collection timelines and 
submission deadlines for the three proposed new quality measures for FY 
2018 payment determination.
f. Proposed Data Collection Timelines and Submission Deadlines for the 
Application of Percent of Residents Experiencing One or More Falls with 
Major Injury (Long Stay) (NQF 0674) for the FY 2018 Payment 
Determination and Subsequent Years
    In the FY 2014 IPPS/LTCH PPS final rule, we revised the Application 
of the Percent of Residents Experiencing One or More Falls with Major 
Injury (Long Stay) (NQF 0674) measure for the FY 2018 payment 
determination and subsequent years (78 FR 50874 through 50877). We are 
proposing, for the FY 2018 payment determination only, to move the 
start date for data collection of this measure to April 1, 2016, 
instead of the previously finalized start date of January 1, 2016. Data 
collection and submission of this measure would continue through 
December 31, 2016, as previously finalized for the FY 2018 payment 
determination. This proposed change in the data collection start date 
would only affect CY 2016 data collection and submission for the LTCHQR 
Program for the FY 2018 payment determination. For all subsequent 
years, data collection for this measure would begin on January 1 and 
continue through December 31. We note that these proposed changes would 
be applicable only to the Application of Percent of Residents 
Experiencing One or More Falls with Major Injury (Long Stay) (NQF 
0674) measure, and not applicable to any other LTCHQR Program 
measures, proposed or adopted, unless explicitly stated. We refer 
readers to section IX.C.6. of the preamble of this proposed rule for 
further information and rationale.

  Proposed Data Collection Timelines and Submission Deadlines of LTCHQR
   Program Quality Data for the FY 2018 Payment Determination for the
 Application of Percent of Residents Experiencing One or More Falls With
              Major Injury (Long Stay) (NQF 0674)
------------------------------------------------------------------------
                                      Final submission deadlines for the
 Data collection timeline: CY 2016      LTCHQR Program FY 2018 payment
                                                determination
------------------------------------------------------------------------
Q2 (April-June 2016)...............  August 15, 2016.
Q3 (July-September 2016)...........  November 15, 2016.
Q4 (October-December 2016).........  February 15, 2017.
------------------------------------------------------------------------

    We invite public comment on the proposed data collection timeline 
and quarterly submission deadlines for the Application of Percent of 
Residents Experiencing One or More Falls with Major Injury (Long Stay) 
(NQF 0674) for the FY 2018 payment determination.
g. Proposed Data Collection Timelines and Submission Deadlines Under 
the LTCHQR Program for the FY 2019 Payment Determination and Subsequent 
Years
    For the quality measures applicable to the FY 2019 payment 
determination and subsequent years, including those that we are 
proposing in section IX.C.7. of the preamble of this proposed rule, if 
finalized, we are proposing the following data collection timelines and 
submission deadlines.

  Proposed Data Collection Timelines and Submission Deadlines of LTCHQR
       Program Quality Data for the FY 2019 Payment Determination
------------------------------------------------------------------------
   NQF Measure ID or Measure Name
(when NQF Measure ID not available)        Data collection timeline
------------------------------------------------------------------------
National Healthcare Safety Network   January 1, 2017-December 31, 2017.
 (NHSN) Catheter-Associated Urinary
 Tract Infection (CAUTI) Outcome
 Measure (NQF 0138).
National Healthcare Safety Network   January 1, 2017-December 31, 2017.
 (NHSN) Central Line-Associated
 Bloodstream Infection (CLABSI)
 Outcome Measure (NQF 0139).
Percent of Residents or Patients     January 1, 2017-December 31, 2017.
 with Pressure Ulcers That Are New
 or Worsened (Short-Stay) (NQF
 0678).
Percent of Residents or Patients     October 1, 2017-March 31, 2018.
 Who Were Assessed and
 Appropriately Given the Seasonal
 Influenza Vaccine (Short-Stay)
 (NQF 0680).
Influenza Vaccination Coverage       October 1, 2017-March 31, 2018.
 among Healthcare Personnel (NQF
 0431).

[[Page 28273]]

 
National Healthcare Safety Network   January 1, 2017-December 31, 2017.
 (NHSN) Facility-Wide Inpatient
 Hospital-Onset Methicillin-
 resistant Staphylococcus areus
 (MRSA) Bacteremia Outcome Measure
 (NQF 1716).
National Healthcare Safety Network   January 1, 2017-December 31, 2017.
 (NHSN) Facility-Wide Inpatient
 Hospital-Onset Clostridium
 difficile Infection (CDI) Outcome
 Measure (NQF 1717).
Application of Percent of Residents  January 1, 2017-December 31, 2017.
 Experiencing One or More Falls
 with Major Injury (Long-Stay) (NQF
 0674).
National Healthcare Safety Network   January 1, 2017-December 31, 2017.
 (NHSN) Ventilator-Associated Event
 (VAE) Outcome Measure.
Functional Outcome Measure: Change   January 1, 2017-December 31, 2017.
 in Mobility among Patients
 Requiring Ventilator Support.
Percent of LTCH Patients with an     January 1, 2017-December 31, 2017.
 Admission and Discharge Functional
 Assessment and a Care Plan That
 Addresses Function.
------------------------------------------------------------------------


  Proposed Data Collection Timelines and Submission Deadlines of LTCHQR
   Program Quality Data for the FY 2019 Payment Determination for All
     Measures Except Influenza Vaccination Coverage Among Healthcare
 Personnel (NQF 0431) and Percent of Residents or Patients Who
  Were Assessed and Appropriately Given the Seasonal Influenza Vaccine
                    (Short-Stay) (NQF 0680)
------------------------------------------------------------------------
                                      Final submission deadlines for the
 Data collection timeline: CY 2017     LTCHQR Program  FY 2019 payment
                                                determination
------------------------------------------------------------------------
Q1 (January-March 2017)............  May 15, 2017.
Q2 (April-June 2017)...............  August 15, 2017.
Q3 (July-September 2017)...........  November 15, 2017.
Q4 (October-December 2017).........  February 15, 2018.
------------------------------------------------------------------------


  Proposed Data Collection Timelines and Submission Deadlines of LTCHQR
 Program Quality Data for the FY 2019 Payment Determination: Percent of
   Residents or Patients Who Were Assessed and Appropriately Given the
       Seasonal Influenza Vaccine (Short-Stay) (NQF 0680)
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeline         LTCHQR Program  FY 2019 payment
                                                determination
------------------------------------------------------------------------
October 1, 2017-December 31, 2017..  February 15, 2018.
January 1, 2018-March 31, 2018.....  May 15, 2018.
------------------------------------------------------------------------


  Proposed Data Collection Timelines and Submission Deadlines of LTCHQR
  Program Quality Data for the FY 2019 Payment Determination: Influenza
   Vaccination Coverage Among Healthcare Personnel (NQF 0431)
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeline         LTCHQR Program  FY 2019 payment
                                                determination
------------------------------------------------------------------------
October 1 2017-March 31, 2018......  May 15, 2018.
------------------------------------------------------------------------

    We invite public comment on these proposals.
10. Proposed LTCHQR Program Data Completion Thresholds for the FY 2016 
Payment Determination and Subsequent Years
a. Overview
    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 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 given fiscal year, any annual update to the standard Federal rate 
for discharges for the hospital during the rate fiscal year must be 
reduced by two percentage points. To date, we have not established a 
standard for compliance other than that LTCHs submit all applicable 
required data for all finalized measures, by the previously finalized 
quarterly deadlines. In response to input from our stakeholders seeking 
additional specificity related to the LTCHQR Program compliance 
affecting FY payment update determinations and, due to the importance 
of ensuring the integrity of quality data submitted to CMS, we are 
proposing to set specific LTCHQR Program thresholds for completeness of 
LTCH quality data beginning with data affecting the FY 2016 payment 
determination and subsequent years.
    The LTCHQR Program, through the FY 2012, FY 2013, and FY 2014 IPPS/
LTCH PPS final rules, requires LTCHs to submit quality data using two 
separate

[[Page 28274]]

data collection/submission mechanisms: measures collected using the 
LTCH CARE Data Set (LCDS) are submitted through the CMS Quality 
Improvement Evaluation System (QIES); and measures stewarded by the CDC 
(such as Healthcare Acquired Infection (HAI) and vaccination measures), 
are submitted using the CDC's National Healthcare Safety Network 
(NHSN). We have also previously finalized a claims-based measure (All-
Cause Unplanned Readmission Measure for 30 Days Post Discharge from 
Long Term Care Hospitals); however, claims-based measures do not 
require LTCHs to actually submit quality data to CMS, as they are 
calculated using claims data submitted to CMS for payment purposes. 
Thus, with claims-based measures, there is no submitted quality data to 
which we could apply data completion thresholds.
    To ensure that LTCHs are meeting an acceptable standard for 
completeness of submitted data, we are proposing that for the FY 2016 
payment determination and subsequent years, LTCHs meet or exceed two 
separate program thresholds: one threshold for completion of quality 
measures data collected using the LCDS and submitted through QIES; and 
a second threshold for quality measures data collected and submitted 
using the CDC's NHSN. We are proposing that LTCHs must meet or exceed 
both thresholds discussed below, in order to avoid receiving a 2 
percentage point reduction to their annual payment update for a given 
FY, beginning with FY 2016.
    We are proposing to hold LTCHs accountable for different data 
completion thresholds for each of the two data submission mechanisms; 
an 80 percent data completion threshold for data collected using the 
LCDS and submitted through the QIES mechanism; and a 100 percent data 
completion threshold for data submitted through the CDC's NHSN. We are 
proposing to hold LTCHs to the higher data completion threshold for the 
CDC's NHSN initially, because many LTCHs have been mandated by States 
to report infection data using the CDC's NHSN system for surveillance 
purposes, prior to the start of the LTCHQR Program on October 1, 2012, 
and, therefore, we believe LTCHs are more familiar with the NHSN 
collection and submission process.
    In contrast, LTCHs had never submitted quality data using a 
standardized data collection instrument before October 1, 2012, such as 
the LCDS submitted through the QIES mechanism. In addition, we require 
the submission of LCDS admission and discharge data through QIES, in 
order for LTCHs to meet the proposed data accuracy compliance standard, 
which with regard to discharge data, may be more difficult to collect 
on patients that are discharged emergently or against medical advice, 
in effect making it more difficult to meet a higher level of compliance 
initially. Lastly, through the FY 2014 IPPS/LTCH PPS final rule, we 
finalized accelerated quarterly deadlines for submission of quality 
data, beginning January 2014, of 45 days beyond the end of each CY 
quarter, as opposed to the previous 135 day post-quarterly deadline 
LTCHs were previously required to meet. We feel that this is an 
additional challenge that LTCHs may face. We invite comment on other 
obstacles LTCHs may face in meeting a higher level of compliance with 
regard to submission of quality data using the LCDS.
b. Proposed LTCHQR Program Data Completion Threshold for the Required 
LTCH CARE Data Set (LCDS) Data Items
    The LCDS is composed of data collection items designed to inform 
quality measure calculations, including risk-adjustment calculations, 
as well as internal consistency checks for logical inaccuracies. We are 
proposing that beginning with quality data affecting the FY 2016 
payment determination and subsequent years, LTCHs must meet or exceed a 
proposed LCDS data completion threshold of 80 percent. We are proposing 
to assess the completeness of submitted data by verifying that for all 
LCDS assessments submitted by any given LTCH, at least 80 percent of 
those LCDS Assessments must have 100 percent of the required quality 
data items completed, where, for the purposes of this proposed rule, 
``completed'' is defined as having provided actual patient data, as 
opposed to a non-informative response, such as a dash (-), that 
indicates the LTCH was unable to provide patient data. The proposed 
threshold of 80 percent is based on the need for substantially complete 
records, which allows appropriate analysis of quality measure data for 
the purposes of updating quality measure specifications as they undergo 
yearly and triennial measure maintenance reviews with the NQF. In 
addition, complete data is needed to understand the validity and 
reliability of quality data items, including risk-adjustment models. 
Finally, we want to ensure complete quality data from LTCHs, which will 
ultimately be reported to the public, allowing our beneficiaries to 
gain an understanding of LTCH performance related to these quality 
metrics, and helping them to make informed health care choices.
    Our data suggest that the majority of current LTCHs are in 
compliance with, or exceeding, this proposed threshold already. Our 
decision to set this proposed data completion threshold at a lower 
level initially, with the intent to raise the proposed 80 percent 
threshold in subsequent program years, is based on our understanding 
that LTCHs are still new to quality reporting, and that their 
experience and understanding, with respect to reporting quality data 
using a standardized data collection instrument, and thus their 
compliance, will increase over time. However, we invite public comment 
on circumstances that might prevent LTCHs from meeting this level of 
compliance. All items that we are proposing to require under the LTCHQR 
Program are identified in Appendix D of the LTCHQR Program Manual 
version 2.01, which is available for download on the CMS Web site at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html.
    We are also proposing that any LTCH that does not meet the proposed 
requirement that 80 percent of all LCDS assessments submitted contain 
100 percent of all required quality data items, will be subject to a 
reduction of 2 percentage points to the applicable FY annual payment 
update beginning with FY 2016. In order to establish this program 
threshold, we analyzed all LCDS submissions from January 2013 through 
September 2013, and we believe that the majority of LTCHs will be able 
to meet the proposed 80 percent data completion threshold. It is our 
intent to raise this threshold over the next 2 years, through the 
formal notice-and-comment rulemaking process. As stated above, we feel 
that as LTCHs continue to submit data using a standardized data 
collection instrument, such as the LCDS, and as they continue to take 
advantage of the resources we provide to guide LTCHs in their 
submission of this data (national trainings, CMS Special Open Door 
Forums, LTCHQR Program Manual, and technical trainings available on our 
Web site), we feel LTCH performance with respect to data completion 
will improve over time. We are proposing that this threshold will have 
to be met by LTCHs, in addition to the CDC NHSN threshold discussed 
below, in order to avoid receiving a 2 percentage point reduction to 
the applicable FY annual payment update.

[[Page 28275]]

c. LTCHQR Program Data Completion Threshold For Measures Submitted 
Using the Centers for Disease Control and Prevention (CDC) National 
Healthcare Safety Network (NHSN)
    The LTCHQR Program through the FY 2012, FY 2013, and FY 2014 IPPS/
LTCH PPS final rules, requires that LTCHs submit CDC-stewarded quality 
measure data using the CDC's NHSN, including data for the previously 
finalized CAUTI, CLABSI, and Influenza Vaccination Coverage among 
Healthcare Personnel (HCP) quality measures. More specifically, we 
require LTCHs follow CDC quality measure protocols, which require them 
LTCHs to complete all data fields required for both numerator and 
denominator data within NHSN, including the ``no events'' field for any 
month during which no infection events were identified. LTCHs are 
required to submit this data on a monthly basis (except for the HCP 
measure, which is only required to be reported once per year). However, 
LTCHs have until the associated quarterly deadline (45 calendar days 
beyond the end of each CY quarter) by which to report infection data to 
the CDC for each of the three months within any given quarter. For more 
information on the LTCHQR Program quarterly deadlines, we refer readers 
to section IX.C.9.b. of the preamble of this proposed rule.
    We are proposing that beginning with FY 2016 payment determination 
and subsequent years, this previously finalized requirement for monthly 
reporting must be met in addition to the proposed LCDS data completion 
threshold discussed above in order to avoid a 2 percentage point 
reduction to the applicable FY annual payment update. That is, we are 
proposing that LTCHs must meet a threshold of 100 percent for measures 
submitted via the NHSN, achieved by submitting relevant infection, 
vaccination, or other required quality measure data for each month of 
any given CY, in addition to meeting the above-proposed data item 
completion threshold for required quality data items on the LCDS. As 
the LTCHQR Program expands, and LTCHs begin reporting measures that 
were previously finalized, but not yet implemented, or newly proposed 
and finalized measures, we are proposing to apply this same threshold.
d. Application of the 2 Percentage Point Reduction for LTCHs That Fail 
To Meet the Proposed Data Completion Thresholds
    Above we have proposed that LTCHs must meet two separate data 
completion thresholds in order to avoid a 2 percentage point reduction 
to their applicable FY annual payment update; a data completion 
threshold of 80 percent for those required data elements collected 
using the LCDS and submitted through QIES; and a second data completion 
threshold of 100 percent for quality measure data submitted through the 
CDC's NHSN. We are proposing that these data completion thresholds must 
be met in addition to the data validation threshold of 75 percent we 
are proposing below, in order to avoid a 2 percentage point reduction 
to their applicable FY annual payment update. While we are proposing 
that LTCHs must meet both the proposed data completion and data 
validation thresholds, LTCHs cannot have their applicable annual 
payment update reduced twice. That is, should an LTCH fail to meet 
either one or both of the proposed thresholds, it will only receive one 
reduction of 2 percentage points to its applicable fiscal year annual 
payment update.
    We invite public comment on these proposals.
11. Proposed Data Validation Process for the FY 2016 Payment 
Determination and Subsequent Years
a. Proposed Data Validation Process
    Historically, we have built consistency and internal validation 
checks into our data submission specifications to ensure that the basic 
elements of the LCDS assessments conform to requirements such as proper 
format and facility information. These internal consistency checks are 
automated and occur during the LTCH submission process, and help ensure 
the integrity of the data submitted by LTCHs by rejecting submissions 
or issuing warnings when LTCH data contain logical inconsistencies. 
These internal consistency checks are referred to as ``system edits'' 
and are further outlined in the LTCH Data Submission Specifications 
version 1.01, which are available for download on the LTCH Quality 
Reporting Technical Information Web page at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html.
    Validation is intended to provide added assurance of the accuracy 
of the data that will be reported to the public as required by section 
1886(m)(5)(E) of the Act. We are proposing, for the FY 2016 payment 
determination and subsequent years, to validate the data elements 
submitted to CMS for quality purposes. Initially, for the FY 2016 
payment determination, this data accuracy validation will apply only to 
the LCDS items that inform the measures Percent of Patients or 
Residents with Pressure Ulcers That are New or Worsened (Short-Stay) 
(NQF 0678). We intend to expand this validation process for 
quality measures affecting the FY 2017 payment determination and 
subsequent years through future notice-and-comment rulemaking.
    We are proposing to validate the data elements submitted to CMS for 
Percent of Residents or Patients with Pressure Ulcers That are New or 
Have Worsened (Short-Stay) (NQF 0678) under the LTCHQR Program 
by requesting the minimum chart data necessary to confirm a 
statistically valid random sample of 260 LTCHs. From the random sample 
of 260 LTCHs, 5 LCDS assessments submitted through the National 
Assessment Collection Database would be randomly selected by the CMS 
validation contractor. In accordance with Sec.  164.512 (d)(1)(iii) of 
the HIPAA Privacy Rule, we would request from these LTCHs the specified 
portions of the 5 Medicare patient charts that correspond to the 
randomly selected assessments, which would need to be copied and 
submitted via traceable mail to a CMS contractor for validation. We are 
proposing that the specific portions of the 5 beneficiary charts would 
be identified in the written request, but may include: admission and 
discharge assessments, relevant nursing notes following the admission, 
relevant nursing notes preceding the discharge, physician admission 
summary and discharge summary, and any Assessment of Pressure Ulcer 
Form the facility may utilize. We are proposing that the CMS contractor 
would utilize the portions of the patient charts to compare that 
information with the quality data submitted to CMS. Differences that 
would affect measure outcomes or measure rates would be identified and 
reported to CMS. These differences could include but are not limited to 
unreported worsened pressure ulcers.
    We are proposing that all data that has been submitted to the 
National Assessment Collection Database under the LTCHQR Program would 
be subject to the data validation process. Specifically, we are 
proposing that the contractor would request copies of the randomly 
selected medical charts from each LTCH via certified mail (or other 
traceable methods that require an LTCH representative to sign for CMS 
correspondence), and the LTCH would have 45 days from the date of the 
request (as documented on the request letter) to submit the requested 
records to

[[Page 28276]]

the contractor. If the LTCH does not comply within 30 days, the 
contractor would send a second certified letter to them, reminding the 
LTCH that it must return copies of the requested medical records within 
45 calendar days following the date of the initial contractor medical 
record request. If the LTCH still does not comply, then the contractor 
would assign a ``zero'' score to each measure in each missing record. 
If, however, the LTCH does comply, the contractor would review the data 
submitted by the LTCH on the LCDS assessments for the required data 
elements associated with the Pressure Ulcer measure, until such time 
that LTCHs begin to submit additional quality measures that are 
collected using the LCDS. Initially, this review would consist solely 
of those required data elements that inform the Pressure Ulcer measure 
calculation and checks for logical inconsistencies. As LTCHs begin to 
report additional finalized measures, we intend to expand this 
validation process to quality measures affecting the FY 2017 payment 
determination and subsequent years, through future notice-and-comment 
rulemaking. The contractor would then calculate the percentage of 
matching data elements which would constitute a validation score. 
Because we would not be validating all records, we would need to 
calculate a confidence interval that incorporates a potential sampling 
error.
    To receive the full FY 2016 annual payment update, we are proposing 
that LTCHs in the random sample must attain at least a 75 percent 
validation score, based upon our validation process, which would use 
charts requested from patient assessments submitted for CY 2013. We 
would calculate a 95 percent confidence interval associated with the 
observed validation score. If the upper bound of this confidence 
interval is below the 75 percent cutoff point, we would not consider a 
hospital's data to be ``validated'' for payment purposes. We are 
proposing that LTCHs failing the validation requirements would be 
subject to the 2 percent annual payment update reduction, beginning 
with their fiscal year annual payment update. In addition, all LTCHs 
validated would receive educational feedback, including specific case 
details.
b. Application of the 2 Percentage Point Reduction for LTCHs That Fail 
To Meet the Proposed Data Accuracy Threshold
    We are proposing that LTCHs must meet a data accuracy threshold of 
75 percent in order to avoid receiving a 2 percentage point reduction 
to their applicable fiscal year annual payment update. We are proposing 
that this proposed data accuracy threshold of 75 percent must be met in 
addition to the proposed data completion thresholds (80 percent for 
data collected using the LTCH CARE Data Set and submitted using QIES, 
and 100 percent for data submitted using the CDC's NHSN), in order to 
avoid receiving a 2 percentage point reduction to their applicable FY 
annual payment update. While we are proposing that LTCHs must meet both 
the proposed data accuracy and data completion thresholds, LTCHs cannot 
have their applicable annual payment update reduced twice. That is, 
should an LTCH fail to meet either one or both of the proposed 
thresholds (data completion and/or data accuracy), it will only receive 
one reduction of 2 percentage points to its applicable FY annual 
payment update.
    We invite public comment on these proposals and suggestions to 
improve the utility of the approach or to reduce the burden on LTCHs.
12. Public Display of Quality Measure Data for the LTCHQR Program
    Under section 1886(m)(5)(E) of the Act, the Secretary is required 
to establish procedures for making data submitted 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 an LTCH has 
the opportunity to review the data that is to be made public with 
respect to the LTCH prior to such data being made public. The statute 
also requires that the Secretary report quality measures that relate to 
services furnished in inpatient settings in LTCHs on our Web site. In 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53637), we received and 
responded to public comments regarding 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 review 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.
    We welcome public comment on what we should consider when 
developing future proposals related to public reporting of quality 
measures for the LTCHQR Program.
13. Proposed LTCHQR Program Submission Exception and Extension 
Requirements for the FY 2017 Payment Determination and Subsequent Years
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50883 through 
50885), we referred to these requirements as submission ``waiver'' 
requirements. We are proposing to instead use the phrase ``exception 
and extension'' requirements for purposes of clarity. For the FY 2017 
payment determination and subsequent years, we are proposing to 
continue using the LTCHQR Program's requirements that we adopted in the 
FY 2014 IPPS/LTCH PPS final rule for the FY 2015 payment determination 
and subsequent years, although the term ``waiver'' is replaced by 
``exception and extension.''
    In the FY 2014 IPPS/LTCH PPS final rule, we finalized a process for 
LTCHs to request and for us to grant waivers with respect to the 
quality data reporting requirements of the LTCHQR Program for one or 
more quarters, beginning with the FY 2015 payment determination, when 
there are certain extraordinary circumstances beyond the control of the 
LTCH. We are proposing to continue to use this previously finalized 
process.
    In the event that an LTCH seeks to request a submission exception 
or extension for quality reporting purposes, the LTCH must request an 
exception or extension within 30 days of the date that the 
extraordinary circumstances occurred by submitting a written request to 
CMS via email to the LTCH mailbox at 
[email protected]. Exception or extension requests 
sent to CMS through any other channel will not be considered as a valid 
request for an exception or extension from the LTCHQR Program's 
reporting requirements for any payment determination. The written 
request must contain all of the finalized requirements in the FY 2014 
IPPS/LTCH PPS final rule, and on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Reconsideration-and-Disaster-Waiver-Requests.html.
    When an exception or extension is granted, an LTCH will not incur 
payment reduction penalties for failure to comply with the requirements 
of the LTCHQR Program, for the timeframe specified by CMS. If an LTCH 
is granted an exception, we will not require that the LTCH submit any 
quality data for a given period of time. If we grant an extension to an 
LTCH, the LTCH will

[[Page 28277]]

still remain responsible for submitting quality data collected during 
the timeframe in question, although we will specify a revised deadline 
by which the LTCH must submit this quality data.
    In addition, in the FY 2014 IPPS/LTCH PPS final rule, we finalized 
a policy that allowed CMS to grant exceptions or extensions to LTCHs 
that have not requested them if it is determined that extraordinary 
circumstances affects an entire region or locale. We stated that if 
this determination was made, we will communicate this decision through 
routine communication channels to LTCHs and vendors, including, but not 
limited to, issuing memos, emails, and notices at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html. More information on the LTCHQR Program 
exception and extension requirements and processes, and all related 
announcements may be found at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    For the FY 2017 payment determination and subsequent years, we are 
proposing that we may grant an exception or extension to LTCHs if we 
determine that a systemic problem with one of our data collection 
systems directly affected the ability of the LTCH 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 proposed basis frequently. We are proposing that if we make the 
determination to grant an exception or extension, we would communicate 
this decision through routine communication channels to LTCHs and 
vendors, including, but not limited to, issuing memos, emails, and 
notices on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    We invite public comment on these proposals.
14. Proposed LTCHQR Program Reconsideration and Appeals Procedures for 
the FY 2016 Payment Determination and Subsequent Years
a. Previously Finalized LTCHQR Program Reconsideration and Appeals 
Procedures for the FY 2014 and FY 2015 Payment Determinations
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50885 through 
50887), we finalized a voluntary process that allowed LTCHs the 
opportunity to seek reconsideration of our initial noncompliance 
decision for the FY 2014 and FY 2015 payment determinations. We refer 
readers to that rule for a discussion of this process.
b. Proposed LTCHQR Program Reconsideration and Appeals Procedures for 
the FY 2016 Payment Determination and Subsequent Years
    For the FY 2016 payment determination and subsequent years, we are 
proposing to adopt an updated process, as described below, that will 
enable an LTCH to request a reconsideration of our initial 
noncompliance decision in the event that an LTCH believes that it was 
incorrectly identified as being subject to the 2-percentage point 
reduction to its annual payment due to noncompliance with the LTCHQR 
Program reporting requirements for a given reporting period.
    For the FY 2016 payment determination, and subsequent years, we are 
proposing that an LTCH would receive a notification of noncompliance if 
we determine that the LTCH did not submit data in accordance with 
section 1886(m)(5)(C) of the Act with respect to the applicable fiscal 
year and that the LTCH is therefore subject to a 2-percentage point 
reduction in the applicable payment determination as required by 
section 1886(m)(5)(A)(i) of the Act. We would only consider requests 
for reconsideration after an LTCH has been found to be noncompliant and 
not before.
    An LTCH would have 30 days from the date of the initial 
notification of noncompliance to review its payment determination and 
submit to us a request for reconsideration. This proposed time frame 
would allow us to balance our desire to ensure that LTCHs have the 
opportunity to request reconsideration with our need to complete the 
process and provide LTCHs with our reconsideration decision in a timely 
manner. Notifications of noncompliance and any subsequent notifications 
from CMS would be sent via a traceable delivery method, such as 
certified U.S. mail or registered U.S. mail. We are proposing that an 
LTCH may withdraw its request at any time and may file an updated 
request within the proposed 30-day deadline. We also are proposing 
that, in very limited circumstances, we may grant a request by an LTCH 
to extend the proposed deadline for reconsideration requests. It would 
be the responsibility of an LTCH to request an extension and 
demonstrate that extenuating circumstances existed that prevented the 
filing of the reconsideration request by the proposed deadline.
    We also are proposing that as part of the LTCH's request for 
reconsideration, the LTCH would be required to submit all supporting 
documentation and evidence demonstrating: (1) Full compliance with all 
LTCHQR Program reporting requirements during the reporting period; or 
(2) extenuating circumstances that affected noncompliance if the LTCH 
was not able to comply with the requirements during the reporting 
period. We would not review any reconsideration request that fails to 
provide the necessary documentation and evidence along with the 
request. The documentation and evidence may include copies of any 
communications that demonstrate its compliance with the program's 
requirements, as well as any other records that support the LTCH's 
rationale for seeking reconsideration. A sample list of acceptable 
supporting documentation and evidence, as well as instructions for 
LTCHs to retrieve copies of the data submitted to CMS for the 
appropriate program year can be found on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Reconsideration-and-Disaster-Waiver-Requests.html.
    We are proposing that an LTCH wishing to request a reconsideration 
of our initial noncompliance determination would be required to do so 
by submitting an email to the following email address: 
[email protected]. Any request for reconsideration 
submitted to us by an LTCH would be required to follow the guidelines 
outlined on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Reconsideration-and-Disaster-Waiver-Requests.html.
    Following receipt of a request for reconsideration, we will 
provide--
     An email acknowledgment, using the contact information 
provided in the reconsideration request, to the CEO or CEO-designated 
representative that the request has been received; and
     Once we have reached a decision regarding the 
reconsideration request, an email to the LTCH CEO or CEO-designated 
representative, using the contact information provided in the 
reconsideration request, regarding our decision.
    We are proposing to require an LTCH that believes it was 
incorrectly identified as being subject to the 2-percentage point 
reduction to its annual

[[Page 28278]]

payment update to submit a timely request for reconsideration and 
receive a decision on that request before the LTCH can file an appeal 
with the PRRB. If the LTCH is dissatisfied with the decision rendered 
at the reconsideration level, the LTCH could appeal the decision with 
the PRRB under 42 CFR 405.1835. We believe this proposed process is 
more efficient and less costly for CMS and for LTCHs because it 
decreases the number of PRRB appeals by resolving issues earlier in the 
process. Additional information about the reconsideration process 
including requirements for submitting a reconsideration request is 
posted on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Reconsideration-and-Disaster-Waiver-Requests.html.
    We invite public comment on the proposed procedures for 
reconsideration and appeals.
15. Electronic Health Records (EHR) and Health Information Exchange 
(HIE)
    We are also interested in understanding the current state of 
electronic health record (EHR) adoption and use of Health Information 
Exchange (HIE) in the LTCH community. Therefore, we are soliciting 
feedback and input from LTCHs and the public on EHR adoption and HIE 
usage. We are especially interested in LTCH feedback and input on the 
following questions:
     Have you adopted an EHR in your LTCH setting?
     If your LTCH setting uses EHRs, what functional aspects of 
EHRs do you find most important (for example, the ability to send or 
receive transfer of care information; the ability to support medication 
orders/medication reconciliation)?
     Does the EHR system used in your LTCH setting support 
interoperable document exchange with other healthcare providers (for 
example, acute care hospitals, physician practices, skilled nursing 
facilities, etc.)?
    In addition to seeking public feedback and input on the feasibility 
and desirability of EHR adoption and use of HIE in LTCHs, we are also 
interested in public comment on the need to develop electronic clinical 
quality measures, and the benefits and limitations of implementing 
these measures for LTCHs.

D. 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 electronic health record (EHR) technology (CEHRT). We refer 
to this program as the EHR Incentive Program. Eligible hospitals (EHs) 
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. Sections 1886(b)(3)(B) and 1814(l) of the 
Act also establish downward payment adjustments under Medicare, 
beginning with fiscal year 2015, for eligible hospitals and CAHs that 
are not meaningful users of CEHRT for certain associated reporting 
periods. We refer to this part of the EHR Incentive Program as the 
Medicare EHR Incentive Program. Sections 1903(a)(3)(F) and 1903(t) of 
the Act provide the statutory basis for Medicaid incentive payments.
    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). We continue to believe there are important synergies with 
respect to the Medicare EHR Incentive Program and the Hospital IQR 
Program. We believe the financial incentives under the Medicare EHR 
Incentive Program for the adoption and meaningful use of CEHRT by EHs 
and CAHs will encourage the adoption and use of CEHRT for the 
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. Alignment of the Medicare EHR Incentive Program Reporting and 
Submission Timelines for Clinical Quality Measures With Hospital IQR 
Program Reporting and Submission Timelines
    We believe it is important to continue our goal of aligning the EHR 
Incentive Program with the Hospital IQR Program because alignment of 
these programs will serve to reduce hospital reporting burden and 
encourage the adoption and meaningful use of CEHRT by eligible 
hospitals and CAHs. Section 1886(n)(3)(B)(iii) of the Act requires 
that, in selecting measures and establishing the form and manner for 
reporting measures under the EHR Incentive Program, the Secretary shall 
seek to avoid redundant or duplicative reporting with reporting 
otherwise required, including reporting under section 
1886(b)(3)(B)(viii) of the Act (the Hospital IQR Program). The 
reporting and submission timelines for the EHR Incentive Program for 
eligible hospitals and CAHs currently operate on a Federal fiscal year 
basis, while the reporting and submission timelines for the Hospital 
IQR Program currently operate on a calendar year basis. This difference 
may create confusion and additional burden for hospitals attempting to 
report data to both programs. To alleviate this possible confusion, 
reduce provider burden, and strengthen our commitment to aligning 
programs, we are proposing to align the reporting and submission 
periods for clinical quality measures for the Medicare EHR Incentive 
Program with that of the Hospital IQR Program on a calendar year basis 
in 2015 and 2016.
    We realize that aligning the Medicare EHR Incentive Program to the 
calendar year would mean shifting the timeline for reporting and 
submission of CQMs such that the submission period would continue 
through February of the subsequent calendar year rather than ending in 
November as it is currently done, and therefore would delay the 
incentive eligibility assessment, and subsequently delay the EHR 
incentive payments under Medicare made to eligible hospitals and CAHs. 
In order to ease the transition of the reporting period to the calendar 
year, and to prevent the delay of Medicare EHR incentive payments, we 
are proposing to incrementally shift the Medicare EHR Incentive Program 
reporting periods for CQMs. Specifically, for 2015 and 2016, we are 
proposing for the Medicare EHR Incentive Program to require calendar 
year reporting for CQM data that are submitted electronically, but 
require that the data be reported only for the first three calendar 
quarters (that is, January through March, April through June and July 
through September) allowing the reporting period, incentive eligibility 
assessment, and incentive payments to remain on their current schedule.
    We note that this proposal would only apply for eligible hospitals 
and CAHs submitting CQMs electronically for 2015

[[Page 28279]]

and 2016, and that hospitals demonstrating meaningful use for the first 
time in 2015 or 2016 would still be required to report CQMs by 
attestation for a continuous 90-day period in FY 2015 or 2016, or 
report CQMs electronically for a 3-month calendar year quarter, by July 
1 of the given year to avoid the Medicare penalty in the subsequent 
year as finalized in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50903 
through 50905). Medicaid-only providers would continue to report 
according to State requirements. The proposal would not change the 
reporting periods or requirements for the meaningful use objectives and 
associated measures under 42 CFR 495.6 or for CQMs that are reported by 
attestation via the Registration and Attestation System. This proposal 
would allow us to align the CQM reporting periods for the Medicare EHR 
Incentive Program with that of the Hospital IQR Program without 
delaying payment of the Medicare EHR incentive payments for 2015 and 
2016.
    To further align CQM reporting for the two programs, we are 
proposing to require quarterly reporting of electronically reported 
CQMs for the Medicare EHR Incentive Program to align with the currently 
established quarterly electronic CQM reporting periods for the Hospital 
IQR Program. Additionally, the Hospital IQR Program is proposing to 
change its submission period for electronic CQMs from annual to 
quarterly submission in this rule. We refer readers to the Hospital IQR 
Program discussion in section IX.A.7.h. of the preamble of this 
proposed rule for more information about this proposal. Therefore, for 
the CY 2015 and 2016 reporting periods, we are also proposing to align 
the Medicare EHR Incentive Program submission period with that being 
proposed for the Hospital IQR Program. The table below illustrates the 
current reporting periods, and the following table further illustrates 
our proposals.

      Current (2014) Timelines for EHR Incentive Program and Hospital IQR Program Reporting and Submission
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                    EHR incentive program CQM reporting
                                                requirements
                                      Hospital IQR program reporting
                                      requirements for FY 2016 payment
                                               determination
----------------------------------------------------------------------------------------------------------------
2014 Reporting Period...........  FY 2014 October 1,  Report one full     Q4 CY 2013........  October 1, 2013-
                                   2013-September      year OR.                                December 31,
                                   30, 2014.                                                   2013. N/A for
                                                                                               2014 Hospital IQR
                                                                                               Program
                                                                                               reporting.
----------------------------------------------------------------------------------------------------------------
                                                      Report one three-   Q1 CY 2014........  January 1-March
                                                       month quarter OR.                       31, 2014.
                                                      Report any          Q2 CY 2014........  April 1-June 30,
                                                       continuous 90-day                       2014.
                                                       period.
                                                                          Q3 CY 2014........  July 1-September
                                                                                               30, 2014.
 
Submission Period...............         Jan 2, 2014-Nov 30, 2014
                                    October 1, 2013-November 30, 2014.
----------------------------------------------------------------------------------------------------------------


     Proposed Timelines To Align the EHR Incentive Program With Proposed Hospital IQR Program Reporting and
                                                   Submission
----------------------------------------------------------------------------------------------------------------
                                        EHR incentive program   Hospital IQR program
                                  CY           reporting             reporting           Submission period **
                                            requirements *          requirements
----------------------------------------------------------------------------------------------------------------
2015 Reporting Period........  Q1.....  January 1-March 31,    January 1-March 31,    Data must be submitted by
                                         2015.                  2015.                  May 30, 2015.
                               Q2.....  April 1-June 30, 2015  April 1-June 30, 2015  Data must be submitted by
                                                                                       August 30, 2015.
                               Q3.....  July 1-September 30,   July 1-September 30,   Data must be submitted by
                                         2015.                  2015.                  November 30, 2015.
                               Q4.....  N/A for EHR Incentive  October 1-December     For Hospital IQR Program,
                                         Program.               31, 2015.              data must be submitted by
                                                                                       February 28, 2016.
2016 Reporting Period........  Q1.....  January 1-March 31,    January 1-March 31,    Data must be submitted by
                                         2016.                  2016.                  May 30, 2016.
                               Q2.....  April 1-June 30, 2016  April 1-June 30, 2016  Data must be submitted by
                                                                                       August 30, 2016.
                               Q3.....  July 1-September 30,   July 1-September 30,   Data must be submitted by
                                         2016.                  2016.                  November 30, 2016.
                               Q4.....  N/A for EHR Incentive  October 1-December     For Hospital IQR Program,
                                         Program.               31, 2016.              data must be submitted by
                                                                                       February 28, 2017.
----------------------------------------------------------------------------------------------------------------
* Calendar year alignment and quarterly reporting for 2015 and 2016 would apply for electronically reported CQM
  data only.
** Proposed EHR Incentive Program and Hospital IQR Program submission period would allow data submission on an
  ongoing basis starting January 2 of the reporting year, and ending approximately 60 days after the end of the
  quarter.

    We invite public comment on these proposals.
3. Quality Reporting Data Architecture Category III (QRDA-III) Option 
in 2015
    In the EHR Incentive Program Stage 2 final rule (77 FR 54088), we 
finalized two options for eligible hospitals and 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 data using a 
method similar to the 2012 and 2013 EHR Incentive Program electronic 
reporting pilot for EHs and CAHs, which used QRDA-I (patient-level 
data). We also stated in

[[Page 28280]]

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 final rule (78 FR 50904 
through 50905) that we had determined that the electronic submission of 
aggregate-level data using QRDA-III would not be feasible in 2014 for 
eligible hospitals and CAHs under the Medicare EHR Incentive Program. 
Therefore, 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 would reassess this policy for the 2015 and future reporting 
periods.
    We have determined that the electronic submission of aggregate-
level data using QRDA-III will not be feasible in 2015 for eligible 
hospitals and CAHs under the Medicare EHR Incentive Program. Therefore, 
for the 2015 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 note that submissions of 
aggregate CQM data via attestation would not satisfy the reporting 
requirements for the Hospital IQR Program, and consistent with our 
proposal above regarding alignment of these programs, attested CQM data 
would need to be submitted for one full fiscal year in 2015 via the 
Registration and Attestation System, and would not require quarterly 
submissions. Hospitals in their first year of demonstrating meaningful 
use in 2015 would still be required to report CQMs by attestation for a 
continuous 90-day period in FY 2015, or report CQMs electronically for 
a 3-month calendar year quarter, by July 1, 2015 to avoid the Medicare 
penalty in FY 2016 as finalized in the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50903 through 50905). We also note that this policy does not 
apply to the Medicaid EHR Incentive Program. Therefore, 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.
    In order to remain aligned with the Hospital IQR Program, and 
because over 66 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 of 
the 28 inpatient measures identified by the Hospital IQR Program. We 
believe that keeping the two programs aligned will ultimately reduce 
reporting burden for hospitals. We note again that reporting via 
attestation would not count towards the reporting requirements for the 
Hospital IQR Program.
4. Electronically Specified Clinical Quality Measures (CQMs) Reporting 
for 2015
    In the EHR Incentive Program Stage 2 final rule, we finalized the 
CQMs that eligible hospitals and CAHs would be required to report for 
purposes of meeting the CQM component of meaningful use under the EHR 
Incentive Program starting in 2014 (77 FR 54083 through 54077 Table 
10). These CQMs are updated routinely to account for changes, including 
but not limited to changes in billing and diagnosis codes and changes 
in medical practices. The requirements specified in the EHR Incentive 
Program Stage 2 final rule allow for the reporting of different 
versions of the CQMs. For 2015, it is not technically feasible for CMS 
to accept data that is electronically reported according to the 
specifications of the older versions of the CQMs, including versions 
that may be allowed for reporting under the EHR Incentive Program. We 
stated in the EHR Incentive Program Stage 2 final rule that, consistent 
with section 1886(n)(3)(B)(ii) of the Act, in the event that the 
Secretary does not have the capacity to receive CQM data 
electronically, eligible hospitals and CAHs may continue to report 
aggregate CQM results through attestation (77 FR 54088). We are 
proposing that eligible hospitals and CAHs that seek to report CQMs 
electronically under the Medicare EHR Incentive Program must use the 
most recent version of the electronic specifications for the CQMs and 
have CEHRT that is tested and certified to the most recent version of 
the electronic specifications for the CQMs.
    Eligible hospitals and CAHs that do not wish to report CQMs 
electronically using the most recent version of the electronic 
specifications (for example, if their CEHRT has not been certified for 
that particular version) would be allowed to report CQM data by 
attestation for the Medicare EHR Incentive Program.
    We invite public comment on these proposals.
5. Clarification Regarding Reporting Zero Denominators
    As we stated in the EHR Incentive Program Stage 2 final rule (77 FR 
54079) we expect eligible hospitals and CAHs to adopt EHR technology 
that includes CQMs relevant to each eligible hospital's or CAH's 
patient mix. We understand, however, that there are situations in which 
an eligible hospital or CAH does not have data to report on a 
particular CQM, and its EHR is not certified to additional CQMs that 
can be used to replace that CQM with another for which it has data. For 
example, a health system with multiple eligible hospitals or CAHs may 
have an EHR certified for 16 CQMs, which is the minimum number of 
required CQMs for reporting, but not all of the eligible hospitals or 
CAHs in the health system may have cases to report on those particular 
16 CQMs. We have received questions on how eligible hospitals and CAHs 
should meet their reporting requirements in this situation; therefore, 
we are clarifying our policy as set forth below regarding the reporting 
of a zero denominator for the purposes of the EHR Incentive Program and 
the Hospital IQR Program.
    If the eligible hospital's or CAH's EHR is certified to a CQM, but 
the eligible hospital or CAH does not have patients that meet the 
denominator criteria of that CQM, the eligible hospital or CAH can 
submit a zero in the denominator for that CQM. Submission of a zero in 
the denominator for a CQM counts as a successful submission for that 
CQM for both the EHR Incentive Program and the Hospital IQR Program. 
For example, if the eligible hospital or CAH within the previously 
mentioned health system does not provide maternity services, but one of 
the 16 CQMs the health system's EHR is certified to is a maternity 
measure, that eligible hospital's or CAH's EHR may render a zero in the 
denominator for that CQM. The eligible hospital or CAH would therefore 
report a zero denominator for that maternity care CQM, and this would 
count toward the 16 required CQMs for the EHR Incentive Program and the 
Hospital IQR Program. Eligible hospitals or CAHs within that health 
system for which that maternity CQM does apply would provide data on 
that measure.
6. Case Threshold Exemption Policy; Clarification for 2014 and Proposed 
Change for 2015
    In the EHR Incentive Program--Stage 2 final rule (77 FR 54080), we 
finalized the policy that eligible hospitals and CAHs that have 5 or 
fewer discharges per quarter in the same quarter as their

[[Page 28281]]

reporting period in FY 2014, or 20 or fewer discharges per full FY 
reporting period beginning in FY 2015, for which data are being 
electronically submitted (Medicare and non-Medicare combined) as 
defined by the clinical quality measure's denominator population are 
exempted from reporting the CQM. To be eligible for the exemption, 
eligible hospitals and CAHs must submit their aggregate population and 
sample size counts for Medicare and non-Medicare discharges for the CQM 
for the reporting period.
    In the Health Information Technology: Revisions to the 2014 Edition 
Electronic Health Record Certification Criteria; and Medicare and 
Medicaid Programs; Revisions to the Electronic Health Record Incentive 
Program interim final rule, we revised the case threshold exemption 
policy to make it applicable for eligible hospitals and CAHs in all 
stages of meaningful use beginning with FY 2013, including those that 
are demonstrating meaningful use for the first time and submitting CQMs 
by attestation (77 FR 72988 through 72989). Eligible hospitals and CAHs 
with 5 or fewer discharges during the relevant EHR reporting period (if 
attesting to a 90-day EHR reporting period), or 20 or fewer discharges 
during the year (if attesting to a full year EHR reporting period) as 
defined by the CQM's denominator population would be exempted from 
reporting on that CQM.
    We stated in the interim final rule (77 FR 72989) that beginning in 
FY 2014, the reporting requirement is to report 16 CQMs covering at 
least 3 domains from a list of 29 CQMs. We stated further that in order 
to be exempted from reporting fewer than 16 CQMs, the eligible hospital 
or CAH would need to qualify for the case threshold exemption for more 
than 13 of the 29 CQMs. If the eligible hospital or CAH does not meet 
the criteria for a case threshold exemption for 13 or more CQMs, the 
eligible hospital or CAH would be able to report at least 16 CQMs. 
Likewise, we stated that if the CQMs for which the eligible hospital or 
CAH can meet the case threshold of discharges do not cover at least 3 
domains, the eligible hospital or CAH would be exempt from the 
requirement to cover the remaining domains. For example, if the 
eligible hospital or CAH does not meet the case threshold of discharges 
for 13 clinical quality measures, and thus could report 16 clinical 
quality measures, but the 16 clinical quality measures cover only 2 of 
the 3 domains, the eligible hospital or CAH would be exempt from 
covering the third domain.
    For the reporting periods in 2014, our policy requires that an 
eligible hospital or CAH that claims a case threshold exemption for one 
CQM must choose another CQM on which to submit data, or continue to 
invoke the case threshold exemption until it exceeds 13 case threshold 
exemptions and may therefore report fewer than the 16 required CQMs. 
This policy assumes that the eligible hospital or CAH has an EHR that 
is certified to more than the minimum of 16 CQMs, and the eligible 
hospital or CAH has other CQMs in its EHR to choose from for reporting. 
We realize, however, that there could be many EHRs that are certified 
to only the minimum of 16 CQMs required by ONC's regulations at 45 CFR 
170.102 (the definition of ``Base EHR''), and for eligible hospitals 
and CAHs using those EHRs, this policy may result in the eligible 
hospital or CAH needing to submit data on a CQM for which the EHR is 
not certified. It was not our intent to have eligible hospitals or CAHs 
report on measures for which their EHRs are not certified.
    Beginning with the reporting periods in 2015, we are proposing to 
change the case threshold exemption policy so that if an eligible 
hospital or CAH qualifies for an exemption from reporting on a 
particular CQM, the exemption would count toward the 16 required CQMs. 
For example, if the eligible hospital's or CAH's EHR is certified to 
report 16 CQMs, and for one of those CQMs the eligible hospital or CAH 
has 5 or fewer discharges during the relevant EHR reporting period (if 
attesting to a 90-day EHR reporting period), or 20 or fewer discharges 
during the year (if attesting to a full year EHR reporting period) as 
defined by the CQM's denominator population, the eligible hospital or 
CAH would report data for the 15 CQMs for which the case threshold 
exemption does not apply, and invoke a case threshold exemption for the 
one CQM for which the exemption does apply for a total of 16 CQMs.
    We expect eligible hospitals and CAHs to adopt EHR technology that 
includes CQMs relevant to the eligible hospital's or CAH's case mix, 
though we understand that in some cases, the eligible hospital or CAH 
may not meet the case threshold of discharges for a particular CQM. We 
believe this proposed policy better reflects our intent for eligible 
hospitals and CAHs to report on only those measures for which their 
EHRs are certified while meeting the reporting requirements for the EHR 
Incentive Program and Hospital IQR Program.
    We invite public comment on this proposal.

X. Proposed Revision of Regulations Governing Use and Release of 
Medicare Advantage Risk Adjustment Data

A. Background

    Section 1853 of the Act requires the Secretary to make payments to 
Medicare Advantage (MA) organizations offering local and regional MA 
plans with respect to coverage of individuals enrolled under Medicare 
Part C. Section 1853(a)(1)(C) of the Act requires the Secretary to 
adjust such payments for such risk factors as age, disability status, 
gender, institutional status, and such other factors as the Secretary 
determines appropriate, including health status. To support these risk 
adjustments, section 1853(a)(3)(B) of the Act requires submission of 
data by MA organizations regarding the services provided to enrollees 
and other information the Secretary deems necessary but does not limit 
the Secretary's use of such data or information. In addition, section 
1106 of the Act authorizes the Secretary to adopt regulations governing 
release of information gathered in the course of administering programs 
under the Act.
    Implementing regulations at 42 CFR 422.310 set forth the 
requirements for the submission of risk adjustment data that CMS uses 
to risk-adjust payments. MA organizations must submit data, in 
accordance with CMS instructions, to characterize the context and 
purposes of items and services provided to their enrollees by a 
provider, supplier, physician, or other practitioner. Section 
422.310(d)(1) provides that MA organizations submit risk adjustment 
data to CMS as specified by CMS. This includes comprehensive data 
equivalent to Medicare fee-for-service claims data (often referred to 
as encounter data) or data in abbreviated formats. Section 422.310(f) 
currently specifies CMS' uses of the risk adjustment data.
    In this proposed rule, we are proposing to revise the existing 
regulation at Sec.  422.310(f) to broaden the specified uses of risk 
adjustment data in order to strengthen program management and increase 
transparency in the MA program and to specify the conditions for 
release of risk adjustment data to entities outside of CMS.

B. Proposed Regulatory Changes

1. Proposed Expansion of Uses and Reasons for Disclosure of Risk 
Adjustment Data
    We are first proposing to revise a reference in existing Sec.  
422.310(f) (now proposed paragraph (f)(1)) from ``data obtained under 
this section'' to ``data described in paragraphs (a) through (d) of 
this section'' in order to indicate that

[[Page 28282]]

the data used or released under proposed paragraph (f)(1) would not 
include the medical records and other data collected separately under 
paragraph (e) for the purpose of risk adjustment data validation (RADV) 
audits. We do not intend for the proposed Sec.  422.310(f) to authorize 
any additional use or release of the data described in paragraph (e). 
The data described in paragraphs (a) through (d) would include those 
elements that constitute an encounter data record, including contract, 
plan, and provider identifiers, with the exception of disaggregated 
payment data as discussed below. In addition, we note that paragraph 
(d)(1) also authorizes the collection of abbreviated data.
    The existing regulation at Sec.  422.310(f) specifies five purposes 
for which CMS may use risk adjustment data obtained from MA 
organizations. We are clarifying in this proposed rule that CMS' uses 
of these data may include disclosure to CMS contractors or other agents 
that perform activities or analyses on CMS' behalf in connection with 
authorized use of the data. The existing specified purposes are: (1) To 
determine the risk adjustment factors used to adjust payments, as 
required under Sec. Sec.  422.304(a) and (c); (2) to update risk 
adjustment models; (3) to calculate Medicare DSH percentages; (4) to 
conduct quality review and improvement activities; and (5) for Medicare 
coverage purposes. Under our proposal, paragraph (f) would be 
restructured to identify the purposes for which CMS may use and release 
risk adjustment data and to impose certain conditions on any release of 
that data.
    We are proposing to revise paragraph (f) to add four purposes for 
which CMS may use risk adjustment data submitted by MA organizations: 
(1) To conduct evaluations and other analysis to support the Medicare 
program (including demonstrations) and to support public health 
initiatives and other health care-related research; (2) for activities 
to support the administration of the Medicare program; (3) for 
activities conducted to support program integrity; and (4) for purposes 
permitted by other laws. These new authorized purposes are proposed at 
Sec.  422.310(f)(1)(vi) through (f)(1)(ix). In general, we anticipate 
that comprehensive risk adjustment data submitted by MA organizations, 
which MA organizations began submitting to CMS effective CY 2012, will 
enable CMS to generate improved data analyses that could support 
Medicare program evaluations, demonstration designs, and CMS' effective 
and efficient operational management of the Medicare program. Risk 
adjustment data also could be useful to support public health 
initiatives by governmental entities and to advance health care-related 
research by universities and other research organizations. We also 
believe that risk adjustment data can support CMS' program integrity 
activities in the Medicare program and other Federal health care and 
related programs; we intend this general term to encompass audits, 
investigations, efforts to combat waste, fraud, and abuse, and any 
other actions designed to ensure that the program operates within its 
authority. This includes audits, evaluations, and investigations by the 
Office of the Inspector General (OIG) as well as CMS' own efforts. In 
addition, risk adjustment data may be useful in supporting Medicare 
administrative activities, such as the review of the validity of bid 
and medical loss ratio data submitted by MA organizations. Finally, we 
are proposing to acknowledge that other laws may permit other uses of 
risk adjustment data and that this regulation is not intended to 
supersede such other laws.
    Regarding the use of risk adjustment data outside of CMS, we are 
proposing at Sec.  422.310(f)(2) that other HHS agencies, other Federal 
executive branch agencies, States, and external entities would only be 
able to obtain from CMS and use risk adjustment data for one or more of 
the purposes listed in proposed paragraph (f)(1). An external entity 
may be an individual, group, or organization. We anticipate that other 
HHS agencies and other Federal executive branch agencies may request 
this data for the same purposes CMS proposes to use the data and 
believe such use is appropriate. Under our proposal, other agencies 
that evaluate and analyze the Medicare program, perform health care-
related research, support public health initiatives, perform activities 
in the administration of the Medicare program, or conduct activities to 
support program integrity in the Medicare program and other Federal 
health care and related programs would be able to access and use risk 
adjustment data for these purposes. States, such as while conducting 
program integrity activities for Medicaid programs or in the 
administration of Medicare-Medicaid demonstrations (for example, refer 
to the Web site at: http://www.cms.gov/Medicare-Medicaid-Coordination/Medicare-and-Medicaid-Coordination/Medicare-Medicaid-Coordination-Office/FinancialAlignmentInitiative/FinancialModelstoSupportStatesEffortsinCareCoordination.html), may 
access and use risk adjustment data under this proposal. We anticipate 
that nongovernmental external entities would generally only gain access 
to risk adjustment data under this proposal in connection with public 
health initiatives and health care-related research, as such external 
entities appear to have limited, if any, roles in the other purposes 
identified in our proposal.
    CMS is seeking to balance protection of confidential beneficiary 
information and the proprietary interests of MA organizations with the 
need to effectively administer Federal health care programs and to 
encourage research into better ways to provide health care. CMS is 
seeking public comments on the proposed uses and release of data and 
how else to achieve the necessary balance. In particular, we are 
soliciting public comment on the extent to which a commercial purpose 
underlying a request for risk adjustment data should be a factor in 
evaluating whether the request is for one of the purposes that permit a 
disclosure under this regulation or if one of the purposes in paragraph 
(f)(1) of Sec.  422.310, for which CMS would disclose data under this 
section, should address commercial uses of the data.
2. Proposed Conditions for CMS Release of Data
    The existing regulations at Sec.  422.310 do not specify conditions 
for release by CMS of risk adjustment data that are submitted by MA 
organizations to CMS. We are proposing to add a paragraph (2) to Sec.  
422.310(f) to address CMS' release of such data to non-CMS entities. 
First, as discussed above in connection with proposed paragraph (f)(1), 
our proposal is limited to the risk adjustment data described in Sec.  
422.310(a) through (d) and does not include the medical records and 
other data collected separately under paragraph (e) for the purpose of 
risk adjustment data validation (RADV) audits. We do not intend for the 
proposed revision to Sec.  422.310(f) to authorize any additional use 
or release of the data described in paragraph (e).
    Second, we are proposing that CMS would release only the minimum 
data that CMS determines is necessary to fulfill the analytical or 
operational goal for a particular project. In other words, CMS may 
determine that the appropriate data release for an approved research 
project is a subset of encounter data records requested to conduct the 
proposed inquiry (instead of all encounter data in CMS' systems for all 
years and provider types) or is a subset of the abbreviated data 
requested.
    Third, we are proposing that CMS may release data under this 
authority to

[[Page 28283]]

Federal executive branch agencies, States, and external entities, only 
for purposes identified in paragraph (f)(1) (discussed above) and 
subject to a number of additional limitations: (i) Applicable Federal 
laws; (ii) CMS data sharing procedures; (iii) protection of beneficiary 
identifier elements and beneficiary confidentiality, including: (A) a 
prohibition against public disclosure of beneficiary identifying 
information; (B) release of beneficiary identifying information to 
other HHS agencies, other Federal executive branch agencies, 
Congressional support agencies, and States only when such information 
is needed to accomplish the purpose(s) of the disclosure; and (C) 
release of beneficiary identifying information to external entities 
only to the extent needed to link datasets; and (iv) the aggregation of 
payment data to protect commercially sensitive data.
    These limitations are included at proposed paragraphs (f)(2)(i) 
through (f)(2)(iv), respectively, of Sec.  422.310. We are soliciting 
public comment on other conditions or limitations on the release of 
this data that will help maintain a balance between protecting 
confidential and proprietary information with the need to effectively 
administer Federal health care programs and to encourage research into 
better ways to provide health care.
    Under the provisions at proposed Sec.  422.310(f)(2)(iv), we would 
not release payment data at the encounter level. We believe that 
release of payment data at the level of the encounter record might 
reveal proprietary negotiated payment rates between MA plans and 
providers. Given the commercially sensitive nature of this information, 
we are not proposing to release payment data at the level of the 
encounter record. In the interest of providing as much transparency as 
possible, while at the same time protecting proprietary information, we 
are proposing to authorize release of aggregate payment information. 
For example, we could aggregate the payment data by service category, 
by plan, by contract, or across contracts. We are seeking public 
comments on these or other approaches to aggregating payment data for 
release and whether the specified options are sufficiently aggregated 
to protect commercially sensitive information. In addition, we are 
seeking public comment on our conclusion that releasing payment rates 
at the level of the encounter data record would reveal proprietary 
negotiated payment rates. Specifically, we are requesting public 
comment on what strategies might be used under which payment data could 
be released while protecting commercially sensitive information.
    To the extent that a requestor has separate statutory authority for 
requiring CMS disclosure of data, these proposed provisions do not 
limit or supersede such authority. For example, some Congressional 
support agencies may compel release of data under separate statutory 
authority, such as 31 U.S.C. 716; 2 U.S.C. 166(d)(1) and 601(d); and 
section 1805 of the Act (42 U.S.C. 1395b-6), for the purposes of 
conducting Congressional oversight, monitoring, making recommendations 
and analysis of the Medicare program. In addition, the OIG has separate 
statutory authority under section 1128J of the Act (42 U.S.C. 1320a-
7k), coupled with section 6(a) of the Inspector General Act of 1978 (5 
U.S.C. App. 3) authorizing the OIG to access data as necessary to 
perform its responsibilities. This regulation would not limit that 
authority.
3. Proposed Technical Change
    We are proposing to amend Sec.  422.300, which identifies the basis 
and scope of the regulations for payments to MA organizations, to add a 
reference to section 1106 of the Social Security Act, which governs the 
release of information gathered in the course of administering our 
programs under the Act.

XI. Proposed Changes to Enforcement Provisions for Organ Transplant 
Centers

A. Background

    In February 2004, the Office of the Inspector General (OIG) 
published a report entitled ``Medicare-Approved Heart Transplant 
Centers'' (OEI-01-02-00520), in which the OIG outlined three 
recommendations for CMS' oversight of heart transplant centers: (1) 
That CMS expedite the development of continuing criteria for volume and 
survival-rate performance and for periodic recertification; (2) that 
CMS develop guidelines and procedures for taking actions against 
centers that do not meet Medicare criteria for volume and survival-rate 
performance requirements; and (3) that CMS take immediate steps to 
improve its ability to maintain accurate and timely data regarding the 
performance of transplant centers.
    As part of CMS' efforts to strengthen oversight of organ transplant 
centers, we published the final rule ``Medicare Program: Hospital 
Conditions of Participation, Requirements for Approval and Reapproval 
of Transplant Centers To Perform Organ Transplants'' on March 30, 2007 
in the Federal Register (72 FR 15198) that established conditions of 
participation (CoPs) for organ transplant centers and applied the 
survey and certification enforcement process (that is used for all 
other providers and suppliers of Medicare services) to Medicare-
approved transplant centers. In the preamble of that final rule, we 
discussed our efforts to improve organ donation and transplantation 
services and our goals to: (1) Protect patients who are awaiting organs 
for transplantation; (2) establish key quality and procedural 
standards; and (3) improve outcomes for patients (such as patient 
survival) and reduce Medicare expenses by decreasing the likelihood 
that a transplant would fail.
    In the March 30, 2007 final rule, we codified the CoPs for 
transplant centers at 42 CFR Part 482, Subpart E (Sec. Sec.  482.68 
through 482.104) and the special procedures for approval and re-
approval of organ transplant centers at 42 CFR 488.61. The CoPs set 
forth explicit expectations for outcomes, patient safety, informed 
choice, and quality of transplantation services. In particular, 
Sec. Sec.  482.80 and 482.82 specify that a transplant center's 
outcomes are not acceptable if, among other factors, the number of 
observed patient deaths or graft failures 1 year after receipt of a 
transplant exceeds the risk-adjusted expected number by 1.5 times, 
based on the most recent program-specific report from the Scientific 
Registry of Transplant Recipients (SRTR).
    Failure to meet the transplant center requirements will lead CMS to 
deny approval or re-approval of a center's Medicare participation under 
Sec.  488.61. However, Sec. Sec.  488.61(a)(4) and (c)(4) authorize CMS 
to consider mitigating factors when determining approval and re-
approval, respectively, for a transplant center that has not met the 
data submission, clinical experience, or outcome requirements, or other 
CoPs, if the center submits a formal, written request for such a 
review. The existing regulations do not limit the factors that CMS may 
consider, but enumerates, at a minimum, the following factors to be 
considered: (1) The extent to which outcome measures are met or 
exceeded; (2) the availability of Medicare-approved transplant centers 
in the area; and (3) extenuating circumstances that may have a 
temporary effect on a transplant center meeting the requirements under 
the CoPs, such as a natural disaster. CMS approval or re-approval based 
on mitigating factors permits a transplant center to operate as a 
Medicare-approved transplant center under certain circumstances despite 
a finding of noncompliance. Under existing regulations at

[[Page 28284]]

Sec. Sec.  488.61(b)(4)(iv) and (c)(4)(iv), CMS will not approve a 
center with condition-level deficiencies but may re-approve a center 
with standard-level deficiencies.

B. Basis for Proposals in This Proposed Rule

    In this proposed rule, we are proposing to strengthen, clarify, and 
provide additional transparency for the survey, certification, and 
enforcement procedures under Sec.  488.61 for transplant centers that 
are requesting initial approval or re-approval for participation in the 
Medicare program when the centers have not met one or more of the CoPs 
but wish to have certain mitigating factors taken into consideration.
1. Proposed Expansion of Mitigating Factors Based on CMS' Experience
    The existing organ transplant enforcement regulation at Sec.  
488.61 does not provide detailed information on the factors generally 
needed for approval or re-approval of a request based on mitigating 
factors that a transplant center may make in order to participate, or 
continue to participate, in Medicare. However, since the adoption of 
the organ transplant CoPs and corresponding enforcement regulations, we 
have expanded our knowledge regarding: (a) The factors and processes 
that promote improvement in transplant center outcomes; and (b) other 
mitigating factors that merit explicit recognition under CMS 
regulations.
    The preponderance of requests for initial approval or re-approval 
based on mitigating factors that we have approved are for the 
transplant centers that have been able to effect substantial program 
improvements and, based on meaningful post-transplant survival data, 
demonstrated much-improved patient and graft survival subsequent to 
those program reforms. These performance improvements occurred after 
the program was cited for substandard performance by CMS and was at 
risk of losing Medicare participation, usually while the program was 
operating during the mitigating factors review process or under a 
binding Systems Improvement Agreement (SIA) with CMS. Under an SIA, CMS 
agrees to extend the effective date of a prospectively scheduled 
termination from Medicare participation (that is, denial of re-
approval) and holds in temporary abeyance a final review of the 
transplant center's mitigating factors request if the transplant center 
agrees to engage in a structured regimen of quality improvement to 
improve performance during a specified period of time. At the end of 
the SIA period (typically 12 months), we review the transplant center's 
performance and make a final decision as to whether: (a) The transplant 
center's patient and graft survival is within the acceptable limits set 
forth in the regulations; or (b) the transplant center qualifies for 
approval or re-approval based on mitigating factors.
    As of August 2013, CMS had rendered a final determination for 129 
requests for approval to operate as a Medicare-approved transplant 
center based on mitigating factors. Of those determinations, 48 of the 
requests (37.8 percent) were approved based on information provided by 
the transplant center on its mitigating factors alone (that is, without 
entering into an SIA) because the transplant center had implemented 
substantial program improvements during the extended CMS review period, 
and CMS concluded that the most recent patient and graft survival data 
(taking into consideration the lag time in data inherent in the SRTR 
reports) demonstrated compliance with outcome requirements; 33 of the 
requests (25.6 percent) were eventually approved on the basis of the 
transplant center's successful SIA completion and much-improved 
outcomes data for the affected program; 24 of the requests (18.6 
percent) involved transplant centers that were approved and the 
transplant centers were permitted to continue operation because CMS 
determined that the transplant centers met the outcome requirements 
during the time period it took for CMS to review the mitigating factors 
request; 2 of the requests (1.6 percent) were approved where the 
transplant center did not enter into a SIA but had made extensive use 
of innovative practices that were not included in the SRTR risk-
adjustment methodology; 2 of the requests (1.6 percent) were approved 
because natural disasters temporarily impacted the transplant centers; 
and 20 of the requests (15.5 percent) were denied because the center 
failed to meet the outcome or clinical experience requirements and 
therefore voluntarily withdrew its participation from the Medicare 
program.
2. Coordination With Efforts of the Organ Procurement and 
Transplantation Network (OPTN) and Health Resources and Services 
Administration
    When we adopted the outcome standards for transplant programs in 
2007, we sought to harmonize CMS' outcome standards with standards of 
the Organ Procurement and Transplantation Network (OPTN) so that 
transplant centers would have a single, consistent set of outcome 
expectations on which to focus. We also sought to organize CMS 
activities in a manner that would reinforce and continue the OPTN as 
the first line of external review and quality improvement for 
transplant centers.
    The OPTN is the unified transplant network established under the 
National Organ Transplant Act (NOTA) of 1984. The NOTA called for the 
network to be operated by a private, nonprofit organization under 
Federal contract. The OPTN is a public-private partnership that links 
all of the professionals involved in the donation and transplantation 
system. The primary goals of the OPTN are to: (a) Increase the 
effectiveness and efficiency of organ-sharing and equity in the 
national system of organ allocation; and (b) increase the supply of 
donated organs available for transplantation. For more details about 
the OPTN, we refer readers to the Web site at: http://optn.transplant.hrsa.gov/optn/profile.asp.
    The OPTN and the Health Resources and Services Administration 
(HRSA) are considering adoption of an alternative methodology for 
calculating expected transplant outcomes, known as the ``Bayesian'' 
methodology, and for setting a threshold that would ``flag'' a 
transplant center for OPTN review of performance. However, CMS has 
insufficient experience with the new ``Bayesian'' methodology, and 
insufficient data to determine an appropriate threshold for a Medicare 
outcomes deficiency under a ``Bayesian'' methodology. Therefore, we are 
not proposing any changes in our regulations regarding this new 
methodology. However, we wish to continue to coordinate with, and 
reinforce, the OPTN's efforts if the OPTN chooses to adopt a new 
methodology. Therefore, we are proposing that if a program has been 
cited for an outcomes deficiency by CMS, but has not been flagged for 
review by the OPTN, CMS would take these facts into consideration if 
the transplant program has requested approval based on mitigating 
factors. For a perspective on the ``Bayesian'' methodology, we refer 
readers to the Web site at: http://www.srtr.org/faqs/16.aspx.

C. Provisions of the Proposed Regulations

    We are proposing to revise the regulations at Sec.  488.61 to 
include specific additional provisions describing and expanding the 
mitigating factors that CMS may consider when determining requests and 
explain the conditions under which each factor would apply.

[[Page 28285]]

1. Proposed Expansion of Mitigating Factors List
    Existing Sec. Sec.  488.61(a)(4) and (c)(4) provide three specific 
mitigating factors for review by CMS when determining whether a 
transplant center can be approved or re-approved, respectively, based 
on mitigating factors. These mitigating factors are: (1) The extent to 
which outcome measures are met or exceeded; (2) the availability of 
Medicare-approved transplant centers in the area; and (3) extenuating 
circumstances that may have a temporary effect on meeting the CoPs. We 
are proposing to move the listing of mitigating factors from paragraphs 
(a)(4)(i) through (a)(4)(iii) and (c)(4)(i) through (c)(4)(iii) to new 
proposed paragraphs (f), (g), and (h) under Sec.  488.61, and to 
include additional factors under these three new proposed paragraphs 
that may be reviewed in addition to the existing three factors. We are 
proposing to move existing paragraphs (a)(4)(iv) and (c)(4)(iv) to the 
proposed new paragraph (g)(2). We also are proposing to provide 
clarification of the existing three mitigating factors and the 
conditions under which they would apply. Finally, we are proposing to 
revise existing paragraphs (a)(4) and (c)(4) of Sec.  488.61 to include 
cross-references to the new proposed paragraphs (f), (g), and (h).
    Under proposed new paragraph (f) of Sec.  488.61, we are proposing 
to relist the existing three mitigating factors under paragraphs 
(a)(4)(i) through (a)(4)(iii) and paragraphs (c)(4)(i) through 
(c)(4)(iii) and expand the mitigating factors that CMS may consider by 
adding more description to those factors, as well as by adding new 
factors for review. We also are proposing to specify the procedures and 
timeframes for transplant centers to request consideration for approval 
based on mitigating factors.
    Specifically, in proposed new paragraph (f)(1), we are proposing to 
specify the mitigating factors, except for situations of immediate 
jeopardy, as follows:
     The extent to which outcome measures are not met or 
exceeded (existing paragraphs (a)(4)(i) and (c)(4)(i); now proposed 
paragraph (f)(1)(i)).
     Availability of Medicare-approved transplant centers in 
the area (existing paragraphs (a)(4)(ii) and (c)(4)(ii); now proposed 
paragraph (f)(1)(ii)).
     Extenuating circumstances (for example, natural disaster) 
that may have a temporary effect on meeting the CoPs (existing 
paragraphs (a)(4)(iii) and (c)(4)(iii); now proposed paragraph 
(f)(1)(iii)).
     Program improvements that substantially address root 
causes of graft failures or patient deaths and that have been 
implemented and institutionalized on a sustainable basis (proposed new 
paragraph (f)(1)(iv)).
     Recent patient and graft survival data to determine if 
there is sufficient clinical experience and survival for CMS to 
conclude that the program is in compliance with CMS requirements, 
except for the data lag inherent in the reports from the SRTR (proposed 
new paragraph (f)(1)(v)).
     Extensive use of innovative transplantation practices 
relative to other transplant programs, such as a high rate of 
transplantation of individuals who are highly sensitized or children 
who have undergone the Fontan procedure, where CMS finds that the 
innovative practices are supported by evidence-based, published 
research or nationally recognized standards or Institutional Review 
Board (IRB) approvals, and the SRTR risk-adjustment methodology does 
not take the relevant key factors into consideration (proposed new 
paragraph (f)(1)(vi)).
     The program's performance, based on the OPTN method of 
calculating patient and graft survival, is within the OPTN's thresholds 
for acceptable performance and does not flag OPTN performance review 
under the applicable OPTN policy (proposed new paragraph (f)(1)(vii)).
    Under proposed new paragraph (f)(2), we are proposing to include 
details on the content of the request for consideration of mitigating 
factors, based on examples that have proven to be most useful in 
considering successful mitigating requests. Specifically, we are 
proposing that a request for consideration of mitigating factors 
include sufficient information to permit an adequate review and 
understanding of the transplant program, the factors that have 
contributed to outcomes, program improvements or innovations that have 
been implemented or planned, and, in the case of natural disasters, the 
recovery actions planned. Examples of information to be submitted with 
each request could include, but are not limited to, the following:
    (i) The name and contact information for the transplant hospital 
and the names and roles of key personnel of the transplant program;
    (ii) The type of organ transplant program(s) for which approval is 
requested;
    (iii) The CoPs that the program failed to meet, and with respect to 
which the transplant center is requesting CMS' review of mitigating 
factors;
    (iv) The rationale and relevant supporting evidence for CMS' review 
must include, but not be limited to--
    [cir] Root Cause Analysis of patient deaths and graft failures, 
including factors the program has identified as likely causal or 
contributing factors for patient deaths and graft failures;
    [cir] Program improvements or innovations (where applicable) that 
have been implemented and improvements that are planned;
    [cir] Patient and donor/organ selection criteria and evaluation 
protocols, including methods for pre-transplant patient evaluation by 
cardiologists, hematologists, nephrologists, and psychiatrists or 
psychologists, to the extent applicable;
    [cir] Organizational chart with full-time equivalent levels, roles, 
and structure for reporting to hospital leadership;
    [cir] Waitlist management protocols and practices relevant to 
outcomes;
    [cir] Pre-operative management protocols and practices;
    [cir] Immunosuppression/infection prophylaxis protocols;
    [cir] Post-transplant monitoring and management protocols and 
practices;
    [cir] Quality Assessment and Performance Improvement (QAPI) Program 
meeting minutes from the most recent four meetings and attendance 
rosters from the most recent 12 months;
    [cir] Quality dashboard and other performance indicators;
    [cir] Recent outcomes data for both patient survival and graft 
survival; and
    [cir] Documentation of whether the program has engaged with the 
OPTN to review program outcomes, the status of any such review, and any 
steps taken to address program outcomes in accordance with the OPTN 
review.
    Under proposed new paragraph (f)(3), we are proposing to specify a 
timeline for the transplant program to submit a request for mitigating 
factors and to make clear that, for requests related to clinical 
experience or outcomes, the program has additional time within which to 
submit supporting information. Specifically, we are proposing that 
within 10 days after CMS has issued formal written notice of a 
condition-level deficiency to the program, CMS must receive notice of 
the program's request to seek consideration of mitigating factors. CMS 
would require that all information necessary for consideration be 
received within 30 days of CMS' initial notification for any 
deficiency, except a deficiency based on insufficient clinical 
experience or outcomes; and within 120 days of CMS' written 
notification for a

[[Page 28286]]

deficiency based on insufficient clinical experience or outcomes. 
Failure of a transplant program to meet these timeframes may be the 
basis for denial of requests for consideration based on mitigating 
factors.
2. Content and Timeframe for Mitigating Factors Requests
    Under proposed new Sec.  488.61(g), we propose to clarify and 
expand on the description of the mitigating factors application and 
review process. Under existing regulations, a transplant center seeking 
initial approval or re-approval of Medicare participation based on the 
presence of mitigating factors is required to submit a formal written 
request to the CMS Central Office, as described earlier. If there are 
no deficiencies that constitute immediate jeopardy to a patient's 
health and safety, in limited circumstances, CMS may approve continued 
Medicare participation based on mitigating factors. However, where a 
transplant program demonstrates that it is making significant progress 
toward correction and program improvement, but does not yet qualify for 
approval based on mitigating factors, we believe there may be merit in 
many cases to temporarily extend the effective date of the program's 
Medicare participation termination in exchange for a hospital's 
agreement to engage in a significant and directed regimen of further 
quality improvement under a Systems Improvement Agreement (SIA). As we 
noted above, programs that have entered into SIAs have demonstrated 
significant improvements. Therefore, we are proposing to provide an 
explicit procedure in the regulations at proposed new Sec.  
488.61(g)(1)(iii) for CMS to offer an SIA and hold in abeyance a final 
decision on the mitigating factors request until the SIA period has 
ended. Proposed new paragraphs (g)(1)(i), (g)(1)(ii), and (g)(1)(iii) 
outline the three outcomes of CMS mitigating factors decisions: (i) 
Initial approval or re-approval of a program's Medicare participation 
based upon consideration of mitigating factors; (ii) denial of the 
program's request; or (iii) offer of a time-limited SIA when a 
transplant program has waived its appeal rights, has committed to 
substantial program improvements that address root causes and are 
institutionally supported by the hospital's governing body on a 
sustainable basis, and has requested more time to design or implement 
additional improvements or demonstrate compliance with CMS outcome 
requirements. The proposed new paragraph (g)(1)(iii) would clarify 
that, during the SIA, CMS holds the mitigating factors request in 
abeyance and makes a final decision to approve or deny Medicare 
participation when the SIA is ended, based on the results of the 
program's performance of the SIA.
    Existing regulations at Sec. Sec.  488.61(a)(4)(iv) and (c)(4)(iv)) 
state that CMS will not approve any program with a condition-level 
deficiency. However, CMS could approve a program with a standard-level 
deficiency upon receipt of an acceptable plan of correction. A 
condition-level deficiency represents a serious classification and, 
unless the deficiency is remedied, precludes a provider from 
participating in Medicare. A standard-level deficiency represents a 
less serious deficiency, such as one in which just a small part of a 
CoP is found to be out of compliance. We are proposing to move this to 
the proposed new paragraph Sec.  488.61(g)(2).
3. System Improvement Agreements (SIAs)
    We are proposing to add proposed new paragraph (h) to Sec.  488.61 
to set forth the purpose, intent, and contents of an SIA and the 
timeframes for an approved SIA with CMS.
a. Purpose and Intent of an SIA
    Based on information and documentation provided by the transplant 
program at the time of its request, CMS may determine that, despite a 
deficiency or deficiencies, the transplant center has made substantial 
progress, has full support of the hospital governing body, and is on a 
quality improvement path that promises to improve prospects for patient 
survival. In such cases, we exercise our limited discretion to offer 
the transplant program the opportunity to enter into an SIA. In the 
absence of a written request for consideration on the basis of 
mitigating factors, CMS would otherwise proceed with the proposed date 
of termination based on noncompliance with one or more of the CoPs. In 
this proposed regulation, we are clarifying and specifying the terms 
for such SIAs.
    CMS may offer an SIA to a transplant program if the transplant 
center can show that it has identified, or is actively improving its 
identification of, the root causes of its noncompliance and if the 
transplant center has initiated actions to correct those root causes. 
However, if we conclude that a transplant center does not qualify for 
initial approval or re-approval based on mitigating factors, the 
proposed rule would explicitly provide CMS with the option of offering 
a time-limited SIA to those transplant centers that have demonstrated 
progress in making substantive program improvements to address root 
causes of deficient outcomes, agree to undertake a structured regimen 
of further quality improvement, and agree to waive their appeal rights. 
In some instances, a voluntary period of inactivity of the transplant 
center is warranted, or a period of inactivity may be required by CMS 
as a condition of an SIA approval, as a requirement of initiating an 
SIA for a specified period, or until certain milestones are achieved.
    During the SIA period, CMS' oversight and enforcement authority 
continue and CMS may conduct routine unannounced surveys, complaint 
investigations, and/or terminate the transplant center's participation 
in the Medicare program if there is not substantial compliance with 
Federal requirements under 42 CFR Part 482 or if the program fails to 
follow the terms of the SIA. In consideration for the opportunity to 
continue to participate in the Medicare program under an SIA during the 
time that structured improvements and corrections are made, despite 
having been found to be in noncompliance with the requirements, a 
transplant center would be required to waive any appeal rights that 
they may have, either administratively or judicially, if CMS ultimately 
terminates Medicare participation or denies initial approval of the 
transplant center. We are proposing that such a waiver applies, 
regardless of whether revocation or termination of approval/re-approval 
occurs due to a finding that the hospital failed to fulfill the terms 
of the SIA or due to the deficiency findings that the SIA was designed 
to address, pursuant to CMS' enforcement authority under the 
regulations.
    A transplant center's approval to operate as a Medicare-approved 
transplant center does not guarantee any subsequent re-approvals and 
may be time-limited. The transplant center must submit a separate 
request for consideration of mitigating factors, including updated 
supporting documentation each time a CMS review (generally a 3-5 year 
cycle) or complaint investigation determines that the transplant center 
does not meet one or more of the data submission, clinical experience, 
and outcomes requirements, or other CoPs. At such time, we would review 
any prior mitigating factors approval to determine if the circumstances 
that originally warranted approval would still apply. However, in the 
case of past mitigating factors approval based on innovative practice, 
CMS may seek information in advance of a recertification survey to 
determine

[[Page 28287]]

if the reasons for past approval still prevail and, in such a case, CMS 
may consider mitigating factors concomitantly with the recertification 
survey.
b. Description and Contents of an SIA
    The SIA is a binding agreement between CMS and the hospital within 
which a transplant center operates. A transplant center, in turn, may 
have one or more organ-specific programs, such as a heart, kidney, 
pancreas, liver, or lung transplant program. Each SIA is focused on a 
particular organ transplant program. The SIA is a plan for a series of 
actions, activities, and goals that provide opportunities for the 
hospital and transplant center to conduct internal improvement analysis 
and action, and engage external experts to ensure that the transplant 
center is in compliance with evidence-based standards and advances in 
the field that would optimize the care provided to patients.
    Through an SIA, CMS is able to offer transplant centers additional 
time to achieve compliance with the CoPs through a structured and 
monitored process. In particular, the use of the formal SIA process 
reflects CMS' recognition that it may sometimes require more than the 
usual time to correct the 1-year post-transplant patient or graft 
survival and have the results of such improvement become manifest in 
the tracking data, or to develop and implement a plan to correct low-
volume performance rates. We generally do not expect to use an SIA in 
cases of noncompliance with other CoPs, although we do not preclude 
such a possibility if highly unusual circumstances are present.
    The SIA process (discussed in more detail below) has demonstrated 
effectiveness in improving patient and graft survival. An important 
measure of outcome is the extent to which observed patient deaths 1 
year after transplant compare with the risk-adjusted expected number of 
deaths or graft failure for a particular transplant program. The SRTR 
risk adjustment methodology (used to calculate the expected numbers) 
takes into consideration the organs transplanted and the 
characteristics of the donors and recipients (for example, factors that 
have a bearing on the risk to patient or graft survival, such as 
diabetes, hypertension, advanced age, cold ischemic time of the organ 
to be transplanted, among others). For example, the national number of 
expected deaths 1 year after transplant for all transplant centers in 
the United States is 1.0. A transplant center that had twice the 
expected number of deaths would have a standardized mortality ratio 
(SMR) of 2.0. As of August 2013, adult kidney transplant programs cited 
by CMS for substandard outcomes and placed on a Medicare enforcement 
track, for which there was a 2-year post-CMS survey tracking period 
(N=15), improved their average SMR for 1-year post-transplant patient 
survival performance rate from 2.05 to 1.17 (close to the 1.0 national 
average). The transplant centers under an approved SIA improved their 
outcomes from an average SMR ranging from 2.41 before the SIA to 0.76 
after the SIA (much better than the national average). Transplant 
centers not cited for substandard kidney transplant outcomes improved 
outcomes slightly from 0.89 to 0.84.\185\
---------------------------------------------------------------------------

    \185\ Hamilton, Thomas E., Regulatory Oversight in 
Transplantation: Are Patients Really Better Off, Curr Opin Organ 
Transplant 2013, 18:203-209. Available at: at http://www.co-transplantation.com.
---------------------------------------------------------------------------

    The proposed new Sec.  488.61(h) explicitly incorporates and 
specifies elements that have been important to the successful use of 
the SIA structure. We propose to define an SIA as a binding agreement, 
entered into voluntarily by the hospital and CMS, through which CMS 
extends the effective date of a prospectively scheduled termination of 
the center's Medicare participation (thereby permitting the program 
additional time to achieve compliance with the CoPs), contingent on the 
hospital's agreement to participate in a structured regimen of quality 
improvement activities and subsequent demonstration of improved 
outcomes. In some cases, transplant programs have entered a period of 
inactivity--voluntarily, or imposed as a condition of the SIA.
    Under proposed new Sec.  488.61(h)(1)(i) through (h)(1)(x), we are 
proposing that in the SIA, in exchange for additional time to initiate 
or continue activities to achieve compliance with the CoPs, the 
transplant center must agree to a regimen of specified activities, 
including (but not limited to) all of the following:
     Patient notification about the degree and type of 
noncompliance by the program, an explanation of what the program 
improvement efforts mean for patients, and financial assistance to 
defray the out-of-pocket costs of copayments and testing expenses for 
any wait-listed individual who wishes to be listed with another program 
(proposed paragraph (h)(1)(i)).
     An external independent peer review team that conducts an 
onsite assessment of program policies, staffing, operations, 
relationship to hospital services, and factors that contribute to 
program outcomes; that suggests quality improvements the hospital 
should consider; that provides both verbal and written feedback to the 
hospital; and that provides a verbal debriefing to CMS. Neither the 
hospital nor the peer review team may be required to provide a written 
report to CMS. The peer review team would include a transplant surgeon 
with expertise in the relevant organ type(s), a transplant 
administrator, an individual with expertise in transplant QAPI systems, 
a social worker or psychologist or psychiatrist, and a specialty 
physician with expertise in conditions particularly relevant to the 
applicable organ types(s) such as a cardiologist, nephrologist, or 
hepatologist. Except for the transplant surgeon, CMS may permit 
substitution of an individual with one type of expertise for another 
individual who has expertise particularly needed for the type of 
challenges experienced by the program, such as substitution of an 
infection control specialist in lieu of, or in addition to, a social 
worker (proposed paragraph (h)(1)(ii)).
     An action plan that addresses systemic quality 
improvements and is updated after the onsite peer review (proposed 
paragraph (h)(1)(iii)).
     An onsite consultant whose qualifications are approved by 
CMS, and who provides services for 8 days per month on average for the 
duration of the agreement, except that CMS may permit a portion of the 
time to be spent offsite and may agree to fewer consultant days each 
month after the first 3 months of the SIA (proposed paragraph 
(h)(1)(iv)).
     A comparative effectiveness analysis that compares 
policies, procedures, and protocols of the transplant program with 
those of other programs in areas of endeavor that are relevant to the 
transplant center's current quality improvement needs (proposed 
paragraph (h)(1)(v)).
     Development of increased proficiency, or demonstration of 
current proficiency, with patient-level data from the SRTR and the use 
of registry data to analyze outcomes and inform quality improvement 
efforts (proposed paragraph (h)(1)(vi)).
     A staffing analysis that examines the level, type, 
training, and skill of staff in order to inform transplant center 
efforts to ensure the engagement and appropriate training and 
credentialing of staff (proposed paragraph (h)(1)(vii)).
     Activities to strengthen performance of the Quality 
Assessment and Performance Improvement (QAPI) Program to ensure full 
compliance with

[[Page 28288]]

the requirements at Sec.  482.96 (proposed paragraph (h)(1)(viii)).
     Monthly (unless otherwise specified) reporting and 
conference calls with CMS regarding the status of programmatic 
improvements, the results of the actions, data, reports, or other 
deliverables specified in the SIA, and regarding the number of 
transplants, the death and graft failures that occur within 1 year 
post-transplant (proposed paragraph (h)(1)(ix)).
     Additional or alternative requirements specified by CMS, 
tailored to the transplant program type and circumstances (proposed 
paragraph (h)(1)(x)).
c. Effective Period for an SIA
    Under proposed new Sec.  488.61(h)(2), we are proposing to specify 
that an SIA will be established for a 12-month period, subject to CMS' 
discretion to determine if a shorter time period would suffice. At the 
hospital's request and at CMS's discretion, CMS may extend an SIA for 
up to one additional 6-month period.

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 2014 ``Report 
to the Congress: Medicare Payment Policy'' and have given the 
recommendations in the report consideration in conjunction with the 
proposed policies set forth in this proposed rule. MedPAC 
recommendations for the IPPS for FY 2015 are addressed in Appendix B to 
this proposed 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. Data files and the cost for each file, if 
applicable, are listed below. Anyone wishing to purchase data tapes, 
cartridges, or diskettes should submit a written request along with a 
company check or money order (payable to CMS-PUF) to cover the cost to 
the following address: Centers for Medicare & Medicaid Services, Public 
Use Files, Accounting Division, P.O. Box 7520, Baltimore, MD 21207-
0520, (410) 786-3691. Files on the Internet may be downloaded without 
charge.
1. CMS Wage Data Public Use File
    This file contains the hospital hours and salaries from Worksheet 
S-3, Parts II and III from FY 2011 Medicare cost reports used to create 
the proposed FY 2015 prospective payment system wage index. Multiple 
versions of this file are created each year. For a complete schedule on 
the release of different versions of this file, we refer readers to the 
wage index schedule in section III.J. of the preamble of this proposed 
rule.

------------------------------------------------------------------------
    Processing year           Wage data year          PPS fiscal year
------------------------------------------------------------------------
            2014                     2011                    2015
            2013                     2010                    2014
            2012                     2009                    2013
            2011                     2008                    2012
            2010                     2007                    2011
            2009                     2006                    2010
            2008                     2005                    2009
            2007                     2004                    2008
------------------------------------------------------------------------

    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Periods Available: FY 2007 through FY 2015 IPPS Update.
2. CMS Occupational Mix Data Public Use File
    This file contains the 2010 occupational mix survey data to be used 
to compute the occupational mix adjustment wage indexes. Multiple 
versions of this file are created each year. For a complete schedule on 
the release of different versions of this file, we refer readers to the 
wage index schedule in section III.J. of the preamble of this proposed 
rule.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Period Available: FY 2015 IPPS Update.
3. Provider Occupational Mix Adjustment Factors for Each Occupational 
Category Public Use File
    This file contains each hospital's occupational mix adjustment 
factors by occupational category. Two versions of these files are 
created each year to support the rulemaking.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Period Available: FY 2015 IPPS Update.
4. Other Wage Index Files
    CMS releases other wage index analysis files after each proposed 
and final rule.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Periods Available: FY 2005 through FY 2015 IPPS Update.
5. FY 2015 IPPS SSA/FIPS CBSA State and County Crosswalk
    This file contains a crosswalk of State and county codes used by 
the Social Security Administration (SSA) and the Federal Information 
Processing Standards (FIPS), county name, and a historical list of 
Metropolitan Statistical Areas (MSAs).
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Period Available: FY 2015 IPPS Update.
6. HCRIS Cost Report Data
    The data included in this file contain cost reports with fiscal 
years ending on or after September 30, 1996. These data files contain 
the highest level of cost report status.
    Media: Internet at: http://www.cms.hhs.gov/CostReports/02_HospitalCostReport.asp and Compact Disc (CD).
    File Cost: $100.00 per year.
7. Provider-Specific File
    This file is a component of the PRICER program used in the MAC's 
system to compute DRG/MS-DRG payments for individual bills. The file 
contains records for all prospective payment system eligible hospitals, 
including hospitals in waiver States, and data elements used in the 
prospective payment system recalibration processes and related 
activities. Beginning with December 1988, the individual records were 
enlarged to include pass-through per diems and other elements.
    Media: Internet at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/03_psf_text.asp.
    Period Available: Quarterly Update.
8. CMS Medicare Case-Mix Index File
    This file contains the Medicare case-mix index by provider number 
as published in each year's update of the

[[Page 28289]]

Medicare hospital inpatient prospective payment system. The case-mix 
index is a measure of the costliness of cases treated by a hospital 
relative to the cost of the national average of all Medicare hospital 
cases, using DRG/MS-DRG weights as a measure of relative costliness of 
cases. Two versions of this file are created each year to support the 
rulemaking.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Periods Available: FY 1985 through FY 2015.
9. MS-DRG Relative Weights (Also Table 5--MS-DRGs)
    This file contains a listing of MS-DRGs, MS-DRG narrative 
descriptions, relative weights, and geometric and arithmetic mean 
lengths of stay for the annual rulemaking. There are two versions of 
this file to support the rulemaking. (We note that Table 5 is issued 
concurrently with the proposed rule and the final rule and is available 
only via the Internet on the CMS Web site.)
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Periods Available: FY 2005 through FY 2015 IPPS Update.
10. IPPS Payment Impact File
    This file contains data used to estimate payments under Medicare's 
hospital inpatient prospective payment systems for operating and 
capital-related costs. The data are taken from various sources, 
including the Provider-Specific File, HCRIS Cost Report Data, Minimum 
Data Sets, and prior impact files. The data set is abstracted from an 
internal file used for the impact analysis of the changes to the 
prospective payment systems published in the Federal Register. Two 
versions of this file are created each year to support the rulemaking.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/HIF/list.asp#TopOfPage.
    Periods Available: FY 1994 through FY 2015 IPPS Update.
11. AOR/BOR Tables
    This file contains data used to develop the MS-DRG relative 
weights. It contains mean, maximum, minimum, standard deviation, and 
coefficient of variation statistics by MS-DRG for length of stay and 
standardized charges. The BOR tables are ``Before Outliers Removed'' 
and the AOR is ``After Outliers Removed.'' (Outliers refer to 
statistical outliers, not payment outliers.)
    Two versions of this file are created each year to support the 
rulemaking.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Periods Available: FY 2005 through FY 2015 IPPS Update.
12. Prospective Payment System (PPS) Standardizing File
    This file contains information that standardizes the charges used 
to calculate relative weights to determine payments under the hospital 
inpatient operating and capital prospective payment systems. Variables 
include wage index, cost-of-living adjustment (COLA), case-mix index, 
indirect medical education (IME) adjustment, disproportionate share, 
and the Core-based Statistical Area (CBSA). The file supports the 
rulemaking.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Period Available: FY 2015 IPPS Update.
13. Hospital Readmissions Reduction Program File
    This file contains information on the calculation of the Hospital 
Readmissions Reduction Program payment adjustment. Variables include 
the proxy excess readmission ratios for acute myocardial infarction, 
pneumonia and heart failure and the proxy readmissions payment 
adjustment for each provider included in the program. The file supports 
the rulemaking.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Period Available: FY 2015 IPPS Update.
14. Medicare Disproportionate Share Hospital (DSH) Supplemental File
    This file contains information on the calculation of the 
uncompensated care payments for FY 2015. Variables include a hospital's 
SSI days and Medicaid days used to determine a hospital's share of 
uncompensated care payments, total uncompensated care payments and 
estimated per claim uncompensated care payment amounts. The file 
supports the rulemaking.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Period Available: FY 2015 IPPS Update.
15. Hospital-Acquired Condition (HAC) Reduction Program File
    This file contains information on the calculation of the payment 
adjustment under the HAC Reduction Program. Variables include the 
current estimate of a hospital's total HAC Score for use in the FY 2015 
HAC reduction program, the associated percentile, and a flag if the 
hospital would be subject to the FY 2015 reduction under section 
1886(p)(1) of the Act based on this percentile. The file supports the 
rulemaking.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Period Available: FY 2015 IPPS Update.
    For further information concerning these data tapes, contact the 
CMS Public Use Files Hotline at (410) 786-3691.
    Commenters interested in discussing any data used in constructing 
this proposed rule should contact Nisha Bhat at (410) 786-5320.

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments
    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In this proposed rule, we are soliciting public comment on each of 
these issues for the following sections of this document that contain 
information collection requirements (ICRs).
2. ICRs for Add-On Payments for New Services and Technologies
    Section II.I.1. of the preamble of this proposed rule discusses 
add-on payments for new services and technologies. Specifically, this 
section states that applicants for add-on payments for new medical 
services or technologies for FY 2016 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

[[Page 28290]]

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, FY 2014, 
and FY 2015, we received 1, 4, 5, 3, 3, 5, 5, and 7 applications, 
respectively.
3. ICRs for the Proposed Occupational Mix Adjustment to the Proposed FY 
2015 Index (Hospital Wage Index Occupational Mix Survey)
    Section III.F. of the preamble of this proposed rule discusses the 
occupational mix adjustment to the proposed FY 2015 wage index, 
respectively. While the preamble of this proposed rule 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 this proposed rule discusses 
proposed changes to the wage index based on hospital reclassifications. 
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 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. The burden associated 
with this requirement is subject to the PRA. It is currently approved 
under OCN 0938-0573.
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 IV.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 no longer use 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 sought OMB approval for a revised information collection 
request using the same OMB control number (0938-1022). The FY 2014 
IPPS/LTCH PPS final rule (78 FR 50955) does not change the method for 
information collection requests. In a revised request for the FY 2017 
payment determination, we will add the 4 claims-based measures that we 
are proposing in this proposed rule: (1) Hospital 30-day, all-cause, 
unplanned, risk-standardized readmission rate (RSRR) following coronary 
artery bypass graft (CABG) surgery; (2) Hospital 30-day, all-cause, 
risk-standardized mortality rate (RSMR) following coronary artery 
bypass graft (CABG) surgery; (3) Hospital-level, risk-standardized 30-
day episode-of-care payment measure for pneumonia; and (4) Hospital-
level, risk-standardized 30-day episode-of-care payment measure for 
heart failure. We will also add the chart-abstracted measure we are 
proposing in this proposed rule: Severe sepsis and septic shock: 
management bundle (NQF0500).
    In addition, we believe there will be a reduction in the burden 
associated with the removal of 20 total measures proposed for removal 
in this rule: \186\ (1) AMI-1 Aspirin at Arrival; (2) AMI-3 ACEI/ARB 
for left ventricular systolic dysfunction; (3) AMI-5 Beta-blocker 
prescribed at discharge; (4) AMI-8a Timing of Receipt of Primary 
Percutaneous Coronary Intervention (PCI); (5) HF-2 Evaluation of left 
ventricular systolic function; (6) SCIP-INF-1 Prophylactic antibiotic 
received within 1 hour prior to surgical incision; (7) SCIP-INF-2 
Prophylactic antibiotic selection for surgical patients; (8) SCIP INF-3 
Prophylactic antibiotics discontinued within 24 hours after surgery end 
time (48 hours for cardiac surgery); (9) SCIP INF-4: Cardiac surgery 
patients with controlled 6AM postoperative serum glucose; (10) SCIP 
INF-6 Appropriate hair removal; (11) SCIP-INF-9 Postoperative urinary 
catheter removal on post-operative day 1 or 2 with day of surgery being 
day zero; (12) SCIP-VTE-2: Surgery patients who received appropriate 
VTE prophylaxis within 24 hours pre/post-surgery; (13) SCIP 
Cardiovascular-2: Surgery Patients on a Beta Blocker prior to arrival 
who received a Beta Blocker during the perioperative period; (14) PN-6 
Appropriate initial antibiotic

[[Page 28291]]

selection; (15) STK-2 Antithrombotic therapy for ischemic stroke; (16) 
STK-3 Anticoagulation therapy for Afib/flutter; (17) STK-5 
Antithrombotic therapy by the end of hospital day 2; (18) STK-10 
Assessed for rehab; and (19) VTE-4 Patients receiving un-fractionated 
Heparin with doses/labs monitored by protocol, and (20) one structural 
measure: Participation in a systematic database for cardiac surgery.
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    \186\ We note that some of these measures are being proposed to 
be removed as chart-abstracted measures, but are being proposed to 
be retained as electronic clinical quality measures. We refer 
readers to section IX.A.2.b. of the preamble of this proposed rule 
for further discussion.
---------------------------------------------------------------------------

    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 for the four proposed claims-based measures. However, we 
believe that the proposed chart-abstracted measure will cause some 
additional burden. For the FY 2017 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. The table below describes the hospital burden 
associated with the all Hospital IQR Program requirements.

                                                   Burden Impact of Hospital IQR Program Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Burden per hospital for      Burden per hospital for all
Hospital IQR program requirement   Number of hospitals impacted        previously finalized          requirements as proposed     Net change in  burden
                                                                           requirements            (continuing, removed, added)       per  hospital
--------------------------------------------------------------------------------------------------------------------------------------------------------
Chart-abstracted and structural   3,300.........................  1,291 hours...................  963 hours....................  -328 hours.
 measures, forms.
Review reports for claims-based   3,300.........................  4 hours.......................  4 hours......................  0.
 measures.
Reporting of voluntary            Unknown.......................  -570 hours....................  -554 hours...................  16 hours.
 electronic clinical quality
 measures (E-CQM) in place of
 chart-abstracted measures.
Validation templates............  Up to 600.....................  144 hours.....................  144 hours....................  0.
E-CQM validation test...........  Up to 100.....................  0.............................  16 hours.....................  16 hours.
Validation charts photocopying..  Up to 600.....................  $8,640........................  $8,496.......................  -$144.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In addition, we believe that there will be a reduction in burden 
for 15 of the 20 chart-abstracted measures that we are proposing for 
removal: (1) AMI-8a Timing of Receipt of Primary Percutaneous Coronary 
Intervention (PCI); (2) HF-2 Evaluation of left ventricular systolic 
function; (3) SCIP-INF-1 Prophylactic antibiotic received within 1 hour 
prior to surgical incision; (4) SCIP-INF-2 Prophylactic antibiotic 
selection for surgical patients; (5) SCIP INF-3 Prophylactic 
antibiotics discontinued within 24 hours after surgery end time (48 
hours for cardiac surgery); (6) SCIP INF-4: Cardiac surgery patients 
with controlled 6AM postoperative serum glucose; (7) SCIP-INF-9 
Postoperative urinary catheter removal on postoperative day 1 or 2 with 
day of surgery being day zero; (8) SCIP-VTE-2: Surgery patients who 
received appropriate VTE prophylaxis within 24 hours pre/postsurgery; 
(9) SCIP Cardiovascular-2: Surgery Patients on a Beta Blocker prior to 
arrival who received a Beta Blocker during the perioperative period; 
(10) PN-6 Appropriate initial antibiotic selection; (11) STK-2 
Antithrombotic therapy for ischemic stroke; (12) STK-3 Anticoagulation 
therapy for Afib/flutter; (13) STK-5 Antithrombotic therapy by the end 
of hospital day 2; (14) STK-10 Assessed for rehab; and (15) VTE-4 
Patients receiving un-fractionated Heparin with doses/labs monitored by 
protocol.
    The four chart-abstracted measures that we are proposing to remove 
have been suspended from the program; therefore, their removal will not 
impact the reporting burden. The structural measure we have proposed to 
remove, participation in a systematic database for cardiac surgery (NQF 
0113), has an estimated a burden of nearly zero hours; 
therefore, its removal will not result a reduction in a significant 
burden reduction. Therefore, for the FY 2017 payment determination, we 
estimate a reduction in burden from our proposed removal of 20 measures 
(both chart-abstracted and structural) to be 1,775 hours annually per 
hospital. We estimate the total reduction in burden for chart 
abstraction and structural measures for the approximately 3,300 
Hospital IQR Program-participating hospitals to be 5.86 million hours.
    Utilizing the estimates above, we estimate an overall reduction in 
burden from the from the FY 2016 estimate of 5.9 million hours annually 
to 3.7 million hours annually for the FY 2017 payment determination 
year. This burden estimate includes both the new proposed measures and 
the measures which we are reproposing. It excludes the burden 
associated with the NHSN and HCAHPS measures, both of which are 
submitted under separate information collection requests and are 
approved under separate OMB control numbers.
    We intend to enroll up to 100 hospitals in a voluntary large scale 
test of validation for electronic clinical quality measures for the 
Hospital IQR Program. We estimate a total of 16 hours each. We intend 
to reimburse hospitals $26 per hour for up to 16 hours for their 
participation in this test. Details regarding this reimbursement rate 
are as follows:
     The labor performed can be accomplished by medical records 
and health information technology staff, with a mean hourly wage in 
general medical and surgical hospitals of $19.24.\187\
---------------------------------------------------------------------------

    \187\ In May 2012, the hourly wage was $18.68. Occupational 
employment and wages, May 2012, 29-2071 Medical records and health 
information technicians. Bureau of Labor Statistics, http://www.bls.gov/oes/2012/may/oes292071.htm, last accessed 3/31/2014. We 
increased this wage by 3.0 percent to account for inflation in the 
past 24 months. U.S. Inflation Calculator. http://www.usinflationcalculator.com/inflation/current-inflation-rates/, 
last accessed 3/31/2014.
---------------------------------------------------------------------------

     Applying OMB Circular A-76, we assumed full fringe 
benefits of 36.25 percent, for a fully burdened labor rate of $26.25 
per hour, rounding to $26 per hour, that accounts for the full cost of 
labor. The circular is available at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a076/a76_incl_tech_correction.pdf.
    For the FY 2017 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 partially align Hospital IQR Program requirements with 
some requirements under the Medicare EHR Incentive Program. We estimate 
that the total burden associated with the electronic

[[Page 28292]]

clinical 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 described above for participation in 
the test of validation for electronic clinical quality metrics in the 
Hospital IQR Program, we believe an individual with commensurate skills 
will submit electronic clinical quality measures on behalf of the 
hospital at a rate of approximately $26.00 per hour. Therefore, we 
believe it will cost a hospital approximately $277.33 ($26.00 x 10 
hours and 40 minutes) to report 16 electronic clinical quality 
measures. Additional information about the chart abstraction burden is 
detailed in section II.K. of Appendix A to this proposed rule.
    Previously, we required hospitals to provide 96 patient charts for 
validation per hospital per year, including 36 charts for HAI 
validation (with an average page length of 1,500) and 60 charts for 
clinical process of care measure validation (with an average page 
length of 300) for a total of 72,000 pages per hospital per year. For 
the FY 2017 payment determination and subsequent years, we are 
proposing to reduce this requirement to 72 charts per hospital per 
year, including 40 charts for HAI validation and 36 charts for clinical 
process of care validation, for a total of 70,800 pages per hospital 
per year--a decrease of 1,200 pages per hospital per year. We reimburse 
hospitals at 12 cents per photocopied page (68 FR 67956 and 70 FR 
23667). Therefore, the reduced burden is $144 per hospital for up to 
600 hospitals.
    To support validation of four HAI measures for the FY 2017 payment 
determination and subsequent years, we estimate an annual burden of 
43,200 hours. This estimate is based on up to 600 hospitals completing 
HAI Templates averaging 18 hours per quarter over 4 quarters. This 
burden is 10,800 hours more than that for the FY 2016 payment 
determination as finalized in the FY 2014 IPPPS/LTCH PPS final rule (78 
FR 50822 through 50825) of 32,400 hours because the HAI measures are to 
be validated for 4 quarters instead of 3 quarters.
7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program
    As discussed in section IX.B. of the preamble of this proposed 
rule, section 1866(k)(1) 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 this proposed rule, we are proposing to adopt one new clinical 
effectiveness measure (External Beam Radiotherapy for Bone Metastases) 
for the FY 2017 program and subsequent years, which, if finalized, 
would increase the total number of measures for the FY 2017 PCHQR 
measure set to 19 measures.
    We also are proposing to update the specifications for the 5 
previously finalized clinical process/oncology care measures to require 
PCHs to report all-patient data for each of these measures, and to 
adopt a new sampling methodology that PCHs can use to report these 
measures. Furthermore, we are proposing to require PCHs to submit 
population and sample size counts for these measures.
    We believe that requiring PCHs to submit the proposed new clinical 
effectiveness measure data as well as the proposed sample and 
population size data will not prove burdensome. At least seven PCHs are 
currently reporting quality measure data (including population and 
sampling data for HCAHPS measures) on a voluntary basis to CMS. PCHs 
may also have experience submitting quality and population/sample size 
data to other entities, such as State survey agencies and The Joint 
Commission. As a result, we believe that the new reporting requirements 
we are proposing to adopt will not significantly impact PCHs.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50957 through 
50959), we included burden estimates for the FY 2015 and FY 2016 
programs. We noted in that final rule that those estimates represented 
a worst case scenario of estimated burden. In this proposed rule, we 
are providing a revised burden estimate for FY 2016 and a burden 
estimate for FY 2017. The revised estimate for FY 2016 takes into 
account our proposal to adopt a new sampling methodology that PCHs can 
use to report the five clinical process/oncology care measures. The 
revised FY 2016 and new FY 2017 burden estimates also incorporate the 
sampling methodology allowed for the SCIP measures and HCAHPS Survey 
because last year's burden reflected the ``worst-case scenario'' of our 
burden estimates (78 FR 50958). The anticipated revised burden on PCHs 
for the FY 2016 program and the anticipated new burden on PCHs for the 
FY 2017 program consist of the following: new measure training and 
measure maintenance, as well as the time required for collection, 
aggregation, and submission of data for all measures.
    We estimate that 11 PCHs will submit quality measure data on 
approximately 37,496 cancer cases annually beginning with FY 2016 and 
43,266 cancer cases annually beginning with FY 2017.\188\ In addition, 
we estimate that PCHs will spend 0.5 hours on chart abstraction and 
data submission per case/event, 0.5 hours on training per each new 
measure, 0.25 hours on measure maintenance per each existing measure, 
and a maximum of 5 hours summarizing and reporting population and 
sample size counts for the six SCIP measures and five oncology care 
measures.
---------------------------------------------------------------------------

    \188\ FY 2011 CMS MedPAR file based on Medicare data alone.
---------------------------------------------------------------------------

    We are reducing the burden estimates for the HCAHPS Survey, the six 
SCIP measures, and the five clinical process/oncology care measures in 
this proposed rule to take into consideration the sampling that PCHs 
may use for these measures. As a result, we estimate that the reporting 
burden on each PCH for the FY 2016 program will be 18,758 hours. We 
estimate that the reporting burden on each PCH for FY 2017 would 
increase by 2,885 hours because PCHs would be required to report an 
additional quality measure (External Beam Radiotherapy for Bone 
Metastases). Therefore, we estimate the overall burden for all of the 
FY 2017 PCHQR Program requirements to be 21,643 hours per PCH. This FY 
2017 estimate, which includes an additional proposed measure, 
represents a decrease of 30,287 hours \189\ per PCH from the FY 2016 
burden estimate that we published in the FY 2014 IPPS/LTCH final rule 
(78 FR 50957 through 50959), or an overall decrease of 58 percent in 
the number of hours for each PCH. Coupled with our estimated salary 
costs,\190\ this revised estimate results in a net reduction in 
estimated cost of $285,252 per PCH. We believe that this burden 
estimate more accurately captures the hour and cost impact on PCHs 
participating in the PCHQR Program and reflects efforts to minimize the 
burden impact through the proposed adoption of a new sampling 
methodology that PCHs can use to report the clinical process/oncology 
care measures.
---------------------------------------------------------------------------

    \189\ Represents the difference between previous burden estimate 
(51,930 hours) in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50958) 
and current burden estimate (21,643 hours).
    \190\ We are now estimating an hourly salary of $33 (http://swz.salary.com/salarywizard/Staff-Nurse-RN-Hourly-Salary-Details.aspxper). After accounting for employee benefits and 
overhead, this results in a total cost of $66 per labor hour.
---------------------------------------------------------------------------

    However, we note that these estimates are based on PCH reporting of 
Medicare data only. We intend to update the burden estimate to more 
accurately reflect the burden to PCHs for reporting

[[Page 28293]]

all-patient data in future years, should we adopt our proposal to use 
all-patient data.
    We will be submitting a revision of the information collection 
request currently approved under ONC 0938-1175 to account for the 
aforementioned proposed changes to the program when they are finalized.
8. ICRs for the Hospital Value-Based Purchasing (VBP) Program
    In section IV.I. of the preamble of this proposed rule, we discuss 
requirements for the Hospital VBP Program. Specifically, in this 
proposed rule, we are proposing to adopt three new measures for the FY 
2017 Hospital VBP Program: (1) Methicillin-Resistant Staphylococcus 
aureus (MRSA) Bacteremia; (2) Clostridium difficile are measures of 
healthcare-associated infections reported via the CDC's National 
Healthcare Safety Network; and (3) PC-01: Elective Delivery Prior to 39 
Completed Weeks Gestation is a chart-abstracted measure. We also are 
proposing to adopt Hospital-level Risk-Standardized Complication Rate 
(RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and 
Total Knee Arthroplasty (TKA) for the FY 2019 Hospital VBP Program.
    As provided for in section 1886(o)(2)(A) of the Act, 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
    As discussed in sections IX.C.3. through IX.C.5. of the preamble of 
this proposed rule, for the LTCHQR Program, for the FY 2015 payment 
determination and subsequent years, we are retaining the following 
three quality measures: (1) National Healthcare Safety Network (NHSN) 
Catheter-Associated Urinary Tract Infections (CAUTI) Outcome Measure 
(NQF 0138); (2) National Healthcare Safety Network (NHSN) 
Central Line Catheter-Associated Blood Stream Infection Event (CLABSI) 
Outcome Measure (NQF 0139); and (3) and Percent of Residents 
or Patients with Pressure Ulcers That Are New or Worsened (Short-Stay) 
(NQF 0678). For the FY 2016 payment determination and 
subsequent years, we are retaining the following two measures in 
addition to the measures finalized for previous years: (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). For the FY 2017 payment determination and subsequent 
years, we are retaining the following three measures in addition to the 
measures finalized for previous years: (1) National Health Safety 
Network (NHSN) Facility-Wide Inpatient Hospital-Onset Methicillin-
resistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF 
1716); (2) National Health 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 2018 payment determination and subsequent years, we are 
retaining the following measure in addition to the measures finalized 
for previous years: Application of Percent of Residents Experiencing 
One or More Falls with Major Injury (Long Stay) (NQF 0674).
    As discussed in section IX.C.7.of the preamble of this proposed 
rule, we are proposing three new quality measures for inclusion in the 
LTCHQR Program for the FY 2018 payment determination and subsequent 
years: (1) Percent of Long-Term Care Hospital Patients with an 
Admission and Discharge Functional Assessment and a Care Plan That 
Addresses Function; (2) Functional Outcome Measure: Change in Mobility 
among Long-Term Care Hospital Patients Requiring Ventilator Support; 
and (3) National Healthcare Safety Network (NHSN) Ventilator-Associated 
Event (VAE) Outcome Measure.
    Six of the previously adopted and newly proposed measures either 
will or would be collected via the NHSN. The NHSN is a secure, 
Internet-based healthcare-associated infection (HAI) tracking system 
maintained and managed by the CDC. The NHSN enables health care 
facilities to collect and use data about HAIs, adherence to clinical 
practices known to prevent HAIs, and other adverse events within their 
organizations. NHSN data collection occurs via a Web-based tool hosted 
by the CDC and provided free of charge to facilities. We believe that 
any burden increase related to complying with the submission of the 
proposed NHSN VAE Outcome Measure would be minimal because LTCHs have 
already completed the initial setup of the NHSN submission process and 
have become familiar with reporting data in the NHSN system due to the 
requirement to report CAUTI and CLABSI measures. While this requirement 
is subject to the PRA, we believe that the associated burden is 
approved under OMB control number 0920-0666, for those measures 
previously finalized, with an expiration date of November, 31, 2016.
    The All-Cause Unplanned Readmission Measure for 30 Days Post-
Discharge from Long-Term Care Hospitals is a Medicare claims-based 
measure. Because claims-based measures can be calculated based on data 
that are already reported to the Medicare program for payment purposes, 
we believe that this measure will not add any additional reporting 
burden for LTCHs.
    The remaining five previously adopted and newly proposed measures 
either will or would be collected utilizing the LTCH CARE Data Set. The 
LTCH CARE Data Set, in its current form, has been approved under OMB 
control number 0938-1163. Additions will need to be made to the LTCH 
CARE Data Set in order to allow for collection of the two functional 
status measures we are proposing in section IX.C.7.a. of the preamble 
of this proposed rule: (1) Percent of Long-Term Care Hospital Patients 
with an Admission and Discharge Functional Assessment and a Care Plan 
That Addresses Function; and (2) Functional Outcome Measure: Change in 
Mobility among Long-Term Care Hospital Patients Requiring Ventilator 
Support. The revised data collection will be resubmitted to OMB for 
approval. While this requirement is subject to the PRA, we believe the 
associated burden is either approved under OMB control number 0938-
1163, for those measures previously finalized, with an expiration date 
of June 30, 2016, or will be contained in the updated information 
collection request.
    Assuring data accuracy is vital to public reporting programs. In 
section IX.C.11. of the preamble of this proposed rule, we are 
proposing, for the FY 2016 payment determination and subsequent years, 
to validate data submitted to CMS on the LTCH CARE Data Set by 
requesting that a statistically valid random sample of 260 LTCHs copy 
and send portions of five patient charts each from a given CY (for a 
total of portions of 1,300 LTCH patient charts) to a CMS validation 
contractor. We are proposing that the specific portions of the patient 
charts would be identified in the written request, but may include the 
following sections, which are listed with our estimated number of pages 
for each: first 3 days of nurses' notes would be approximately 15 
pages; the last 3 days of nurses' notes would be approximately 10 
pages; the physician, physician's assistant, or nurse practitioner's 
admission history

[[Page 28294]]

and physical would be approximately 30 pages; the physician, 
physician's assistant, or nurse practitioner's discharge summary would 
be approximately 15 pages; the nurses' admission database would be 
approximately 40 pages; pressure ulcer assessments will would 
approximately 30 pages; physician's progress notes would be 
approximately 30 pages; physician's orders would be approximately 30 
pages; and laboratory reports would be approximately 70 pages. We 
estimate the total submission to be no more than 270 pages in length. 
We estimate that 1,300 charts will allow us to validate data submitted 
to CMS with an estimated reliability of 70 percent, with a 5-percent 
margin of error, at a 95-percent confidence level. Although charts will 
be randomly selected, we are proposing to limit the request to specific 
portions of five charts per LTCH.
10. Electronic Health Record (EHR) Incentive Program and Meaningful Use 
(MU)
    In section IX.D. of the preamble of this proposed rule, we are 
proposing to align the Medicare EHR Incentive Program reporting and 
submission timelines for clinical quality measures for eligible 
hospitals and CAHs with the Hospital IQR Program's reporting and 
submission timelines. In addition, we provide guidance and 
clarification of certain policies for reporting zero denominators on 
clinical quality measures and our policy on case threshold exemptions. 
Because these proposals for data collection would align with the 
reporting requirements in place for the Hospital IQR Program, we do not 
believe there is any additional burden for this collection of 
information.
11. ICR Regarding Proposed Revision of Regulations Governing Use and 
Release of Medicare Advantage (MA) Risk Adjustment Data (Sec.  
422.310(f))
    Medicare Advantage (MA) organizations are required to submit risk 
adjustment data to CMS organizations under current authority at Sec.  
422.310(b) through (d). The proposed changes we are proposing to make 
to the use and release of MA risk adjustment data under section X. of 
the preamble of this proposed rule provision do not change the 
requirements on MA organizations for submission of information to CMS, 
which have been in place for several years. Therefore, this proposal 
does not impose new information collection requirements on MA 
organizations. Consequently, because there are no new information 
collection requirements in our proposal, the proposal does not require 
a review by OMB under the authority of the Paperwork Reduction Act of 
1995.
    If you comment on these information collection and recordkeeping 
requirements, please submit your comments electronically as specified 
in the ADDRESSES section of this proposed rule.

C. Response to Public Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all public comments we 
receive by the date and time specified in the DATES section of this 
preamble, and, when we proceed with a subsequent document, we will 
respond to the public comments in the preamble of that document.

List of Subjects

42 CFR Part 405

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping, 
rural areas, X-rays.

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 415

    Health facilities, Health professions, Medicare, Reporting and 
recordkeeping requirements.

42 CFR Part 422

    Administrative practice and procedure, Health facilities, Health 
maintenance, organizations (HMO), Medicare, Penalties, Privacy, 
Reporting and recordkeeping requirements.

42 CFR Part 424

    Emergency medical services, Health facilities, Health professions, 
Medicare.

42 CFR Part 485

    Grant programs--health, Health facilities, Medicaid, Medicare, 
Reporting and recordkeeping requirements.

42 CFR Part 488

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

    For the reasons stated in the preamble of this proposed rule, the 
Centers for Medicare & Medicaid Services is proposing to amend 42 CFR 
Chapter IV as set forth below:

Title 42--Public Health

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

Subpart R--Provider Reimbursement Determinations and Appeals

0
1. The authority citation for Subpart R is revised to read as follows:

    Authority:  Secs. 205, 1102, 1814(b), 1815(a), 1816, 1833, 
1861(v), 1871, 1872, 1874A, 1878, and 1886 of the Social Security 
Act (42 U.S.C. 405, 1302, 1395f(b), 1395g(a), 1395l, 1395x(v), 
1395hh, 1395ii, 1395oo, and 1395ww).

0
2. Section 405.1801 is amended by--
0
a. Removing the definition of ``Intermediary determination'' under 
paragraph (a).
0
b. Adding in alphabetical order a new definition of ``Medicare 
Administrative Contractor determination (contractor determination)'' 
under paragraph (a).
0
c. Revising paragraph (b)(1).
    The additions and revisions read as follows:


Sec.  405.1801  Introduction.

    (a) * * *
    Medicare Administrative Contractor determination (contractor 
determination) means the following:
    (1) With respect to a provider of services that has filed a cost 
report under Sec. Sec.  413.20 and 413.24 of this chapter, the term 
means a final determination of the amount of total reimbursement due 
the provider, pursuant to Sec.  405.1803 following the close of the 
provider's cost reporting period, for items and services furnished to 
beneficiaries for which reimbursement may be made on a reasonable cost 
basis under Medicare for the period covered by the cost report.
    (2) With respect to a hospital that receives payments for inpatient 
hospital services under the prospective payment system (part 412 of 
this chapter), the term means a final determination of the total amount 
of payment due the hospital, pursuant to Sec.  405.1803 following the 
close of the hospital's cost reporting period, under that system for 
the period covered by the final determination.
    (3) For purposes of appeal to the Provider Reimbursement Review 
Board, the term is synonymous with the phrases ``intermediary's final 
determination,'' ``final determination of the organization serving as 
its fiscal

[[Page 28295]]

intermediary,'' ``Secretary's final determination'' and ``final 
determination of the Secretary'', as those phrases are used in section 
1878(a) of the Act, and with the phrases ``final Medicare 
administrative contractor determination, '' ``final contractor 
determination'', and ``final Secretary determination'' as those phrases 
are used in this subpart.
    (4) For purposes of Sec.  405.376 concerning claims collection 
activities, the term does not include an action by CMS with respect to 
a compromise of a Medicare overpayment claim, or termination or 
suspension of collection action on an overpayment claim, against a 
provider or physician or other supplier.
* * * * *
    (b) * * *(1) Providers. In order to be paid for covered services 
furnished to Medicare beneficiaries, a provider must file a cost report 
with its contractor as specified in Sec.  413.24 of this chapter. For 
purposes of this subpart, the term ``provider'' includes a hospital (as 
described in part 482 of this chapter), hospice program (as described 
in Sec.  418.3 of this chapter), critical access hospital (CAH), 
comprehensive outpatient rehabilitation facility (CORF), renal dialysis 
facility, Federally qualified health center (FQHC), home health agency 
(HHA), rural health clinic (RHC), skilled nursing facility (SNF), and 
any other entity included under the Act. (FQHCs and RHCs are providers, 
for purposes of this subpart, effective with cost reporting periods 
beginning on or after October 1, 1991).
* * * * *
0
3. Section 405.1803 is amended by revising the section heading and 
paragraph (a) introductory text to read as follows:


Sec.  405.1803  Contractor determination and notice of amount of 
program reimbursement.

    (a) General requirement. Upon receipt of a provider's cost report, 
or amended cost report where permitted or required, the contractor must 
within a reasonable period of time (as described in Sec.  
405.1835(a)(2)(ii)), furnish the provider and other parties as 
appropriate (see Sec.  405.1805) a written notice reflecting the 
contractor's final determination of the total amount of reimbursement 
due the provider. The contractor must include the following information 
in the notice, as appropriate:
* * * * *
0
4. Section 405.1811 is amended by--
0
a. Revising the section heading.
0
b. Revising paragraph (a).
0
c. Revising paragraph (b) introductory text and paragraphs (b)(1) and 
(b)(2).
0
d. Revising paragraphs (c)(1), (c)(2), and (c)(3).
    The revisions read as follows:


Sec.  405.1811  Right to contractor hearing; contents of, and adding 
issues to, hearing request.

    (a) Right to a contractor hearing on final contractor 
determination. A provider (but no other individual, entity, or party) 
has a right to a contractor hearing, as a single provider appeal, for 
specific items claimed for a cost reporting period that is subject to a 
final contractor or Secretary determination if--
    (1) The amount in controversy (as determined in accordance with 
Sec.  405.1839) is at least $1,000 but less than $10,000; and
    (2) Unless the provider qualifies for a good cause extension under 
Sec.  405.1813, the date of receipt by the contractor of the provider's 
hearing request is--
    (i) No later than 180 days after the date of receipt by the 
provider of the final contractor or Secretary determination; or
    (ii) If the final contractor determination is not issued (through 
no fault of the provider) within 12 months of the date of receipt by 
the contractor of the provider's perfected cost report or amended cost 
report (as specified in Sec.  413.24(f) of this chapter), no later than 
180 days after the expiration of the 12-month period for issuance of 
the final contractor determination. The date of receipt by the 
contractor of the provider's perfected cost report or amended cost 
report is presumed to be the date the contractor stamped ``Received'' 
unless it is shown by a preponderance of the evidence that the 
contractor received the cost report on an earlier date.
    (b) Contents of request for a contractor hearing. The provider's 
request for a contractor hearing must be submitted in writing to the 
contractor, and the request must include the elements described in 
paragraphs (b)(1) through (b)(3) of this section. If the provider 
submits a hearing request that does not meet the requirements of 
paragraph (b)(1), (b)(2), or (b)(3) of this section, the contractor 
hearing officer may dismiss with prejudice the appeal, or take any 
other remedial action he or she considers appropriate.
    (1) A demonstration that the provider satisfies the requirements 
for a contractor hearing as specified in paragraph (a) of this section, 
including a specific identification of the final contractor or 
Secretary determination under appeal.
    (2) For each specific item under appeal, a separate explanation of 
why, and a description of how, the provider disagrees with the specific 
aspects of the final contractor or Secretary determination under 
appeal, including an account of all of the following:
    (i) Why the provider believes Medicare payment is incorrect for 
each disputed item (or, where applicable, why the provider is unable to 
determine whether Medicare payment is correct because it allegedly does 
not have access to underlying information concerning the calculation of 
its payment);
    (ii) How and why the provider believes Medicare payment should be 
determined differently for each disputed item; and
    (iii) If the provider self-disallows a specific item (as specified 
in Sec.  413.24(j) of this chapter), an explanation of the nature and 
amount of each self-disallowed item, the reimbursement sought for the 
item, and why the provider self-disallowed the item instead of claiming 
reimbursement for the item.
* * * * *
    (c) * * *
    (1) The request to add issues complies with the requirements of 
paragraphs (a) and (b) of this section as to each new specific item at 
issue.
    (2) The specific items raised in the initial hearing request and 
the specific matters identified in subsequent requests to add issues, 
when combined, satisfy the requirements of paragraph (a)(1) of this 
section.
    (3) The contractor hearing officer receives the requests to add 
issues no later than 60 days after the expiration of the applicable 
180-day period prescribed in paragraph (a)(2) of this section.


Sec.  405.1813  [Amended]

0
5. In Sec.  405.1813, paragraphs (a) and (b) are amended by removing 
the cross-reference ``Sec.  405.1811(a)(3)'' and adding in its place 
the cross-reference ``Sec.  405.1811(a)(2)''.


Sec.  405.1814  [Amended]

0
6. Section 405.1814 is amended by removing paragraph (b)(3).
0
7. A new Sec.  405.1832 is added to read as follows:


Sec.  405.1832  Contractor hearing officer review of compliance with 
the substantive reimbursement requirement of an appropriate cost report 
claim.

    (a) General. In order to receive or potentially qualify for 
reimbursement for a specific item, the provider must include in its 
cost report an appropriate

[[Page 28296]]

claim for the specific item (as prescribed in Sec.  413.24(j) of this 
chapter). If the provider files an appeal to the contractor seeking 
reimbursement for a specific item and any party to such appeal 
questions whether the provider's cost report included an appropriate 
claim for the specific item, the contractor hearing officer(s) must 
address such questions in accordance with the procedures set forth in 
this section.
    (b) Summary of procedures. (1) Preliminary steps. The contractor 
hearing officer(s) must give each party to the appeal an adequate 
opportunity to submit factual evidence and legal argument regarding the 
question of whether the provider's cost report included an appropriate 
claim for the specific item under appeal. Upon receipt of timely 
submitted factual evidence and legal argument (if any), the contractor 
hearing officer(s) must review such evidence and argument, and prepare 
written specific findings of fact and conclusions of law on the 
question of whether the provider's cost report complied with, for the 
specific item under appeal, the cost report claim requirements 
prescribed in Sec.  413.24(j) of this chapter. In reaching such 
specific factual findings and legal conclusions, the contractor hearing 
officer(s) must follow the procedures set forth in Sec.  413.24(j)(3) 
of this chapter for determining whether the provider's cost report 
included an appropriate claim for the specific item under appeal. The 
contractor hearing officer(s) must promptly give a copy of such written 
specific factual findings and legal conclusions to each party to the 
appeal, and such factual findings and legal conclusions must be 
included in the record of administrative proceedings for the appeal (as 
prescribed in Sec.  405.1827).
    (2) Limits on contractor hearing officer(s) actions. The contractor 
hearing officer(s)'s specific findings of fact and conclusions of law 
(pursuant to paragraph (b)(1) of this section) must not be invoked or 
relied on by the contractor hearing officer(s) as a basis to deny, or 
decline to exercise, jurisdiction over a specific item or take any 
other of the actions specified in paragraph (c) of this section. Upon 
giving the parties to the appeal the contractor hearing officer(s)'s 
written specific factual findings and legal conclusions (pursuant to 
paragraph (b)(1) of this section) on the question of whether the 
provider's cost report included an appropriate cost report claim for 
the specific item under appeal, the contractor hearing officer(s) must 
proceed to issue one of the two types of overall decisions specified in 
paragraphs (d) and (e) of this section with respect to the specific 
item. If the contractor hearing officer(s) issues an overall contractor 
hearing decision (as specified in paragraph (d) of this section) 
regarding the specific item under appeal, the contractor hearing 
officer(s)'s written specific factual findings and legal conclusions 
(pursuant to paragraph (b)(1) of this section) must be included in such 
overall contractor hearing decision regarding the specific item, along 
with the other matters that are required by the regulations for an 
overall contractor hearing decision. However, if the contractor hearing 
officer(s) issues an overall jurisdictional dismissal decision (as 
specified in paragraph (e) of this section) regarding the specific item 
under appeal, the contractor hearing officer(s)'s written specific 
factual findings and legal conclusions (pursuant to paragraph (b)(1) of 
this section) must not be included in the overall jurisdictional 
dismissal decision regarding the specific item. The contractor hearing 
officer(s) may permit reimbursement for the specific item under appeal, 
as part of an overall contractor hearing decision, but such 
reimbursement may be permitted only to the extent authorized by 
paragraph (f) of this section.
    (c) Prohibition of certain types of decisions, orders, and other 
actions. (1) If the contractor hearing officer(s) determines, in its 
findings of fact and conclusions of law (as prescribed by paragraph 
(b)(1) of this section), that the provider's cost report did not 
include an appropriate claim for the specific item under appeal, the 
contractor hearing officer(s) may not--
    (i) Deny jurisdiction over the specific item under appeal, based on 
(in whole or in part) the contractor hearing officer(s)'s factual 
findings and legal conclusions (reached under paragraph (b)(1) of this 
section);
    (ii) Decline to exercise jurisdiction over the specific item under 
appeal, based on (in whole or in part) the contractor hearing 
officer(s)'s factual findings and legal conclusions (reached under 
paragraph (b)(1) of this section); or
    (iii) Impose any sanction or take any other action against the 
interests of any party to the appeal except as provided in paragraph 
(f) of this section, based on (in whole or in part) the contractor 
hearing officer(s)'s factual findings and legal conclusions (reached 
under paragraph (b)(1) of this section).
    (2) Regardless of whether the contractor hearing officer(s) 
determines, in its findings of fact and conclusions of law (as 
prescribed by paragraph (b)(1) of this section), that the provider's 
cost report did or did not include an appropriate claim for the 
specific item under appeal, the contractor hearing officer(s) may not--
    (i) Deny jurisdiction over the specific item under appeal, based on 
(in whole or in part) the absence, in the final contractor or Secretary 
determination under appeal, of an adjustment, revision, correction, or 
other change to the specific item under appeal, or the lack of a 
particular determination by the contractor or the Secretary regarding 
the specific item. Exception: If the provider's appeal of the specific 
item is based on a reopening of such item (pursuant to Sec.  405.1885) 
where the specific item is not revised, adjusted, corrected, or 
otherwise changed in a revised final contractor or Secretary 
determination, the contractor must deny jurisdiction over the specific 
item under appeal (as prescribed in Sec. Sec.  405.1887(d) and 
405.1889(b));
    (ii) Decline to exercise jurisdiction over the specific item under 
appeal, based on (in whole or in part) the absence, in the final 
contractor or Secretary determination under appeal, of an adjustment, 
revision, correction, or other change to the specific item under 
appeal, or the lack of a particular determination by the contractor or 
the Secretary regarding the specific item; or
    (iii) Impose any sanction or take any other action against the 
interests of any party to the appeal except as provided in paragraph 
(f) of this section, based on (in whole or in part) the absence, in the 
final contractor or Secretary determination under appeal, of an 
adjustment, revision, correction, or other change to the specific item 
under appeal, or the lack of a particular determination by the 
contractor or the Secretary regarding the specific item.
    (d) Contractor hearing decision must include any factual findings 
and legal conclusions under paragraph (b)(1) of this section. If the 
contractor hearing officer(s) issues a hearing decision regarding the 
specific item under appeal (pursuant to Sec.  405.1831), any specific 
findings of fact and conclusions of law by the contractor hearing 
officer(s) (reached under paragraph (b)(1) of this section), on the 
question of whether the provider's cost report included an appropriate 
claim for the specific item, must be included in such hearing decision 
along with the other matters prescribed by Sec.  405.1831. The 
contractor hearing officer(s)'s factual findings and legal conclusions 
(reached under paragraph (b)(1) of this section) about whether there 
was an appropriate cost report claim for the specific item under appeal 
are subject to the provisions of

[[Page 28297]]

Sec.  405.1833 just as those provisions apply to the other parts of the 
contractor hearing decision. If the contractor hearing officer(s) 
determines that the provider's cost report--
    (1) Included an appropriate claim for the specific item under 
appeal (as prescribed in Sec.  413.24(j) of this chapter), the 
contractor hearing decision must also address whether the other 
substantive reimbursement requirements for the specific item are also 
satisfied; or
    (2) Did not include an appropriate claim for the specific item 
under appeal, the contractor hearing officer(s) has discretion whether 
or not to address in the contractor hearing decision whether the other 
substantive reimbursement requirements for the specific item are also 
satisfied.
    (e) Contractor jurisdictional dismissal decision must not include 
factual findings and legal conclusions under paragraph (b)(1) of this 
section. If the contractor hearing officer(s) issues a jurisdictional 
dismissal decision regarding the specific item under appeal (pursuant 
to Sec.  405.1814(c)), the contractor hearing officer(s)'s specific 
findings of fact and conclusions of law (reached under paragraph (b)(1) 
of this section) on the question of whether the provider's cost report 
included an appropriate claim for the specific item must not be 
included in such jurisdictional dismissal decision.
    (f) Effects of the contractor hearing officer(s)'s factual findings 
and legal conclusions under paragraph (b)(1) of this section when part 
of a final contractor hearing decision. If the contractor hearing 
officer(s) determines, as part of a final and binding contractor 
hearing decision (pursuant to Sec.  405.1833 and paragraphs (b)(1) and 
(d) of this section), that the provider's cost report--
    (1) Included an appropriate claim for the specific item under 
appeal (as prescribed in Sec.  413.24(j) of this chapter), the specific 
item is reimbursable in accordance with Medicare policy, but only if 
the contractor hearing officer(s) further determines in such final 
contractor hearing decision that all the other substantive 
reimbursement requirements for the specific item are also satisfied; or
    (2) Did not include an appropriate cost report claim for the 
specific item under appeal, then the specific item is not reimbursable, 
regardless of whether the contractor hearing officer(s) further 
determines in such final contractor hearing decision that the other 
substantive reimbursement requirements for the specific item are or are 
not satisfied.
0
8. Section 405.1834 is amended by adding a new paragraph (b)(2)(iii) to 
read as follows:


Sec.  405.1834  CMS reviewing official procedure.

* * * * *
    (b) * * *
    (2) * * *
    (iii) If the CMS reviewing official reviews an contractor hearing 
decision regarding a specific item, the CMS reviewing official's review 
of such a contractor hearing decision will include, and any decision 
issued by the CMS reviewing official (under paragraph (e) of this 
section) will address, the contractor hearing officer(s)'s specific 
findings of fact and conclusions of law in such contractor hearing 
decision (as prescribed in Sec.  405.1832(b)(1) and (d)) on the 
question of whether the provider's cost report included an appropriate 
claim for the specific item under appeal (as prescribed in Sec.  
413.24(j) of this chapter).
* * * * *
0
9. Section 405.1835 is amended by--
0
a. Revising paragraph (a).
0
b. Revising paragraphs (b)(1), (b)(2) introductory text, and 
(b)(2)(iii).
0
c. Revising paragraphs (c)(1), (c)(2), and (c)(3).
    The revisions read as follows:


Sec.  405.1835  Right to Board hearing; contents of, and adding issues 
to, hearing request.

    (a) Right to hearing on final contractor determination. A provider 
(but no other individual, entity, or party) has a right to a Board 
hearing, as a single provider appeal, for specific items claimed in its 
cost report for a cost reporting period that is subject to a final 
contractor or Secretary determination, if--
    (1) The amount in controversy (as determined in accordance with 
Sec.  405.1839) is $10,000 or more; and
    (2) Unless the provider qualifies for a good cause extension under 
Sec.  405.1836, the date of receipt by the Board of the provider's 
hearing request is--
    (i) No later than 180 days after the date of receipt by the 
provider of the final contractor or Secretary determination; or
    (ii) If the final contractor determination is not issued (through 
no fault of the provider) within 12 months of the date of receipt by 
the contractor of the provider's perfected cost report or amended cost 
report (as specified in Sec.  413.24(f) of this chapter), no later than 
180 days after the expiration of the 12-month period for issuance of 
the final contractor determination. The date of receipt by the 
contractor of the provider's perfected cost report or amended cost 
report is presumed to be the date the contractor stamped ``Received'' 
unless it is shown by a preponderance of the evidence that the 
contractor received the cost report on an earlier date.
    (b) * * *
    (1) A demonstration that the provider satisfies the requirements 
for a Board hearing as specified in paragraph (a) of this section, 
including a specific identification of the final contractor or 
Secretary determination under appeal.
    (2) For each specific item under appeal, a separate explanation of 
why, and a description of how, the provider disagrees with the specific 
aspects of the final contractor or Secretary determination under 
appeal, including an account of all of the following:
* * * * *
    (iii) If the provider self-disallows a specific item (as specified 
in Sec.  413.24(j) of this chapter), an explanation of the nature and 
amount of each self-disallowed item, the reimbursement sought for the 
item, and why the provider self-disallowed the item instead of claiming 
reimbursement for the item.
* * * * *
    (c) * * *
    (1) The request to add issues complies with the requirements of 
paragraphs (a) and (b) of this section as to each new specific item at 
issue.
    (2) The specific items raised in the initial hearing request and 
the specific items identified in subsequent requests to add issues, 
when combined, satisfy the requirements of paragraph (a)(2) of this 
section.
    (3) The Board receives the request to add issues no later than 60 
days after the expiration of the applicable 180-day period prescribed 
in paragraph (a)(2) of this section.


Sec.  405.1836  [Amended]

0
10. In Sec.  405.1836, paragraphs (a) and (b) are amended by removing 
the cross-reference ``Sec.  405.1835(a)(3)'' and adding in its place 
the cross-reference ``Sec.  405.1835(a)(2)''.
0
11. Section 405.1837 is amended by revising paragraphs (a)(1), (c)(2) 
introductory text, (c)(2)(iii) and (e)(4) to read as follows:


Sec.  405.1837  Group appeals.

    (a) * * *
    (1) The provider satisfies individually the requirements for a 
Board hearing under Sec.  405.1835(a)(1);
* * * * *
    (c) * * *
    (2) An explanation (for each specific item at issue) of each 
provider's

[[Page 28298]]

disagreement with its final contractor or Secretary determination under 
appeal, including an account of--
* * * * *
    (iii) If the provider self-disallows a specific item (as specified 
in Sec.  413.24(j) of this chapter), an explanation of the nature and 
amount of each self-disallowed item, the reimbursement sought for the 
item, and why the provider self-disallowed the item instead of claiming 
reimbursement for the item.
* * * * *
    (e) * * *
    (4) A provider may submit a request to the Board to join a group 
appeal any time before the Board issues one of the decisions specified 
in Sec.  405.1875(a)(1). By submitting a request, the provider agrees 
that, if the request is granted, the provider is bound by the Board's 
actions and decision in the appeal. If the Board denies a request, the 
Board's action is without prejudice to any separate appeal the provider 
may bring in accordance with Sec.  405.1811, Sec.  405.1835, or this 
section. For purposes of determining timeliness for the filing of any 
separate appeal and for the adding of issues to such appeal, the date 
of receipt of the provider's request to form or join the group appeal 
is considered the date of receipt for purposes of meeting the 
applicable 180-day period prescribed in Sec.  405.1835(a)(2).
* * * * *


Sec.  405.1839  [Amended]

0
12. In 405.1839, paragraph (a)(1) is amended by removing the cross-
reference ``Sec.  405.1811(a)(2) of this subpart'' and adding in its 
place the cross-reference ``Sec.  405.1811(a)(1)''; and by removing the 
cross-reference ``Sec.  405.1835(a)(2) of this subpart'' and adding in 
its place the cross-reference ``Sec.  405.1835(a)(1)''.


Sec.  405.1840  [Amended]

0
13. Section 405.1840 is amended by removing paragraph (b)(3).
0
14. A new Sec.  405.1873 is added to read as follows:


Sec.  405.1873  Board review of compliance with the reimbursement 
requirement of an appropriate cost report claim.

    (a) General. In order to receive or potentially receive 
reimbursement for a specific item, the provider must include in its 
cost report an appropriate claim for the specific item (as prescribed 
in Sec.  413.24(j) of this chapter). If the provider files an appeal to 
the Board seeking reimbursement for the specific item and any party to 
such appeal questions whether the provider's cost report included an 
appropriate claim for the specific item, the Board must address such 
question in accordance with the procedures set forth in this section.
    (b) Summary of procedures. (1) Preliminary steps. The Board must 
give the parties an adequate opportunity to submit factual evidence and 
legal argument regarding the question of whether the provider's cost 
report included an appropriate claim for the specific item under 
appeal. Upon receipt of timely submitted factual evidence or legal 
argument (if any), the Board must review such evidence and argument and 
prepare written specific findings of fact and conclusions of law on the 
question of whether the provider's cost report complied with, for the 
specific item under appeal, the cost report claim requirements 
prescribed in Sec.  413.24(j) of this chapter. In reaching such 
specific factual findings and legal conclusions, the Board must follow 
the procedures set forth in Sec.  413.24(j)(3) of this chapter for 
determining whether the provider's cost report included an appropriate 
claim for the specific item under appeal. The Board must promptly give 
a copy of such written specific factual findings and legal conclusions 
to each party to the appeal, and such factual findings and legal 
conclusions must be included in the record of administrative 
proceedings for the appeal (as prescribed in Sec.  405.1865).
    (2) Limits on Board actions. The Board's specific findings of fact 
and conclusions of law (pursuant to paragraph (b)(1) of this section) 
must not be invoked or relied on by the Board as a basis to deny, or 
decline to exercise, jurisdiction over a specific item or take any 
other of the actions specified in paragraph (c) of this section. Upon 
giving the parties to the appeal the Board's written specific factual 
findings and legal conclusions (pursuant to paragraph (b)(1) of this 
section) on the question of whether the provider's cost report included 
an appropriate cost report claim for the specific item under appeal, 
the Board must proceed to issue one of the four types of overall 
decisions specified in paragraphs (d) and (e) of this section with 
respect to the specific item. If the Board issues either of two types 
of overall Board decisions (as specified in paragraph (d) of this 
section) regarding the specific item under appeal, the Board's written 
specific factual findings and legal conclusions (pursuant to paragraph 
(b)(1) of this section) must be included in such overall Board decision 
regarding the specific item, along with the other matters that are 
required by the regulations for the pertinent type of overall Board 
decision. However, if the Board issues either of two other types of 
overall Board decisions (as specified in paragraph (e) of this section) 
regarding the specific item under appeal, the Board's written specific 
factual findings and legal conclusions (pursuant to paragraph (b)(1) of 
this section) must not be included in the overall Board decision 
regarding the specific item. The Board may permit reimbursement for the 
specific item under appeal, as part of one of the two types of overall 
Board decisions that are specified in paragraph (d) of this section, 
but such reimbursement may be permitted only to the extent authorized 
by paragraph (f) of this section.
    (c) Prohibition of certain types of decisions, orders, and other 
actions. (1) If the Board determines, in its findings of fact and 
conclusions of law (as prescribed by paragraph (b)(1) of this section), 
that the provider's cost report did not include an appropriate claim 
for the specific item under appeal, the Board may not--
    (i) Deny jurisdiction over the specific item under appeal, based on 
(in whole or in part) the Board's factual findings and legal 
conclusions (reached under paragraph (b)(1) of this section);
    (ii) Decline to exercise jurisdiction over the specific item under 
appeal, based on (in whole or in part) the Board's factual findings and 
legal conclusions (reached under paragraph (b)(1) of this section); or
    (iii) Take any of the actions set forth in Sec.  405.1868(b), (c), 
or (d), impose any sanction, or take any other action against the 
interests of any party to the appeal, except as provided in paragraph 
(f) of this section, based on (in whole or in part) the Board's factual 
findings and legal conclusions (reached under paragraph (b)(1) of this 
section).
    (2) Regardless of whether the Board determines, in its findings of 
fact and conclusions of law (as prescribed by paragraph (b)(1) of this 
section), that the provider's cost report did or did not include an 
appropriate claim for the specific item under appeal, the Board may 
not--
    (i) Deny jurisdiction over the specific item under appeal, based on 
(in whole or in part) the absence, in the final contractor 
determination or Secretary determination under appeal, of an 
adjustment, revision, correction, or other change to the specific item 
under appeal, or the lack of a particular determination by the 
contractor or the Secretary regarding the specific item. Exception: If 
the provider's appeal of the specific item is based on a reopening of 
such item (pursuant to Sec.  405.1885) where the specific item is not 
revised, adjusted, corrected, otherwise changed

[[Page 28299]]

in a revised final contractor or Secretary determination, the Board 
must deny jurisdiction over the specific item under appeal (as 
prescribed in Sec. Sec.  405.1887(d) and 405.1889(b));
    (ii) Decline to exercise jurisdiction over the specific item under 
appeal, based on (in whole or in part) the absence, in the final 
contractor determination or Secretary determination under appeal, of an 
adjustment, revision, correction, or other change to the specific item 
under appeal, or the lack of a particular determination by the 
contractor or the Secretary regarding the specific item; or
    (iii) Take any of the actions set forth in Sec.  405.1868(b), (c), 
or (d), impose any sanction, or take any other action against the 
interests of any party to the appeal, except as provided in paragraph 
(f) of this section, based on (in whole or in part) the absence, in the 
final contractor determination or Secretary determination under appeal, 
of an adjustment, revision, correction, or other change to the specific 
item under appeal, or the lack of a particular determination by the 
contractor or the Secretary regarding the specific item.
    (d) Two types of Board decisions that must include any factual 
findings and legal conclusions under paragraph (b)(1) of this section. 
(1) Board hearing decision. If the Board issues a hearing decision 
regarding the specific item under appeal (pursuant to Sec.  405.1871), 
any specific findings of fact and conclusions of law by the Board 
(reached under paragraph (b)(1) of this section), on the question of 
whether the provider's cost report included an appropriate claim for 
the specific item, must be included in such hearing decision along with 
the other matters prescribed by Sec.  405.1871(a). The Board's factual 
findings and legal conclusions (reached under paragraph (b)(1) of this 
section), about whether there was an appropriate cost report claim for 
the specific item under appeal, are subject to the provisions of Sec.  
405.1871(b) just as those provisions apply to the other parts of the 
Board's hearing decision. If the Board determines that the provider's 
cost report--
    (i) Included an appropriate claim for the specific item under 
appeal (as prescribed in Sec.  413.24(j) of this chapter), the Board's 
hearing decision must also address whether the other substantive 
reimbursement requirements for the specific item are also satisfied; or
    (ii) Did not include an appropriate claim for the specific item 
under appeal, the Board has discretion whether or not to address in the 
Board's hearing decision whether the other substantive reimbursement 
requirements for the specific item are also satisfied.
    (2) Board expedited judicial review (EJR) decision, where EJR is 
granted. If the Board issues an EJR decision where EJR is granted 
regarding a legal question that is relevant to the specific item under 
appeal (pursuant to Sec.  405.1842(f)(1)), the Board's specific 
findings of fact and conclusions of law (reached under paragraph (b)(1) 
of this section), on the question of whether the provider's cost report 
included an appropriate claim for the specific item, must be included 
in such EJR decision along with the other matters prescribed by Sec.  
405.1842(f)(1). The Board's factual findings and legal conclusions 
(reached under paragraph (b)(1) of this section) about whether there 
was an appropriate cost report claim for the specific item under appeal 
are subject to the provisions of Sec.  405.1842(g)(1), (g)(2), (h)(1), 
and (h)(3) just as those provisions apply to the other parts of the 
Board's EJR decision.
    (e) Two other types of Board decisions that must not include the 
Board's factual findings and legal conclusions under paragraph (b)(1) 
of this section. (1) Board jurisdictional dismissal decision. If the 
Board issues a jurisdictional dismissal decision regarding the specific 
item under appeal (pursuant to Sec.  405.1840(c)), the Board's specific 
findings of fact and conclusions of law (reached under paragraph (b)(1) 
of this section), on the question of whether the provider's cost report 
included an appropriate claim for the specific item, must not be 
included in such jurisdictional dismissal decision.
    (2) Board expedited judicial review (EJR) decision, where EJR is 
denied. If the Board issues an EJR decision where EJR is denied 
regarding a legal question that is relevant to the specific item under 
appeal (pursuant to Sec.  405.1842(f)(2)), the Board's specific 
findings of fact and conclusions of law (reached under paragraph (b)(1) 
of this section), on the question of whether the provider's cost report 
included an appropriate claim for the same item, must not be included 
in such EJR decision. If the Board conducts further proceedings and 
issues another decision (as specified in Sec.  405.1842(h)(2)(i)), the 
Board's specific findings of fact and conclusions of law (reached under 
paragraph (b)(1) of this section)--
    (i) Must be included in any further hearing decision or EJR 
decision where EJR is granted regarding the specific item under appeal 
(as prescribed in paragraph (d) of this section); but
    (ii) Must not be included in any further jurisdictional dismissal 
decision or EJR decision where EJR is denied regarding the specific 
item under appeal (as prescribed in paragraph (e) of this section).
    (f) Effects of the Board's factual findings and legal conclusions 
under paragraph (b)(1) of this section in two types of final decisions. 
(1) When part of a final hearing decision. If the Board determines, as 
part of a final and binding hearing decision (pursuant to Sec.  
405.1871(b) and paragraphs (b)(1) and (d)(1) of this section), that the 
provider's cost report--
    (i) Included an appropriate claim for the specific item under 
appeal (as prescribed in Sec.  413.24(j) of this chapter), the specific 
item is reimbursable in accordance with Medicare policy, but only if 
the Board further determines in such final hearing decision that all 
the other substantive reimbursement requirements for the specific item 
are also satisfied; or
    (ii) Did not include an appropriate cost report claim for the 
specific item under appeal, then the specific item is not reimbursable, 
regardless of whether the Board further determines in such final 
hearing decision that the other substantive reimbursement requirements 
for the specific item are or are not satisfied.
    (2) When part of a final EJR decision that grants EJR. If the Board 
determines or the Administrator of CMS determines (pursuant to Sec.  
405.1875), as applicable, in a final and binding EJR decision that 
grants EJR regarding a legal question that is relevant to the specific 
item under appeal (pursuant to Sec.  405.1842(g)(1) and paragraphs 
(b)(1) and (d)(2) of this section), that the provider's cost report--
    (i) Included an appropriate claim for the specific item under 
appeal (as prescribed in Sec.  413.24(j) of this chapter), the specific 
item is reimbursable in accordance with Medicare policy, but only to 
the extent permitted by the final decision of a Federal court pursuant 
to the EJR provisions of section 1878(f)(1) of the Act (see also 
Sec. Sec.  405.1842 and 405.1877)); or
    (ii) Did not include an appropriate claim for the specific item 
under appeal, then the specific item is not reimbursable, unless--
    (A) The specific factual findings and legal conclusions (reached 
under paragraph (b)(1) of this section) of the Board or the 
Administrator, as applicable, on the question of whether the provider's 
cost report included an appropriate claim for the specific item under 
appeal, are reversed or modified by the final decision of a Federal 
court (pursuant to section 1878(f)(1) of the Act and Sec.  405.1877); 
and

[[Page 28300]]

    (B) Only to the extent otherwise permitted by the final decision of 
a Federal court pursuant to the EJR provisions of section 1878(f)(1) of 
the Act (see also Sec. Sec.  405.1842 and 405.1877) and by Medicare 
policy.
0
15. Section 405.1875 is amended by--
0
a. Revising the last sentence of paragraph (a) introductory text.
0
b. Adding a new paragraph (a)(2)(v).
0
c. Revising paragraph (f)(5).
    The revisions and additions read as follows:


Sec.  405.1875  Administrator review.

    (a) * * * The Board is required to send to the Office of the 
Attorney Advisor a copy of each decision specified in paragraphs 
(a)(2)(i), (a)(2)(ii), and (a)(2)(iii) of this section upon issuance of 
the decision.
* * * * *
    (2) * * *
    (v) If the Administrator reviews a Board hearing decision regarding 
a specific item, or for a Board EJR decision, on the question of 
whether there is Board jurisdiction over a specific item, the 
Administrator's review of such a hearing decision or EJR decision, as 
applicable, will include, and any decision issued by the Administrator 
(under paragraph (e) of this section) will address, the Board's 
specific findings of fact and conclusions of law in such hearing 
decision or EJR decision (as prescribed in Sec.  405.1873(b)(1) and 
(d)) on the question of whether the provider's cost report included an 
appropriate claim for the specific item under appeal (as prescribed in 
Sec.  413.24(j) of this chapter).
* * * * *
    (f) * * *
    (5) In addition to ordering a remand to the Board, the 
Administrator may order a remand to any component of HHS or CMS or to a 
contractor under appropriate circumstances, including, but not limited 
to, for the purpose of effectuating a court order (as described in 
Sec.  405.1877(g)(2)). When the contractor's denial of the relief, that 
the provider sought before the Board and that is under review by the 
Administrator, was based on procedural grounds (such as the alleged 
failure of the provider to satisfy a time limit) or was based on the 
alleged failure to supply adequate documentation to support the 
provider's claim, and the Administrator rules that the basis of the 
contractor's denial is invalid, the Administrator remands to the 
contractor for the contractor to make a determination on the merits of 
the provider's claim.

Nomenclature Changes

Subpart R--[Amended]

0
16. Amend Subpart R of part 405 by removing the term or phrase in the 
first column and replacing it with the term or phrase in the second 
column:

 
                  Remove                                 Add
 
an intermediary...........................  ``a contractor''
intermediary..............................  ``contractor''
intermediaries............................  ``contractors''
intermediaries............................  ``contractors'''
``intermediary's''........................  ``contractor's''
 

Subpart X--Rural Health Clinic and Federally Qualified Health 
Center Services

0
17. The authority citation for Subpart X, continues to read as follows:

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

0
18. Section 405.2468 is amended by revising paragraph (f)(1) to read as 
follows:


Sec.  405.2468  Allowable costs.

* * * * *
    (f) * * *
    (1) Effective for portions of cost reporting periods occurring on 
or after January 1, 1999, if an RHC or an FQHC incurs ``all or 
substantially all'' of the costs for the training program in the 
nonhospital setting as defined in Sec.  413.75(b) of this chapter, the 
RHC or FQHC may receive direct graduate medical education payment for 
those residents. However, in connection with cost reporting periods for 
which ``all or substantially all of the costs for the training program 
in the nonhospital setting'' is not defined in Sec.  413.75(b) of this 
chapter, if an RHC or an FQHC incurs the salaries and fringe benefits 
(including travel and lodging where applicable) of residents training 
at the RHC or FQHC, the RHC or FQHC may receive direct graduate medical 
education payments for those residents.
* * * * *

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

0
19. The authority citation for Part 412 is revised to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), sec. 124 of Public Law 106-113 (113 Stat. 
1501A-332), sec. 1206 of Public Law 113-67, and sec. 112 of Public 
Law 113-93.
0
20. Section 412.23 is amended by--
0
a. Revising paragraphs (e)(6)(i), (e)(6)(ii) introductory text, and 
(e)(6)(ii)(B)(2).
0
b. Revising paragraphs (e)(7)(i) and (e)(7)(ii) introductory text.
0
c. Adding new paragraph (e)(7)(iii).
    The revisions and additions read as follows:


Sec.  412.23  Excluded hospitals: Classifications.

* * * * *
    (e) * * *
    (6) * * * (i) General rule. Except as specified in paragraphs 
(e)(6)(ii) and (e)(6)(iii) of this section for the period beginning 
December 29, 2007 and ending December 28, 2012, and the period 
beginning April 1, 2014 and ending September 30, 2017, a moratorium 
applies to the establishment and classification of a long-term care 
hospital as described in paragraphs (e) and (e)(1) through (e)(5) of 
this section or a long-term care hospital satellite facility as 
described in Sec.  412.22(h).
    (ii) Exception. The moratorium specified in paragraph (e)(6)(i) of 
this section is not applicable to the establishment and classification 
of a long-term care hospital that meets the requirements of paragraphs 
(e) and (e)(1) through (e)(5) of this section, or a long-term care 
hospital satellite facility that meets the requirements of Sec.  
412.22(h), if the long-term care hospital or long-term care satellite 
facility meets the following criteria on or before December 29, 2007, 
or on or before April 1, 2014, as applicable:
* * * * *
    (B) * * *
    (2)(i) Has expended before December 29, 2007, at least 10 percent 
(or, if less, $2.5 million) of the estimated cost of the project 
specified in paragraph (e)(6)(ii)(B)(1) of his section;
    (ii) Has expended, before April 1, 2014, at least 10 percent (or, 
if less, $2.5 million) of the estimated cost of the project specified 
in paragraph (e)(6)(ii)(B)(1) of this section.
* * * * *
    (7) * * * (i) For purposes of this paragraph, an existing long-term 
care hospital or long-term care hospital satellite facility means a 
long-term care hospital that meets the requirements of paragraph (e) of 
this section or long-term care hospital satellite facility that meets 
the requirements of Sec.  412.22(h) and received payment under the 
provisions of subpart O of this part prior to the dates noted in the 
following moratorium clauses.
    (ii) December 29, 2007, through December 28, 2007--
* * * * *
    (iii) April 1, 2014 through September 30, 2017--The number of 
Medicare-certified beds in an existing long-term

[[Page 28301]]

care hospital or an existing long-term care hospital satellite facility 
must not be increased beyond the number of Medicare-certified beds on 
April 1, 2014.
* * * * *
0
21. Section 412.64 is amended by--
0
a. Removing paragraph (b)(1)(ii)(D).
0
b. Revising paragraph (b)(3)(i).
0
c. Revising paragraphs (d)(1), (d)(2)(i) introductory text, (d)(2)(ii), 
and (d)(3) introductory text.
0
d. In paragraphs (h)(4) and (h)(4)(vi), removing the date ``October 1, 
2014'' and adding in its place the date ``October 1, 2015''.
    The revisions read as follows:


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

* * * * *
    (b) * * *
    (3)(i) For discharges occurring on or after October 1, 2004, a 
hospital that is located in a rural county adjacent to one or more 
urban areas is deemed to be located in an urban area and receives the 
Federal payment amount for the urban area to which the greater number 
of workers in the county commute if the rural county would otherwise be 
considered part of an urban area, under the standards for designating 
MSAs if the commuting rates used in determining outlying counties were 
determined on the basis of the aggregate number of resident workers who 
commute to (and, if applicable under the standards, from) the central 
county or central counties of all adjacent MSAs. Qualifying counties 
are determined based upon OMB standards, using the most recent OMB 
standards for delineating statistical areas adopted by CMS.
* * * * *
    (d) * * *
    (1) The applicable percentage change for updating the standardized 
amount for all hospitals in all areas is--
    (i) For fiscal year 2005 through fiscal year 2009, the percentage 
increase in the market basket index (as defined in Sec.  413.40(a)(3) 
of this chapter) for prospective payment hospitals, subject to the 
provisions of paragraph (d)(2) of this section.
    (ii) For fiscal year 2010, for discharges--
    (A) On or after October 1, 2009 and before April 1, 2010, the 
percentage increase in the market basket index (as defined in Sec.  
413.40(a)(3) of this chapter) for prospective payment hospitals, 
subject to the provisions of paragraph (d)(2) of this section; and
    (B) On or after April 1, 2010 and before October 1, 2010, the 
percentage increase in the market basket index (as defined in Sec.  
413.40(a)(3) of this chapter) for prospective payment hospitals, 
subject to the provisions of paragraph (d)(2) of this section, less 
0.25 percentage point.
    (iii) For fiscal year 2011, the percentage increase in the market 
basket index (as defined in Sec.  413.40(a)(3) of this subchapter) for 
prospective payment hospitals, subject to the provisions of paragraph 
(d)(2) of this section, less 0.25 percentage point.
    (iv) For fiscal years 2012 and 2013, the percentage increase in the 
market basket index (as defined in Sec.  413.40(a)(3) of this chapter) 
for prospective payment hospitals, subject to the provisions of 
paragraph (d)(2) of this section, less a multifactor productivity 
adjustment (as determined by CMS) and less 0.1 percentage point.
    (v) For fiscal year 2014, the percentage increase in the market 
basket index (as defined in Sec.  413.40(a)(3) of this chapter) for 
prospective payment hospitals, subject to the provisions of paragraph 
(d)(2) of this section, less a multifactor productivity adjustment (as 
determined by CMS) and less 0.3 percentage point.
    (vi) For fiscal year 2015, the percentage increase in the market 
basket index (as defined in Sec.  413.40(a)(3) of this chapter) for 
prospective payment hospitals, subject to the provisions of paragraphs 
(d)(2) and (d)(3) of this section, less a multifactor productivity 
adjustment (as determined by CMS) and less 0.2 percentage point.
    (2)(i) In the case of a ``subsection (d) hospital,'' as defined 
under section 1886(d)(1)(B) of the Act, that does not submit quality 
data on a quarterly basis to CMS, in the form and manner specified by 
CMS, the percentage increase in the market basket index (as defined in 
Sec.  413.40(a)(3) of this chapter) for prospective payment hospitals 
is reduced--
* * * * *
    (ii) Any reduction pursuant to this paragraph (d)(2) will apply 
only to the fiscal year involved and will not be taken into account in 
computing the applicable percentage change for a subsequent fiscal 
year.
    (3) Beginning fiscal year 2015, in the case of a ``subsection (d) 
hospital,'' as defined under section 1886(d)(1)(B) of the Act, that is 
not a meaningful electronic health record (EHR) user as defined in Part 
495 of this chapter for the applicable EHR reporting period and does 
not receive an exception, three-fourths of the percentage increase in 
the market basket index (as defined in Sec.  413.40(a)(3) of this 
chapter) for prospective payment hospitals is reduced--
* * * * *
0
22. Section 412.101 is amended by revising paragraphs (b)(2)(i), 
(b)(2)(ii), (c)(1), (c)(2) introductory text, and (d) to read as 
follows:


Sec.  412.101  Special treatment: Inpatient hospital payment adjustment 
for low-volume hospitals.

* * * * *
    (b) * * *
    (2) * * *
    (i) For FY 2005 through FY 2010 and the portion of FY 2015 
beginning on April 1, 2015, and subsequent fiscal years, a hospital 
must have fewer than 200 total discharges, which includes Medicare and 
non-Medicare discharges, during the fiscal year, based on the 
hospital's most recently submitted cost report, and be located more 
than 25 road miles (as defined in paragraph (a) of this section) from 
the nearest ``subsection (d)'' (section 1886(d) of the Act) hospital.
    (ii) For FY 2011 through FY 2014, and the portion of FY 2015 before 
April 1, 2015, a hospital must have fewer than 1,600 Medicare 
discharges, as defined in paragraph (a) of this section, during the 
fiscal year, based on the hospital's Medicare discharges from the most 
recently available MedPAR data as determined by CMS, and be located 
more than 15 road miles, as defined in paragraph (a) of this section, 
from the nearest ``subsection (d)'' (section 1886(d) of the Act) 
hospital.
* * * * *
    (c) * * *
    (1) For FY 2005 through FY 2010 and the portion of FY 2015 
beginning on April 1, 2015 and subsequent fiscal years, the adjustment 
is an additional 25 percent for each Medicare discharge.
    (2) For FY 2011 through FY 2014 and the portion of FY 2015 before 
April 1, 2015, the adjustment is as follows:
* * * * *
    (d) Eligibility of new hospitals for the adjustment. For FYs 2005 
through 2010 and the portion of FY 2015 beginning on April 1, 2015, and 
subsequent fiscal years, a new hospital will be eligible for a low-
volume adjustment under this section once it has submitted a cost 
report for a cost reporting period that indicates that it meets 
discharge requirements during the applicable fiscal year and has 
provided its fiscal intermediary or Medicare administrative contractor 
with sufficient evidence that it meets the distance requirement, as 
specified under paragraph (b)(2) of this section.
0
23. Section 412.102 is revised to read as follows:

[[Page 28302]]

Sec.  412.102  Special treatment: Hospitals located in areas that are 
changing from urban to rural as a result of a geographic redesignation.

    An urban hospital that was part of an MSA, but was redesignated as 
rural as a result of the most recent OMB standards for delineating 
statistical areas adopted by CMS, may receive an adjustment to its 
rural Federal payment amount for operating costs for 2 successive 
fiscal years as provided in paragraphs (a) and (b) of this section.
    (a) First year adjustment. (1) Effective on or after October 1, 
1983 and before October 1, 2014, the hospital's rural average 
standardized amount and disproportionate share payments as described in 
Sec.  412.106 are adjusted on the basis of an additional amount that 
equals two-thirds of the difference between the urban standardized 
amount and disproportionate share payments applicable to the hospital 
before its geographic redesignation and the rural standardized amount 
and disproportionate share payments otherwise applicable to the Federal 
fiscal year for which the adjustment is made.
    (2) Effective on or after October 1, 2014, the hospital's rural 
disproportionate share payments as described in Sec.  412.106 are 
adjusted on the basis of an additional amount that equals two-thirds of 
the difference between the disproportionate share payments as an urban 
hospital applicable to the hospital before its geographic redesignation 
to a rural area as a result of implementation of the most recent OMB 
standards for delineating statistical areas adopted by CMS and the 
rural disproportionate share payment otherwise applicable to the 
Federal fiscal year for which the adjustment is made.
    (b) Second year adjustment. (1) Effective on or after October 1, 
1983 and before October 1, 2014, if a hospital's status continues to be 
rural as a result of geographic redesignation, its rural average 
standardized amount and disproportionate share payments are adjusted on 
the basis of an additional amount that equals one-third of the 
difference between the urban standardized amount and disproportionate 
share payments applicable to the hospital before its redesignation and 
the rural standardized amounts and disproportionate share payments 
otherwise applicable to the Federal fiscal year for which the 
adjustment is made.
    (2) Effective on or after October 1, 2014, if a hospital's status 
continues to be rural as a result of geographic redesignation, its 
disproportionate share payments are adjusted on the basis of an 
additional amount that equals one-third of the difference between the 
disproportionate share payments applicable to the hospital before its 
geographic redesignation to a rural area as a result of implementation 
of the most recent OMB standards for delineating statistical areas 
adopted by CMS and the rural disproportionate share payments otherwise 
applicable to the Federal fiscal year for which the adjustment is made.
0
24. Section 412.103 is amended by adding a new paragraph (a)(6) to read 
as follows:


Sec.  412.103  Special treatment: Hospitals located in urban areas and 
that apply for reclassification as rural.

    (a) * * *
    (6) For any period on or after October 1, 2014, a CAH in a county 
that was not in an urban area as defined by the Office of Management 
and Budget (OMB), but was included in an urban area as a result of the 
most recent OMB standards for delineating statistical areas adopted by 
CMS and the most recent Census Bureau data, may be reclassified as 
being located in a rural area for purposes of meeting the rural 
location requirement at Sec.  485.610(b) of this chapter for a period 
of 2 years, beginning with the date of the implementation of the new 
labor market area delineations, if it meets any of the requirements 
under paragraph (a)(1), (a)(2), or (a)(3) of this section.
* * * * *
0
25. Section 412.105 is amended by revising paragraphs (a)(1)(ii), 
(f)(1)(iv)(D), and (f)(1)(v), to read as follows:


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

* * * * *
    (a) * * *
    (1) * * *
    (ii) (A) For new programs started prior to October 1, 2012, the 
exception for new programs described in paragraph (f)(1)(vii) of this 
section applies to each new program individually for which the full-
time equivalent cap may be adjusted based on the period of years equal 
to the minimum accredited length of each new program.
    (B) For new programs started on or after October 1, 2012, the 
exception for new programs described in paragraph (f)(1)(vii) of this 
section applies to each new program individually during the cost 
reporting periods prior to the beginning of the applicable hospital's 
cost reporting period that precedes the start of the sixth program year 
of the first new program started, for hospitals for which the full-time 
equivalent cap may be adjusted in accordance with Sec.  413.79(e)(1) of 
this chapter, and prior to the beginning of the applicable hospital's 
cost reporting period that precedes the start of the sixth program year 
of the each individual new program started, for hospitals for which the 
full-time equivalent cap may be adjusted in accordance with Sec.  
413.79(e)(3) of this chapter.
* * * * *
    (f) * * *
    (1) * * *
    (iv) * * *
    (D) A rural hospital redesignated as urban after September 30, 
2004, as a result of the most recent census data and implementation of 
the new labor market area definitions announced by OMB on June 6, 2003, 
may retain the increases to its full-time equivalent resident cap that 
it received under paragraphs (f)(1)(iv)(A) and (f)(1)(vii) of this 
section while it was located in a rural area. Effective for cost 
reporting periods beginning on or after October 1, 2014, if a rural 
hospital is redesignated as urban due to the most recent OMB standards 
for delineating statistical areas adopted by CMS and was training 
residents in a new program prior to the redesignation becoming 
effective, the redesignated urban hospital may retain any existing 
increases to its full-time equivalent resident cap and receive an 
increase to its full-time equivalent resident cap for the new program 
in which it was training residents when the redesignation became 
effective, in accordance with paragraph (f)(1)(vii) of this section.
    (v)(A) For a hospital's cost reporting periods beginning on or 
after October 1, 1997, and before October 1, 1998, the total number of 
full-time equivalent residents for payment purposes is equal to the 
average of the actual full-time equivalent resident counts (subject to 
the requirements listed in paragraphs (f)(1)(ii)(C) and (f)(1)(iv) of 
this section) for that cost reporting period and the preceding cost 
reporting period.
    (B) For a hospital's cost reporting periods beginning on or after 
October 1, 1998, the total number of full-time equivalent residents for 
payment purposes is equal to the average of the actual full-time 
equivalent resident count (subject to the requirements set forth in 
paragraphs (f)(1)(ii)(C) and (f)(1)(iv) of this section) for that cost 
reporting period and the preceding two cost reporting periods.
    (C) For new programs started prior to October 1, 2012, if a 
hospital qualified for an adjustment to the limit

[[Page 28303]]

established under paragraph (f)(1)(iv) of this section for new medical 
residency programs created under paragraph (f)(1)(vii) of this section, 
the count of residents participating in new medical residency training 
programs above the number included in the hospital's full-time 
equivalent count for the cost reporting period ending during calendar 
year 1996 is added after applying the averaging rules in paragraphs 
(f)(l)(v)(A), (f)(1)(v)(B), and this paragraph (f)(1)(v)(C) for a 
period of years. Residents participating in new medical residency 
training programs are included in the hospital's full-time equivalent 
count before applying the averaging rules after the period of years has 
expired. For purposes of this paragraph, for each new program started, 
the period of years equals the minimum accredited length for each new 
program. The period of years for each new program begins when the first 
resident begins training in each new program.
    (D) For new programs started on or after October 1, 2012, for 
hospitals for which the full-time equivalent cap may be adjusted in 
accordance with Sec.  413.79(e) of this chapter, full-time equivalent 
residents participating in new medical residency training programs are 
excluded from the hospital's full-time equivalent count before applying 
the averaging rules during the cost reporting periods prior to the 
beginning of the applicable hospital's cost reporting period that 
precedes the start of the sixth program year of the first new program 
started, for hospitals for which the full-time equivalent cap may be 
adjusted in accordance with Sec.  413.79(e)(1) of this chapter, and 
prior to the beginning of the applicable hospital's cost reporting 
period that precedes the start of the sixth program year of the each 
individual new program started, for hospitals for which the full-time 
equivalent cap may be adjusted in accordance with Sec.  413.79(e)(3) of 
this chapter. After the applicable hospital's cost reporting period 
that precedes the start of the sixth program year of the first new 
program started for hospitals for which the full-time equivalent cap 
may be adjusted in accordance with Sec.  413.79(e)(1) of this chapter, 
and after the applicable hospital's cost reporting period that precedes 
the start of the sixth program year of each individual new program 
started for hospitals for which the full-time equivalent cap may be 
adjusted in accordance with Sec.  413.79(e)(3) of this chapter, full-
time equivalent residents participating in new medical residency 
training programs are included in the hospital's full-time equivalent 
count before applying the averaging cap.
    (E) Subject to the provisions of paragraph (f)(1)(ix) of this 
section, full-time equivalent residents that are displaced by the 
closure of either another hospital or another hospital's program are 
added to the full-time equivalent count after applying the averaging 
rules in this paragraph (f)(1)(v)(B) for the receiving hospital for the 
duration of time that the displaced residents are training at the 
receiving hospital.
    (F) Subject to the provisions of paragraph (f)(1)(x) of this 
section, effective for cost reporting periods beginning on or after 
April 1, 2000, full-time equivalent residents at an urban hospital in a 
rural track program are included in the urban hospital's rolling 
average calculation described in this paragraph (f)(1)(v)(B).
* * * * *
0
26. Section 412.106 is amended by revising paragraph (g)(1)(iii)(C) to 
read as follows:


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

* * * * *
    (g) * * *
    (1)
    (iii) * * *
    (C) For fiscal year 2014 and for fiscal year 2015, 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.
* * * * *


Sec.  412.108  [Amended]

0
27. In Sec.  412.108, paragraph (a)(1) introductory text and paragraph 
(c)(2)(iii) introductory text, remove the date ``April 1, 2014'' and 
add in its place the date ``April 1, 2015''.
0
28. Section 412.140 is amended by revising paragraph (c)(2) to read as 
follows:


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

* * * * *
    (c) * * *
    (2) Exception. Upon request by a hospital, CMS may grant an 
extension or exemption of one or more data submission deadlines in the 
event of extraordinary circumstances beyond the control of the 
hospital. Specific requirements for submission of a request for an 
extension or exemption are available on QualityNet.org.
* * * * *
0
29. Section 412.152 is amended by revising the definition of 
``Applicable hospital'' to read as follows:


Sec.  412.152  Definitions for the Hospital Readmissions Reduction 
Program.

* * * * *
    Applicable hospital is a hospital described in section 
1886(d)(1)(B) of the Act or a hospital paid under section 1814(b)(3) of 
the Act.
* * * * *


Sec.  412.154  [Amended]

0
30. Section 412.154 is amended by removing and reserving paragraph (d).
0
31. Section 412.160 is amended by revising the definitions of ``Base 
operating DRG payment amount'' and ``Performance standards'' to read as 
follows:


Sec.  412.160  Definitions for the Hospital Value-Based Purchasing 
(VBP) Program.

* * * * *
    Base operating DRG payment amount means the following:
    (1) With respect to a subsection (d) hospital (as defined in 
section 1886(d)(1)(B) of the Act), 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 Readmissions Reduction Program, 
as specified under Sec.  412.154. 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, or a low volume 
of discharges under Sec.  412.101.
    (2) With respect to a Medicare-dependent, small rural hospital that 
receives payments under Sec.  412.108(c) or a sole community hospital 
that receives payments under Sec.  412.92(d), the wage-adjusted DRG 
operating payment plus any applicable new technology add-on payments 
under subpart F of this part. 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, or a low volume 
of discharges under Sec.  412.101. With respect to a Medicare-
dependent, small rural hospital that receives payments under Sec.  
412.108(c) (for discharges occurring in FY 2013) or a sole community 
hospital that receives

[[Page 28304]]

payments under Sec.  412.92(d), 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.
* * * * *
    Performance standards are the levels of performance that hospitals 
must meet or exceed in order to earn points under the Hospital VBP 
Program, and are calculated with respect to a measure for a fiscal year 
no later than 60 days prior to the start of the performance period for 
that measure for that fiscal year. The performance standards for a 
measure may be updated as follows:
    (1) To make a single correction to correct a calculation error, 
data issue, or other problem that would significantly change the 
performance standards; or
    (2) To incorporate nonsubstantive technical updates made to the 
measure between the time that CMS first displays the performance 
standards for that measure for a fiscal year and the time that CMS 
calculates hospital performance on that measure at the conclusion of 
the performance period for that measure for a fiscal year.
* * * * *
0
32. Section 412.161 is revised to read as follows:


Sec.  412.161  Applicability of the Hospital Value-Based Purchasing 
(VBP) Program

    The Hospital VBP Program applies to hospitals, as that term is 
defined in Sec.  412.160.


Sec.  412.172  [Amended]

0
33. Section 412.172 is amended by removing and reserving paragraph (c).
0
34. Section 412.232 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  412.232  Criteria for all hospitals in a rural county seeking 
urban redesignation.

* * * * *
    (b) * * *
    (2) For fiscal years beginning with FY 2005, the group of hospitals 
must demonstrate that the county in which the hospitals are located 
meets the standards for redesignation to an MSA as an outlying county 
using the most recent OMB standards for delineating statistical areas 
adopted by CMS and the most recent Census Bureau data.
* * * * *
0
35. Section 412.234 is amended by revising paragraph (a)(3)(iv) to read 
as follows:


Sec.  412.234  Criteria for all hospitals in an urban county seeking 
redesignation to another urban area.

    (a) * * *
    (3) * * *
    (iv) For Federal fiscal year 2008 and thereafter, hospitals located 
in counties that are in the same Combined Statistical Area (CSA) or 
Core-Based Statistical Area (CBSA) (under the most recent OMB standards 
for delineating statistical areas adopted by CMS and the most recent 
Census Bureau data) as the urban area to which they seek redesignation 
qualify as meeting the proximity requirement for reclassification to 
the urban area to which they seek redesignation.
* * * * *
0
36. Section 412.500 is amended by adding paragraphs (a)(4), (a)(5), and 
(a)(6) to read as follows:


Sec.  412.500  Basis and scope of subpart.

    (a) * * *
    (4) Section 4302(a) of Public Law 111-5, which amended sections 
114(c) and (d) of Public Law 110-173 relating to several moratoria on 
the establishment of new long-term care hospitals and satellite 
facilities and on the increase in the number of beds in existing long-
term care hospitals and satellite facilities under the long-term care 
hospital prospective payment system.
    (5) Sections 3106(a) and 10312(a) of Public Law 111-148, which 
extended certain payment rules and moratoria under the long-term care 
hospital prospective payment system by further amending sections 114(c) 
and (d) of Public Law 110-173.
    (6) Section 1206 of Public Law 113-67, which further extended 
certain payment rules and moratoria under the long-term care hospital 
prospective payment system by amending sections 114(c) and (d) of 
Public Law 110-173, and which:
    (i) Added a new section 1886(m)(6) to the Act to establish a site 
neutral payment amount for long-term care hospital discharges that fail 
to meet the applicable criteria in cost reporting periods beginning on 
or after October 1, 2015; and
    (ii) Requires the Secretary's review of the payment rates and 
regulations governing long-term care hospitals established under 
section 1886(d)(1)(B)(iv)(II) of the Act and application of payment 
adjustments based on that review.
* * * * *
0
37. Section 412.521 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  412.521  Basis for payment.

    (a) * * *
    (2) Except as provided for in Sec.  412.526, the amount of payment 
under the prospective payment system is based on the Federal payment 
rate established in accordance with Sec.  412.523, including 
adjustments described in Sec.  412.525, and, if applicable during a 
transition period, on a blend of the Federal payment rate and the cost-
based reimbursement rate described in Sec.  412.533.
* * * * *
0
38. Section 412.523 is amended by adding a new paragraph (c)(3)(xi) to 
read as follows:


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

* * * * *
    (c) * * *
    (3) * * *
    (xi) For long-term care hospital prospective payment system fiscal 
year beginning October 1, 2014, and ending September 30, 2015. The 
standard Federal rate for the long-term care hospital prospective 
payment system beginning October 1, 2014, and ending September 30, 
2015, is the standard Federal rate for the previous long-term care 
hospital prospective payment system fiscal year updated by 2.1 percent, 
and further adjusted, as appropriate, as described in paragraph (d) of 
this section.
* * * * *


Sec.  412.525  [Amended]

0
39. Section 412.525 is amended by removing and reserving paragraph 
(d)(3).
0
40. A new Sec.  412.526 is added to read as follows:


Sec.  412.526  Payment provisions for a ``subclause (II)'' long-term 
care hospital.

    (a) Definition. A ``subclause (II)'' long-term care hospital is a 
hospital that qualifies as an LTCH under section 1886(d)(1)(B)(iv)(II) 
of the Act.
    (b) Method of payment.--(1) For cost reporting periods beginning on 
or after October 1, 2003 and before September 30, 2014, payment to a 
``subclause (II)'' long-term care hospital is made under the 
prospective payment system specified in Sec.  412.1(a)(4) and Subpart O 
of this part.
    (2) For cost reporting periods beginning on or after October 1, 
2014, payment to a ``subclause (II)'' long-term care hospital is made 
under the prospective payment system specified in Sec.  412.1(a)(4) and 
under Subpart O of this part, as adjusted. The adjusted payment amount 
is determined based on reasonable cost, as described at Sec.  
412.526(c).
    (c) Determining the adjusted payment for Medicare inpatient 
operating and capital-related costs under the

[[Page 28305]]

reasonable cost-based reimbursement rules. Medicare inpatient operating 
costs are paid based on reasonable cost, subject to a ceiling. The 
ceiling is the aggregate upper limit on the amount of a hospital's net 
Medicare inpatient operating costs that the program will recognize for 
payment purposes, as determined under paragraph (c)(1) of this section.
    (1) Ceiling. For each cost reporting period, the ceiling is 
determined by multiplying the updated target amount, as defined in 
paragraph (c)(2) of this section, for that period by the number of 
Medicare discharges paid under this subpart during that period.
    (2) Target amounts.--(i) For cost reporting periods beginning 
during Federal fiscal year 2015, the target amount equals the 
hospital's target amount determined under Sec.  413.40(c)(4) for its 
cost reporting period beginning during Federal fiscal year 2000, 
updated by the applicable annual rate-of-increase percentages specified 
in Sec.  413.40(c)(3) to the subject period.
    (ii) For subsequent cost reporting periods, the target amount 
equals the hospital's target amount for the previous cost reporting 
period updated by the applicable annual rate-of-increase percentage 
specified in Sec.  413.40(c)(3) for the subject cost reporting period.
    (3) Payment for inpatient operating costs. For cost reporting 
periods subject to this section, the hospital's Medicare allowable net 
inpatient operating costs for that period (as defined at Sec.  
413.40(a)(3)) are paid on a reasonable cost basis, subject to that 
hospital's ceiling (as determined under paragraph (c)(1) of this 
section) for that period.
    (4) Payment for inpatient capital-related costs. Medicare allowable 
net inpatient capital costs are paid on a reasonable cost basis, in 
accordance with the regulations under Part 413 of this chapter.
0
41. Section 412.531 is amended by--
0
a. Revising paragraph (a)(2) introductory text.
0
b. Adding a new paragraph (a)(3).
0
c. Revising paragraph (b)(4) introductory text.
0
d. Adding a new paragraph (b)(5).
    The revisions and additions read as follows:


Sec.  412.531  Special payment provisions when an interruption of a 
stay occurs in a long-term care hospital.

    (a) * * *
    (2) A greater than 3-day interruption of stay defined. For long-
term care hospital discharges occurring on or before September 30, 
2014, ``a greater than 3-day or less interruption of stay'' means a 
stay in a long-term care hospital during which a Medicare inpatient is 
discharged from the long-term care hospital to an acute care hospital, 
an IRF, or a SNF for a period of greater than 3 days but within the 
applicable fixed-day period specified in paragraphs (a)(2)(i) through 
(a)(2)(iii) of this section before being readmitted to the same long-
term care hospital.
* * * * *
    (3) For long-term care hospital discharges occurring on or after 
October 1, 2014, ``a greater than 3-day or less interruption of stay'' 
means a stay in a long-term care hospital during which a Medicare 
inpatient is discharged from the long-term care hospital to an acute 
care hospital, an IRF, or a SNF for a fixed day period of between 4 
days and 30 consecutive days before being readmitted to the same long-
term care hospital.
    (b) * * *
    (4) Except as provided in paragraph (b)(5) of this section, if a 
patient who has been discharged from a long-term care hospital to 
another facility and is readmitted to the long-term care hospital for 
additional treatment or services in the long-term care hospital 
directly following the stay at the other facility, the subsequent 
admission to the long-term care hospital is considered a new stay, even 
if the case is determined to fall into the same MS-LTC-DRG, and the 
long-term care hospital will receive two separate Federal prospective 
payments if one of the following conditions are met:
* * * * *
    (5) For long-term care hospital discharges occurring on or after 
October 1, 2014, if a patient who has been discharged from a long-term 
care hospital to another facility is readmitted to the long-term care 
hospital for additional treatment or services directly following the 
stay at the other facility, the subsequent admission to the long-term 
care hospital is considered a new stay, even if the case is determined 
to fall into the same MS-LTC-DRG, and the long-term care hospital will 
receive two separate Federal prospective payments only if the patient 
has a length of stay at the other facility that exceeded 30 days from 
the initial date of discharge from the long-term care hospital.
* * * * *


Sec.  412.532  [Removed]

0
42. Section 412.532 is removed.
0
43. Section 412.534 is amended by--
0
a. Revising and paragraph (c)(1).
0
b. Removing the year ``2013'' and adding in its place the year ``2016'' 
in paragraph (c)(1)(i) and (ii) and (c)(2) paragraph heading.
0
c. Revising paragraph (c)(3).
0
d. Removing the year ``2013'' and adding in its place the year ``2016'' 
in paragraphs (d)(1) heading, (d)(1)(i), and (d)(2) heading.
0
e. Revising paragraph (d)(3).
0
f. Removing the year ``2013'' and adding in its place the year ``2016'' 
in paragraphs (e)(1) heading, (e)(1)(i), and (e)(2) heading.
0
g. Revising paragraph (e)(3).
0
h. Revising paragraphs (h) introductory text, (h)(4), and (h)(5).
0
i. Removing paragraph (h)(6).
    The revisions read as follows:


Sec.  412.534  Special payment provisions for long-term care hospitals 
within hospitals and satellites of long-term care hospitals.

* * * * *
    (c) * * *
    (1) For cost reporting periods beginning on or after October 1, 
2004 and before October 1, 2007 and for cost reporting periods 
beginning on or after October 1, 2016. (i) Except as provided in 
paragraphs (c)(3), (g), and (h) of this section, for any cost reporting 
period beginning on or after October 1, 2004 and before October 1, 
2007, and for cost reporting periods beginning on or after October 1, 
2016 in which the long-term care hospital or its satellite facility has 
a discharged Medicare inpatient population of whom no more than 25 
percent were admitted to the hospital or its satellite facility from 
the co-located hospital, payments are made under the rules at 
Sec. Sec.  412.500 through 412.541 in this subpart with no adjustment 
under this section.
* * * * *
    (3) For a long-term care hospital satellite facility described in 
Sec.  412.22(h)(3)(i), for cost reporting periods beginning on or after 
July 1, 2007 and before July 1, 2016, payments will be determined using 
the methodology specified in paragraph (c)(1) of this section, except 
that the applicable percentage threshold for Medicare discharges is 50 
percent.
    (d) * * *
    (3) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2016, payment for a long-term care hospital 
satellite facility described in Sec.  412.22(h)(3)(i) will be 
determined using the methodology specified in paragraph (c)(1) of this 
section, except that the applicable percentage threshold for Medicare 
discharges is 75 percent.
    (e) * * *
    (3) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2016, payments for a long-term care hospital 
satellite facility described in Sec.  412.22(h)(3)(i) will be

[[Page 28306]]

determined using the methodology specified in paragraph (c)(1) of this 
section, except that the applicable percentage threshold for Medicare 
discharges is 75 percent.
* * * * *
    (h) Effective date of policies in this section for certain co-
located long-term care hospitals and satellite facilities of long-term 
care hospitals. Except as specified in paragraph (h)(4) of this 
section, the policies set forth in this paragraph (h) apply to Medicare 
patient discharges that were admitted from a hospital located in the 
same building or on the same campus as a long-term care hospital 
described in Sec.  412.23(e)(2)(i) that meets the criteria in Sec.  
412.22(f) and a satellite facility of a long-term care hospital as 
described under Sec.  412.22(h)(3)(i) for discharges occurring in cost 
reporting periods beginning on or after July 1, 2007.
* * * * *
    (4) For a long-term care hospital described in Sec.  
412.23(e)(2)(i) that meets the criteria in Sec.  412.22(f), the 
policies set forth in this paragraph (h) and in Sec.  412.536 do not 
apply for discharges occurring in cost reporting periods beginning on 
or after July 1, 2007.
    (5) For a long-term care hospital or a satellite facility that, as 
of December 29, 2007, was co-located with an entity that is a provider-
based, off-campus location of a subsection (d) hospital which did not 
provide services payable under section 1886(d) of the Act at the off-
campus location, the policies set forth in this paragraph (h) and in 
Sec.  412.536 do not apply for discharges occurring in cost reporting 
periods beginning on or after July 1, 2007 and before July 1, 2016.
0
44. Section 412.536 is amended by--
0
a. Removing and reserving paragraph (a)(1)(iii).
0
b. Revising paragraph (a)(2) introductory text.
0
c. Removing and reserving paragraph (a)(2)(ii).
0
d. Removing paragraph (a)(3).
    The revisions read as follows:


Sec.  412.536  Special payment provisions for long-term care hospitals 
and satellites of long-term care hospitals that discharged Medicare 
patients admitted from a hospital not located in the same building or 
on the same campus as the long-term care hospital or satellite of the 
long-term care hospital.

    (a) * * *
    (1) * * *
    (iii) [Reserved].
* * * * *
    (2) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2016, the policies set forth in this section are not 
applicable to discharges from:
* * * * *
    (ii) [Reserved].
* * * * *

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

0
45. 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).

Nomenclature Changes

PART 413 [Amended]

0
46. Throughout Part 413, according to the list below, remove the term 
or phrase in the first column and replace it with the term or phrase in 
the second column:

 
                  Remove                                 Add
 
an intermediary's.........................  ``a contractor's''
fiscal intermediary.......................  ``contractor''
fiscal intermediary's.....................  ``contractor's''
intermediary..............................  ``contractor''
intermediaries............................  ``contractors''
intermediary's............................  ``contractor's''
 

0
47. Section 413.24 is amended by reserving paragraph (i) and adding a 
new paragraph (j) to read as follows:


Sec.  413.24  Adequate cost data and cost finding.

* * * * *
    (i) [Reserved]
    (j) Substantive reimbursement requirement of an appropriate cost 
report claim. (1) General requirement. In order for a provider to 
receive or potentially qualify for reimbursement for a specific item 
for its cost reporting period, the provider's cost report, whether 
determined on an as submitted, as amended, or as adjusted basis (as 
prescribed in paragraph (j)(3) of this section), must include an 
appropriate claim for the specific item, by either--
    (i) Claiming full reimbursement in the provider's cost report for 
the specific item in accordance with Medicare policy, if the provider 
seeks payment for the item that it believes comports with program 
policy; or
    (ii) Self-disallowing the specific item in the provider's cost 
report, if the provider seeks payment that it believes may not be 
allowable or may not comport with Medicare policy (for example, if the 
provider believes the contractor lacks the authority or discretion to 
award the reimbursement the provider seeks for the item), by following 
the procedures (set forth in paragraph (j)(2) of this section) for 
properly self-disallowing the specific item in the provider's cost 
report as a protested amount.
    (2) Self-disallowance procedures. In order to properly self-
disallow a specific item, the provider must--
    (i) Include an estimated reimbursement amount for each specific 
self-disallowed item in the protested amount line (or lines) of the 
provider's cost report; and
    (ii) Attach a separate work sheet to the provider's cost report for 
each specific self-disallowed item, explaining why the provider self-
disallowed each specific item (instead of claiming full reimbursement 
in its cost report for the specific item) and describing how the 
provider calculated the estimated reimbursement amount for each 
specific self-disallowed item.
    (3) Procedures for determining whether there is an appropriate cost 
report claim. Whether the provider's cost report for its cost reporting 
period includes an appropriate claim for a specific item (as prescribed 
in paragraph (j)(1) of this section) must be determined by reference to 
the cost report that the provider submits originally to, and was 
accepted by, the contractor for such period, provided that none of the 
following exceptions applies:
    (i) If the provider submits an amended cost report for its cost 
reporting period and such amended cost report is accepted by the 
contractor, whether there is an appropriate cost report claim for the 
specific item must be determined by reference to such amended cost 
report, provided that neither of the exceptions set forth in paragraphs 
(j)(3)(ii) and (j)(3)(iii) of this section applies;
    (ii) If the contractor adjusts the provider's cost report, as 
submitted originally by the provider and accepted by the contractor or 
as amended by the provider and accepted by the contractor, whichever is 
applicable, with respect to the specific item, whether there is an 
appropriate cost report claim for the specific item must be determined 
by reference to the provider's cost report, as such cost report claim 
is adjusted for the specific item in the initial contractor 
determination (as defined in Sec.  405.1801(a) of this chapter) for the 
provider's cost reporting period, provided that the exception set forth 
in paragraph (j)(3)(iii) of this section does not apply;
    (iii) If the contractor reopens either the initial contractor 
determination for

[[Page 28307]]

the provider's cost reporting period (pursuant to Sec.  405.1885 of 
this chapter) or a revised contractor determination for such period 
(issued pursuant to Sec.  405.1889 of this chapter) and the contractor 
adjusts the provider's cost report with respect to the specific item, 
whether there is an appropriate cost report claim for the specific item 
must be determined by reference to the provider's cost report, as such 
cost report claim is adjusted for the specific item in the most recent 
revised contractor determination for such period.
    (4) Reimbursement effects of contractor's determination of whether 
there is an appropriate cost report claim. If the contractor determines 
that the provider's cost report included an appropriate claim for a 
specific item (as specified in paragraphs (j)(1), (j)(2), and (j)(3) of 
this section) and that all the other substantive reimbursement 
requirements for the specific item are also satisfied, the final 
contractor determination (as defined in Sec.  405.1801(a) of this 
chapter) must include reimbursement for the specific item to the extent 
permitted by Medicare policy. If the contractor determines that the 
provider made an appropriate cost report claim for a specific item but 
the contractor disagrees with material aspects of the provider's claim 
for the specific item, the contractor must make appropriate adjustments 
to the provider's cost report and include reimbursement for the 
specific item in the final contractor determination in accordance with 
such cost report adjustments and to the extent permitted by program 
policy. If the contractor determines that the provider did not make an 
appropriate cost report claim for a specific item, the final contractor 
determination must not include any reimbursement for the specific item, 
regardless of whether the other substantive reimbursement requirements 
for the specific item are or are not satisfied.
    (5) Administrative review of whether there is an appropriate cost 
report claim. If the provider files an administrative appeal (pursuant 
to Part 405, Subpart R of this chapter) seeking reimbursement for a 
specific item and any party to such appeal questions whether the 
provider's cost report included an appropriate claim for the specific 
item under appeal (as specified in paragraphs (j)(1), (j)(2), (j)(3), 
and (j)(4) of this section), the reviewing entity (as defined in Sec.  
405.1801(a) of this chapter) must follow the procedures prescribed in 
Sec.  405.1873 of this chapter (if the appeal was filed originally with 
the Board), or the procedures set forth in Sec.  405.1832 of this 
chapter (if the appeal was filed initially with the contractor), for 
review of whether the substantive reimbursement requirement of an 
appropriate cost report claim for the specific item under appeal is 
satisfied. The reviewing entity must follow the procedures set forth in 
paragraph (j)(3) of this section in determining whether the provider's 
cost report included an appropriate claim for the specific item under 
appeal. The reviewing entity may permit reimbursement for the specific 
item under appeal solely to the extent authorized by Sec.  405.1873(f) 
of this chapter (if the appeal was filed originally with the Board) or 
by Sec.  405.1832(f) of this chapter (if the appeal was filed initially 
with the contractor).
0
48. Section 413.75 is amended by revising the definition of ``Rural 
track FTE limitation'' under paragraph (b) to read as follows:


Sec.  413.75  Direct GME payments: General requirements.

* * * * *
    (b) * * *
    Rural track FTE limitation means the maximum number of residents 
(as specified in Sec.  413.79(k)) training in a rural track residency 
program that an urban hospital may include in its FTE count and that is 
in addition to the number of FTE residents already included in the 
hospital's FTE cap.
* * * * *
0
49. Section 413.78 is amended by revising paragraph (g)(6) to read as 
follows:


Sec.  413.78  Direct GME payment: Determination of the total number of 
FTE residents.

* * * * *
    (g) * * *
    (6) The provisions of paragraphs (g)(1)(ii), (g)(2), (g)(3), and 
(g)(5) of this section shall not be applied in a manner that requires 
reopening of any settled cost reports as to which there is not a 
jurisdictionally proper appeal pending as of March 23, 2010, on direct 
GME or IME payments. Cost reporting periods beginning before July 1, 
2010 are not governed by paragraph (g) of this section.
* * * * *
0
50. Section 413.79 is amended by revising paragraphs (c)(6), (d)(5), 
and (k)(7), to read as follows:


Sec.  413.79  Direct GME payments: Determination of the weighted number 
of FTE residents.

* * * * *
    (c) * * *
    (6) FTE resident caps for rural hospitals that are redesignated as 
urban. A rural hospital redesignated as urban after September 30, 2004, 
as a result of the most recent census data and implementation of the 
new MSA definitions announced by OMB on June 6, 2003, may retain the 
increases to its FTE resident cap that it received under paragraphs 
(c)(2)(i), (e)(1)(iii), and (e)(3) of this section while it was located 
in a rural area. Effective for cost reporting periods beginning on or 
after October 1, 2014, if a rural hospital is redesignated as urban due 
to the most recent OMB standards for delineating statistical areas 
adopted by CMS, and was training residents in a new program prior to 
the redesignation becoming effective, the redesignated urban hospital 
may retain any existing increases to its FTE resident cap, and receive 
an increase to its FTE resident cap for the new program in which it was 
training residents when the redesignation became effective, in 
accordance with paragraph (e) of this section.
    (d) * * *
    (5)(i) For new programs started prior to October 1, 2012, if a 
hospital qualifies for an adjustment to the limit established under 
paragraph (c)(2) of this section for new medical residency programs 
created under paragraph (e) of this section, the count of the residents 
participating in new medical residency training programs above the 
number included in the hospital's FTE count for the cost reporting 
period ending during calendar year 1996 is added after applying the 
averaging rules in this paragraph (d), for a period of years. Residents 
participating in new medical residency training programs are included 
in the hospital's FTE count before applying the averaging rules after 
the period of years has expired. For purposes of this paragraph (d), 
for each new program started, the period of years equals the minimum 
accredited length for each new program. The period of years begins when 
the first resident begins training in each new program.
    (ii) For new programs started on or after October 1, 2012, for 
hospitals for which the FTE cap may be adjusted in accordance with 
Sec.  413.79(e) of this chapter, FTE residents participating in new 
medical residency training programs are excluded from the hospital's 
FTE count before applying the averaging rules during the cost reporting 
periods prior to the beginning of the applicable hospital's cost 
reporting period that precedes the start of the sixth program year of 
the first new program started, for hospitals for which the FTE may be 
adjusted in accordance with Sec.  413.79(e)(1) of this chapter, and

[[Page 28308]]

prior to the beginning of the applicable hospital's cost reporting 
period that precedes the start of the sixth program year of the each 
individual new program started, for hospitals for which the FTE cap may 
be adjusted in accordance with Sec.  413.79(e)(3) of this chapter. 
After the applicable hospital's cost reporting period that precedes the 
start of the sixth program year of the first new program started for 
hospitals for which the FTE cap may be adjusted in accordance with 
Sec.  413.79(e)(1) of this chapter, and after the applicable hospital's 
cost reporting period that precedes the start of the sixth program year 
of the each individual new program started for hospitals for which the 
FTE cap may be adjusted in accordance with Sec.  413.79(e)(3) of this 
chapter, FTE residents participating in new medical residency training 
programs are included in the hospital's FTE count before applying the 
averaging rules.
* * * * *
    (k) * * *
    (7) (i) Effective for cost reporting periods beginning prior to 
October 1, 2014, if an urban hospital had established a rural track 
training program under the provisions of this paragraph (k) with a 
hospital located in a rural area and that rural area subsequently 
becomes an urban area due to the most recent census data and 
implementation of the new labor market area definitions announced by 
OMB on June 6, 2003, the urban hospital may continue to adjust its FTE 
resident limit in accordance with this paragraph (k) for the rural 
track programs established prior to the adoption of such new labor 
market area definitions. In order to receive an adjustment to its FTE 
resident cap for a new rural track residency program, the urban 
hospital must establish a rural track program with hospitals that are 
designated rural based on the most recent geographical location 
delineations adopted by CMS.
    (ii) Effective for cost reporting periods beginning on or after 
October 1, 2014, if an urban hospital had started a rural track 
training program under the provisions of this paragraph (k) with a 
hospital located in a rural area and, during the 3-year period that is 
used to calculate the urban hospital's rural track FTE limit, that 
rural area subsequently becomes an urban area due to the most recent 
OMB standards for delineating statistical areas adopted by CMS and the 
most recent Census Bureau data, the urban hospital may continue to 
adjust its FTE resident limit in accordance with this paragraph (k) and 
subject to paragraph (k)(7)(iii) for the rural track programs 
established prior to the adoption of such new OMB standards for 
delineating statistical areas.
    (iii) Effective for cost reporting periods beginning on or after 
October 1, 2014, if an urban hospital had established a rural track 
training program under the provisions of this paragraph (k) with a 
hospital located in a rural area and that rural area subsequently 
becomes an urban area due to the most recent OMB standards for 
delineating statistical areas adopted by CMS and the most recent Census 
Bureau data, regardless of whether the redesignation of the rural 
hospital occurs during the 3-year period that is used to calculate the 
urban hospital's rural track FTE limit, or after the 3-year period used 
to calculate the urban hospital's rural track FTE limit, the urban 
hospital may continue to adjust its FTE resident limit in accordance 
with this paragraph (k) based on the rural track programs established 
prior to the change in the hospital's geographic designation. In order 
for the urban hospital to receive or use the adjustment to its FTE 
resident cap for training FTE residents in the rural track residency 
program that was established prior to the most recent OMB standards for 
delineating statistical areas adopted by CMS, one of the following two 
conditions must be met by the end of a 2-year period that begins when 
the most recent OMB standards for delineating statistical areas are 
adopted by CMS: the hospital that has been redesignated from rural to 
urban must reclassify as rural under Sec.  412.103 of this chapter, for 
purposes of IME only; or the urban hospital must find a new site that 
is geographically rural consistent with the most recent geographical 
location delineations adopted by CMS. In order to receive an adjustment 
to its FTE resident cap for an additional new rural track residency 
program, the urban hospital must establish a rural track program with 
sites that are geographically rural based on the most recent 
geographical location delineations adopted by CMS.
* * * * *

PART 415--SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS, 
SUPERVISING PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN 
CERTAIN SETTINGS

0
51. The authority citation for Part 415 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
52. Section 415.70 is amended by revising paragraph (b) to read as 
follows:


Sec.  415.70  Limits on compensation for physician services in 
providers.

* * * * *
    (b) Methodology for establishing limits. (1) For cost reporting 
periods beginning before January 1, 2015. CMS establishes a methodology 
for determining annual reasonable compensation equivalency limits and, 
to the extent possible, considers average physician incomes by 
specialty and type of location using the best available data.
    (2) For cost reporting periods beginning on or after January 1, 
2015. CMS establishes a methodology for determining annual reasonable 
compensation equivalency limits and, to the extent possible, considers 
average physician incomes by specialty using the best available data.
* * * * *

PART 422--MEDICARE ADVANTAGE PROGRAM

0
53. The authority citation for Part 422 continues to read as follows:

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

0
54. Section 422.300 is revised to read as follows:


Sec.  422.300  Basis and scope.

    This subpart is based on sections 1106, 1853, 1854, and 1858 of the 
Act. It sets forth the rules for making payments to Medicare Advantage 
(MA) organizations offering local and regional MA plans, including 
calculation of MA capitation rates and benchmarks, conditions under 
which payment is based on plan bids, adjustments to capitation rates 
(including risk adjustment), collection of risk adjustment data, 
conditions for use and disclosure of risk adjustment data, and other 
payment rules. See Sec.  422.458 in subpart J for rules on risk sharing 
payments to MA regional organizations.
0
55. Section 422.310 is amended by revising paragraph (f) to read as 
follows:


Sec.  422.310  Risk adjustment data.

* * * * *
    (f) Use and release of data.
    (1) CMS use of data. CMS may use the data described in paragraphs 
(a) through (d) of this section for the following purposes:
    (i) To determine the risk adjustment factors used to adjust 
payments, as required under Sec. Sec.  422.304(a) and (c);
    (ii) To update risk adjustment models;
    (iii) To calculate Medicare DSH percentages;
    (iv) To conduct quality review and improvement activities;
    (v) For Medicare coverage purposes;

[[Page 28309]]

    (vi) To conduct evaluations and other analysis to support the 
Medicare program (including demonstrations) and to support public 
health initiatives and other health care-related research;
    (vii) For activities to support the administration of the Medicare 
program;
    (viii) For activities conducted to support program integrity; and
    (ix) For purposes permitted by other laws.
    (2) CMS release of data. Regarding data described in paragraphs (a) 
through (d) of this section, CMS may release the minimum data it 
determines is necessary for one or more of the purposes listed in 
paragraph (f)(1) of this section to other HHS agencies, other Federal 
executive branch agencies, States, and external entities in accordance 
with the following:
    (i) Applicable Federal laws;
    (ii) CMS data sharing procedures;
    (iii) Subject to the protection of beneficiary identifier elements 
and beneficiary confidentiality, including--
    (A) A prohibition against public disclosure of beneficiary 
identifying information;
    (B) Release of beneficiary identifying information to other HHS 
agencies, other Federal executive branch agencies, Congressional 
support agencies, and States only when such information is needed; and
    (C) Release of beneficiary identifying information to external 
entities only to the extent needed to link datasets.
    (iv) Subject to the aggregation of payment data to protect 
commercially sensitive data.
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
56. 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. 1302 and 1395(hh)).

0
57. Section 424.11 is amended by revising paragraph (d)(5) to read as 
follows:


Sec.  424.11  General procedures.

* * * * *
    (d) * * *
    (5) For all inpatient hospital services, including inpatient 
psychiatric facility services, a delayed certification may not extend 
past discharge.
* * * * *
0
58. Section 424.15 is amended by revising paragraph (b) to read as 
follows:


Sec.  424.15  Requirements for inpatient CAH services.

* * * * *
    (b) Certification begins with the order for inpatient admission. 
The certification must be completed, signed, and documented in the 
medical record no later than 1 day before the date on which the claim 
for payment for the inpatient CAH service is submitted.
* * * * *

PART 485--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS

0
59. 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
60. Section 485.610 is amended by revising paragraph (b) introductory 
text and adding a new paragraph (b)(5) to read as follows:


Sec.  485.610  Conditions of participation: Status and location.

* * * * *
    (b) Standard: Location in a rural area or treatment as rural. The 
CAH meets the requirements of either paragraph (b)(1) or (b)(2) of this 
section or the requirements of paragraph (b)(3), (b)(4), or (b)(5) of 
this section.
* * * * *
    (5) Effective on or after October 1, 2014, for a period of 2 years 
beginning with the effective date of the most recent Office of 
Management and Budget (OMB) standards for delineating statistical areas 
adopted by CMS, the CAH no longer meets the location requirements in 
either paragraph (b)(1) or (b)(2) of this section and is located in a 
county that, prior to the most recent OMB standards for delineating 
statistical areas adopted by CMS and the most recent Census Bureau 
data, was located in a rural area as defined by OMB, but under the most 
recent OMB standards for delineating statistical areas adopted by CMS 
and the most recent Census Bureau data, is located in an urban area.
* * * * *

PART 488--SURVEY, CERTIFICATION, AND ENFORCEMENT PROCEDURES

0
61. The authority citation for Part 488 continues to read as follows:

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

0
62. Section 488.61 is amended by--
0
a. Revising paragraphs (a)(4) and (c)(4).
0
b. Adding new paragraphs (f), (g), and (h).
    The revisions and additions read as follows:


Sec.  488.61  Special procedures for approval and re-approval of organ 
transplant centers.

* * * * *
    (a) * * *
    (4) CMS will consider mitigating factors in accordance with 
paragraphs (f), (g), and (h) of this section.
* * * * *
    (c) * * *
    (4) CMS will consider mitigating factors in accordance with 
paragraphs (f), (g), and (h) of this section.
* * * * *
    (f) Consideration of mitigating factors in initial approval and re-
approval survey, certification, and enforcement actions for transplant 
centers.
    (1) Factors. Except for situations of immediate jeopardy, CMS will 
consider mitigating factors, including (but not limited to) the 
following, in making a decision of initial and re-approval of a 
transplant center that does not meet the data submission, clinical 
experience, or outcome requirements, or other conditions of 
participation:
    (i) The extent to which outcome measures are not met or exceeded;
    (ii) Availability of Medicare-approved transplant centers in the 
area;
    (iii) Extenuating circumstances (for example, natural disaster) 
that have a temporary effect on meeting the conditions of 
participation;
    (iv) Program improvements that substantially address root causes of 
graft failures or patient deaths and that have been implemented and 
institutionalized on a sustainable basis;
    (v) Recent patient and graft survival data to determine if there is 
sufficient clinical experience and survival for CMS to conclude that 
the program is in compliance with CMS requirements, except for the data 
lag inherent in the reports from the Scientific Registry of Transplant 
Recipients (SRTR);
    (vi) Whether the program has made extensive use of innovative 
transplantation practices relative to other transplant programs, such 
as a high rate of transplantation of individuals who are highly 
sensitized or children who have undergone a Fontan procedure compared 
to most other transplant programs, where CMS finds that the innovative 
practices are supported by evidence-based published research literature 
or nationally recognized standards or Institution Review Board (IRB) 
approvals, and the SRTR risk-adjustment methodology does not take the 
relevant key factors into consideration; and
    (vii) Whether the program's performance, based on the OPTN method 
of calculating patient and graft survival, is within the OPTN's

[[Page 28310]]

thresholds for acceptable performance and does not flag OPTN 
performance review under the applicable OPTN policy.
    (2) Content. A request for consideration of mitigating factors must 
include sufficient information to permit an adequate review and 
understanding of the transplant program, the factors that have 
contributed to outcomes, program improvements or innovations that have 
been implemented or planned, and in the case of natural disasters, the 
recovery actions planned. Examples of information to be submitted with 
each request include (but are not limited to) the following:
    (i) The name and contact information for the transplant hospital 
and the names and roles of key personnel of the transplant program;
    (ii) The type of organ transplant program(s) for which approval is 
requested;
    (iii) The conditions of participation that the program does not 
meet for which the transplant center is requesting CMS' review for 
mitigating factors;
    (iv) The rationale and supporting evidence for CMS' review may 
include (but is not limited to)--
    (A) Root Cause Analysis for patient deaths and graft failures, 
including factors the program has identified as likely causal or 
contributing factors for patient deaths and graft failures;
    (B) Program improvements or innovations (where applicable) that 
have been implemented and improvements that are planned;
    (C) Patient and donor/organ selection criteria and evaluation 
protocols, including methods for pre-transplant patient evaluation by 
cardiologists, hematologists, nephrologists, and psychiatrists or 
psychologists to the extent applicable;
    (D) Organizational chart with full-time equivalent levels, roles, 
and structure for reporting to hospital leadership;
    (E) Waitlist management protocols and practices relevant to 
outcomes;
    (F) Pre-operative management protocols and practices;
    (G) Immunosuppression/infection prophylaxis protocols;
    (H) Post-transplant monitoring and management protocols and 
practices;
    (I) Quality Assessment and Performance Improvement (QAPI) Program 
meeting minutes from the most recent four meetings and attendance 
rosters from the most recent 12 months;
    (J) Quality dashboard and other performance indicators;
    (K) Recent outcomes data for both patient survival and graft 
survival; and
    (L) Whether the program has engaged with the OPTN to review program 
outcomes, the status of any such review, and any steps taken to address 
program outcomes pursuant to the OPTN review.
    (3) Timing. Within 10 days after CMS has issued formal written 
notice of a condition-level deficiency to the program, CMS must receive 
notification of the program's intent to seek mitigating factors 
approval or re-approval, and receive all information for consideration 
of mitigating factors within 30 days of the CMS written notification 
for any deficiency that is not for insufficient clinical experience or 
outcomes, and 120 days of the CMS written notification for a deficiency 
due to clinical experience or outcomes. Failure to meet these 
timeframes may be the basis for denial of mitigating factors.
    (g) Results of mitigating factors review.
    (1) Actions. Upon review of the request to consider mitigating 
factors, CMS may take the following actions:
    (i) Approve initial approval or re-approval of a program's Medicare 
participation based upon approval of mitigating factors;
    (ii) Deny the program's request for Medicare approval or re-
approval based on mitigating factors.
    (iii) Offer a time-limited Systems Improvement Agreement, in 
accordance with paragraph (h) of this section, when a transplant 
program has waived its appeal rights, has implemented substantial 
program improvements that address root causes and are institutionally 
supported by the hospital's governing body on a sustainable basis, and 
has requested more time to design or implement additional improvements 
or demonstrate compliance with CMS outcome requirements. Upon 
completion of the Systems Improvement Agreement or a CMS finding that 
the hospital has failed to meet the terms of the Agreement, CMS makes a 
final determination of whether to approve or deny a program's request 
for Medicare approval or re-approval based on mitigating factors. A 
Systems Improvement Agreement follows the process specified in 
paragraph (h) of this section.
    (2) Limitation. CMS will not approve any program with a condition-
level deficiency. However, CMS may approve a program with a standard-
level deficiency upon receipt of an acceptable plan of correction.
    (h) Transplant Systems Improvement Agreement. A Systems Improvement 
Agreement is a binding agreement, entered into voluntarily by the 
hospital and CMS, through which CMS extends a prospective Medicare 
termination date and offers the program additional time to achieve 
compliance with the conditions of participation, contingent on the 
hospital's agreement to participate in a structured regimen of quality 
improvement activities, demonstrate improved outcomes, and waive the 
right to appeal termination based on the identified deficiency or 
deficiencies that led to the Agreement in consideration for more time 
to demonstrate compliance. In some cases, transplant programs may enter 
a period of inactivity--voluntarily, or imposed as a condition of the 
Systems Improvement Agreement.
    (1) Content. In exchange for the additional time to initiate or 
continue activities to achieve compliance with the conditions of 
participation, the hospital must agree to a regimen of specified 
activities, including (but not limited to) all of the following:
    (i) Patient notification about the degree and type of noncompliance 
by the program, an explanation of what the program improvement efforts 
mean for patients, and financial assistance to defray the out-of-pocket 
costs of copayments and testing expenses for any wait-listed individual 
who wishes to be listed with another program;
    (ii) An external independent peer review team that conducts: An 
onsite assessment of program policies, staffing, operations, 
relationship to hospital services, and factors that contribute to 
program outcomes; that suggests quality improvements the hospital 
should consider; that provides both verbal and written feedback to the 
hospital; and that provides a verbal debriefing to CMS. Neither the 
hospital nor the peer review team is required to provide a written 
report to CMS. The peer review team must include a transplant surgeon 
with expertise in the relevant organ type(s), a transplant 
administrator, an individual with expertise in transplant QAPI systems, 
a social worker or psychologist or psychiatrist, and a specialty 
physician with expertise in conditions particularly relevant to the 
applicable organ types(s) such as a cardiologist, nephrologist, or 
hepatologist. Except for the transplant surgeon, CMS may permit 
substitution of one type of expertise for another individual who has 
expertise particularly needed for the type of challenges experienced by 
the program, such as substitution of an infection control specialist in 
lieu of, or in addition to, a social worker;
    (iii) An action plan that addresses systemic quality improvements 
and is updated after the onsite peer review;

[[Page 28311]]

    (iv) An onsite consultant whose qualifications are approved by CMS, 
and who provides services for 8 days per month on average for the 
duration of the agreement, except that CMS may permit a portion of the 
time to be spent offsite and may agree to fewer consultant days each 
month after the first 3 months of the Systems Improvement Agreement;
    (v) A comparative effectiveness analysis that compares policies, 
procedures, and protocols of the transplant program with those of other 
programs in areas of endeavor that are relevant to the center's current 
quality improvement needs;
    (vi) Development of increased proficiency, or demonstration of 
current proficiency, with patient-level data from the Scientific 
Registry of Transplant Recipients and the use of registry data to 
analyze outcomes and inform quality improvement efforts;
    (vii) A staffing analysis that examines the level, type, training, 
and skill of staff in order to inform transplant center efforts to 
ensure the engagement and appropriate training and credentialing of 
staff.
    (viii) Activities to strengthen performance of the Quality 
Assessment and Performance Improvement Program to ensure full 
compliance with the requirements of Sec.  482.96 of this chapter;
    (ix) Monthly (unless otherwise specified) reporting and conference 
calls with CMS regarding the status of programmatic improvements, 
results of the deliverables in the Systems Improvement Agreement, and 
the number of transplants, deaths, and graft failures that occur within 
1 year post-transplant; and
    (x) Additional or alternative requirements specified by CMS, 
tailored to the transplant program type and circumstances.
    (2) Timeframe. A Systems Improvement Agreement will be established 
for up to a 12-month period, subject to CMS' discretion to determine if 
a shorter timeframe may suffice. At the hospital's request, CMS may 
extend the agreement for up to an additional 6-month period.

(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: April 18, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 22, 2014.
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--Proposed Schedule of Standardized Amounts, Update Factors, 
and Rate-of-Increase Percentages Effective With Cost Reporting Periods 
Beginning On or After October 1, 2014 and Payment Rates for LTCHs 
Effective for Discharges Occurring On or After October 1, 2014.

I. Summary and Background

    In this Addendum, we are setting forth a description of the methods 
and data we used to determine the proposed prospective payment rates 
for Medicare hospital inpatient operating costs and Medicare hospital 
inpatient capital-related costs for FY 2015 for acute care hospitals. 
We also are setting forth the proposed rate-of-increase percentages for 
updating the target amounts for certain hospitals excluded from the 
IPPS for FY 2015. 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 proposed rule, we are 
proposing 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, 2014.
    In addition, we are setting forth a description of the methods and 
data we used to determine the proposed standard Federal rate that will 
be applicable to Medicare LTCHs for FY 2015.
    In general, except for SCHs, MDHs and hospitals located in Puerto 
Rico, for FY 2015, 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 
discussed in section IV.F. of the preamble to this proposed 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, as discussed in section IV.G. of the preamble of this 
proposed rule, section 1106 of the Pathway to SGR Reform Act of 2013 
(Pub. L. 113-67), enacted on December 26, 2013, extended the MDH 
program from the end of FY 2013 (that is, for discharges occurring 
after September 30, 2013) through the first half of FY 2014 (that is, 
for discharges occurring before April 1, 2014). Subsequently, section 
106 of the Protecting Access to Medicare Act of 2014 (Pub. L. 113-93), 
enacted on April 1, 2014, further extended the MDH program through the 
first half of FY 2015 (that is, for discharges occurring before April 
1, 2015). Prior to the enactment of Public Law 113-67, the MDH program 
was only to be in effect through the end of FY 2013. Under current law, 
the MDH program will expire for discharges on or after April 1, 2015.
    Under section 1886(d)(5)(G) of the Act, MDHs historically have been 
paid based on the Federal national rate or, if higher, the Federal 
national rate plus 50 percent of the difference between the Federal 
national rate and the updated hospital-specific rate based on FY 1982, 
FY 1987, or FY 2002 costs per discharge, whichever was higher. Section 
5003(c) of Public Law 109-171 further required that MDHs be paid based 
on the Federal national rate or, if higher, the Federal national rate 
plus 75 percent of the difference between the Federal national rate and 
the updated hospital-specific rate. Further, based on the provisions of 
section 5003(d) of Public Law 109-171, MDHs are no longer subject to 
the 12-percent cap on their DSH payment adjustment factor.
    For hospitals located in Puerto Rico, the payment per discharge is 
based on the sum of 25 percent of an updated Puerto Rico-specific rate 
based on average costs per case of Puerto Rico hospitals for the base 
year and 75 percent of the Federal national rate. (We refer readers to 
section II.D.2. of this Addendum for a complete description.)
    As discussed below in section II. of this Addendum, we are 
proposing to make changes in the determination of the prospective 
payment rates for Medicare inpatient operating costs for acute care 
hospitals for FY 2015. In

[[Page 28312]]

section III. of this Addendum, we discuss our proposed policy changes 
for determining the prospective payment rates for Medicare inpatient 
capital-related costs for FY 2015. In section IV. of this Addendum, we 
are setting forth our proposed changes for determining the rate-of-
increase limits for certain hospitals excluded from the IPPS for FY 
2015. In section V. of this Addendum, we discuss proposed policy 
changes for determining the standard Federal rate for LTCHs paid under 
the LTCH PPS for FY 2015. The tables to which we refer in the preamble 
of this proposed rule are listed in section VI. of this Addendum and 
are available via the Internet.

II. Proposed Changes to Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2015

    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 proposed prospective payment rates for FY 2015.
    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.

For FY 2015, depending on whether a hospital submits quality data under 
the rules established in accordance with section 1886(b)(3)(B)(viii) of 
the Act (hereafter referred to as a hospital that submits quality data) 
and is a meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act 
(hereafter referred to as a hospital that is a meaningful EHR user), 
there are four possible applicable percentage increases that can be 
applied to the national standardized amount. We refer the reader to 
section IV.B. of the preamble of this proposed rule for a complete 
discussion on the FY 2015 proposed inpatient hospital update. Below is 
a table with these four options:

----------------------------------------------------------------------------------------------------------------
                                                     Hospital        Hospital      Hospital did    Hospital did
                                                     submitted       submitted      NOT submit      NOT submit
                                                   quality data    quality data    quality data    quality data
                     FY 2015                         and is a      and is NOT a      and is a      and is NOT a
                                                  meaningful EHR  meaningful EHR  meaningful EHR  meaningful EHR
                                                       user            user            user            user
----------------------------------------------------------------------------------------------------------------
Market Basket Rate-of-Increase..................             2.7             2.7             2.7             2.7
Adjustment for Failure to Submit Quality Data                0.0             0.0          -0.675          -0.675
 under Section 1886(b)(3)(B)(viii) of the Act...
Adjustment for Failure to be a Meaningful EHR                0.0          -0.675             0.0          -0.675
 User under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment under Section 1886(b)(3)(B)(xi)              -0.4            -0.4            -0.4            -0.4
 of the Act.....................................
Statutory Adjustment under Section                          -0.2            -0.2            -0.2            -0.2
 1886(b)(3)(B)(xii) of the Act..................
Proposed Applicable Percentage Increase Applied              2.1           1.425           1.425            0.75
 to Standardized Amount.........................
----------------------------------------------------------------------------------------------------------------

     A proposed update of 2.1 percent to the Puerto Rico-
specific standardized amount (that is, the FY 2015 estimate of the 
market basket rate-of-increase of 2.7 percent less a proposed 
adjustment of 0.4 percentage point for MFP and less 0.2 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 2014 budget neutrality 
factor and applying a revised factor.
     As discussed below and in section III. of the preamble of 
this proposed rule, an adjustment to offset the cost of the 
transitional wage index provisions provided by CMS as a result of the 
proposed adoption of the new OMB labor market area delineations.
     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 2014 outlier offset and 
apply an offset for FY 2015, 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 proposed rule, a proposed 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.
    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 2014, for FY 2015, consistent 
with current law, we are proposing to continue to apply the rural floor 
budget neutrality adjustment to hospital wage indexes 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

[[Page 28313]]

to the wage index, we are proposing to apply a uniform, national budget 
neutrality adjustment to the proposed FY 2015 wage index for the rural 
floor. We note that, in section III.G.2.b. of the preamble to this 
proposed rule, we are proposing to extend the imputed floor policy 
(both the original methodology and alternative methodology) for another 
year, through September 30, 2015.
    Therefore, for this proposed rule, we are proposing to continue 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 
proposed FY 2015 wage index.

A. Calculation of the Proposed 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 2015, we are proposing to use the national and Puerto Rico-
specific labor-related and nonlabor-related shares established for FY 
2014, using the FY 2010-based hospital market basket. 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: ``[T]he 
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 
2015, as discussed in section III. of the preamble of this proposed 
rule, we are proposing to establish a labor-related share of 69.6 
percent for the national standardized amounts, and 63.2 percent for the 
Puerto Rico-specific standardized amount, if the hospital has a wage 
index value that is greater than 1.0000. Consistent with section 
1886(d)(3)(E) of the Act, we are proposing to apply the wage index to a 
labor-related share of 62 percent of the national standardized amount 
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 proposing to apply the wage index to a labor-related 
share of 69.6 percent of the national standardized amount. For FY 2015, 
all Puerto Rico hospitals have a proposed wage index value that is less 
than 1.0000 because the proposed average hourly rate of every hospital 
in Puerto Rico divided by the proposed 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 proposed wage index that is below 
1.0000. However, when we divide the proposed average hourly rate of 
every hospital located in Puerto Rico by the proposed Puerto Rico-
specific national average hourly rate (the sum of all salaries and 
hours for all hospitals located only in Puerto Rico), we determine a 
proposed Puerto Rico-specific wage index value for some hospitals that 
is either above, or below 1.0000, depending on the hospital's location 
within Puerto Rico.
    Therefore, for hospitals located in Puerto Rico, we are proposing 
to apply 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 proposing to apply a labor share of 62 
percent.
    The proposed 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 proposed rule and are available via the Internet.
2. Computing the National Average Standardized Amount and Puerto Rico-
Specific Standardized Amount
    Section 1886(d)(3)(A)(iv)(II) of the Act requires that, beginning 
with FY 2004 and thereafter, an equal standardized amount be computed 
for all hospitals at the level computed for large urban hospitals 
during FY 2003, updated by the applicable percentage update. Section 
1886(d)(9)(A)(ii)(II) of the Act equalizes the Puerto Rico-specific 
urban and rural area rates. Accordingly, we are proposing to calculate 
the FY 2015 national average standardized amount and Puerto Rico-
specific standardized amount irrespective of whether a hospital is 
located in an urban or rural location.
3. Updating the National Average Standardized Amount and Puerto Rico-
Specific 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 proposed rule, we are using the 
revised and rebased FY 2010-based IPPS operating and capital market 
baskets for FY 2015 (which replaced the FY 2006-based IPPS operating 
and capital market baskets in FY 2014). As discussed in section IV.B. 
of the preamble of this proposed 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 proposing to reduce the proposed FY 2015 
applicable percentage increase (which is based on IHS Global Insight, 
Inc.'s (IGI's) first quarter 2014 forecast of the FY 2010-based IPPS 
market basket) by the proposed MFP adjustment (the

[[Page 28314]]

10-year moving average of MFP for the period ending FY 2015) of 0.4 
percentage point, which is calculated based on IGI's first quarter 2014 
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 proposing to further update the standardized amount for FY 
2015 by the estimated market basket percentage increase less 0.2 
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 2014 first quarter forecast of the hospital market 
basket increase (as discussed in Appendix B of this proposed rule), the 
most recent forecast of the hospital market basket increase for FY 2015 
is 2.7 percent. As discussed above, for FY 2015, depending on whether a 
hospital submits quality data under the rules established in accordance 
with section 1886(b)(3)(B)(viii) of the Act and is a meaningful EHR 
user under section 1886(b)(3)(B)(ix) of the Act, there are four 
possible applicable percentage increases that could be applied to the 
standardized amount. We refer readers to section IV. of the preamble of 
this proposed rule for a complete discussion on the FY 2015 proposed 
inpatient hospital update to the standardized amount. We also refer 
readers to the table above for the four possible proposed applicable 
percentage increases that would be applied to update the national 
standardized amount. The proposed standardized amounts shown 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 proposing to 
establish an applicable percentage increase to the Puerto Rico-specific 
standardized amount of 2.1 percent for FY 2015.
    Although the update factors for FY 2015 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 
2015 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 proposed rule.
4. Other Adjustments to the Average Standardized Amount
    As in the past, we are proposing to adjust the FY 2015 standardized 
amount to remove the effects of the FY 2014 geographic 
reclassifications and outlier payments before applying the proposed FY 
2015 updates. We then apply budget neutrality offsets for outliers and 
geographic reclassifications to the proposed standardized amount based 
on proposed FY 2015 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

[[Page 28315]]

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 
ratesetting 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 models (that is, as if they 
are not participating in those models under the BPCI initiative). 
Therefore, for FY 2015, as discussed in section II.H.4.of the preamble 
to this proposed rule, we are proposing 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 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 rate setting 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 proposed rule, 
consistent with our methodology established in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53687 through 53688), we believe that 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 IV.H. of the preamble of this proposed rule 
for full details of our implementation of and proposed FY 2015 policy 
changes to 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 IV.I. of the preamble of this proposed 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.A.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, as we did for FY 2014, for FY 2015 and subsequent 
years, we are proposing to continue to apply the hospital readmissions 
payment adjustment and the hospital VBP payment adjustment on each side 
of the comparison, consistent with the methodology that we adopted in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53687 through 53688). That 
is, we are proposing to apply 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 proposed FY 2015 readmissions 
payment adjustment factors, we are proposing to use 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 proposed rule, we are proposing 
to calculate 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 2015 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 2015 in section IV.H.3.f. of the preamble of 
this proposed 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 proposed rule, for the purpose of modeling 
aggregate

[[Page 28316]]

payments when determining all budget neutrality factors, we are 
proposing to use proxy hospital VBP payment adjustment factors for FY 
2015 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 2015 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 established section 1886(r) of the 
Act, which modifies the methodology for computing the Medicare DSH 
payment adjustment beginning in FY 2014. Beginning in FY 2014, IPPS 
hospitals receiving Medicare DSH payment adjustments will receive an 
empirically justified Medicare DSH payment equal to 25 percent of the 
amount that would previously have been received under the current 
statutory formula set forth under section 1886(d)(5)(F) of the Act 
governing 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 2015 and subsequent years (as we did for FY 
2014), we are proposing to include estimated empirically justified 
Medicare DSH payments that will be paid in accordance with section 
1886(r)(1) of the Act and also to include estimates of the additional 
uncompensated care payments made to hospitals receiving Medicare DSH 
payment adjustments as described by section 1886(r)(2) of the Act. That 
is, we are proposing to consider estimated empirically justified 
Medicare DSH payments at 25 percent of what would otherwise have been 
paid, and also the estimated additional uncompensated care payments for 
hospitals receiving Medicare DSH payment adjustments 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 federal rate payments and 
then include whichever one of the total payments are greater. As 
discussed in section IV.F. of the preamble to this proposed rule and 
below, we are continuing the FY 2014 finalized 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 are including estimated uncompensated care 
payments in this comparison.
    Similarly, for MDHs, as discussed in section IV. of the preamble to 
this proposed rule, when computing the Federal national rate plus 75 
percent of the difference between the Federal national rate and the 
updated hospital-specific rate, we are continuing to take into 
consideration uncompensated care payments in the computation of 
payments under the Federal rate and the hospital-specific rate for 
MDHs.
    Also, for FY 2015, CMS has yet to finalize a list of hospitals that 
are not meaningful EHR users under section 1886(b)(3)(B)(ix) of the 
Act. Therefore, we are proposing not to include this adjustment to the 
standardized amount (for those hospitals that are not meaningful EHR 
users) in our modeling of aggregate payments for budget neutrality for 
FY 2015. CMS intends to release a final list of hospitals that are not 
meaningful EHR user in September 2014. Hospitals identified on this 
list will be paid based on the applicable proposed standardized amount 
in Table 1A for discharges occurring in FY 2015.
    We finally note that the wage index value is calculated and 
assigned to a hospital based on the hospital's labor market area. Under 
section 1886(d)(3)(E) of the Act, beginning with FY 2005, we delineate 
hospital labor market areas based on the Core-Based Statistical Areas 
(CBSAs) established by the Office of Management and Budget (OMB). The 
current statistical areas used in FY 2014 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 purposes of determining all of the FY 2014 budget 
neutrality factors, we determined aggregate payments on each side of 
the comparison for our budget neutrality calculations using wage 
indexes based on the current CBSAs.
    As stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27552) 
and final rule (78 FR 50586), 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. In order to implement these 
changes for the IPPS, it is necessary to identify the new OMB labor 
market area delineation for each county and hospital in the country. In 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50586), we stated that we 
intended to propose changes to the wage index policy based on the new 
OMB delineations in this FY 2015 proposed rule. As discussed in section 
III. of the preamble of this proposed rule, we are proposing to adopt 
the new OMB labor market area delineations as described in the February 
28, 2013 OMB Bulletin No. 13-01, effective for the FY 2015 IPPS wage 
index.
    Consistent with our proposal to adopt the new OMB delineations, in 
order to properly determine aggregate payments on each side of the 
comparison for our budget neutrality calculations, we are proposing to 
use wage indexes based on the new OMB delineations in the determination 
of all of the proposed budget neutrality factors discussed below (with 
the exception of the proposed transitional budget neutrality factor and 
proposed outlier threshold as explained below). We also note that, 
consistent with past practice as finalized in the FY 2005 IPPS final 
rule (69 FR 49034), we are not adopting the new OMB delineations 
themselves in a budget neutral manner. We continue to believe that the 
revision to the labor market areas in and of itself do not constitute 
an ``adjustment or update'' to the adjustment for area wage 
differences, as provided under section 1886(d)(3)(E) of the Act.
a. Proposed 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 proposed

[[Page 28317]]

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 proposing to make 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 1.0000, 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 1.0000 are paid using a labor-related 
share of 62 percent. Consistent with current policy, for FY 2015, we 
are proposing to adjust 100 percent of the wage index factor for 
occupational mix. We describe the proposed occupational mix adjustment 
in section III.F. of the preamble of this proposed rule.
    For FY 2015, 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 2013 discharge data to simulate payments and 
compared the following:
     Aggregate payments using the new OMB labor market area 
delineations proposed for FY 2015, the FY 2014 relative weights, and 
the FY 2014 pre-reclassified wage data, and applied the proposed FY 
2015 hospital readmissions payment adjustments and estimated FY 2015 
hospital VBP payment adjustments; and
     Aggregate payments using the new OMB labor market area 
delineations proposed for FY 2015, the proposed FY 2015 relative 
weights, and the FY 2014 pre-reclassified wage data, and applied the 
same hospital readmissions payment adjustments and estimated hospital 
VBP payment adjustments applied above.
    Based on this comparison, we computed a proposed budget neutrality 
adjustment factor equal to 0.992938. As discussed in section IV. of 
this Addendum, we also are proposing to apply the proposed MS-DRG 
reclassification and recalibration budget neutrality factor of 0.992938 
to the hospital-specific rates that are effective for cost reporting 
periods beginning on or after October 1, 2014.
    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. Under the first step, we determined a proposed MS-DRG 
reclassification and recalibration budget neutrality factor of 0.992938 
(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). Under the 
second step, to compute a proposed budget neutrality factor for wage 
index and labor-related share changes we used FY 2013 discharge data to 
simulate payments and compared the following:
     Aggregate payments using the new OMB labor market area 
delineations proposed for FY 2015, proposed FY 2015 relative weights 
and the FY 2014 pre-reclassified wage indices, applied the FY 2014 
labor-related share of 69.6 percent to all hospitals (regardless of 
whether the hospital's wage index was above or below 1.0), and applied 
the proposed FY 2015 hospital readmissions payment adjustment and the 
proposed FY 2015 estimated hospital VBP payment adjustment; and
     Aggregate payments using the new OMB labor market area 
delineations proposed for FY 2015, proposed FY 2015 relative weights 
and the proposed FY 2015 pre-reclassified wage indices, applied the 
proposed labor-related share for FY 2015 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 proposed FY 2015 hospital readmissions 
payment adjustments and estimated proposed FY 2015 hospital VBP payment 
adjustments applied above.
    In addition, we applied the proposed MS-DRG reclassification and 
recalibration budget neutrality factor (derived in the first step) to 
the payment rates that were used to simulate payments for this 
comparison of aggregate payments from FY 2014 to FY 2015. By applying 
this methodology, we determined a proposed budget neutrality adjustment 
factor of 1.000578 for changes to the wage index. Finally, we 
multiplied the proposed MS-DRG reclassification and recalibration 
budget neutrality adjustment factor of 0.992938 (derived in the first 
step) by the proposed budget neutrality adjustment factor of 1.000578 
for changes to the wage index (derived in the second step) to determine 
the proposed MS-DRG reclassification and recalibration and updated wage 
index budget neutrality adjustment factor of 0.993512.
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

[[Page 28318]]

1886(d)(8)(D) of the Act. To calculate the proposed budget neutrality 
factor for FY 2015, we used FY 2013 discharge data to simulate payments 
and compared the following:
     Aggregate payments using the new OMB labor market area 
delineations proposed for FY 2015, proposed FY 2015 relative weights, 
and proposed FY 2015 wage data prior to any reclassifications under 
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act, and applied 
the proposed FY 2015 hospital readmissions payment adjustments and the 
proposed estimated FY 2015 hospital VBP payment adjustments; and
     Aggregate payments using the new OMB labor market area 
delineations proposed for FY 2015, proposed FY 2015 relative weights, 
and proposed FY 2015 wage data after such reclassifications, and 
applied the same proposed hospital readmissions payment adjustments and 
the estimated hospital VBP payment adjustments applied above.
    We note that the reclassifications applied under the second 
simulation and comparison are those listed in Tables 9A2 and 9C2, which 
are posted on the CMS Web site. These tables reflect reclassification 
crosswalks based on the new OMB labor market area delineations proposed 
for FY 2015, and apply the policies explained in section III. of the 
preamble to this proposed rule. Based on these simulations, we 
calculated a proposed budget neutrality adjustment factor of 0.991412 
to ensure that the effects of these provisions are budget neutral, 
consistent with the statute.
    The proposed FY 2015 budget neutrality adjustment factor was 
applied to the proposed standardized amount after removing the effects 
of the FY 2014 budget neutrality adjustment factor. We note that the 
proposed FY 2015 budget neutrality adjustment reflects proposed FY 2015 
wage index reclassifications approved by the MGCRB or the 
Administrator.
c. Proposed Rural Floor Budget Neutrality Adjustment
    Under Sec.  412.64(e)(4), we make an adjustment to the wage index 
to ensure that aggregate payments 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) are equal to the aggregate prospective 
payments that would have been made in the absence of such provisions. 
Consistent with section 3141 of the Affordable Care Act and as 
discussed in section III.G. of the preamble of this proposed rule and 
codified at Sec.  412.64(e)(4)(ii), the budget neutrality adjustment 
for the rural and imputed floor is a national adjustment to the wage 
index.
    As noted above and as discussed in section III.G.2.b. of the 
preamble of this proposed 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 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). 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. For FY 
2015, as discussed in section III.G.2.b. of the preamble of this 
proposed rule, we are proposing to extend the imputed floor using the 
higher of the value determined under the original methodology or the 
alternative methodology for FY 2015. Therefore, in order to ensure that 
aggregate payments to hospitals are not affected, similar to prior 
years, we would follow our policy of including the imputed floor in the 
rural floor budget neutrality adjustment to the wage index.
    As discussed above, for FY 2015, we are proposing to implement the 
new OMB delineations as described in the February 28, 2013 OMB Bulletin 
No. 13-01, effective for the FY 2015 IPPS wage index. Therefore, the 
budget neutrality adjustment for the rural floor and imputed floor 
would be calculated using the new OMB delineations.
    Under the OMB delineations used for FY 2014, the imputed floor 
(both the original methodology and alternative methodology) was applied 
to New Jersey and Rhode Island because these were the only two all-
urban States. Under OMB's 2010 revised delineations based on Census 
2010 data, in addition to New Jersey and Rhode Island, Delaware would 
become an all-urban state. Therefore, for FY 2015, the proposed imputed 
floor would be applied to New Jersey, Rhode Island, and Delaware.
    Similar to our calculation in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51593 and 51788), the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53689), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50975 through 
50976), for FY 2015, we are calculating a proposed 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 proposed 
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 there are no rural Puerto 
Rico hospitals with established wage data, our calculation of the FY 
2015 rural Puerto Rico wage index is based on the policy adopted in the 
FY 2008 IPPS final rule with comment period (72 FR 47323). That is, we 
will use the unweighted average of the wage indexes from all CBSAs 
(urban areas) that are contiguous (share a border with) to the rural 
counties to compute the rural floor (72 FR 47323; 76 FR 51594). Under 
the new OMB labor market area delineations, except for Arecibo, Puerto 
Rico (CBSA 11640), all other Puerto Rico urban areas are contiguous to 
a rural area. Therefore, based on our existing policy, the FY 2015 
rural Puerto Rico wage index is calculated based on the average of the 
FY 2015 wage indices for the following urban areas: Aguadilla-Isabela, 
PR (CBSA 10380); Guayama, PR (CBSA 25020); Mayaguez, PR (CBSA 32420); 
Ponce, PR (CBSA 38660), San German, PR (CBSA 41900) and San Juan-
Carolina-Caguas, PR, PR (CBSA 41980).
    To calculate the proposed national rural floor and imputed floor 
budget neutrality adjustment factor and the proposed Puerto Rico-
specific rural floor budget neutrality adjustment factor, we used FY 
2013 discharge data to simulate payments, the proposed FY 2015 new OMB 
labor market area delineations, and post-reclassified national and 
Puerto Rico-specific wage indices and compared the following:
     The national and Puerto Rico-specific simulated payments 
without the national rural floor and imputed floor and Puerto Rico-
specific rural floor applied; and
     The national and Puerto Rico-specific simulated payments 
with the national rural floor and imputed floor and Puerto Rico-
specific rural floor applied.
    Based on this comparison, we determined a proposed national rural 
budget neutrality adjustment factor of 0.989455 and the proposed Puerto 
Rico-

[[Page 28319]]

specific budget neutrality adjustment factor of 0.991359. The proposed 
national adjustment was applied to the proposed national wage indexes 
to produce a proposed national rural floor budget neutral wage index 
and the proposed Puerto Rico-specific adjustment was applied to the 
proposed Puerto Rico-specific wage indexes to produce a proposed Puerto 
Rico-specific rural floor budget neutral wage index.
d. Proposed Wage Index Transition Budget Neutrality
    As discussed in section III. of the preamble to this proposed rule, 
in the past, we have provided for transition periods when adopting 
changes that have significant payment implications, particularly large 
negative impacts.
    Similar to FY 2005, for FY 2015, we have determined that the 
proposed transition to using the new OMB delineations would have the 
largest impact on hospitals that are currently located in an urban 
county that would become rural under the new OMB delineations. To 
alleviate the decreased payments associated with having a rural wage 
index, in calculating the area wage index, similar to the transition 
provided in the FY 2005 IPPS final rule, we generally are proposing a 
policy to assign them the urban wage index value of the CBSA to which 
they are physically located for FY 2014 for FYs 2015, 2016, and 2017.
    In addition to the 3-year transition adjustment for hospitals being 
transitioned from urban to rural status as discussed above, we are 
proposing a 1-year blended wage index for all hospitals that would 
experience any decrease in their actual payment wage index (that is, a 
hospital's actual wage index used for payment, which accounts for all 
applicable effects of reclassification and redesignation) exclusively 
due to the proposed implementation of the new OMB delineations. Similar 
to the policy adopted in the FY 2005 IPPS final rule (69 FR 49033), we 
are proposing that a post-reclassified wage index with the rural and 
imputed floor applied would be computed based on the hospital's FY 2014 
CBSA (that is, using all of its FY 2014 constituent county/ies), and 
another post-reclassified wage index with the rural and imputed floor 
applied would be computed based on the hospital's new FY 2015 CBSA 
(that is, the FY 2015 constituent county/ies). We are proposing to 
compare these two wage indexes. If the proposed FY 2015 wage index with 
FY 2015 CBSAs would be lower than the proposed FY 2015 wage index with 
FY 2014 CBSAs, we are proposing that a blended wage index would be 
computed, consisting of 50 percent of each of the two wage indexes 
added together. We are proposing that this blended wage index would be 
the hospital's wage index for FY 2015. Hospitals that benefit from the 
proposed adoption of the new OMB delineations would receive their new 
wage index based on the new OMB delineations. We refer readers to 
section III. of the preamble to this proposed rule for a completer 
discussion on the transitional wage index policy.
    In the past, CMS has budget neutralized transitional wage indexes. 
Because we are proposing a policy that allows for the application of a 
transitional wage index only when it would benefit the hospital, we 
believe that it would be appropriate to ensure that such a transitional 
policy does not increase aggregate Medicare payments beyond the 
payments that would be made had we simply adopted the new OMB 
delineations without any transitional provisions. Therefore, for FY 
2015, we are proposing to use our exceptions and adjustments authority 
under section 1886(d)(5)(I)(i) of the Act to make an adjustment to the 
national and Puerto Rico-specific standardized amounts to ensure that 
total payments, including the effect of the transitional wage index 
provisions, would equal what payments would have been if we had 
proposed to fully adopt the new OMB delineations without any 
transitional provisions.
    As stated above, the proposed 50/50 blended wage indexes would use 
post-reclassified wage index data with the rural and imputed floor 
applied computed based on FY 2014 CBSAs. Because the proposed 50/50 
blend methodology would use data based on FY 2014 CBSAs, in order to 
properly calculate the proposed transitional budget neutrality factor, 
it was first necessary to calculate the following proposed budget 
neutrality factors based on the FY 2014 CBSAs: An MS-DRG and a wage 
index budget neutrality, a reclassification budget neutrality, and a 
rural floor budget neutrality. It was necessary to compute the first 
three budget neutrality factors of MS-DRG, wage index, and 
reclassification budget neutrality (which are applied to the 
standardized amount) to ensure that the calculation of the rural and 
imputed floor budget neutrality factor applied to the wage index based 
on FY 2014 CBSAs is accurate. We calculated these four budget 
neutrality factors using the same methodology stated above, but used 
the FY 2014 CBSAs instead of the proposed FY 2015 CBSAs on both the 
sides of the comparison.
    After calculating all of the proposed budget neutrality factors 
using FY 2014 and FY 2015 CBSAs, to calculate the proposed transitional 
wage index budget neutrality factor for FY 2015, we used FY 2013 
discharge data to simulate payments and compared the following:
     Aggregate payments using new OMB delineations proposed for 
FY 2015, the proposed FY 2015 relative weights, proposed FY 2015 wage 
data after such reclassifications under sections 1886(d)(8)(B) and (C) 
and 1886(d)(10) of the Act (using the new OMB delineations), applied 
the proposed rural floor budget neutrality factor to the wage index 
(using the new OMB delineations), and applied the proposed FY 2015 
hospital readmissions payment adjustments and the proposed estimated FY 
2015 hospital VBP payment adjustments; and
     Aggregate payments using proposed FY 2015 relative 
weights, proposed FY 2015 wage data after applying the transitional 
wage indexes, and applied the same proposed hospital readmissions 
payment adjustments and the estimated hospital VBP payment adjustments 
applied above. We note that hospitals that did not receive the proposed 
transitional 50/50 blended wage index were assigned the post-
reclassified wage index values with the proposed rural floor budget 
neutrality based on the proposed FY 2015 new OMB delineations.
    Based on these simulations, we calculated a proposed budget 
neutrality adjustment factor of 0.998856. Therefore, for FY 2015, we 
are proposing to apply a transitional wage index budget neutrality 
adjustment factor of 0.998856 to the national average and Puerto Rico-
specific standardized amounts to ensure that the effects of these 
proposed transitional wage indices are budget neutral.
    We note that the proposed budget neutrality adjustment factor 
calculated above is based on the increase in payments in FY 2015 that 
would result from the transitional wage indexes. Therefore, we are 
proposing to apply this budget neutrality adjustment factor as a one-
time adjustment to the FY 2015 national and Puerto Rico-specific 
standardized amounts in order to offset the increase in payments in FY 
2015 as a result of these transitional wage indexes. For subsequent 
fiscal years, we are proposing to not take into consideration the 
adjustment factor applied to the national and Puerto Rico-specific 
standardized amounts in the previous fiscal year's update when 
calculating the current fiscal year transitional wage index budget 
neutrality adjustment factor (that is, we

[[Page 28320]]

are proposing that this adjustment would not be applied cumulatively). 
Because we are proposing a 3-year transitional wage index policy for 
urban hospitals that became rural as a result of the proposed adoption 
of the new OMB delineations, we intend to propose transitional wage 
index budget neutrality adjustment factors to apply to the FY 2016 and 
FY 2017 national and Puerto Rico-specific standardized amounts during 
those respective rulemaking cycles. Similar to the proposal for FY 
2015, we plan on proposing that the FYs 2016 and 2017 adjustments would 
be applied as ``one-time'' adjustments and not cumulative adjustments 
applied each fiscal year.
d. Proposed Case-Mix Budget Neutrality Adjustment
    Below we summarize the proposed recoupment adjustment to the 
proposed FY 2015 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 proposed rule for a complete 
discussion regarding our proposed policies for FY 2015 in this proposed 
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.
(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 estimated that if CMS 
were to fully account for the $11 billion recoupment required by 
section 631 of ATRA in FY 2014, a one-time -9.3 percent adjustment to 
the standardized amount would be necessary. It is often our practice to 
delay or phase-in payment rate adjustments over more than 1 year, in 
order to moderate the effect on payment rates in any 1 year. Therefore, 
consistent with the policies that we have adopted in many similar 
cases, for FY 2014, we applied a -0.8 percent adjustment to the 
standardized amount. In this proposed rule, we are proposing to apply 
an additional -0.8 percent adjustment to the standardized amount for FY 
2015. We note that, as section 631 of the ATRA instructs the Secretary 
to make a recoupment adjustment only to the standardized amount, this 
adjustment would not apply to the Puerto Rico-specific standardized 
amount and hospital-specific payment rates.
e. Rural Community Hospital Demonstration Program Adjustment
    As discussed in section IV.L. of the preamble of this proposed 
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 payment 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 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.
    As we did for FY 2014, for FY 2015, we are proposing to adjust the 
national IPPS payment rates according to the same methodology that we 
used for FY 2013, as set forth in section IV.L. of the preamble of this 
proposed rule, to account for the estimated additional costs of the 
demonstration program for FY 2015. For this proposed rule, the 
estimated amount of this proposed budget neutrality adjustment factor 
applied to the national IPPS payment rates for FY 2015 is $53,673,008. 
In addition, similar to previous years, we are proposing 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 have finalized cost reports for that year) 
exceeded the budget neutrality offset amount finalized in the 
corresponding year's IPPS final rule. For this FY 2015 IPPS/LTCH PPS 
proposed rule, we have calculated the amount by which the actual costs 
of the demonstration in FY 2008, (that is, the costs of the 
demonstration for the 10 hospitals that participated in FY 2008, as 
shown in these hospitals' finalized cost reports for the cost report 
period beginning in that calendar year), exceeded the amount that was 
finalized in the FY 2008 IPPS final rule. We are proposing a budget 
neutrality offset amount of $10,389,771 for this proposed rule, but we 
note that this amount may change based on data used for the FY 2015 
IPPS/LTCH PPS final rule subject to methodological refinements. We also 
are currently working with the MACs that service the hospitals 
participating in the demonstration to obtain finalized cost reports for 
FYs 2009, 2010, and 2011). Depending on our progress in obtaining these 
cost reports, we may also include in the FY IPPS final rule the 
difference between the demonstration costs for one or more of these 
years and the amounts that were finalized in the respective fiscal 
years' final rules.
    Therefore, the final total budget neutrality offset amount that we 
are proposing to be applied to the FY 2015 IPPS rates is $ 64,062,779. 
This amount 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 participating 
in the demonstration program for covered inpatient services, and the 
total estimated amount that would be otherwise be paid to the 
participating hospitals in FY 2014 without the demonstration 
($53,673,008); and (2) the amount by which the actual costs of 
demonstration for FY 2008, which are calculated in accordance with the 
finalized cost reports for the hospitals that participated in the 
demonstration during FY 2008, exceed the budget neutrality offset 
amount that was

[[Page 28321]]

finalized in the FY 2008 IPPS final rule ($10,389,771).
    Accordingly, using the most recent data available to account for 
the estimated costs of the demonstration program, for FY 2015, we 
computed a proposed factor of 0.999283 for the rural community hospital 
demonstration program budget neutrality adjustment that will be applied 
to the IPPS standard Federal payment rate.
g. Proposed Outlier Payments
    Section 1886(d)(5)(A) of the Act provides for payments in addition 
to the basic prospective payments for ``outlier'' cases involving 
extraordinarily high costs. To qualify for outlier payments, a case 
must have costs greater than the sum of the prospective payment rate 
for the DRG, any IME and DSH payments, any new technology add-on 
payments, and the ``outlier threshold'' or ``fixed-loss'' amount (a 
dollar amount by which the costs of a case must exceed payments in 
order to qualify for an outlier payment). We refer to the sum of the 
prospective payment rate for the DRG, any IME and DSH payments, any new 
technology add-on payments, and the outlier threshold as the outlier 
``fixed-loss cost threshold.'' To determine whether the costs of a case 
exceed the fixed-loss cost threshold, a hospital's CCR is applied to 
the total covered charges for the case to convert the charges to 
estimated costs. Payments for eligible cases are then made based on a 
marginal cost factor, which is a percentage of the estimated costs 
above the fixed-loss cost threshold. The marginal cost factor for FY 
2015 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) Proposed FY 2015 Outlier Fixed-Loss Cost Threshold
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50977-50983), in 
response to public comments on the FY 2013 IPPS/LTCH proposed rule, we 
made changes to our methodology for projecting the outlier fixed-loss 
cost threshold for FY 2014. We refer readers to the FY 2014 IPPS/LTCH 
PPS final rule for detailed discussion of the changes. In this proposed 
rule, for FY 2015, we are proposing to continue to use the outlier 
threshold methodology used in FY 2014.
    As we have done in the past, to calculate the proposed FY 2015 
outlier threshold, we simulated payments by applying proposed FY 2015 
payment rates and policies using cases from the FY 2013 MedPAR file. 
Therefore, in order to determine the proposed FY 2015 outlier 
threshold, we inflated the charges on the MedPAR claims by 2 years, 
from FY 2013 to FY 2015. As discussed in the FY 2014 IPPS/LTCH PPS 
final rule, 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 our prior methodology used a 6-month measure, which 
inherently uses fewer claims than a 1-year measure and 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 2015, we are proposing to compare the 
second quarter of FY 2012 through the first quarter of FY 2013 (January 
1, 2012, through December 31, 2012) to the second quarter of FY 2013 
through the first quarter of FY 2014 (January 1, 2013, through December 
31, 2013). This rate-of-change is 5.6 percent (1.055736) or 11.5 
percent (1.114579) over 2 years.
    As we have done in the past, we are proposing to establish the 
proposed FY 2015 outlier threshold using hospital CCRs from the 
December 2013 update to the Provider-Specific File (PSF)--the most 
recent available data at the time of this proposed rule. For FY 2015, 
we also are proposing to continue to apply an adjustment factor to the 
CCRs to account for cost and charge inflation (as explained below). In 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50979), we adopted a new 
methodology to adjust the CCRs. Specifically, we finalized a policy to 
compare 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.
    Therefore, as we did for FY 2014, for FY 2015, we are proposing to 
adjust the CCRs from the December 2013 update of the PSF by comparing 
the percentage change in the national average case-weighted operating 
CCR and capital CCR from the December 2012 update of the PSF to the 
national average case-weighted operating CCR and capital CCR from the 
December 2013 update of the PSF. We note that we used total transfer 
adjusted cases from FY 2013 to determine the national average case-
weighted CCRs for both sides of the comparison. As stated in the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50979), we believe that 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 2012 
operating national average case-weighted CCR of 0.295101 and a December 
2013 operating national average case-weighted CCR of 0.289587. We then 
calculated the percentage change between the two national operating 
case-weighted CCRs by subtracting the December 2012 operating national 
average case-weighted CCR from the December 2013 operating national 
average case-weighted CCR and then dividing the result by the December 
2012 national operating average case-weighted CCR. This resulted in a 
proposed national operating CCR adjustment factor of 0.981315.
    We also used the same methodology proposed above to adjust the 
capital CCRs. Specifically, we calculated a December 2012 proposed 
capital national average case-weighted CCR of 0.025079 and a December 
2013 proposed capital national average case-weighted CCR of 0.024868. 
We then calculated the percentage change between the two national 
capital case-weighted CCRs by subtracting the

[[Page 28322]]

December 2012 capital national average case-weighted CCR from the 
December 2013 capital national average case-weighted CCR and then 
dividing the result by the December 2012 capital national average case-
weighted CCR. This resulted in a proposed national capital CCR 
adjustment factor of 0.991587.
    Consistent with our methodology in the past and as stated in the FY 
2009 IPPS final rule (73 FR 48763), we continue to believe that 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 2015 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 2015, we applied the proposed FY 2015 
payment rates and policies using cases from the FY 2013 MedPAR files in 
calculating the proposed outlier threshold.
    As discussed above, for FY 2015, we are proposing to apply 
transitional wage indexes because of the proposed adoption of the new 
OMB labor market area delineations. Also, 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 
proposed 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 note 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 2015, it was necessary to apply the proposed transitional wage 
indexes and adjust 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 2015. If we 
did not take the above into account, our estimate of total FY 2015 
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 2015 outlier payments, we are proposing 
not to make any adjustments for the possibility that hospitals' CCRs 
and outlier payments may be reconciled upon cost report settlement. We 
continue to believe that, due to the policy implemented in the June 9, 
2003 Outlier final rule (68 FR 34494), CCRs will no longer fluctuate 
significantly and, therefore, few hospitals will actually have these 
ratios reconciled upon cost report settlement. In addition, it is 
difficult to predict the specific hospitals that will have CCRs and 
outlier payments reconciled in any given year. We also note that 
reconciliation occurs because hospitals' actual CCRs for the cost 
reporting period are different than the interim CCRs used to calculate 
outlier payments when a bill is processed. Our simulations assume that 
CCRs accurately measure hospital costs based on information available 
to us at the time we set the outlier threshold. For these reasons, we 
are proposing not to make any assumptions about the effects of 
reconciliation on the outlier threshold calculation.
    As described in sections IV.H. and IV.I., respectively, of the 
preamble of this proposed 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 that 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 are proposing to exclude the hospital VBP 
payment adjustments and the hospital readmissions payment adjustments 
from the calculation of the outlier fixed-loss cost threshold.
    We note, 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). As we did for FY 
2014, for FY 2015 we also are proposing 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 continue to 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 would be making estimated per-discharge uncompensated care payments 
to all cases equally. Furthermore, we continue to 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. Therefore, consistent with the methodology used in FY 2014 to 
calculate the outlier fixed-loss cost threshold, for FY 2015, we are 
proposing to include estimated FY 2015 uncompensated care payments in 
the computation of the proposed outlier fixed-loss cost threshold. 
Specifically, we are proposing to use 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 proposed outlier fixed-loss 
cost threshold for FY 2015 equal to the proposed 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 $25,799.
    We note that, the proposed FY 2015 fixed-loss cost threshold is 
higher than the FY 2014 final outlier fixed-loss cost

[[Page 28323]]

threshold of $21,748. We believe that the increase in the charge 
inflation factor (compared to the FY 2014 charge inflation factor) 
contributed to a higher proposed outlier fixed-loss threshold for FY 
2015. As charges increase, so do outlier payments. As a result, it 
would be necessary for us to raise the outlier fixed-loss cost 
threshold to decrease the amount of outlier payments expended in order 
to reach the 5.1 percent target.
(2) Other Proposed 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 2015 will result in outlier payments 
that will equal 5.1 percent of operating DRG payments and 6.26 percent 
of capital payments based on the Federal rate.
    In accordance with section 1886(d)(3)(B) of the Act, we are 
proposing to reduce the proposed FY 2015 standardized amount by the 
same percentage to account for the projected proportion of payments 
paid as outliers.
    The proposed outlier adjustment factors that would be applied to 
the standardized amount based on the FY 2015 outlier threshold are as 
follows:

------------------------------------------------------------------------
                                          Operating
                                        standardized     Capital Federal
                                           amounts            rate
------------------------------------------------------------------------
National............................          0.949000          0.937425
Puerto Rico.........................          0.928942           0908313
------------------------------------------------------------------------
 

    We are proposing to apply the outlier adjustment factors to the 
proposed FY 2015 payment rates after removing the effects of the FY 
2014 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 1.22 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 
proposed 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, 2014, these statewide 
average ratios would replace the ratios posted on our Web site at 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY-2014-IPPS-Final-Rule-Home-Page-Items/FY-2014-IPPS-Final-Rule-CMS-1599-F-Tables.html. Table 8B listed in section VI. of 
this Addendum (and available via the Internet) contains the proposed 
comparable statewide average capital CCRs. Again, the CCRs in Tables 8A 
and 8B would be used during FY 2015 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 proposed 
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, thereby 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 2013 and FY 2014 Outlier Payments
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50983 through 
50984), we stated that, based on available data, we estimated that 
actual FY 2013 outlier payments would be approximately 4.77 percent of 
actual total MS-DRG payments. This estimate was computed based on 
simulations using the FY 2012 MedPAR file (discharge data for FY 2012 
claims). That is, the estimate of actual outlier payments did not 
reflect actual FY 2013 claims, but instead reflected the application of 
FY 2013 payment rates and policies to available FY 2012 claims.
    Our current estimate, using available FY 2013 claims data, is that 
actual outlier payments for FY 2013 were approximately 4.81 percent of 
actual total MS-DRG payments. Therefore, the data indicate that, for FY 
2013, the percentage of actual outlier payments relative to actual 
total payments is lower than we projected for FY 2013. Consistent with 
the policy and statutory interpretation we have maintained since the 
inception of the IPPS, we do not make retroactive adjustments to 
outlier

[[Page 28324]]

payments to ensure that total outlier payments for FY 2013 are equal to 
5.1 percent of total MS-DRG payments.
    We currently estimate that, using the latest CCRs from the December 
2013 update of the PSF, actual outlier payments for FY 2014 will be 
approximately 5.79 percent of actual total MS-DRG payments, 
approximately 0.69 percentage point higher than the 5.1 percent we 
projected when setting the outlier policies for FY 2014. This estimate 
of 5.79 percent is based on simulations using the FY 2013 MedPAR file 
(discharge data for FY 2013 claims).
5. Proposed FY 2015 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 proposed national standardized amounts that we are proposing to 
apply to all hospitals, except hospitals located in Puerto Rico, for FY 
2015. The proposed Puerto Rico-specific amounts are shown in Table 1C 
listed and published in section VI. of this Addendum (and available via 
the Internet). The proposed amounts shown in Tables 1A and 1B differ 
only in that the labor-related share applied to the standardized 
amounts in Table 1A is 69.6 percent, and the labor-related share 
applied to the standardized amounts in Table 1B is 62 percent. In 
accordance with sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the 
Act, we are proposing to apply 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 proposed standardized 
amounts reflecting the proposed applicable percentage increases for FY 
2015.
    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 proposed labor-related and nonlabor-related 
portions of the national average standardized amounts for Puerto Rico 
hospitals for FY 2015 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 proposed Puerto Rico-specific standardized 
amounts. The labor-related share applied to the Puerto Rico-specific 
standardized amount is the proposed 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 proposed changes from the FY 
2014 national standardized amount. The second through fifth columns 
display the proposed changes from the FY 2014 standardized amounts for 
each applicable FY 2015 proposed standardized amount. The first row of 
the table shows the updated (through FY 2014) average standardized 
amount after restoring the FY 2014 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 
adjustment factors are cumulative. Therefore, those FY 2014 adjustment 
factors are not removed from this table.

             Comparison of FY 2014 Standardized Amounts to the FY 2015 Proposed Standardized Amounts
----------------------------------------------------------------------------------------------------------------
                                                      Hospital submitted   Hospital did NOT    Hospital did NOT
                                  Hospital submitted   quality data and     submit quality      submit quality
                                   quality data and        is NOT a          data and is a     data and is NOT a
                                    is a meaningful     meaningful EHR      meaningful EHR      meaningful EHR
                                       EHR user              user                user                user
----------------------------------------------------------------------------------------------------------------
FY 2014 Base Rate after           If Proposed Wage    If Proposed Wage    If Proposed Wage    If Proposed Wage
 removing:                         Index is Greater    Index is Greater    Index is Greater    Index is Greater
1. FY 2014 Geographic              Than 1.0000:        Than 1.0000:        Than 1.0000:        Than 1.0000:
 Reclassification Budget           Labor (69.6%):      Labor (69.6%):      Labor (69.6%):      Labor (69.6%):
 Neutrality (0.990718)             $4,230.38           $4,230.38           $4,230.38           $4,230.38
2. FY 2014 Rural Community         Nonlabor (30.4%):   Nonlabor (30.4%):   Nonlabor (30.4%):   Nonlabor (30.4%):
 Hospital Demonstration Program    $1,847.75.          $1,847.75.          $1,847.75.          $1,847.75.
 Budget Neutrality (0.999415)     If Proposed Wage    If Proposed Wage    If Proposed Wage    If Proposed Wage
3. Cumulative Factor: FY 2008,     Index is less       Index is less       Index is less       Index is less
 FY 2009, FY 2012, FY 2013, and    Than or Equal to    Than or Equal to    Than or Equal to    Than or Equal to
 FY 2014 Documentation and         1.0000: Labor       1.0000: Labor       1.0000: Labor       1.0000: Labor
 Coding Adjustment as Required     (62%): $3,768.45    (62%): $3,768.45    (62%): $3,768.45    (62%): $3,768.45
 under Sections 7(b)(1)(A) and     Nonlabor (38%):     Nonlabor (38%):     Nonlabor (38%):     Nonlabor (38%):
 7(b)(1)(B) of Public Law 110-90   $2,309.70.          $2,309.70.          $2,309.70.          $2,309.70.
 and Documentation and Coding
 Recoupment Adjustment as
 required under Section 631 of
 the American Taxpayer Relief
 Act of 2012 (0.9403)
4. FY 2014 Operating Outlier
 Offset (0.948995)
Proposed FY 2015 Update Factor..  1.021.............  1.01425...........  1.01425...........  1.0075.
Proposed FY 2015 MS[dash]DRG      0.993512..........  0.993512..........  0.993512..........  0.993512.
 Recalibration and Wage Index
 Budget Neutrality Factor.
Proposed FY 2015                  0.991412..........  0.991412..........  0.991412..........  0.991412.
 Reclassification Budget
 Neutrality Factor.
Proposed FY 2015 Rural Community  0.999283..........  0.999283..........  0.999283..........  0.999283.
 Demonstration Program Budget
 Neutrality Factor.
Proposed FY 2015 Operating        0.949000..........  0.949000..........  0.949000..........  0.949000.
 Outlier Factor.

[[Page 28325]]

 
Cumulative Factor: FY 2008, FY    0.9329............  0.9329............  0.9329............  0.9329.
 2009, FY 2012, FY 2013, FY 2014
 and FY 2015 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.
Proposed FY 2015 New Labor        0.998856..........  0.998856..........  0.998856..........  0.998856.
 Market Delineation Wage Index
 Transition Budget Neutrality
 Factor.
Proposed National Standardized    Labor: $3,759.46..  Labor: $3,734.61..  Labor: $3,734.61..  Labor: $3,709.75.
 Amount for FY 2015 if Wage       Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 Index is Greater Than 1.0000;     $1,642.06.          $1,631.20.          $1,631.20.          $1,620.35.
 Labor/Non-Labor Share
 Percentage (69.6/30.4).
Proposed National Standardized    Labor: $3,384.94..  Labor: $3,326.80..  Labor: $3,326.80..  Labor: $3,304.66.
 Amount for FY 2015 if Wage       Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 Index is less Than or Equal to    $2,052.58.          $2,039.01.          $2,039.01.          $2,025.44.
 1.0000; Labor/Non-Labor Share
 Percentage (62/38).
----------------------------------------------------------------------------------------------------------------

    The following table illustrates the proposed changes from the FY 
2014 Puerto Rico-specific payment rate for hospitals located in Puerto 
Rico. The second column shows the proposed changes from the FY 2014 
Puerto Rico specific payment rate for hospitals with a Puerto Rico-
specific wage index greater than 1.0000. The third column shows the 
proposed changes from the FY 2014 Puerto Rico specific payment rate for 
hospitals with a Puerto Rico-specific wage index less than or equal to 
1.0000. The first row of the table shows the updated (through FY 2014) 
Puerto Rico-specific payment rate after restoring the FY 2014 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 adjustment factor is cumulative and is not removed from this 
table.

 Comparison of FY 2014 Puerto Rico-Specific Payment Rate to the FY 2015
               Proposed Puerto Rico-Specific Payment Rate
------------------------------------------------------------------------
                                      Update (2.1
                                  percent); proposed      Update (2.1
                                     wage index is    percent); proposed
                                     greater than     wage index is less
                                  1.0000; labor/non-   than or equal to
                                      labor share     1.0000; labor/non-
                                   percentage (63.2/      labor share
                                         36.8)        percentage (62/38)
------------------------------------------------------------------------
FY 2014 Puerto Rico Base Rate,
 after removing:
1. FY 2014 Geographic             Labor: $1,722.31..  Labor: $1,689.61
 Reclassification Budget          Nonlabor:           Nonlabor:
 Neutrality (0.990718)             $1,002.86.          $1,035.56.
2. FY 2014 Rural Community
 Hospital Demonstration Program
 Budget Neutrality (0.999415)
3. FY 2014 Puerto Rico Operating
 Outlier Offset (0.943455)
Proposed FY 2015 Update Factor..  1.021.............  1.021.
Proposed FY 2015 MS-DRG           0.992938..........  0.992938.
 Recalibration Budget Neutrality
 Factor.
Proposed FY 2015                  0.991412..........  0.991412.
 Reclassification Budget
 Neutrality Factor.
Proposed FY 2015 Rural Community  0.999283..........  0.999283.
 Hospital Demonstration Program
 Budget Neutrality Factor.
Proposed FY 2015 New Labor        0.998856..........  0.998856.
 Market Delineation Wage Index
 Transition Budget Neutrality
 Factor.
Proposed FY 2015 Puerto Rico      0.928942..........  0.928942.
 Operating Outlier Factor.
Proposed Puerto                   Labor: $1,605.07..  Labor: $1,574.59.
 Rico[dash]Specific Payment Rate  Nonlabor: $934.59.  Nonlabor: $965.07.
 for FY 2015.
------------------------------------------------------------------------

B. Proposed 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 proposed labor-related 
and nonlabor-related shares that we used to calculate the proposed 
prospective payment rates for hospitals located in the 50 States, the 
District of Columbia, and Puerto Rico for FY 2015. 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. Proposed 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,

[[Page 28326]]

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 proposed rule, we discuss the data and methodology for the 
proposed FY 2015 wage index.
2. Proposed 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 
adjustment factor.
    In the FY 2013 IPPS/LTCH PPS final rule, we established a 
methodology to update the COLA factors for Alaska and Hawaii that were 
published by the U.S. Office of Personnel Management (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, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50985 
through 50987), we updated 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.
    Based on the policy finalized in the FY 2013 IPPS/LTCH PPS final 
rule, we are proposing to use the same COLAs factors established in FY 
2014 for FY 2015 to adjust the nonlabor-related portion of the 
standardized amount for hospitals located in Alaska and Hawaii. Below 
is a table listing the proposed COLA factors for FY 2015.

  Proposed FY 2015 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
------------------------------------------------------------------------

    Based on the policy finalized in the FY 2013 IPPS/LTCH PPS final 
rule, the next update to the COLA factors for Alaska and Hawaii would 
occur in FY 2018.

C. Calculation of the Proposed Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY 
2015
    In general, the operating prospective payment rate for all 
hospitals paid under the IPPS located outside of Puerto Rico, except 
SCHs and MDHs, for FY 2015 equals the Federal rate (which includes 
uncompensated care payments).
    We note that, as discussed in section IV.G. of the preamble of this 
proposed rule, section 1106 of the Pathway to SGR Reform Act of 2013 
(Pub. L. 113-67), enacted on December 26, 2013, extended the MDH 
program from the end of FY 2013 through the first half of FY 2014 (that 
is, for discharges occurring before April 1, 2014). Subsequently, 
section 106 of the Protecting Access to Medicare Act of 2014 (Pub. L. 
113-93), enacted on April 1, 2014, further extended the MDH program 
through the first half of FY 2015 (that is, for discharges occurring 
before April 1, 2015). Prior to the enactment of Public Law 113-67, the 
MDH program was only to be in effect through the end of FY 2013. Under 
current law, the MDH program will expire for discharges beginning on 
April 1, 2015.
    SCHs are paid based on whichever of the following rates yields the 
greatest aggregate payment: The Federal national rate (which, as 
discussed in section IV.F. of the preamble of this proposed 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 2015 equals the higher 
of the applicable Federal rate, or the hospital-specific rate as 
described below.
    The prospective payment rate for MDHs for FY 2015 discharges 
occurring before April 1, 2015 equals the higher of the Federal rate or 
the Federal rate plus 75 percent of the difference between the Federal 
rate and the hospital-specific rate as described below. For MDHs, the 
updated hospital-specific rate is based on FY 1982, FY 1987 or FY 2002 
costs per discharge, whichever yields the greatest aggregate payment.
    The prospective payment rate for hospitals located in Puerto Rico 
for FY 2015 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 and is a 
meaningful EHR user, as described above.
    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

[[Page 28327]]

located or the area to which the hospital is reclassified.
    Step 3--For hospitals located 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 payment rate as determined in Step 5 may then be 
further adjusted if the hospital qualifies for either the IME or DSH 
adjustment. In addition, for hospitals that qualify for a low-volume 
payment adjustment under section 1886(d)(12) of the Act and 42 CFR 
412.101(b), the payment in Step 5 would be increased by the formula 
described in section IV.D. of the preamble of this proposed 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 discussed above, we take 
uncompensated care payments into consideration when calculating outlier 
payments.
2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)
a. Calculation of Hospital-Specific Rate
    Section 1886(b)(3)(C) of the Act provides that SCHs are paid based 
on whichever of the following rates yields the greatest aggregate 
payment: The Federal rate (which, as discussed in section IV.F. of the 
preamble of this proposed 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.
    As discussed previously, currently MDHs are paid based on the 
Federal national rate or, if higher, the Federal national rate plus 75 
percent of the difference between the Federal national rate and the 
greater of the updated hospital-specific rates based on either FY 1982, 
FY 1987, or FY 2002 costs per discharge.
    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 IV.F. of the 
preamble of this proposed rule for a complete discussion on empirically 
justified Medicare DSH and uncompensated care payments.
b. Updating the FY 1982, FY 1987, FY 1996 and FY 2006 Hospital-Specific 
Rate for FY 2015
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase applicable to the hospital-specific rates for SCHs 
and MDHs equals the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all 
other hospitals subject to the IPPS). Because the Act sets the update 
factor for SCHs and MDHs equal to the update factor for all other IPPS 
hospitals, the update to the hospital-specific rates for SCHs and MDHs 
is subject to the amendments to section 1886(b)(3)(B) of the Act made 
by sections 3401(a) and 10319(a) of the Affordable Care Act. 
Accordingly, the proposed applicable percentage increases to the 
hospital-specific rates applicable to SCHs and MDHs are the following:

----------------------------------------------------------------------------------------------------------------
                                           Hospital           Hospital       Hospital did NOT   Hospital did NOT
                                           submitted     submitted quality    submit quality     submit quality
               FY 2015                 quality data and  data and is NOT a    data and is a    data and is NOT a
                                        is a meaningful    meaningful EHR     meaningful EHR     meaningful EHR
                                           EHR user             user               user               user
----------------------------------------------------------------------------------------------------------------
Market Basket                                       2.7              2.7                2.7                2.7
 Rate[dash]of[dash]Increase..........
Adjustment for Failure to Submit                    0.0              0.0               -0.675             -0.675
 Quality Data under Section
 1886(b)(3)(B)(viii) of the Act......
Adjustment for Failure to be a                      0.0             -0.675              0.0               -0.675
 Meaningful EHR User under Section
 1886(b)(3)(B)(ix) of the Act........
MFP Adjustment under Section                       -0.4             -0.4               -0.4               -0.4
 1886(b)(3)(B)(xi) of the Act........
Statutory Adjustment under Section                 -0.2             -0.2               -0.2               -0.2
 1886(b)(3)(B)(xii) of the Act.......
Proposed Applicable Percentage                      2.1              1.425              1.425              0.75
 Increase Applied to Hospital-
 Specific Rate.......................
----------------------------------------------------------------------------------------------------------------

    For a complete discussion of the applicable percentage increase 
applied to the hospital-specific rates for SCHs and MDHs, we refer 
readers to section IV.B. of the preamble of this proposed rule.
    In addition, because SCHs and MDHs use the same MS-DRGs as other 
hospitals when they are paid based in whole or in part on the hospital-
specific rate, the hospital-specific rate is adjusted by a budget 
neutrality factor to ensure that changes to the 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 and MDH's hospital-specific rate is adjusted by the proposed MS-
DRG reclassification and recalibration budget neutrality factor of 
0.992938, as discussed in section III. of this Addendum. The resulting 
rate is used in determining the payment rate that an SCH would receive 
for its discharges beginning on or after October 1, 2014, and the 
payment rate that an MDH would receive for its discharges beginning on 
or after October 1, 2014, and before April 1, 2015. We note that, in 
this proposed rule, for FY 2015, we are not proposing to make a 
documentation and coding adjustment to the hospital-specific rate. We 
refer readers to section II.D. of the preamble of this proposed rule 
for a complete discussion regarding our proposed 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.

[[Page 28328]]

3. General Formula for Calculation of Prospective Payment Rates for 
Hospitals Located in Puerto Rico Beginning On or After October 1, 2014, 
and Before October 1, 2015
    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 national average standardized amount.
    Step 2--Multiply the labor-related portion of the national average 
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 
rate for a given discharge for a hospital located in Puerto Rico. This 
payment 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 discussed above, we take uncompensated 
care payments into consideration when calculating outlier payments.

III. Proposed Changes to Payment Rates for Acute Care Hospital 
Inpatient Capital-Related Costs for FY 2015

    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 
proposed capital Federal rate for FY 2015, which would be effective for 
discharges occurring on or after October 1, 2014.
    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 Proposed Federal Hospital Inpatient Capital-
Related Prospective Payment Rate Update

    In the discussion that follows, we explain the factors that we used 
to determine the proposed capital Federal rate for FY 2015. In 
particular, we explain why the proposed FY 2015 capital Federal rate 
increases approximately 0.9 percent, compared to the FY 2014 capital 
Federal rate. As discussed in the impact analysis in Appendix A to this 
proposed rule, we estimate that capital payments per discharge would 
increase 1.2 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.

[[Page 28329]]

1. Projected Capital Standard Federal Rate Update
a. Description of the Update Framework
    Under Sec.  412.308(c)(1), the capital standard Federal rate is 
updated on the basis of an analytical framework that takes into account 
changes in a capital input price index (CIPI) and several other policy 
adjustment factors. Specifically, we adjust the projected CIPI rate-of-
increase as appropriate each year for case-mix index-related changes, 
for intensity, and for errors in previous CIPI forecasts. The proposed 
update factor for FY 2015 under that framework is 1.5 percent based on 
the best data available at this time. The proposed update factor under 
that framework is based on a projected 1.5 percent increase in the FY 
2010-based CIPI, 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 2013 DRG reclassification and recalibration, and 
a forecast error correction of 0.0 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 2015 CIPI projection in that same section of this 
Addendum. Below we describe the policy adjustments that we are 
proposing to apply in the update framework for FY 2015.
    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 2015, 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 2015. The proposed 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, the 
proposed net adjustment for case-mix change in FY 2015 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 2013 DRG reclassification and recalibration as part 
of our update for FY 2015. We estimate that FY 2013 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, we are proposing to make a 0.0 percentage point 
adjustment for reclassification and recalibration in the update 
framework for FY 2015.
    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 0.0 percentage point was calculated 
for the proposed FY 2015 update. 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. Current 
historical data indicate that the forecasted FY 2013 rate-of-increase 
of the FY 2006-based CIPI (1.2 percent) used in calculating the FY 2013 
update factor slightly understated the actual realized FY 2013 price 
increases of the FY 2006-based CIPI (1.3 percent) by 0.1 percentage 
point because the prices associated with both the depreciation and 
other capital-related cost categories grew more quickly than 
anticipated. Because this forecast error does not exceed the 0.25 
percentage point threshold, we are proposing to make a 0.0 percentage 
point adjustment for forecast error in the update for FY 2015.
    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 proposed rule, we are proposing to continue to use a 
Medicare-specific intensity measure that is based on a 5-year adjusted 
average of cost per discharge for FY 2015 (we refer readers to the FY 
2011 IPPS/LTCH PPS

[[Page 28330]]

final rule (75 FR 50436) for a full description of our Medicare-
specific intensity measure). Specifically, for FY 2015, we are 
proposing to use an intensity measure that is based on an average of 
cost per discharge data from the 5-year period beginning with FY 2007 
and extending through FY 2012. Based on these data, we estimated that 
case-mix constant intensity declined during FYs 2007 through 2012. 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 
propose to continue to apply a zero intensity adjustment for FY 2015. 
Therefore, we are proposing to make a 0.0 percentage point adjustment 
for intensity in the update for FY 2015.
    Above, we described the basis of the components used to develop the 
proposed 1.5 percent capital update factor under the capital update 
framework for FY 2015 as shown in the table below.

     Proposed CMS FY 2015 Update Factor to the Capital Federal Rate
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Capital Input Price Index *.........................                 1.5
Intensity:..........................................                 0.0
Case-Mix Adjustment Factors:
    Real Across DRG Change..........................                -0.5
    Projected Case-Mix Change.......................                 0.5
                                                     -------------------
        Subtotal....................................                 1.5
Effect of FY 2013 Reclassification and Recalibration                 0.0
Forecast Error Correction...........................                 0.0
                                                     -------------------
    Total Update....................................                 1.5
------------------------------------------------------------------------
* The capital input price index is based on the FY 2010-based CIPI.

b. Comparison of CMS and MedPAC Update Recommendation
    In its March 2014 Report to Congress, MedPAC did not make a 
specific update recommendation for capital IPPS payments for FY 2015. 
(We refer readers to MedPAC's Report to the Congress: Medicare Payment 
Policy, March 2014, 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 2014, we estimated that outlier payments for capital will 
equal 6.07 percent of inpatient capital-related payments based on the 
capital Federal rate in FY 2014. Based on the proposed thresholds as 
set forth in section II.A. of this Addendum, we estimate that outlier 
payments for capital-related costs would equal 6.26 percent for 
inpatient capital-related payments based on the proposed capital 
Federal rate in FY 2015. Therefore, we are proposing to apply an 
outlier adjustment factor of 0.9374 in determining the proposed capital 
Federal rate for FY 2015. Thus, we estimate that the percentage of 
capital outlier payments to total capital Federal rate payments for FY 
2015 will be slightly higher than the percentage for FY 2014.
    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 proposed FY 2015 outlier 
adjustment of 0.9374 is a -0.82 percent change from the FY 2014 outlier 
adjustment of 0.9393. Therefore, the proposed net change in the outlier 
adjustment to the capital Federal rate for FY 2015 is 0.9980 (0.9374/
0.9393). Thus, the outlier adjustment would decrease the proposed FY 
2015 capital Federal rate by 0.82 percent compared to the FY 2014 
outlier adjustment.
3. Proposed 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 proposed factors for FY 2015, we compared 
(separately for the national capital rate and the Puerto Rico capital 
rate) estimated aggregate capital Federal rate payments based on the FY 
2014 MS-DRG classifications and relative weights and the FY 2014 GAF to 
estimated aggregate capital Federal rate payments based on the FY 2014 
MS-DRG classifications and relative weights and the proposed FY 2015 
GAFs. To achieve budget neutrality for the changes in the national 
GAFs, based on calculations using updated data, we are proposing to 
apply an incremental budget neutrality adjustment factor of 1.0000 for 
FY 2015 to the previous cumulative FY 2014 adjustment factor of 0.9891, 
yielding a proposed adjustment factor of 0.9891 through FY 2015. For 
the Puerto Rico GAFs, we are proposing to apply an incremental budget 
neutrality adjustment factor of 1.0011 for FY 2015 to the previous 
cumulative FY 2014 adjustment factor of 1.0076, yielding a proposed 
cumulative adjustment factor of 1.0087 through FY 2015.
    We then compared estimated aggregate capital Federal rate payments 
based on the FY 2014 MS-DRG relative weights and the proposed FY 2015 
GAFs to estimated aggregate capital Federal rate payments based on the 
cumulative effects of the proposed FY 2015 MS-DRG classifications and

[[Page 28331]]

relative weights and the proposed FY 2015 GAFs. The proposed 
incremental adjustment factor for DRG classifications and changes in 
relative weights is 0.9957 both nationally and for Puerto Rico. The 
proposed cumulative adjustment factors for MS-DRG classifications and 
changes in relative weights and for changes in the GAFs through FY 2015 
are 0.9848 nationally and 1.0043 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 proposed cumulative adjustment factor accounts for the proposed 
MS-DRG reclassifications and recalibration and for proposed changes in 
the GAFs. It also incorporates the effects on the proposed GAFs of FY 
2015 geographic reclassification decisions made by the MGCRB compared 
to FY 2014 decisions. However, it does not account for proposed changes 
in payments due to changes in the DSH and IME adjustment factors.
4. Proposed Capital Federal Rate for FY 2015
    For FY 2014, we established a capital Federal rate of $429.31 (78 
FR 50990). We are proposing to establish an update of 1.5 percent in 
determining the FY 2015 capital Federal rate for all hospitals. As a 
result of this proposed update and the proposed budget neutrality 
factors discussed above, we are proposing to establish a national 
capital Federal rate of $433.01 for FY 2015. The proposed national 
capital Federal rate for FY 2015 was calculated as follows:
     The proposed FY 2015 update factor is 1.015, that is, the 
proposed update is 1.5 percent.
     The proposed FY 2015 budget neutrality adjustment factor 
that is applied to the proposed capital Federal rate for proposed 
changes in the MS-DRG classifications and relative weights and changes 
in the GAFs is 0.9957.
     The proposed FY 2015 outlier adjustment factor is 0.9374.
    (We note that, as discussed in section VI.C. of the preamble of 
this proposed rule, we are not proposing to make an additional MS-DRG 
documentation and coding adjustment to the capital IPPS Federal rates 
for FY 2015.)
    Because the proposed FY 2015 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 proposing to 
make additional adjustments in the capital Federal rate for these 
factors, other than the proposed budget neutrality factor for proposed 
changes in the MS-DRG classifications and relative weights and for 
proposed changes in the GAFs.
    We are providing the following chart that shows how each of the 
proposed factors and adjustments for FY 2015 affects the computation of 
the proposed FY 2015 national capital Federal rate in comparison to the 
FY 2014 national capital Federal rate. The proposed FY 2015 update 
factor has the effect of increasing the capital Federal rate by 1.5 
percent compared to the FY 2014 capital Federal rate. The proposed GAF/
DRG budget neutrality adjustment factor has the effect of decreasing 
the capital Federal rate by 0.43 percent. The proposed FY 2015 outlier 
adjustment factor has the effect of decreasing the capital Federal rate 
by 0.20 percent compared to the FY 2014 capital Federal rate. The 
combined effect of all the proposed changes would increase the proposed 
national capital Federal rate by 0.86 percent compared to the FY 2014 
national capital Federal rate.

  Comparison of Factors and Adjustments: FY 2014 Capital Federal Rate and Proposed FY 2015 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
                                                                    Proposed FY
                                                      FY 2014          2015           Change      Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\...............................          1.0090          1.0150          1.0150            1.50
GAF/DRG Adjustment Factor \1\...................          0.9987          0.9957          0.9957           -0.43
Outlier Adjustment Factor \2\...................          0.9393          0.9374          0.9980           -0.20
Capital Federal Rate............................          429.31          433.01          1.0086            0.86
----------------------------------------------------------------------------------------------------------------
\1\ The proposed update factor and the proposed GAF/DRG budget neutrality adjustment factors are built
  permanently into the capital Federal rates. Thus, for example, the proposed incremental change from FY 2014 to
  FY 2015 resulting from the application of the proposed 0.9957 GAF/DRG budget neutrality adjustment factor for
  FY 2015 is a proposed net change of 0.9957 (or -0.43 percent).
\2\ The proposed outlier reduction factor is not built permanently into the capital Federal rate; that is, the
  factor is not applied cumulatively in determining the proposed capital Federal rate. Thus, for example, the
  proposed net change resulting from the application of the proposed FY 2015 outlier adjustment factor is 0.9374/
  0.9393, or 0.9918 (or -0.82 percent).

5. Proposed 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

[[Page 28332]]

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 proposed budget 
neutrality adjustment factors for the national GAF and for the Puerto 
Rico GAF and the proposed budget neutrality factor for MS-DRG 
reclassifications and recalibration (which is the same nationally and 
for Puerto Rico) are discussed 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 2014, the special capital rate for hospitals located in 
Puerto Rico was $209.82 (78 FR 50991). With the changes we are 
proposing to make to the other factors used to determine the proposed 
capital Federal rate, the proposed FY 2015 special capital rate for 
hospitals in Puerto Rico is $206.82.

B. Calculation of the Proposed Inpatient Capital-Related Prospective 
Payments for FY 2015

    For purposes of calculating payments for each discharge during FY 
2015, 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 proposed outlier thresholds for FY 2015 are in section 
II.A. of this Addendum. For FY 2015, 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 proposed fixed-loss amount of $25,799.
    Currently, as provided under Sec.  412.304(c)(2), we pay a new 
hospital 85 percent of its reasonable costs during the first 2 years of 
operation unless it elects to receive payment based on 100 percent of 
the capital Federal rate. Effective with the third year of operation, 
we pay the hospital based on 100 percent of the capital Federal rate 
(that is, the same methodology used to pay all other hospitals subject 
to the capital PPS).

C. Capital Input Price Index

1. Background
    Like the operating input price index, the capital input price index 
(CIPI) is a fixed-weight price index that measures the price changes 
associated with capital costs during a given year. The CIPI differs 
from the operating input price index in one important aspect--the CIPI 
reflects the vintage nature of capital, which is the acquisition and 
use of capital over time. Capital expenses in any given year are 
determined by the stock of capital in that year (that is, capital that 
remains on hand from all current and prior capital acquisitions). An 
index measuring capital price changes needs to reflect this vintage 
nature of capital. Therefore, the CIPI was developed to capture the 
vintage nature of capital by using a weighted-average of past capital 
purchase prices up to and including the current year.
    We periodically update the base year for the operating and capital 
input price indexes to reflect the changing composition of inputs for 
operating and capital expenses. In the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50603 through 50607), we rebased and revised the CIPI to a FY 
2010 base year to reflect the more current structure of capital costs 
in hospitals. For a complete discussion of this rebasing, we refer 
readers to the FY 2014 IPPS/LTCH PPS final rule.
2. Forecast of the CIPI for FY 2015
    Based on the latest forecast by IHS Global Insight, Inc. (first 
quarter of 2014), we are forecasting the FY 2010-based CIPI to increase 
1.5 percent in FY 2015. This reflects a projected 1.9 percent increase 
in vintage-weighted depreciation prices (building and fixed equipment, 
and movable equipment), and a projected 2.6 percent increase in other 
capital expense prices in FY 2015, partially offset by a projected 1.0 
percent decline in vintage-weighted interest expenses in FY 2015. The 
weighted average of these three factors produces the forecasted 1.5 
percent increase for the FY 2010-based CIPI as a whole in FY 2015.

IV. Proposed Changes to Payment Rates for Excluded Hospitals: Rate-of-
Increase Percentages for FY 2015

    Payments for services furnished in children's hospitals, 11 cancer 
hospitals, and hospitals located outside the 50 States, the District of 
Columbia and Puerto Rico (that is, short-term acute care hospitals 
located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, 
and American Samoa) that are excluded from the IPPS are made on the 
basis of reasonable costs based on the hospital's own historical cost 
experience, subject to a rate-of-increase ceiling. A per discharge 
limit (the target amount as defined in Sec.  413.40(a) of the 
regulations) is set for each hospital based on the hospital's own cost 
experience in its base year, and updated annually by a rate-of-increase 
percentage. (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 this FY 2015 IPPS/LTCH PPS proposed rule, we are proposing that 
the FY 2015 rate-of-increase percentage for updating the target amounts 
for the 11 cancer hospitals, children's hospitals, and the short-term 
acute care hospitals located in the U.S. Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa, as well as RNHCIs would 
be the estimated percentage increase in the FY 2015 IPPS operating 
market basket, in accordance with applicable regulations at Sec.  
413.40. As we did in FY 2014, we would use the percentage increase in 
the FY 2010-based IPPS operating market basket to update these target 
amounts. Based on IHS Global Insight, Inc.'s 2014 first quarter 
forecast, we estimate that the FY

[[Page 28333]]

2010-based IPPS operating market basket update for FY 2015 is 2.7 
percent (that is, the estimate of the market basket rate-of-increase). 
However, we are proposing that if more recent data become available for 
the final rule, we would use them to calculate the IPPS operating 
market basket update for FY 2015.
    The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We 
refer readers to section VII. of the preamble of this proposed rule and 
section V. of the Addendum to this proposed rule for the proposed 
update changes to the Federal payment rates for LTCHs under the LTCH 
PPS for FY 2015. The annual updates for the IRF PPS and the IPF PPS are 
issued by the agency in separate Federal Register documents.

V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 2015

A. Proposed LTCH PPS Standard Federal Rate for FY 2015

1. Background
    In section VII. of the preamble of this proposed rule, we discuss 
our proposed updates to the payment rates, factors, and specific 
policies under the LTCH PPS for FY 2015.
    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 regulations at 
Sec. Sec.  412.523(c)(3)(iv) through (c)(3)(vii). For FYs 2012, 2013, 
and 2014, 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 VII.C.2. 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 VII.C.2.a. of the preamble of 
this proposed 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 2014, consistent with our historical practice, we 
established an update to the LTCH PPS standard Federal rate based on 
the full estimated LTCH PPS market basket increase of 2.5 percent 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)(x) of the regulations, we 
established an annual update of 1.7 percent to the standard Federal 
rate for FY 2014 (78 FR 50761 through 50763).
    For FY 2015, as discussed in greater detail in section VII.C.2. of 
the preamble of this proposed rule, we are proposing to establish an 
annual update to the LTCH PPS standard Federal rate based on the full 
estimated increase in the LTCH PPS market basket, less the proposed MFP 
adjustment consistent with section 1886(m)(3)(A)(i) of the Act, and 
less the 0.2 percentage point required by sections 1886(m)(3)(A)(ii) 
and (m)(4)(E) of the Act. In addition, as discussed in greater detail 
in section VII.C.2. of the preamble of this proposed rule, beginning in 
FY 2014, the annual update would be further reduced by 2.0 percentage 
points for LTCHs that fail to submit quality reporting data in 
accordance with the requirements of the LTCHQR Program under section 
1886(m)(5) of the Act.
    Specifically, in this proposed rule, based on the best available 
data, we are proposing to establish an annual update to the standard 
Federal rate of 2.1 percent, which is based on the full estimated 
increase in the LTCH PPS market basket of 2.7 percent, less the 
proposed MFP adjustment of 0.4 percentage point consistent with section 
1886(m)(3)(A)(i) of the Act, and less the 0.2 percentage point required 
by sections 1886(m)(3)(A)(ii) and (m)(4)(E) of the Act. As discussed in 
greater detail in section VII.C.2.c. of the preamble of this proposed 
rule, for LTCHs that fail to submit the required quality reporting data 
for FY 2015 in accordance with the LTCHQR Program, the proposed annual 
update would be further reduced by 2.0 percentage points as required by 
section 1886(m)(5) of the Act. Accordingly, we are proposing to 
establish an annual update to the LTCH PPS standard Federal rate of 0.1 
percent for LTCHs that fail to submit the required quality reporting 
data for FY 2015. This proposed 0.1 percent update is calculated based 
on the full estimated increase in the LTCH PPS market basket of 2.7 
percent, less a proposed MFP adjustment of 0.4 percentage point, less 
an additional adjustment of 0.2 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.

[[Page 28334]]

2. Development of the Proposed FY 2015 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 2015, we 
are proposing to apply the proposed annual update to the LTCH PPS 
standard Federal rate from the previous year. Furthermore, in 
determining the proposed standard Federal rate for FY 2015, we also are 
proposing to make certain regulatory adjustments. Specifically, we are 
proposing to apply an adjustment factor for the final 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 VII.C.3. of the preamble of this proposed rule. In addition, 
in determining the proposed FY 2015 standard Federal rate, we are 
proposing to apply a budget neutrality adjustment factor for the 
proposed changes related to the area wage adjustment (that is, proposed 
changes to the wage data, including the proposal to adopt the new OMB 
delineations, and labor-related share) in accordance with Sec.  
412.523(d)(4).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50993 and 50993), we 
established an annual update to the LTCH PPS standard Federal rate of 
1.7 percent for FY 2014 based on the full estimated LTCH PPS market 
basket increase 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)(C) of the Act. Accordingly, at Sec.  
412.523(c)(3)(x), we established an annual update to the standard 
Federal rate for FY 2014 of 1.7 percent. That is, we applied an update 
factor of 1.017 to the FY 2013 Federal rate of $40,607.31 to determine 
the FY 2014 standard Federal rate. We also adjusted the standard 
Federal rate for FY 2014 by the one-time prospective adjustment factor 
for FY 2014 of 0.98734 under Sec.  412.523(d)(3)(ii). Furthermore, for 
FY 2014, we applied 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) would not result in any change 
(increase or decrease) in estimated aggregate LTCH PPS payments. 
Consequently, we established 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).
    In this proposed rule, we are proposing to establish an annual 
update to the LTCH PPS standard Federal rate of 2.1 percent (that is, 
an update factor of 1.021) for FY 2015, based on the full estimated 
increase in the LTCH PPS market basket of 2.7 percent, less the 
proposed MFP adjustment of 0.4 percentage point, consistent with 
section 1886(m)(3)(A)(i) of the Act, and less the 0.2 percentage point 
required by sections 1886(m)(3)(A)(ii) and(m)(4)(E) of the Act. 
Therefore, under proposed Sec.  412.523(c)(3)(xi), we are proposing to 
apply a factor of 1.021 to the FY 2014 standard Federal rate of 
$40,607.31 to determine the proposed FY 2015 standard Federal rate. 
These proposed factors are based on IGI's first quarter 2014 forecast, 
which are the best available data at this time. Consistent with our 
historical practice of using the best available data, we also are 
proposing that if more recent data become available to determine the 
market basket estimate or the MFP adjustment, we would use such data 
for the final rule, if appropriate. For LTCHs that fail to submit 
quality reporting data for FY 2015 under the LTCHQR Program, under 
proposed Sec.  412.523(c)(3)(xi) in conjunction with Sec.  
412.523(c)(4), we are proposing to reduce the proposed annual update to 
the LTCH PPS standard Federal rate by an additional 2 percentage points 
consistent with section 1886(m)(5) of the Act. Therefore, we are 
proposing to establish an annual update to the LTCH PPS standard 
Federal rate of 0.1 percent (that is, 2.1 percent minus 2.0 percentage 
points = 0.1 percent or an update factor of 1.001) for FY 2015 for 
LTCHs that fail to submit the required quality reporting data for FY 
2015 under the LTCHQR Program. We also are proposing that the standard 
Federal rate for FY 2015 would be further adjusted by a proposed 
adjustment factor of 0.98734 for FY 2015 under the final year of the 3-
year phase-in of the one-time prospective adjustment at Sec.  
412.523(d)(3)(ii). In addition, for FY 2015, we are proposing to apply 
an area wage level budget neutrality factor of 1.0002034 to the 
standard Federal rate to ensure that any proposed changes to the area 
wage level adjustment (that is, the proposed 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. 
Accordingly, we are proposing to establish a standard Federal rate of 
$40,943.51 (calculated as $40,607.31 x 1.021 x 0.98734 x 1.002034) for 
FY 2015. The proposed standard Federal rate of $40,943.51 would apply 
in determining the payments for FY 2015 discharges from LTCHs that 
submit quality reporting data for FY 2015 in accordance with the 
requirements of the LTCHQR Program under section 1886(m)(5) of the Act. 
For LTCHs that fail to submit quality reporting data for FY 2015 in 
accordance with the requirements of the LTCHQR Program under section 
1886(m)(5) of the Act, we are proposing to establish a standard Federal 
of $40,141.47 (calculated as $40,607.31 x 1.001 x 0.98734 x 1.002034) 
for FY 2015.

B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS for FY 
2015

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 under 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 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 area wage index values 
are the full LTCH PPS area 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. Proposed Geographic Classifications (Labor Market Areas) Based on 
the New OMB Delineations
    In adjusting for the differences in area wage levels under the LTCH 
PPS, the labor-related portion of an LTCH's

[[Page 28335]]

Federal prospective payment is adjusted by using an appropriate area 
wage index based on the geographic classification (labor market area) 
in which the LTCH is located. Specifically, the application of the LTCH 
PPS area wage level adjustment under existing Sec.  412.525(c) is made 
based on the location of the LTCH--either in an ``urban area,'' or a 
``rural area,'' as defined in Sec.  412.503. Under Sec.  412.503, an 
``urban area'' is defined as a Metropolitan Statistical Area (MSAs) 
(which includes 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.
    The CBSA-based geographic classification (labor market area) 
definitions currently used under the LTCH PPS, effective for discharges 
occurring on or after July 1, 2005, are based on the OMB's CBSA 
definitions that were developed based on 2000 U.S. Census data. As 
discussed in greater detail in section VII.D. of the preamble of this 
proposed rule, OMB announced revisions to the statistical boundaries of 
its labor market areas for MSAs, Micropolitan Statistical Areas, and 
Combined Statistical Areas, and provided guidance on the uses of the 
delineations of these areas in OMB Bulletin No. 13-01, issued on 
February 28, 2013 (referred hereinafter as the ``new OMB 
delineations''). As previously stated, at that time, the FY 2014 IPPS/
LTCH PPS proposed rule was in the advanced stages of development, and 
the proposed FY 2014 LTCH PPS area wage indexes had already been 
developed based on the previous OMB CBSA-based labor market area 
definitions that are currently used to define CBSA-based labor market 
areas (referred hereinafter as ``CBSA designations'') under the LTCH 
PPS. Therefore, we did not implement changes to the CBSA designations 
under the LTCH PPS for FY 2014 based on the new OMB labor market areas 
delineations that were developed based on 2010 Decennial Census data. 
Rather, to allow for sufficient time to assess the new changes and 
their ramifications, we stated that we intended to propose to adopt the 
new OMB delineations, and the corresponding changes to the area wage 
index values based on those delineations, under the LTCH PPS for FY 
2015 through notice and comment rulemaking. This approach was 
consistent with the approach used under the IPPS. (We refer readers to 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50994 through 50995).)
    As discussed in sections III.B. and VII.D. of the preamble of this 
proposed rule, under the authority of section 123 of the BBRA, as 
amended by section 307(b) of the BIPA, we are proposing to adopt the 
new OMB delineations beginning in FY 2015. We believe that these new 
OMB delineations are based on the best available data that reflect the 
local economies and area wage levels of the hospitals that are 
currently located in these geographic areas. We also believe that the 
new OMB delineations would ensure that the LTCH PPS area wage level 
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 this proposal 
is consistent with the IPPS proposal discussed in section III.B. of the 
preamble of this proposed rule. For additional details on our proposal 
to adopt the new OMB delineations, we refer readers to section VII.D. 
of the preamble of this proposed rule.
3. Proposed LTCH PPS Labor-Related Share
    Under the payment adjustment for the differences in area wage 
levels under 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. 
For more details, we refer readers to the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53477 through 53479).
    Consistent with our historical practice, in the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50995 through 50996), we determined the LTCH PPS 
labor-related share for FY 2014 based on the FY 2014 relative 
importance of each labor-related cost category, which reflected the 
different rates of price change for these cost categories between the 
base year (FY 2009) and FY 2014. Specifically, based on IGI's second 
quarter 2013 forecast of the FY 2009-based LTCH-specific market basket, 
we established a labor-related share under the LTCH PPS for FY 2014 of 
62.537 percent.
    For FY 2015, we are proposing to establish a labor-related share 
under the LTCH PPS based on IGI's first quarter 2014 forecast of the FY 
2009-based LTCH-specific market basket. Consistent with our historical 
practice, if more recent data becomes available, we are proposing to 
use that data to determine the final FY 2015 labor-related share under 
the LTCH PPS.
    The table below shows the proposed FY 2015 labor-related share 
relative importance using IGI's first quarter 2014 forecast of the FY 
2009-based LTCH-specific market basket. The sum of the proposed 
relative importance for FY 2015 for operating costs (Wages and 
Salaries; Employee Benefits; Professional Fees Labor-Related, 
Administrative and Business Support Services; and All Other: Labor-
Related Services) is 58.366 percent. We are proposing that the portion 
of capital-related costs that is influenced by the local labor market 
continue to be estimated to be 46 percent. Because the relative 
importance for capital-related costs would be 9.142 percent of the FY 
2009-based LTCH-specific market basket in FY 2015, we are proposing to 
take 46 percent of 9.142 percent to determine the proposed labor-
related share of capital-related costs for FY 2015, which would result 
in 4.205 percent (0.46 x 9.142). We are proposing to then add that 
4.205 percent for the capital-related cost amount to the 58.366 percent 
for the operating cost amount to determine the total proposed labor-
related share for FY 2015.
    Therefore, under the broad authority of section 123 of the BBRA, as 
amended by section 307(b) of BIPA, to determine appropriate payment 
adjustments under the LTCH PPS, we are proposing to establish a labor-
related share under the LTCH PPS in FY 2015 of 62.571 percent. This 
proposed labor-related share is determined using the same methodology 
as used in calculating all previous fiscal years LTCH labor-related 
shares.

[[Page 28336]]



Proposed FY 2015 Labor-Related Share Relative Importance Based on the FY
                 2009-Based LTCH-Specific Market Basket
------------------------------------------------------------------------
                                                       Proposed FY 2015
                                                         labor-related
                                                        share relative
                                                          importance
------------------------------------------------------------------------
Wages and Salaries..................................              45.034
Employee Benefits...................................               8.128
Professional Fees: Labor-Related....................               2.208
Administrative and Business Support Services........               0.502
All Other: Labor-Related Services...................               2.494
                                                     -------------------
    Subtotal........................................              58.366
Proposed Labor-Related Portion of Capital Costs                    4.205
 (46%)..............................................
                                                     -------------------
        Proposed Total Labor-Related Share..........              62.571
------------------------------------------------------------------------

4. Proposed LTCH PPS Wage Index for FY 2015
    Historically, we have established LTCH PPS area 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 2014 LTCH PPS final rule (78 FR 50996 through 50997), we 
calculated the FY 2014 LTCH PPS area wage index values using the same 
data used for the FY 2014 acute care hospital IPPS (that is, data from 
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, as these were the most recent complete data 
available at that time. In that same final rule, we indicated that we 
computed the FY 2014 LTCH PPS area wage index values consistent with 
the urban and rural geographic classifications (labor market areas) 
that were in place at that time, 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 area wage index values for areas where there are 
no IPPS wage data.
    Consistent with our historical methodology, to determine the 
applicable area wage index values under the LTCH PPS for FY 2015, under 
the broad authority of section 123 of the BBRA, as amended by section 
307(b) of the BIPA, to determine appropriate payment adjustments under 
the LTCH PPS, we are proposing to use wage data collected from cost 
reports submitted by IPPS hospitals for cost reporting periods 
beginning during FY 2011, without taking into account geographic 
reclassification under sections 1886(d)(8) and 1886(d)(10) of the Act. 
We are proposing to use FY 2011 wage data because these data are the 
most recent complete data available. These are the same data used to 
compute the proposed FY 2015 acute care hospital inpatient wage index, 
as discussed in section III. of the preamble of this proposed rule. 
(For our rationale for using IPPS hospital wage data as a proxy for 
determining the area 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).)
    For this proposed rule, the proposed FY 2015 LTCH PPS area wage 
index values were computed consistent with the proposed ``urban'' and 
``rural'' geographic classifications (that is, using the new OMB labor 
market area delineations), as discussed in section VII.D. of the 
preamble of this proposed 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, we are proposing to 
continue to apportion wage data for multicampus hospitals with campuses 
located in different labor market areas to each CBSA where the campus 
or campuses are located, as discussed in section III.G. of the preamble 
of this proposed rule. Furthermore, in determining the proposed FY 2015 
LTCH PPS area wage index values, we are proposing to continue to use 
our existing policy for determining area wage index values for areas 
where there are no IPPS wage data. We established this methodology for 
determining LTCH PPS wage index values for areas that have no IPPS wage 
data in the RY 2009 LTCH PPS final rule. For more information about 
this methodology, 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 market areas without 
IPPS hospital wage data (or IPPS hospitals). However, should an LTCH 
open in one of these labor market areas, LTCH PPS wage index values for 
such an area would be calculated using our established methodology. 
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 2011 IPPS wage data that we are proposing to use to 
determine the proposed FY 2015 LTCH PPS area wage index values in this 
proposed rule, there are no IPPS wage data for the urban area 
Hinesville, GA (CBSA 25980). Consistent with the methodology discussed 
above, we calculated the proposed FY 2015 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

[[Page 28337]]

12A, which is listed in section VI. of the Addendum to this proposed 
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 2011 IPPS wage data that we are proposing to use to 
determine the proposed FY 2015 LTCH PPS area wage index values in this 
proposed rule, there are no proposed rural areas without IPPS hospital 
wage data. Therefore, it is not necessary to use our established 
methodology to calculate an LTCH PPS wage index value for proposed 
rural areas with no IPPS wage data for FY 2015. We note that, as IPPS 
wage data are dynamic, it is possible that rural areas without IPPS 
wage data will vary in the future.
    For FY 2015, we are proposing to use the new OMB delineations under 
the LTCH PPS, as discussed in greater detail in section VII.D. of the 
preamble of this proposed rule. Under this proposal, there would be 
some changes to the current CBSA compositions as a result of the new 
OMB delineations, which would result in the creation of new CBSAs, 
``urban'' counties that are now ``rural,'' ``rural'' counties that are 
now ``urban,'' and existing CBSAs that are divided into separate 
boundaries. Under existing Sec.  412.503, an ``urban area'' is defined 
as a Metropolitan Statistical Area as defined by the Executive OMB, and 
a ``rural area'' is defined as any area outside of an urban area. We 
are not proposing any changes to the current definitions of ``urban 
area'' and ``rural area'' because our proposal to use the new OMB 
delineations under the LTCH PPS is consistent with the definitions in 
existing Sec.  412.503.
    As discussed in sections III.B. and VII.D.2.e. of the preamble of 
this proposed rule, overall we believe that using the new OMB 
delineations would result in LTCH PPS area wage index values being more 
representative of the actual costs of labor in a given area. However, 
we also recognize that, as a result of our proposal to adopt the new 
OMB delineations, some LTCHs would experience decreases in area wage 
index values, while other LTCHs would experience increases in area wage 
index values. Therefore, to mitigate any short-term instability in LTCH 
PPS payments that could result from our proposal to use the new OMB 
delineations, we are proposing a transitional wage index policy. Under 
our proposed transitional wage index policy, any LTCH that would 
experience a decrease in its area wage index solely as a result of the 
proposal to adopt the new OMB delineations under the LTCH PPS would 
receive a blended area wage index for FY 2015. That is, for purposes of 
determining an LTCH's area wage index for FY 2015, we are proposing to 
compute LTCH PPS area wage index values using the proposed area wage 
data discussed above and in section V.B.4. of the Addendum to this 
proposed rule under both the current (FY 2014) CBSA designations and 
the proposed new OMB delineations. If the area wage index value under 
the proposed new OMB delineations would be lower than the proposed are 
wage index value under the FY 2014 CBSA designations, the LTCH would be 
paid based on a blended area wage index for FY 2015, which would be 
computed as the sum of 50 percent of each wage index value (referred to 
as the proposed 50/50 blended wage index), as described below.
    Therefore, to determine the applicable area wage index value for 
each LTCH under this proposed transitional wage index policy that would 
be effective for discharges occurring on or after October 1, 2014, 
through September 30, 2015, for this proposed rule, we computed the 
following two area wage index values: (1) The wage index values 
calculated using the proposed new OMB delineations; and (2) the wage 
index values calculated using the current (FY 2014) CBSA designations. 
The proposed FY 2015 LTCH area wage index values calculated using the 
new OMB delineations are presented in section VI. of the Addendum to 
this proposed rule in Table 12A (for urban areas) and Table 12B (for 
rural areas), which are available via the Internet on the CMS Web site. 
The proposed FY 2015 LTCH area wage index values calculated using the 
current (FY 2014) CBSA designations are presented in section VI. of the 
Addendum to this proposed rule in Table 12C (for urban areas) and Table 
12D (for rural areas), which are available via the Internet on the CMS 
Web site. Where applicable, the wage index values in Tables 12C and 12D 
would be used to calculate a LTCH's proposed 50/50 blended wage index 
value under the proposed transitional wage index policy. As explained 
previously, under our proposed transitional wage index policy, an LTCH 
would only receive the proposed 50/50 blended area wage index value for 
FY 2015 if the LTCH's proposed area wage index value under the new OMB 
delineations (shown in Table 12A or 12B) would be lower than the 
proposed area wage index value under the FY 2014 CBSA designations 
(shown in Tables 12C or 12D). If an LTCH's proposed area wage index 
under the new OMB delineations (shown in Tables 12A or 12B) would be 
higher than the proposed wage index under the FY 2014 CBSA designations 
(shown in Tables 12C or 12D), we are proposing to pay the LTCH based on 
100 percent of the proposed area wage index under the new OMB 
delineations shown in Tables 12A or 12B (as such the LTCH would not 
receive the proposed 50/50 blended area wage index). Furthermore, as 
discussed below and in section VII.D.2.e. of the preamble of this 
proposed rule, we are proposing to apply this transitional wage index 
policy in a budget neutral manner. Each LTCH's proposed labor market 
area under the new OMB delineations and the current (FY 2014) CBSA-
based labor market area designation can be found in the LTCH PPS impact 
file for this proposed rule, which is available via the Internet on the 
CMS Web site.
5. Proposed Budget Neutrality Adjustment for Proposed 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 area wage index values or labor-
related share are to be made in a budget neutral manner such that 
estimated aggregate LTCH PPS payments are unaffected; that is, will be 
neither greater than nor less than estimated aggregate LTCH PPS 
payments without such changes to the area wage level adjustment. Under 
this policy, 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 adjustments are budget 
neutral such that any changes to the area wage index values or labor-
related share would 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 2015, in accordance with Sec.  412.523(d)(4), we are 
proposing to apply 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-

[[Page 28338]]

level adjustment under Sec.  412.525(c)(1) on estimated aggregate LTCH 
PPS payments using a methodology that is consistent with the 
methodology we established in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51773). For this proposed rule, in addition to the proposed updates 
for FY 2015 to the area wage index data and labor-related share 
discussed above, we are proposing a transitional wage index policy to 
mitigate the impacts of implementing changes to the LTCH PPS labor 
market areas (CBSAs) based on new OMB delineations, as discussed above 
and in section VII.D.2.e. of the preamble of this proposed rule. 
Because our proposed transitional wage index policy for LTCHs that 
would experience a decrease in the their area wage index solely as a 
result of the proposed adoption of the new OMB delineations under the 
LTCH PPS would result in an increase in estimated aggregate LTCH PPS 
payments without such changes, we are proposing to include the proposed 
50/50 blended area wage index when determining the proposed area wage-
level adjustment budget neutrality factor that we would be applied to 
the standard Federal rate under Sec.  412.523(d)(4) to ensure that any 
changes to the area wage-level adjustments are budget neutral.
    For this proposed rule, using the proposed steps in the proposed 
methodology described in section VII.D.2.e. of this preamble, we 
determined a proposed FY 2015 area wage-level adjustment budget 
neutrality factor of 1.0002034. Accordingly, in section V.A.2. of the 
Addendum to this proposed rule, to determine the FY 2015 LTCH PPS 
standard Federal rate, we are proposing to apply a proposed area wage 
level adjustment budget neutrality factor of 1.0002034, in accordance 
with Sec.  412.523(d)(4). The proposed FY 2015 LTCH PPS standard 
Federal rate shown in Table 1E of the Addendum to this proposed rule 
reflects this adjustment factor.

C. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) 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.
    Prior to FY 2014, 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). For FY 2013, we believed that it 
was appropriate to use ``frozen'' COLA factors to adjust payments, 
while we explored alternatives for updating the COLA factors in the 
future, and 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). 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 (77 FR 53712 through 53713). 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). It also incorporates a 25-percent cap on the 
CPI-updated COLA factors, which is consistent with a statutorily 
mandated 25-percent cap that was applied to OPM's published COLA 
factors. We believe that determining updated COLA factors using this 
methodology would 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 updated 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 finalized methodology, we used 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 policy, we refer readers to the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50997through 50998).
    Under our finalized policy, we update the COLA factors using the 
methodology described above every 4 years; the first year began in FY 
2014 (77 FR 53482). Accordingly, in this proposed rule, for FY 2015, 
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 payment adjustments under the LTCH PPS, we are proposing to 
continue to use the COLA factors established in the FY 2014 IPPS/LTCH 
PPS final rule, which were based on the 2009 OPM COLA factors updated 
through 2012 by the 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. (We refer readers to the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50998) for a discussion of the FY 2014 COLA factors.) 
Consistent with our historical practice, we are proposing that the 
proposed COLA factors shown in the table below would adjust the 
nonlabor-related portion of the proposed standard Federal rate for 
LTCHs located in Alaska and Hawaii under Sec.  412.525(b).

    Proposed Cost-of-Living Adjustment Factors for Alaska and Hawaii
                Hospitals Under the LTCH PPS for FY 2015
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Alaska:
  City of Anchorage and 80-kilometer (50[dash]mile) radius by       1.23
   road......................................................
  City of Fairbanks and 80-kilometer (50[dash]mile) radius by       1.23
   road......................................................
  City of Juneau and 80-kilometer (50[dash]mile) radius by          1.23
   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
------------------------------------------------------------------------

D. Proposed 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

[[Page 28339]]

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 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 this proposed rule, using our established methodology for 
determining the LTCH total CCR ceiling (described above), based on IPPS 
total CCR data from the December 2013 update of the PSF, we are 
proposing to establish a total CCR ceiling of 1.341under the LTCH PPS 
for FY 2015 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 are 
proposing that if more recent data become available, we would use such 
data to establish a total CCR ceiling for FY 2015 in the final rule.
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 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

[[Page 28340]]

data that the 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.)
    Consistent with our historical practice of using the best available 
data, in this 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 2013 update of the 
PSF, we are proposing to establish LTCH PPS statewide average total 
CCRs for urban and rural hospitals that would be effective for 
discharges occurring on or after October 1, 2014 through September 20, 
2015, in Table 8C listed in section VI. of the Addendum to this 
proposed rule (and available via the Internet). Consistent with our 
historical policy of using the best available data, we also are 
proposing that if more recent data become available, we would use such 
data to establish statewide average total CCRs for urban and rural 
LTCHs for FY 2015 in the final rule.
    Under the proposed changes to the LTCH PPS labor market areas based 
on the new OMB delineations, all areas in Delaware, the District of 
Columbia, New Jersey, and Rhode Island would be classified as urban. 
Therefore, there are no proposed 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 and 
Massachusetts have areas that are designated as rural, there are no 
short-term, acute care IPPS hospitals or LTCHs located in those areas 
as of December 2013. Therefore, consistent with our existing 
methodology, we are proposing to use the national average total CCR for 
rural IPPS hospitals for rural Connecticut and Massachusetts in Table 
8C listed in section VI. of the Addendum to this proposed 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 proposing to continue 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 proposing to use this proxy because we believe 
that the CCR data in the PSF for Maryland hospitals may not be entirely 
accurate (as discussed in greater detail in the FY 2007 IPPS final rule 
(71 FR 48120)).
d. Reconciliation of LTCH HCO and SSO Payments
    We note that under the LTCH PPS HCO policy at Sec.  
412.525(a)(4)(iv)(D) and the LTCH PPS SSO policy at Sec.  
412.529(f)(4)(iv), the payments for HCO and SSO cases, respectively, 
are subject to reconciliation. Specifically, any reconciliation of 
outlier payments is based on the CCR that is calculated based on a 
ratio of cost-to-charge data computed from the relevant cost report 
determined at the time the cost report coinciding with the discharge is 
settled. For additional information, we refer readers to sections 
150.26 through 150.28 of the Medicare Claims Processing Manual (Pub. 
100-4) as added by Change Request 7192 (Transmittal 2111; December 3, 
2010) and the RY 2009 LTCH PPS final rule (73 FR 26820 through 26821).
3. Establishment of the Proposed LTCH PPS Fixed-Loss Amount for FY 2015
    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 2014 IPPS/LTCH PPS final rule (78 FR 53715), we presented 
our policies regarding the methodology and data we used to establish 
the fixed-loss amount of $13,314 for FY 2014, which was calculated 
using our existing methodology to calculate the fixed-loss amount for 
FY 2014 (based on the data and the rates and policies presented in that 
final 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 used the most recent 
available LTCH claims data and CCR data, that is, LTCH claims data from 
the March 2013 update of the FY 2012 MedPAR file and CCRs from the 
March 2013 update of the PSF, as these data were the most recent 
complete LTCH data available at that time.
    In this proposed rule, for FY 2015, in general, we are proposing to 
continue to use our existing methodology to calculate a fixed-loss 
amount for FY 2015 using the best available data that would maintain 
estimated HCO payments at the projected 8 percent of total estimated 
LTCH PPS payments (based on the rates and policies presented in this 
proposed rule). Specifically, for this proposed rule, we are proposing 
to use LTCH claims data from the December 2013 update of the FY 2013 
MedPAR file and CCRs from the December 2013 update of the PSF to 
determine a fixed-loss amount that would result in estimated outlier 
payments projected to be equal to 8 percent of total estimated payments 
in FY 2015 because these data are the most recent complete LTCH data 
available at this time. We also are proposing that if more recent data 
become available, we would use such data to determine a fixed-loss 
amount for FY 2015 in the final rule. (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).)
    Under the broad authority of section 123(a)(1) of the BBRA and 
section 307(b)(1) of BIPA, we are proposing to establish a fixed-loss 
amount of $15,730 for FY 2015. Therefore, we are proposing to make 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 proposed fixed-loss amount of $15,730). We also note that 
the proposed fixed-loss amount of $15,730 for FY 2015 is slightly 
higher than the FY 2014 fixed-loss amount of $13,314. Based on our 
payment simulations using the most recent available data at this time, 
the proposed increase in the fixed-loss amount for FY

[[Page 28341]]

2015 is necessary to maintain the existing requirement that estimated 
outlier payments 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 would result in HCO payments that are more 
than the current regulatory 8-percent requirement because a lower 
fixed-loss amount would result in more cases qualifying as outlier 
cases, as well as higher outlier payments for qualifying HCO cases 
because the maximum loss that an LTCH must incur before receiving an 
HCO payment (that is, the fixed-loss amount) would be smaller. For 
these reasons, we believe that proposing to raise 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 the 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 2015, the HCO payment would be 80 
percent of the difference between the estimated cost of the case and 
the outlier threshold (the sum of the proposed fixed-loss amount of 
$15,730 and the amount paid under the SSO policy as specified in Sec.  
412.529).

E. Proposed Update to the IPPS Comparable/Equivalent Amounts To Reflect 
the Statutory Changes to the IPPS DSH Payment Adjustment Methodology

    In the FY 2014 IPPS/LTCH PPS final rule, we established a policy 
for reflecting the changes to the Medicare IPPS DSH payment adjustment 
methodology provided for by section 3133 of the Affordable Care Act in 
the calculation of the ``IPPS comparable amount'' under the SSO policy 
at Sec.  412.529 and the ``IPPS equivalent amount'' under the 25-
percent threshold payment adjustment policy at Sec.  412.534 and Sec.  
412.536. Historically, the determination of both the ``IPPS comparable 
amount'' and the ``IPPS equivalent amount'' include an amount for 
inpatient operating costs ``for the costs of serving a disproportionate 
share of low-income patients.'' Under the statutory changes to the 
Medicare DSH payment adjustment methodology that began in FY 2014, in 
general, eligible IPPS hospitals receive an empirically justified 
Medicare DSH payment equal to 25 percent of the amount they otherwise 
would have received under the statutory formula for Medicare DSH 
payments prior to the amendments made by the Affordable Care Act. 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, is made available to make additional payments to 
each hospital that qualifies for Medicare DSH payments and that has 
uncompensated care. The additional uncompensated care payments are 
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 IPPS hospitals that receive Medicare DSH 
payments.
    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, we 
stated that we will include a reduced Medicare DSH payment amount that 
reflects the projected percentage of the payment amount calculated 
based on the statutory Medicare DSH payment formula prior to the 
amendments made by the Affordable Care Act that will be paid to 
eligible IPPS hospitals as empirically justified Medicare DSH payments 
and uncompensated care payments in that year (that is, a percentage of 
the operating DSH payment amount that has historically been reflected 
in the LTCH PPS payments that is based on IPPS rates). We also stated 
that the projected percentage will be updated annually, consistent with 
the annual determination of the amount of uncompensated care payments 
that will be made to eligible IPPS hospitals. As explained in the FY 
2014 IPPS/LTCH PPS final rule (79 FR 50766 through 50767), we believe 
that this approach results 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 
resemble 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.
    For FY 2014, 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 statutory Medicare DSH payment 
formula prior to the amendments made by the Affordable Care Act. 
Accordingly, for FY 2014, the calculation of the ``IPPS comparable 
amount'' under Sec.  412.529 and the ``IPPS equivalent amount'' under 
Sec.  412.534 and Sec.  412.536 includes 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 historically included in those calculations) (76 FR 
50766). As discussed in greater detail in section IV.F.3.d.(2) of the 
preamble of this proposed rule, our estimate of 75 percent of the 
amount that would otherwise have been paid as Medicare DSH payments 
(under the methodology outlined in section 1886(r)(2) of the Act) would 
be adjusted to 80.35 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 proposed uncompensated care 
payments that would be made to eligible IPPS hospitals in FY 2015. In 
other words, Medicare DSH payments prior to the amendments made by the 
Affordable Care Act are adjusted to 60.26 percent (the product of 75 
percent and 80.35 percent) and the resulting amount is used to 
calculate the proposed uncompensated care payments to eligible 
hospitals. As a result, for FY 2015, we project that the reduction in 
the amount of Medicare DSH payments pursuant to section 1886(r)(1) of 
the Act, along with the proposed payments for uncompensated care under 
section 1886(r)(2) of the Act, would result in overall Medicare DSH 
payments of 85.26 percent of the amount of Medicare DSH payments that 
would otherwise have been made in the absence of amendments made by the 
Affordable Care Act (that is, 25 percent + 60.26 percent = 85.26 
percent). Therefore, in this proposed rule, for FY 2015, we are 
proposing that the calculation of the

[[Page 28342]]

``IPPS comparable amount'' under Sec.  412.529 and the ``IPPS 
equivalent amount'' under Sec.  412.534 and Sec.  412.536 would include 
an applicable operating Medicare DSH payment amount that would be equal 
to 85.26 percent of the operating Medicare DSH payment amount based on 
the statutory Medicare DSH payment formula prior to the amendments made 
by the Affordable Care Act. Consistent with our historical practice of 
using the best available data, if more recent data become available, 
for the final rule, we would use such data to determine the percentage 
of the operating Medicare DSH payment amount based on the statutory 
Medicare DSH payment formula prior to the amendments made by the 
Affordable Care Act used in the calculation of the ``IPPS comparable 
amount'' under Sec.  412.529 and the ``IPPS equivalent amount'' under 
Sec.  412.534 and Sec.  412.536 for FY 2015.

F. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2015

    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 (proposed FY 2015 values are shown in Tables 12A through 
12D listed in section VI. of the Addendum of this proposed rule and are 
available via the Internet). The proposed 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 2015 factors are 
shown in the chart in section V.C. of this Addendum) in accordance with 
Sec.  412.525(b). In this proposed rule, we are proposing to establish 
a standard Federal rate for FY 2015 of $40,943.51 (applicable to 
discharges from LTCHs that submit the required quality reporting data 
for FY 2015 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 proposed rule. We illustrate the methodology to adjust 
the proposed LTCH PPS Federal standard rate for FY 2015 in the 
following example:

    Example: During FY 2015, a Medicare patient is in an LTCH 
located in Chicago, Illinois (CBSA 16974). The proposed FY 2015 LTCH 
PPS wage index value for CBSA 16974 is 1.0369 (obtained from Table 
12A listed in section VI. of the Addendum of this proposed rule and 
available via the Internet on the CMS Web site). The Medicare 
patient is classified into MS-LTC-DRG 198 (Pulmonary Edema & 
Respiratory Failure), which has a proposed relative weight for FY 
2015 of 0.9122 (obtained from Table 11 listed in section VI. of the 
Addendum of this proposed rule and available via the Internet on the 
CMS Web site). The LTCH submitted quality reporting data for FY 2015 
in accordance with the LTCHQR Program under section 1886(m)(5) of 
the Act.
    To calculate the LTCH's total adjusted proposed Federal 
prospective payment for this Medicare patient in FY 2015, we compute 
the wage-adjusted proposed Federal prospective payment amount by 
multiplying the unadjusted proposed FY 2015 standard Federal rate 
($40,943.51, for LTCHs that submit quality reporting data for FY 
2015 in accordance with the LTCHQR Program under section 1886(m)(5) 
of the Act) by the proposed labor-related share (62.571 percent) and 
the proposed wage index value (1.0369). This wage-adjusted amount is 
then added to the proposed nonlabor-related portion of the 
unadjusted proposed standard Federal rate (37.429 percent; adjusted 
for cost of living, if applicable) to determine the adjusted 
proposed Federal rate, which is then multiplied by the proposed MS-
LTC-DRG relative weight (0.9122) to calculate the total adjusted 
proposed Federal LTCH PPS prospective payment for FY 2015 
($38,211.00). The table below illustrates the components of the 
calculations in this example.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Unadjusted Proposed Standard Federal Prospective              $40,943.51
 Payment Rate (applicable to discharges from LTCHs
 that submit the required quality data in accordance
 with the LTCHQR Program under section 1886(m)(5) of
 the Act)...........................................
Proposed Labor-Related Share........................           x 0.62571
                                                     -------------------
Proposed Labor-Related Portion of the Federal Rate..        = $25,618.76
Proposed Wage Index (CBSA 16974)....................            x 1.0369
                                                     -------------------
Proposed Wage-Adjusted Labor Share of Federal Rate..        = $26,564.09
Proposed Nonlabor-Related Portion of the Federal            + $15,324.75
 Rate ($40,943.51 x 0.37429)........................
                                                     -------------------
Adjusted Proposed Federal Rate Amount...............        = $41,888.84
Proposed MS-LTC-DRG 198 Relative Weight.............            x 0.9122
                                                     -------------------
    Total Adjusted Proposed Federal Prospective             = $38,211.00
     Payment........................................
------------------------------------------------------------------------

VI. Tables Referenced in This Proposed Rule and Available Only Through 
the Internet on the CMS Web Site

    This section lists the tables referred to throughout the preamble 
of this proposed 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 through 
2014, for the FY 2015 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, all IPPS Tables listed below with the exception of IPPS 
Tables 1A, 1B, 1C, and 1D, and LTCH PPS Table 1E will be available only 
through the Internet. IPPS Tables 1A, 1B, 1C, and 1D, and LTCH PPS 
Table 1E are displayed at the end of this section and will continue to 
be published in the Federal Register as part of the annual proposed and 
final rules.
    As discussed in section II.G.11. and 13. of the preamble of this 
proposed rule, Tables 6A through 6F will not be issued with this FY 
2015 proposed rule because there are no proposed new, revised, or 
deleted diagnosis or procedure codes for FY 2015. As discussed in 
section IV.D. of this proposed rule, section 106 of the Protecting 
Access to Medicare Act of 2014 (Pub. L. 113-93), enacted on April 1, 
2014, extended, through the first half of FY 2015 (that is, for 
discharges occurring before April 1, 2015), the temporary changes in 
the low-volume hospital definition and methodology for determining the 
payment adjustment originally made by the Affordable Care Act (and 
extended by subsequent legislation through March 31, 2014). We refer 
the reader to section IV.D. for complete details on the low-volume 
hospital payment adjustment. Therefore, Table 14 associated with this 
proposed rule lists the proposed low-volume payment adjustments. In 
addition, under section 3008 of the Affordable Care Act, a hospital's 
total payment may be reduced by 1 percent if it is in the lowest HAC 
performance quartile. We

[[Page 28343]]

refer the reader to section IV.J. for complete details on this 
adjustment. Therefore, Table 17 contains the FY 2015 proposed proxy 
list of providers subject to the HAC Reduction Program. Finally, a 
hospital's proposed Factor 3 is the proposed proportion of the 
uncompensated care amount that a DSH will receive under section 3133 of 
the Affordable Care Act. Factor 3 is the hospital's estimated number of 
Medicaid days and Medicare SSI days relative to the estimate of all 
DSHs' Medicaid days and Medicare SSI days. Therefore, Table 18 contains 
the proposed FY 2015 Medicare DSH uncompensated care payment Factor 3 
for all hospitals and identifies whether or not a hospital is projected 
to receive DSH and, therefore, eligible to receive the additional 
payment for uncompensated care for FY 2015.
    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 2015 proposed 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 2015 IPPS Proposed Rule Home Page'' or ``Acute 
Inpatient--Files for Download''.

Table 2-1.--Hospital Average Hourly Wages for Federal Fiscal Years 
2013 (2009 Wage Data), 2014 (2010 Wage Data), and 2015 (2011 Wage 
Data); and Proposed 3-Year Average of Hospital Average Hourly Wages; 
Based on CBSA Delineations Used in FY 2014
Table 2-2.--Acute Care Hospitals Case-Mix Indexes for Discharges 
Occurring in Federal Fiscal Year 2012; Proposed Hospital Wage 
Indexes for Federal Fiscal Year 2015; Hospital Average Hourly Wages 
for Federal Fiscal Years 2013 (2009 Wage Data), 2014 (2010 Wage 
Data), and 2015 (2011 Wage Data; Based on Proposed FY 2015 CBSA 
Delineations); and 3-Year Average of Hospital Average Hourly Wages
Table 3A-1.--Proposed FY 2015 and 3-Year * Average Hourly Wage for 
Acute Care Hospitals in Urban Areas by CBSA; Based on CBSA 
Delineations Used in FY 2014
Table 3A-2.--Proposed FY 2015 and 3-Year * Average Hourly Wage for 
Acute Care Hospitals in Urban Areas by CBSA; Based on CBSA 
Delineations Used in FY 2015
Table 3B-1.--Proposed FY 2015 and 3-Year * Average Hourly Wage for 
Acute Care Hospitals in Rural Areas by CBSA; Based on CBSA 
Delineations Used in FY 2014
Table 3B-2.--Proposed FY 2015 and 3-Year * Average Hourly Wage for 
Acute Care Hospitals in Rural Areas by CBSA; Based on CBSA 
Delineations Used in FY 2015
Table 4A-1.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by 
State--FY 2015; Based on CBSA Delineations Used in FY 2014
Table 4A-2.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by 
State--FY 2015; Based on CBSA Delineations Used in FY 2015
Table 4B-1.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by 
State--FY 2015; Based on CBSA Delineations Used in FY 2014
Table 4B-2.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by 
State--FY 2015; Based on CBSA Delineations Used in FY 2015
Table 4C-1.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals That Are Reclassified by CBSA 
and by State--FY 2015; Based on CBSA Delineations Used in FY 2014
Table 4C-2.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals That Are Reclassified by CBSA 
and by State--FY 2015; Based on CBSA Delineations Used in FY 2015
Table 4D-1.--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 Proposed 
Statewide Rural Floor or Imputed Floor Wage Index--FY 2015; Based on 
CBSA Delineations Used in FY 2014
Table 4D-2.--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 Proposed 
Statewide Rural Floor or Imputed Floor Wage Index--FY 2015; Based on 
CBSA Delineations Used in FY 2015
Table 4E-1.--Urban CBSAs and Constituent Counties for Acute Care 
Hospitals--FY 2015; Based on CBSA Delineations Used in FY 2014
Table 4E-2.--Urban CBSAs and Constituent Counties for Acute Care 
Hospitals--FY 2015; Based on CBSA Delineations Used in FY 2015
Table 4F-1.--Proposed Puerto Rico Wage Index and Capital Geographic 
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2015; 
Based on CBSA Delineations Used in FY 2014
Table 4F-2.--Proposed Puerto Rico Wage Index and Capital Geographic 
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2015; 
Based on CBSA Delineations Used in FY 2015
Table 4J.--Proposed Out-Migration Adjustment for Acute Care 
Hospitals--FY 2015
Table 5.--List of Proposed Medicare Severity Diagnosis-Related 
Groups (MS-DRGs), Relative Weighting Factors, and Geometric and 
Arithmetic Mean Length of Stay--FY 2015
Table 6I.--Proposed Major CC List--FY 2015
Table 6J.--Proposed Complete CC List--FY 2015
Table 6K.--Proposed Complete List of CC Exclusions--FY 2015
Table 7A.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2013 MedPAR Update--December 2013 GROUPER V31.0 
MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2013 MedPAR Update--December 2013 GROUPER V32.0 
MS-DRGs
Table 8A.--Proposed FY 2015 Statewide Average Operating Cost-to-
Charge Ratios (CCRs) for Acute Care Hospitals (Urban and Rural)
Table 8B.--Proposed FY 2015 Statewide Average Capital Cost-to-Charge 
Ratios (CCRs) for Acute Care Hospitals
Table 9A-1.--Hospital Reclassifications and Redesignations--FY 2015; 
Based on CBSA Delineations Used in FY 2014
Table 9A-2.--Hospital Reclassifications and Redesignations--FY 2015; 
Based on CBSA Delineations Used in FY 2015
Table 9C-1.--Hospitals Redesignated as Rural Under Section 
1886(d)(8)(E) of the Act--FY 2015; Based on CBSA Delineations Used 
in FY 2014
Table 9C-2.--Hospitals Redesignated as Rural under Section 
1886(d)(8)(E) of the Act--FY 2015; Based on CBSA Delineations Used 
in FY 2015
Table 10.--Proposed New Technology Add-On Payment Thresholds 
1 2 for Applications for FY 2016
Table 12C.--Proposed LTCH PPS Wage Index for Urban Areas under the 
Current CBSA Designations for Discharges Occurring From October 1, 
2014 through September 30, 2105
Table 12D.--Proposed LTCH PPS Wage Index for Rural Areas Under the 
Current CBSA Designations for Discharges Occurring From October 1, 
2014 Through September 30, 2015
Table 14.--List of Hospitals With Fewer Than 1,600 Medicare 
Discharges Based on the December 2013 Update of the FY 2013 MedPAR 
file and Potentially Eligible Hospitals' FY 2015 Low-Volume Payment 
Adjustment for Discharges Occurring Before April 1, 2015 
(Eligibility for the low-volume payment adjustment is also dependent 
upon meeting the mileage criteria specified at Sec.  
412.101(b)(2)(ii) of the regulations.)
Table 15.--Proposed FY 2015 Readmissions Adjustment Factors
Table 16.--Proposed Updated Proxy Hospital Inpatient Value-Based 
Purchasing (VBP) Program Adjustment Factors for FY 2015
Table 17.--FY 2015 Preliminary Analysis of the Hospital-Acquired 
Conditions Reduction Program
Table 18.--Proposed FY 2015 Medicare DSH Uncompensated Care Payment 
Factor 3

    The following LTCH PPS tables for this FY 2015 proposed rule are 
available only through the Internet on the CMS

[[Page 28344]]

Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for 
Regulation Number CMS-1607-P.

Table 8C.--Proposed FY 2015 Statewide Average Total Cost-to-Charge 
Ratios (CCRs) for LTCHs (Urban and Rural)
Table 11.--Proposed 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, 2014 
Through September 30, 2015 Under the LTCH PPS
Table 12A.--Proposed LTCH PPS Wage Index for Urban Areas Under the 
New OMB CBSA Delineations for Discharges Occurring From October 1, 
2014 Through September 30, 2015
Table 12B.--Proposed LTCH PPS Wage Index for Rural Areas Under the 
New OMB CBSA Delineations for Discharges Occurring From October 1, 
2014 Through September 30, 2015
Table 13A.--Proposed Composition of Low-Volume Quintiles for MS-LTC-
DRGs--FY 2015
Table 13B.--Proposed No-Volume MS-LTC-DRG Crosswalk for FY 2015


 Table 1A--Proposed 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 2015
----------------------------------------------------------------------------------------------------------------
Hospital submitted quality    Hospital did not submit   Hospital submitted quality     Hospital did not submit
 data and is a meaningful      quality data and is a         data and is NOT a        quality data and is NOT a
 EHR  user  (Update = 2.1       meaningful EHR user         meaningful EHR user     meaningful EHR user  (Update
         percent)            (Update = 1.425 percent)    (Update = 1.425 percent)          = 0.75 percent)
----------------------------------------------------------------------------------------------------------------
     Labor       Nonlabor        Labor       Nonlabor        Labor       Nonlabor       Labor         Nonlabor
----------------------------------------------------------------------------------------------------------------
   $3,759.46    $1,642.06      $3,734.61    $1,631.20      $3,734.61    $1,631.20      $3,709.75      $1,620.35
----------------------------------------------------------------------------------------------------------------


 Table 1B--Proposed 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 2015
----------------------------------------------------------------------------------------------------------------
Hospital submitted quality    Hospital did NOT submit   Hospital submitted quality     Hospital did NOT submit
 data and is a meaningful      quality data and is a         data and is NOT a        quality data and is NOT a
  EHR user  (Update = 2.1       meaningful EHR user         meaningful EHR user     meaningful EHR user  (Update
         percent)            (Update = 1.425 percent)    (Update = 1.425 percent)          = 0.75 percent)
----------------------------------------------------------------------------------------------------------------
     Labor       Nonlabor        Labor       Nonlabor        Labor       Nonlabor       Labor         Nonlabor
----------------------------------------------------------------------------------------------------------------
   $3,348.94    $2,052.58      $3,326.80    $2,039.01      $3,326.80    $2,039.01      $3,304.66      $2,025.44
----------------------------------------------------------------------------------------------------------------


Table 1C--Proposed 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 2015
----------------------------------------------------------------------------------------------------------------
                                                                  Rates if wage index is  Rates if wage index is
-----------------------------------------------------------------     greater than 1       less than or equal to
                                                                 ------------------------            1
                       Standardized amount                                               -----------------------
                                                                     Labor     Nonlabor      Labor     Nonlabor
----------------------------------------------------------------------------------------------------------------
National \1\....................................................       \(2)\       \(2)\   $3,348.94   $2,052.58
Puerto Rico.....................................................   $1,605.07     $934.59    1,574.59      965.07
----------------------------------------------------------------------------------------------------------------
\1\ For FY 2015, there are no CBSAs in Puerto Rico with a national wage index greater than 1.
\2\ Not applicable.


    Table 1D--Proposed Capital Standard Federal Payment Rate--FY 2015
------------------------------------------------------------------------
                                                                  Rate
------------------------------------------------------------------------
National.....................................................    $433.01
Puerto Rico..................................................     206.82
------------------------------------------------------------------------


  Table 1E--Proposed LTCH Standard Federal Prospective Payment Rate--FY
                                  2015
------------------------------------------------------------------------
                                          Full update    Reduced  update
                                         (2.1 percent)   * (0.1 percent)
------------------------------------------------------------------------
Standard Federal Rate.................      $40,943.51       $40,141.47
------------------------------------------------------------------------
* For LTCHs that fail to submit quality reporting data for FY 2015 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 proposed 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

[[Page 28345]]

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 proposed rule is a major rule as 
defined in 5 U.S.C. 804(2). We estimate that the proposed changes 
for FY 2015 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 proposed payment 
changes in this proposed rule, would result in an estimated $864 
million decrease in FY 2015 operating payments (or -0.8 percent 
change) and an estimated $126 million increase in FY 2015 capital 
payments (or 1.2 percent change). These changes are relative to 
payments made in FY 2014. The impact analysis of the capital 
payments can be found in section I.J. of this Appendix. In addition, 
as described in section I.K. of this Appendix, LTCHs are expected to 
experience an increase in payments by $44 million in FY 2015 
relative to FY 2014.
    Our operating impact estimate includes the proposed -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. In addition, our operating payment impact 
estimate includes the proposed 2.1 percent hospital update to the 
standardized amount (which includes the estimated 2.7 percent market 
basket update less 0.4 percentage point for the proposed multifactor 
productivity adjustment and less 0.2 percentage point required under 
the Affordable Care Act). The estimates of proposed 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 proposed 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 proposed rule would 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. 
Finally, in accordance with the provisions of Executive Order 12866, 
the Executive Office of Management and Budget has reviewed this 
proposed rule.

B. Statement of Need

    This proposed 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 proposed 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 proposed changes in this proposed rule would 
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 
proposed 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 proposed policy changes, as well as statutory changes 
effective for FY 2014, on various hospital groups. We estimate the 
effects of individual proposed policy changes by estimating payments 
per case while holding all other payment policies constant. We use 
the best data available, but, generally, we do not attempt to make 
adjustments for future changes in such variables as admissions, 
lengths of stay, or case-mix.

E. Hospitals Included in and Excluded From the IPPS

    The prospective payment systems for hospital inpatient operating 
and capital-related costs of acute care hospitals encompass most 
general short-term, acute care hospitals that participate in the 
Medicare program. There were 32 Indian Health Service hospitals in 
our database, which we excluded from the analysis due to the special 
characteristics of the prospective payment methodology for these 
hospitals. Among other short-term, acute care hospitals, hospitals 
in Maryland are paid in accordance with the Maryland All-Payer 
Model, and hospitals located outside the 50 States, the District of 
Columbia, and Puerto Rico (that is, 5 short-term acute care 
hospitals located in the U.S. Virgin Islands, Guam, the Northern 
Mariana Islands, and American Samoa) that receive payment for 
inpatient hospital services they furnish on the basis of reasonable 
costs, subject to a rate-of-increase ceiling.
    As of December 2013, there were 3,468 IPPS acute care hospitals 
included in our analysis. This represents approximately 57 percent 
of all Medicare-participating hospitals. The majority of this impact 
analysis focuses on this set of hospitals. There also are 
approximately 1,332 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, 11 cancer hospitals, and 5 short-term acute 
care hospitals located in the Virgin Islands, Guam, the Northern 
Mariana Islands, and American Samoa, 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 
proposed rule. The impact of the proposed update and proposed policy 
changes to the LTCH PPS for FY 2015 is discussed in section I.L. of 
this Appendix.

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

    As of March 2014, there were 97 children's hospitals, 11 cancer 
hospitals, 5 short-term acute care hospitals located in the Virgin 
Islands, Guam, the Northern Mariana Islands and American Samoa, 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, 244 rehabilitation hospitals and 896 
rehabilitation units, and 432 LTCHs, are paid the Federal 
prospective per discharge rate under the IRF PPS and the LTCH PPS, 
respectively, and 487 psychiatric hospitals and 1,139 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 proposed rule. The impacts of the proposed changes 
on LTCHs are discussed in section I.K. of this Appendix.
    For children's hospitals, the 11 cancer hospitals, the 5 short-
term acute care hospitals located in the Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa, and RNHCIs, the 
proposed update of the rate-of-increase limit (or target amount) is 
the estimated FY 2015 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 the FY 2014 IPPS/LTCH 
PPS final rule, we rebased the IPPS operating market basket to a FY 
2010 base year. Therefore, we are proposing to use the percentage 
increase in the FY 2010-based IPPS operating market basket to update 
the target amounts for FY 2015 and subsequent fiscal years for 
children's hospitals, the 11 cancer hospitals, the 5 short-term 
acute care hospitals located in the Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa, 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 2014 first quarter forecast of the FY 2010-based market 
basket increase, we are estimating that the proposed FY 2015 update 
based on the IPPS operating market basket is 2.7 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 0.4 percentage 
point for FY 2015) and a 0.2 percentage point reduction to the 
market

[[Page 28346]]

basket update resulting in a proposed 2.1 percent applicable 
percentage increase for IPPS hospitals that submit quality data and 
are meaningful EHR users, as discussed in section IV.B. of the 
preamble of this proposed rule. Children's hospitals, the 11 cancer 
hospitals, the 5 short-term acute care hospitals located in the 
Virgin Islands, Guam, the Northern Mariana Islands, and American 
Samoa, 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 those hospitals paid under Sec.  413.40 of the 
regulations, the proposed update would be the percentage increase in 
the FY 2015 IPPS operating market basket, estimated at 2.7 percent, 
without the reductions required under the Affordable Care Act.
    The impact of the proposed 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 Proposed Policy Changes Under the 
IPPS for Operating Costs

1. Basis and Methodology of Estimates

    In this proposed rule, we are announcing proposed policy changes 
and payment rate updates for the IPPS for FY 2015 for operating 
costs of acute care hospitals. The proposed FY 2015 updates to the 
capital payments to acute care hospitals are discussed in section 
I.J. of this Appendix.
    Based on the overall percentage change in payments per case 
estimated using our payment simulation model, we estimate that total 
FY 2015 operating payments will decrease by 0.8 percent compared to 
FY 2014. In addition to the applicable percentage increase, this 
amount reflects the proposed FY 2015 recoupment adjustment for 
documentation and coding described in section II.D. of the preamble 
of this proposed rule of -0.8 percent to the IPPS national 
standardized amounts. 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 proposed 
changes to each system. This section deals with the proposed 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 proposed rule. However, there are 
other proposed changes for which we do not have data available that 
will allow us to estimate the payment impacts using this model. For 
those proposed 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 2013 
MedPAR file and the most current Provider-Specific File (PSF) that 
is used for payment purposes. Although the analyses of the proposed 
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 2013 MedPAR file, we simulated proposed 
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 proposed impact of payments under the capital IPPS, 
or the impact of payments for costs other than inpatient operating 
costs, are not analyzed in this section. Proposed estimated payment 
impacts of the capital IPPS for FY 2015 are discussed in section 
I.J. of this Appendix.
    We discuss the following proposed changes below:
     The effects of the proposed application of the 
documentation and coding adjustment and the proposed 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 proposed changes to the relative 
weights and MS-DRG grouper.
     The effects of the proposed changes in hospitals' wage 
index values reflecting updated wage data from hospitals' cost 
reporting periods beginning during FY 2011, compared to the FY 2010 
wage data, and the proposed adoption of new OMB labor market area 
delineations to calculate the FY 2015 wage index.
     The combined effects of the proposed recalibration of 
the MS-DRG relative weights as required by section 1886(d)(4)(C) of 
the Act and the proposed wage index (including the updated wage data 
and the proposed adoption of new OMB labor market area 
delineations), including the proposed wage and recalibration budget 
neutrality factors.
     The effects of the geographic reclassifications by the 
MGCRB (as of publication of this proposed rule) and the effects of 
the proposed adoption of new OMB labor market area delineations on 
these reclassifications, that would be effective for FY 2015.
     The effects of the proposed rural floor and imputed 
floor with the application of the national budget neutrality factor 
applied to the wage index where the rural floor and imputed floor 
wage index are calculated based on the proposed adoption of the new 
OMB labor market area delineations.
     The effects of the proposed adoption of the new labor 
market area delineations announced by OMB in February 2013 on 
hospital redesignations.
     The effects of the proposed 3-year transition for urban 
hospitals redesignated as rural and the transitional blended wage 
index for hospitals whose FY 2015 wage indexes will decrease solely 
as a result of adopting the new OMB delineations.
     The effects of the proposed frontier State wage index 
adjustment under the statutory provision that requires that 
hospitals located in States that qualify as frontier States to not 
have a wage index less than 1.0. This provision is not budget 
neutral.
     The effects of the proposed 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 a 
threshold percentage of residents of the county where the hospital 
is located commute to work at hospitals in counties with higher wage 
indexes.
     The effects of the proposed 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 a hospital's base operating DRG amount by an adjustment 
factor to account for a hospital's excess readmissions.
     The effects of the proposed policies for continued 
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 effects of the proposed FY 2015 implementation of 
section 1886(o) of the Act, as added by section 3008 of the 
Affordable Care Act, which establishes payment reductions under the 
HAC Reduction Program. Hospitals ranked in the lowest 25 percent of 
performance on HACs are subject to a 1-percent reduction in total 
IPPS payments.
     The total estimated change in payments based on the 
proposed FY 2015 policies relative to payments based on FY 2014 
policies that include the applicable

[[Page 28347]]

percentage increase of 2.1 percent (or 2.7 percent market basket 
update with a proposed reduction of 0.4 percentage point for the 
multifactor productivity adjustment, and a 0.2 percentage point 
reduction, as required under the Affordable Care Act). The total 
estimated change in payments for FY 2015 reflects the extension of 
MDH payment status for the first 6 months of FY 2015, in accordance 
with the Protecting Access to Medicare Act of 2014 (Pub. L. 113-93) 
enacted on April l, 2014.
    To illustrate the impact of the proposed FY 2015 changes, our 
analysis begins with a FY 2014 baseline simulation model using: The 
proposed FY 2015 applicable percentage increase of 2.1 percent and 
the proposed documentation and coding recoupment adjustment of 0.8 
percent to the Federal standardized amount; the FY 2014 MS-DRG 
GROUPER (Version 31.0); the current FY 2014 CBSA designations for 
hospitals based on the OMB delineations; the FY 2014 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 through FY 2014, 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, or one-quarter of the market basket update. 
Therefore, for FY 2015, we are proposing that hospitals that do not 
submit quality information under rules established by the Secretary 
and that are meaningful EHR users under section 1886(b)(3)(B)(ix) of 
the Act will receive an applicable percentage increase of 1.425 
percent. At the time that this impact was prepared, 64 hospitals did 
not receive the full market basket rate-of-increase for FY 2014 
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 2015 using a reduced update 
for these 64 hospitals. However, we do not have enough information 
at this time to determine which hospitals will not receive the full 
update factor for FY 2015.
    Beginning in FY 2015, in accordance with section 
1886(b)(3)(B)(ix) of the Act, a hospital that has been identifies as 
not an EHR meaningful user will be subject to a reduction of one-
quarter of such applicable percentage increase determined without 
regard to section 1886(b)(3)(B)(ix), (xi), or (xii) of the Act, or 
one-quarter of the market basket update. Therefore, for FY 2015, we 
are proposing that hospitals that are identified as not EHR 
meaningful users and do submit quality information under section 
1886(b)(3)(B)(viii) of the Act will receive an applicable percentage 
increase of 1.425 percent. Hospitals that are identified as not EHR 
meaningful users under section 1886(b)(3)(B)(ix) of the Act and also 
do not submit quality data under section 1886(b)(3)(B)(viii) of the 
Act will receive an applicable percentage increase of 0.75 percent, 
which reflects a one-quarter reduction of the market basket update 
for failure to submit quality data and a one-quarter reduction of 
the market basket update for being identified as not an EHR 
meaningful user. For FY 2015, we have yet to finalize a list of 
hospitals that are not meaningful EHR users under section 
1886(b)(3)(B)(ix) of the Act. Therefore, we are proposing not to 
include this adjustment to the standardized amount (for those 
hospitals that are not meaningful EHR users) in our modeling of 
aggregate payments for FY 2015. We intend to release a final list of 
hospitals that are not meaningful EHR user in September 2014. 
Hospitals identified on this list will be paid based on the 
applicable proposed standardized amount in Table 1A for discharges 
occurring in FY 2015.
    Each proposed policy change, statutory or otherwise, is then 
added incrementally to this baseline, finally arriving at an FY 2015 
model incorporating all of the proposed changes. This simulation 
allows us to isolate the effects of each proposed change.
    Our final comparison illustrates the proposed percent change in 
payments per case from FY 2014 to FY 2015. 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 2015 using a proposed applicable percentage increase 
of 2.1 percent. This includes our forecasted IPPS operating hospital 
market basket increase of 2.7 percent with a proposed reduction of 
0.4 percentage point for the multifactor productivity adjustment and 
a 0.2 percentage point reduction as required under the Affordable 
Care Act. (Hospitals that fail to comply with the quality data 
submission requirements and are meaningful EHR users would receive a 
proposed update of 1.425 percent. This update includes a reduction 
of one-quarter of the market basket update for failure to submit 
these data). We note that hospitals that do comply with the quality 
data submission requirements but are not meaningful EHR users would 
receive a proposed update of 1.425 percent, which includes a 
reduction of one-quarter of the market basket update. Furthermore, 
hospitals that do not comply with the quality data submission 
requirements and also are not meaningful EHR users would receive a 
proposed update of 0.75 percent. However, as discussed earlier, we 
do not have a list of hospitals that are not meaningful EHR users 
and have not included this adjustment to the standardized amount 
(for those hospitals that are not meaningful EHR users) in our 
modeling of aggregate payments for FY 2015. 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 2.1 percent. In addition, we are proposing to update 
the Puerto Rico-specific amount by an applicable percentage increase 
of 2.1 percent, if the hospital submits quality data and is a 
meaningful EHR user.
    A second significant factor that affects the changes in 
hospitals' payments per case from FY 2014 to FY 2015 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 2014 that are no longer reclassified in FY 2015. 
Conversely, payments may increase for hospitals not reclassified in 
FY 2014 that are reclassified in FY 2015.
    A third significant factor is that we currently estimate that 
actual outlier payments during FY 2014 will be 5.79 percent of total 
MS-DRG payments. When the FY 2014 IPS/LTCH PPS final rule was 
published, we projected FY 2014 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 
higher than expected outlier payments during FY 2014 (as discussed 
in the Addendum to this proposed rule) are reflected in the analyses 
below comparing our current estimates of FY 2014 payments per case 
to estimated FY 2015 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 proposed 
changes for FY 2015. 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 3,388 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 2,542 
hospitals located in urban areas included in our analysis. Among 
these, there are 1,395 hospitals located in large urban areas 
(populations over 1 million), and 1,147 hospitals in other urban 
areas (populations of 1 million or fewer). In addition, there are 
846 hospitals in rural areas. The next two groupings are by bed-size 
categories, shown separately for urban and rural hospitals. The 
final groupings by geographic location are by census divisions, also 
shown separately for urban and rural hospitals.
    The second part of Table I shows hospital groups based on 
hospitals' proposed FY 2015 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 2,558; 
1,408; 1,150; and 830, respectively.
    The next three groupings examine the impacts of the proposed 
changes on hospitals grouped by whether or not they have GME 
residency programs (teaching hospitals that receive an IME 
adjustment) or receive

[[Page 28348]]

Medicare DSH payments, or some combination of these two adjustments. 
There are 2,352 nonteaching hospitals in our analysis, 792 teaching 
hospitals with fewer than 100 residents, and 244 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 proposed changes 
on rural hospitals by special payment groups (SCHs, RRCs, and MDHs). 
There were 208 RRCs, 324 SCHs, and 154 MDHs (MDH status is extended 
through March 31, 2015 only under Pub. L. 113-93), 124 hospitals 
that are both SCHs and RRCs, and 11 hospitals that are MDHs and RRCs 
(MDH status is through March 31, 2015 only under Pub. L. 113-93).
    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 2012 or FY 
2011 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 2015. The second grouping 
shows the MGCRB rural reclassifications. The final category shows 
the impact of the proposed policy changes on the 15 cardiac 
hospitals.

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a. Effects of the Proposed Hospital Update and Proposed Documentation 
and Coding Adjustment (Column 2)

    As discussed in section II.D. of the preamble of this proposed 
rule, this column includes the proposed hospital update, including 
the proposed 2.7 percent market basket update, the proposed 
reduction of 0.4 percentage point for the multifactor productivity 
adjustment, and the 0.2 percentage point reduction in accordance 
with the Affordable Care Act. In addition, this column includes the 
proposed FY 2015 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. As a result, we are 
proposing to make a 1.3 percent update to the national standardized 
amount. This column also includes the proposed 2.1 percent update to 
the hospital-specific rates which also includes the proposed 2.7 
percent market basket update, the proposed reduction of 0.4 
percentage point for the multifactor productivity adjustment, and 
the 0.2 percentage point reduction in accordance with the Affordable 
Care Act.
    Overall, hospitals would experience a 1.3 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, would experience a 2.1 percent increase in payments; 
therefore, hospital categories with SCHs paid under the hospital-
specific rate would experience increases in payments of more than 
1.3 percent.

b. Effects of the Proposed Changes to the MS-DRG Reclassifications and 
Relative Cost-Based Weights With Recalibration Budget Neutrality 
(Column 3)

    Column 3 shows the effects of the proposed changes to the MS-
DRGs and relative weights with the application of the proposed 
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 proposing to calculate 
a recalibration budget neutrality factor to account for the proposed 
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 proposed 
rule, the FY 2015 MS-DRG relative weights will be 100 percent cost-
based and 100 percent MS-DRGs. For FY 2015, the MS-DRGs are 
calculated using the FY 2013 MedPAR data grouped to the Version 32.0 
(FY 2015) MS-DRGs. The proposed methodology to calculate the 
relative weights and the proposed reclassification changes to the 
GROUPER are described in more detail in section II.H. of the 
preamble of this proposed rule.
    The ``All Hospitals'' line in Column 3 indicates that changes 
due to the MS-DRGs and relative weights would result in a 0.0 
percent change in payments with the application of the proposed 
recalibration budget neutrality factor of 0.992938 on to the 
standardized amount. Hospital categories that generally treat more 
surgical cases than medical cases would experience increases in 
their payments due to the changes to the relative weight 
methodology. Rural hospitals would experience a 0.6 percent decrease 
in payments because rural hospitals tend to treat fewer surgical 
cases than medical cases, while teaching hospitals with more than 
100 residents would experience an increase in payments by 0.3 
percent as those hospitals treat more surgical cases than medical 
cases.

c. Effects of the Proposed Wage Index Changes (Column 4)

    Column 4 shows the impact of updated wage data using FY 2011 
cost report data and the proposed new OMB labor market area 
delineations, with the application of the proposed wage budget 
neutrality factor. 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 delineate hospital labor market areas 
based on the Core Based Statistical Areas (CBSAs) established by 
OMB. The current statistical areas used in FY 2014 were 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).
    As stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27552) and final rule (78 FR 50586), 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. 
In order to implement these changes for the IPPS, it is necessary to 
identify the new labor market area delineation for each county and 
hospital in the country. 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 needed to 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 and, thus, did not 
implement changes to the wage index for FY 2014 based on these new 
OMB delineations. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50586), we stated that we intended to propose changes to the wage 
index based on the new OMB delineations in this FY 2015 proposed 
rule. As discussed below, in this proposed rule, we are proposing to 
implement the new OMB delineations as described in the February 28, 
2013 OMB Bulletin No. 13-01, effective beginning with the FY 2015 
IPPS wage index.
    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 proposed 
wage index for acute care hospitals for FY 2015 is based on data 
submitted for hospital cost reporting periods beginning on or after 
October 1, 2010 and before October 1, 2011. The estimated impact of 
the updated wage data using the FY 2011 cost report data and the 
proposed new OMB labor market area delineations on hospital payments 
is isolated in Column 4 by holding the other payment parameters 
constant in this simulation. That is, Column 4 shows the proposed 
percentage change in payments when going from a model using the FY 
2014 wage index, based on FY 2010 wage data, the labor-related share 
of 69.6 percent, under the new OMB delineations and having a 100-
percent occupational mix adjustment applied, to a model using the 
proposed FY 2015 pre-reclassification wage index based on FY 2011 
wage data with the proposed labor-related share of 69.6 percent, 
under the new OMB delineations, also having a 100-percent 
occupational mix adjustment applied, while holding other payment 
parameters such as use of the Version 32.0 MS-DRG GROUPER constant). 
The FY 2015 occupational mix adjustment is based on the CY 2010 
occupational mix survey.
    In addition, the column shows the impact of the application of 
the proposed wage budget neutrality to the proposed 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 index 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 2015, we are 
proposing to calculate the wage budget neutrality factor to ensure 
that payments under updated wage data and the proposed 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 proposed wage budget neutrality factor is 1.000578, and the 
overall payment change is zero percent.
    Column 4 shows the impacts of updating the wage data using FY 
2011 cost reports. Overall, the new wage data and the proposed 
labor-related share, combined with the proposed wage budget 
neutrality adjustment, would 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 1.9 percent compared to FY 2014. Therefore, the only 
manner in which to maintain or exceed the previous year's wage index 
was to match or exceed the national 1.9 percent increase in average 
hourly wage. Of the 3,373 hospitals with wage data for both FYs 2014 
and 2015, 1,644 or 48.7 percent would experience an average hourly 
wage increase of 1.9 percent or more.
    The following chart compares the shifts in proposed wage index 
values for hospitals due to changes in the average hourly wage data 
for FY 2015 relative to FY 2014. Among urban hospitals, 11 would 
experience a decrease of more than 10 percent, with no urban 
hospital experiencing an increase of

[[Page 28356]]

more than 10 percent. One hundred twenty-one urban hospitals would 
experience an increase or decrease of at least 5 percent or more but 
less than or equal to 10 percent. Among rural hospitals, none would 
experience a decrease of more than 5 percent, but 5 rural hospitals 
would experience an increase of greater than 5 percent but less than 
or equal to10 percent. However, 803 rural hospitals would experience 
increases or decreases of less than or equal to 5 percent, while 
2,325 urban hospitals would experience increases or decreases of 
less than or equal to 5 percent. One hundred eight urban and rural 
hospitals would not experience a change in their wage index. These 
figures reflect proposed changes in the ``pre-reclassified, 
occupational mix-adjusted wage index,'' that is, the proposed wage 
index before the proposed application of geographic 
reclassification, the proposed rural and imputed floors, the 
proposed out-migration adjustment, and other proposed wage index 
exceptions and adjustments. We note that this analysis was performed 
by applying the new OMB labor market area delineations to the FY 
2015 proposed wage data and also by recomputing the FY 2014 final 
wage data to reflect the new OMB delineations. (We refer readers to 
sections III.G.2. through III.I. of the preamble of this proposed 
rule for a complete discussion of the exceptions and adjustments to 
the wage index.) We note that the proposed ``post-reclassified wage 
index'' or ``payment wage index,'' the proposed wage index that 
includes all such exceptions and adjustments (as reflected in Tables 
2, 4A, 4B, 4C, and 4F of the Addendum to this proposed rule, which 
are available via the Internet on the CMS Web site) is used to 
adjust the proposed 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 proposed pre-reclassified wage index figures in 
the chart below may illustrate a somewhat larger or smaller change 
than would 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.

------------------------------------------------------------------------
                                                            Number of
                                                            hospitals
 Percentage change in proposed area wage index values  -----------------
                                                         Urban    Rural
------------------------------------------------------------------------
Increase more than 10 percent.........................        0        0
Increase more than 5 percent and less than or equal to       29        5
 10 percent...........................................
Increase or decrease less than or equal to 5 percent..    2,325      803
Decrease more than 5 percent and less than or equal to       92        0
 10 percent...........................................
Decrease more than 10 percent.........................       11        0
Unchanged.............................................       76       32
------------------------------------------------------------------------

d. Combined Effects of the Proposed 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 proposed wage budget 
neutrality factor of 1.000578 and a proposed recalibration budget 
neutrality factor of 0.992938 (which is applied to the Puerto Rico-
specific standardized amount and the hospital-specific rates). The 
product of the two proposed budget neutrality factors is the 
proposed cumulative wage and recalibration budget neutrality factor. 
The proposed cumulative wage and recalibration budget neutrality 
adjustment is 0.993512, or approximately 0.65 percent, which is 
applied to the national standardized amounts. Because the wage 
budget neutrality and the recalibration budget neutrality are 
calculated under different methodologies according to the statute, 
when the two budget neutralities are combined and applied to the 
standardized amount, the overall payment impact is not necessarily 
budget neutral. However, in this proposed rule, we are estimating 
that the proposed changes in the MS-DRG relative weights and updated 
wage data with wage and budget neutrality applied would result in a 
0.0 percent change in payments.

e. Effects of Proposed 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 proposed MGCRB decisions for FY 2015 and the 
effects of the proposed adoption of the new OMB labor market area 
delineations on these reclassifications 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 proposing to apply an 
adjustment of 0.991412 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 proposed rule). 
Geographic reclassification generally benefits hospitals in rural 
areas. We estimate that the geographic reclassification would 
increase payments to rural hospitals by an average of 1.8 percent. 
By region, all the rural hospital categories would experience 
increases in payments due to MGCRB reclassifications.
    Table 9A listed in section VI. of the Addendum to this proposed 
rule and available via the Internet on the CMS Web site reflects the 
reclassifications for FY 2015.

f. Effects of the Proposed Rural and Imputed Floor, Including 
Application of Proposed 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, 2013 and 2014 IPPS/LTCH PPS final rules, and this 
proposed 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. 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 extended the imputed rural floor, as 
calculated under the original methodology and the alternative 
methodology. For FY 2015, we are proposing to extend the imputed 
rural floor, as calculated under the original methodology and the 
alternative methodology. As a result, under this proposal, New 
Jersey, Rhode Island, and Delaware would receive an imputed floor, 
with 12 out of 64 hospitals in New Jersey receiving the imputed 
floor, 1 out of 6 hospitals in Delaware receiving the imputed floor 
and 4 out of 11 hospitals in Rhode Island receiving the imputed 
floor.
    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 proposed 
FY 2015 rural floor budget neutrality factor to be applied to the 
wage index of 0.989455, which would reduce wage indexes by 1.1 
percent.
    Column 7 shows the projected impact of the proposed rural floor 
and imputed floor with the proposed national rural floor budget 
neutrality factor applied to the wage index based on the proposed 
new OMB labor market area delineations. The column compares the 
proposed post-reclassification FY 2015 wage index of providers 
before the rural floor and imputed floor adjustment and the proposed 
post-reclassification FY 2015 wage index of providers with the 
proposed rural floor and imputed floor adjustment based on the 
proposed new OMB labor market area delineations. Only urban

[[Page 28357]]

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) would experience a decrease in payments due to the proposed 
budget neutrality adjustment that is applied nationally to their 
wage index.
    We estimate that 441 hospitals benefit from the proposed rural 
and imputed floors while the remaining 2,947 IPPS hospitals in our 
model have their wage index reduced by the proposed rural floor 
budget neutrality adjustment of 0.989455 (or 1.1 percent). We 
project that, in aggregate, rural hospitals would experience a 0.3 
percent decrease in payments as a result of the application of the 
proposed 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 
urban areas would experience no change in payments because increases 
in payments by hospitals benefitting from the rural floor offset 
decreases in payments by nonrural floor urban hospitals whose wage 
index is downwardly adjusted by the proposed rural floor budget 
neutrality factor. Urban hospitals in the New England region can 
expect a 2.7 percent increase in payments primarily due to the 
application of the proposed rural floor in Massachusetts and 
Connecticut. Fifty-one urban providers in Massachusetts are expected 
to receive the proposed rural floor wage index value, including 
proposed rural floor budget neutrality, of 1.3383, increasing 
payments overall to Massachusetts by an estimated $158 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 would receive 
approximately a 4.9 percent increase in IPPS payments due to the 
application of the rural floor in FY 2015.
    Urban Puerto Rico hospitals are expected to experience a 0.0 
percent change in payments as a result of the application of a 
proposed Puerto Rico rural floor with the application of the 
proposed Puerto Rico rural floor budget neutrality adjustment. We 
are proposing to apply a rural floor budget neutrality factor to the 
Puerto Rico-specific wage index of 0.991359 or -0.86 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 proposed rural floor budget neutrality adjustment. 
As a result, overall, urban Puerto Rico hospitals would experience a 
0.0 percent change in payments due to the application of the 
proposed rural floor with rural floor budget neutrality.
    There are 12 hospitals out of the 64 hospitals in New Jersey 
that benefit from the extension of the proposed imputed floor and 
would receive the proposed imputed floor wage index value under the 
new OMB labor market area delineations, including the proposed rural 
floor budget neutrality, of 1.0986 which we estimate would increase 
payments to those imputed floor hospitals by $17 million (the State, 
overall, would see a decrease in payments of approximately $5 
million due the other hospitals in the State experiencing decreases 
in payments due to the rural floor budget neutrality adjustment). 
Four Rhode Island hospitals would benefit from the proposed imputed 
rural floor calculated under the alternative methodology and receive 
an additional $3.5 million (the State, overall, would receive an 
additional $1.6 million). One hospital in Delaware would benefit 
from the extension of the proposed imputed floor and would receive 
the proposed imputed floor wage index value under the new OMB labor 
market area delineations, and would receive an additional $25,000 
(the State, overall, would experience a decrease in payments of $2.3 
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 proposed 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 would receive 
the proposed rural floor or imputed floor wage index for FY 2015 
based on the proposed new OMB labor market area delineations. Column 
3 displays the percentage of total payments each State would receive 
or contribute to fund the proposed rural floor and imputed floor 
with national budget neutrality based on the proposed new OMB labor 
market area delineations. The column compares the proposed post-
reclassification FY 2015 wage index of providers before the proposed 
rural floor and imputed floor adjustment and the proposed post-
reclassification FY 2015 wage index of providers with the proposed 
rural floor and imputed floor adjustment with the wage indexes 
calculated based on the proposed new OMB labor market area 
delineations. Column 4 displays the estimated payment amount that 
each State would gain or lose due to the application of the proposed 
rural floor and imputed floor with national budget neutrality. We 
will update our State-by-State rural floor budget neutrality impact 
analysis for the FY 2015 IPPS/LTCH PPS final rule.

   FY 2015 IPPS Proposed Estimated Payments Due to Proposed Rural Floor and Imputed Floor With National Budget
                                                   Neutrality
----------------------------------------------------------------------------------------------------------------
                                                                                 Percent change
                                                                   Number of     in payments due
                                                                hospitals that   to application
                                                   Number of     would receive     of proposed    Difference (in
                     State                         hospitals     the proposed    rural floor and     millions)
                                                                rural floor or    imputed floor
                                                                 imputed floor     with budget
                                                                                   neutrality
                                                           (1)             (2)               (3)             (4)
----------------------------------------------------------------------------------------------------------------
Alabama.......................................              91               2              -0.5           -$8.5
Alaska........................................               6               4               1.8             2.6
Arizona.......................................              56               8              -0.1            -2.3
Arkansas......................................              45               0              -0.5            -5.4
California....................................             308             184                 2           196.3
Colorado......................................              46               5              -0.1            -1.0
Connecticut...................................              31               8              -0.3            -4.6
Delaware......................................               6               1              -0.5            -2.3
Washington, DC................................               7               0              -0.6            -2.7
Florida.......................................             168              25              -0.3           -19.9
Georgia.......................................             106               0              -0.5           -13.1
Hawaii........................................              12               1              -0.4            -1.2
Idaho.........................................              14               0              -0.4            -1.3

[[Page 28358]]

 
Illinois......................................             127               0              -0.6           -28.5
Indiana.......................................              91               5              -0.6           -13.1
Iowa..........................................              34               0              -0.3            -3.2
Kansas........................................              53               0              -0.4            -4.1
Kentucky......................................              65               1              -0.5            -7.9
Louisiana.....................................             100               3              -0.5            -7.0
Maine.........................................              20               0              -0.5            -2.5
Massachusetts.................................              61              51               4.9           157.8
Michigan......................................              95               0              -0.6           -24.1
Minnesota.....................................              51               0              -0.6           -10.4
Mississippi...................................              64               0              -0.5            -5.5
Missouri......................................              78               0              -0.5           -11.7
Montana.......................................              12               4              -0.3            -0.9
Nebraska......................................              23               0              -0.5            -2.8
Nevada........................................              24              19               1.6            10.9
New Hampshire.................................              13               9               0.4             1.8
New Jersey....................................              64              12              -0.1            -5.0
New Mexico....................................              25               0              -0.4            -1.7
New York......................................             163               0              -0.6           -48.9
North Carolina................................              87               0              -0.5           -16.7
North Dakota..................................               6               1              -0.3            -0.8
Ohio..........................................             134              11              -0.5           -17.6
Oklahoma......................................              86               2              -0.5            -5.8
Oregon........................................              33               0              -0.6            -5.0
Pennsylvania..................................             154              10              -0.5           -22.2
Puerto Rico...................................              52              11                 0            -0.1
Rhode Island..................................              11               4               0.4             1.6
South Carolina................................              55              12              -0.1            -0.9
South Dakota..................................              19               0              -0.4            -1.2
Tennessee.....................................              98              21              -0.3            -6.0
Texas.........................................             322              13              -0.5           -31.9
Utah..........................................              32               2              -0.5            -2.3
Vermont.......................................               6               0              -0.4            -0.8
Virginia......................................              79               1              -0.5           -12.4
Washington....................................              49               8              -0.2            -3.0
West Virginia.................................              30               2              -0.4            -3.3
Wisconsin.....................................              65               1              -0.5            -8.8
Wyoming.......................................              11               0              -0.3            -0.4
----------------------------------------------------------------------------------------------------------------

g. Proposed Impact of the New OMB Delineations (Column 8)

    Column 8 shows the effects of the proposed new OMB labor market 
area delineations. This column compares the payments under the 
proposed rural and imputed floor wage index with rural floor budget 
neutrality calculated under the new OMB delineations and the 
payments under the proposed rural and imputed floor wage index with 
budget neutrality calculated under the current OMB delineations. It 
does not reflect the proposed 3-year transition for hospitals that 
are currently located in urban counties that would become rural 
under the new OMB delineations and the 1-year transition to the new 
OMB delineations where the wage indexes are blended such that 
hospitals receive 50 percent of their wage index based on the new 
OMB delineations, and 50 percent of their wage index based on their 
current labor market area. Rather, it shows the proposed impact if 
the new OMB delineations were to be fully implemented for FY 2015. 
Approximately 666 hospitals have their wage index impacted due to 
the new OMB delineations. Urban and rural Middle Atlantic hospitals 
would experience the largest decreases in payments if the new OMB 
delineations were fully implemented for FY 2015, with payment 
decreases of 0.4 and 0.3 percent, respectively. Rural New England 
hospitals and Lugar hospitals would experience the largest increases 
in payments if the new OMB delineations were fully implemented for 
FY 2015 with payment increases of 0.4 percent and 0.6 percent, 
respectively.

h. Proposed Application of the CBSA Transition Wage Index With Budget 
Neutrality (Column 9)

    As discussed earlier in this proposed rule, for FY 2015, we are 
proposing to use the most recent labor market area delineations 
issued by OMB but are proposing a transition period in certain 
circumstances. Specifically, we are proposing a 3-year transition 
for hospitals that are currently located in an urban county that 
would become rural under the new OMB labor market area delineations 
under which such hospitals would be assigned the urban wage index 
value of the CBSA in which they are physically located for FY 2014 
for a period of 3 fiscal years (that is, for FYs 2015, 2016, and 
2017). We also are proposing a 1-year blended wage index for all 
hospitals that would experience any decrease in their actual payment 
wage index (that is, a hospital's actual wage index used for 
payment, which accounts for all applicable effects of 
reclassification and redesignation) exclusively due to the proposed 
implementation of the new OMB labor market area delineations. We are 
proposing that a post-reclassified wage index with the rural and 
imputed floor applied would be

[[Page 28359]]

computed based on the hospital's FY 2014 CBSA (that is, using all of 
its FY 2014 constituent county/ies), and another post-reclassified 
wage index with the rural and imputed floor applied would be 
computed based on the hospital's new FY 2015 CBSA (that is, the FY 
2015 constituent county/ies). We are proposing to compare these two 
wage indexes. If the proposed FY 2015 wage index with FY 2015 CBSAs 
would be lower than the proposed FY 2015 wage index with FY 2014 
CBSAs, we are proposing that a blended wage index would be computed, 
consisting of 50 percent of each of the two wage indexes added 
together. We are proposing that this blended wage index would be the 
hospital's wage index for FY 2015. This proposed adjustment would 
only apply to hospitals that would experience a drop in their actual 
payment wage index exclusively due to the proposed implementation of 
the new OMB labor market area delineations. Hospitals that benefit 
from the new OMB labor market area delineations would receive their 
new wage index based on the new OMB labor market area delineations. 
We refer readers to section III.B. of the preamble to this proposed 
rule for a complete discussion on the transition wage indexes. 
Lastly, we are proposing to apply both the 3-year transition and 50/
50 blended wage index adjustments in a budget neutral manner. We are 
proposing to make an adjustment to the standardized amount to ensure 
that the total payments, including the effect of the transition 
provisions, would equal what payments would have been if we would 
not be providing for these transitional wage indexes.
    Column 9 shows the effects of the proposed adoption of the new 
OMB labor market area delineations, including the 3-year hold 
harmless provision for hospitals that are currently located in an 
urban county that would become rural under the new OMB delineations 
and the proposed 1-year transition to the new OMB delineations where 
the wage indexes are blended such that hospitals receive 50 percent 
of their wage index based on the new OMB delineations and 50 percent 
of their wage index based on their current labor market area. For FY 
2015, we are proposing to apply both the 3-year transition and 50/50 
blended wage index adjustments in a budget neutral manner, with a 
proposed budget neutrality factor of 0.998856 (or -0.1 percent) 
applied to the standardized amount to ensure that the total 
payments, including the effect of the transition provisions, would 
equal what payments would have been if we would not be providing for 
these transitional wage indexes. This column shows the payment 
impact of the proposed transitional wage index. For columns 1 
through 8, the payment impacts and budget neutrality factors have 
been calculated under the new OMB labor market area delineations. 
Under the proposed 1-year transition to the new OMB delineations, 
hospitals that would have experienced a decrease in payments if the 
new OMB delineations had been fully implemented this year now would 
have those decreases alleviated due to the transition. Urban Middle 
Atlantic hospitals would experience a 0.4 percent increase in 
payments due to the proposed application of the transitional wage 
index with budget neutrality, while urban New England, South 
Atlantic, East North Central, West North Central, West South 
Central, Mountain and Pacific hospitals would experience a -0.1 
percent change in payments due to the proposed transitional budget 
neutrality adjustment of -0.1 percent applied to the standard 
Federal rate.

i. Effects of the Application of the Proposed Frontier State Wage Index 
and Out-Migration Adjustment (Column 8)

    This column shows the combined effects of the application of 
section 10324(a) of Affordable Care Act which requires that we 
establish a minimum post-reclassified wage-index of 1.00 for all 
hospitals located in ``frontier States,'' and the effects of section 
1886(d)(13) of the Act, as added by section 505 of Public Law 108-
173, which 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. These two wage index 
provisions are not budget neutral and increase payments overall by 
0.1 percent compared to the provisions not being in effect.
    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. Nevada is also, by 
definition, a frontier State and was assigned a frontier floor value 
of 1.0000 for FY 2012, but since then and including in this proposed 
rule, its rural floor value has been greater than 1.0000 so it has 
not been subject to the frontier wage index. Overall, this provision 
is not budget neutral and is estimated to increase IPPS operating 
payments by approximately $65 million or approximately 0.1 percent. 
Rural hospitals located in the Mountain region and urban hospitals 
located in the West North Central region would experience an 
increase in payments by 0.9 and 0.8 percent, respectively, because 
many of the hospitals located in this region are frontier State 
hospitals.
    In addition, 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 an 
estimated 244 providers that would receive the proposed out-
migration wage adjustment in FY 2015. Rural hospitals generally 
qualify for the adjustment, resulting in a 0.2 percent increase in 
payments. This provision appears to benefit rural Middle Atlantic 
hospitals most in that they would experience a 0.2 percent increase 
in payments. This out-migration wage adjustment is also not budget 
neutral, and we estimate the impact of these providers receiving the 
out-migration increase to be approximately $47 million.

j. Effects of the Proposed Reductions Under the Hospital Readmissions 
Reduction Program (Column 11)

    Column 11 shows our estimates of the effects of the proposed 
policies for reductions in payments under the Hospital Readmissions 
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 for FY 2015, is based on a 
hospital's risk-adjusted readmission rate during a 3-year period for 
five applicable conditions: acute myocardial infarction, heart 
failure, pneumonia, total hip and total knee arthroplasty and 
chronic obstructive pulmonary disease. 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 the statute as 0.97 (or a 3.0 percent reduction) 
for FY 2015. A hospital's base operating DRG payment (that is, wage-
adjusted DRG payment amount, as discussed in section IV.G. of the 
preamble of this proposed 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 proposed rule, we estimate that 2,623 hospitals 
would have their base operating DRG payments reduced by their 
hospital-specific readmissions adjustment, an increase from FY 2014, 
due to the proposed addition of new readmissions measures in the 
program. As a result, we estimate that the Hospital Readmissions 
Reduction Program would result in a 0.4 percent decrease, or 
approximately $422 million, in payments to hospitals overall for FY 
2015 relative to no provision. We estimate that the Hospital 
Readmissions Reduction Program would result in a 0.2 percent 
decrease in payments relative to FY 2014.
    Rural West South Central hospitals and hospitals with high 
Medicare utilization would experience the highest decreases of 0.8 
and 0.7 percent, respectively. Puerto Rico hospitals would show a 0 
percent change in payments because they are exempt from the 
provision.

k. Effects of the Proposed Changes to Medicare DSH Payments (Column 12)

    Column 12 shows the effects of the proposed 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 former statutory formula 
for Medicare DSH payments. The remainder,

[[Page 28360]]

equal to an estimate of 75 percent of what otherwise formerly 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, is 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 DSH hospitals. The reduction to Medicare DSH payments 
is not budget neutral.
    For FY 2015, we are proposing that the amount to be distributed 
on the basis of uncompensated care, which is 75 percent of our 
estimate of what otherwise would have been paid in Medicare DSH 
payments (that is, Factor 1), be adjusted to 80.36 percent of that 
amount to reflect changes in the percentage of individuals under age 
65 who are uninsured and additional statutory adjustments (that is, 
Factor 1 multiplied by Factor 2). For FY 2014, the uncompensated 
care payment was 75 percent of what otherwise would have been paid 
for Medicare DSH payment adjustments adjusted by a Factor 2 of 94.3 
percent. Assuming DSH payments are constant, the proposed FY 2015 
uncompensated care amount is approximately 10 percentage points less 
than the uncompensated care amount that we distributed for FY 2014. 
As a result, we project that compared to the empirically justified 
DSH payments and the uncompensated care payments made last year 
payments for FY 2015 would be reduced overall by 1.0 percent as 
compared to Medicare DSH payments made last year under the first 
year of the implementation of section 3133 of the Affordable Care 
Act. The proposed uncompensated care payment methodology has 
redistributive effects based on a Medicare DSH hospital's low income 
insured patient days (sum of Medicaid patient days and Medicare SSI 
patient days) relative to the Medicaid patient days and Medicare SSI 
patient days for Medicare DSH hospitals, and the payment amount is 
not tied to a hospital's discharges.
    Urban Pacific hospitals would experience no change in DSH and 
uncompensated care payments relative to last year. Hospitals with 
low Medicare utilization (Medicare days are less than 25 percent of 
total inpatient day) would experience the largest decreases in 
payments compared to last year of -2.3 percent.

l. Effects of the Proposed Reductions Under the HAC Reduction Program 
(Column 13)

    Column 13 shows the estimated effects of the proposed policies 
for reductions in payments under the HAC Reduction Program, 
established under section 3008 of the Affordable Care Act. 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 
effective for discharges beginning on October 1, 2014, and for 
subsequent program years. Beginning in FY 2015, hospitals scoring in 
the top quartile for the rate of HAC rate as compared to the 
national average will have their IPPS payments reduced by 1 percent 
for all discharges in that Federal fiscal year. We estimate that, 
under this proposal, 753 hospitals would be subject to the 1-percent 
reduction, and that overall payments would decrease approximately 
0.3 percent or $330 million.
    Government hospitals and teaching hospitals with more than 100 
residents would experience the biggest decrease in payments under 
the HAC Reduction Program of -0.5 percent. Twenty-six percent of the 
government hospitals are estimated to be subject to the HAC 
reduction, while 53 percent of teaching hospitals with more than 100 
residents are estimated to be subject to the HAC reduction for FY 
2015. Puerto Rico hospitals are not included in the HAC Reduction 
Program; therefore, those hospitals would not experience a change in 
payments.

m. Effects of All Proposed FY 2015 Changes (Column 14)

    Column 14 shows our estimate of the changes in payments per 
discharge from FY 2014 and FY 2015, resulting from all proposed 
changes reflected in this proposed rule for FY 2015. It includes 
combined effects of the previous columns in the table.
    The proposed average decrease in payments under the IPPS for all 
hospitals is approximately 0.8 percent for FY 2015 relative to FY 
2014. As discussed in section II.D. of the preamble of this proposed 
rule, this column includes the proposed FY 2015 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 proposed 
annual hospital update of 2.1 percent to the national standardized 
amount. This proposed annual hospital update includes the proposed 
2.7 percent market basket update, the proposed reduction of 0.4 
percentage point for the multifactor productivity adjustment, and 
the 0.2 percentage point reduction under section 3401 of the 
Affordable Care Act. As described in Column 2, the proposed annual 
hospital update combined with the proposed documentation and coding 
recoupment adjustment would result in a 1.3 percent increase in 
payments in FY 2015 relative to FY 2014. Column 11 shows the 
estimated 0.4 percent decrease in payments due to the proposed 
reductions in payments under the Hospital Readmissions Reduction 
Program, which reduces a hospital's base operating DRG payments by a 
readmission adjustment factor based on a hospital's performance on 
readmissions for specified conditions, which is an additional 0.2 
percent decrease in payments under the Hospital Readmissions 
Reduction Program relative to FY 2014. Column 12 shows the estimated 
1.0 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. Column 13 shows the impact 
of the implementation of the HAC Reduction Program which would 
reduce payments by 0.3 percent overall. The impact of moving from 
our estimate of FY 2014 outlier payments, 5.79 percent, to the 
estimate of FY 2015 outlier payments, 5.1 percent, would result in a 
decrease of 0.7 percent in FY 2015 payments relative to FY 2014. 
Lastly, this column reflects the extension of MDH payment status for 
the first half of FY 2015, under Public Law 113-93, enacted on April 
1, 2014. 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 14 may not equal 
the sum of the estimated percentage changes described above.
    Overall payments to hospitals paid under the IPPS are estimated 
to decrease by 0.8 percent for FY 2015. Much of the payment changes 
among the hospital categories is attributed to the proposed 
reduction in Medicare DSH payments and the redistribution of a 
portion of the Medicare DSH payments as an additional payment for 
hospitals' relative uncompensated care amounts. Hospitals in urban 
areas would experience a 0.9 percent decrease in payments per 
discharge in FY 2015 compared to FY 2014. Hospital payments per 
discharge in rural areas are estimated to decrease by 0.2 percent in 
FY 2015 due to lesser reductions in Medicare DSH and estimated 
outlier payments.

3. Impact Analysis of Table II

    Table II presents the projected impact of the proposed changes 
for FY 2015 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 2014 with the average payments 
per discharge for FY 2015, as calculated under our models. 
Therefore, this table presents, in terms of the average dollar 
amounts paid per discharge, the combined effects of the proposed 
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 14 of Table I.

[[Page 28361]]



   Table II--Impact Analysis of Proposed Changes for FY 2015 Acute Care Hospital Operating Prospective Payment
                                                     System
                                            [Payments per discharge]
----------------------------------------------------------------------------------------------------------------
                                                                                     Proposed
                                                                     Estimated       estimated     All  proposed
                                                     Number of      average FY      average FY        FY 2015
                                                     hospitals     2014  payment   2015  payment      changes
                                                                  per  discharge  per  discharge
                                                             (1)             (2)             (3)             (4)
----------------------------------------------------------------------------------------------------------------
All Hospitals...................................           3,388          11,237          11,146            -0.8
By Geographic Location:
    Urban hospitals.............................           2,542          11,629          11,529            -0.9
    Large urban areas...........................           1,395          12,398          12,285            -0.9
    Other urban areas...........................           1,147          10,696          10,611            -0.8
    Rural hospitals.............................             846           8,089           8,073            -0.2
Bed Size (Urban):
    0-99 beds...................................             655           9,026           8,980            -0.5
    100-199 beds................................             788           9,728           9,654            -0.8
    200-299 beds................................             469          10,517          10,466            -0.5
    300-499 beds................................             417          11,998          11,896            -0.9
    500 or more beds............................             213          14,330          14,157            -1.2
Bed Size (Rural):
    0-49 beds...................................             325           6,614           6,562            -0.8
    50-99 beds..................................             298           7,599           7,523              -1
    100-149 beds................................             136           7,951           7,976             0.3
    150-199 beds................................              50           8,898           8,891            -0.1
    200 or more beds............................              37           9,850           9,913             0.6
Urban by Region:
    New England.................................             120          12,805          12,699            -0.8
    Middle Atlantic.............................             324          12,927          12,855            -0.6
    South Atlantic..............................             406          10,454          10,339            -1.1
    East North Central..........................             397          10,856          10,748              -1
    East South Central..........................             153          10,086           9,935            -1.5
    West North Central..........................             162          11,373          11,321            -0.5
    West South Central..........................             385          10,670          10,522            -1.4
    Mountain....................................             159          11,891          11,797            -0.8
    Pacific.....................................             384          14,704          14,673            -0.2
    Puerto Rico.................................              52           8,194           7,606            -7.2
Rural by Region:
    New England.................................              22          11,024          11,000            -0.2
    Middle Atlantic.............................              57           8,118           8,070            -0.6
    South Atlantic..............................             132           7,714           7,666            -0.6
    East North Central..........................             115           8,263           8,315             0.6
    East South Central..........................             165           7,483           7,397            -1.1
    West North Central..........................             102           8,626           8,729             1.2
    West South Central..........................             168           7,064           6,931            -1.9
    Mountain....................................              61           9,111           9,245             1.5
    Pacific.....................................              24          10,697          10,952             2.4
By Payment Classification:
    Urban hospitals.............................           2,558          11,615          11,513            -0.9
    Large urban areas...........................           1,408          12,387          12,273            -0.9
    Other urban areas...........................           1,150          10,669          10,582            -0.8
    Rural areas.................................             830           8,270           8,270               0
Teaching Status:
    Nonteaching.................................           2,352           9,312           9,262            -0.5
    Fewer than 100 residents....................             792          10,966          10,891            -0.7
    100 or more residents.......................             244          16,538          16,317            -1.3
Urban DSH:
    Non-DSH.....................................             682           9,870           9,899             0.3
    100 or more beds............................           1,591          12,067          11,939            -1.1
    Less than 100 beds..........................             366           8,354           8,247            -1.3
Rural DSH:
    SCH.........................................             388           7,587           7,597             0.1
    RRC.........................................             212           9,035           9,057             0.2
    100 or more beds............................              24           7,422           7,323            -1.3
    Less than 100 beds..........................             125           6,339           6,261            -1.2
Urban teaching and DSH:
    Both teaching and DSH.......................             842          13,293          13,137            -1.2
    Teaching and no DSH.........................             133          11,107          11,166             0.5
    No teaching and DSH.........................           1,115           9,774           9,692            -0.8
    No teaching and no DSH......................             468           9,287           9,308             0.2
Special Hospital Types:

[[Page 28362]]

 
    RRC.........................................             208           9,507           9,413              -1
    SCH.........................................             324           8,856           9,035               2
    MDH.........................................             154           6,800           6,485            -4.6
    SCH and RRC.................................             124           9,933          10,149             2.2
    MDH and RRC.................................              11           8,122           7,641            -5.9
Type of Ownership:
    Voluntary...................................           1,925          11,370          11,296            -0.7
    Proprietary.................................             883          10,009           9,930            -0.8
    Government..................................             540          12,259          12,058            -1.6
Medicare Utilization as a Percent of Inpatient
 Days:
    0-25........................................             445          15,819          15,431            -2.5
    25-50.......................................           2,004          11,358          11,281            -0.7
    50-65.......................................             718           9,019           9,005            -0.1
    Over 65.....................................             131           7,424           7,317            -1.4
FY 2015 Reclassifications by the Medicare
 Geographic Classification Review Board:
    All Reclassified Hospitals..................             804          10,955          10,894            -0.6
    Non-Reclassified Hospitals..................           2,584          11,344          11,242            -0.9
    Urban Hospitals Reclassified................             533          11,600          11,518            -0.7
Urban Nonreclassified Hospitals, FY 2015........           1,965          11,664          11,557            -0.9
All Rural Hospitals Reclassified FY 2015........             271           8,572           8,589             0.2
Rural Nonreclassified Hospitals FY 2015.........             511           7,511           7,483            -0.4
All Section 401 Reclassified Hospitals..........              48           9,810           9,825             0.2
    Other Reclassified Hospitals (Section                     66           7,724           7,543            -2.3
     1886(d)(8)(B)).............................
Specialty Hospitals:
    Cardiac Specialty Hospitals.................              15          12,351          12,561             1.7
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Proposed Policy Changes

    In addition to those proposed policy changes discussed above 
that we are able to model using our IPPS payment simulation model, 
we are proposing to make various other changes in this proposed 
rule. Generally, we have limited or no specific data available with 
which to estimate the impacts of these proposed changes. Our 
estimates of the likely impacts associated with these other proposed 
changes are discussed below.

1. Effects of Proposed Policy on MS-DRGs for Preventable HACs, 
Including Infections

    In section II.F. of the preamble of this proposed 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 proposed 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 2015...............................................               $28
FY 2016...............................................                30
FY 2017...............................................                33
FY 2018...............................................                36
FY 2019...............................................                38
------------------------------------------------------------------------

    In section IV.J. of the preamble of this proposed rule, we are 
proposing changes to the HAC Reduction Program for FY 2015. We refer 
readers to section I.H.6. of this Appendix A for a discussion of the 
impact of these proposed changes.

2. Effects of Proposed Policy Relating to New Medical Service and 
Technology Add-On Payments

    In section II.I. of the preamble to this proposed rule, we 
discuss the six applications for add-on payments for new

[[Page 28363]]

medical services and technologies for FY 2015, as well as the status 
of the new technologies that were approved to receive new technology 
add-on payments in FY 2014. As explained in the preamble to this 
proposed 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 proposed rule, we have not yet determined whether 
any of the six applications we received for consideration for new 
technology add-on payments for FY 2015 will meet the specified 
criteria. Consequently, it is premature to estimate the potential 
payment impact of these six applications for any potential new 
technology add-on payments for FY 2015. We note that if any of the 
six applications are found to be eligible for new technology add-on 
payments for FY 2015, in the FY 2015 IPPS/LTCH PPS final rule, we 
would discuss the estimated payment impact for FY 2015.
    In the preamble of this proposed rule, we are proposing to 
discontinue new technology add-on payments for DIFICIDTM 
for FY 2015 because the technology will have been on the U.S. market 
for 3 years. We also are proposing to continue making new technology 
add-on payments for Voraxaze[supreg], the Zenith[supreg] F.Graft, 
KcentraTM, the Argus[supreg] II Retinal Prosthesis 
System, and Zilver[supreg] PTX[supreg] Drug Eluting Peripheral Stent 
in FY 2015 because these technologies are still considered new. 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 
2015 as if every claim that would qualify for a new technology add-
on payment would receive the maximum add-on payment. For 
Voraxaze[supreg], 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 2015 payments by 
$6,300,000. For the Zenith[supreg] F. Graft, 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. For 
KcentraTM, based on the applicant's estimate from FY 
2014, we currently estimate that new technology add-on payments for 
KcentraTM will increase overall FY 2015 payments by 
$5,449,888. For the Argus[supreg] II Retinal Prosthesis System, 
based on the applicant's estimate from FY 2014, we currently 
estimate that new technology add-on payments for the Argus[supreg] 
II Retinal Prosthesis System will increase overall FY 2015 payments 
by $3,601,437. For the Zilver[supreg] PTX[supreg] Drug Eluting 
Peripheral Stent, based on the applicant's estimate from FY 2014, we 
currently estimate that new technology add-on payments for the 
Zilver[supreg] PTX[supreg] Drug Eluting Peripheral Stent will 
increase overall FY 2015 payments by $20,463,000.

3. Effects of Proposed Changes to List of MS-DRGs Subject to Postacute 
Care Transfer and DRG Special Pay Policy

    In section IV.A. of the preamble of this proposed rule, we 
discuss proposed changes to the list of MS-DRGs subject to the 
postacute care transfer and DRG special payment policies. As 
reflected in Table 5 listed in section VI. of the Addendum to this 
proposed rule and available via the Internet on the CMS Web site, 
using criteria set forth in regulation at Sec.  412.4, we evaluated 
MS-DRG charge, discharge, and transfer data to determine which MS-
DRGs qualify for the postacute care transfer and DRG special pay 
policies. We note that we are making no proposal to change these 
payment policies in this FY 2015 proposed rule. We are proposing to 
change the status of certain MS-DRGs as a result of proposals to 
revise the MS-DRGs for FY 2015. We are proposing to change the 
status of five MS-DRGs to qualify for the postacute care transfer 
policy in FY 2015. One additional MS-DRG that qualified under the 
policy in FY 2014 does not qualify in FY 2015, and we are proposing 
to change the status accordingly. Finally, five MS-DRGs now qualify 
for the MS-DRG special pay policy in FY 2015 after not qualifying in 
FY 2014, and we are proposing to add them to the list of qualifying 
MS-DRGs. Column 4 of Table I in this Appendix A shows the effects of 
the proposed changes to the MS-DRGs and relative payment weights 
with the application of the recalibration budget neutrality factor 
to the standardized amounts. Section 1886(d)(4)(C)(i) of the Act 
requires us annually to make appropriate classification changes in 
order to reflect changes in treatment patterns, technology, and any 
other factors that may change the relative use of hospital 
resources. The analysis and methods determining the proposed changes 
due to the MS-DRGs and relative payment weights accounts for and 
includes changes in MS-DRG postacute care transfer and special pay 
policy statuses. We refer readers to section I.G. of this Appendix 
for a more detailed discussion of payment impacts due to MS-DRG 
reclassification policies.

4. Effects of the Proposed Payment Adjustment for Low-Volume Hospitals 
for FY 2015

    In section V.D. of the preamble to this proposed rule, we 
discuss the provisions of the Protecting Access to Medicare Act of 
2014 (Pub. L. 113-93) that extends for an additional year, through 
March 31, 2015, 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, 
and extended through FY 2013 by the ATRA, and the first half of FY 
2014 by the Pathway for SGR Reform Act (Pub. L. 113-67). Therefore, 
to qualify for the low-volume hospital payment adjustment for FY 
2015 discharges occurring before April 1, 2015 under section 
1886(d)(12) of the Act, a hospital must have less than 1,600 
Medicare discharges and be located more than 15 miles from other 
IPPS hospitals. The payment adjustment for eligible low-volume 
hospital FY 2015 discharges occurring before April 1, 2015 is a 
continuous, linear sliding scale adjustment ranging from an 
additional 25 percent payment adjustment to qualifying hospitals 
with 200 or fewer Medicare discharges to no additional payment to 
hospitals with 1,600 or more Medicare discharges.
    Beginning with FY 2015 discharges occurring on or after April 1, 
2015, in accordance with section 1886(d)(12) of the Act, 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 as amended by subsequent 
legislation. Therefore, effective for FY 2015 discharges occurring 
on or after April 1, 2015 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 2013 claims data (December 2013 update of the MedPAR 
file), we estimate that approximately 600 hospitals will qualify as 
a low-volume hospital in FY 2014 and in FY 2015 for discharges 
occurring before April 1, 2015. With the statutory changes to the 
low-volume hospital payment adjustment, for FY 2015 discharges 
occurring on or after April 1, 2015, we estimate only approximately 
six hospitals will continue to qualify as a low-volume hospital. We 
project that the expiration of the temporary changes to the low-
volume hospital definition and the payment adjustment methodology 
originally made by the Affordable Care Act and extended by 
subsequent legislation will result in a decrease in payments of 
approximately $343 million in FY 2015 as compared to the low-volume 
hospital payments in FY 2014. This estimate accounts for our 
projection of the six IPPS low-volume hospitals in FY 2014 that are 
expected to continue to receive a low-volume hospital payment 
adjustment of an additional 25 percent for FY 2015 discharges 
occurring on or after April 1, 2015.

5. Effects of Proposal Related to IME Medicare Part C Add-On Payments 
to SCHs Paid According to Their Hospital-Specific Rates

    In section IV.E.2. of the preamble of this proposed rule, we 
discuss our proposal related to IME Medicare Part C add-on payments 
to SCHs that are paid according to their hospital-specific rates. 
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 include no add-on payments. The hospital-
specific rate generally reflects the additional costs incurred by a 
teaching hospital for its Medicare Part A patients. However, the 
hospital-specific rate does not reflect the costs associated with 
Medicare Part C patients and there is no payment mechanism for SCHs 
paid based on their hospital-specific rate to receive the IME add-on 
payment for Medicare Part C patients. Accordingly, we are proposing 
to provide all SCHs that are subsection (d) teaching

[[Page 28364]]

hospitals, IME add-on payments for applicable discharges of Medicare 
Part C patients in accordance with section 1886(d)(11) of the Act, 
regardless of whether the SCH is paid based on the Federal rate or 
its hospital-specific rate; and that, for purposes of the comparison 
of payments based on the Federal rate and payments based on the 
hospital-specific rate under section 1886(d)(5)(D) of the Act, IME 
payments under section 1886(d)(11) of the Act for Medicare Part C 
patients will no longer be included as part of the Federal rate 
payment.
    We estimate that the proposals at section IV.E.2. of the 
preamble of this proposed rule will result in an increase in 
payments to approximately 50 hospitals that are both SCHs or SCH/
RRCs and teaching hospitals of approximately $5 million in FY 2015.

6. Effects of the Extension of the MDH Program for the First Half of FY 
2015

    In section V.G. of the preamble of this proposed rule, we 
briefly discuss the statutory extension of the MDH program through 
March 31, 2015, that is, through the first half of FY 2015, by 
section 106 of the Protecting Access to Medicare Act of 2014 (Pub. 
L. 113-93). Hospitals that qualify as MDHs receive the higher of 
operating IPPS payments made under the Federal standardized amount 
or the payments made under the Federal standardized amount plus 75 
percent of the amount by which the hospital-specific rate (a 
hospital-specific cost-based rate) exceeds the Federal standardized 
amount. Based on the latest available data we have for 165 MDHs, we 
project that 98 MDHs will receive the blended payment (that is, the 
Federal standardized amount plus 75 percent of the amount by which 
the hospital-specific rate exceeds the Federal standardized amount) 
for the first half of FY 2015 (that is, for discharges occurring 
through March 31, 2015). We estimate that those hospitals will 
experience an overall increase in payments of approximately $56 
million as compared to our previous estimates of payments to these 
hospitals for FY 2015 prior to the extension of the MDH program 
through March 31, 2015, by section 106 of Public Law 113-93.

7. Effects of Proposed Changes Under the FY 2015 Hospital Value-Based 
Purchasing (VBP) Program

    Section 1886(o)(1)(B) of the Act directs the Secretary to make 
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 2015 through a reduction to 
the FY 2015 base operating DRG payment for each discharge of 1.50 
percent, as required by section 1886(o)(7)(B) of the Act. The 
applicable percentage for FY 2016 is 1.75 percent and for FY 2017 
and subsequent years, it 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 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), the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53567 through 53614), the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50677 through 50707), and the CY 2014 
OPPS/ASC final rule with comment period (78 FR 75120 through 75121) 
for further explanation of the details of the Hospital VBP Program.
    We specifically refer readers to the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53582 through 53592) and the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50678 through 50679), for discussions of the measures 
and other policies that we adopted for the FY 2015 and FY 2016 
Hospital VBP Programs.
    In section IV.I. of the preamble of this proposed rule, we 
estimate the available pool of funds for value-based incentive 
payments in the FY 2015 Hospital VBP Program, which, in accordance 
with section 1886(o)(7)(C)(iii) of the Act, will be 1.50 percent of 
base operating DRG payments, or a total of approximately $1.4 
billion. This estimated available pool for FY 2015 is based on the 
historical pool of hospitals that were eligible to participate in 
the FY 2014 Hospital VBP Program and the payment information from 
the December 2013 update to the FY 2013 MedPAR file. We intend to 
provide an update to this estimate, which will be based on the March 
2014 update to the FY 2013 MedPAR file, in the FY 2015 IPPS/LTCH PPS 
final rule.
    The estimated impacts of the FY 2015 Hospital VBP Program by 
hospital characteristic, found in the table below, are based on 
historical TPSs. We used the FY 2014 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 December 2013 update to the FY 2013 MedPAR 
file. The proxy adjustment factors can be found in Table 16 
associated with this proposed rule (available via the Internet on 
the CMS Web site).
    The impact analysis shows that, for the FY 2015 Hospital VBP 
Program, the number of hospitals that would receive an increase in 
base operating DRG payment amount is slightly lower than the number 
of hospitals that would receive a decrease. Approximately 42 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 New England, South Atlantic, East North 
Central, West North Central, and West South Central regions would 
have an increase, on average, in base operating DRG payment amount, 
and among rural hospitals, those in the New England and East North 
Central regions will have an increase, on average in base operating 
DRG payment amounts.
    Both urban and rural hospitals in the Middle Atlantic, East 
South Central, Mountain, and Pacific regions and rural hospitals in 
the South Atlantic region would receive an average decrease in base 
operating DRG payment amount. As the percent of 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 and teaching hospitals would have an average 
decrease in base operating DRG payment amount.

 Impact Analysis of Base Operating DRG Payment Amount Changes Resulting
                  From the FY 2015 Hospital VBP Program
------------------------------------------------------------------------
                                             Number of
                                             hospitals     Average  (%)
------------------------------------------------------------------------
By Geographic Location:
    All Hospitals.......................           2,728          -0.038
        Large Urban.....................           1,113          -0.021
        Other Urban.....................             910          -0.030
        Rural Area......................             705          -0.074
    Urban hospitals.....................           2,023          -0.025
        0-99 beds.......................             307           0.025
        100-199 beds....................             677          -0.043
        200-299 beds....................             431          -0.032
        300-499 beds....................             401          -0.033
        500 or more beds................             207          -0.010
    Rural hospitals.....................             705          -0.074
        0-49 beds.......................             161          -0.041
        50-99 beds......................             296          -0.088
        100-149 beds....................             148          -0.074

[[Page 28365]]

 
        150-199 beds....................              55          -0.106
        200 or more beds................              45          -0.067
By Region:
    Urban By Region.....................           2,023          -0.025
        New England.....................             112           0.059
        Middle Atlantic.................             279          -0.076
        South Atlantic..................             346           0.002
        East North Central..............             350           0.052
        East South Central..............             121          -0.043
        West North Central..............             134           0.055
        West South Central..............             248           0.003
        Mountain........................             130          -0.085
        Pacific.........................             303          -0.154
    Rural By Region.....................             705          -0.074
        New England.....................              21           0.044
        Middle Atlantic.................              64          -0.150
        South Atlantic..................             136          -0.024
        East North Central..............             114           0.036
        East South Central..............             114          -0.018
        West North Central..............              82          -0.052
        West South Central..............             101          -0.177
        Mountain........................              45          -0.299
        Pacific.........................              28          -0.247
By MCR Percent:
    0-25................................             260          -0.118
    25-50...............................           1,788          -0.033
    50-65...............................             605          -0.016
    Over 65.............................              46           0.003
BY DSH Percent:
    0-25................................           1,253           0.013
    25-50...............................           1,220          -0.063
    50-65...............................             141          -0.121
    Over 65.............................             114          -0.222
BY TEACHING STATUS:
    Teaching............................             933          -0.041
    Non-Teaching........................           1,795          -0.036
------------------------------------------------------------------------

    As stated above, we intend to provide an updated impact analysis 
in the FY 2015 IPPS/LTCH PPS final rule. However, actual FY 2015 
Hospital VBP Program TPSs would not be reviewed and corrected by 
hospitals until after the FY 2015 IPPS/LTCH PPS final rule has been 
published. Therefore, the same historical universe of eligible 
hospitals and corresponding TPSs from the FY 2014 Hospital VBP 
Program will be used for the updated impact analysis. As noted 
above, the updated impact analysis for the final rule will reflect 
estimated annual base operating DRG payment amount changes based on 
the March 2014 update to the FY 2013 MedPAR file.

8. Effects of Proposed Changes to the HAC Reduction Program for FY 2015

    In section IV.J. of the preamble of this proposed 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 discharges occurring on October 1, 2014 
and for subsequent program years.
    We note that hospitals will have a payment impact for the first 
time in FY 2015. 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 table and 
analyses that we are presenting below show the distributional effect 
of the measures and scoring system for the HAC Reduction Program 
included in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 
through 50729).
    For FY 2015, we note that we finalized a Total HAC Score 
methodology in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 
through 50729) 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 FFS discharges from July 2011 through June 
2013, using version 4.5 of the AHRQ software, and CDC measure 
results were used based on Standard Infection Ratios (SIRs) 
calculated with data reported to the National Healthcare Safety 
Network for infections occurring between July 2012 and June 2013. To 
analyze the results by hospital characteristic, the FY 2014 impact 
file were used. Of the 3,337 hospitals included in this analysis, 
3,298 hospitals were included for geographic location, region, DSH 
percent, and teaching status; 3,278 for ownership; and 3,205 for MCR 
percent. These differences in denominator are due to the source of 
the hospital characteristic data. This analysis does not include 
Maryland hospitals as Maryland hospitals are exempt by waiver from 
the HAC Reduction Program in FY 2015.
    The percentage of hospitals for each characteristic (column 3) 
indicates the percent of hospitals in each level of characteristic. 
For example, with regard to geographic region, 39.4 percent of 
hospitals (or 1,301 hospitals) are characterized as large urban; 
32.7 percent of hospitals (or 1,080 hospitals) are characterized as 
other urban; and 27.8 percent of hospitals (or 917 hospitals) are 
characterized as rural. The percentage of hospitals in the worst 
performing quartile (column 5) indicates the proportion of hospitals 
for each characteristic that would be penalized. For example, in 
regards to geographic location, 26.6 percent of hospitals (or 346 
hospitals) characterized

[[Page 28366]]

as large urban would be subject to a payment adjustment; 22.8 
percent of hospitals (or 246 hospitals) characterized as other urban 
would be subject to a payment adjustment; and 17.6 percent of 
hospitals (or 161 hospitals) characterized as rural would be subject 
to a payment adjustment.
    With regard to geographic location of urban hospitals by bed 
size, 17.3 percent of hospitals (or 101 hospitals) characterized as 
urban hospitals with bed size of 0-99 beds would be subject to a 
payment adjustment; 21.1 percent of hospitals (or 152 hospitals) 
characterized as urban hospitals with bed size of 100-199 beds would 
be subject to a payment adjustment; 27.1 percent of hospitals (or 
122 hospitals) characterized as urban hospitals with bed size of 
200-299 beds would be subject to a payment adjustment; 27.1 percent 
of hospitals (or 71 hospitals) characterized as urban hospitals with 
bed size of 300-399 beds would be subject to a payment adjustment; 
37.7 percent of hospitals (or 58 hospitals) characterized as urban 
hospitals with bed size of 400-499 beds would be subject to a 
payment adjustment; and 41.7 percent of hospitals (or 88 hospitals) 
characterized as urban hospitals with bed size of 500 or more beds 
would be subject to a payment adjustment.
    With regard to geographical location of rural hospitals by bed 
size, 15.5 percent of hospitals (or 53 hospitals) characterized as 
rural hospitals with bed size of 0-49 beds would be subject to a 
payment adjustment; 20.6 percent of hospitals (or 66 hospitals) 
characterized as rural hospitals with bed size of 50-99 beds would 
be subject to a payment adjustment; 13.9 percent of hospitals (or 21 
hospitals) characterized as rural hospitals with bed size of 100-149 
beds would be subject to a payment adjustment; 15.3 percent of 
hospitals (or 9 hospitals) characterized as rural hospitals with bed 
size of 150-199 beds would be subject to a payment adjustment; and 
26.7 percent of hospitals (or 12 hospitals) characterized as rural 
hospitals with bed size of 200 or more beds would be subject to a 
payment adjustment.
    With regard to region of urban hospitals, 26.1 percent of 
hospitals (or 31 hospitals) characterized as urban in the New 
England region would be subject to a payment adjustment; 28.2 
percent of hospitals (or 87 hospitals) characterized as urban in the 
Mid-Atlantic region would be subject to a payment adjustment; 24.0 
percent of hospitals (or 89 hospitals) characterized as urban in the 
South Atlantic region would be subject to a payment adjustment; 23.4 
percent of hospitals (or 90 hospitals) characterized as urban in the 
East North Central region would be subject to a payment adjustment; 
22.4 percent of hospitals (or 32 hospitals) characterized as urban 
in the West South Central region would be subject to a payment 
adjustment; 20.5 percent of hospitals (or 33 hospitals) 
characterized as urban in the East North Central region would be 
subject to a payment adjustment; 19.6 percent of hospitals (or 71 
hospitals) characterized as urban in the West South Central region 
would be subject to a payment adjustment; 35.8 percent of hospitals 
(or 57 hospitals) characterized as urban in the Mountain region 
would be subject to a payment adjustment; and 27.4 percent of 
hospitals (or 102 hospitals) characterized as urban in the Pacific 
region would be subject to a payment adjustment.
    With regard to region of rural hospitals, 13.0 percent of 
hospitals (or 3 hospitals) characterized as rural in the New England 
region would be subject to a payment adjustment; 25.8 percent of 
hospitals (or 17 hospitals) characterized as rural in the Mid-
Atlantic region would be subject to a payment adjustment; 15.1 
percent of hospitals (or 24 hospitals) characterized as rural in the 
South Atlantic region would be subject to a payment adjustment; 21.2 
percent of hospitals (or 25 hospitals) characterized as rural in the 
East North Central region would be subject to a payment adjustment; 
13.9 percent of hospitals (or 23 hospitals) characterized as rural 
in the West South Central region would be subject to a payment 
adjustment; 19.2 percent of hospitals (or 20 hospitals) in the East 
North Central region would be subject to a payment adjustment; 14.7 
percent of hospitals (or 26 hospitals) in the West South Central 
region would be subject to a payment adjustment; 24.7 percent of 
hospitals (or 18 hospitals) in the Mountain region would be subject 
to a payment adjustment; and 16.1 percent of hospitals (or 5 
hospitals) in the Pacific region would be subject to a payment 
adjustment.
    With regard to the DSH percent characteristic, 19.6 percent of 
hospitals (or 311 hospitals) characterized in the 0-24 DSH percent 
would be subject to a payment adjustment; 24.1 percent of hospitals 
(or 331 hospitals) characterized in the 25-49 DSH percent would be 
subject to a payment adjustment; 37.6 percent of hospitals (or 68 
hospitals) characterized in the 50-64 DSH percent would be subject 
to a payment adjustment; and 27.2 percent of hospitals (or 43 
hospitals) characterized in the 65 and over DSH percent would be 
subject to a payment adjustment.
    With regard to the teaching status characteristic, 19.0 percent 
of hospitals (or 437 hospitals) characterized as nonteaching would 
be subject to a payment adjustment; 25.0 percent of hospitals (or 
191 hospitals) characterized as fewer than 100 residents would be 
subject to a payment adjustment; and 52.7 percent of hospitals (or 
125 hospitals) characterized as 100 or more residents would be 
subject to a payment adjustment.
    With regard to the urban teaching and DSH characteristic, 34.2 
percent of hospitals (or 277 hospitals) characterized as teaching 
and DSH would be subject to a payment adjustment; 22.1 percent of 
hospitals (or 29 hospitals) characterized as teaching and no DSH 
would be subject to a payment adjustment; 20.4 percent of hospitals 
(or 206 hospitals) characterized as no teaching and DSH would be 
subject to a payment adjustment; 18.6 percent of hospitals (or 80 
hospitals) characterized as no teaching and no DSH would be subject 
to a payment adjustment; and 17.6 percent of hospitals (or 161 
hospitals) characterized as nonurban would be subject to a payment 
adjustment.
    With regard to the type of ownership characteristic, 23.3 
percent of hospitals (or 441 hospitals) characterized as voluntary 
would be subject to a payment adjustment; 19.5 percent of hospitals 
(or 167 hospitals) characterized as proprietary would be subject to 
a payment adjustment; and 26.8 percent of hospitals (or 141 
hospitals) characterized as government would be subject to a payment 
adjustment.
    With regard to the MCR percent characteristic, 37.7 percent of 
hospitals (or 147 hospitals) characterized in the 0-24 MCR percent 
would be subject to a payment adjustment; 23.2 percent of hospitals 
(or 458 hospitals) characterized in the 25-49 MCR percent would be 
subject to a payment adjustment; 15.9 percent of hospitals (or 113 
hospitals) characterized in the 50-64 MCR percent would be subject 
to a payment adjustment; and 10.8 percent of hospitals (or 14 
hospitals) characterized in the 65 and over MCR percent would be 
subject to a payment adjustment.

  Proportion of Hospitals in the Worst Performing Quartile (>75 Percentile) of the Total HAC Score by Hospital
                                                 Characteristic
----------------------------------------------------------------------------------------------------------------
                             Hospital characteristic                                  Hospitals in the worst
---------------------------------------------------------------------------------       performing quartile
                                                                                 -------------------------------
                 Characteristic                      Number of       Percent *       Number of
                                                     hospitals                       hospitals        Percent
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
    All Hospitals:
        Large Urban **..........................           1,301            39.4             346            26.6
        Other Urban.............................           1,080            32.7             246            22.8
        Rural...................................             917            27.8             161            17.6
    Urban Hospitals:                              ..............  ..............  ..............  ..............
        0-99 beds...............................             584            24.5             101            17.3

[[Page 28367]]

 
        100-199 beds............................             720            30.2             152            21.1
        200-299 beds............................             450            18.9             122            27.1
        300-399 beds............................             262            11.0              71            27.1
        400-499.................................             154             6.5              58            37.7
        500 or more beds........................             211             8.9              88            41.7
    Rural Hospitals:
        0-49 beds...............................             341            37.2              53            15.5
        50-99 beds..............................             321            35.0              66            20.6
        100-149 beds............................             151            16.5              21            13.9
        150-199 beds............................              59             6.4               9            15.3
        200 or more beds........................              45             4.9              12            26.7
By Region:
    Urban by Region:
        New England.............................             119             3.6              31            26.1
        Mid-Atlantic............................             308             9.3              87            28.2
        South Atlantic..........................             371            11.2              89            24.0
        East North Central......................             385            11.7              90            23.4
        West South Central......................             143             4.3              32            22.4
        East North Central......................             161             4.9              33            20.5
        West South Central......................             363            11.0              71            19.6
        Mountain................................             159             4.8              57            35.8
        Pacific.................................             372            11.3             102            27.4
    Rural by Region:
        New England.............................              23             0.7               3            13.0
        Mid-Atlantic............................              66             2.0              17            25.8
        South Atlantic..........................             159             4.8              24            15.1
        East North Central......................             118             3.6              25            21.2
        West South Central......................             166             5.0              23            13.9
        East North Central......................             104             3.2              20            19.2
        West South Central......................             177             5.4              26            14.7
        Mountain................................              73             2.2              18            24.7
        Pacific.................................              31             0.9               5            16.1
By DSH Percent:
    0-24........................................           1,588            48.2             311            19.6
    25-49.......................................           1,371            41.6             331            24.1
    50-64.......................................             181             5.5              68            37.6
    65 and over.................................             158             4.8              43            27.2
By Teaching Status:
    Non-teaching................................           2,297            69.6             437            19.0
    Fewer than 100 residents....................             764            23.2             191            25.0
    100 or more residents.......................             237             7.2             125            52.7
By Urban Teaching and DSH:
    Teaching and DSH............................             811            24.6             277            34.2
    Teaching and no DSH.........................             131             4.0              29            22.1
    No teaching and DSH.........................           1,010            30.6             206            20.4
    No teaching and no DSH......................             429            13.0              80            18.6
    Non-urban...................................             917            27.8             161            17.6
By Type of Ownership:
    Voluntary...................................           1,893            57.7             441            23.3
    Proprietary.................................             858            26.2             167            19.5
    Government..................................             527            16.1             141            26.8
By MCR Percent:
    0-24........................................             390            12.2             147            37.7
    25-49.......................................           1,976            61.7             458            23.2
    50-64.......................................             709            22.1             113            15.9
    65 and over.................................             130             4.1              14            10.8
----------------------------------------------------------------------------------------------------------------
* Percents may not sum to 100 due to rounding.
** Large urban hospitals are hospitals located in large urban areas (populations over 1 million).

9. Effects of Proposed Policy Changes Relating to Payments for Direct 
GME and IME

    Under section IV.K.2. of the preamble of this proposed rule, we 
discuss our proposal to simplify and streamline the timing of CMS's 
policies related to when the FTE resident caps, the 3-year rolling 
average, and the IRB ratio cap would become effective for new 
teaching hospitals, by stating that the FTE resident caps, rolling 
average, and IRB ratio cap would be effective simultaneously, 
beginning with the applicable hospital's cost reporting period that 
precedes the start of the 6th program year of the first new program 
started. We are proposing that this policy regarding the effective 
dates of the FTE residency caps, rolling average, and IRB ratio cap 
for FTE residents in new programs would

[[Page 28368]]

be consistent with the methodology for calculation of the FTE 
resident caps as described in the FY 2013 IPPS/LTCH PPS final rule, 
and implemented at 42 CFR 413.79(e)(1) and (3). That is, this 
proposal is effective for urban hospitals that have not yet had FTE 
resident caps established under Sec.  413.79(e)(1), and for rural 
hospitals, on or after October 1, 2012. This proposal would reduce 
the amount of time that the new programs would be exempt from the 
FTE resident caps by several months, depending on the cost reporting 
period of the new teaching hospital. However, depending on the 
length of new programs started and the point during the 5-year 
growth period in which new programs are started, there may also be 
some gain and loss for hospitals in terms of the amount of time that 
the FTEs in the new programs would be exempt from the rolling 
average and the IRB ratio cap. In either case, the estimate of 
possible savings or cost of this proposal is less than $5 million a 
year and therefore, is negligible.
    In section IV.K.3.a. of the preamble of this proposed rule, we 
discuss our proposals related to the effect of new OMB labor market 
area delineations on certain teaching hospitals training residents 
in rural areas. Under existing regulations a new teaching hospital 
has 5 years from when it first begins training residents in its 
first new program to grow its cap. If the teaching hospital is a 
rural teaching hospital, it can continue to receive permanent cap 
adjustments even after the initial 5-year cap-building period ends 
if it trains residents in a new program. As a result of OMB 
redesignations, some teaching hospitals may be redesignated from 
being located in a rural area to an urban area, thereby losing their 
ability to increase their caps again after their initial 5-year cap-
building period. If a rural hospital had started training residents 
in the new program while it was rural and was redesignated as urban 
before the end of the 5-year cap-building period, we are proposing 
that effective for cost reporting periods beginning on or after 
October 1, 2014, it can continue growing that program(s) for the 
remainder of the cap-building period and receive a permanent cap 
adjustment for that new program(s). Once the cap-building period for 
the new program(s) that was started while the hospital was still 
rural expires, the teaching hospital that has been redesignated as 
urban will no longer be able to receive any additional permanent cap 
adjustments.
    In section IV.K.3.b. of the preamble of this proposed rule, we 
discuss our proposal related to a redesignated hospital's 
participation in a rural track program. Under existing regulations, 
if an urban hospital rotates residents to a separately accredited 
rural track program at a rural site(s) for more than one-half of the 
duration of the program, the urban hospital may receive an 
adjustment to its cap for training those FTE residents, referred to 
as the rural track FTE limitation. We are proposing that any time a 
rural hospital participating in a rural track is in an area 
redesignated by OMB as urban after residents started training in the 
rural track and during the period that is used to calculate the 
urban hospital's rural track FTE limitation, the urban hospital may 
still receive a cap adjustment for that rural track. We also are 
proposing that if the rural hospital participating in the rural 
track is in an area redesignated as urban, the redesignated urban 
hospital can continue to be considered a rural hospital for purposes 
of the rural track for up to 2 years. However, within those 2 years, 
either the rural hospital that has been redesignated as urban must 
reclassify as rural under Sec.  412.103 for purposes of IME payment 
only, or the urban hospital must find a new geographically rural 
site to participate as the rural site for purposes of the rural 
track and must be training FTE residents at that new site, in order 
for the urban hospital to receive payment under Sec.  413.79(k)(1) 
or (k)(2) for the rural track program after the 2-year period ends.
    We estimate that the proposals discussed under IV.K.3.a. and b. 
of the preamble of this proposed rule would have a very minimal, if 
any, impact on Medicare expenditures. These proposals would only be 
applied to, at the most, very few hospitals (if any at all) and 
would only apply once every 10 years as a result of OMB changes in 
labor market area delineations due to a recent Census.
    In sections IV.K.5.a. and b. of the preamble of this proposed 
rule, we are proposing some changes to the current application 
process for and awarding of cap slots from closed hospitals under 
section 5506 of the Affordable Care Act that would be effective for 
hospital closures announced on or after October 1, 2014. We are 
proposing an alternative interpretation of the statutory provision 
at section 5506(d) of the Affordable Care Act, which provides that 
the Secretary give consideration to the effect of the permanent 
awarding of slots under section 5506 of the Affordable Care Act to 
any temporary cap adjustments to a hospital received under Sec.  
413.79(h) of the regulations to ensure that there be no duplication 
of FTE cap slots. Currently, when applying this statutory provision 
for no duplication of FTE slots, we look at all of the hospitals 
that are receiving temporary cap adjustments to train displaced 
residents and all of the hospitals that are applying for a permanent 
increase in caps under section 5506 when determining the effective 
date for slots permanently awarded to hospitals under Ranking 
Criterion One and Ranking Criteria Three through Eight. In this 
proposed rule, we are proposing to interpret the statutory language 
at section 5506(d) in a manner that would permit us to apply the 
concept of ensuring no duplication of FTE resident slots on a 
hospital-by-hospital basis, such that if a hospital is both 
receiving a temporary cap adjustment under Sec.  413.79(h) and is 
applying under section 5506 for permanent cap slots, it will not be 
able to receive a permanent cap adjustment until the displaced 
residents graduate. However, if a hospital is applying under section 
5506 for permanent cap slots and did not receive a temporary cap 
adjustment under Sec.  413.79(h), that hospital will not have to 
wait until displaced residents that are training at another hospital 
graduate to be awarded any permanent cap slots under section 5506. 
We estimate that this proposal could result in a slight increase in 
Medicare expenditures in a rare event a section 5506 cap adjustment 
may be provided to one hospital before a temporary cap adjustment 
expires at another hospital. However, we are unable to estimate 
whether this will occur with any future hospital closures where 
section 5506 is applied because we do not know how many, if any, 
residents will be displaced. Furthermore, we believe that any 
temporary duplicate payment would be a rare occurrence as most 
hospitals that are receiving a temporary cap adjustment under Sec.  
413.79(h) will also receive a permanent cap adjustment under section 
5506. In this instance the hospital would only be able to receive 
the permanent cap adjustment once the temporary cap adjustment 
expires in which case there would be no duplication of FTE resident 
slots.
    In addition, under section IV.K.5.c. of the preamble of this 
proposed rule, we are proposing to revise the ranking criteria used 
to award slots under section 5506. First, we are proposing to no 
longer allow hospitals to apply for cap relief, which is included 
under current Ranking Criterion Eight. This proposed change would 
mean that hospitals would be awarded slots under section 5506 for 
taking over a closed hospital's residency training program, having 
participated with a closed hospital in a Medicare GME affiliated 
group, taking over part of a closed hospital's program, expanding or 
starting a new geriatrics program, expanding or starting a new 
primary care or general surgery program, and expanding or starting a 
new nonprimary care or nongeneral surgery program. Second, Ranking 
Criterion One currently applies to hospitals that are assuming (or 
have assumed) an entire program from the hospital that closed. We 
are proposing to revise this Ranking Criterion to provide priority 
to a hospital whose FTE resident caps were erroneously reduced by 
CMS under section 5503 of the Affordable Care Act, contrary to the 
specific statutory exception at section 1886(h)(8)(A)(i)(I) of the 
Act, and the CMS Central Office is made aware of the error prior to 
the posting of this proposed rule. We do not believe there is any 
cost associated with these proposals because we would be assigning 
all of the closed hospital's slots, only the specific hospital 
awarded the slots may change.

10. Effects of Implementation of Rural Community Hospital Demonstration 
Program

    In section IV.L. of the preamble of this proposed rule, we 
discuss our implementation of section 410A of Public Law 108-173, as 
amended, which requires the Secretary to conduct a demonstration 
that would modify reimbursement for inpatient services for up to 30 
rural community hospitals. Section 410A(c)(2) requires that ``[i]n 
conducting the demonstration program under this section, the 
Secretary shall ensure that the aggregate payments made by the 
Secretary do not exceed the amount which the Secretary would have 
paid if the demonstration program under this section was not 
implemented.'' As discussed in section IV.L. of the preamble of this 
proposed rule, in the IPPS final rules for each of the previous 10 
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

[[Page 28369]]

order to achieve budget neutrality, we are proposing to adjust the 
national IPPS rates by an amount sufficient to account for the added 
costs of this demonstration. In other words, we are proposing to 
apply 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 proposing to adjust the national IPPS rates according to 
the methodology set forth elsewhere in this proposed rule. The 
proposed 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 $53,673,008. In addition, in this proposed rule, we are 
proposing to add to the adjustment of the national IPPS rates the 
amount by which the actual costs of the demonstration for FY 2008 
(as shown in the finalized cost reports for cost reporting periods 
beginning in FY 2008 for the hospitals that participated in the 
demonstration during FY 2008) exceed the budget neutrality offset 
amount that was finalized in the FY 2008 IPPS final rule 
($10,389,771). Thus, we are proposing that the resulting total 
($64,062,779) would be the amount for which an adjustment to 
inpatient rates for FY 2015 would be calculated. We also are 
proposing that if settled cost reports for all of the demonstration 
hospitals that participated in the applicable fiscal year (FY 2009, 
2010, or 2011), are made available prior to the FY 2015 IPPS/LTCH 
PPS final rule, we would incorporate into the FY 2015 budget 
neutrality offset amount any additional amounts by which the final 
settled costs of the demonstration for the year (FY 2009, 2010, or 
2011) exceeded the budget neutrality offset amount applicable to 
such year as finalized in the respective year's IPPS final rule.

11. Effects of Proposed Changes Related to Reclassification as Rural 
for CAHs

    In section VI.C.2. of the preamble of this proposed rule, we 
discuss our proposals relating to reclassifications of CAHs as a 
result of the proposed adoption of the new OMB labor market area 
delineations. A facility is eligible for designation as a CAH only 
if it is either physically located in a rural area or has been 
reclassified as rural under 42 CFR 412.103. CAHs can be affected by 
the recent OMB labor market area delineations because facilities 
that are currently participating as CAHs that were previously 
located in rural areas may now be located in urban areas as a result 
of the new delineations. Previously, in both in the FY 2005 IPPS 
final rule and the FY 2010 IPPS/LTCH PPS final rule, we revised the 
regulations to give currently participating CAHs 2 years, from the 
effective date of the earlier OMB designations, to reclassify as 
rural facilities. However, these regulation changes were specific to 
a particular timeframe. As we are proposing implementation of the 
latest OMB labor market area delineations in this proposed rule, we 
are proposing that, effective October 1, 2014, currently 
participating CAHs that are located in an area that has been 
redesignated from rural to urban under the new delineations will 
again be treated as rural for 2 years from the date the new OMB 
delineations are implemented. An affected CAH would have 2 years 
from the date the redesignation becomes effective to reclassify as 
rural and thereby retain its CAH status. If a CAH fails to 
reclassify within those 2 years, it can no longer participate in 
Medicare as a CAH. However, unlike in previous years when the 
regulation changes were specific to a particular timeframe, the 
change that we are proposing to the regulations is not specific to a 
particular timeframe but would also apply to future OMB labor market 
area delineations. We estimate that this proposal will have little 
or no impact on Medicare expenditures because we expect that 
virtually all of the affected CAHs will be granted rural status by 
the State in which they are located and, therefore, will be able to 
apply for reclassification as rural under Sec.  412.103 in order to 
retain their CAH status.

12. Effects of Proposed Revision of the Requirements for Physician 
Certification of CAH Inpatient Services

    In section VI.C.3. of the preamble of this proposed rule, we 
discuss the statutory requirement for physician certification of CAH 
inpatient services. For inpatient CAH services to be payable under 
Medicare Part A, section 1814(a)(8) of the Act requires that a 
physician certify that the individual may reasonably be expected to 
be discharged or transferred to a hospital within 96 hours after 
admission to the CAH. These statutory requirements are addressed in 
the regulations at 42 CFR 424.15. In order to provide CAHs with 
greater flexibility in meeting this certification requirement, we 
are proposing to amend the regulations governing the timing of the 
96-hour certification requirement at Sec.  424.15(b) such that 
physician certification is required no later than 1 day before the 
date on which the claim for payment for the inpatient CAH service is 
submitted. We also are proposing to revise Sec.  424.11(d)(5) to 
remove the phrase ``or critical access hospital inpatient''. We do 
not believe there is any significant impact on Medicare expenditures 
associated with these proposed changes because we are simply 
proposing to provide CAHs with additional flexibility in meeting the 
statutory requirement. The underlying statutory requirement itself 
is unchanged.

13. Effects of Proposed Changes Relating to Administrative Appeals by 
Providers and Judicial Review for Appropriate Claims in Provider Cost 
Reports

    In section VIII. of the preamble to this proposed rule, we 
discuss our proposal to require a provider to include an appropriate 
claim for an item in its Medicare cost report with the penalty for 
the failure to do so being the preclusion of payment for the item in 
the notice of program reimbursement (NPR) issued by the fiscal 
intermediary and in any decision or order issued by a reviewing 
entity in an administrative appeal filed by the provider. The 
proposal also would revise the Medicare provider appeals regulations 
by eliminating the requirement that a provider must include an 
appropriate claim for an item in its Medicare cost report in order 
to meet the dissatisfaction requirement for Provider Reimbursement 
Review Board jurisdiction and would make technical corrections to 
the provider reimbursement appeals regulations to conform the 
regulations to the statute. There is no impact to the provider 
resulting from these proposed provisions.

I. Effects of Proposed Update to the Reasonable Compensation 
Equivalent (RCE) Limits for Compensation for Physician Services 
Provided in Providers

    In section VI.B. of the preamble of this proposed rule, we 
discuss our proposal to update and revise the methodology used to 
calculate the reasonable compensation equivalent (RCE) limits for 
compensation for physician services provided in providers, in 
accordance with our regulations at 42 CFR 415.70(f)(2). For CY 2015, 
we estimate that 59 cancer and children's hospitals and 46 IPPS 
teaching hospitals would be subject to the RCE limits. We estimate 
the costs associated with the updated RCE limits for CY 2015 to be 
approximately $40 million. We do not expect this proposed RCE limit 
update to impact a significant number of small, rural entities; 
therefore, a full impact analysis is not required.

J. Effects of Proposed Changes in the Capital IPPS

1. General Considerations

    For the impact analysis presented below, we used data from the 
December 2013 update of the FY 2013 MedPAR file and the December 
2013 update of the Provider-Specific File (PSF) that is used for 
payment purposes. Although the analyses of the proposed changes to 
the capital prospective payment system do not incorporate cost data, 
we used the December 2013 update of the most recently available 
hospital cost report data (FYs 2011 and 2012) 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 
proposed 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 December 2013 update of the FY 2013 MedPAR 
file, we simulated payments under the capital IPPS for FY 2014 and 
FY 2015 for a comparison

[[Page 28370]]

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 2015 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 2014 and 2015.
     We estimate that Medicare discharges will be 
approximately 12.2 million in FY 2014 and 12.6 million in FY 2015.
     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 proposed rule, the proposed update is 1.5 
percent for FY 2015.
     In addition to the proposed FY 2015 update factor, the 
proposed FY 2015 capital Federal rate was calculated based on a 
proposed GAF/DRG budget neutrality adjustment factor of 0.9957 and a 
proposed outlier adjustment factor of 0.9374. As discussed in 
section VI.C. of the preamble of this proposed rule, we are not 
proposing to make an additional MS-DRG documentation and coding 
adjustment to the capital IPPS Federal rates for FY 2015.

2. Results

    We used the actuarial model described above to estimate the 
potential impact of our proposed changes for FY 2015 on total 
capital payments per case, using a universe of 3,388 hospitals. As 
described above, the individual hospital payment parameters are 
taken from the best available data, including the December 2013 
update of the FY 2013 MedPAR file, the December 2013 update to the 
PSF, and the most recent cost report data from the December 2013 
update of HCRIS. In Table III, we present a comparison of estimated 
total payments per case for FY 2014 and estimated total payments per 
case for FY 2015 based on the proposed FY 2015 payment policies. 
Column 2 shows estimates of payments per case under our model for FY 
2014. Column 3 shows estimates of payments per case under our model 
for FY 2015. Column 4 shows the total percentage change in payments 
from FY 2014 to FY 2015. The change represented in Column 4 includes 
the proposed 1.5 percent update to the capital Federal rate and 
other proposed 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 2015 are expected to increase as compared to capital 
payments per case in FY 2014. This expected increase is due 
primarily to the approximately 0.9 percent increase in the proposed 
capital Federal rate for FY 2015 as compared to the FY 2014 capital 
Federal rate. Overall, across all hospitals, the proposed changes to 
the GAFs are expected to have no net effect on capital payments. 
However, regionally, the effects of the proposed changes to the GAFs 
on capital payments are consistent with the projected changes in 
payments due to proposed changes in the wage index (and proposed 
policies affecting the wage index) as shown in Table I in section 
I.G. of this Appendix.
    Overall, there is an increase in capital payments per case due 
to the effects of proposed changes to the MS-DRG reclassifications 
and recalibrations, with more of this increase expected for urban 
hospitals. However, this increase is offset by projected changes in 
outlier payments, with rural areas expected to experience more of 
this offset.
    The net impact of these proposed changes is an estimated 1.2 
percent change in capital payments per case from FY 2014 to FY 2015 
for all hospitals (as shown below in Table III).
    The geographic comparison shows that, on average, with the 
exception of hospitals in the Rural Mountain area, most hospitals 
are expected to experience an increase in capital IPPS payments per 
case in FY 2015 as compared to FY 2014. As we stated above, these 
expected increases are primarily due to the proposed increase in the 
capital Federal rate. Capital IPPS payments per case for hospitals 
in ``large urban areas'' are expected to have an estimated increase 
of 1.4 percent, while hospitals in rural areas, on average, are 
expected to experience a 0.7 percent increase in capital payments 
per case from FY 2014 to FY 2015. Capital IPPS payments per case for 
``other urban hospitals'' are estimated to increase 1.2 percent. The 
primary factor contributing to the difference in the proposed 
projected increase in capital IPPS payments per case for urban 
hospitals as compared to rural hospitals is the proposed increase in 
capital payments to urban hospitals due to proposed changes to the 
MS-DRG relative weights. This projected increase is slightly lower 
for rural hospitals.
    The comparisons by region show that the estimated increases in 
capital payments per case from FY 2014 to FY 2015 in urban areas 
range from a 2.0 percent increase for the Pacific urban region to a 
0.8 percent increase for the East South Central urban region, and a 
0.6 percent increase for the Puerto Rico urban region. For rural 
regions, the Pacific rural region is expected to experience the 
largest increase in capital IPPS payments per case of 1.9 percent, 
while the Mountain rural region is the only region projected to have 
a decrease in capital payments per case, 0.1 percent, compared to FY 
2014 payments per case. Unlike most other urban and rural regions 
where proposed changes in the GAFs contribute to a projected 
decrease in capital payments, the proposed changes in the GAFs 
contribute to an expected increase in capital IPPS payments per case 
for the Pacific urban and rural regions. A larger than average 
decrease in capital payments per case for the Mountain rural area 
due to the proposed change in outliers offset the projected 
increases to that area's capital payments per case in FY 2015 
compared to FY 2014.
    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 2014 to FY 2015. The proposed increase in capital payments 
for proprietary hospitals is estimated at 1.2 percent; for voluntary 
hospitals, at 1.3 percent. Government hospitals are estimated to 
experience a 1.1 percent increase in capital payments per case from 
FY 2014 to FY 2015.
    Section 1886(d)(10) of the Act established the MGCRB. Hospitals 
may apply for reclassification for purposes of the wage index for FY 
2015. 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 proposed rule for FY 2015, we show the average 
capital payments per case for reclassified hospitals for FY 2015. 
Urban reclassified hospitals are expected to experience an increase 
in capital payments of 1.5 percent, whereas for urban 
nonreclassified hospitals, the expected increase is 1.2 percent. The 
estimated percentage increase for rural reclassified hospitals is 
0.7 percent, and for rural nonreclassified hospitals, the estimated 
percentage increase is 0.3 percent. Other reclassified hospitals 
(that is, hospitals reclassified under section 1886(d)(8)(B) of the 
Act) are expected to experience the largest increase (2.2 percent) 
in capital payments from FY 2014 to FY 2015.

[[Page 28371]]



                                Table III--Comparison of Total Payments per Case
                                 [FY 2014 payments compared to FY 2015 payments]
----------------------------------------------------------------------------------------------------------------
                                          Number of       Average FY 2014    Average FY 2015
                                          hospitals        payments/case      payments/case          Change
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
    All hospitals...................              3,388                848                859                1.2
        Large urban areas                         1,395                936                948                1.4
         (populations over 1
         million)...................
        Other urban areas                         1,147                817                827                1.2
         (populations of 1 million
         or fewer)..................
        Rural areas.................                846                577                581                0.7
    Urban hospitals.................              2,542                882                893                1.3
        0-99 beds...................                655                728                732                0.5
        100-199 beds................                788                761                770                1.2
        200-299 beds................                469                810                821                1.4
        300-499 beds................                417                902                915                1.4
        500 or more beds............                213              1,056              1,070                1.3
    Rural hospitals.................                846                577                581                0.7
        0-49 beds...................                325                470                473                0.6
        50-99 beds..................                298                534                537                0.5
        100-149 beds................                136                575                579                0.7
        150-199 beds................                 50                640                645                0.8
        200 or more beds............                 37                704                711                0.9
By Region:
    Urban by Region.................              2,542                882                893                1.3
        New England.................                120                974                985                1.2
        Middle Atlantic.............                324                946                963                1.7
        South Atlantic..............                406                796                805                1.1
        East North Central..........                397                848                856                0.9
        East South Central..........                153                758                764                0.8
        West North Central..........                162                876                887                1.3
        West South Central..........                385                816                824                0.9
        Mountain....................                159                906                916                1.1
        Pacific.....................                384              1,111              1,133                2.0
        Puerto Rico.................                 52                406                408                0.6
    Rural by Region.................                846                577                581                0.7
        New England.................                 22                802                812                1.2
        Middle Atlantic.............                 57                562                569                1.3
        South Atlantic..............                132                550                551                0.2
        East North Central..........                115                601                606                0.8
        East South Central..........                165                530                534                0.7
        West North Central..........                102                613                617                0.6
        West South Central..........                168                511                513                0.5
        Mountain....................                 61                651                650               -0.1
        Pacific.....................                 24                742                756                1.9
        Puerto Rico.................                  0                  0                  0                0.0
By Payment Classification:
    All hospitals...................              3,388                848                859                1.2
    Large urban areas (populations                  794                879                889                1.1
     over 1 million)................
    Other urban areas (populations                1,764                882                894                1.4
     of 1 million or fewer).........
    Rural areas.....................                830                588                591                0.5
Teaching Status:
    Non-teaching....................              2,352                722                730                1.1
    Fewer than 100 Residents........                792                831                841                1.3
    100 or more Residents...........                244              1,196              1,213                1.4
Urban DSH:
    100 or more beds................              1,591                902                914                1.3
    Less than 100 beds..............                366                635                639                0.8
Rural DSH:
    Sole Community (SCH/EACH).......                388                521                524                0.6
    Referral Center (RRC/EACH)......                212                649                653                0.6
Other Rural:
    100 or more beds................                 24                548                546               -0.3
    Less than 100 beds..............                125                459                461                0.4
Urban teaching and DSH:
    Both teaching and DSH...........                842                980                993                1.3
    Teaching and no DSH.............                133                884                897                1.6
    No teaching and DSH.............              1,115                754                763                1.3
    No teaching and no DSH..........                468                791                798                0.9
Rural Hospital Types:
    Non special status hospitals....              2,576                882                893                1.2
    RRC/EACH........................                197                717                730                1.8
    SCH/EACH........................                325                619                624                0.8
    SCH, RRC and EACH...............                125                704                710                0.9

[[Page 28372]]

 
Hospitals Reclassified by the
 Medicare Geographic Classification
 Review Board:
FY2015 Reclassifications:
    All Urban Reclassified..........                533                883                896                1.5
    All Urban Non-Reclassified......              1,858                890                901                1.2
    All Rural Reclassified..........                271                615                620                0.7
    All Rural Non-Reclassified......                379                541                543                0.3
    Other Reclassified Hospitals                     60                574                587                2.2
     (Section 1886(d)(8)(B))........
Type of Ownership:
    Voluntary.......................              1,925                861                872                1.3
    Proprietary.....................                883                770                779                1.2
    Government......................                540                886                895                1.1
Medicare Utilization as a Percent of
 Inpatient Days:
    0-25............................                445              1,069              1,082                1.3
    25-50...........................              2,004                865                876                1.3
    50-65...........................                718                704                713                1.2
    Over 65.........................                131                560                565                0.9
----------------------------------------------------------------------------------------------------------------

K. Effects of Proposed Payment Rate Changes and Policy Changes 
Under the LTCH PPS

1. Introduction and General Considerations

    In section VII. of the preamble of this proposed rule and 
section V. of the Addendum to this proposed rule, we set forth the 
proposed annual update to the payment rates for the LTCH PPS for FY 
2015. In the preamble of this proposed rule, we specify the 
statutory authority for the proposed provisions that are presented, 
identify those proposed policies, and present rationales for our 
proposed decisions as well as alternatives that were considered. In 
this section of Appendix A to this proposed rule, we discuss the 
impact of the proposed changes to the payment rate, factors, and 
other payment rate policies related to the LTCH PPS that are 
presented in the preamble of this proposed rule in terms of their 
estimated fiscal impact on the Medicare budget and on LTCHs.
    Currently, there are 422 LTCHs included in this impacts 
analysis, which includes data for 91 nonprofit (voluntary ownership 
control) LTCHs, 288 proprietary LTCHs, and 43 LTCHs that are 
government-owned and operated. (We note that although there are 
currently approximately 435 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 proposed FY 2015 MS-LTC-DRG 
relative weights (discussed in section VII.B.3.c. of the preamble of 
this proposed rule)). In the impact analysis, we used the proposed 
payment rate, factors, and policies presented in this proposed rule, 
including the proposed 2.1 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 proposed final year of the phase-in of a one-
time prospective adjustment factor of 0.98734 (approximately -1.3 
percent), the proposed update to the MS-LTC-DRG classifications and 
relative weights, the proposed update to the wage index values, 
including the proposed implementation of the new OMB delineations, 
and labor-related share, and the best available claims and CCR data 
to estimate the change in payments for FY 2015. (As discussed in 
section VII.C. of the preamble of this proposed rule, in accordance 
with section 1886(m)(5)(C) of the Act, for LTCHs that fail to submit 
quality data, the proposed annual update to the LTCH PPS standard 
Federal rate is reduced by 2.0 percentage points in FY 2015.)
    The standard Federal rate for FY 2014 is $40,607.31 for LTCHs 
that submit quality data in accordance with the requirements of 
section 1886(m)(5)(C) of the Act. For FY 2015, we are proposing to 
establish a standard Federal rate of $40,943.51 for LTCHs that 
submit quality data in accordance with the requirements of section 
1886(m)(5)(C) of the Act, which reflects the proposed 2.1 percent 
annual update to the standard Federal rate, and the proposed area 
wage budget neutrality factor of 1.0002034 to ensure that the 
proposed changes in the wage index, including the proposed 
implementation of the new OMB delineations, and labor-related share 
do not influence aggregate payments, and the proposed final year of 
the phase-in of a one-time prospective adjustment factor of 0.98734. 
For LTCHs that fail to submit data for the LTCHQR Program, in 
accordance with section 1886(m)(5)(C) of the Act, we are proposing 
to establish a standard Federal rate of $40,141.47. This reduced 
standard Federal rate reflects the proposed updates described above 
in addition to a 2.0 percentage point to the annual update for 
failure to submit data to the LTCHQR Program. We note that the 
proposed factors described above to determine the proposed FY 2015 
standard Federal rate are applied to the FY 2014 Federal standard 
rate set forth under Sec.  412.523(c)(3)(ix)(A) (that is, 
$40,607.31).
    Based on the best available data for the 422 LTCHs in our 
database, we estimate that the proposed annual update to the 
standard Federal rate for FY 2015, including the reduced updated for 
LTCHs that fail to submit quality data in accordance with the 
requirements of the LTCHQR Program (discussed in section V.A.2. of 
the Addendum to this proposed rule) and the proposed changes to the 
area wage adjustment for FY 2015 (discussed in section V.B. of the 
Addendum to this proposed rule), in addition to an estimated 
decrease in HCO payments would result in an increase in estimated 
payments from FY 2014 of approximately $44 million. Based on the 422 
LTCHs in our database, we estimate that the FY 2015 LTCH PPS 
payments would be approximately $5.594 billion, as compared to 
estimated FY 2014 LTCH PPS payments of approximately $5.550 billion. 
Because the combined distributional effects and estimated changes to 
the Medicare program payments are over approximately $100 million, 
this proposed rule is considered a major economic rule, as defined 
in this section. We note that the approximate $44 million for the 
projected increase in estimated aggregate proposed LTCH PPS payments 
from FY 2014 to FY 2015 does not reflect changes in LTCH admissions 
or case-mix intensity in estimated LTCH PPS payments, which also 
will affect overall payment changes.
    The projected 0.8 percent increase in estimated proposed 
payments per discharge from FY 2014 to FY 2015 is attributable to 
several factors, including the proposed 2.1 percent annual update to 
the standard Federal rate (or 0.1 percent annual update for LTCHs 
that failed to submit data under the requirements of the LTCHQR 
Program), a proposed one-time prospective adjustment factor for FY 
2015 of 0.98734 (approximately -1.3 percent), and projected 
decreases in estimated HCO payments. Although the net effect of the 
proposed 2.1 percent annual update and the approximate -1.3 percent 
proposed one-time prospective adjustment factor is approximately 0.8 
percent (that is, 2.1 percent -1.3 percent = 0.8 percent), Table IV 
(column 6) shows the estimated change attributable solely to the 
proposed

[[Page 28373]]

annual update to the standard Federal rate (2.1 percent for LTCHs 
that submit quality data under the requirements of the LTCHQR 
Program and 0.1 percent for LTCHs that failed submit quality data 
under the requirements of the LTCHQR Program), including a proposed 
one-time prospective adjustment factor for FY 2015 under the final 
year of the phase-in (approximately 1.3 percent), is projected to 
result in an increase of 0.7 percent in payments per discharge from 
FY 2014 to FY 2015, on average, for all LTCHs. In addition to the 
proposed 2.1 percent annual update for FY 2015 (or 0.1 percent 
annual update for LTCHs that failed to submit data under the LTCHQR 
Program), and a proposed -1.3 percent one-time prospective 
adjustment factor for FY 2015, this estimated increase in aggregate 
LTCH PPS payments of 0.7 percent shown in column 6 of Table IV 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 proposed standard 
Federal rate is slightly less than the net effect of the proposed 
2.1 percent annual update and the approximate -1.3 percent proposed 
one-time prospective adjustment factor (or 0.8 percent) for FY 2015. 
Because we are proposing to apply an area wage level budget 
neutrality factor to the standard Federal rate, the proposed annual 
update to the wage data, including the proposed implementation of 
the new OMB delineations, and labor-related share does not impact 
the increase in aggregate payments.
    As discussed in section V.B. of the Addendum to this proposed 
rule, we are proposing to update the wage index values for FY 2015 
based on the most recent available data and the proposed adoption of 
the new OMB labor market area delineations. Under our proposal to 
adopt the new OMB delineations, we are proposing a transitional 
blended wage index for FY 2015 for LTCH's that would have a lower 
wage index value under those delineations, as discussed in section 
VII.D.2. of the preamble of this proposed rule. Therefore, this 
column reflects the proposed blended wage index that is calculated 
as a 50/50 blend of the wage index under the current CBSA 
designations and the wage index under the new OMB delineations under 
our proposed transitional wage index policy. In addition, we are 
proposing a slight increase to the labor-related share from 62.537 
percent to 62.571 percent under the LTCH PPS for FY 2015, 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 proposing to 
apply an area wage level budget neutrality factor of 1.0002034, 
which increases the proposed standard Federal rate by approximately 
0.02 percent. Therefore, the proposed changes to the wage data, 
including the proposed adoption of the new OMB delineations, and 
labor-related share do not result in a change in estimated aggregate 
LTCH PPS payments.
    Table IV below shows the impact of the proposed payment rate and 
the proposed policy changes on LTCH PPS payments for FY 2015 
presented in this proposed rule by comparing estimated FY 2014 
payments to estimated FY 2015 payments. The projected increase in 
payments from FY 2014 to FY 2015 of 0.8 percent is attributable to 
the impacts of the proposed change to the standard Federal rate (0.7 
percent in Column 6) and the effect of the estimated slight decrease 
in proposed payments for HCO cases (0.1 percent) and an estimated 
increase in payments for SSO cases (0.2 percent). We currently 
estimate total HCO payments are projected to decrease slightly from 
FY 2014 to FY 2015 in order to ensure that the estimated HCO 
payments would be 8 percent of the total estimated LTCH PPS payments 
in FY 2015. An analysis of the most recent available LTCH PPS claims 
data (that is, FY 2013 claims data from the December 2013 update of 
the MedPAR file) indicates that the FY 2014 HCO threshold of $13,314 
(as established in the FY 2014 IPPS/LTCH PPS final rule) may result 
in HCO payments in FY 2015 that are slightly above the estimated 8 
percent. Specifically, we currently estimate that HCO payments would 
be approximately 8.1 percent of the estimated total LTCH PPS 
payments in FY 2014. We estimate that the impact of the slight 
decrease in HCO payments would result in approximately a 0.1 percent 
decrease in estimated payments from FY 2014 to FY 2015, on average, 
for all LTCHs. Furthermore, in calculating the estimated HCO 
payments for FYs 2014 and 2015, 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 2015 is an estimated change in aggregate 
payments of 0.1 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 2015 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 60 percent) 
are based on the estimated cost of the case.
    In addition to the projected increase in LTCH PPS payments per 
discharge of approximately $44 million (0.8 percent) from FY 2014 to 
FY 2015, as shown in Table IV below, we also estimate that the net 
effect of the projected impact of certain other proposed LTCH PPS 
policy changes (that is, the reinstatement of the moratorium on the 
full implementation of the ``25-percent policy'' payment adjustment; 
the reinstatement of the moratorium on the development of new LTCHs 
and LTCH satellite facilities and additional LTCH beds; the proposed 
revision of the ``greater than 3-day interruption of stay'' policy; 
the proposed revocation of on-site discharges and readmissions 
policy; and the proposed payment adjustment for ``subclause (II)'' 
LTCHs) would result in a $14 million decrease in aggregate LTCH PPS 
payments in FY 2015. The individual impact of these proposed policy 
changes are discussed in greater detail below in section I.K.3.b. of 
this Appendix.
    As we discuss in detail throughout this proposed rule, based on 
the most recent available data, we believe that the provisions of 
this proposed rule relating to the LTCH PPS would result in an 
increase in estimated aggregate LTCH PPS payments and that the 
resulting LTCH PPS payment amounts would 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 0.7 percent increase in estimated payments per 
discharge for FY 2015 as compared to FY 2014 for rural LTCHs that 
would result from the proposed changes presented in this proposed 
rule, as well as the effect of estimated changes to HCO and SSO 
payments. This estimated impact is based on the data for the 22 
rural LTCHs in our database (out of 422 LTCHs) for which complete 
data were available.
    The estimated increase in LTCH PPS payments from FY 2014 to FY 
2015 for rural LTCHs (0.7 percent) is slightly less than the 
national average increase (0.8 percent). The estimated increase in 
LTCH PPS payments from FY 2014 to FY 2015 for rural LTCHs is 
primarily due to the proposed 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 
2015 compared to FY 2014.

3. Anticipated Effects of Proposed 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.K.1. of this Appendix, we 
project an increase in aggregate LTCH PPS payments per discharge in 
FY 2015 relative to FY 2014 of approximately $44 million based on 
the 422 LTCHs in our database. In addition, as discussed below in 
section I.K.3.b. of this Appendix, we also estimate that the net 
effect of the projected impact of certain other proposed LTCH PPS 
policy changes would result in a $14 million decrease in aggregate 
LTCH PPS payments in FY 2015.

b. Impact of Certain Proposed LTCH PPS Policy Changes

    (1) Proposed Reinstatement of the Moratorium on the Full 
Implementation of the ``25-Percent Policy'' Payment Adjustment 
(Sec.  412.534 and Sec.  412.536) and Proposed Reinstatement of the 
Moratorium on the

[[Page 28374]]

Development of New LTCHs and LTCH Satellites and Additional LTCH 
beds (Sec.  412.23(e) and Sec. Sec.  412.23(e)(6) and (7))
    Section 1206(b) of Public Law 113-67 provides for the 
retroactive reinstatement and extension, for an additional 4 years, 
of the moratorium on the full implementation of the 25-percent 
threshold payment adjustment (referred to as the ``25-percent 
policy'' payment adjustment) established under 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. As discussed in 
section VII.E. of the preamble of this proposed rule, we are 
proposing to reinstate this payment adjustment retroactively for 
LTCH cost reporting periods beginning on or after July 1, 2013 or 
October 1, 2013, as applicable under the regulations at Sec.  
412.534 and Sec.  412.536.
    Section 1206(b)(2) of Public Law 113-67, as amended by section 
112(b) of the Protecting Access to Medicare Act of 2-14 (Pub. L. 
113-93), provides for moratoria on the establishment of new LTCHs 
and LTCH satellite facilities and on bed increases in LTCHs 
effective for the period beginning April 1, 2014, and ending 
September 30, 2017. This statutory provision also provides specific 
exceptions to the moratorium on the establishment of new LTCHs and 
LTCH satellites. We are proposing to implement this policy under the 
regulations at Sec.  412.23(e) and Sec. Sec.  412.23(e)(6) and (7), 
respectively. For additional details, refer to section VII.G. of the 
preamble of this proposed rule.
    Our Office of the Actuary projects that the reinstatement of 
``25-percent policy'' adjustment policy would result in 
approximately a $120 million increase in aggregate LTCH PPS payments 
in FY 2015. In addition, our Office of the Actuary projects that the 
portion of the moratoria on the establishment of new LTCHs and LTCH 
satellite facilities and additional LTCH beds that would occur 
during FY 2015 is estimated to result in approximately a $30 million 
reduction in aggregate LTCH PPS payments in FY 2015. Therefore, we 
project our proposed implementation of both of these statutory 
provisions would result in approximately a $90 million increase in 
aggregate LTCH PPS payments in FY 2015.

(2) Proposed Revision of the ``Greater than 3-Day Interruption of 
Stay'' Policy (Sec.  412.531) and Proposed Revocation of On-Site 
Discharges and Readmissions Policy (Sec.  412.532)

    The LTCH greater than 3-day interruption of stay policy under 
Sec.  412.531 is a payment adjustment that is applied when during 
the course of an LTCH hospitalization, a patient is discharged to an 
inpatient acute care hospital, an IRF, or a SNF for treatment or 
services not available at the LTCH for a specified period followed 
by readmittance to the same LTCH. Specifically, under this policy, 
we established specific fixed-day thresholds, which apply to the 
days away from the LTCH, depending upon the intervening provider. If 
the stay is an ``interrupted stay,'' that is, the patient returned 
to the LTCH within the threshold number of days, payment for both 
``halves'' of the LTCH discharge is ``bundled,'' and Medicare makes 
one payment based on the second date of discharge. As discussed in 
section VII.F. of the preamble of this proposed rule, we are 
proposing to revise the fixed-day thresholds under the ``greater 
than 3-day interruption of stay policy'' to apply a uniform 30-day 
threshold as an ``acceptable standard'' for determining a linkage 
between an index discharge and a readmission.
    As also discussed in section VII.F. of the preamble of this 
proposed rule, we also are proposing to remove the discharge and 
readmission requirement specified in the regulations under Sec.  
412.532 (referred to as the ``5-percent payment threshold''). Under 
the ``5-percent payment threshold'' policy, if an LTCH (or a LTCH 
satellite facility) directly readmits more than 5 percent of its 
total Medicare inpatients discharged from an ``on-site facility'' 
(for example, a co-located acute care hospital, an IRF, or a SNF, or 
a in the case of a LTCH satellite facility, that is co-located with 
an LTCH), all such discharges to the co-located ``on-site facility'' 
and the readmissions to the LTCH are treated as one discharge for 
that cost reporting period, and, as such, one LTCH PPS payment is 
made on the basis of each patient's initial principal diagnosis.
    We estimate that the proposed revision to the greater than 3-day 
interruption of stay policy under Sec.  412.531 would result in a 
reduction in aggregate LTCH PPS payments of approximately $130 
million for FY 2015, if the proposal to apply a uniform 30-day 
threshold is finalized. We also estimate that the proposed 
discontinuation of the ``5-percent payment threshold'' policy would 
result in an increase of approximately $20 million in aggregate LTCH 
PPS payments in FY 2015. Accordingly, our Office of the Actuary 
projects that, together, these proposed policy revisions are 
estimated to decrease aggregate LTCH PPS payments in FY 2015 by 
approximately $110 million.

(3) Proposed Payment Adjustment for ``Subclause (II)'' LTCHs (proposed 
Sec.  412.526)

    Section 1206(d) of Public Law 113-67 requires the Secretary to 
evaluate payments and regulations governing ``hospitals which are 
classified under subclause (II) of subsection (d)(1)(B)(iv)''. In 
addition, based on the result of such evaluations, the statute 
authorizes the Secretary to adjust the payment rates for this type 
of hospital and to adjust regulations governing a subclause (II) 
LTCH that otherwise apply to subclause (I) LTCHs. As discussed in 
section VII.H. of the preamble of this proposed rule, under new 
Sec.  412.526, we are proposing to apply a payment adjustment under 
the LTCH PPS to a subclause (II) LTCH beginning in FY 2015 that 
would result in payments to this type of LTCH resembling those under 
the reasonable cost TEFRA payment system model. Our Office of the 
Actuary projects that, if the proposed payment adjustment for 
``subclause (II)'' LTCHs is finalized, it would increase aggregate 
LTCH PPS payments in FY 2015 by approximately $6 million.

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, a 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 proposed changes to the LTCH PPS 
payments presented in this proposed rule on different categories of 
LTCHs for FY 2015, it is necessary to estimate payments per 
discharge for FY 2014 using the rates, factors (including the FY 
2014 GROUPER (Version 31.0), and relative weights and the policies 
established in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50753 
through 50760 and 51002). It is also necessary to estimate the 
payments per discharge that would be made under the proposed LTCH 
PPS rates and factors, and GROUPER (proposed Version 32.0) for FY 
2015 (as discussed in section VII. of the preamble of this proposed 
rule and section V. of the Addendum to this proposed rule). These 
estimates of FY 2014 and FY 2015 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 proposed change in 
estimated FY 2014 payments to estimated FY 2015 payments (on a per 
discharge basis) for each category of LTCHs. We are proposing to 
establish a standard Federal rate for FY 2015 of $40,943.51 (for 
LTCHs that submit quality data under the requirements of the LTCHQR 
Program), which includes the proposed 2.1 percent annual update, the 
proposed area wage budget neutrality factor of 1.0002304, and a 
proposed one-time prospective adjustment to the standard Federal 
rate for FY 2015 of 0.98734 (approximately -1.3 percent). For LTCHs 
that fail to submit data to the LTCH Quality Reporting Program, we 
are proposing to establish a standard Federal rate for FY 2015 of 
$40,141.47 that includes a 2.0 percentage point reduction applied to 
the proposed annual update under the requirements of section 
1886(m)(5)(C) of the Act in addition to the other proposed 
adjustments noted above.
    Hospital groups were based on characteristics provided in the 
OSCAR data, FY 2010 through FY 2012 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 proposed payment rates and policy 
changes among the various categories of existing providers, we used 
LTCH cases from the FY 2013 MedPAR file to estimate payments for FY 
2014 and to estimate payments for FY 2015 for 422 LTCHs. We believe 
that the discharges based on the FY 2013 MedPAR data for the 422 
LTCHs in our database, which includes 288 proprietary LTCHs, provide 
sufficient representation in the MS-LTC-DRGs containing discharges 
for patients who

[[Page 28375]]

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 2013 MedPAR files. For modeling 
estimated LTCH PPS payments for FY 2014, we used the FY 2014 
standard Federal rate (that is, $40,607.31 for LTCHs that submit 
quality data under the requirements of the LTCHQR Program and 
$39,808.74 for LTCHs that failed to submit quality data under the 
requirements of the LTCHQR Program) used to make payments for LTCH 
discharges occurring on or after October 1, 2013 through September 
30, 2014).
    For modeling estimated proposed LTCH PPS payments for FY 2015, 
we used the proposed FY 2015 standard Federal rate of $40,943.51 
(for LTCHs that submit quality data under the requirements of the 
LTCHQR Program), which includes a proposed one-time prospective 
adjustment of 0.98734 for FY 2015 for the final year of the 3-year 
phase-in. For LTCHs that we project to have failed to submit the 
requisite quality data for FY 2015 under the LTCH Quality Reporting 
Program, we used the proposed FY 2015 standard Federal rate of 
$40,141.47, which reflects the 2.0 percentage points reduction 
required by section 1886(m)(5)(C)of the Act. The proposed FY 2015 
standard Federal rates also include the proposed application of an 
area wage level budget neutrality factor of 1.0002034 (as discussed 
in section V.B.5. of the Addendum to this proposed rule). 
Furthermore, in modeling estimated LTCH PPS payments for both FY 
2014 and FY 2015 in this impact analysis, we applied the FY 2014 and 
the proposed FY 2015 adjustments for area wage levels and the 
proposed COLA for LTCHs located in Alaska and Hawaii. Specifically, 
we adjusted for differences in area wage levels in determining 
estimated FY 2014 payments using the current LTCH PPS labor-related 
share of 62.537 percent (78 FR 50995 through 50996) and the wage 
index values established in the Tables 12A and 12B listed in the 
Addendum to the FY 2014 IPPS/LTCH PPS final rule (which are 
available via the Internet on the CMS Web site. We also applied the 
FY 2014 COLA factors shown in the table in section V.C. of the 
Addendum to that final rule (78 FR 50997 through 50998) to adjust 
the FY 2014 nonlabor-related share (37.463 percent) for LTCHs 
located in Alaska and Hawaii. Similarly, we adjusted for differences 
in area wage levels in determining the estimated FY 2015 payments 
using the proposed FY 2015 LTCH PPS labor-related share of 62.571 
percent and the proposed FY 2015 wage index values, including the 
proposed 50/50 blended wage index, determined from the proposed wage 
index values presented in Tables 12A through 12D listed in section 
VI. of the Addendum to this proposed rule (and available via the 
Internet). We also applied the proposed FY 2015 COLA factors shown 
in the table in section V.C. of the Addendum to this proposed rule 
to the proposed FY 2015 nonlabor-related share (37.429 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 proposed rule). In modeling proposed payments for 
SSO and HCO cases in FY 2015, we applied an inflation factor of 4.7 
percent (determined by OACT) to estimate the costs of each case 
using the charges reported on the claims in the FY 2013 MedPAR files 
and the best available CCRs from the December 2013 update of the 
PSF. Furthermore, in modeling estimated LTCH PPS payments for FY 
2015 in this impact analysis, we used the proposed FY 2015 fixed-
loss amount of $15,730 (as discussed in section V.D. of the Addendum 
to this proposed rule).
    These impacts reflect the estimated ``losses'' or ``gains'' 
among the various classifications of LTCHs from FY 2014 to FY 2015 
based on the proposed payment rates and policy changes presented in 
this proposed 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 2014 (as described above).
     The fifth column shows the estimated payment per 
discharge for FY 2015 (as described above).
     The sixth column shows the percentage change in 
estimated payments per discharge from FY 2014 to FY 2015 due to the 
proposed annual update to the standard Federal rate (as discussed in 
section V.A.2. of the Addendum to this proposed rule), including the 
proposed 2.0 percentage point reduction to the update to the 
standard Federal rate for LTCHs that fail to submit data to the 
LTCHQR Program and the final year of the phase-in of a one-time 
prospective adjustment factor for FY 2015.
     The seventh column shows the percentage change in 
estimated payments per discharge from FY 2014 to FY 2015 for 
proposed changes to the area wage level adjustment (that is, the 
proposed wage indexes, including the proposed implementation of the 
new OMB delineations, and proposed labor-related share), including 
the proposed application of an area wage level budget neutrality 
factor, (as discussed in section V.B. of the Addendum to this 
proposed rule. This column includes the proposed wage index 
calculated as a 50/50 blend of the wage index under the current CBSA 
designations and the wage index under the new OMB delineations under 
our proposed transitional wage index policy for the proposed 
implementation of the new OMB delineations.
     The eighth column shows the percentage change in 
estimated payments per discharge from FY 2014 (Column 4) to FY 2015 
(Column 5) for all proposed changes (and includes the effect of 
estimated proposed changes to HCO and SSO payments).

                              Table IV--Impact of Proposed Payment Rate and Policy Changes to LTCH PPS Payments for FY 2015
                                           [Estimated FY 2014 Payments Compared to Estimated FY 2015 Payments]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Percent change
                                                                                                                           in estimated
                                                                                                          Percent change   payments per
                                                                                                           in estimated   discharge from      Percent
                                                                                                           payments per    FY 2014 to FY     change in
                                                                            Average FY      Average FY    discharge from     2015 for      payments per
                                             Number of    Number of LTCH  2014 LTCH  PPS  2015 LTCH  PPS   FY 2014 to FY     proposed     discharge from
           LTCH classification                 LTCHs        PPS  cases     payment  per    payment  per    2015 for the   changes to the   FY 2014 to FY
                                                                               case          case \1\        proposed        area wage     2015 for all
                                                                                                           annual update       level         proposed
                                                                                                          to the federal    adjustment      changes \4\
                                                                                                             rate \2\      with proposed
                                                                                                                              budget
                                                                                                                          neutrality \3\
(1)                                                  (2)             (3)             (4)             (5)             (6)             (7)             (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS...........................             422         137,897      $40,247.74      $40,567.74             0.7               0             0.8
BY LOCATION:
    RURAL...............................              22           5,691       35,633.63       35,893.55             0.8            -0.2             0.7
    URBAN...............................             400         132,206       40,446.36       40,768.95             0.7               0             0.8
    LARGE...............................             200          76,347          42,694          43,082             0.7             0.1             0.9
    OTHER...............................             200          55,859          37,375          37,608             0.7            -0.2             0.6

[[Page 28376]]

 
BY PARTICIPATION DATE:
    BEFORE OCT. 1983....................              16           5,200       37,560.33       38,297.27             0.7             0.8               2
    OCT. 1983-SEPT. 1993................              44          16,796       43,706.56       44,005.21             0.7            -0.2             0.7
    OCT. 1993-SEPT. 2002................             181          62,686       39,413.76       39,694.92             0.7            -0.1             0.7
    OCTOBER 2002 and AFTER..............             181          53,215       40,401.05       40,732.81             0.7             0.1             0.8
BY OWNERSHIP TYPE:
    VOLUNTARY...........................              91          21,887       41,091.65       41,428.06             0.7             0.1             0.8
    PROPRIETARY.........................             288         104,450       39,975.38       40,291.47             0.7               0             0.8
    GOVERNMENT..........................              43          11,560       41,110.80       41,435.10             0.7             0.1             0.8
BY REGION:
    NEW ENGLAND.........................              14           6,948       36,681.66       37,478.17             0.7             1.1             2.2
    MIDDLE ATLANTIC.....................              29           8,522       42,608.78       43,311.85             0.7             1.1             1.7
    SOUTH ATLANTIC......................              61          18,561       42,577.65       42,756.02             0.7            -0.3             0.4
    EAST NORTH CENTRAL..................              70          20,072       42,055.63       42,256.47             0.7            -0.1             0.5
    EAST SOUTH CENTRAL..................              31           8,940       39,632.87       39,809.48             0.7            -0.5             0.4
    WEST NORTH CENTRAL..................              26           6,446       39,279.06       39,620.34             0.7             0.1             0.9
    WEST SOUTH CENTRAL..................             134          48,191       35,731.94       36,001.75             0.7            -0.2             0.8
    MOUNTAIN............................              32           6,775       43,403.32       43,675.91             0.7            -0.1             0.6
    PACIFIC.............................              25          13,442       50,149.94       50,643.35             0.7             0.1               1
BY BED SIZE:
    BEDS: 0-24..........................              24           2,593       35,165.11       35,370.96             0.8            -0.2             0.6
    BEDS: 25-49.........................             200          47,183       39,176.76       39,479.06             0.7               0             0.8
    BEDS: 50-74.........................             117          37,486       40,905.58       41,253.12             0.7             0.1             0.8
    BEDS: 75-124........................              45          22,044       42,299.43       42,677.61             0.7             0.2             0.9
    BEDS: 125-199.......................              22          15,353       39,223.11       39,498.04             0.7            -0.1             0.7
    BEDS: 200 +.........................              14          13,238       40,969.52       41,252.44             0.7            -0.2             0.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated FY 2015 LTCH PPS payments based on the proposed payment rate and factor changes presented in the preamble of and the Addendum to this
  proposed rule.
\2\ Percent change in estimated payments per discharge from FY 2014 to FY 2015 for the proposed annual update to the standard Federal rate and the
  proposed one-time prospective adjustment factor for FY 2015 as discussed in section V.A.2. of the Addendum to this proposed rule.
\3\ Percent change in estimated payments per discharge from FY 2014 to FY 2015 for proposed changes to the area wage level adjustment under Sec.
  412.525(c) (as discussed in section V.B. of the Addendum to this proposed rule).
\4\ Percent change in estimated payments per discharge from FY 2014 LTCH PPS (shown in Column 4) to FY 2015 LTCH PPS (shown in Column 5), including all
  of the proposed changes to the rates and factors presented in the preamble of and the Addendum to this proposed rule. Note, this column, which shows
  the percent change in estimated payments per discharge for all proposed changes, does not equal the sum of the percent changes in estimated payments
  per discharge for the proposed annual update to the standard Federal rate (column 6) and the proposed changes to the area wage level adjustment with
  budget neutrality (Column 7) due to the effect of estimated proposed 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 422 LTCHs, we have 
prepared the following summary of the impact (as shown above in 
Table IV) of the proposed LTCH PPS payment rate and policy changes 
presented in this proposed rule. The impact analysis in Table IV 
shows that estimated payments per discharge are expected to increase 
0.8 percent, on average, for all LTCHs from FY 2014 to FY 2015 as a 
result of the proposed payment rate and policy changes presented in 
this proposed rule, including an estimated slight decrease in HCO 
payments. This estimated 0.8 percent increase in LTCH PPS payments 
per discharge from the FY 2014 to FY 2015 for all LTCHs (as shown in 
Table IV) was determined by comparing estimated FY 2015 LTCH PPS 
payments (using the proposed payment rates and factors discussed in 
this proposed rule) to estimated FY 2014 LTCH PPS payments (as 
described above in section I.L.1. of this Appendix).

[[Page 28377]]

    We are proposing to establish a standard Federal rate of 
$40,943.51 (or a standard Federal rate of $40,141.47 for LTCHs that 
failed to submit data under the requirements of the LTCHQR Program) 
for FY 2015. Specifically, we are proposing to update the standard 
Federal rate for FY 2015 by 2.1 percent, which is based on the 
latest estimate of the proposed LTCH PPS market basket increase (2.7 
percent), the proposed reduction of 0.4 percentage point for the MFP 
adjustment, and the 0.2 percentage point reduction consistent with 
sections 1886(m)(3) and (m)(4) of the Act. For LTCHs that fail to 
submit quality data under the requirements of the LTCHQR Program, as 
required by section 1886(m)(5)(C) of the Act, a 2.0 percentage point 
reduction is applied to the proposed annual update to the standard 
Federal rate. In addition, we are proposing to apply a one-time 
prospective adjustment factor for FY 2015 of 0.98734 (approximately 
-1.3 percent) to the standard Federal rate for the final year of the 
3-year phase-in.
    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 proposed 2.1 percent annual update to the standard Federal rate 
and the proposed application of a one-time prospective adjustment 
for FY 2015 of approximately -1.3 percent for the final year of the 
3-year phase-in is projected to result in approximately a 0.7 
percent decrease in estimated payments per discharge for all LTCHs 
from FY 2014 to FY 2015.
    In addition, our estimate of the proposed changes in payments 
due to the proposed 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 0.8 percent for certain hospital 
categories due to the proposed annual update to the standard Federal 
rate and the proposed application of the final phase of the one-time 
prospective adjustment for FY 2015.

(1) Location

    Based on the most recent available data, the vast majority of 
LTCHs are located in urban areas. Only approximately 5 percent of 
the LTCHs are identified as being located in a rural area, and 
approximately 4 percent of all LTCH cases are treated in these rural 
hospitals. The impact analysis presented in Table IV shows that the 
average percent increase in estimated payments per discharge from FY 
2014 to FY 2015 for all hospitals is 0.8 percent for all proposed 
changes. For rural LTCHs, the percent change for all proposed 
changes is estimated to be a 0.7 percent increase, while for urban 
LTCHs, we estimate the increase would be 0.8 percent. Large urban 
LTCHs are projected to experience an increase of 0.9 percent in 
estimated payments per discharge from FY 2014 to FY 2015, while 
other urban LTCHs are projected to experience an increase of 0.6 
percent in estimated payments per discharge from FY 2014 to FY 2015, 
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 45 percent) are in hospitals that began participating 
in the Medicare program between October 1993 and September 2002, and 
they are projected to experience a 0.7 percent increase in estimated 
payments per discharge from FY 2014 to FY 2015, 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 higher than average percent increase (2.0 percent) 
in estimated payments per discharge from FY 2014 to FY 2015, 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 projected to experience a 0.7 
percent increase in estimated payments from FY 2014 to FY 2015. 
LTCHs that began participating in the Medicare program after October 
1, 2002, which treat approximately 39 percent of all LTCH cases, are 
projected to experience a 0.8 percent increase in estimated payments 
from FY 2014 to FY 2015.

(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 22 percent of LTCHs are 
identified as voluntary (Table IV). The majority (nearly 68 percent) 
of LTCHs are identified as proprietary while government-owned and 
operated LTCHs represent about 10 percent of LTCHs. Based on 
ownership type, each category of LTCHs is expected to experience the 
average increase in payments of 0.8 percent in estimated payments 
per discharge from FY 2014 to FY 2015.

(4) Census Region

    Estimated payments per discharge for FY 2015 are projected to 
increase for LTCHs located in all regions in comparison to FY 2014. 
Of the 9 census regions, we project that the increase in estimated 
payments per discharge would have the largest positive impact on 
LTCHs in the New England and Middle Atlantic regions (2.2 percent 
and 1.7 percent, respectively as shown in Table IV). The estimated 
percent increase in payments per discharge from FY 2014 to FY 2015 
for those regions is largely attributable to the proposed changes in 
the area wage level adjustment.
    In contrast, LTCHs located in the South Atlantic and East South 
Central regions are projected to experience the smallest increase in 
estimated payments per discharge from FY 2014 to FY 2015. The lower 
than national average estimated increase in payments of 0.4 percent 
is primarily due to estimated decreases in payments associated with 
the proposed 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 2014 to FY 2015. We project 
that small LTCHs (0-24 beds) would experience a 0.6 percent increase 
in payments, mostly due to decreases in the area wage level 
adjustment, while large LTCHs (200+ beds) would experience a 0.7 
percent increase in payments. LTCHs with between 75 and 124 beds are 
expected to experience an above average increase in payments per 
discharge from FY 2014 to FY 2015 (0.9 percent).

4. Effect on the Medicare Program

    As noted previously, we project that the provisions of this 
proposed rule would result in an increase in estimated aggregate 
LTCH PPS payments in FY 2015 relative to FY 2014 of approximately 
$44 million (or approximately 0.8 percent) for the 422 LTCHs in our 
database.

5. Effect on Medicare Beneficiaries

    Under the LTCH PPS, hospitals receive payment based on the 
average resources consumed by patients for each diagnosis. We do not 
expect any changes in the quality of care or access to services for 
Medicare beneficiaries under the LTCH PPS, but we continue to expect 
that paying prospectively for LTCH services will enhance the 
efficiency of the Medicare program.

L. Effects of Proposed Requirements for Hospital Inpatient Quality 
Reporting (IQR) Program

    In section IX.A. of the preamble of this proposed rule, we 
discuss our proposed requirements for hospitals to report quality 
data under the Hospital IQR Program in order to receive the full 
annual percentage increase for the FY 2017 payment determination. We 
are proposing to remove a total of 20 measures from the Hospital IQR 
Program for the FY 2016 payment determination and subsequent years, 
which begins in the CY 2015 reporting period. The first five 
measures are: (1) AMI-1 Aspirin at arrival (NQF 0132); (2) 
AMI-3 ACEI/ARB for left ventricular systolic dysfunction (NQF 
0137); (3) AMI-5 Beta-blocker prescribed at discharge (NQF 
0160); (4) SCIP INF-6 Appropriate Hair Removal; and (5) 
Participation in a systematic database for cardiac surgery (NQF 
0113). Of those, the first four measures are currently 
suspended. The fifth measure was recommended by the MAP for removal 
because it is ``topped-out.'' We believe that an additional 15 
chart-abstracted measures are ``topped out,'' based on the 
previously adopted criteria, and we are proposing to remove them 
from the FY 2017 payment determination and subsequent years measure 
set. However, we are proposing to retain the electronic clinical 
quality measure version of 10 of these chart-abstracted measures for 
Hospital IQR Program reporting as discussed in section IX.A.7.f. of 
the preamble of this proposed rule.
    We also are proposing to add one chart-abstracted measure in 
this proposed rule: Severe sepsis and septic shock: management 
bundle (NQF 0500).

[[Page 28378]]

    We are proposing to incorporate refinements for several measures 
for the FY 2017 payment determination and subsequent years that were 
previously 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 measure approaches. The 
measure refinements include the following: (1) Refining the planned 
readmission algorithm for all seven readmission measures included in 
the Hospital IQR Program; (2) modifying the hip/knee readmission and 
complication measure cohorts to exclude index admissions with a 
secondary fracture diagnosis; and (3) modifying the hip/knee 
complication measure to not count as complications coded as 
``present on admission'' (POA) during the index admission. We do not 
anticipate any hospital burden associated with these revisions, as 
each is based on claims submitted by hospitals for payment purposes.
    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 2017 payment determination. 
Historically, an average of 100 hospitals that participate in the 
Hospital IQR Program do not receive the full annual percentage 
increase in any fiscal year. We anticipate that because of the new 
requirements we are proposing for reporting for the FY 2017 payment 
determination, the number of hospitals not receiving the full annual 
percentage increase may be higher than average. The highest number 
of hospitals failing to meet program requirements was approximately 
200 after the introduction of new NHSN reporting requirements. If 
the number of hospitals failing does increase because of proposed 
new requirements, we anticipate that over the long run, this number 
will decline as hospitals gain more experience with these 
requirements.
    As discussed in section XIII.B.6. of the preamble of this 
proposed rule, we estimate that our proposals for the adoption and 
removal of measures will result in an overall decrease of 5.86 
million hours or 1,775 hours per hospital. The table below describes 
the hospital burden associated with the Hospital IQR Program 
requirements.

                     Burden Impact of Proposed Hospital IQR Program Requirements for FY 2017
----------------------------------------------------------------------------------------------------------------
                                                                             Burden per
                                                          Burden per      hospital for all
                                       Number of        hospital  for     requirements as   Net change in burden
 Hospital IQR program requirement      hospitals          previously          proposed          per hospital
                                        impacted          finalized         (continuing,
                                                         requirements     removed, added)
----------------------------------------------------------------------------------------------------------------
Chart-abstracted and structural    3,300............  1,291 hours......  963 hours........  -328 hours.
 measures, forms.
Review reports for claims-based    3,300............  4 hours..........  4 hours..........  0.
 measures.
Reporting of voluntary electronic  Unknown..........  -570 hours.......  -554 hours.......  16 hours.
 clinical quality measures (E-
 CQM) in place of chart-
 abstracted measures.
Validation templates.............  Up to 600........  144 hours........  144 hours........  0.
E-CQM validation test............  Up to 100........  0................  16 hours.........  16 hours.
Validation charts photocopying...  Up to 600........  $8,640...........  $8,496...........  $-144.
----------------------------------------------------------------------------------------------------------------

    We estimate that the total burden associated with the proposed 
voluntary electronic clinical 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 16 
measures that could be used to satisfy partial 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 554 hours. To achieve a 
savings of 554 hours, we made the following assumptions. We assumed 
an average annual collection burden for 164 chart-abstracted 
measures (in Stroke, VTE, ED, and PC-01 topic areas) to be a 
combined 582 hours annually per hospital over 4 quarters. We 
estimate that each quarter, each hospital will need approximately 2 
hours and 40 minutes (10 minutes per measure) to process and submit 
measures results electronically per quarter. This equates to 10 
hours and 40 minutes annually. Because the remaining 12 electronic 
clinical quality measures submitted to the Hospital IQR Program 
would not replace any chart-abstracted reporting requirements, there 
would be an extra 2 hours per quarter per hospital in burden (8 
hours total), with no commensurate savings.
    In the FY 2014 IPPS/LTCH PPS final rule, hospitals were 
permitted to meet Hospital IQR program requirements for these 16 
measures by submitting data electronically for a single quarter (78 
FR 50811 through 50819) for the FY 2016 payment determination. 
Moreover, there were no options for submitting 12 additional 
measures. Therefore, we estimate that savings for hospitals choosing 
to submit all optional measures electronically for the FY 2016 
payment determination would have been about 579 hours (582 hours 
minus 2 hours and 40 minutes). The net burden of the proposal for 
the FY 2017 payment determination compared with the policy finalized 
for the FY 2016 payment determination is an additional 16 hours for 
a hospital choosing to submit all possible required and optional 
measures electronically.

M. Effects of Proposed Requirements for the PPS-Exempt Cancer 
Hospital Quality Reporting (PCHQR) Program for FY 2017

    In section IX.B. of the preamble of this proposed rule, we 
discuss our proposed policies 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 
Act.
    In this proposed rule, we are proposing that PCHs submit data on 
one additional measure beginning with the FY 2017 program which, if 
finalized, would increase the total number of measures in the FY 
2017 PCHQR measure set to 19 measures. We also are proposing to 
update the specifications for the five previously finalized clinical 
process/oncology care measures to require PCHs to report all-patient 
data for each of these measures, and to adopt a new sampling 
methodology that PCHs can use to report these measures. Furthermore, 
we are proposing to require PCHs to submit population and sample 
size counts for these measures. We also are proposing to give PCHs a 
choice of one of two reporting options to report the clinical 
process/oncology care, SCIP, and clinical process/cancer specific 
treatment measures.
    The impact of the proposed requirements for the PCHQR program is 
expected to be minimal overall because some PCHs are already 
submitting previously adopted quality measure data to CMS. As a 
result, these PCHs are familiar with our IT infrastructure and 
programmatic operations. In addition to fostering transparency and 
facilitating public reporting, we believe our proposed requirements 
introduce minimal burden while increasing quality of care. We 
further believe that these requirements outweigh any burden.
    One expected effect of the PCHQR Program is to keep the public 
informed of the quality of care provided by PCHs. We will publicly 
display quality measure data collected under the PCHQR Program as 
required under the Act. These data will be displayed on the Hospital 
Compare Web site. The goals of making these data available to the 
public in a user-friendly and relevant format, include, but are not 
limited to: (1) Allowing the public to compare PCHs in order to make 
informed health care decisions regarding care setting; and (2) 
providing information about current trends in health care. 
Furthermore, PCHs can use their own health care quality data for 
many purposes such as in risk management programs, health care 
acquired infection prevention programs, and research and development 
activities, among others.

[[Page 28379]]

N. Effects of Proposed Requirements for the Long-Term Care Hospital 
Quality Reporting (LTCHQR) Program for FY 2015 Through FY 2018

    In section IX.C. of the preamble of this proposed rule, we 
discuss the implementation of section 1886(m)(5) of the Act, which 
was added by section 3004(a) of the Affordable Care 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 shall receive a 
2-percentage point reduction to the annual update to the standard 
Federal rate for discharges for the hospital during the applicable 
fiscal year. 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 annual percentage increase in any fiscal year as a result 
of failure to submit data under the LTCHQR Program. Information is 
not available to determine the precise number of LTCHs that would 
not meet the requirements to receive the full annual percentage 
increase for the FY 2016 payment determination. At the time that 
this analysis was prepared, 8 of the 442 active Medicare-certified 
LTCHs did not receive the full annual percentage increase for the FY 
2014 payment determination. 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. We believe that the 
burden associated with the LTCHQR Program is the time and effort 
associated with data collection. There are approximately 442 LTCHs 
currently reporting quality data to CMS.
    In this proposed rule, we are retaining seven previously 
finalized measures, proposing revisions to two previously finalized 
measures, and are proposing three additional quality measures for 
inclusion in the LTCHQR Program. In section IX.C.7. of the preamble 
of this proposed rule, we are proposing three new quality measures 
for inclusion in the LTCHQR Program affecting the FY 2018 payment 
determination and subsequent years: (1) Percent of Long-Term Care 
Hospital Patients with an Admission and Discharge Functional 
Assessment and a Care Plan That Addresses Function; (2) Functional 
Outcome Measure: Change in Mobility among Long-Term Care Hospital 
Patients Requiring Ventilator Support; and (3) National Healthcare 
Safety Network (NHSN) Ventilator-Associate Event (VAE) Outcome 
Measure.
    Six of the previously adopted and newly proposed measures either 
will or would be collected via the NHSN. In section IX.C.7.b. of the 
preamble of this proposed rule, we are proposing to collect the NHSN 
VAE Outcome Measure. Normally, we would only discuss the burden 
associated with those measures that are being proposed in any given 
rule. Because we have access to information that now indicates our 
previous calculations for the CAUTI, CLABSI, MRSA, and CDI were 
incorrect (we estimated in the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50959 through 50964) that LTCHs would submit six infection events 
per month for each of these measures), we offer below the 
recalculation of the associated burden. Based on submissions to the 
NHSN, we now estimate that each LTCH will execute approximately 7 
NHSN submissions per month; 1 MRSA event; 1 CDI event; 2 CLABSI 
events; 3 CAUTI events (84 events per LTCH annually). This equates 
to a total of approximately 37,128 submissions of events to the NHSN 
from all LTCHs per year (includes CAUTI, CLABSI, MRSA, and CDI). The 
CDC estimated the public reporting burden of the collection of 
information for each measure to include the time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information. MRSA and CDI events are estimated to 
require an average of 15 minutes per response (10 minutes of 
clinical (RN) time, and 5 minutes of clerical (Medical Record or 
Healthcare Information Technician). CAUTI is estimated to require an 
average of 29 minutes per response, and CLABSI events are estimated 
to require an average of 32 minutes per response. In addition, each 
LTCH must also complete a Patient Safety Monthly Reporting Plan 
estimated at 35 minutes per Plan and a Denominator for Specialty 
Care Area, which is estimated at 5 hours per month. Based on this 
estimate, we expect each LTCH would expend 8.6 hours per month for 
each LTCH, 103.2 hours annually for each LTCH, or 45,614.4 annually 
for all LTCHs reporting to the NHSN.
    In addition, each LTCH must submit the Influenza Vaccination 
Coverage among Healthcare Personnel (NQF 0431), which the 
CDC estimates will take 10 minutes annually per LTCH, or an 
additional 73.66 hours for all LTCH annually. In total, the burden 
we have recalculated for all previously finalized measures 
(including CAUTI, CLABSI, MRSA, CDI, HCP, Patient Safety Monthly 
Reporting plan, and Denominator for Specialty Care Area) will equal 
103.4 hours annually per LTCH or 45,072.8 hours for all LTCHs 
annually.
    For the newly proposed VAE measure, which will also be reported 
by LTCHs through the CDC's NHSN, the CDC estimates that each LTCH 
will submit 1 VAE per month, which will require approximately 22 
minutes of clinical time per response. This equates to 22 minutes 
per LTCH monthly, 4.4 hours per LTCH annually, and 1,944.8 hours for 
all LTCHs annually. According to the US Bureau of Labor and 
Statistics, the mean hourly wage for a registered nurse (RN) is 
$33.1 \191\; the mean hourly wage for a medical records and health 
information technician is $16.81. However, in order to account for 
overhead and fringe benefits, we have double the mean hourly wage, 
making it $66.26 for an RN, and $33.62 for a Medical Record or 
Health Information Technician. We estimate that the annual cost per 
each LTCH for the previously finalized measures, for which we have 
recalculated burden (including CAUTI, CLABSI, MRSA, CDI, HCP, 
Patient Safety Monthly Reporting plan, and Denominator for Specialty 
Care Area) to be $6,770.10 and that the total yearly cost to all 
LTCHs for the submission of data to NHSN would be $2,992,384.20. We 
estimate that the total cost for the newly proposed VAE measure 
would be $291.54 per LTCH annually, or $128,860.68 for all LTCHs 
annually.
---------------------------------------------------------------------------

    \191\ According to the U.S. Bureau of Labor Statistics, the mean 
hourly wage for a Registered Nurse is $31.48. See: http://www.bls.gov/ooh/healthcare/registered-nurses.htm. Fringe benefits 
are calculated at a rate of 36.25 percent in accordance with OMB 
Circular A-76, Attachment C, Table C.1. After adding the fringe 
benefits, the total hourly cost for an RN is $42.89.
---------------------------------------------------------------------------

    The All-Cause Unplanned Readmission Measure for 30 Days Post-
Discharge from Long-Term Care Hospitals is a Medicare claims-based 
measure; because claims-based measures can be calculated based on 
data that are already reported to the Medicare program for payment 
purposes, we believe there will be no additional impact.
    The remaining five measures will be collected utilizing the LTCH 
CARE Data Set. The burden estimates associated with OMB control 
number 0938-1163 estimate that each LTCH has an impact data 
collection burden of 243.24 hours or $6,755.84 associated with 
collection of the LTCH CARE Data Set, which includes the following 
three measures: Percent of Residents or Patients with Pressure 
Ulcers That Are New or Worsened (NQF 0678); Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (NQF 0680), and the Application 
of Percent of Residents Experiencing One or More Falls with Major 
Injury (Long Stay) (NQF 0674).
    We also are proposing to use the LTCH CARE Data Set to report 
the two additional proposed measures, Functional Outcome Measure: 
Change in Mobility among Long-Term Care Hospital Patients Requiring 
Ventilator Support; and Percent of Long-Term Care Hospital Patients 
with an Admission and Discharge Functional Assessment and a Care 
Plan That Addresses Function for the FY 2018 payment determination 
and subsequent years. In addition, the LTCH CARE Data Set will be 
used to report the previously finalized measure. We estimate the 
additional elements for two newly proposed measures will take 13.5 
minutes of nursing/clinical staff time to report data for Admission 
assessment and 13 minutes of nursing/clinical staff time to report 
data for Discharge assessment, for a total of 26.5 minutes. In 
accordance with OMB control number 0920-0666, we estimate 202,050 
discharges from all LTCHs annually, with an additional burden of 
26.5 minutes. This would equate to 89,238.75 total hours or 201.9 
hours per LTCH. We believe this work will be completed by RN staff. 
As previously noted, per the US Bureau of Labor and Statistics, the 
mean hourly wage for a registered nurse (RN) is $33.13.\192\ 
However, in order to account for

[[Page 28380]]

overhead and fringe benefits, we have double the mean hourly wage, 
making it $66.26 for an RN. The total cost related to the two newly 
proposed functional status measures referenced above is estimated at 
$13,377.89 per LTCH annually, or $5,913,027.38 for all LTCHs 
annually.
---------------------------------------------------------------------------

    \192\ According to the U.S. Bureau of Labor Statistics, the mean 
hourly wage for a Registered Nurse is $31.48. See: http://www.bls.gov/ooh/healthcare/registered-nurses.htm. Fringe benefits 
are calculated at a rate of 36.25 percent in accordance with OMB 
Circular A-76, Attachment C, Table C.1. After adding the fringe 
benefits, the total hourly cost for an RN is $42.89.
---------------------------------------------------------------------------

    Lastly, we are proposing to validate data submitted on the LTCH 
CARE Data Set by requesting portions of 1,300 patient charts from 
260 LTCHs submitted during CY 2015 be copied and mailed to a CMS 
validation contractor. We estimate the total submission for each 
chart to be no more than 270 pages in length. In the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53269), we estimated the appropriate cost 
for sending charts under the Hospital IQR Program to be 12 cents per 
page in accordance with our photocopying payment methodology (68 FR 
67955). We believe that the costs would be the same under the LTCHQR 
Program because we would use the same photocopying payment 
methodology. Each chart also will require approximately $4.00 
shipping. Two hundred seventy pages at a rate of $0.12 per page with 
a $4.00 shipping cost would be $36.40 per chart. We estimate the 
total cost of sending charts selected for validation to be $36.40 
multiplied by 1,300 charts for a total of $47,320.
    In summary, the total cost for all previously finalized HAI and 
vaccination measures (CAUTI, CLABSI, MRSA, CDI, HCP, Patient Safety 
Monthly Reporting plan, and Denominator for Specialty Care Area) 
reported through the CDC's NHSN, that we have recalculated based on 
new information regarding the number of infection events reported by 
LTCHs per month, is $6,770.10 per LTCH annually, or $2,992,384.20 
for all LTCHs annually. The total cost per LTCH for the three newly 
proposed measures in this proposed rule (Functional Outcome Measure: 
Change in Mobility among Inpatients requiring Ventilator Support, 
Percent of LTCH Inpatients with an Admission and Discharge 
Functional Assessment and a Care Plan That Addresses Function, and 
Ventilator-Associated Events) is $13,669.43 per LTCH annually, or 
$6,041,886.06 for all LTCHs annually. The total cost for the 260 
LTCHs selected under our newly proposed data accuracy validation 
policy is $47,320, which would be paid by CMS.

O. Effects of Proposals Regarding Electronic Health Record (EHR) 
Incentive Program and Hospital IQR Program

    In sections IX.D. of the preamble of this proposed rule, we 
discuss proposed requirements for the EHR Incentive Program. We are 
proposing to align the Medicare EHR Incentive Program reporting and 
submission timelines for clinical quality measures for eligible 
hospitals and CAHs with the Hospital IQR Program's reporting and 
submission timelines.
    We have determined that the electronic submission of aggregate-
level data using QRDA-III will not be feasible in 2015 for eligible 
hospitals and CAHs under the Medicare EHR Incentive Program. We are 
proposing to continue, for FY 2015, the policy we adopted for FY 
2014 for eligible hospitals and CAHs submitting CQMs under the 
Medicare EHR Incentive Program. For FY 2015, eligible hospitals and 
CAHs would be able to electronically submit using a method similar 
to the 2012 and 2013 EHR Incentive Program electronic reporting 
pilot for eligible hospitals and CAHs, which used QRDA-I (patient-
level data). Eligible hospitals and CAHs that are beyond their first 
year of meaningful use may continue to report aggregate CQM results 
through attestation. We also are clarifying our policy on zero 
denominators and the case threshold exemption for clinical quality 
measures.
    We do not believe that our proposals to align the Medicare EHR 
Incentive program reporting and submission timelines for clinical 
quality measures with the Hospital IQR Program's reporting and 
submission timelines and to allow the electronic submission of QRDA-
I (patient-level data) for eligible hospitals and CAHs to electronic 
submit CQMs under the Medicare EHR Incentive Program will have a 
significant impact.

P. Effects of Proposed Revision of Regulations Governing Use and 
Release of Medicare Advantage Risk Adjustment Data

    Under section X. of the preamble of this proposed rule, we are 
proposing to revise the existing regulations at Sec.  422.310(f) to 
broaden the specified uses of risk adjustment data in order to 
strengthen program management and increase transparency in the MA 
program and to specify the conditions for release of risk adjustment 
data to entities outside of CMS. We are proposing to revise the 
regulations to specify four additional purposes for which CMS may 
use or release risk adjustment data submitted by MA organizations: 
(1) To conduct evaluations and other analysis to support the 
Medicare program (including demonstrations) and to support public 
health initiatives and other health care-related research; (2) for 
activities to support the administration of the Medicare program; 
(3) for activities conducted to support program integrity; and (4) 
for purposes explicitly permitted by other laws. In addition, the 
existing regulations do not specify conditions for release by CMS of 
risk adjustment data submitted by MA organizations. Therefore, we 
are proposing to add regulatory language to address CMS' release of 
such data to non-CMS entities.
    We have determined that the proposed regulatory amendments do 
not impose any mandatory costs on entities that may choose, under 
this proposal, to request data files from CMS for their research 
analyses or other purposes listed in the proposal. Requesting data 
from CMS is at the discretion of the requester. Therefore, we have 
determined that there are not any economically significant effects 
of the proposed provisions. We also have determined that the 
proposed regulatory amendments would not impose a burden on the 
entity requesting data files.

Q. Effects of Proposed Changes to Enforcement Provisions for Organ 
Transplant Centers

    Under section XI. of the preamble of this proposed rule, we 
discuss our proposals to expand and clarify the current organ 
transplant regulation as it relates to a transplant program's 
ability to request approval for participation in Medicare based on 
mitigating factors, the timelines for such review, and potential 
System Improvement Agreements that may allow a transplant program to 
improve outcomes and avert Medicare termination when outcomes have 
not met CMS requirements. Our proposals also would allow for 
consideration of factors such as innovative practice in the field of 
organ transplantation, and for potential mitigating factors 
consideration of a transplant program's outcomes using Bayesian 
methodology for calculating outcomes for patient death and graft 
failure.
    These proposals will not have a significant effect on Medicare 
and Medicaid programs as it will allow organ transplant programs to 
continue to participate in Medicare if approved based on mitigating 
factors or during the time established in the Systems Improvement 
Agreement. There is an added benefit to patients who receive 
transplants, and to the Medicare program, when a transplant program 
improves patient and graft survival through completion of a system 
Improvement Agreement. However, sufficient data are not currently 
available to quantify the added benefit of System Improvement 
Agreements or innovative practices. Therefore, we project only that 
the cost impact of the proposals to the Medicare and Medicaid 
programs would be negligible.
    Historical data reflect that between the date the transplant 
regulation was codified in 2007 and August 2013, CMS rendered a 
final determination for 129 organ transplant programs that applied 
for Medicare approval based on mitigating factors. Of the 129 
transplant programs, 20 terminated Medicare participation. An 
additional 33 transplant programs averted Medicare termination by 
successful completion of a Systems Improvement Agreement and 
resulting substantial improvement in patient and graft survival. The 
remaining programs were approved for mitigating factors based on 
improved outcomes (without needing a System Improvement Agreement), 
special circumstances, or came into compliance with CMS requirements 
during the mitigating factors review period. We estimate the cost 
associated with the application for mitigating factors at $10,000. 
This is based on the salary for the transplant administrator to 
prepare the documents for the application during the 30-day 
timeframe allotted. The cost does not represent any increase from 
what is anticipated in the existing transplant regulation related to 
mitigating factors. For transplant programs that enter into a 
Systems Improvement Agreement, the estimated cost to the transplant 
program is $200,000 to $250,000 based on reports from programs that 
have completed such Agreements in the past. Both a mitigating 
factors review and completion of a System Improvement Agreement are 
voluntary acts on the part of a hospital that maintains a transplant 
program. Since the 2007 effective date of the CMS regulation, only 
one hospital has elected not to file a mitigating factors review 
after being cited by CMS for a condition-level deficiency for 
patient outcomes or clinical experience, and few hospitals have 
declined a CMS offer to complete a System

[[Page 28381]]

Improvement Agreement. Therefore, we conclude that the costs 
involved in these activities are much lower for the hospital 
compared with other alternatives, such as filing an appeal and 
incurring the legal costs of that appeal.
    Our proposals would not have a significant impact on a 
substantial number of small businesses or other small entities. Nor 
would they have a significant impact on small rural hospitals.

II. Alternatives Considered

    This proposed rule contains a range of proposed policies. It 
also provides descriptions of the statutory provisions that are 
addressed, identifies the proposed 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 proposed MS-DRG and wage index changes, and for 
the wage index reclassifications under the MGCRB. Table I also shows 
an overall decrease of 0.8 percent in operating payments. As 
discussed in section I.G. of this Appendix, we estimate that 
proposed operating payments will decrease by approximately $864 
million in FY 2015 relative to FY 2014. 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 IV.F. of the preamble of this 
proposed rule, we estimate that operating payments would decrease by 
approximately $30 million relative to FY 2014. In addition, we 
estimate a savings of $28 million associated with the proposed HACs 
policies in FY 2015, which is an additional $2 million in savings as 
compared to FY 2014. We estimate that the expiration of the 
expansion of low-volume hospital payments for discharges beginning 
on April 1, 2015, under the Protecting Access to Medicare Act of 
2014 (Pub. L. 113-93) will result in a decrease in payments of 
approximately $343 million relative to FY 2014. We estimate that the 
continuation of certain new technology add-on payments for FY 2015 
will increase spending by approximately $7 million. Finally, we 
estimate that the proposed policies related to validation, including 
submission of and payment for secure electronic versions of medical 
information for validation for the FY 2017 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 proposed rule, 
will result in a cost savings to CMS of approximately $0.5 million. 
These estimates, combined with our estimated decrease in FY 2015 
operating payment of -$30 million, result in an estimated decrease 
of approximately $367 million for FY 2015. We estimate that 
hospitals will experience a 1.2 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 $126 million increase in capital 
payments in FY 2015 compared to FY 2014. The proposed cumulative 
operating and capital payments would result in a net decrease of 
approximately $241 million to IPPS providers. The discussions 
presented in the previous pages, in combination with the rest of 
this proposed rule, constitute a regulatory impact analysis.

2. LTCHs

    Overall, LTCHs are projected to experience an increase in 
estimated payments per discharge in FY 2015. In the impact analysis, 
we are using the proposed rates, factors, and policies presented in 
this proposed rule, including proposed 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 2015. 
Accordingly, based on the best available data for the 423 LTCHs in 
our database, we estimate that FY 2015 LTCH PPS payments will 
increase approximately $44 million relative to FY 2014 as a result 
of the proposed payment rates and factors presented in this proposed 
rule. In addition, we estimate that net effect of the projected 
impact of certain other proposed LTCH PPS policy changes (that is, 
the reinstatement of the moratorium on the full implementation of 
the ``25 percent threshold'' payment adjustment as discussed in 
section VII.E. of the preamble of this proposed rule; the 
reinstatement of the moratorium on the development of new LTCHs and 
LTCH satellite facilities and additional LTCH beds as discussed in 
section VII.G. of the preamble of this proposed rule; the proposed 
revision of the ``greater than 3-day interruption of stay'' policy 
as discussed in section VII.F. of the preamble of this proposed 
rule; the proposed revocation of onsite discharges and readmissions 
policy as discussed in section VII.H. of the preamble of this 
proposed rule; and the proposed payment adjustment for ``subclause 
(II)'' LTCHs as discussed in section VII.I. of the preamble of this 
proposed rule) is estimated to result in a reduction in LTCH PPS 
payments of approximately $14 million. The impact analysis of the 
proposed payment rates and factors presented in this proposed rule 
under the LTCH PPS, in conjunction with the estimated payment 
impacts of certain other proposed LTCH PPS policy changes would 
result in a net increase of $30 million to LTCH providers. 
Additionally, we present the costs to LTCHs associated with the 
completion of the proposed data for the LTCHQR Program at $6.08 
million or approximately $3.11 million more than FY 2014.

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 proposed 
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 proposed changes to the IPPS presented in this 
proposed rule. All expenditures are classified as transfers to 
Medicare providers.
    The savings to the Federal Government associated with the 
policies in this proposed rule are estimated at $241 million.

 Table V--Accounting Statement: Classification of Proposed Estimated Expenditures Under the IPPS From FY 2014 to
                                                     FY 2015
----------------------------------------------------------------------------------------------------------------
               Category                                                Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers.......  -$241 million.
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 proposed payment rates and factors presented in this 
proposed rule under the LTCH PPS, As discussed in section I.L. of 
this Appendix, the impact analysis of the proposed payment rates and 
factors presented in this proposed rule under the LTCH PPS, in 
conjunction with the estimated payment impacts of certain other 
proposed LTCH PPS policy changes (that is, the reinstatement of the 
moratorium on the full implementation of the ``25-percent 
threshold'' payment adjustment; the reinstatement of the moratorium 
on the development of new LTCHs and LTCH satellite facilities and 
increase in the number of LTCH beds; the proposed revision of the 
``greater than 3-day interruption of stay'' policy; the proposed 
revocation of onsite discharges and readmissions policy; and the 
proposed payment adjustment for ``subclause (II)'' LTCHs), is 
projected to result in an increase in estimated aggregate LTCH PPS 
payments in FY 2015 relative to FY 2014 of approximately $30 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

[[Page 28382]]

statement showing the classification of the expenditures associated 
with the provisions of this proposed rule as they relate to the 
proposed changes to the LTCH PPS. Table VI provides our best 
estimate of the estimated increase in Medicare payments under the 
LTCH PPS as a result of the proposed payment rates and factors and 
other provisions presented in this proposed rule based on the data 
for the 423 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 
proposed data for the LTCHQR Program at $6.08 million or 
approximately $3.11 million more than FY 2014.
    The cost to the Federal Government associated with the proposed 
policies for LTCHs in this proposed rule is estimated at $30 
million.

  TABLE VI--Accounting Statement: Classification of Proposed Estimated
     Expenditures From the FY 2014 LTCH PPS to the FY 2015 LTCH PPS
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $30 million.
From Whom to Whom......................  Federal Government to LTCH
                                          Medicare Providers.
------------------------------------------------------------------------
                Category                              Costs
------------------------------------------------------------------------
Annualized Monetized Costs for LTCHs to  $3.11 million.
 Submit Quality Data.
------------------------------------------------------------------------

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 $7.0 million to $35.5 
million in any 1 year). (For details on the latest standards for 
health care providers, we refer readers to page 36 of the Table of 
Small Business Size Standards for NAIC 622 found on the SBA Web site 
at: http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.)
    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 proposed 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. 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 
proposed rule constitutes our regulatory flexibility analysis. In 
this proposed rule, we are soliciting public comments on our 
estimates and analysis of the impact of our proposals on those small 
entities. Any public comments that we receive and our responses will 
be presented in the 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 
proposed 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 2014, that threshold level is approximately $141 
million. This proposed 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 proposed 
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 MDHs, 
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 2015, 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 2015

A. Proposed FY 2015 Inpatient Hospital Update

    As discussed in section IV.B of the preamble to this proposed 
rule, for FY 2015, consistent with section 1886(b)(3)(B) of the Act, 
as amended by sections 3401(a) and 10319(a) of the Affordable Care 
Act, we are setting the applicable percentage increase by applying 
the following adjustments in the following sequence. Specifically, 
the applicable percentage increase under the IPPS is equal to the 
rate-of-increase in the hospital market basket for IPPS hospitals in 
all areas, subject to a reduction of one-quarter of the applicable 
percentage increase (prior to the application of other statutory 
adjustments; also referred to as the market basket update or rate-
of-increase (with no adjustments)) for hospitals that fail to submit 
quality information under rules established by the Secretary in 
accordance with section 1886(b)(3)(B)(viii) of the Act and a 33\1/3\ 
percent reduction to three-fourths of the applicable percentage 
increase (prior to the application of other statutory adjustments; 
also referred to as the market basket update or rate-of-increase 
(with no adjustments)) for hospitals not considered to be meaningful 
electronic health record (EHR) users in accordance with section 
1886(b)(3)(B)(ix) of the Act, and then subject to an adjustment

[[Page 28383]]

based on changes in economy-wide productivity (the multifactor 
productivity (MFP) adjustment), and an additional reduction of 0.2 
percentage point as required by section 1886(b)(3)(B)(xii) of the 
Act. 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 2015 
adjustment of 0.2 percentage point may result in the applicable 
percentage increase being less than zero.
    Based on the most recent data available for this FY 2015 
proposed rule, in accordance with section 1886(b)(3)(B) of the Act, 
we are proposing to base the proposed FY 2015 market basket update 
used to determine the applicable percentage increase for the IPPS on 
IHS Global Insight, Inc.'s (IGI's) first quarter 2014 forecast of 
the FY 2010-based IPPS market basket rate-of-increase with 
historical data through fourth quarter 2013, which is estimated to 
be 2.7 percent. In accordance with section 1886(b)(3)(B) of the Act, 
as amended by section 3401(a) of the Affordable Care Act, in section 
IV.B.1. of the preamble of this FY 2015 IPPS/LTCH PPS proposed rule, 
we are proposing a multifactor productivity (MFP) adjustment (the 
10-year moving average of MFP for the period ending FY 2015) of 0.4 
percent. Therefore, based on IGI's first quarter 2014 forecast of 
the FY 2010-based IPPS market basket, depending on whether a 
hospital submits quality data under the rules established in 
accordance with section 1886(b)(3)(B)(viii) of the Act (hereafter 
referred to as a hospital that submits quality data) and is a 
meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act 
(hereafter referred to as a hospital that is a meaningful EHR user), 
there are four possible applicable percentage increases that can be 
applied to the standardized amount. Below we provide a table 
summarizing the four proposed applicable percentage increases.

----------------------------------------------------------------------------------------------------------------
                                              Hospital          Hospital        Hospital did      Hospital did
                                              submitted         submitted        NOT submit        NOT submit
                                            quality data      quality data      quality data      quality data
                 FY 2015                      and is a        and is NOT a        and is a        and is NOT a
                                           meaningful  EHR   meaningful  EHR   meaningful  EHR   meaningful EHR
                                                user              user              user              user
----------------------------------------------------------------------------------------------------------------
Market Basket Rate-of-Increase..........               2.7               2.7               2.7               2.7
Adjustment for Failure to Submit Quality               0.0               0.0            -0.675            -0.675
 Data under Section 1886(b)(3)(B)(viii)
 of the Act.............................
Adjustment for Failure to be a                         0.0            -0.675               0.0            -0.675
 Meaningful EHR User under Section
 1886(b)(3)(B)(ix) of the Act...........
MFP Adjustment under Section                          -0.4              -0.4              -0.4              -0.4
 1886(b)(3)(B)(xi) of the Act...........
Statutory Adjustment under Section                    -0.2              -0.2              -0.2              -0.2
 1886(b)(3)(B)(xii) of the Act..........
                                         -----------------------------------------------------------------------
        Proposed Applicable Percentage                 2.1             1.425             1.425              0.75
         Increase Applied to
         Standardized Amount............
----------------------------------------------------------------------------------------------------------------

B. Proposed Update for SCHs and MDHs for FY 2015

    Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2015 
applicable percentage increase in the hospital-specific rate for 
SCHs and MDHs equals the applicable percentage increase set forth in 
section 1886(b)(3)(B)(i) of the Act (that is, the same update factor 
as for all other hospitals subject to the IPPS).
    As discussed in section IV.G. of the preamble of this proposed 
rule, section 1106 of the Pathway for SGR Reform Act of 2013 (Pub. 
L. 113-67), enacted on December 26, 2013, extended the MDH program 
from the end of FY 2013 through the first half of FY 2014 (that is, 
for discharges occurring before April 1, 2014). Subsequently, 
section 106 of the Protecting Access to Medicare Act of 2014 (Pub. 
L. 113-93), enacted on April 1, 2014, further extended the MDH 
program through the first half of FY 2015 (that is, for discharges 
occurring before April 1, 2015). Prior to the enactment of Public 
Law 113-67, the MDH program was to be in effect through the end of 
FY 2013 only. The MDH program expires for discharges beginning on 
April 1, 2015, under current law. Accordingly, the proposed update 
of the hospital-specific rates for FY 2015 for MDHs will apply in 
determining payments for FY 2015 discharges occurring before April 
1, 2015.
    As mentioned above, the update to the hospital specific rate for 
SCHs and MDHs is subject to section 1886(b)(3)(B)(i) of the Act, as 
amended by sections 3401(a) and 10319(a) of the Affordable Care Act. 
Accordingly, depending on whether a hospital submits quality data 
and is a meaningful EHR user, we are proposing the same four 
possible applicable percentage increases in the table above to the 
hospital-specific rate applicable to SCHs and MDHs.

C. Proposed FY 2015 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 proposing an applicable percentage 
increase to the Puerto Rico-specific standardized amount of 2.1 
percent.

D. Proposed Update for Hospitals Excluded From the IPPS for FY 2015

    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 hospitals, cancer hospitals, and hospitals located 
outside the 50 States, the District of Columbia, and Puerto Rico 
(that is, short-term acute care hospitals located in the U.S. Virgin 
Islands, Guam, the Northern Mariana Islands, and America Samoa). 
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, 
RNHCIs, and short-term acute care hospitals located in the U.S. 
Virgin Islands, Guam, the Northern Mariana Islands, and American 
Samoa are among the remaining types of hospitals still paid under 
the reasonable cost methodology, subject to the rate-of-increase 
limits. We are proposing that the FY 2015 rate-of-increase 
percentage to be applied to the target amount for children's 
hospitals, PPS-excluded cancer hospitals, RNHCIs, and short-term 
acute care hospitals located in the U.S. Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa would be the percentage 
increase in the IPPS operating market basket. For this proposed 
rule, the current estimate of the FY 2015 IPPS operating market 
basket percentage increase is 2.7 percent.

E. Proposed Update for LTCHs for FY 2015

    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 proposed 
rule, we are proposing to establish an update to the LTCH

[[Page 28384]]

PPS standard Federal rate for FY 2015 based on the full LTCH PPS 
market basket increase estimate (for this proposed rule, estimated 
to be 2.7 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)(E) of the Act. In accordance 
with the LTCHQR Program under section 1886(m)(5) of the Act, we are 
proposing to reduce the annual update to the LTCH PPS standard 
Federal rate by 2.0 percentage points for failure of a LTCH to 
submit the required quality data. The MFP adjustment described in 
section 1886(b)(3)(B)(xi)(ii) of the Act is currently estimated to 
be 0.4 percent for FY 2015. In addition, section 1886(m)(3)(A)(ii) 
of the Act requires that any annual update for FY 2015 be reduced by 
the ``other adjustment'' at section 1886(m)(4)(E) of the Act, which 
is 0.2 percentage point. Therefore, based on IGI's first quarter 
2014 forecast of the FY 2015 LTCH PPS market basket increase, we are 
proposing an annual update to the LTCH PPS standard Federal rate of 
2.1 percent (that is, the current proposed FY 2015 estimate of the 
market basket rate-of-increase of 2.7 percent less an adjustment of 
0.4 percentage point for MFP and less 0.2 percentage point). 
Accordingly, we are proposing to apply an update factor of 1.021 in 
determining the LTCH PPS standard Federal rate for FY 2015. For 
LTCHs that fail to submit quality data for FY 2015, we are proposing 
an annual update to the LTCH PPS standard Federal rate of 0.1 
percent (that is, the proposed annual update for FY 2015 of 2.1 
percent less 2.0 percentage points for failure to submit the 
required quality data in accordance with section 1886(m)(5)(C) of 
the Act and our rules) by applying an update factor of 1.001 in 
determining the LTCH PPS standard Federal rate for FY 2015. 
Furthermore, we are proposing an adjustment for the final 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 2015, consistent 
with current law.

III. Secretary's Recommendations

    MedPAC is recommending an inpatient hospital update equal to 
3.25 percent for FY 2015. 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, depending on whether a 
hospital submits quality data and is a meaningful EHR user, we are 
recommending the four possible applicable percentage increases to 
the standardized amount listed in the table under section II. of 
this Appendix B. We are recommending that the same applicable 
percentage increases apply to SCHs and MDHs. For the Puerto Rico-
specific standardized amount, we are recommending an update of 2.1 
percent.
    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, RNHCIs, and short-term acute 
care hospitals located in the U.S. Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa of 2.7 percent.
    For FY 2015, consistent with policy set forth in section VII. of 
the preamble of this proposed rule, we are recommending an update of 
2.1 percent (that is, the current FY 2015 estimate of the LTCH PPS 
market basket rate-of-increase of 2.7 percent less a proposed 
adjustment of 0.4 percentage point for MFP and less 0.2 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 2014 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 3.25 percent concurrent 
with changes to the outpatient prospective payment system and with 
initiating change to the LTCH PPS. We refer the reader to the March 
2014 MedPAC report, which is available for download at 
www.medpac.gov for a complete discussion on this recommendation. 
MedPAC expects Medicare margins to remain low in 2014. 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.
    Response: With regard to MedPAC's recommendation of an update to 
the hospital inpatient rates equal to 3.25 percent, for FY 2015, 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 2015 applicable percentage increase. 
Therefore, we are proposing an applicable percentage increase for FY 
2015 of 2.1 percent, provided the hospital submits quality data and 
is a meaningful EHR user, consistent with these statutory 
requirements.
    We note that, because the operating and capital prospective 
payment systems remain separate, we are continuing to use separate 
updates for operating and capital payments. The proposed update to 
the capital rate is discussed in section III. of the Addendum to 
this proposed rule.

[FR Doc. 2014-10067 Filed 4-30-14; 4:15 pm]
BILLING CODE 4120-01-P