[Federal Register Volume 79, Number 163 (Friday, August 22, 2014)]
[Rules and Regulations]
[Pages 49854-50449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18545]



[[Page 49853]]

Vol. 79

Friday,

No. 163

August 22, 2014

Part II





Department of Health and Human Services





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Center 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 Fiscal Year 2015 Rates; Quality Reporting 
Requirements for Specific Providers; Reasonable Compensation 
Equivalents for Physician Services in Excluded Hospitals and Certain 
Teaching Hospitals; Provider Administrative Appeals and Judicial 
Review; Enforcement Provisions for Organ Transplant Centers; and 
Electronic Health Record (EHR) Incentive Program; Final Rule

  Federal Register / Vol. 79 , No. 163 / Friday, August 22, 2014 / 
Rules and Regulations  

[[Page 49854]]


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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-F and CMS-1599-F3]
RINs 0938-AS11; 0938-AR12; and 0938-AR53


Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Fiscal Year 2015 Rates; Quality Reporting 
Requirements for Specific Providers; Reasonable Compensation 
Equivalents for Physician Services in Excluded Hospitals and Certain 
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: Final rule.

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SUMMARY: We are revising the Medicare hospital inpatient prospective 
payment systems (IPPS) for operating and capital-related costs of acute 
care hospitals to implement changes arising from our continuing 
experience with these systems. Some of these 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 changes are 
applicable to discharges occurring on or after October 1, 2014, unless 
otherwise specified in this final rule. We also are updating the rate-
of-increase limits for certain hospitals excluded from the IPPS that 
are paid on a reasonable cost basis subject to these limits. The 
updated rate-of-increase limits are effective for cost reporting 
periods beginning on or after October 1, 2014.
    We also are updating the payment policies and the annual payment 
rates for the Medicare prospective payment system (PPS) for inpatient 
hospital services provided by long-term care hospitals (LTCHs) and 
implementing certain statutory changes 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 discuss our proposals on the interruption of stay 
policy for LTCHs and on retiring the ``5 percent'' payment adjustment 
for co-located LTCHs. While many of the statutory mandates of the 
Pathway for SGR Reform Act apply to discharges occurring on or after 
October 1, 2014, others will not begin to apply until 2016 and beyond.
    In addition, we are making a number of changes relating to direct 
graduate medical education (GME) and indirect medical education (IME) 
payments. We are establishing new requirements or revising requirements 
for quality reporting by specific providers (acute care hospitals, PPS-
exempt cancer hospitals, and LTCHs) that are participating in Medicare.
    We are updating 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 making technical corrections to the regulations 
governing provider administrative appeals and judicial review; updating 
the reasonable compensation equivalent (RCE) limits, and revising the 
methodology for determining such limits, for services furnished by 
physicians to certain teaching hospitals and hospitals excluded from 
the IPPS; making regulatory revisions to broaden the specified uses of 
Medicare Advantage (MA) risk adjustment data and to specify the 
conditions for release of such risk adjustment data to entities outside 
of CMS; and making changes to the enforcement procedures for organ 
transplant centers.
    We are aligning 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 this document, we are finalizing two interim final rules with 
comment period relating to criteria for disproportionate share hospital 
uncompensated care payments and extensions of temporary changes to the 
payment adjustment for low-volume hospitals and of the Medicare-
Dependent, Small Rural Hospital (MDH) Program.

DATES: Effective Date: These final rules are effective on October 1, 
2014.
    Applicability Dates: The amendments to 42 CFR 405.1811 and 405.1835 
are applicable to appeals based on untimely contractor determinations 
that are pending or were filed on or after August 21, 2008, subject to 
the rules of administrative finality and reopening at 42 CFR 405.1807 
and 405.1885. The provisions discussed in section IV.I.4.c. of the 
preamble of this final rule are applicable on or after July 1, 2015; 
and the provisions discussed in section IV.I.5.a. of the preamble of 
this final rule are applicable on or after January 1, 2015.

FOR FURTHER INFORMATION, CONTACT:
Ing-Jye Cheng, (410) 786-4548 and Donald Thompson, (410) 786-4487, 
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.
Pierre Yong, (410) 786-8896, 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, Administrative Appeals by Providers and 
Judicial Review Issues.
Amelia Citerone, (410) 786-3901, and Robert Kuhl (410) 786-4597,

[[Page 49855]]

Reasonable Compensation Equivalent (RCE) Limits for Physician Services 
Provided in Providers.
Anne Calinger, (410) 786-3396, and Jennifer Harlow, (410) 786-4549, 
Medicare Advantage Risk Adjustment Data Issues.
Thomas Hamilton, (410) 786-6763, Organ Transplant Center Issues.
Jennifer Phillips, (410) 786-1023, 2-Midnight Rule Benchmark Issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

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

Tables Available Only Through the Internet on the CMS Web site

    In the past, a majority of the tables referred to throughout this 
preamble and in the Addendum to the proposed rule and the final rule 
were published in the Federal Register as part of the annual proposed 
and final rules. However, beginning in FY 2012, some of 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 final rule are available only through the Internet on 
the CMS Web site at: http://www.cms.hhs.gov/Medicare/medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the 
left side of the screen titled, ``FY 2015 IPPS Final Rule Home Page'' 
or ``Acute Inpatient--Files for Download''. The LTCH PPS tables for 
this FY 2015 final rule are available only through the Internet on the 
CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for 
Regulation Number CMS-1607-F. For complete details on the availability 
of the tables referenced in this final rule, we refer readers to 
section VI. of the Addendum to this final rule.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified above should contact 
Michael Treitel at (410) 786-4552.

Acronyms

3M 3M Health Information System
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
ACoS American College of Surgeons
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
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, Pub. L. 111-5
ASCA Administrative Simplification Compliance Act of 2002, Pub. L. 
107-105
ASITN American Society of Interventional and Therapeutic 
Neuroradiology
ATRA American Taxpayer Relief Act of 2012, Pub. L. 112-240
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 
106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Pub. L. 106-554
BLS Bureau of Labor Statistics
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, Pub. L. 99-
272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
COPD Chronis obstructive pulmonary disease
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, Pub. L. 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, Pub. L. 
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, 
Pub. L. 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
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]

[[Page 49856]]

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, Pub. L. 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Pub. L. 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Pub. L. 108-173
MMEA Medicare and Medicaid Extenders Act of 2010, Pub. L. 111-309
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 
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, Pub. 
L. 104-113
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1986, Pub. L. 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]
PAMA Protecting Access to Medicare Act of 2014, Pub. L. 113-93
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, Pub. L. 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, Pub. L. 97-
248
TEP Technical expert panel
THA/TKA Total hip arthroplasty/Total knee arthroplasty
TMA TMA [Transitional Medical Assistance], Abstinence Education, and 
QI [Qualifying Individuals] Programs Extension Act of 2007, Pub. L. 
110-90
TPS Total Performance Score
UHDDS Uniform hospital discharge data set
UMRA Unfunded Mandate Reform Act, Pub. L. 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 
Final 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. Issuance of Notice of Proposed Rulemaking
    E. Public Comments Received in Response to the FY 2015 IPPS/LTCH 
PPS Proposed Rule
    F. Finalization of Interim Final Rule With Comment Period on 
Extension of Payment Adjustment for Low-Volume Hospitals and the MDH 
Program
    G. Finalization of Interim Final Rule With Comment Period 
Related to Changes to Certain Cost Reporting Procedures for 
Disproportionate Share Hospital Uncompensated Care Payments
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) 
Classifications and Relative Weights
    A. Background
    B. MS-DRG Reclassifications
    C. Adoption of the MS-DRGs in FY 2008
    D. FY 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 Pub. L. 110-90
    2. Adjustment to the Average Standardized Amounts Required by 
Pub. L. 110-90
    a. Prospective Adjustment Required by Section 7(b)(1)(A) of Pub. 
L. 110-90
    b. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Section 7(b)(1)(B) Pub. L. 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 Pub. L. 110-90
    5. Recoupment or Repayment Adjustment Authorized by Section 
7(b)(1)(B) of Pub. L. 110-90

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    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. Adjustment to MS-DRGs for Preventable Hospital-Acquired 
Conditions (HACs), Including Infections for FY 2015
    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. Current HACs and Previously Considered Candidate HACs
    6. RTI Program Evaluation
    7. Current and Previously Considered Candidate HACs--RTI Report 
on Evidence-Based Guidelines
    G. Changes to Specific MS-DRG Classifications
    1. Discussion of Changes to Coding System and Basis for 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. Medicare Code Editor (MCE) Changes
    9. Changes to Surgical Hierarchies
    10. 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. 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. Changes to the ICD-9-CM Coding System
    a. ICD-10 Coordination and Maintenance Committee
    b. Code Freeze
    14. Public Comments on Issues Not Addressed in the Proposed Rule
    a. Request for Review and MS-DRG Assignment for ICD-9-CM 
Diagnosis Code 784.7 Reported with Procedure Code 39.75
    b. Coding for Extracorporeal Membrane Oxygenation (ECMO) 
Procedures
    c. Adding Severity Levels to MS-DRGs 245 Through 251
    H. Recalibration of the FY 2015 MS-DRG Relative Weights
    1. Data Sources for Developing the Relative Weights
    2. Methodology for Calculation of the Relative Weights
    3. Development of National Average CCRs
    4. Bundled Payments for Care Improvement (BPCI) Initiative
    I. Add-On Payments for New Services and Technologies
    1. Background
    2. Public Input Before Publication of a Notice of Proposed 
Rulemaking on Add-On Payments
    3. FY 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. CardioMEMSTM HF (Heart Failure) System
    d. MitraClip[supreg] System
    f. Responsive Neurostimulator (RNS[supreg]) System
III. Changes to the Hospital Wage Index for Acute Care Hospitals
    A. Background
    B. Core-Based Statistical Areas for the Hospital Wage Index
    1. Background
    2. Implementation of New Labor Market Area Delineations
    a. Micropolitan Statistical Areas
    b. Urban Counties That Became Rural Under the New OMB 
Delineations
    c. Rural Counties That Became Urban Under the New OMB 
Delineations
    d. Urban Counties That Moved to a Different Urban CBSA Under the 
New OMB Delineations
    e. Transition Period
    C. Worksheet S-3 Wage Data for the FY 2015 Wage Index
    1. Included Categories of Costs
    2. Excluded Categories of Costs
    3. Use of Wage Index Data by Suppliers and Providers Other Than 
Acute Care Hospitals Under the IPPS
    D. Verification of Worksheet S-3 Wage Data
    E. Method for Computing the FY 2015 Unadjusted Wage Index
    F. Occupational Mix Adjustment to the FY 2015 Wage Index
    1. Development of Data for the 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 Occupational Mix Adjustment for FY 2015
    G. Analysis and Implementation of the Occupational Mix 
Adjustment and the FY 2015 Occupational Mix Adjusted Wage Index
    1. Analysis of the Occupational Mix Adjustment and the 
Occupational Mix Adjusted Wage Index
    2. Application of the Rural, Imputed, and Frontier Floors
    a. Rural Floor
    b. Imputed Floor and Alternative, Temporary Methodology for 
Computing the Rural Floor for FY 2015
    c. Frontier Floor
    3. 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. 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. 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 FY 2015 Wage Index
IV. Other Decisions and Changes to the IPPS for Operating Costs and 
Graduate Medical Education (GME) Costs
    A. Changes to MS-DRGs Subject to the Postacute Care Transfer 
Policy (Sec.  412.4)

[[Page 49858]]

    B. Changes in the Inpatient Hospital Updates for FY 2015 
(Sec. Sec.  412.64(d) and 412.211(c))
    1. FY 2015 Inpatient Hospital Update
    2. FY 2015 Puerto Rico Hospital Update
    C. Rural Referral Centers (RRCs): Annual Updates to Case-Mix 
Index (CMI) and Discharge Criteria (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    D. 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. IME Add-On Payments for Medicare Part C Discharges to Sole 
Community Hospitals (SCHs) That Are Paid According to Their 
Hospital-Specific Rates and Change in Methodology in Determining 
Payment to SCHs
    3. Other 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 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) and Sole Community Hospitals Sec.  412.92)
    1. Background for the MDH Program
    2. PAMA of 2014 Provisions for FY 2015
    3. Expiration of the MDH Program
    4. Effects on MDHs of Adoption of New OMB Delineations
    5. Effects on SCHs of Adoption of New OMB Delineations
    H. Hospital Readmissions Reduction Program: 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 Policies for the FY 2015 Hospital Readmissions 
Reduction Program
    4. Refinement of the Readmissions Measures and Related 
Methodology for FY 2015 and Subsequent Years Payment Determinations
    a. 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. Refinement of Total Hip Arthroplasty and Total Knee 
Arthroplasty (THA/TKA) 30-Day Readmission Measure Cohort
    c. Anticipated Effect of Refinements on Measures
    5. No Expansion of the Applicable Conditions for FY 2016
    6. 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 CABG Readmissions Measure: Hospital-Level, 
30-Day, All-Cause, Unplanned Readmission Following Coronary Artery 
Bypass Graft (CABG) Surgery
    c. 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. 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. Changes Affecting Topped-Out Measures
    c. New Measures for the FY 2017 Hospital VBP Program
    d. Adoption of the Current CLABSI Measure (NQF #0139) 
for the FY 2017 Hospital VBP Program
    e. Summary of Previously Adopted and New Measures for the FY 
2017 Hospital VBP Program
    5. 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 Final 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
    c. Clinical Care--Process Domain Performance Period and Baseline 
Period for the FY 2017 Hospital VBP Program
    d. Patient and Caregiver-Centered Experience of Care/Care 
Coordination Domain Performance Period and Baseline Period for the 
FY 2017 Hospital VBP Program
    e. Performance Period and Baseline Period for NHSN Measures in 
the Safwety Domain for the FY 2017 Hospital VBP Program
    f. Efficiency and Cost Reduction Domain Performance Period and 
Baseline Period for the FY 2017 Hospital VBP Program
    g. Summary of Previously Adopted and Finalized Performance 
Periods and Baseline Periods for the FY 2017 Hospital VBP Program
    8. Previously Adopted and Finalized Performance Periods and 
Baseline Periods for Certain Measures for the FY 2019 Hospital VBP 
Program
    a. Previously Adopted and Finalized Performance Period and 
Baseline Period for the FY 2019 Hospital VBP Program for Clinical 
Care--Outcomes Domain Measures
    b. 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 Finalized Performance 
Periods and Baseline Periods for Certain Measures for the FY 2019 
Hospital VBP Program
    9. Performance Period and Baseline Period for the Clinical 
Care--Outcomes Domain for the FY 2020 Hospital VBP Program
    10. 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. Additional Performance Standards for the FY 2017 Hospital VBP 
Program
    e. Performance Standards for the FY 2019 and FY 2020 Hospital 
VBP Programs
    f. Technical Updates Policy for Performance Standards
    g. Solicitation of Public Comments on ICD-10-CM/PCS Transition
    11. FY 2017 Hospital VBP Program Scoring Methodology
    a. General Hospital VBP Program Scoring Methodology
    b. Domain Weighting for the FY 2017 Hospital VBP Program for 
Hospitals That Receive a Score on All Domains
    c. Domain Weighting for the FY 2017 Hospital VBP Program for 
Hospitals Receiving Scores on Fewer Than Four Domains
    12. Minimum Numbers of Cases and Measures for the FY 2016 and FY 
2017 Hospital VBP Program's Quality Domains

[[Page 49859]]

    a. Previously Adopted Minimum Numbers of Cases and FY 2016 
Minimum Numbers of Cases
    b. Minimum Number of Measures--Safety Domain
    c. Minimum Number of Measures--Clinical Care Domain
    d. Minimum Number of Measures--Efficiency and Cost Reduction 
Domain
    e. 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. 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. Measure Risk Adjustment
    c. Measure Calculation
    d. Applicable Time Period
    e. Criteria for Applicable Hospitals and Performance Scoring
    f. Rules To calculate the Total HAC Score for FY 2016
    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. 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
    3. 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. Clarification of Policies on Counting Resident Time in 
Nonprovider Settings Under Section 5504 of the Affordable Care Act
    5. 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. Removal of Seamless Requirement
    c. 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. 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. 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
    P. Finalization of Interim Final Rule With Comment Period on 
Extension of Payment Adjustment for Low-Volume Hospitals and the 
Medicare-Dependent, Small Rural Hospital (MDH) Program for FY 2014 
Discharges Through March 31, 2014
    1. Background
    2. Summary of the Provisions of the Interim Final Rule With 
Comment Period
    Q. Finalization of Interim Final Rule With Comment Period on 
Changes to Certain Cost Reporting Procedures Related to 
Disproportionate Share Hospital Uncompensated Care Payments
    V. 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. Annual Update for FY 2015
VI. Changes for Hospitals Excluded From the IPPS
    A. Rate-of-Increase in Payments to Excluded Hospitals for FY 
2015
    B. Report on Adjustment (Exception) Payments
    C. 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. Changes to the RCE Limits
    D. Critical Access Hospitals (CAHs
    1. Background
    2. Proposed and Final Policy Changes Related to 
Reclassifications as Rural for CAHs
    3. Revision of the Requirements for Physician Certification of 
CAH Inpatient Services
VII. 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. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-
LTC-DRG) Classifications and Relative Weights for FY 2015
    1. Background
    2. Patient Classifications into MS-LTC-DRGs
    a. Background
    b. Changes to the MS-LTC-DRGs for FY 2015
    3. Development of the FY 2015 MS-LTC-DRG Relative Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Development of the MS-LTC-DRG Relative Weights for FY 2015
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Treatment of Severity Levels in Developing the MS-LTC-DRG 
Relative Weights
    f. Low-Volume MS-LTC-DRGs
    g. Steps for Determining the FY 2015 MS-LTC-DRG Relative Weights
    C. LTCH PPS Payment Rates for FY 2015
    1. Overview of Development of the LTCH Payment Rates
    2. FY 2015 LTCH PPS Annual Market Basket Update
    a. Overview
    b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    c. Adjustment to the Annual Update to the LTCH PPS Standard 
Federal Rate Under the Long-Term Care Hospital Quality Reporting 
(LTCHQR) Program
    1. Background
    2. Reduction to the Annual Update to the LTCH PPS Standard 
Federal Rate under the LTCHQR Program
    d. Market Basket Under the LTCH PPS for FY 2015
    e. Annual Market Basket Update for LTCHs for FY 2015
    3. 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. Revision of LTCH PPS Geographic Classifications
    1. Background
    2. Use of New OMB Labor Market Area Delineations (``New OMB 
Delineations'')
    a. Micropolitan Statistical Areas

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    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 That Moved to a Different Urban CBSA Under the 
New OMB Labor Market Area Delineations
    e. Transition Period
    E. Reinstatement and Extension of Certain Payment Rules for LTCH 
Services--The 25-Percent Threshold Payment Adjustment
    1. Background
    2. Implementation of Section 1206(b)(1) of Pub. L. 113-67
    F. Discussion of the ``Greater Than 3-Day Interruption of Stay'' 
Policy and the Transfer to Onsite Providers Policies Under the LTCH 
PPS
    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 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 Pub. L. 
113-67
    1. Overview
    2. Additional LTCH PPS Issues
    J. Technical Change
VIII. Administrative Appeals by Providers and Judicial Review
    A. Proposed and Final Changes Regarding the Claims Required in 
Provider Cost Reports and for Provider Administrative Appeals
    B. Proposed and Final Changes to Conform Terminology From 
``Intermediary'' to ``Contractor''
    C. Technical Correction to Sec.  405.1835 of the Regulations and 
Corresponding Amendment to Sec.  405.1811 of the Regulations
    1. Background and Technical Correction to Sec. Sec.  405.1811 
and 405.1835 of the Regulations
    2. Waiver of Notice of Proposed Rulemaking
    3. Effective Date and Applicability Date; Finality and Reopening
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. 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. Refinements and Clarification to Existing Measures in the 
Hospital IQR Program
    a. Refinement of Planned Readmission Algorithm for 30-Day 
Readmission Measures
    b. Refinement of Total Hip Arthroplasty and Total Knee 
Arthroplasty (THA/TKA) 30-Day Complication and Readmission Measures
    c. Anticipated Effect of Refinements to Existing Measures
    d. Clarification Regarding Influenza Vaccination for Healthcare 
Personnel
    7. Additional Hospital IQR Program Measures for the FY 2017 
Payment Determination and Subsequent Years
    a. Hospital 30-day, All-Cause, Unplanned, Risk-Standardized 
Readmission Rate (RSRR) Following Coronary Artery Bypass Graft 
(CABG) Surgery
    b. Hospital 30-day, All-Cause, Risk-standardized Mortality Rate 
(RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery
    c. Hospital-Level, Risk-Standardized 30-Day Episode-of-Care 
Payment Measure for Pneumonia
    d. Hospital-Level, Risk-Standardized 30-Day Episode-of-Care 
Payment Measure for Heart Failure
    e. Severe Sepsis and Septic Shock: Management Bundle Measure 
(NQF #0500)
    f. Electronic Health Record-Based Voluntary Measures
    g. 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 Medicare 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 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. 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
    f. Data Submission Requirements for Quality Measures That May Be 
Voluntarily Electronically Reported for the FY 2017 Payment 
Determination
    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. Update to the Clinical Process/Oncology Care Measures 
Beginning With the 2016 Program
    5. New Quality Measures Beginning With the FY 2017 Program
    a. Considerations in the Selection of Quality Measures
    b. 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. Reporting Requirements for the Proposed New Measure: External 
Beam Radiotherapy for Bone Metastases (NQF #1822) Beginning 
With the FY 2017 Program
    c. 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. New Sampling Methodology for the Clinical Process/Oncology 
Care Measures Beginning With the FY 2016 Program

[[Page 49861]]

    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. Revision to Data Collection Timelines and Submission 
Deadlines for Previously Adopted Quality Measures
    a. 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. 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. New LTCHQR Program Quality Measures for the FY 2018 Payment 
Determination and Subsequent Years
    a. New LTCHQR Program Functional Status Quality Measures for the 
FY 2018 Payment Determination and Subsequent Years
    b. 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. 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. Data Submission Mechanisms for the FY 2018 Payment 
Determination and Subsequent Years for New LTCHQR Program Quality 
Measures and for Revision to Previously Adopted Quality Measure
    e. Data Collection Timelines and Submission Deadlines Under the 
LTCHQR Program for the FY 2018 Payment Determination
    f. 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. Data Collection Timelines and Submission Deadlines Under the 
LTCHQR Program for the FY 2019 Payment Determination
    10. LTCHQR Program Data Completion Threshold for the FY 2016 
Payment Adjustment and Subsequent Years
    a. Overview
    b. 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 Data Completion Thresholds
    11. Data Validation Process for the FY 2016 Payment 
Determination and Subsequent Years
    a. Data Validation Process
    b. Application of the 2 Percentage Point Reduction for LTCHs 
That Fail To Meet the Data Accuracy Threshold
    12. Public Display of Quality Measure Data for the LTCHQR 
Program
    13. LTCHQR Program Submission Exception and Extension 
Requirements for the FY 2017 Payment Determination and Subsequent 
Years
    14. 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. 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
X. Revision of Regulations Governing Use and Release of Medicare 
Advantage Risk Adjustment Data
    A. Background
    B. Regulatory Changes
    1. Expansion of Uses and Reasons for Disclosure of Risk 
Adjustment Data
    2. Conditions for CMS Release of Data
    3. Technical Change
XI. Changes to Enforcement Provisions for Organ Transplant Centers
    A. Background
    B. Basis for Changes
    1. 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 and Final Regulations
    1. Expansion of Mitigating Factors List, Content, and Timeframe
    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 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 Revision of Regulations Governing Use and 
Release of Medicare Advantage (MA) Risk Adjustment Data (Sec.  
422.310(f))
Regulation Text
Addendum--Schedule of Standardized Amounts, Update Factors, and 
Rate-of-Increase Percentages Effective with Cost Reporting Periods 
Beginning on or After October 1, 2014 and Payment Rates for LTCHs 
Effective With Discharges Occurring on or After October 1, 2014
I. Summary and Background
II. 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. Adjustments for Area Wage Levels and Cost-of-Living
    C. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient 
Capital-Related Costs for FY 2015
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update

[[Page 49862]]

    B. Calculation of the Inpatient Capital-Related Prospective 
Payments for FY 2015
    C. Capital Input Price Index
IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-
Increase Percentages for FY 2015
V. Updates to the Payment Rates for the LTCH PPS for FY 2015
    A. LTCH PPS Standard Federal Rate for FY 2015
    1. Background
    2. Development of the FY 2015 LTCH PPS Standard Federal Rate
    B. Adjustment for Area Wage Levels under the LTCH PPS for FY 
2015
    1. Background
    2. Geographic Classifications Based on the New OMB Delineations
    3. LTCH PPS Labor-Related Share
    4. LTCH PPS Wage Index for FY 2015
    5. Budget Neutrality Adjustment for Changes to the Area Wage 
Level Adjustment
    C. LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located 
in Alaska and Hawaii
    D. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
    1. Background
    2. Determining LTCH CCRs Under the LTCH PPS
    3. Establishment of the LTCH PPS Fixed-Loss Amount for FY 2015
    4. Application of the Outlier Policy to SSO Cases
    E. Update to the IPPS Comparable/Equivalent Amounts To Reflect 
the Statutory Changes to the IPPS DSH Payment Adjustment Methodology
    F. Computing the Adjusted LTCH PPS Federal Prospective Payments 
for FY 2015
VI. Tables Referenced in This Final 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 Policy Changes Under the IPPS for 
Operating Costs
    1. Basis and Methodology of Estimates
    2. Analysis of Table I
    3. Impact Analysis of Table II
    H. Effects of Other Policy Changes
    1. Effects of Policy on MS-DRGs for Preventable HACs, Including 
Infections
    2. Effects of Policy Relating to New Medical Service and 
Technology Add-On Payments
    3. Effects of Changes to List of MS-DRGs Subject to Postacute 
Care Transfer and DRG Special Pay Policy
    4. Effects of Payment Adjustment for Low-Volume Hospitals for FY 
2015
    5. Effects of Policy Changes 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 Changes Under the FY 2015 Hospital Value-Based 
Purchasing (VBP) Program
    8. Effects of the Changes to the HAC Reduction Program for FY 
2015
    9. Effects of Policy Changes Relating to Payments for Direct GME 
and IME
    10. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    11. Effects of Changes Related to Reclassifications as Rural for 
CAHs
    12. Effects of Revision of the Requirements for Physician 
Certification of CAH Inpatient Services
    13. Effects of Changes Relating to Administrative Appeals by 
Providers and Judicial Review for Appropriate Claims in Provider 
Cost Reports
    I. Effects of Changes to Updates to the Reasonable Compensation 
Equivalent (RCE) Limits for Physician Services Provided to Providers
    J. Effects of Changes in the Capital IPPS
    1. General Considerations
    2. Results
    K. Effects of Payment Rate Changes and Policy Changes Under the 
LTCH PPS
    1. Introduction and General Considerations
    2. Impact on Rural Hospitals
    3. Anticipated Effects of LTCH PPS Payment Rate Changes and 
Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    L. Effects of Requirements for Hospital Inpatient Quality 
Reporting (IQR) Program
    M. Effects of Requirements for the PPS-Exempt Cancer Hospital 
Quality Reporting (PCHQR) Program for FY 2015
    N. Effects of Requirements for the LTCH Quality Reporting 
(LTCHQR) Program for FY 2015 Through FY 2019
    O. Effects of Policy Changes Regarding Electronic Health Record 
(EHR) Incentive Program and Hospital IQR Program
    P. Effects of Revision of Regulations Governing Use and Release 
of Medicare Advantage Risk Adjustment Data
    Q. Effects of Changes to Enforcement Provisions for Organ 
Transplant Centers
II. Alternatives Considered
III. Overall Conclusion
    A. Acute Care Hospitals
    B. LTCHs
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. FY 2015 Inpatient Hospital Update
    B. Update for SCHs for FY 2015
    C. FY 2015 Puerto Rico Hospital Update
    D. Update for Hospitals Excluded From the IPPS for FY 2015
    E. 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 final rule makes payment and policy changes under the Medicare 
inpatient prospective payment systems (IPPS) for operating and capital-
related costs of acute care hospitals as well as for certain hospitals 
and hospital units excluded from the IPPS. In addition, it makes 
payment and policy changes for inpatient hospital services provided by 
long-term care hospitals (LTCHs) under the long-term care hospital 
prospective payment system (LTCH PPS). It also makes policy changes to 
programs associated with Medicare IPPS hospitals, IPPS-excluded 
hospitals, and LTCHs.
    Under various statutory authorities, we are making changes to the 
Medicare IPPS, to the LTCH PPS, and to other related payment 
methodologies and programs for FY 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 Pub. L. 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.

[[Page 49863]]

     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 complications or 
comorbidities (CCs) or major complications or comorbidities (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 hospital 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 
hospital payment . . . made under subsection (d)(5)(F)'' will receive 
two separate payments: (1) 25 percent of the amount they previously 
would have received under subsection (d)(5)(F) for DSH (``the 
empirically justified amount''), and (2) an additional payment for the 
DSH hospital's proportion of uncompensated care, determined as the 
product of three factors. These three factors are: (1) 75 percent of 
the payments that would otherwise be made under subsection (d)(5)(F); 
(2) 1 minus the percent change in the percent of individuals under the 
age of 65 who are uninsured (minus 0.1 percentage points for FY 2014, 
and minus 0.2 percentage points for FY 2015 through FY 2017); and (3) a 
hospital's uncompensated care amount relative to the uncompensated care 
amount of all DSH hospitals expressed as a percentage.
     Section 1886(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 
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.
    In this final rule, we are making technical and conforming changes 
and nomenclature changes to the regulations regarding the claims 
required in provider cost reports and for provider administrative 
appeals to conform terminology from ``intermediary'' to ``contractor''
    We are aligning 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

[[Page 49864]]

policy for reporting zero denominators on clinical quality measures and 
our policy for case threshold exemptions.
    In addition, this final rule contains several provisions 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 provisions 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 making an additional -0.8 
percent recoupment adjustment to the standardized amount in FY 2015.
b. Reduction of Hospital Payments for Excess Readmissions
    We are making 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 expanding 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 refining the 
readmission measures and related methodology for FY 2015 and subsequent 
years payment determinations. In addition, we are providing that the 
readmissions payment adjustment factors for FY 2015 can be no more than 
a 3-percent reduction in accordance with the statute. We also are 
revising 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 final rule, we are adopting quality measures for the FY 
2017, FY 2019, and FY 2020 Hospital VBP Program years and establishing 
performance periods and performance standards for measures we are 
adopting for those fiscal years. We are also adopting additional 
policies related to performance standards and revising the domain 
weighting previously adopted for the FY 2017 Hospital VBP Program.
d. Hospital-Acquired Condition (HAC) Reduction Program
    In this final rule, we are making 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. DSH Payment Adjustment and 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 
statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of 
the Act. The remaining amount, equal to 75 percent of what otherwise 
would have been paid as Medicare DSH payments, will be paid as 
additional payments after the amount is reduced for changes in the 
percentage of individuals that are uninsured. Each Medicare DSH 
hospital will receive its additional amount based on its share of the 
total amount of uncompensated care for all Medicare DSH hospitals for a 
given time period. In this final rule, we are updating the 
uncompensated care amount to be distributed for FY 2015, and we are 
making changes to the methodology for calculating the uncompensated 
care payment amounts such that we will combine uncompensated care data 
for hospitals that have merged in order to calculate the relative share 
of uncompensated care for the surviving hospital.
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

[[Page 49865]]

have established measures for reporting and the process for submittal 
and validation of the data.
    We are finalizing a total of 63 measures (47 required and 16 
voluntary electronic clinical quality measures) in the Hospital IQR 
Program measure set for the FY 2017 payment determination and 
subsequent years. In this final rule, we are finalizing 11 new measures 
(1 chart-abstracted, 4 claims-based, and 6 voluntary electronic 
clinical quality measures). We proposed to remove 20 measures, but are 
only finalizing the removal of 19. The SCIP-INF-4 measure was proposed 
for removal, but will be retained as it was recently retooled for the 
2014 collection period. Ten of these 19 measures are topped-out, chart-
abstracted measures that are being retained as voluntary electronic 
clinical quality measures.
    While we are finalizing our proposal to align the reporting and 
submission timelines of the Medicare EHR Incentive Program with those 
of the Hospital IQR Program on the calendar year for CQMs that are 
reported electronically for 2015, we are not finalizing the proposal to 
require quarterly submission of CQM data. Hospitals can voluntarily 
submit one calendar year (CY) quarter of data for Q 1, Q 2, or Q3 of 
2015 by November 30, 2015, in order to partially fulfill requirements 
for both programs for CY 2015. In addition, we are finalizing a number 
of new policies related to the administration of the program, including 
access to specific NHSN data, updates to validation, and an electronic 
clinical quality measures validation pilot test.
g. 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 reinstating 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 applying a payment adjustment under the LTCH PPS to 
subclause (II) LTCHs beginning in FY 2015 that will result in payments 
to this type of LTCH resembling reasonable cost payments under the 
TEFRA payment system model.
    We also discuss our proposed 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. In addition, we are finalizing our 
proposal to remove the 5-percent payment threshold policy for patient 
transfers between LTCHs and onsite providers.
3. Summary of Costs and Benefits
     Adjustment for MS-DRG Documentation and Coding Changes. We 
are making a -0.8 percent recoupment adjustment to the standardized 
amount for FY 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 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 recoupment 
adjustment to the standardized amount would be necessary if CMS were to 
fully recover the $11 billion recoupment required by section 631 of the 
ATRA in FY 2014, it is often our practice to delay or phase in rate 
adjustments over more than one year, in order to moderate the effects 
on rates in any one year. Therefore, consistent with the policies that 
we have adopted in many similar cases and the adjustment we made for FY 
2014, we are making 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 final rule, we estimate that the reduction 
to a hospital's base operating DRG payment amount to account for excess 
readmissions of selected applicable conditions under the Hospital 
Readmissions Reduction Program will result in a 0.2 percent decrease 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.
     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 provision, overall payments will decrease approximately 0.3 
percent or $369 million.
     Medicare DSH Payment Adjustment and Additional Payment for 
Uncompensated Care. Under section 1886(r) of the Act (as added by 
section 3313 of the Affordable Care Act), disproportionate share 
hospital payments to hospitals under section 1886(d)(5)(F) of the Act 
are reduced and an additional payment is made to eligible hospitals 
beginning in FY 2014. Hospitals that receive Medicare DSH

[[Page 49866]]

payments will receive 25 percent of the amount they previously would 
have received under the current statutory formula for Medicare DSH 
payments in section 1886(d)(5)(F) of the Act. The remainder, equal to 
75 percent of what otherwise would have been paid as Medicare DSH 
payments, will be the basis for determining the additional payments for 
uncompensated care 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 providing that the 75 percent of what otherwise 
would have been paid for Medicare DSH is adjusted to approximately 
76.19 percent of the amount for changes in the percentage of 
individuals that are uninsured and additional statutory adjustments. In 
other words, our estimate of Medicare DSH payments prior to the 
application of section 3133 of the Affordable Care Act is adjusted to 
approximately 57.1 percent (the product of 75 percent and 76.19 
percent) and the resulting payment amount is used to create an 
additional payment to hospitals for their relative share of the total 
amount of uncompensated care. We project that Medicare DSH payments and 
additional payments for uncompensated care made for FY 2015 will reduce 
payments overall by 1.3 percent as compared to the Medicare DSH 
payments and uncompensated care payments distributed in FY 2014. The 
additional payments have redistributive effects based on a hospital's 
uncompensated care amount relative to the uncompensated care amount for 
all hospitals that are estimated to receive Medicare DSH payments, and 
the final payment amount is not tied to a hospital's discharges.
     Hospital Inpatient Quality Reporting (IQR) Program. In 
this final rule, we are finalizing 11 new measures (1 chart-abstracted, 
4 claims-based, and 6 voluntary electronic clinical quality measures). 
We proposed to remove 20 measures, but are only finalizing the removal 
of 19. The SCIP-INF-4 measure was proposed for removal, but will be 
retained as it was recently retooled for the 2014 collection period. 10 
of these 19 measures are topped-out, chart-abstracted measures that are 
being retained as voluntary electronic clinical quality measures. We 
estimate that the adoption and removal of these measures will decrease 
hospital costs by $39.8 million.
     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 changes to the payment rates and 
factors we are presenting in the preamble and Addendum of this final 
rule, including the update to the standard Federal rate for FY 2015, 
the changes to the area wage adjustment for FY 2015, and the expected 
changes to short-stay outliers and high-cost outliers, will result in 
an increase in estimated payments from FY 2014 of approximately $62 
million (or 1.1 percent). In addition, we estimate that net effect of 
the projected impact of certain other 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 revocation of onsite 
discharges and readmissions policy; and the payment adjustment for 
``subclause (II)'' LTCHs) is estimated to result in an increase in LTCH 
PPS payments of approximately $116 million.
    The impact analysis of the payment rates and factors presented in 
this final rule under the LTCH PPS, in conjunction with the estimated 
payment impacts of certain other LTCH PPS policy changes will result in 
a net increase of $178 million to LTCH providers. Additionally, we 
estimate that the costs to LTCHs associated with the completion of the 
data for the LTCHQR Program to be approximately $4.7 million more than 
FY 2014.

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

[[Page 49867]]

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-term 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-term acute care hospitals 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 Part 
413.
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 Final 
Rule

    The Patient Protection and Affordable Care Act (Pub. L. 111-148), 
enacted on March 23, 2010, and the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 
2010, made a number of changes that affect the IPPS and the LTCH PPS. 
(Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as 
the ``Affordable Care Act.'') A number of the provisions of the 
Affordable Care Act affect the updates to the IPPS and the LTCH PPS and 
providers and

[[Page 49868]]

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 document that appeared 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 final rule, we are making policy changes to implement (or, 
as applicable, continue 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.
     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 final rule, we are making policy changes to implement 
section 631 of the American Taxpayer Relief Act of 2012, 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 final rule, we are making policy changes to implement, or 
discuss 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 hospitals-within-hospitals (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 final rule, we are making policy changes to implement, or 
making 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.

[[Page 49869]]

     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.
     Section 212, which prohibits the Secretary from requiring 
implementation of ICD-10 code sets before October 1, 2015.

D. Issuance of Notice of Proposed Rulemaking

    Earlier this year, we published a proposed rule that set forth 
proposed changes to the Medicare IPPS for operating costs and for 
capital-related costs of acute care hospitals for FY 2015. The proposed 
rule appeared in the Federal Register on May 15, 2014 (79 FR 27978). In 
the proposed rule, we also set forth proposed changes relating to 
payments for IME and GME costs and payments to certain hospitals that 
continue to be excluded from the IPPS and paid on a reasonable cost 
basis. In addition, in the proposed rule, we set forth proposed changes 
to the payment rates, factors, and other payment rate policies under 
the LTCH PPS for FY 2015.
    Below is a summary of the major changes that we proposed to make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of 
Relative Weights
    In section II. of the preamble of the proposed rule, we included--
     Proposed changes to MS-DRG classifications based on our 
yearly review, 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 the proposed rule, we proposed 
revisions to the wage index for acute care hospitals and the annual 
update of the wage data. Specific issues addressed included the 
following:
     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.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs 
and GME Costs
    In section IV. of the preamble of the proposed rule, we discussed 
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 add-on payments for Medicare Part C discharges 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 the proposed rule, we discussed 
the proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2015 and other related proposed 
policy changes.

[[Page 49870]]

5. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VI. of the preamble of the proposed rule, we discussed--
     Proposed changes to payments to certain excluded hospitals 
for FY 2015.
     Proposed updates to the RCE limits and proposed changes to 
the methodology for determining such limits for services furnished by 
physicians to IPPS-excluded hospitals and certain teaching 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 the 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 the 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 the proposed rule, we addressed--
     Proposed requirements for the Hospital Inpatient Quality 
Reporting (IQR) Program as a condition for receiving the full 
applicable percentage increase.
     Proposed changes to the requirements for the quality 
reporting program for PPS-exempt cancer hospitals (PCHQR Program).
     Proposed changes to the requirements under the LTCH 
Quality Reporting (LTCHQR) Program.
9. Proposed Uses and Release of Medicare Advantage Risk Adjustment Data
    In section X. of the preamble of the proposed rule, we set forth 
proposed regulatory revisions to broaden the specified uses of Medicare 
Advantage (MA) risk adjustment data and to specify the conditions for 
release of such risk adjustment data to entities outside of CMS.
10. Proposed Changes to Enforcement Provisions for Organ Transplant 
Centers
    In section XI. of the preamble of the proposed rule, we proposed 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 the 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 proposed to establish the threshold 
amounts for outlier cases. In addition, we addressed the proposed 
update factors for determining the rate-of-increase limits for cost 
reporting periods beginning in FY 2015 for certain hospitals excluded 
from the IPPS.
12. Determining Prospective Payment Rates for LTCHs
    In the Addendum to the proposed rule, we set forth proposed changes 
to the amounts and factors for determining the proposed FY 2015 LTCH 
PPS standard Federal rate. We proposed 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 the 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 the proposed rule, as required by sections 
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of 
the appropriate percentage changes for FY 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

[[Page 49871]]

capital-related costs for hospitals under the IPPS. We addressed these 
recommendations in Appendix B of the proposed rule. For further 
information relating specifically to the MedPAC March 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.

E. Public Comments Received in Response to the FY 2015 IPPS/LTCH PPS 
Proposed Rule

    We received approximately 653 timely pieces of correspondence 
containing multiple comments on the FY 2015 IPPS/LTCH PPS proposed 
rule. We note that some of these public comments were outside of the 
scope of the proposed rule. These out-of-scope public comments are not 
addressed in the policy responses in this final rule. Summaries of the 
public comments that are within the scope of the proposed rule and our 
responses to those public comments are set forth in the various 
sections of this final rule under the appropriate headings.

F. Finalization of Interim Final Rule With Comment Period on Extension 
of Payment Adjustment for Low-Volume Hospitals and the Medicare-
Dependent, Small Rural Hospital (MDH) Program for FY 2014 Discharges 
Through March 31, 2014

    In an interim final rule with comment period (CMS-1599-IFC2) that 
appeared in the Federal Register on March 18, 2014, we implemented the 
extension of the temporary changes to the payment adjustment for low-
volume hospitals and the MDH program under the IPPS for FY 2014 
(through March 31, 2014) in accordance with sections 1105 and 1106, 
respectively, of the Pathway for SGR Reform Act of 2013 (79 FR 15022 
through 15030). We received four timely pieces of correspondence on 
this interim final rule with comment period. In section IV.P. of the 
preamble of this final rule, we summarize the provisions of the interim 
final rule, summarize and respond to the public comments received, and 
finalize the provisions of the interim final rule with comment period.

G. Finalization of Interim Final Rule With Comment Period on Changes to 
Certain Cost Reporting Procedures Related to Disproportionate Share 
Hospital Uncompensated Care Payments

    In an interim final rule with comment period (CMS-1599-IFC) that 
appeared in the Federal Register on October 13, 2013 (78 FR 61191), we 
revised certain operational considerations for hospitals with Medicare 
cost reporting periods that span more than one Federal fiscal year and 
also made chnges to the data that will be used in the uncompensated 
care payment calculation in order to ensure that data from Indian 
Health Service (IHS) hospitals are included in Factor 1 and Factor 3 of 
that calculation (78 FR 61191 through 61197). We received 12 timely 
pieces of correspondence in response to this interim final rule with 
comment period. In section IV.Q. of the preamble of this final rule, we 
summarize the provisions of the interim final rule with comment period, 
summarize and respond to the public comments received, and finalize the 
provisions of the interim final rule with comment period.

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

A. Background

    Section 1886(d) of the Act specifies that the Secretary shall 
establish a classification system (referred to as diagnosis-related 
groups (DRGs)) for inpatient discharges and adjust payments under the 
IPPS based on appropriate weighting factors assigned to each DRG. 
Therefore, under the IPPS, Medicare pays for inpatient hospital 
services on a rate per discharge basis that varies according to the DRG 
to which a beneficiary's stay is assigned. The formula used to 
calculate payment for a specific case multiplies an individual 
hospital's payment rate per case by the weight of the DRG to which the 
case is assigned. Each DRG weight represents the average resources 
required to care for cases in that particular DRG, relative to the 
average resources used to treat cases in all DRGs.
    Congress recognized that it would be necessary to recalculate the 
DRG relative weights periodically to account for changes in resource 
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires 
that the Secretary adjust the DRG classifications and relative weights 
at least annually. These adjustments are made to reflect changes in 
treatment patterns, technology, and any other factors that may change 
the relative use of hospital resources.

B. MS-DRG Reclassifications

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

[[Page 49872]]

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 Pub. L. 
110-90
a. Prospective Adjustment Required by Section 7(b)(1)(A) of Pub. L. 
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) Pub. L. 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 Pub. L. 110-90
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 
through 43777), we opted to delay the implementation of any 
documentation and coding adjustment until a full analysis of case-mix 
changes based on FY 2009 claims data could be completed. We refer 
readers to the FY 2010 IPPS/RY LTCH PPS final rule for a detailed 
description of our proposal, responses to comments, and finalized 
policy. After analysis of the FY 2009 claims data for the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50057 through 50073), we found a total 
prospective documentation and coding effect of 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

[[Page 49873]]

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 Pub. L. 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 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

[[Page 49874]]

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, in 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 27997 through 27998), we 
proposed 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, would recover up to $2 billion in FY 2015. Taking 
into account the approximately $1 billion recovered in FY 2014, this 
would leave approximately $8 billion remaining to be recovered by FY 
2017.
    Comment: Several commenters restated their previous position, as 
set forth in comments submitted in response to the FY 2014 IPPS/LTCH 
PPS proposed rule and summarized in the FY 2014 IPPS/LTCH PPS final 
rule, that CMS overstated the impact of documentation and coding 
effects for prior years. Commenters cited potential deficiencies in the 
CMS methodology and disagreed that the congressionally mandated 
adjustment is warranted. However, the majority of these commenters 
conceded that CMS is required by section 631 of the ATRA to recover $11 
billion by FY 2017, and supported CMS' policy to phase in the 
adjustments over a 4-year period.
    Response: We appreciate the commenters' support. We refer readers 
to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517) for 
our response to the commenters' position that CMS overstated the impact 
of documentation and coding effects.
    After consideration of the public comments we received, we are 
finalizing the proposal to make an additional -0.8 percent adjustment 
to the standardized amount for FY 2015. Considering the -0.8 percent 
adjustment made in FY 2014, we expect the combined impact of these 
adjustments will be to recover $2 billion dollars in overpayments in FY 
2015. Combined with the estimated $1 billion adjustment made in FY 
2014, we estimate that $3 billion of the $11 billion in overpayments 
required to be recovered by section 631 of the ATRA will be accounted 
for.
    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 IPPS/LTCH PPS final rule, estimates of any future adjustments 
are subject to slight variations in total savings. Therefore, we have 
not yet addressed specific adjustments for FY 2016 and FY 2017. We 
continue to believe that the -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 believed the 
most appropriate additional adjustment was -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 did not propose such an adjustment for 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.
    Comment: Commenters reiterated their concern, as set forth in 
comments submitted in response to the FY 2014 IPPS/LTCH PPS proposed 
rule and summarized in the FY 2014 IPPS/LTCH PPS final rule, that CMS 
overstated the adjustment factor for documentation and coding, 
including the revised -0.55 percent factor to adjust for documentation 
and coding that occurred in FY 2010. Commenters believed that 
adjustments related to FY 2010 documentation and coding are not 
required under section 631 of the ATRA. Commenters urged CMS to not 
consider additional adjustments, other than those required by section 
631 of the ATRA.
    Response: We appreciate the commenters' concerns. We refer readers 
to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517) for 
our response to the commenters' position that CMS overstated the impact 
of documentation and coding effects. We did not propose to make any 
additional prospective adjustment to address the cumulative 
documentation and coding effect through FY 2010 for FY 2015. We will 
consider these comments 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

[[Page 49875]]

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 cost-to-charge 
ratio (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 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 
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

[[Page 49876]]

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 of Policy for FY 2015
    As we stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
27999), to calculate the MS-DRG relative weights for FY 2015, we used 
two data sources: the MedPAR file as the claims data source and the 
HCRIS as the cost report data source. We adjusted 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 19 CCRs and 
the MS-DRG relative weights for FY 2015 is included in section II.H. of 
the preamble of this final rule.
    Comment: One commenter supported CMS' plans to continue to use data 
from the implantable devices cost center to create a distinct CCR for 
implantable devices in the calculation of the FY 2015 relative weights. 
The commenter also urged CMS to promote transparency by making detailed 
data from the implantable device cost center available to the public so 
that hospitals could evaluate these costs in the context of overall 
hospital charges.
    Response: We did not propose any changes to the methodology or data 
sources for the FY 2015 CCRs and relative weights. Regarding the 
commenter's request to make data from the implantable devices cost 
center available to the public, we note that hospital cost report data, 
via HCRIS, are available to the public. For more information, we refer 
to readers to the CMS Web site at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/CostReports/index.html?redirect=/costReports.

F. 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 these 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

[[Page 49877]]

[GRAPHIC] [TIFF OMITTED] TR22AU14.000

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/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 final 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 50524 through 
50525), we noted that hospitals in Maryland operating under a statutory 
waiver were not paid under the IPPS, but rather were paid under the 
provisions of section 1814(b)(3) of the Act, and therefore prior to FY 
2014 these hospitals were 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 could 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 noted 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 would 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

[[Page 49878]]

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

    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-

[[Page 49879]]

DRG-Conversion-Project.html. We note that Appendix I of the ICD-10-CM/
PCS MS-DRG V31R Definitions Manual Table of Contents--Full Titles files 
(available in both text and HTML formats) are posted on the Web site 
and contain 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, provides that the 
Secretary may not adopt ICD-10 prior to October 1, 2015. This 
effectively delayed the transition from ICD-9-CM to ICD-10. The 
Secretary expects to release a final rule in the near future that will 
include a new compliance date for use of ICD-10.
5. Current HACs and Previously Considered Candidate HACs
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28002), we did 
not propose to add or remove categories of the HACs. However, we 
indicated that we continue to encourage public dialogue about 
refinements to the HAC list by written stakeholder comments about both 
previously selected and potential candidate HACs. We refer readers to 
section II.F.6. of the FY 2008 IPPS final 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.
    Comment: Some commenters stated they were pleased the CMS did not 
propose to expand the list of categories or conditions subject to the 
Deficit Reduction Act of 2005 provisions that would reduce payment for 
HACs not present on admission. However, one commenter suggested that 
CMS remove ``falls and trauma'' from the categories of conditions to 
which the HAC policy applies. Another believed that iatrogenic 
pneumothorax with thoracentesis and accidental puncture/bleeding with 
paracentesis are two conditions that meet the HAC criteria for 
inclusion and urged CMS to expand the HAC program in FY 2015 to include 
them.
    Response: We value and appreciate these public comments, and we 
will take the comments and suggestions into consideration in future 
rulemaking.
    Comment: One commenter recognized the importance of targeting HACs, 
but stated that the DRA HAC program does not recognize that certain 
conditions are not 100 percent preventable, despite adherence to 
evidence-based practices. The commenter noted that facilities that 
treat patients with greater comorbidities and complex conditions are at 
a greater risk for penalties. Specifically, the commenter reiterates 
concerns about the inclusion of Surgical Site Infections (SSI) 
Following Cardiac Implantable Electronic Device (CIED) as a HAC 
category. The commenter stated that there are many variables that may 
contribute to the risk of CIED-related infections and that the 
implanting physician may not be able to control all circumstances (for 
example, pre-operative white blood cell count, fever within 24 hours, 
and timing of perioperative antibiotic administration).
    Response: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51510 
through 51511), we addressed commenters' concerns regarding the 
preventability of DRA HACs and noted that the statute does not require 
that a condition be ``always preventable'' in order to qualify as an 
HAC. We stated that the statute indicated that the condition be 
``reasonably preventable,'' which necessarily implies something less 
than 100 percent.
    Comment: One commenter recommended that CMS address the question 
that its hospital customers have posed regarding the effect of the DRA 
HAC policy when a patient is discharged from a hospital and then 
returns to a hospital to have a foreign object removed. Specifically, 
the commenter stated that hospitals need to be better informed about 
how Medicare payment changes if the hospital removing the foreign 
object is the same hospital at which the foreign object was left or is 
a different hospital, and if the foreign object is removed during an 
outpatient procedure or during an inpatient procedure.
    Response: Questions related to payment for HACs are dependent upon 
how the conditions are coded and reported with ICD-9-CM and the 
corresponding POA indicator. The American Hospital Association (AHA) 
Central OfficeTM is the national clearinghouse for medical 
coding advice. Coding inquiries can be directed to the following AHA 
Web site: http://www.CodingClinicAdvisor.com. Instructions for how to 
assign the correct POA indicator can be found in the ICD-9-CM Official 
Guidelines for Coding and Reporting located at the CDC Web site: http://www.cdc.gov/nchs/icd/icd9cm_addenda_guidelines.htm. Also, 
illustrations of how to assign POA indicators are included in the 
Present on Admission (POA) Indicator Reporting by Acute Inpatient 
Prospective Payment System (IPPS) Hospitals Fact Sheet located on the 
CMS Hospital-Acquired Conditions Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/EducationalResources.html in the ``Downloads'' section. Table 1: CMS 
POA Indicator Reporting Options, Description, and Payment contains an 
explanation of when payment for a condition is made or not made, based 
on the POA indicator assigned, as shown below.

------------------------------------------------------------------------
       POA indicator              Description         Medicare payment
------------------------------------------------------------------------
Y..........................  Diagnosis was present  Payment made for
                              at time of inpatient   condition by
                              admission.             Medicare, when an
                                                     HAC is present.
N..........................  Diagnosis was not      No payment made for
                              present at time of     condition by
                              inpatient admission.   Medicare, when an
                                                     HAC is present.
U..........................  Documentation          No payment made for
                              insufficient to        condition by
                              determine if           Medicare, when an
                              condition was          HAC is present.
                              present at the time
                              of inpatient
                              admission.
W..........................  Clinically             Payment made for
                              undetermined.          condition by
                              Provider unable to     Medicare, when an
                              clinically determine   HAC is present.
                              whether the
                              condition was
                              present at the time
                              of inpatient
                              admission.
------------------------------------------------------------------------


[[Page 49880]]

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 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 
was to 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. We received the updated 2014 report 
and have made it available to the public on the CMS Hospital-Acquired 
Conditions Web page in the ``Downloads'' section at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/index.html?redirect=/HospitalAcqCond/.

G. Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for 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. A later coding edition, 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 delayed 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 (PAMA) (Pub. L. 113-93) was enacted, which specified that 
the Secretary may not adopt ICD-10 prior to October 1, 2015. 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 Act. On May 1, 
2014, the Secretary announced plans to release an interim final rule in 
the near future that will include a new compliance date to require the 
use of ICD-10 beginning October 1, 2015. The rule will also require 
HIPAA covered entities to continue to use ICD-9-CM through September 
30, 2015.
    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

[[Page 49881]]

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 
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

[[Page 49882]]

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 proposed to the MS-DRGs for FY 2015. 
In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28004), we invited 
public comment on each of the MS-DRG classification proposed changes 
described below, as well as our proposals to maintain certain existing 
MS-DRG classifications, which also are discussed below. In some cases, 
we proposed changes to the MS-DRG classifications based on our analysis 
of claims data. In other cases, we proposed to maintain the existing 
MS-DRG classification based on our analysis of claims data. For the FY 
2015 proposed rule, our MS-DRG analysis was based on claims data from 
the December 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.''
    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
----------------------------------------------------------------------------------------------------------------


[[Page 49883]]

    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. As we stated in the proposed rule, 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, in the FY 2015 IPPS/LTCH PPS 
proposed rule, we did not propose to create a new MS-DRG for FY 2015 
for cases where ICD-9-CM procedure code 00.10 is reported. We invited 
public comments on our proposal to maintain the current MS-DRG 
structure.
    Comment: Several commenters supported CMS' proposal to maintain 
cases reporting procedure code 00.10 in MS-DRG 23, stating it was 
reasonable given the data and information provided.
    Response: We appreciate the commenters' support.
    Comment: Some commenters believed that MS-DRG 23 does not provide 
adequate payment to hospitals that perform craniotomies with insertion 
of the Gliadel[supreg] Wafer. These commenters suggested the MedPAR 
data are flawed for a number of reasons. The commenters indicated that, 
upon conducting their own analysis of FY 2012 MedPAR data, there 
appears to be confusion among providers on how to accurately report 
procedure code 00.10. The commenters reported that, during their 
analysis, they encountered claims where procedure code 00.10 was 
reported for diagnoses of several other types of cancers (small and 
large bowel, pancreatic, and liver) that were completely unrelated to 
the brain. One commenter suggested that several providers who have 
reported procedure code 00.10 did not ever purchase the Gliadel[supreg] 
Wafer product. This commenter noted that it is unclear if the product 
should be classified as an implant or a drug within the revenue codes 
and that this uncertainty results in additional confusion. The same 
commenter urged CMS to consider more input from the professional 
community and Medicare beneficiaries, as well as data sources other 
than the MedPAR file when evaluating MS-DRG assignments for low volume 
procedures so as not to restrict access to care for patients in need of 
this intracerebral therapy.
    Response: We acknowledge the commenters' concerns. With regard to 
confusion on how to accurately report procedure code 00.10 and concern 
that the code is being reported for other types of cancers besides 
brain cancer, we point out that the AHA's Coding Clinic for ICD-9-CM 
has provided coding instruction and examples for how to appropriately 
assign and report this code. Specifically, Coding Clinic Fourth 
Quarter, 2002, explains how the chemotherapy wafer is utilized in brain 
cancer and that chemotherapy wafers also have been used to treat the 
liver and bladder as well as other sites. We also note that the terms 
associated with procedure code 00.10 within ICD-9-CM are not restricted 
solely for use of the Gliadel[supreg] Wafer product. The ICD-9-CM 
coding classification system is not device specific.
    With respect to the comment that providers are confused as to 
assigning an implant or drug revenue code to the Gliadel[supreg] Wafer 
product, we note that where explicit instructions are not provided, 
providers should report their charges under the revenue code that will 
result in the charges being assigned to the same cost center to which 
the cost of those services are assigned in the cost report. We 
appreciate the commenter's suggestion to obtain additional input from 
the professional community.
    Comment: One commenter recommended that a new MS-DRG be created 
specifically for the Gliadel[supreg] Wafer product. The commenter 
stated that it is unacceptable for CMS to state there are too few cases 
to do so.
    Response: As explained in the FY 2015 IPPS/LTCH PPS proposed rule, 
our analysis of the claims data and our clinical advisors did not 
support creation of a new MS-DRG. Furthermore, the MS-DRGs are a 
classification system intended to group together those diagnoses and 
procedures with similar clinical characteristics and utilization of 
resources. 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. Moreover, our clinical advisors have examined this issue and 
continue to advise us that the procedure code 00.10 cases are 
appropriately classified within MS-DRG 23 because they are clinically 
similar based on both the craniotomy and the insertion of the device, 
among other reasons. Our advisors reaffirmed their assessment that the 
groupings were not overly broad or heterogeneous, reiterating that the 
clinical flexibility of both physicians and hospitals is maximized when 
larger cohorts of clinically similar patients are grouped and the costs 
averaged. They note that many factors are considered when comparing 
groups of patients, including such factors as length of stay, cost of 
specific devices, type of device, type of procedure, and anatomical 
location, among others, and stated that the commenter did not identify 
any factors that would necessitate an atypical small, separate grouping 
when these cases are categorized. Our clinical advisors do not support 
creating a new MS DRG for such a small number of cases but would not 
support creating a separate DRG even if the volume of cases was large.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the current structure for MS-DRG 23 
for FY 2015.
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).

[[Page 49884]]

    These three procedure codes are currently assigned to the following 
eight 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.

----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                 Number  of      length  of    Average  costs
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
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 023 and 024. 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 023 and 024, 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 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 
was not warranted. Therefore, in the FY 2015 IPPS/LTCH PPS proposed 
rule, we proposed to maintain the current MS-DRG assignments for 
endovascular embolization or occlusion of head and neck procedures. We 
invited public comments on our proposal.
    Comment: A number of commenters supported CMS' proposal to maintain 
the current MS-DRG assignment for codes 39.72, 39.75, or 39.76 in MS-
DRGs 025, 026, and 027. The commenters stated this was reasonable, 
given the data and information provided.

[[Page 49885]]

    A number of commenters objected to the proposal to maintain the 
current MS-DRG assignments for endovascular embolizations captured in 
codes 39.72, 39.75 and 39.76. The commenters recommended that CMS move 
the three codes to MS-DRGs 023 and 024. The commenters stated that the 
coils used in the endovascular embolizations are expensive and the 
endovascular procedures require substantial additional resources. The 
commenters stated that their hospitals are significantly underpaid for 
these cases. The commenters recommended that endovascular embolization 
codes 39.72, 39.75 and 39.76 be classified a ``Major Device Implants'' 
and therefore assigned to MS-DRGs 023 and 024.
    Several commenters recommended that CMS create new severity 
subgroups within MS-DRG 024 to indicate cases with CC and cases without 
CC/MCC. The commenters recommended a three-level severity split as 
follows:

 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 with CC); and
 MS-DRG XXX (Craniotomy with Major Device Implant/Acute Complex 
CNS Principal Diagnosis without CC/MCC)

    The commenters recommended that endovascular embolizations captured 
in codes 39.72, 39.75 and 39.76 be added to these three recommended MS-
DRGs as part of the Major Device Implant group.
    One of the commenters recommended the creation of a new set of MS-
DRGs to capture intracranial endovascular embolization procedures if 
CMS decided not to modify the current MS-DRGs by moving codes 39.72, 
39.75, and 39.76 to MS-DRGs 023 and 024. The commenter suggested the 
following titles for the recommended new MS-DRGs:

 Recommended new MS-DRG 043 (Intracranial Endovascular 
Embolization Procedures with MCC)
 Recommended new MS-DRG 044 (Intracranial Endovascular 
Embolization Procedures with CC)
 Recommended new MS-DRG 045 (Intracranial Endovascular 
Embolization Procedures with Device Implant without CC/MCC).

    The commenter acknowledged that there were a limited number of 
other intracranial endovascular procedures that could also be 
considered for inclusion in the new base MS-DRG with this new option. 
The commenter supported including any additional intracranial 
endovascular embolization procedures that CMS deemed to be clinically 
appropriate.
    Response: We appreciate the commenters' support of our proposal to 
maintain the current MS-DRG assignment. We examined the commenters' 
recommendation of subdividing MS-DRG 024 by adding an additional 
severity level (with CC and without CC/MCC). The findings from the 
examination of the claims data in the December 2013 update of the FY 
2013 MedPAR file on endovascular embolization or occlusion of head and 
neck procedures are shown in the first table below. We applied the 
following criteria established in FY 2008 (72 FR 47169) to determine if 
the creation of a new CC or MCC subgroup within a base MS-DRG was 
warranted:
     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 different in average costs 
between subgroups.
     There is a $2,000 difference in average costs between 
subgroups.
    In order to warrant creation of a CC or MCC subgroup within a base 
MS-DRG, the subgroup must meet all five of the criteria.

                       Endovascular Embolization or Occlusion of Head and Neck Procedures
----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                 Number  of      length  of    Average  costs
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
MS-DRG 23--All cases............................................           5,383           10.98         $36,982
MS-DRG 24--All cases............................................           1,745            6.30          26,250
----------------------------------------------------------------------------------------------------------------

    The following table shows the number of cases that would be within 
each of the new requested three MS-DRGs, including the two proposed 
severity levels.

----------------------------------------------------------------------------------------------------------------
                                                                    Number  of    Average length
                             MS-DRG                                    cases          of stay     Average  costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 23 (Craniotomy with Major Device Implant/Acute Complex              5,383           10.98         $36,982
 CNS Principal Diagnosis with MCC or Chemo Implant).............
Proposed MS-DRG 24 (Craniotomy with Major Device Implant/Acute             1,211            7.65          27,360
 Complex CNS Principal Diagnosis with CC or Chemo Implant)......
Proposed MS-DRG XX (Craniotomy with Major Device Implant/Acute               534            3.25          23,733
 Complex CNS Principal Diagnosis without CC/MCC or Chemo
 Implant).......................................................
----------------------------------------------------------------------------------------------------------------

    We determined that the requested new severity subdivision of with 
CC and without CC/MCC would meet only four of the five criteria. The 
requested new with CC and without CC/MCC severity levels do not meet 
the criterion that there is at least a 20 percent difference in average 
costs between subgroups.
    Because the requested new severity level does not meet all five 
criteria, we are not modifying MS-DRG 024 to create severity levels for 
cases with CC and cases without CC/MCC.
    We also evaluated the request to add endovascular embolizations 
captured by codes 39.72, 39.75 and 39.76 to the group labeled ``Major 
Device Implants'' within MS-DRGs 023 and 024. Major Device Implants 
within MS-DRGs 023 and 024 include the following three sets

[[Page 49886]]

of intracranial neurostimulator procedures. Each of the three is 
composed of the implantation of an intracranial neurostimulator pulse 
generator which is implanted in the patient, as well as the insertion 
of a neurostimulator lead which is inserted through a burr hole in the 
skull into the patient's brain.

 01.20 (Cranial implantation or replacement of neurostimulator 
pulse generator) and 02.93 (Implantation or replacement of intracranial 
neurostimulator lead(s))
 02.93 (Implantation or replacement of intracranial 
neurostimulator lead(s)) and 86.95 (Insertion or replacement of 
multiple array neurostimulator pulse generator, not specified as 
rechargeable)
 02.93 (Implantation or replacement of intracranial 
neurostimulator lead(s)) and 86.98 (Insertion or replacement of 
multiple array (two or more) rechargeable neurostimulator pulse 
generator)

    Our clinical advisors reviewed this issue and advised us not to 
classify endovascular embolization procedures in the same manner as 
patients who receive intracranial neurostimulators. They advised 
against classifying endovascular embolizations as Major Device Implants 
for several reasons. First, the endovascular embolization device itself 
is a simple mechanical device, such as a wire, not a complex electronic 
device. The work involved in configuring the neurostimulator device to 
the patient, both before and after insertion, is significantly 
different from that of the endovascular embolizations. Second, 
endovascular embolizations are not devices implanted through an open 
procedure as are intracranial neurostimulator pulse generators and 
neurostimulator leads. Our clinical advisors stated that open 
procedures, including open procedures to implant the generator but 
especially including open skull procedures, from a clinical standpoint 
are significantly different than endovascular procedures, both in terms 
of the work, the facilities, the risks, and recovery rates (length of 
stay). Our clinical advisors specifically stated that the insertion of 
coils through an endovascular approach is not similar to the insertion 
of a complex electronic device. Endovascular embolizations do not match 
the clinical complexity and severity of the intracranial 
neurostimulators which have greater lengths of stay. Our clinical 
advisors stated that care of patients who receive endovascular 
embolizations is not at the same severity level as for those patients 
who have a major device implant such as an intracranial neurostimulator 
or those patients with an acute complex central nervous system 
principal diagnosis. Therefore, our clinical advisors recommended not 
moving endovascular embolizations to MS-DRGs 023 or 024. They 
recommended maintaining their current assignments in MS-DRGs 025, 026, 
and 027.
    We evaluated the request to create a new set of MS-DRGs to capture 
intracranial endovascular embolization procedures. The requestor 
recommended including codes 39.72, 39.75, and 39.76 and any other 
procedures which CMS deemed appropriate. Our clinical advisors stated 
that codes 39.72, 39.75, and 39.76 were appropriately assigned to MS-
DRGs 025, 026, and 027 because they are clinically similar to other 
cases in MS-DRGs 025, 026, and 027. In addition, as stated earlier, 
these cases do not match the clinical complexity and severity of the 
intracranial neurostimulators within MS-DRGs 023 and 024. For these 
reasons, our clinical advisors did not support creating a new set of 
MS-DRG for these codes and any additional intracranial endovascular 
embolization procedures.
    After consideration of public comments we received, we are 
finalizing our proposal to maintain the current MS-DRG assignments for 
codes 39.72, 39.75 and 39.76 in MS-DRGs 025, 026, and 027.
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 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
                             MS-DRG                                    cases      length 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

[[Page 49887]]

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.
    We stated in the FY 2015 IPPS/LTCH PPS proposed rule that, given 
the small number of diaphragmatic pacemaker cases that we found, we did 
not believe that there was 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 noted that, as discussed in section II.G.4.c. of the 
preamble of the 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-DRG 164, the average costs are 
lower than all cases in MS-DRG 163. 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, in the FY 2015 IPPS/LTCH PPS proposed 
rule, we did not propose to create a new MS-DRG for diaphragmatic 
pacemaker cases for FY 2015. We proposed to maintain the current MS-DRG 
assignments for diaphragmatic pacemaker cases. We invited public 
comments on our proposal.
    Comment: A number of commenters supported CMS' proposal to maintain 
the current MS-DRG assignment for diaphragmatic pacemakers. The 
commenters stated that the proposal was reasonable given the data and 
information presented.
    Another commenter expressed appreciation for the analysis performed 
on this issue, but disagreed with the conclusion to leave diaphragmatic 
pacemakers in MS-DRGs 163, 164, and 165. The commenter stated that, 
although the number of cases identified (48) is small, they are unique 
in both their costs and their length of stay. The commenter stated that 
these cases do not represent the full universe of Medicare 
beneficiaries who would be good candidates for the diaphragmatic 
pacemaker. The commenter expressed surprise at the average cost data 
presented in the table in the proposed rule. The commenter stated that 
it sells this system directly to hospitals and does not know what 
insurance plan covers the procedure. However, in investigating systems 
hospitals reported with code 34.85, the commenter stated that it 
discovered that this code covers systems provided by other 
manufacturers and that the cost of devices by other manufacturers is 
lower than the Avery system and is closer to the costs in CMS' claims 
data. The commenter stated that the Avery system is fully implantable, 
whereas other systems are not. The commenter asserted that one other 
system has percutaneous lead wires that leave the patients; therefore, 
the other system is not totally implantable. The commenter made 
inquiries of hospitals and found that a majority of those hospitals 
contacted were using a lower priced system. The commenter stated that 
by grouping multiple manufacturers' devices into the same MS-DRG, with 
the same payment rate, CMS was limiting physician and patient choice of 
a device. The commenter recommended that MS-DRG payments be made based 
on the equipment provided and allow hospitals to recoup the costs of 
each system used.
    The commenter stated that inadequate payment discourages hospitals 
from offering the service to patients. The commenter also stated that 
these cases are anomalies in the current MS-DRGs to which they are 
assigned and should be classified into a single, unique MS-DRG that 
would be clinically and financially coherent. The commenter believed 
that such a correction could increase the number of eligible Medicare 
beneficiaries who would benefit from use of the device, allowing them 
to stop using mechanical ventilation, which would greatly improve their 
overall health and quality of life.
    The commenter also stated that the average costs for 35 of the 
cases with procedure code 34.85 exceed the average costs of the other 
cases in the MS-DRG to which they are assigned. The commenter stated 
that it found the average length of stay for all 48 cases to be 
substantially less than the average length of stay for all of the other 
cases. Therefore, the commenter stated that the costs for the hospital 
are related primarily to the device and not to the direct hospital care 
provided to the patients. The commenter stated that the small number of 
diaphragmatic pacemaker cases compared to the large volume of other 
cases in each MS-DRG means that the unique cost factors of most of the 
pacemaker cases will never be reflected in the payment for these MS-
DRGs. The commenter stated that hospitals have no incentive to make the 
service available to patients who could use the system. The commenter 
stated that the number of individuals who can use the pacemaker is 
small because of the comparatively small volume of individuals who 
suffer from the conditions that make the pacemaker necessary, but there 
are more than 48 Medicare beneficiaries who could benefit from the 
device.
    The commenter further questioned the rationale for not basing a new 
MS-DRG on such a small number of cases. The commenter questioned the 
reference to the use of 500 cases, which is one of the criteria for a 
severity level, when the requestor did not want a severity level, but 
instead was requesting a new MS-DRG for these Avery Diaphragmatic 
Pacemaker cases.
    In conclusion, the commenter urged CMS to create a new MS-DRG for 
procedure code 34.85.
    Response: We appreciate the commenters' support for our proposal 
not to change the MS-DRG for diaphragmatic pacemakers. As noted by one 
commenter, the ICD-9-CM procedure codes capture the procedure 
performed, in this case the implantation of a diaphragmatic pacemaker. 
The codes are not manufacturer specific. This is the case for all types 
of implanted devices such as cardiac pacemakers, defibrillators, and 
orthopedic devices. The procedure codes are grouped into clinically 
appropriate MS-DRGs. MS-DRGs were not created to capture a device by a 
single manufacturer. It is assumed that hospitals and their physician 
staff will select the appropriate devices. CMS makes Medicare payments 
to hospitals for groups of similar patients within

[[Page 49888]]

each MS-DRG. The average costs provided in the tables above were based 
on Medicare patients reported to have received a diaphragmatic 
pacemaker. Hospitals have been receiving payments by diagnosis-related 
groups for several decades and are aware that average payments will 
exceed the costs of some cases and be less than the costs of other 
cases. They are aware that the selection of a particular manufacturer, 
or a particular device made by one manufacturer, should be consistent 
with the needs of the patient. Our data do not identify which 
manufacturer's devices the hospitals and physicians chose to utilize.
    As stated earlier, given the small number of diaphragmatic 
pacemaker 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.
    Our clinical advisors reviewed this issue and the public comments 
received and continue to advise that 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. They stated 
that the clinical flexibility of both physicians and hospitals is 
maximized when larger cohorts of clinically similar patients are 
grouped and the costs averaged. Our clinical advisors note that many 
factors are considered when comparing groups of patients, including 
such factors as length of stay, cost of specific devices, type of 
device, type of procedure, and anatomical location, among others. They 
stated that the commenter did not identify any factors that they had 
failed to consider when categorizing these cases. Our clinical advisors 
do not support creating a new MS DRG for such a small number of cases.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the current MS-DRG assignments for 
diaphragmatic pacemaker cases within MS-DRGs 163, 164, and 165.
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.

----------------------------------------------------------------------------------------------------------------
                                                                     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, in the FY 2015 IPPS/LTCH 
PPS proposed rule, we did not propose to reassign exclusion of atrial 
appendage procedure cases from MS-DRGs 250 and 251 to MS-DRGs 237 and 
238 for FY 2015. We invited public comments on our proposal to maintain 
the current MS-DRG structure for the exclusion of the left atrial 
appendage.
    Comment: Several commenters supported CMS' proposal to maintain the 
current MS-DRGs 250 and 251 assignment for exclusion of the left atrial 
appendage. Several commenters disagreed with the proposal and 
recommended that CMS assign exclusion of the left atrial appendage to 
MS-DRG 237 and 238 because the procedure can be performed as a 
standalone percutaneous procedure or in combination with an open chest 
procedure such as cardiac bypass surgery. The commenters stated that 
when the procedure is performed in conjunction with an open chest 
procedure, the procedure is performed in a surgical suite. Therefore, 
the commenters recommended that exclusion of the left atrial appendage 
be assigned to MS-DRGs 237 and 238 when it is a standalone procedure.
    Response: We appreciate the commenters' support for our proposal to 
maintain the current MS-DRG assignment for the exclusion of atrial

[[Page 49889]]

appendage procedures. We are not accepting the commenters' 
recommendation to move the cases to MS-DRGs 237 and 238. Our clinical 
advisors reviewed these public comments and continue to maintain 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-DRGs. They also stated that when performed 
with an open chest procedure, these procedures would map to a 
clinically appropriate open chest MS-DRG under the current MS-DRG 
logic. Our clinical advisors confirmed that although these are not 
insignificant procedures, the procedures are not considered to be major 
cardiovascular procedures on the same scale and with similar 
characteristics as cases grouped together in MS-DRGs 237 and 238.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the current MS-DRG assignment for 
exclusion of atrial appendage in MS-DRGs 250 and 251 for FY 2015.
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 the 
proposed rule and this final rule for a 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
                             MS-DRG                                    cases      length 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 through 221. Our findings are 
shown in the table below.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length 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

[[Page 49890]]

 
MS-DRG 221--All cases...........................................           4,586            5.32          34,310
----------------------------------------------------------------------------------------------------------------

    The data in our findings did not warrant reassignment of cases 
reporting use of the MitraClip[supreg]. We stated in the proposed rule 
that 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 did 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 noted 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 stated 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, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not 
propose 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 invited public comments on our proposal to not make 
any modifications to the current MS-DRG logic for these cases.
    Comment: Several commenters supported the proposal to maintain 
cases reporting procedure code 35.97 in MS-DRGs 250 and 251, stating it 
was reasonable given the data and information provided.
    Response: We acknowledge and appreciate the commenters' support.
    Comment: Some commenters suggested that cases utilizing the 
MitraClip[supreg] should be compensated similarly to mitral valve 
procedures that are performed with an open approach due to the time, 
staff and resources involved. Commenters reported that this novel 
technology has improved the quality of life for patients suffering from 
congestive heart failure. However, the commenters indicated that due to 
inadequate payment, their respective facilities are not able to offer 
the MitraClip[supreg] to the entire population that is eligible for it. 
The commenters also indicated that patients do not have access to this 
life-saving technology not only due to the lack of adequate payment to 
providers but also due to the cost of the device. Another commenter 
reported that ``the price of the device should be reduced to a level 
that is feasible for both sponsor and hospital.'' Commenters also 
suggested that congestive heart failure readmissions would be reduced 
if patients could be treated with the MitraClip[supreg].
    Response: As explained in the FY 2015 IPPS/LTCH PPS proposed rule, 
our clinical advisors believe that the current MS-DRG assignment for 
the MitraClip[supreg] 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. In addition, the data do not support reassignment. We 
stated in the proposed rule that 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 and the average costs for cases 
reporting procedure code 35.97 are $30,286 for MS-DRGs 250 and 251.
    Comment: One commenter suggested an alternative option regarding 
MS-DRG reassignment for the MitraClip[supreg] and requested that CMS 
reassign cases reporting procedure code 35.97 from MS-DRGs 250 and 251 
to MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and 
without MCC, respectively) with concurrent approval of the new 
technology add-on payment application. The commenter stated that this 
would allow the MitraClip[supreg] to be recognized in MS-DRGs involving 
a major cardiovascular procedure with an implantable device.
    Response: We did not propose to reassign cases reporting procedure 
code 35.97 from MS-DRGs 250 and 251 to MS-DRGs 237 and 238. Therefore, 
we consider this comment to be outside of the scope of the FY 2015 
IPPS/LTCH PPS proposed rule. We note that, as referenced in section 
II.G.1.b. of the preamble of this final rule, we encourage 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.
    We note that the MitraClip[supreg] technology is discussed in 
section II.I. of the preamble of this final rule under the new 
technology add-on payment policy.
    After consideration of the public comments we received, we are 
finalizing our proposal to not 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.
    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 CMS 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 
final rule and includes findings from the analysis and our proposals 
and final policies 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

[[Page 49891]]

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.

----------------------------------------------------------------------------------------------------------------
                                                                                 Average length
                            MS-DRG                             Number of 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.

----------------------------------------------------------------------------------------------------------------
                                                                     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 is 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 did 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 did not 
support the creation of a new MS-DRG. Therefore, for FY 2015, we did 
not propose 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 
invited public comments on our proposal.
    Comment: One commenter recommended reassignment of procedure code 
35.97 to a more appropriate MS-DRG. However, the commenter did not 
offer a specific recommendation as to which MS-DRG would be more 
appropriate.
    Response: We appreciate the commenter's recommendation. However, as 
the commenter did not provide a specific MS-DRG to which procedure code 
35.97 should be reassigned, we were unable to evaluate the 
recommendation. As we noted earlier, and as referenced in section 
II.G.1.b. of the preamble of this final rule, we encourage 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.
    Comment: One commenter urged CMS to reassign procedure code 35.97 
from its current assignment in MS-DRGs 250 and 251 to a more 
appropriate MS-DRG that would better recognize case complexity as a 
major cardiovascular procedure with a permanent implant. This commenter 
specifically recommended the inclusion of transcatheter mitral valve 
repair (TMVR) within the newly proposed MS-DRGs 266 and 267, and to 
subsequently retitle these MS-DRGs, ``Endovascular Transcatheter Valve 
Therapy with Implant.''
    Response: As stated in the FY 2015 IPPS/LTCH PPS proposed rule, our 
analysis did not support including cases reporting procedure code 35.97 
for percutaneous mitral valve repair procedures together with 
transcatheter/endovascular cardiac valve replacement procedures in a 
new MS-DRG. The average costs of the transcatheter/endovascular cardiac 
valve replacement procedures are significantly higher than the average 
costs of the percutaneous mitral valve repair procedures with implant 
($53,802 compared to $30,286).
    In addition, our clinical advisors did 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.

[[Page 49892]]

    Comment: One commenter disagreed with the CMS analysis that 
transcatheter mitral valve repair (TMVR) is significantly different 
than transcatheter aortic valve replacement (TAVR). The commenter 
asserted that ``unlike alternative open repair and replacement 
procedures, a heart valve prosthesis is being manipulated/modified from 
a Transcatheter approach; whether the prosthesis serves to `replace' or 
`repair' an existing valve is irrelevant in regards to resource 
consumption.'' The commenter urged CMS to consider all transcatheter 
valve procedures equally with respect to DRG assignment.
    Response: We disagree with the commenter that TMVR and TAVR are not 
significantly different. As explained in the FY 2015 IPPS/LTCH PPS 
proposed rule, our analysis of the claims data and the recommendation 
from our clinical advisors do not support treating TMVR and all 
transcatheter valve procedures equally with respect to MS-DRG 
assignment. As noted previously, the average costs of the 
transcatheter/endovascular cardiac valve replacement procedures are 
significantly higher than the average costs of the percutaneous mitral 
valve repair procedures with implant ($53,802 compared to $30,286).
    After consideration of the public comments we received, we are 
finalizing our proposal to not create a new MS-DRG to group cases 
reporting the percutaneous mitral valve repair (MitraClip[supreg]) 
procedure with transcatheter/endovascular cardiac valve replacement 
procedures.
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 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we proposed 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).

[[Page 49893]]



----------------------------------------------------------------------------------------------------------------
                                                                     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 invited public comments on our proposal to create these new MS-
DRGs for FY 2015.
    Comment: Several commenters supported the proposal to create new 
MS-DRGs for endovascular cardiac valve replacement procedures. One 
commenter noted that ``the endovascular or transcatheter approach 
presents a viable option for high-risk patients who are not candidates 
for the traditional open chest surgical approach. The proposed MS-DRGs 
better align the more extensive cardiac valve procedures based on 
clinical coherence and similar resource costs.'' Another commenter 
stated that, by establishing these new MS-DRGs, ``CMS will continue to 
be able to collect the necessary information that will help assure 
appropriate payment in the future as these technologies evolve.'' Other 
commenters supported creation of the new MS-DRGs, noting it was 
reasonable given the data and information provided. Another commenter 
applauded CMS for proposing the two new MS-DRGs, noting that ``this 
decision will allow patients, particularly women, to have increased 
access to innovative therapies that will ease their suffering from the 
debilitating effects of severe aortic stenosis.''
    Response: We appreciate the commenters' support.
    Comment: One commenter commended CMS for proposing new MS-DRGs to 
identify endovascular/transcatheter valve procedures. However, the 
commenter suggested that CMS reconsider the title of the proposed MS-
DRGs. The commenter noted that the accepted nomenclature is 
``transcatheter'' and not ``endovascular''.
    Response: We acknowledge that many individuals prefer the use of 
the term ``transcatheter'', such as occurs in the frequently used 
acronym TAVR (transcatheter aortic valve replacement). However, we note 
that this nomenclature is by no means universal. ``Endovascular'' is 
also used to describe these procedures. The current ICD-9-CM procedure 
code for TAVR, for example, is 35.05 (Endovascular replacement of 
aortic valve). Recognizing that universal agreement on medical 
nomenclature is still an unachievable goal at the present time, we have 
elected to retain the term ``endovascular'' to maintain consistency 
with the current ICD-9-CM terminology.
    After consideration of the public comments we received, we are 
finalizing our proposal to create new MS-DRG 266 (Endovascular Cardiac 
Valve Replacement with MCC) and MS-DRG 267 (Endovascular Cardiac Valve 
Replacement without MCC).
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

[[Page 49894]]

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.
    As we stated in the FY 2015 IPPS/LTCH PPS proposed rule, based on 
the results of examination of the claims data and the recommendations 
of our clinical advisors, we did not believe that proposing to 
reclassify endovascular abdominal aorta graft implantation cases from 
MS-DRGs 237 and 238 was warranted. We proposed to maintain the current 
MS-DRG assignments for endovascular abdominal aorta graft implantation 
cases. We invited public comments on our proposal.
    Comment: A number of commenters supported CMS' proposal to maintain 
the current MS-DRG assignments for endovascular abdominal aorta graft 
implantation cases. The commenters stated that the proposal was 
reasonable given the data and information provided. One commenter 
disagreed with the proposal and stated that endovascular abdominal 
aorta graft implantation cases should be reassigned to MS-DRGs 228, 
229, and 230. The commenter stated that neither MS-DRGs 237 and 238 nor 
MS-DRGs 228, 229, and 230 have absolute clinical coherence and that 
there are a mix of procedures in both set of MS-DRGs. The commenter 
also expressed concern that CMS was prioritizing clinical coherence 
over total resource cost in deciding not to approve this request to 
assign procedure code 39.71 to MS-DRGs 228, 229, and 230. The commenter 
stated that if CMS is concerned about the perception regarding clinical 
coherence of the MS-DRG assignment for procedures represented by code 
39.71, CMS should change the titles for these five MS-DRGs to 
accommodate the evolution of these procedures while also allowing for 
new indications of various types of grafts in the aorta and its 
branches. The commenter did not suggest specific new MS-DRG titles for 
MS-DRGs 228, 229, 230, 237, and 238.
    Response: We appreciate the commenters' support for our proposal to 
maintain the current assignments for endovascular abdominal aorta graft 
implantation cases in MS-DRGs 237 and 238. We are not accepting the 
commenter's suggestion that we modify the titles of MS-DRGs 228, 229, 
230, 237, and 238 in order to justify the reassignment of abdominal 
aorta graft procedures to MS-DRGs 228, 229, and 230. Our clinical 
advisors reviewed this issue and disagree with the commenters' 
statement that CMS puts too high a priority on the clinical coherence 
of the MS-DRGs. MS-DRGs were developed based on clinical similarities 
of groups of medical and surgical patients. We also consider average 
costs of these patients in evaluating the need to make modifications to 
the MS-DRGs. However, for the reasons described previously, we do not 
believe that the higher average costs for the endovascular abdominal 
aorta graft implantation cases as compared to the average for all cases 
within MS-DRGs 237 and 238 warrant reassigning these cases to MS-DRGs 
228, 229, and 230. We will continue to evaluate the need to make 
updates to the MS-DRGs to better capture procedures of the aorta and 
its branches. We welcome any specific recommendations for refinements 
to better capture changes in medical treatment. Any requests for MS-DRG 
updates must be received by December 7, 2014, in order to be considered 
for the FY 2016 proposed rule.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the current assignments for 
endovascular abdominal aorta graft implantation cases in MS-DRGs 237 
and 238.
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

[[Page 49895]]

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 agreed 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 supported our 
recommendation to collapse MS-DRGs 483 and 484 into a single MS-DRG.
    In the FY 2015 IPPS/LTCH PPS proposed rule, based on the results of 
examination of the claims data and the advice of our clinical advisors, 
we proposed 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.

----------------------------------------------------------------------------------------------------------------
                                                                     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 did 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 pointed 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

[[Page 49896]]

are appropriately classified within MS-DRGs 515, 516, and 517, which 
include other joint revision procedures. They did not support moving 
revisions of upper joint replacement procedures to MS-DRG 515, whether 
or not there is an MCC. They supported the current classification, 
which bases the severity level on the presence of a CC or an MCC. They 
also did 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, in 
the FY 2015 IPPS/LTCH PPS proposed rule, we did not propose 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 proposed 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 proposed to maintain the current MS-DRG assignments 
for revisions of upper joint replacement procedures in MS DRGs 515, 
516, and 517. We invited public comments on our proposals.
    Comment: A number of commenters supported the proposal 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 commenters stated 
that the proposal was reasonable given the data and information 
provided.
    One commenter stated that collapsing the two MS-DRGs is supported 
by claims data indicating little cost difference between cases in the 
current two severity levels. Several commenters stated that the new, 
single MS-DRG represented clinically cohesive procedures with similar 
complexity and resource consumption.
    Response: We appreciate the commenters' support for our proposal 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''.
    After consideration of the public comments we received, we are 
adopting as final, without modification, our proposal 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''.
    Comment: A number of commenters supported the proposal to maintain 
the MS-DRG assignment for code 81.97 in MS-DRGs 515, 516, and 517. The 
commenters stated that the recommendation was reasonable give the data 
and information provided. One commenter disagreed with the proposal and 
stated that code 81.97 would be more accurately classified in MS-DRG 
483 (Major Joint/Limb Reattachment of Upper Extremities with CC/MCC) 
because MS-DRG 483 includes upper extremity procedures.
    Response: We appreciate the commenters' support for our proposal to 
maintain the current MS-DRG assignment for code 81.97 in MS-DRGs 515, 
516, and 517. We disagree with the commenter that code 81.97 is similar 
to other procedures currently assigned to MS-DRG 483. MS-DRG 483 
contains replacements, not revisions, of the wrist, shoulder, and elbow 
as well as reattachments of the forearm. Revision of the joint could 
include a variety of procedures to joints of the upper extremity. 
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 continue to advise 
that code 81.97 not be reassigned to MS-DRG 483 because the procedure 
is neither a replacement nor a reattachment procedure as are the 
current procedures within MS-DRG 483. In addition, the code captures a 
variety of joint revisions of the upper extremities and is not 
clinically similar to the replacements and reattachment procedures in 
MS-DRG 483. Our clinical advisors recommend that code 81.97 continue to 
be assigned to MS-DRG 515, 516, and 517.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the current assignment of code 
81.97 in MS-DRG 515, 516, and 517.
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 MCC 
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

[[Page 49897]]

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 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            7.22         $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 did 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 did 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, in the FY 2015 IPPS/LTCH 
PPS proposed rule, we did not propose to move total ankle procedures to 
MS-DRG 483 or MS-DRG 469 when there is no MCC. We proposed to maintain 
the current MS-DRG assignments for ankle replacement cases. We invited 
public comments on our proposal.
    Comment: A number of commenters supported the proposal to maintain 
the current MS-DRG assignments for ankle replacement cases. The 
commenters stated the proposal was reasonable given the data and 
information provided. Several other commenters urged CMS to reconsider 
its decision and to create a new MS-DRG for total ankle replacements 
for FY 2015 that is more appropriate both in terms of resource 
utilization and clinical cohesiveness, and reassign ICD-9-CM procedure 
code 81.56 to the new MS-DRG. The commenters stated that, despite 
evidence that the current Medicare assignment results in payments to 
hospitals below the average costs for total ankle replacement 
procedures, and the greater clinical complexity of total ankle 
replacements relative to other procedures that map to these same MS-
DRGs, CMS proposed to maintain the current MS-DRG assignment for total 
ankle replacement procedures. The commenters stated that total ankle 
replacement is a complex surgical procedure involving the replacement 
of the damaged parts of three bones (talus, tibia, and fibula) that 
make up the articulations of the ankle, as compared to two bones in 
most other total joint replacement procedures, including hips and 
knees. The commenters stated that the resources involved with total 
ankle replacement procedures are not comparable to other procedures in 
the major joint MS-DRG and that failure to establish a new MS-DRG that 
more appropriately reflects the higher cost will likely comprise 
patient access to this procedure.
    One commenter acknowledged that there are a relatively small volume 
of total ankle replacement procedures compared to total hip and total 
knee replacements. However, the commenter suggested that this imbalance 
in case volume of total ankle replacements compared to total hip and 
knee replacements dampens the influence of actual hospital cost data 
for the total ankle replacements. The commenter recommended that all 
total ankle replacements be assigned to MS-DRG 469 even if the case 
does not have a MCC. This commenter acknowledged that the average cost 
of cases with procedure code 81.56 in MS-DRG 470 is $19,332 compared to 
average cost of $22,548 for all cases in MS-DRG of 469. However, the 
commenter suggested that moving all total ankle replacements to MS-DRG 
469 was more appropriate than having cases assigned to MS-DRGs 469 and 
470 based on the presence of an MCC. The commenter also acknowledged 
CMS' statement that under the MS-DRG system in general, some cases will 
have average costs

[[Page 49898]]

higher than the overall average costs for the MS-DRG, while other cases 
will have lower average costs. However, the commenter stated that this 
was an insufficient rationale to apply to total ankle replacements. The 
commenter disagreed with the determination of the CMS clinical advisors 
that ankle replacement cases are appropriately classified within MS-
DRGs 469 and 470, based on severity level. The commenter stated that 
total ankle replacement is a complicated surgery that involves the 
replacement of the damaged parts of the three bones that make up the 
ankle joint, as compared to two bones in hip and knee replacement 
procedures. The commenter stated that this surgery required a 
specialized skill set, operative technique, and level of operating room 
resource utilization that is vastly dissimilar from that of total hip 
and total knee replacements. The commenter recommended that CMS create 
a new MS-DRG for total ankle replacements or move all total ankle 
replacements to MS-DRG 469.
    Response: We appreciate the commenters' support for our proposal to 
maintain the current MS-DRG assignment for total ankle replacements. We 
are not accepting the commenter's recommendation to create a new MS-DRG 
for total ankle replacements or to move all cases to MS-DRG 469. We 
point out that there were only 1,411 total ankle replacements with 32 
cases in MS-DRG 469 and 1,379 cases in MS-DRG 470. Creating a new MS-
DRG for this single procedure would not be appropriate. MS-DRGs were 
created to provide payment to hospitals for groups of clinically 
similar conditions and procedures. MS-DRGs were not created to provide 
payment for each single procedure. MS-DRGs 469 and 470 contain 
replacement and reattachment procedures of the lower extremity, 
including those of the hip, knee, ankle, foot, lower leg, and thigh. 
Within each MS-DRG, there will be cases with costs higher than the 
average costs and others with costs below the average costs. Basing a 
new MS-DRG on 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 
clinically cohesive groups within an MS-DRG provides greater stability 
for annual updates to the relative payment weights. We also point out 
that combining total ankle replacements into a single new MS-DRG would 
result in the same payment for cases with an MCC as those without an 
MCC. As indicated above, total ankle replacements with MCCs have 
average costs of $27,419 and those without MCCs have average costs of 
$19,332. Combining all total ankle replacements into a single, newly 
created MS-DRG would reduce the payment accuracy of cases with 
different severity levels.
    We also disagree with the recommendation to move all total ankle 
replacement to MS-DRG 469. As stated earlier, total ankle replacements 
with MCCs have average costs of $27,419 and those without MCCs have 
average costs of $19,332. The average cost of all cases in MS-DRG 469 
(which includes cases with MCCs) is $22,548. We point out again that, 
under the MS-DRGs, some cases will have average costs higher than the 
overall average costs for the MS-DRG while other cases will have lower 
average costs. The total ankle replacements are appropriately assigned 
to MS-DRGs 469 and 470 based on the presence of a MCC.
    Our clinical advisors reviewed the public comments and clinical 
data and continue to support maintaining the current MS-DRG assignment 
for total ankle replacements. They advised that total ankle 
replacements are appropriately assigned to MS-DRGs 469 and 470 along 
with other major joint replacement and reattachment procedures of the 
lower extremities because they are all replacement and reattachment 
procedures of the lower extremities. Our clinical advisors noted that, 
whereas they consider average cost as one element of the decision, they 
expect the average cost of any subset to be different than the average 
cost of the MS-DRG, as that is inherent in a system of averages. They 
note that average length of stay, another metric of resource usage, is 
lower than the MS-DRG average for this subgroup. Even more importantly, 
they further noted that leaving these procedures in a MS-DRG with other 
lower extremity procedures promotes greater clinical consistency than 
could be achieved by moving the ankle procedures into an upper 
extremity DRG. They noted that, for the inpatient prospective system, 
clinical consistency includes not just technical considerations of the 
surgery or device costs but also consideration of pre- and post-
operative patient care needs, medications, and care for common comorbid 
conditions, among other factors. Finally, our clinical advisors also 
pointed out that creating a new MS-DRG for total ankle replacements 
would result in combining cases with average length of stay of 6.19 
days for cases with MCC and 2.13 days for cases without MCC. The cases 
are more appropriately assigned to MS-DRGs 469 and 470 with the two 
severity levels. Our clinical advisors do not support creating a new 
MS-DRG which would contain only total ankle replacements.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the current MS-DRG assignment for 
total ankle replacements in MS-DRGs 469 and 470.
    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
----------------------------------------------------------------------------------------------------------------


[[Page 49899]]

    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.
    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 did 
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 supported 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 did 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 did 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, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not 
propose 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 
proposed to maintain the current MS-DRG assignments for revision of 
joint replacement of lower extremity cases.
    In summary, we proposed 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 invited public comments on our proposals.
    Comment: A number of commenters supported the proposal to maintain 
the current MS-DRG assignment for code 81.59. One commenter agreed with 
this proposal given the lack of specificity for this code which does 
not identify the specific joint being revised. The commenter 
recommended that CMS create the following new ICD-9-CM procedure code: 
81.58 (Revision of ankle replacement, not otherwise specified). Once 
this code is created, the commenter recommended that this new code be 
assigned to MS-DRGs 466, 467, and 468 and that these MS-DRGs be renamed 
Revision of Hip, Knee or Ankle (with MCC, with CC, and without CC/MCC, 
respectively).
    Response: We appreciate the commenters' support for our proposal 
not to change the MS-DRG assignment for code 81.59. We agree with the 
commenter who pointed out that code 81.59 does not identify the joint 
being revised and, therefore, code 81.59 should continue to be assigned 
to MS-DRGs 515, 516, and 517. ICD-10-PCS codes provide greater detail 
than do ICD-9-CM codes and provide the ability to identify the joint 
being revised. As mentioned earlier, the Secretary announced plans to 
release an interim final rule in the near future that will include a 
new compliance date to require the use of ICD-10 beginning October 1, 
2015. The interim final rule will also require HIPAA covered entities 
to continue to use ICD-9-CM through September 30, 2015. Given this 
timeline, it will not be possible to create a new ICD-9-CM procedure 
code for the next annual update on October 1, 2015 because ICD-10 will 
be implemented on that date. However, ICD-10-PCS will provide the 
necessary level of detail.
    After consideration of the public comments we received, we are 
finalizing our proposal 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.
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.

[[Page 49900]]



----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length 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
----------------------------------------------------------------------------------------------------------------
                                                                               Average length
                   Severity level split                      Number of 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
----------------------------------------------------------------------------------------------------------------

    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 agreed 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.
    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, in the FY 2015 IPPS/LTCH PPS 
proposed rule, we proposed to create three new MS-DRGs and to delete 
MS-DRGs 490 and 491. We proposed that 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 invited public comments on our proposal to create these proposed 
new MS-DRGs for FY 2015.
    Comment: Several commenters supported the proposal to delete MS-
DRGs 490 and 491 and to create three new MS-DRGs that better account 
for a patient's severity of illness and utilization of resources when 
disc devices and neurostimulators are involved. One commenter stated 
that the new MS-DRGs would enable CMS to assess utilization of 
resources for these services and ensure that ``important innovation in 
device dependent neurosurgical procedures is adequately accounted for 
and reimbursed appropriately.'' Another commenter expressed its 
appreciation for CMS' careful data analysis that resulted in the 
development of the proposal. This commenter noted ``that the data 
presented by CMS make a compelling case for the proposed three 
subdivisions, because it would more appropriately compensate hospitals 
for the costs associated with implantation of a disc device or 
neurostimulator than the current two-division framework.'' Another 
commenter applauded CMS' past efforts to assure MS-DRGs 490 and 491 
reflect the most appropriate payment amounts for these procedures. This 
commenter stated ``the proposed three-way split of cases in current MS-
DRGs 490 and 491 demonstrates a better distribution of cases with 
regard to resource use. CMS should proceed with its proposed change to 
this MS-DRG category to improve the accuracy of the payments, 
consistent with its criteria for establishing severity levels within 
the MS-DRGs.'' Another commenter noted that ``subdividing the code set 
into three distinct MS-DRGs is not only a more accurate representation 
of the clinical condition experienced by the patient, but also better 
categorizes the resources expended by the facility, as evidenced by the 
supporting claims data.''
    Response: We thank the commenters for their support. As noted in 
the FY 2015 IPPS/LTCH PPS proposed rule, the additional data analysis 
demonstrated a better distribution of cases with regard to length of 
stay and average costs. Our clinical advisors also agreed that a 
patient's severity of illness is captured more appropriately with this 
subdivision. Lastly, the data also meet the established criteria for 
creating subgroups within a base MS-DRG as discussed earlier.
    After consideration of the public comments we received, for FY 2015 
we are adopting as final our proposal to create new MS-DRG 518 (Back & 
Neck Procedures Except Spinal Fusion with MCC or Disc Device/
Neurostimulator); MS-DRG 519 (Back & Neck Procedures Except Spinal 
Fusion with CC); and MS-DRG 520 (Back & Neck Procedures Except Spinal 
Fusion without CC/MCC).

[[Page 49901]]

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.

----------------------------------------------------------------------------------------------------------------
                                                                               Average  length
                          MS-DRG                             Number of 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. In the FY 2015 IPPS/LTCH PPS proposed 
rule, we stated that, given the small number of porphyria cases, we did 
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, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not 
propose to create a new MS-DRG for porphyria cases. We invited public 
comments on our proposal to maintain porphyria cases in MS-DRG 642.
    Comment: Several commenters supported the proposal to maintain 
porphyria cases in MS-DRG 642 and to not create a new MS-DRG for these 
cases.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain porphyria cases in MS-DRG 642 and 
to not create a new MS-DRG for these cases.
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)
 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 concurred 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28017), we proposed 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.


[[Page 49902]]


 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 invited public comments on this proposal.
    Comment: Several commenters supported the proposal to reassign the 
identified seven diagnoses to the ``only secondary diagnosis'' list 
under MS-DRG 795 so that the case would be assigned to MS-DRG 795.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to reassign the 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)
8. 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 final 
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.
    In the FY 2015 IPPS/LTCH PPS proposed rule, for FY 2015, we 
proposed 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 proposed 
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 invited public comments on this proposal.
    Comment: Several commenters supported the proposal to remove the 
MCE ``Noncovered Procedure'' edit for EC-IC bypass surgery (procedure 
code 39.28) from the ``Noncovered Procedure'' edit code list for 
Version 32.0 of the MCE. The commenters stated that the proposal was 
reasonable given the information that was provided. Commenters also 
agreed that because of the complexity of appropriately classifying the 
circumstances under which the EC-IC bypass surgery may be considered 
reasonable and necessary for certain conditions, the Medicare 
noncovered procedure edit for EC-IC bypass surgery should be removed.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove procedure code 39.28 (Extracranial-
intracranial (EC-IC) vascular bypass) from the noncovered procedure 
edit effective FY 2015.
9. 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-

[[Page 49903]]

DRG 002. To determine whether surgical class A should be higher or 
lower than surgical class B in the surgical hierarchy, we would weigh 
the average costs of each MS-DRG in the class by frequency (that is, by 
the number of cases in the MS-DRG) to determine average resource 
consumption for the surgical class. The surgical classes would then be 
ordered from the class with the highest average resource utilization to 
that with the lowest, with the exception of ``other O.R. procedures'' 
as discussed below.
    This methodology may occasionally result in assignment of a case 
involving multiple procedures to the lower-weighted MS-DRG (in the 
highest, most resource-intensive surgical class) of the available 
alternatives. However, given that the logic underlying the surgical 
hierarchy provides that the GROUPER search for the procedure in the 
most resource-intensive surgical class, in cases involving multiple 
procedures, this result is sometimes unavoidable.
    We note that, notwithstanding the foregoing discussion, there are a 
few instances when a surgical class with a lower average cost is 
ordered above a surgical class with a higher average cost. For example, 
the ``other O.R. procedures'' surgical class is uniformly ordered last 
in the surgical hierarchy of each MDC in which it occurs, regardless of 
the fact that the average costs for the MS-DRG or MS-DRGs in that 
surgical class may be higher than those for other surgical classes in 
the MDC. The ``other O.R. procedures'' class is a group of procedures 
that are only infrequently related to the diagnoses in the MDC, but are 
still occasionally performed on patients with cases assigned to the MDC 
with these diagnoses. Therefore, assignment to these surgical classes 
should only occur if no other surgical class more closely related to 
the diagnoses in the MDC is appropriate.
    A second example occurs when the difference between the average 
costs for two surgical classes is very small. We have found that small 
differences generally do not warrant reordering of the hierarchy 
because, as a result of reassigning cases on the basis of the hierarchy 
change, the average costs are likely to shift such that the higher-
ordered surgical class has lower average costs than the class ordered 
below it.
    Based on the changes that we proposed 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 the FY 2015 IPPS/LTCH PPS proposed rule, we proposed 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 proposed 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 proposed 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 
proposed 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 invited public comments on our proposals.
    Comment: We did not receive any public comments opposing our 
proposals for the surgical hierarchy. Commenters expressed general 
support for the proposals, noting they were reasonable given the 
information that was provided.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal for MDC 5 to sequence new MS-DRG 266 
(Endovascular Cardiac Valve Replacement with MCC) and 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). We also are finalizing our proposal for MDC 8 to 
delete MS-DRG 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 sequencing new MS-
DRG 518 (Back & Neck Procedure Except Spinal Fusion with MCC or Disc 
Device/Neurostimulator), new MS-DRG 519 (Back & Neck Procedure Except 
Spinal Fusion with CC), and 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), effective FY 
2015.
10. 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.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Cnt 1                     Cnt 2                     Cnt 3
             Code                   Diagnosis description       CC  level      Cnt 1        impact       Cnt 2        impact       Cnt 3        impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
414.4........................  Coronary atherosclerosis due         Non-CC        1,796         1.16        3,056         2.18        2,835         3.01
                                to calcified lesion.
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 49904]]

    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 did not believe that this diagnosis 
would increase the severity level of patients. They pointed out that a 
similar code, diagnosis code 414.2 (Chronic total occlusion of coronary 
artery), is a non-CC. Our clinical advisors believe that diagnosis code 
414.4 represents patients who are less severe than diagnosis code 
414.2. Considering the C1 and C2 ratings of diagnosis code 414.4 and 
the input from our clinical advisors, in the FY 2015 IPPS/LTCH PPS 
proposed rule, we did not propose to reclassify diagnosis code 414.4 to 
an MCC; the diagnosis code would continue to be considered a non-CC.
    Therefore, based on the data and clinical analysis, we proposed to 
maintain diagnosis code 414.4 as a non-CC. We invited public comments 
on our proposal.
    Comment: Several commenters supported the proposal to keep 
diagnosis code 414.4 as a non-CC. One commenter requested that 
diagnosis code 414.4, when present as a secondary diagnosis, be 
included on the MCC list. The commenter believed that treating 
calcified coronary lesions with atherectomy is underpaid by the 
Medicare program for patients requiring percutaneous coronary 
intervention when calcified coronary lesions prevent successful 
angioplasty and placement of coronary stents. The commenter further 
stated that treating coronary calcification is significantly more 
difficult to treat, requires more time and equipment, and has clinical 
outcomes that are much worse compared to treating noncalcified or 
mildly calcified coronary obstructions. Consequently, the commenter 
believed it costs hospitals more to treat patients with calcified 
coronary lesions and that hospitals should be compensated for their 
expense to treat coronary atherosclerosis in Medicare beneficiaries. 
The commenter recognized the opinion of our clinical advisors that 
patients with a code 414.4 diagnosis are less severe than those with a 
code 414.2 diagnosis, but disagreed with that opinion. The commenter 
believed that both disease states add substantial treatment time and 
costs to the providers, health care systems, and society and both are 
worthy of classification as an MCC.
    Response: We appreciate the commenters' support for our proposal to 
maintain code 414.4 as a non-CC. We are not accepting the commenter's 
recommendation to change this code to an MCC because our clinical data 
do not support such a change. The data continue to support keeping 
diagnosis code 414.4 as a non-CC and do not support changing the code 
to an MCC, for the reasons described above.
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for ICD-9-CM diagnosis code 414.2. The following chart 
shows our findings.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Cnt 1                     Cnt 2                     Cnt 3
             Code                   Diagnosis description       CC  level      Cnt 1        impact       Cnt 2        impact       Cnt 3        impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
414.2........................  Chronic total occlusion of           Non-CC       15,814         1.25       21,483         2.09       19,955         3.04
                                coronary artery.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The chart above for diagnosis code 414.2 shows that the C1 finding 
is 1.25. 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 2.09. 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 1.25 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 2.09 also 
does not support reclassifying this diagnosis code to an MCC.
    Our clinical advisors reviewed the data and evaluated the severity 
level for both diagnosis code 414.4 and 414.2. They continue to 
recommend that we not change the severity level of diagnosis code 414.4 
from a non-CC to an MCC. Furthermore, they recommend that we not change 
the severity level for diagnosis code 414.2. They do not believe that 
the diagnosis represented by either code would increase the severity 
level of patients. After reviewing the commenter's justification for 
changing diagnosis code 414.4 from a non-CC to an MCC, our clinical 
advisors continue to recommend that we not change the severity level of 
diagnosis code 414.4 from a non-CC to an MCC. They again pointed out 
that diagnosis code 414.2 is a similar code and is a non-CC. As noted, 
they also recommend maintaining diagnosis code 414.2 as a non-CC. Our 
clinical advisors continue to believe that diagnosis code 414.4 
represents patients who are less severe than diagnosis code 414.2.
    After consideration of the public comments we received, the C1 and 
C2 ratings in our claims data, and the input from our clinical 
advisors, we are finalizing our proposal to not reclassify diagnosis 
code 414.4 from a non-CC to an MCC; the diagnosis code will continue to 
be considered a non-CC.

[[Page 49905]]

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

    In the FY 2015 IPPS/LTCH PPS proposed rule, for FY 2015, we did not 
propose any changes to the CC Exclusion List. Therefore, we did not 
develop or publish Tables 6G (Additions to the CC Exclusion List) or 
Table 6H (Deletions from the CC Exclusion List). We 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 
final 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 were no proposed new, revised, or deleted diagnosis 
or procedure codes for FY 2015, we have not developed 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 the 
final rule and they are not published as part of this final rule.
    We did not propose any additions or deletions to the MS-DRG MCC 
List for FY 2015 nor any additions or deletions to the MS-DRG CC List 
for FY 2015. Therefore, as we proposed, for this final rule, we have 
not developed 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 final 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 32.0 of this manual, which includes the final FY 
2015 MS-DRG changes, is available on a CD for

[[Page 49906]]

$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 did not propose to change the 
procedures assigned among these MS-DRGs.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not making any changes to the procedures 
assigned to MS-DRGs 981 through 983, MS-DRGs 984 through 986, and MS-
DRGs 987 through 989 for FY 2015.
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 did not propose to remove any procedures from MS-DRGs 981 
through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs 
for the MDC into which the principal diagnosis is assigned.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not removing any procedures from MS-DRGs 981 
through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs 
into which the principal diagnosis is assigned for FY 2015.
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

[[Page 49907]]

trends such as shifts in treatment practice or reporting practice that 
would make the resulting MS-DRG assignment illogical. If we find these 
shifts, we would propose to move cases to keep the MS-DRGs clinically 
similar or to provide payment for the cases in a similar manner. 
Generally, we move only those procedures for which we have an adequate 
number of discharges to analyze the data.
    There were no cases representing shifts in treatment practice or 
reporting practice that would make the resulting MS-DRG assignment 
illogical, or that merited movement so that cases should logically be 
assigned to any of the other MDCs. Therefore, for FY 2015, we did not 
propose to move any procedure codes among these MS-DRGs.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not moving any procedure codes among these MS-
DRGs for FY 2015.
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 final rule, we did 
not propose to add any diagnosis or procedure codes to MDCs for FY 
2015. We did not receive any public comments on our proposal. 
Therefore, as we proposed, we are not adding any diagnosis or procedure 
codes to MDCs for FY 2015.
13. 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. It was 
announced at this meeting that any new ICD-10-CM/PCS codes for which 
there was consensus of public support and for which complete tabular 
and indexing changes would be made by May 2014 would be included in the 
October 1, 2014 update to ICD-10-CM/ICD-10-PCS. For FY 2015, there are 
no new, revised, or deleted ICD-10-CM diagnosis codes or ICD-10-PCS 
procedure codes, and no 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

[[Page 49908]]

be available 6 months earlier than would be possible with updates 
occurring only once a year on October 1.
    While section 1886(d)(5)(K)(vii) of the Act states that the 
addition of new diagnosis and procedure codes on April 1 of each year 
shall not require the Secretary to adjust the payment, or DRG 
classification, under section 1886(d) of the Act until the fiscal year 
that begins after such date, we have to update the DRG software and 
other systems in order to recognize and accept the new codes. We also 
publicize the code changes and the need for a mid-year systems update 
by providers to identify the new codes. Hospitals also have to obtain 
the new code books and encoder updates, and make other system changes 
in order to identify and report the new codes.
    The ICD-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

[[Page 49909]]

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.
    On May 15, 2014, CMS posted an updated Partial Code Freeze schedule 
on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-9-CM-Coordination-and-Maintenance-Committee-Meetings.html. This updated 
schedule provided information on the extension of the partial code 
freeze until 1 year after the implementation of ICD-10. As stated 
earlier, on April 1, 2014, the Protecting Access to Medicare Act of 
2014 (PAMA) (Pub. L. 113-93) was enacted, which specified that the 
Secretary may not adopt ICD-10 prior to October 1, 2015. On May 1, 
2014, the Department announced that it expects to release a interim 
final rule in the near future that will include a new compliance date 
to require the use of ICD-10 beginning October 1, 2015. The rule will 
also require HIPAA covered entities to continue to use ICD-9-CM through 
September 30, 2015. Accordingly, the updated schedule for the partial 
code freeze is as follows:
     The last regular annual updates to both ICD-9-CM and ICD-
10 code sets were made on October 1, 2011.
     On October 1, 2012, October 1, 2013, and October 1, 2014, 
there will be only limited code updates to both the ICD-9-CM and ICD-10 
code sets to capture new technologies and diseases as required by 
section 1886(d)(5)(K) of the Act.
     On October 1, 2015, there will be only limited code 
updates to ICD-10 code sets to capture new technologies and diagnoses 
as required by section 1886(d)(5)(K) of the Act. There will be no 
updates to ICD-9-CM, as it will no longer be used for reporting.
     On October 1, 2016 (1 year after implementation of ICD-
10), regular updates to ICD-10 will 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.
    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                  No.         Change           Fiscal year           No.         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
FY 2015 (October 1, 2014):           ...........  ............  FY 2015:
    Diagnoses......................       14,567            0      ICD-10-CM..........       69,823            0
    Procedures.....................        3,882            0      ICD-10-PCS.........       71,924            0
----------------------------------------------------------------------------------------------------------------

    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

[[Page 49910]]

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.
14. Public Comments on Issues Not Addressed in the Proposed Rule
    We received three public comments regarding MS-DRG issues that were 
outside of the scope of the proposals included in the FY 2014 IPPS/LTCH 
PPS proposed rule. Below we summarize these public comments. However, 
because we consider these public comments to be outside of the scope of 
the proposed rule, we are not responding to them in this final rule. As 
stated in section II.G.1.b. of the preamble of this final rule, we 
encourage individuals with comments about MS-DRG classifications to 
submit these comments no later than December 7 of each year so they can 
be considered for possible inclusion in the annual proposed rule and, 
if included, may be subjected to public review and comment. We will 
consider these public comments for possible proposals in future 
rulemaking as part of our annual review process.
a. Request for Review and MS-DRG Reassignment for ICD-9-CM Diagnosis 
Code 784.7 Reported With Procedure Codes 39.75 and 39.76
    One commenter expressed concern regarding specific procedure codes 
that are assigned to MS-DRGs 981 through 983; 984 through 986; and 987 
through 989 in relation to our discussion of the annual review of these 
MS-DRGs in section II.G.12. of the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28020). The commenter noted that the endovascular embolization 
of the arteries of the branches of the internal maxillary artery is 
frequently performed for intractable posterior epistaxis. The commenter 
stated that, currently, diagnosis code 784.7 (Epistaxis) reported with 
procedure codes 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) groups to MS-DRG 981(Extensive O.R. Procedure Unrelated to 
Principal Diagnosis with MCC), MS-DRG 982 (Extensive O.R. Procedure 
Unrelated to Principal Diagnosis with CC), and MS-DRG 983 (Extensive 
O.R. Procedure Unrelated to Principal Diagnosis without CC/MCC). The 
commenter indicated that it also found this grouping with ICD-10 
diagnosis code R04.0 (Epistaxis) reported with artery occlusion 
procedure codes. The commenter requested that CMS review these 
groupings and consider the possibility of reassigning these procedure 
codes into a more specific MS-DRG.
    We consider this public comment to be outside of the scope of the 
FY 2015 IPPS/LTCH PPS proposed rule and therefore are not addressing it 
in this final rule. However, we will consider this public comment for 
possible proposals in future rulemaking as part of our annual review 
process.
b. Coding for Extracorporeal Membrane Oxygenation Procedures (ECMO)
    Several commenters expressed concern that hospitals may not be 
correctly reporting extracorporeal membrane oxygenation (ECMO) and 
percutaneous cardiopulmonary bypass procedures. The commenters 
requested that CMS inform hospitals that they should appropriately code 
each procedure separately because each code captures different 
procedures.
    We consider this coding issue to be outside of the scope of the FY 
2015 IPPS/LTCH PPS proposed rule. We refer commenters to the American 
Hospital Association's Central Office on Coding, which has 
responsibility for providing coding advice on such specific coding 
issues through its publication Coding Clinic.
c. Adding Severity Levels to MS-DRGs 245 through 251
    One commenter recommended including additional severity levels 
under MS-DRG 245 (AICD Generator Procedures); MS-DRG 246 (Percutaneous 
Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ 
Vessels/Stents); MS-DRG 247 (Percutaneous Cardiovascular Procedure with 
Drug-Eluting Stent without MCC); MS-DRG 248 (Percutaneous 
Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ 
Vessels/Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedure with 
Non-Drug-Eluting Stent without MCC); MS-DRG 250 (Percutaneous 
Cardiovascular Procedure without Coronary Artery Stent with MCC); and 
MS-DRG 251 (Percutaneous Cardiovascular Procedure without Coronary 
Artery Stent without MCC).
    We consider this public comment to be outside of the scope of the 
FY 2015 IPPS/LTCH PPS proposed rule, and therefore are not addressing 
it in this final rule. However, we will consider the comment for 
possible proposals in future rulemaking as part of our annual review 
process.

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

1. Data Sources for Developing the Relative Weights
    In developing the 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 final rule include 
discharges occurring on October 1, 2012, through September 30, 2013, 
based on bills received by CMS through March 31, 2014, 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 relative weights includes data for approximately 
10,090,385 Medicare discharges from IPPS providers. Discharges for 
Medicare beneficiaries enrolled in a Medicare Advantage managed care 
plan are excluded from this analysis. These discharges are excluded 
when the MedPAR ``GHO Paid'' indicator field on the claim record is 
equal to ``1'' or when the MedPAR DRG payment field, which represents 
the total payment for the claim, is equal to the MedPAR ``Indirect 
Medical Education (IME)'' payment field, indicating that the claim was 
an ``IME only'' claim submitted by a teaching hospital on behalf of a 
beneficiary enrolled in a Medicare Advantage managed care plan. In 
addition, the March 31, 2014 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 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 
relative weights are based on the ICD-9-CM diagnoses and procedures 
codes from the MedPAR

[[Page 49911]]

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 March 31, 2014 update of the FY 2012 HCRIS for calculating the 
FY 2015 cost-based relative weights.
2. Methodology for Calculation of the Relative Weights
    As we explain in section II.E.2. of the preamble of this final 
rule, we are calculating the FY 2015 relative weights based on 19 CCRs, 
as we did for FY 2014. The methodology we used to calculate the 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 FY 2015 MS-DRG classifications discussed in sections II.B. 
and II.G. of the preamble of this final rule.
     The transplant cases that were used to establish the 
relative weights for heart and heart-lung, liver and/or intestinal, and 
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) 
were limited to those Medicare-approved transplant centers that have 
cases in the FY 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 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 49912]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        Cost from  HCRIS     Charges from  HCRIS     Medicare  charges
                                                   Revenue codes                      (Worksheet C,  Part    (Worksheet C,  Part        from  HCRIS
 Cost center  group name  (19    MedPAR charge     contained in       Cost report      1,  Column 5  and    1,  Column 6 & 7  and     (Worksheet D-3,
            total)                   field        MedPAR  charge   line description   line  number)  Form    line  number)  Form   Column & line number)
                                                       field                              CMS-2552-10            CMS-2552-10         Form  CMS-2552-10
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
                                                  0274, 0277,       Patients.
                                                  0279, and 0621,
                                                  0622, 0623.
                                                                                                            C--1--C7--71
                               Durable Medical   0290, 0291, 0292  DME-Rented......  C--1--C5--96.........  C--1--C6--96           D3--HOS--C2--96
                                Equipment         and 0294-0299.
                                Charges.
                                                                                                            C--1--C7--96
                               Used Durable      0293............  DME-Sold........  C--1--C5--97.........  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
                                                                    to Patients.
                                                                                                            C--1--C7--72
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...  Electro-          C--1--C5--69.........  C--1--C6--69           D3--HOS--C2--69
                                Charges.                            cardiology.
                                                                                                            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.

[[Page 49913]]

 
                                                                                                            C--1--C7--60
                                                                   PBP Clinic        C--1--C5--61.........  C--1--C6--61           D3--HOS--C2--61
                                                                    Laboratory
                                                                    Services.
                                                                                                            C--1--C7--61
                                                 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)
                                                                    Scan.
                                                                                                            C--1--C7--57
Magnetic Resonance Imaging     MRI Charges.....  061X............  Magnetic          C--1--C5--58.........  C--1--C6--58           D3--HOS--C2--58
 (MRI).                                                             Resonance
                                                                    Imaging (MRI).
                                                                                                            C--1--C7--58
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
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 49914]]

    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 FY 2015 cost-based relative weights were then normalized by an 
adjustment factor of 1.645837 so that the average case weight after 
recalibration was equal to the average case weight before 
recalibration. The normalization adjustment is intended to ensure that 
recalibration by itself neither increases nor decreases total payments 
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
    The 19 national average CCRs for FY 2015 are as follows:

------------------------------------------------------------------------
                             Group                                 CCR
------------------------------------------------------------------------
Routine Days...................................................    0.489
Intensive Days.................................................    0.407
Drugs..........................................................    0.192
Supplies & Equipment...........................................    0.292
Implantable Devices............................................    0.349
Therapy Services...............................................    0.344
Laboratory.....................................................    0.128
Operating Room.................................................    0.212
Cardiology.....................................................    0.123
Cardiac Catheterization........................................    0.133
Radiology......................................................    0.165
MRIs...........................................................    0.087
CT Scans.......................................................    0.043
Emergency Room.................................................    0.195
Blood and Blood Products.......................................    0.360
Other Services.................................................    0.405
Labor & Delivery...............................................    0.398
Inhalation Therapy.............................................    0.181
Anesthesia.....................................................    0.114
------------------------------------------------------------------------

    Since FY 2009, the relative weights have been based on 100 percent 
cost weights based on our MS-DRG grouping system.
    When we recalibrated the DRG weights for previous years, we set a 
threshold of 10 cases as the minimum number of cases required to 
compute a reasonable weight. In the FY 2015 IPPS/LTCH PPS proposed 
rule, we proposed to use that same case threshold in recalibrating the 
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 proposed 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).

[[Page 49915]]

 
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).
------------------------------------------------------------------------

    We did not receive any public comments on this proposal and, 
therefore, are finalizing it for FY 2015 as proposed.
4. Bundled Payments for Care Improvement (BPCI) Initiative
    The Bundled Payments for Care Improvement (BPCI) initiative, 
developed under the authority of section 3021 of the Affordable Care 
Act (codified at section 1115A of the Act), is comprised of four 
broadly defined models of care, which link payments for multiple 
services beneficiaries receive during an episode of care. Under the 
BPCI initiative, organizations enter into payment arrangements that 
include financial and performance accountability for episodes of care. 
On January 31, 2013, CMS announced the health care organizations 
selected to participate in the BPCI initiative. For additional 
information on the BPCI initiative, we refer readers to the CMS' Center 
for Medicare and Medicaid Innovation's Web site at http://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to 
section IV.H.4. of the preamble of the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53341 through 53343) for a discussion on the BPCI initiative.
    In the FY 2013 IPPS/LTCH PPS final rule, for FY 2013 and subsequent 
fiscal years, we finalized a policy to treat hospitals that participate 
in the BPCI initiative the same as prior fiscal years for the IPPS 
payment modeling and ratesetting process without regard to a hospital's 
participation within these bundled payment models (that is, as if a 
hospital were not participating in those models under the BPCI 
initiative). Therefore, for FY 2015, we proposed to continue to include 
all applicable data from subsection (d) hospitals participating in BPCI 
Models 1, 2, and 4 in our IPPS payment modeling and ratesetting 
calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 
for a complete discussion on our final policy for the treatment of 
hospitals participating in the BPCI initiative in our ratesetting 
process.
    Comment: One commenter was concerned about the policy to treat all 
providers 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. The commenter stated that while it is unlikely to have 
a demonstrable effect in FY 2015, the BPCI initiative has just begun 
and has few participants compared to the total number of PPS hospitals. 
The commenter further stated that the cohort is expected to expand 
dramatically, given the additional round of applications, and it 
expected participants to focus their cost reduction activities in 
select MS-DRGs, which could skew specific weights and inappropriately 
shift payments to other MS-DRGs. The commenter added that providers 
that are not part of the initiative cannot be expected to reach the 
same performance levels without the same tools available within the 
BPCI. The commenter recommended that CMS reconsider removing BPCI 
participants from the IPPS relative weight setting process.
    Response: As the commenter stated, the BPCI initiative is unlikely 
to have a demonstrable effect for FY 2015. Accordingly, we are 
finalizing our proposal 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 for FY 2015. 
However, we will monitor the possible impact that hospitals enrolled in 
the BPCI initiative may have on the MS-DRG relative weights in future 
fiscal years.

I. Add-On Payments for New Services and Technologies

1. Background
    Sections 1886(d)(5)(K) and (L) of the Act establish a process of 
identifying and ensuring adequate payment for new medical services and 
technologies (sometimes collectively referred to in this section as 
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the 
Act specifies that a medical service or technology will be considered 
new if it meets criteria established by the Secretary after notice and 
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act 
specifies that a new medical service or technology may be considered 
for new technology add-on payment if, ``based on the estimated costs 
incurred with respect to discharges involving such service or 
technology, the DRG prospective payment rate otherwise applicable to 
such discharges under this subsection is inadequate.'' We note that 
beginning with discharges occurring in FY 2008, CMS transitioned from 
CMS-DRGs to MS-DRGs.
    The regulations at 42 CFR 412.87 implement these provisions and 
specify three criteria for a new medical service or technology to 
receive the additional payment: (1) The medical service or technology 
must be new; (2) the medical service or technology must be costly such 
that the DRG rate otherwise applicable to discharges involving the 
medical service or technology is determined to be inadequate; and (3) 
the service or technology must demonstrate a substantial clinical 
improvement over existing services or technologies. Below we highlight 
some of the major statutory and regulatory provisions relevant to the 
new technology add-on payment criteria as well as other information. 
For a complete discussion on the new technology add-on payment 
criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51572 through 51574).
    Under the first criterion, as reflected in Sec.  412.87(b)(2), a 
specific medical service or technology will be considered ``new'' for 
purposes of new medical service or technology add-on payments until 
such time as Medicare data are available to fully reflect the cost of 
the technology in the MS-DRG weights through recalibration. We note 
that we do not consider a service or technology to be new if it is 
substantially similar to one or more existing technologies. That is, 
even if a technology receives a new FDA approval, it may not 
necessarily be considered ``new'' for purposes of new technology add-on 
payments if it is ``substantially similar'' to a technology that was 
approved by FDA and has been on the market for more than 2 to 3 years. 
In the FY 2006 IPPS final rule (70 FR 47351) and the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 43813 and 43814), we explained our 
policy regarding substantial similarity in detail.
    Under the second criterion, Sec.  412.87(b)(3) further provides 
that, to be eligible for the add-on payment for

[[Page 49916]]

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 
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

[[Page 49917]]

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 document 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 the proposed 
rule.
    In response to the published document and the New Technology Town 
Hall meeting, we received written comments regarding the applications 
for FY 2015 new technology add-on payments. We summarized these 
comments in the preamble of the proposed rule or, if applicable, 
indicated that there were no comments received, at the end of each 
discussion of the individual applications in the 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 
document 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 did 
not summarize those comments in the proposed rule. Commenters were 
informed that they were welcome to resubmit these comments during the 
comment period in response to proposals presented in the proposed rule. 
We summarize and respond to these comments under the applicable 
discussions within this final rule.
    We also received public comments in response to the proposed rule 
relating to topics such as marginal cost factors for new technology 
add-on payments, mapping new technologies to the appropriate MS-DRG, 
deeming a new technology a substantial clinical improvement if it 
receives HDE approval from the FDA, and the use of external data in 
determining the cost threshold. Because we did not request public 
comments nor propose to make any changes to any of the issues above, we 
are not summarizing these public comments nor responding to them in 
this final rule.
    Another commenter asked CMS to consider the implications of the new 
technology add-on payment policy on antibiotics that fall under the 
current IPPS and, in particular, the Hospital VBP Program for which the 
inclusion of the MRSA bacteremia measure and the C-difficile measure 
are proposed. The commenter was concerned that current payment policy 
will be inadequate and place further financial pressure on hospitals. 
The commenter stated that CMS must consider the evolving payment 
paradigm facing inpatient facilities (IQR, HAC, and VBP) and ensure 
that these various policies do not have competing goals. Although we 
agree with the commenter that CMS should consider the evolving payment 
paradigm facing inpatient facilities regarding payment reductions under 
the Hospital IQR Program, the HAC Reduction Program, and the Hospital 
VBP Program and ensure that these various policies do not have 
competing goals, we are not providing a detailed response because we 
did not present any policy proposals concerning these issues.
    Comment: One commenter expressed concern that services identified 
as appropriate for new technology add-on payments do not receive the 
new technology add-on payment even when the claims for these services 
are correctly submitted to the Medicare administrative contractors 
(MACs). The commenter stated that the MACs are often unable to explain 
the reason for the failure to include the new technology add-on payment 
or answer inquiries regarding this issue. The commenter recommended 
that CMS provide additional education to the MACs regarding CMS 
regulations related to services available for new technology add-on 
payments.
    Response: We encourage providers to work with their MACs to ensure 
that the

[[Page 49918]]

new technology add-on payments are accurately and appropriately made. 
If MACs are having any issues, they can contact the CMS Central Office 
for further assistance. Also, the regulations at Sec.  412.88 explain 
how the new technology add-on payments are made. We note that, under 
certain conditions, even if an approved new technology was billed on 
the claim, a new technology add-on payment may not be made, such as if 
the total payment for the claim without the new technology add-on 
payment exceeds the costs of the case. In addition, each year after the 
final rule, CMS issues a transmittal to the MACs listing the 
eligibility and maximum add-on payment for each approved new 
technology.
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 proposed to continue new technology add-on payments for this 
technology for FY 2015.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on this proposal.
    Comment: Several public commenters supported the proposal to 
continue new technology add-on payments for Voraxaze[supreg] for FY 
2015.
    Response: We appreciate the commenters' support. Because the 3-year 
anniversary date for Voraxaze[supreg] will occur in the latter half of 
FY 2015 (April 30, 2015), we are finalizing our proposal to continue to 
make new technology add-on payments for Voraxaze[supreg] for FY 2015.
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.

[[Page 49919]]

    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 $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 the 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 MACs 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

[[Page 49920]]

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 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 CY 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 CY 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28032 through 
28033), we responded to the comments above. Specifically, 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 that 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. 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

[[Page 49921]]

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-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, as we 
explained in the FY 2015 IPPS/LTCH PPS proposed rule, we continue to 
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 occurred on 
May 27, 2014, which is prior to the beginning of FY 2015. Therefore, we 
proposed to discontinue new technology add-on payments for 
DIFICIDTM for FY 2015.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on this proposal.
    Comment: One commenter stated that CMS has the authority to grant a 
third year of new technology add-on payments for DIFICIDTM. 
The commenter stated that if Congress intended for the Secretary to 
begin the data collection period described in the statute based on the 
date of FDA approval, Congress would have done so. The commenter added 
that it agrees that, as a threshold matter, a product must be ``new.'' 
Specifically, the commenter reasoned that Congress did not intend to 
make available the new technology add-on payment for technologies that 
have been approved for years and received a unique code years later. 
The commenter believed that once a product is deemed ``new,'' the 
statute requires that data are to be collected for 2 to 3 years from 
the date of the ICD-9-CM code assignment. The commenter believed that 
CMS has the authority to first deem a product new and then collect data 
two to three years from the date of the inpatient code assignment. The 
commenter explained that sections 1886(d)(5)(K)(i) and 
1886(d)(5)(K)(ii) of the Act mandate two separate legal requirements. 
The commenter further stated that this policy would mitigate the effect 
of older technologies that receive ICD-9-CM codes many years after 
their FDA approval date being eligible for new technology add-on 
payments. Therefore, the commenter stated that, under this policy, 
DIFICIDTM is eligible for a third year of new technology 
add-on payments.
    The commenter also quoted the FY 2005 IPPS final rule (69 FR 49002 
through 49003) where CMS stated the following: ``Using the ICD-9-CM 
code alone is not an appropriate test of newness because technologies 
that are new to the market are automatically placed into the closest 
ICD-9-CM category when they first come on the market, unless the 
manufacturer requests the assignment of a new ICD-9-CM code because 
existing codes do not adequately reflect or describe the medical 
service or device. The services and technologies that have been placed 
into existing ICD-9-CM codes have been paid for using those 
descriptors.'' The commenter believed that this policy is not relevant 
to oral drugs because hospitals do not typically code for oral 
medications. Therefore, the commenter stated that CMS must make a 
special exception for oral drugs and rely on the statutory authority to 
measure the length of time for data collection for new technology add-
on payments based on the date of the ``hospital inpatient code.''
    Response: As discussed above, and as we stated 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. We have consistently applied this standard, and 
believe that it is most consistent with the purpose of new technology 
add-on payments. We refer readers to the discussion above and the FY 
2005 IPPS final rule (69 FR 49002 through 49003) for further details 
regarding this issue. For these reasons, we disagree with the commenter 
that DIFICIDTM is eligible for a third year of new 
technology add-on payments.
    With respect to the second comment, while oral drugs are not 
typically coded by hospitals, we maintain what we stated in the FY 2005 
IPPS final rule that the services and technologies that have been 
assigned existing ICD-9-CM codes have been paid for using those 
descriptors. Although DIFICIDTM did not receive a specific 
ICD-9-CM code, it can be described or identified through additional 
ICD-9-CM procedure or diagnosis codes (such as diagnosis code 008.45, 
Intestinal infection due to Clostridium difficile). Moreover, as we 
noted above and in the proposed rule, hospital charges would include 
charges for all items and services furnished to a Medicare beneficiary, 
including use of DIFICIDTM. Therefore, we disagree with the 
commenter and continue to believe that DIFICIDTM is no 
longer new nor is any special exception warranted.
    Comment: Several commenters reiterated the arguments made by the 
manufacturer as explained above and in the proposed rule that 
DIFICIDTM should be eligible for new technology add-on 
payments in FY 2015.
    Response: After considering these comments, for the reasons stated 
above and in the proposed rule, we consider the beginning of the 
newness period to commence when DIFICIDTM was first approved 
by the FDA on May 27, 2011. The 3-year anniversary date of the 
product's entry on the U.S. market occurred on May 27, 2014, which is 
prior to the beginning of FY 2015. Therefore, we are finalizing our 
proposal to discontinue new technology add-on payments for 
DIFICIDTM for FY 2015.
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

[[Page 49922]]

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 is 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 proposed to continue new technology add-on payments for this 
technology for FY 2015.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on this proposal.
    Comment: Several commenters supported the proposal to continue new 
technology add-on payments for the Zenith[supreg] F. Graft [supreg] for 
FY 2015.
    Response: We appreciate the commenters' support. Because the 3-year 
anniversary date for Zenith[supreg] F. Graft will occur in the latter 
half of FY 2015 (April 4, 2015), we are finalizing our proposal to 
continue to make new technology add-on payments for the Zenith[supreg] 
F. Graft for FY 2015.
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 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

[[Page 49923]]

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 proposed to continue new 
technology add-on payments for this technology for FY 2015.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on this proposal.
    Comment: Several commenters supported the proposal to continue new 
technology add-on payments for KcentraTM for FY 2015.
    Response: We appreciate the commenters' support. Because the 3-year 
anniversary date for KcentraTM will occur in the second half 
of FY 2016 (April 29, 2016), we are finalizing our proposal to continue 
to make new technology add-on payments for KcentraTM FY 
2015.
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 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

[[Page 49924]]

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 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 
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 
proposed to continue new technology add-on payments for this technology 
for FY 2015.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on this proposal.
    Comment: Several commenters supported the proposal to continue new 
technology add-on payments for the Argus[supreg] II System for FY 2015. 
Some commenters noted that, while the Argus[supreg] II System received 
FDA approval on February 14, 2013, it was not available on the U.S. 
market until December 20, 2013. The commenters explained that as part 
of this lengthy process, the manufacturer first had to submit a request 
to the Federal Communications Commission (FCC) for a waiver of section 
15.209(a) of the FCC

[[Page 49925]]

rules to allow the manufacturer to then apply for FCC authorization to 
utilize this specific RF band. The FCC granted the request for a waiver 
of the rules on November 30, 2011. After receiving the FCC waiver of 
section 15.209(a), the manufacturer was required to obtain a Grant of 
Equipment Authorization to utilize the specific RF band, which the FCC 
issued on December 20, 2013. Therefore, the commenters stated that the 
date the Argus[supreg] II System first became available for commercial 
sale in the United States was December 20, 2013.
    Response: We appreciate the commenters' input and support. We agree 
with the commenters that due to the delay described above, the date of 
newness for the Argus[supreg] II System is now December 20, 2013, 
instead of February 14, 2013. Because the 3-year anniversary date for 
the Argus[supreg] II System will occur in the first half of FY 2017 
(December 20, 2016), we are finalizing our proposal to continue to make 
new technology add-on payments for the Argus[supreg] II System for FY 
2015.
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 proposed to continue new technology add-on payments for this 
technology for FY 2015.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on this proposal.
    Comment: Several commenters supported the proposal to continue new 
technology add-on payments for the Zilver[supreg] PTX[supreg] for FY 
2015.
    Response: We appreciate the commenters' support. Because the 3-year 
anniversary date for the Zilver[supreg] PTX[supreg] will occur in the 
first half of FY 2016 (November 12, 2015), we are finalizing our 
proposal to continue to make new technology add-on payments for the 
Zilver[supreg] PTX[supreg] FY 2015.
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 the proposed rule. In addition, the applicant for the 
Watchman[supreg] System withdrew its application prior to the 
publication of this final 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 five remaining applications is presented below.
    Comment: One commenter stated that CMS was critical of evidence 
presented by the applicants to support their claims that the new 
technology represents a substantial clinical improvement. The commenter 
explained that CMS finds fault with peer-reviewed literature, registry 
data, meta-analysis of clinical trials, lack of long-term outcome data, 
age of clinical trial participants below the age of Medicare 
beneficiaries, single arm studies, non-inferiority studies, and weak 
primary efficacy results. The commenter urged CMS to avoid blanket 
judgments on what types of evidence are considered adequate and to 
carefully consider the totality of the circumstances associated with a 
particular product. The applicant concluded that, given the list of 
evidence cited by CMS, it would appear that only head to head trials 
are sufficient to show substantial clinical improvement over standard 
of care, but it is important to note that in the case of first in class 
products, such trials are not feasible.
    Another commenter shared similar concerns and stated that a study 
may be designed to measure noninferiority when compared to conventional 
treatment, but the results of the study may demonstrate superiority in 
terms of other measures, such as reduced pain, decreased recovery time 
or shorter hospitalizations. In addition, the commenter stated that 
study data that provide information regarding patient outcomes may be 
more important than whether the study was designed as a superiority 
trial or a noninferiority trial. The commenter concluded that a policy 
to require superiority studies, or at least to question noninferiority 
studies, could have negative results, including delaying patient access 
to innovative treatments, improved care outcomes, curtailing 
innovation, and discouraging competition. The commenter stated that CMS 
should give great weight to the totality of the evidence, including 
non-inferiority studies and other methodological approaches, as it

[[Page 49926]]

considers approval of applications for new technology add-on payments.
    Some commenters stated that CMS has a precedent of accepting 
noninferiority studies to evaluate technologies under the substantial 
clinical improvement criterion. In particular, these commenters 
indicated that CMS approved new technology add-on payments for 
Fidaxomicin in FY 2013 (77 FR 53350-53358) and KcentraTM in 
FY 2014 (78 FR 50575-50580) and that both of these technologies 
submitted data from clinical trials demonstrating non-inferiority. One 
commenter stated that CMS' approval of Fidaxomicin for new technology 
add-on payments establishes a precedent for approval for a technology 
that shows non-inferiority for a primary end point in addition to the 
acceptance of other clinically important secondary analysis, and that 
precedent should be used to approve all technologies. Another commenter 
stated that CMS' approval of KcentraTM for new technology 
add-on payments is an example of how a technology can use data from 
randomized controlled trials demonstrating noninferiority to show that 
the technology represents a substantial clinical improvement.
    One commenter stated that non-inferiority trials are a well-
established and appropriately accepted standard, and noninferiority 
designs are the only affordable and ethical option for drug developers 
in researching acute bacterial skin and skin structure infections. The 
commenter also stated that primary focus for developing new agents 
targeted for acute bacterial skin and skin structure infection patients 
is not to improve clinical cure rates, but to ``enhance the efficiency 
and cost effectiveness of achieving clinical cures, ease therapeutic 
administration (and, therefore, improve compliance) and limit avoidable 
exposure to healthcare acquired infections (which, when they occur, 
significantly increase costs and create patient safety risks).'' The 
commenter urged CMS to clarify that it has not suggested or proposed to 
adopt a blanket judgment approach against technologies studied on a 
noninferiority basis.
    Response: We appreciate the commenters' input and support. CMS 
always considers the totality of the clinical evidence whenever it 
makes a substantial clinical improvement determination. We agree with 
the commenters that we approved new technology add-on payments for 
Fidaxomicin and KcentraTM by determining that both of these 
technologies not only met the newness and cost criteria for new 
technology add-on payments, but also represented a substantial clinical 
improvement in the treatment options available for Medicare 
beneficiaries. We also appreciate that the commenter reviewed the 
policies we established in FY 2002 (66 FR 46902) with regard to the 
substantial clinical improvement criterion and clarified in FY 2008 (72 
FR 47301). We continue to believe, as we did in FY 2008, that it is a 
reasonable concern that establishing specific data standards may make 
it more difficult for an applicant to qualify for a new technology add-
on payment because such standards cannot account for the various types 
of new technologies that may become available in the future and the 
types of requirements that those novel technologies may or may not be 
able to meet. In other words, we clarify that we did not propose to 
establish nor are we establishing a blanket judgment approach against 
technologies studied on a non-inferiority basis. As we stated in the 
final rule that appeared in the Federal Register on September 7, 2001 
(referred to hereinafter as the Inpatient New Technology Add-on Payment 
Final Rule), one of the ways to determine if a technology meets the 
substantial clinical improvement criterion is for the applicant to 
demonstrate that use of the technology significantly improves clinical 
outcomes for a patient population as compared with currently available 
treatments (66 FR 46914). In that rule, we finalized the policy that we 
would require applicants to submit evidence to demonstrate this. For 
the purposes of seeking additional payment from Medicare under the 
IPPS, we believe that it is preferable, when possible, for applicants 
to submit evidence that demonstrates superiority of the applicant 
technology as compared with currently available treatments. We note 
that this superiority can be derived, extrapolated, or inferred from 
noninferiority studies in which the results demonstrate a far greater 
delta than proposed in the power analysis. This belief is based on 
earlier experiences, which we described in the FY 2002 final rule: 
``[W]e would point out that various new technologies introduced over 
the years have been demonstrated to have been less effective than 
initially thought, or in some cases even potentially harmful. We 
believe it is in the best interest of Medicare beneficiaries to proceed 
very carefully with respect to the incentives created to quickly adopt 
new technology'' (66 FR 46913). However, we point out that in that same 
rule, we provide two additional ways for an applicant technology to 
demonstrate substantial clinical improvement: if the device offers a 
treatment option for a patient population unresponsive to, or 
ineligible for, currently available treatments; or if the device offers 
the ability to diagnose a medical condition in a patient population 
where that medical condition is currently undetectable or offers the 
ability to diagnose a medical condition earlier in a patient population 
than allowed by currently available methods. There must also be 
evidence that the use of the device to make a diagnosis affects the 
management of the patient's care. (We refer readers to the Inpatient 
New Technology Add-on Payment Final Rule (66 FR 46914).) Similarly, for 
these two additional ways to meet the substantial clinical improvement 
criterion, we continue to believe that it is appropriate to require 
that applicants submit evidence that the technology in fact meets the 
criterion through one of these two ways. We do not require an applicant 
to meet the criterion in more than one of these ways, but emphasize 
that we require evidence to support an applicant's claim. If an 
applicant chooses to demonstrate that use of its technology 
significantly improves clinical outcomes, we believe that it is 
appropriate for CMS to consider all of the evidence presented in 
determining whether there is sufficient objective clinical evidence to 
determine if a new technology meets the substantial clinical 
improvement criterion.
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,

[[Page 49927]]

2013, and as stated in the FY 2015 IPPS/LTCH PPS proposed rule, 
anticipated FDA approval of Dalbavancin sometime in May of 2014. The 
applicant also 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. To date, no 
ICD-10-PCS code specifically describes the administration of 
Dalbavancin. However, if approved, the new ICD-10-PCS code will be 
effective on October 1, 2014. We also note in section II.G. of the 
preamble of this final rule that, per section 212 of the PAMA (Pub. L. 
113-93), the Secretary announced plans to establish a new compliance 
date for ICD-10. We also discuss in that section the requests for ICD-
10-PCS codes for FY 2015. We refer readers to section II.G. of the 
preamble of this final rule for a complete discussion of these issues.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on whether the technology meets the newness criterion. 
However, we did not receive any public comments regarding whether the 
technology meets the newness criterion. After the publication of the FY 
2015 IPPS/LTCH PPS proposed rule, we were informed that the applicant 
received FDA approval for the use of the technology on May 23, 2014. 
Therefore, for purposes of consideration for FY 2015 IPPS new 
technology add-on payments, we believe that the technology should be 
considered ``new'' as of May 23, 2014, when the technology received FDA 
approval.
    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, as we stated in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28036), 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, we stated in the FY 2015 IPPS/
LTCH PPS proposed rule, it appears that Dalbavancin is not 
substantially similar to other antibiotics for the treatment of ABSSSI 
because it does not use the same or a similar mechanism of action to 
achieve a therapeutic outcome.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments regarding whether Dalbavancin is substantially similar to 
existing antibiotics and whether Dalbavancin meets the newness 
criterion. However, we did not receive any public comments discussing 
whether Dalbavancin is substantially similar to existing antibiotics in 
the context of the newness criterion. After further evaluation of the 
new technology add-on payment application, we believe that Dalbavancin 
is not substantially similar to other antibiotics for the treatment of 
ABSSSI because it does not use the same or a similar mechanism of 
action to achieve a therapeutic outcome.
    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, and pressure 
ulcers, among others. 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments regarding whether Dalbavancin meets the cost criterion, 
particularly with regard to the assumptions and methodology used in the 
applicant's analysis.
    Comment: The applicant submitted a public comment maintaining that 
Dalbavancin meets the cost criterion requirement because the cost of 
the target cases exceeds the average case-weighted cost threshold 
requirement prior to accounting for an inflation factor, or including 
the costs of Dalbavancin. The applicant further stated that it also 
included the ``costs of Dalbavancin in its analysis to further

[[Page 49928]]

demonstrate that Dalbavancin exceeds the established NTAP cost 
threshold.''
    Response: We appreciate the applicant's response. We reviewed the 
applicant's analysis. We note that, while the applicant's analysis 
included the charges associated with Dalbavancin in their final cost 
estimate, the applicant did not remove the charges for the current 
therapy for treating acute bacterial skin and skin structure 
infections. We agree that the applicant's analysis using data from all 
570,698 cases across 682 MS-DRGs showed that Dalbavancin exceeds the 
average case-weighted threshold prior to the inclusion of inflation 
factors and charges associated with Dalbavancin.
    We note that it is unclear to what degree Dalbavancin would be used 
in each of these cases across the specific MS-DRGs, in part, because a 
procedure code has not been established to identify the technology's 
use in the claims data. Therefore, we reviewed the additional analyses 
using the claims data submitted by the applicant to substantiate that 
the technology meets the cost criterion. For example, in the data 
submitted by the applicant, the top 10 MS-DRGs ranked by case volume 
constitute roughly half of the cases with at least one ICD-9-CM code 
associated with acute bacterial skin infections. These 10 MS-DRGs 
include: MS-DRG 0603 (Cellulitics Without MCC); MS-DRG 0602 
(Cellulitics With MCC); MS-DRG 0871 (Septicemia or Severe Sepsis 
Without MV 96+ Hours With MCC); MS-DRG 0863 (Postoperative & Post-
Traumatic Infections Without MCC); MS-DRG 0872 (Septicemia or Severe 
Sepsis Without MV 96+ Hours Without MCC); MS-DRG 0300 (Peripheral 
Vascular Disorders With CC); MS-DRG 0292 (Heart Failure & Shock with 
CC); MS-DRG 0862 (Postoperative & Post-Traumatic Infections With MCC); 
MS-DRG 0857 (Postoperative or Post-Traumatic Infections With O.R. 
Procedure With CC); and MS-DRG 0853 (Infectious and Parasitic Diseases 
With O.R. Procedure With MCC). An average case-weighted threshold and 
standardized charges could be calculated using these MS-DRGs and 
compared to determine if the standardized charges exceed the average 
case-weighted threshold for these top 10 MS-DRGs.
    In summary, we agree with the applicant that the technology meets 
the cost criterion.
    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 antibiotics, 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 ABSSSIs, 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 non-
inferiority. In the clinically evaluable population, 88.9 percent of 
patients who received Dalbavancin compared to 91.2 percent of patients 
who received vancomycin/linezolid 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

[[Page 49929]]

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 non-inferior 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 
non-inferior 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 stated in the FY 2015 IPPS/LTCH PPS proposed rule that 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 invited 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.
    Comment: Several commenters stated that Dalbavancin meets the 
substantial clinical improvement criteria and, therefore, CMS should 
approve the application for new technology add-on payments in FY 2015.
    Response: We appreciate the commenters' input. We considered these 
public comments in our determination of whether this technology 
represents a substantial clinical improvement in the treatment options 
currently available to Medicare beneficiaries.
    Comment: As previously summarized, some of the commenters stated 
that CMS has a precedent of accepting noninferiority studies to 
evaluate technologies under the substantial clinical improvement 
criterion. In particular, these commenters indicated that CMS approved 
new technology add-on payments for Fidaxomicin in FY 2013 (77 FR 53350 
through 53358) and KcentraTM in FY 2014 (78 FR 50575 through 
50580), and both of these technologies submitted data from clinical 
trials demonstrating non-inferiority. One commenter stated that CMS' 
approval of Fidaxomicin for new technology add-on payments establishes 
a precedent for approval for a technology that shows noninferiority for 
a primary end point in addition to the acceptance of other clinically 
important secondary analysis. The commenters believed that precedent 
should be used to approve the application for new technology add-on 
payments for Dalbavancin. Another commenter stated that CMS' approval 
of KcentraTM for new technology add-on payments is an 
example of how a technology can use data from randomized controlled 
trials demonstrating noninferiority to show that technology represents 
a substantial clinical improvement.
    The applicant also provided additional data from its clinical 
trials on the degree to which patients who were improving were 
permitted to stop their treatment after 10 days. The data showed that 
patients randomized to Dalbavancin were more likely to stop therapy at 
10 days, and less likely to continue treatment through 14 days. The 
applicant stated that by day 10 most patients were being treated on an 
outpatient basis on oral therapy (either with an oral placebo or oral 
linezolid), and that treatment was discontinued at the patient's 
discretion. The applicant further stated that ``the implication of this 
finding is that, from the patient's perspective, resolution of the 
underlying infection was occurring more rapidly for those randomized to 
Dalbavancin.''
    Response: We refer readers to section II.I.4. of the preamble of 
this final rule for our detailed response to commenters' concerns 
regarding noninferiority trials.
    We believe that our preliminary assessment (and final determination 
described later in this section) with regard to Dalbavancin is 
consistent with prior determinations made with regard to other approved 
technologies, including the two technologies identified by the 
commenters, Fidaxomicin and KcentraTM. With regard to 
Fidaxomicin, we note that we stated that we believed that it 
represented a treatment option with the potential to decrease 
utilization, reduce the recurrence of clostridium-difficile associated 
disease (CDAD), and improve quality of life. We also note that we 
considered the information the applicant provided with regard to the 
endpoints in its clinical trial, which as the commenters point out, 
were indeed to demonstrate that the effects of administering 
Fidaxomicin were non-inferior to administering Vancomycin. (We refer 
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53357 through 
53358).) Similarly, with regard to KcentraTM, we note that 
we stated that we believed that it provided a rapid beneficial 
resolution of the patient's blood clotting factor deficiency, decreases 
the risk of exposure to blood borne pathogens, and reduces the rate of 
transfusion-associated complications. These conclusions also were based 
on information the applicant provided with regard to the endpoints in 
its clinical trial. (We refer readers to the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50578 through 50579).) However, we note that in their 
clinical trials, these applicants were able to show a wider margin of 
difference between the treatment and control groups. The small margin 
of difference between the groups in this study leads us to conclude 
that any additional analysis of the trial data would be unlikely to 
demonstrate superiority of the treatment group.
    With regard to the additional data the applicant provided regarding 
days of therapy, it is our understanding that most patients in both 
groups were on oral therapy by day 10 and that patients in both groups 
were allowed to discontinue their therapy at their discretion. The 
treatment group was more likely to discontinue use of

[[Page 49930]]

Dalbavancin by day 10. We believe that it is difficult to assess the 
degree to which this implied that resolution of the underlying 
infection was occurring more rapidly, or would meet our definition of 
substantial clinical improvement. However, in light of the data from 
the applicant's non-inferiority trial, which did not show a wide margin 
of difference between the treatment and control groups, we do not 
believe that this is sufficient objective evidence to determine that 
Dalbavancin is a substantial clinical improvement in the treatment 
options available for Medicare beneficiaries.
    Comment: Many commenters described how they believed that 
Dalbavancin's administration would improve patient safety and reduce 
adverse events, improve medication compliance, and reduce potential 
additional health care utilization.
    With regard to patient safety and adverse events, many commenters 
asserted that using Dalbavancin does not require an indwelling IV 
access, unlike treatments using Vancomycin and, therefore, it is self-
evident that the potential for catheter-associated infections is 
eliminated. Some of these commenters emphasized the importance of 
reducing catheter-associated infections, and noted that Dalbavancin 
could help achieve this goal.
    In addition, with regard to patient safety and adverse events, the 
applicant provided references discussing the frequency of central 
venous catheter complications nationally. The applicant also provided 
data from their pivotal clinical trial showing the number and 
proportion of patients who died and those with adverse events, 
including drug-related adverse events and treatment-related serious 
adverse events. The applicant asserted that the data showed that fewer 
patients randomized to Dalbavancin died relative to the standard of 
care, showing that one patient (0.2 percent) treated with Dalbavancin 
died while 7 patients (1.1 percent) treated with Vancomycin/Linezolid 
died. Notably, while these data showed with a p value of 0.05 that 33 
percent of patients treated with Dalbavancin had an adverse event 
compared to 38 percent of patients treated with Vancomycin or 
Linezolid, the data also showed that it was difficult to distinguish 
between the two groups in terms of drug-related adverse events and 
treatment-related serious adverse event. The data showed that 12 
percent of patients treated with Dalbavancin experienced a drug-related 
adverse event compared to 14 percent of patients treated with 
Vancomycin/Linezolid with a p value of 0.45. The data also showed that 
0.3 percent of patients treated with Dalbavancin experienced a 
treatment-related serious adverse event compared to 0.6 percent of 
patients treated with Vancomycin/Linezolid with a p value of 0.41. In 
addition to these data, the applicant also presented data collected in 
their clinical program that compared the infusion-related adverse 
events of patients receiving Dalbavancin to those of patients receiving 
commonly used alternative agents. These data showed that 2.2 percent of 
patients treated with Dalbavancin experienced an infusion-related 
adverse event, while 3.1 of comparator agent patients experienced an 
infusion-related adverse event.
    One commenter, having reviewed the applicant's clinical trial data, 
concluded that while the safety profile to date of Dalbavancin appears 
similar to Vancomycin, the ultimate determination of safety must await 
broader clinical use. The commenter noted that future clinical trials 
are needed to define the safety profile of Dalbavancin.
    Response: We appreciate commenters' input and the additional data 
submitted by the applicant.
    We disagree with commenters that it is self-evident that the 
technology eliminates the potential for catheter-associated infections, 
particularly with respect to indwelling catheters. It is not clear if 
these patients already would have had indwelling catheters in place, 
whether for antibiotic administration or other purposes. Therefore, it 
is not evident that simply having the option of an antibiotic that does 
not require an indwelling catheter would eliminate the potential for 
catheter-associated infections. We agree with the commenters that the 
administration of Dalbavancin could reduce the potential for these 
infections in patients that otherwise would not have an indwelling 
catheter, but note that it was not possible to discern the degree to 
which this potential reduction occurs based on the data and comments 
provided.
    As previously stated, we appreciate the applicant's submission of 
additional data from its trials regarding safety and adverse events. We 
agree with the applicant that Dalbavancin appears to be associated with 
fewer infusion-associated adverse events and patient deaths relative to 
the comparator group. We note that the applicant's data showed that 
drug-related and treatment-related serious adverse events appeared to 
be less frequent for patients treated with Dalbavancin relative to the 
comparator group, but that it was not clear to what degree the groups 
actually differed because the p values were in excess of 0.4. We also 
agree with the commenter that stated that it would appear that more 
clinical use and data should be gathered to more fully develop 
Dalbavancin's safety profile.
    Comment: Many commenters stated that they believed that Dalbavancin 
would improve medication compliance and reduce potential additional 
health care utilization. Some commenters noted that patients diagnosed 
with acute bacterial skin and skin structure infections are often 
treated as inpatients. One commenter noted that the rate of these skin 
and skin structure infections are higher than they have ever 
historically been. One commenter described these hospitalizations as 
unnecessary. Another commenter stated that while Dalbavancin is not 
more efficacious than Vancomycin, it is easier to administer. The 
commenter concluded that Dalbavancin would make it possible to treat 
patients with complicated skin and skin structure infections that might 
otherwise require hospitalization on an outpatient basis without 
compromising efficacy and without the need for either laboratory 
monitoring or an indwelling intravenous catheter. Several commenters 
noted that less pharmacist monitoring time was required for the 
administration of Dalbavancin relative to Vancomycin. Several 
commenters stated that no additional data beyond the pivotal trials are 
needed to show that a single infusion involves fewer administrations 
and requires less health care resources than a course of therapy that 
lasts a week or more. One commenter described the importance of 
medication compliance in the context of treating a patient population 
that faces socioeconomic hardships. Specifically, the commenter noted 
that noncompliant patients are more likely to present to the emergency 
department with worsening infections and that Dalbavancin's dosing 
profile reduces the risk of noncompliance that is typically associated 
with oral therapy.
    Response: We appreciate the commenters' input. We agree with the 
commenters that there is the possibility that Dalbavancin could make it 
possible for certain patients to be treated on an outpatient basis 
rather than as inpatients of a hospital. We further agree with 
commenters that there is the potential for treatment benefits for 
Medicare beneficiaries that would help avoid hospitalizations, 
including avoiding potential future iatrogenic events. However, we are 
concerned that neither the applicant, nor any of the commenters, 
provided specific information or data regarding the reduced resource 
use that they believe would occur. It is common that benefits

[[Page 49931]]

from events that appear to be ``self-evident,'' as suggested by the 
commenters, prove to not be beneficial events when subjected to the 
rigors of a clinical trial.
    After consideration of the public comments we received, we do not 
believe that Dalbavancin meets the substantial clinical improvement 
criterion to qualify the technology for new technology add-on payments 
under the IPPS in FY 2015. In particular, we do not believe there is 
sufficient objective clinical evidence to determine that Dalbavancin 
significantly improves clinical outcomes for Medicare beneficiaries in 
order for the technology to qualify for new technology add-on payments. 
While we recognize that Dalbavancin has met FDA standards for safety 
and effectiveness, the new technology add-on payment application 
process and approval requires a demonstration of a substantial clinical 
improvement, which is not inherent in the FDA's regulatory process. We 
recognize that the technology is the first drug designated as a 
Qualified Infectious Disease Product (QIDP) to receive FDA approval and 
was granted QIDP designation because it is an antibacterial or 
antifungal human drug intended to treat serious or life-threatening 
infections. We are equally committed to encouraging increased 
development and approval of new antibacterial drugs, providing 
physicians and patients with important new treatment options and will 
support this endeavor by providing payment for Dalbavancin through our 
prospective payment processes. However, in the case of this 
application, we do not believe that the technology meets the 
substantial clinical improvement criterion. Therefore, we are not 
approving new technology add-on payments for Dalbavancin for FY 2015.
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 
(Heli-FXTM 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 
AAA meets the ``newness'' criterion because the 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 AAA, 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 AAA 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 AAA 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 AAA, as stated above, we consider the beginning

[[Page 49932]]

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 AAA 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 AAA meets the newness 
criterion.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on whether the Heli-FXTM AAA meets the newness 
criterion. We note that the applicant requested an ICD-10-PCS code, and 
presented comments at the March 2014 ICD-10 Coordination & Maintenance 
Committee meeting. We also note in section II.G. of the preamble of 
this final rule that, per section 212 of the PAMA (Pub. L. 113-93), the 
Secretary announced plans to establish a new compliance date for ICD-
10-PCS. We also discuss in that section requests for ICD-10-PCS codes 
for FY 2015. We refer readers to section II.G. of the preamble of this 
final rule for a complete discussion of these issues.
    Comment: The applicant submitted a public comment in response to 
the concerns that CMS presented in the FY 2015 IPPS/LTCH PPS proposed 
rule regarding the newness criterion. The applicant noted that 
questions raised by CMS centered solely on whether the Heli-
FXTM AAA was charged to Medicare prior to the product launch 
in June 2012. Additionally, the applicant asserted that CMS did not 
reference the relevance of the April 1 date for purposes of determining 
whether a technology meets the newness criterion.
    Based on CMS' concerns presented in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28039), the applicant conducted another review of 
the data previously provided to CMS. As previously submitted, there 
were four cases where the applicant was able to determine that the 
Heli-FX AAA was implanted in Medicare beneficiaries, and where charges 
were submitted to Medicare, prior to the product launch. These 
procedures occurred on April 24, 2012, May 7, 2012, May 23, 2012, and 
June 4, 2012. The applicant stated that because all of these cases were 
completed after April 1, 2012, it believes that the Heli-
FXTM AAA meets the newness criterion for FY2015.
    Response: In a further follow-up discussion to clarify the 
availability of the Heli-FXTM AAA, the applicant's 
representatives noted that, although not in large quantities, the Heli-
FX AAA was available to patients prior to April 1, 2012. We appreciate 
the information the applicant provided regarding the newness criterion. 
As we explained in the FY 2015 IPPS/LTCH PPS proposed rule, in general, 
a new 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. Although the applicant has stated that the initial four 
implantations were after April 1, 2012, the technology was still 
available prior to April 1, 2012. Therefore, we still 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, 
which is prior to April 1, 2012. As stated in the FY 2015 IPPS/LTCH PPS 
proposed rule, 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, the Heli-FXTM AAA 
does not meet the newness criterion and, therefore, is not eligible for 
new technology add-on payments for FY 2015.
    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 AAA to the standardized charges by 
dividing the cost of the Heli-FXTM AAA 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 AAA. 
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 AAA, 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on whether the Heli-FXTM AAA meets the cost 
criterion,

[[Page 49933]]

particularly with regard to the assumptions and methodology used in the 
applicant's analyses.
    Comment: Some commenters believed that the high cost of the Heli-
FXTM device would deter facilities from using it.
    Response: As discussed above, because the Heli-FXTM AAA 
does not meet the newness criterion, it is not eligible for new 
technology add-on payments for FY 2015. Therefore, we are not 
summarizing the details of this comment nor are we responding to the 
issues presented in this discussion. However, we do address this 
comment in the later discussion of the Heli-FXTM EndoAnchor 
System for the Treatment of Thoracic Aortic Aneurysms.
    We discuss whether the Heli-FXTM EndoAnchor System (for 
the treatment of AAA and TAA) 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 (Heli-FXTM TAA)
    The Heli-FXTM TAA, which allows the expanded use of the 
Heli-FXTM EndoAnchor System technology to TAA repair, was 
cleared 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 
TAA, we consider 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 TAA meets the newness criterion.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on whether the Heli-FXTM TAA meets the newness 
criterion. As noted above, the applicant requested an ICD-10-PCS code, 
and presented comments at the March 2014 ICD-10 Coordination & 
Maintenance Committee meeting. We also note in section II.G. of the 
preamble of this final rule that, per section 212 of the PAMA (Pub. L. 
113-93), the Secretary announced plans to establish a new compliance 
date for the ICD-10-PCS. We also discuss in that section requests for 
ICD-10-PCS codes for FY 2015. We refer readers to section II.G. of the 
preamble of this final rule for a complete discussion these issues. We 
did not receive any public comments on whether the Heli-FXTM 
TAA meets the newness criterion.
    To demonstrate that the Heli-FXTM TAA meets the cost 
criterion, similar to the analysis performed for the Heli-
FXTM 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 PPS 
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 TAA to 
the standardized charges by dividing the cost of the Heli-
FXTM TAA 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on whether the Heli-FXTM TAA meets the cost 
criterion, particularly with regard to the assumptions and methodology 
used in the applicant's analysis.
    Comment: Some commenters stated that the high cost of the Heli-
FXTM device would deter facilities from using it. Therefore, 
the commenters supported the approval of the Heli-FXTM TAA 
for new technology add-on payment in order to assist with cost coverage 
so that more facilities would be willing to use the device in the 
treatment of their patients.
    Response: We appreciate the commenters' input and support. We agree 
with the commenters that the Heli-FXTM TAA meets the cost 
criterion.
(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

[[Page 49934]]

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, DC, 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 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

[[Page 49935]]

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 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 these data demonstrate 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.

[[Page 49936]]

    In the FY 2015 IPPS/LTCH PPS proposed rule, we stated that 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 stated that we are concerned that there 
is not enough clinical evidence to support the substantial clinical 
improvement criterion.
    We invited 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 identified.
    Comment: Several commenters stated that the Heli-FXTM 
System meets the substantial clinical improvement criterion and, 
therefore, CMS should approve the Heli-FXTM System for new 
technology add-on payments in FY 2015.
    Response: We appreciate the commenters' support. We considered 
these comments in our determination of whether the Heli-FXTM 
System represents a substantial clinical improvement in the treatment 
options available to Medicare beneficiaries.
    Comment: The applicant commented in response to CMS' concerns 
presented in the FY 2015 IPPS/LTCH PPS proposed rule regarding the lack 
of enough high quality evidence to support the substantial improvement 
criterion because the three sources of data submitted by the applicant 
were not considered to be `high quality evidence.' Specifically, CMS 
stated that it believed that the meta-analysis of submitted data is 
only as good as the data used, the STAPLE-2 Pivotal FDA Study was a 
single arm study and only used one Endograft, and the ANCHOR Registry 
is an observational study and the literature review does not provide 
clinical data. The applicant first outlined some basic background 
information into the EVAR regulatory process.
    With respect to the concerns regarding the meta-analysis of 
submitted data being only as good as the data used, the applicant 
asserted that it has not attempted to substantiate the finding of 
substantial clinical improvement through a single source of 
information. The applicant believed that the entirety of evidence 
demonstrated that this criterion was met as stated in its application. 
Specifically, the applicant stated that the Heli-FXTM 
EndoAnchor System offers a treatment option for a patient population 
unresponsive to, or ineligible for, currently available treatments, 
including the primary cases with hostile necks and complex revisions 
(refer to the ANCHOR Registry data demonstrating 90.2 percent of 
hostile necks in the population). The technology has shown 
significantly improved clinical outcomes for the short proximal aortic 
neck patient population when compared to current available treatments 
(refer to STAPLE-2 average neck length of 22.1mm, shorter than any 
conventional Endograft IDE Study), and has been shown to reduce 
aneurysm related mortality (refer to the meta-analysis results). The 
applicant further stated that the Heli-FXTM has also been 
shown to reduce proximal neck related device complications and reduced 
subsequent therapeutic interventions (refer to STAPLE-2 where no late 
Type 1 endoleaks or proximal neck related revisions were required), and 
with previously unseen aneurysm sac regression (refer to STAPLE-2 which 
showed the highest reported at 81.7 percent at 3 years), indicating 
more rapid resolution of the disease process. Based on all of the above 
information, the applicant stated that it believes that the Heli-
FXTM EndoAnchor System has met this evidentiary threshold 
for the substantial clinical improvement criterion.
    The applicant also addressed CMS' concerns about the quality of 
evidence that the Aptus' single arm STAPLE-2 study may provide, 
specifically, that the STAPLE-2 Pivotal FDA Study was a single arm 
study and only used one Endograft. According to the applicant, the 
STAPLE-2 Study was a two arm study of patients treated with the Aptus 
Stent Graft in conjunction with the EndoAnchors versus an historical 
open surgical control (SVS Lifeline database). The applicant stated 
that this kind of trial design is typical for U.S. pre-market IDE EVAR 
Studies with current Endovascular stent grafts. According to the 
applicant, many of the recently approved endografts in the United 
States used a similar study design and the FDA has no requirement for a 
concurrent surgical control. The applicant noted that in no case for 
the device regulatory approval processes for recent endografts were 
randomization or blinding utilized.
    The applicant also addressed CMS' concern that the STAPLE-2 Study 
utilized a single type of Endograft. According to the applicant, while 
the STAPLE-2 Study utilized a single type of Endograft, this may 
provide a uniquely compelling indication of substantial clinical 
improvement based on two aspects relating to STAPLE-2. While the 
Endograft was an entirely conventional design utilizing Polyester 
fabric supported by a Nitinol stent structure with infrarenal fixation 
and an unsupported main body (eliminating any contribution of columnar 
strength to aid in fixation), the applicant stated that this Endograft 
has no other means of fixation beyond the Aptus EndoAnchors. Despite 
this, the applicant stated that results indicated highly favorable 
proximal seal related outcomes in this most challenging proximal neck 
anatomy patient population. In this cohort, the proximal necks in 
STAPLE-2 patients contained the shortest average neck length of any 
conventional (non-Fenestrated) Endograft evaluated in a U.S. PMA trial 
to date. The applicant further stated that unlike other endografts, 
such as the Medtronic Endurant or the Gore Excluder, being utilized 
with Heli-FX currently both in the ANCHOR trial and commercially 
worldwide, the graft studied in STAPLE-2 has no inherent fixation, 
active or otherwise. The applicant explained that this is because there 
are no integral hooks, barbs, supra-renal fixation, ``anatomical 
fixation'' or ``anchor pins'' or other means to secure the Aptus 
Endograft beyond the fixation provided by the Heli-FXTM 
EndoAnchors. In effect, because the Heli-FXTM is the only 
source of fixation for the graft studied, the applicant stated that it 
represents a ``worst case'' and significant performance challenge of 
the clinical effectiveness of the Heli-FXTM EndoAnchors. 
Despite this worst-case aspect of no inherent fixation in the STAPLE-2 
Endograft other than Heli-FXTM EndoAnchors for Endograft 
fixation and sealing to the aortic wall, the applicant reported that 
there were excellent clinical and technical results with respect to 
proximal neck seal and fixation. This was observed despite the very 
short proximal necks treated in the study cohort. The applicant noted 
that the aneurysm size regression is also among the most rapid and 
highest frequency seen with any Endograft U.S. IDE study. The applicant 
stated that in the setting of an Endograft with no means of fixation 
beyond the Heli-FXTM EndoAnchors, this is especially 
meaningful and indicative of the EndoAnchor capabilities with more 
advanced, current generation commercial Endografts.

[[Page 49937]]

    With respect to CMS' concern that the ANCHOR Registry is an 
observational study, the applicant believed that the Anchor Registry 
provides important, highly valuable and meaningful evidence in support 
of the substantial clinical improvement criterion. The applicant stated 
that the ANCHOR Registry is a formal, Institutional Review Board (IRB) 
and Ethics Committee (EC) approved Post-Market Study that utilizes a 
Core Lab and a Safety Medical Reviewer for aneurysm related outcomes, 
anatomical adjudication for all patients at each follow-up time-point, 
as well as clinical outcomes acutely and in follow- up. The applicant 
further noted that the use of a Core Lab and a Safety Medical Reviewer 
in the setting of EVAR for both baseline and outcome data and the 
associated aneurysm anatomical aspects is extremely rare and, 
therefore, so far only the ANCHOR Registry has utilized this approach 
within the known EVAR Registries. The applicant stated that this 
optimizes the scientific rigor and robustness of this real-world study. 
The applicant further noted that there are currently 417 patients 
enrolled (there were 258 patients at the time of the application), with 
core lab analysis available for 311 subjects, and the data has 
continued to be highly favorable in what is now among the most hostile 
proximal necks studied in any Endograft population seen in the 
scientific literature. The applicant asserted that a key and applicable 
aspect where Heli-FXTM is having significant patient impact 
(including as seen in the patients' challenging proximal neck anatomy 
in STAPLE-2 and ANCHOR cohorts) is offering a treatment option for a 
patient population ineligible for currently available treatments. While 
the applicant acknowledged the important and favorable aneurysm 
exclusion results and expanded patient applicability provided by the 
recently FDA-approved Cook Zenith Fenestrated Endograft system, which 
expanded proximal neck capabilities as low as 4mm in length, there are 
situations affecting patients which limit access to this advanced 
Endograft technology. The applicant believed that these higher risk 
situations often require physicians to utilize Heli-FXTM 
EndoAnchors with conventional Endografts in sub-optimal proximal neck 
anatomy. The applicant asserted that this is especially applicable in 
patients deemed unsuitable for open surgical repair.
    With respect to CMS' concern that the literature review did not 
provide clinical data, the applicant acknowledged that the non-STAPLE-2 
and ANCHOR related Heli-FXTM peer-reviewed scientific 
literature did not constitute formal clinical data in themselves, but 
nonetheless the applicant believed that the information provided the 
manuscripts to highlight the various applicability and utility of the 
Heli-FXTM in various settings, including primary revision, 
in AAA and TAA.
    Response: We appreciate the applicant's response to our concerns 
presented in the proposed rule. While we recognize that Heli-
FXTM EndoAnchor System has received regulatory approval for 
marketing, therefore meeting FDA standards for safety and 
effectiveness, the new technology add-on payment process requires 
demonstration of a substantial clinical improvement, which is not 
inherent in the FDA's regulatory process. As previously stated, we 
believe that data used to support substantial clinical improvement 
should come from high quality evidence. For example, well-designed 
studies that compare the new technology to other similar services that 
the applicant is contending will be replaced by the new technology. We 
did not suggest that the comparative should have been an open, surgical 
procedure. The substantial clinical improvement criterion requires that 
technologies demonstrate substantial clinical improvement over existing 
technologies. In this case, we would have liked to have seen a 
randomized trial comparing the use of Heli-FXTM anchors with 
various endografts such as hooks, barbs, supra-renal fixation, 
anatomical fixation or anchor pins using the same brands of endografts. 
That data, if positive, would have been sufficient to demonstrate 
substantial clinical improvement over existing technologies.
    Further, we also believe that the alternatives just mentioned--
hooks, barbs, supra-renal fixation, anatomical fixation, or anchor 
pins--are alternatives to the Heli-FXTM System and the data 
submitted does not support that patients have no other alternatives. 
Therefore, based on the reasoning above, we do not believe that the 
Heli-FXTM System meets the substantial clinical improvement 
criterion.
    After consideration of the public comments we received, and as 
discussed above, we conclude that the Heli-FXTM AAA does not 
meet the newness criterion and, therefore, the technology is not 
eligible for new technology add-on payments for FY 2015. The Heli-
FXTM TAA meets the newness and cost criteria. However, as 
discussed above, the Heli-FXTM AAA and TAA do not meet the 
substantial clinical improvement criterion. Therefore, we are not 
approving new technology add-on payments for the Heli-FXTM 
TAA because the technology does not meet the substantial clinical 
improvement criterion.
c. CardioMEMSTM HF (Heart Failure) Monitoring System
    CardioMEMS, Inc. submitted an application for new technology add-on 
payment for FY 2015 for the CardioMEMSTM HF (Heart Failure) 
Monitoring 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 
Monitoring 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 Monitoring 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

[[Page 49938]]

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 
which 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 received FDA approval on May 28, 2014. The 
CardioMEMSTM HF Monitoring 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).
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments regarding how the CardioMEMSTM HF System meets the 
newness criterion. We did not receive any public comments concerning 
how the CardioMEMSTM HF Monitoring System meets the newness 
criterion. Therefore, after evaluation of the information provided by 
the applicant, we believe that the CardioMEMSTM HF 
Monitoring System meets the newness criterion, and we consider the 
technology to be ``new'' as of May 28, 2014, when the technology 
received FDA approval.
    With respect to cost criterion, the applicant submitted actual 
claims from the CHAMPION \9\ 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 Monitoring 
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 Monitoring System (because the clinical 
trial claims did not contain charges for the CardioMEMSTM HF 
Monitoring System). This resulted in an average case-weighted 
standardized charge per case of $79,218.
---------------------------------------------------------------------------

    \9\ 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 hemodynamic monitoring in chronic 
heart failure: a randomized 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 Monitoring System would meet the cost 
criterion.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on whether or not the CardioMEMSTM HF System meets 
the cost criterion. We did not receive any public comments regarding 
whether or not the CardioMEMSTM HF System meets the cost 
criterion. Based on the analysis above, we believe 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 CardioMEMS HF Monitoring 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 Monitoring 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

[[Page 49939]]

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 maintained during longer 
term follow-up.
    After reviewing the information provided by the applicant, we 
stated in the FY 2015 IPPS/LTCH PPS proposed rule that we have the 
following concerns. The applicant did not discuss long-term outcomes, 
specifically death. We stated that we believe additional long-term 
outcome information and information regarding 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 stated that we are concerned 
about the cause of the significant dropouts in the Kaplan Meier curves 
which further demonstrates lack of impact on survival.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on whether or not the CardioMEMSTM HF Monitoring 
System technology represents a substantial clinical improvement in the 
treatment options available to Medicare beneficiaries.
    Comment: Several commenters, including various physicians, 
supported the approval of new technology add-on payment for the 
CardioMEMSTM HF Monitoring System.
    Response: We appreciate the commenters' support. We considered 
these comments in our determination of whether the 
CardioMEMSTM HF Monitoring System represents a substantial 
clinical improvement.
    Comment: The applicant submitted a public comment, which included 
responses to each of CMS' concerns presented in the proposed rule. CMS' 
major concern outlined in the FY 2015 IPPS/LTCH PPS proposed rule was 
the lack of mortality data to support the improvement seen in the 
specified endpoint, hospitalizations. The applicant provided 
information that the Randomized Access Period includes approximately 
800 patient-years of follow-up, with an average patient follow-up of 18 
months. The primary endpoint of the CHAMPION trial was HF 
hospitalizations because it remains a major clinical and public health 
problem, which is inadequately addressed by current treatment options. 
Although the trial was not powered to assess mortality, the applicant 
stated that the data showed strong favorable trends for reduced 
mortality, and a highly significant reduction for HF hospitalization or 
mortality. During the first 6 months of follow-up, the applicant stated 
that the proportion of patients who died that were enrolled in the 
treatment group (n=15, 5.6 percent) was lesser than in the proportion 
patients who died that were enrolled in the control Group (n=20, 7.1 
percent), with a nonsignificant but favorable relative risk reduction 
rate of 23 percent (HR 0.77, 95 percent CI 0.40-1.51, p=0.4484). During 
the entire Randomized Access Period, the applicant stated that the 
proportion of patients who died that were enrolled in the treatment 
group (n=50, 18.5 percent) was lesser than the proportion of patients 
that were enrolled in the control group (n=64, 22.9 percent), with a 
nonsignificant but favorable relative risk reduction rate of 20 percent 
(HR 0.80, 95 percent CI 0.55-1.15, p=0.2303).
    The applicant further stated that in measuring the combined impact 
of mortality and HF hospitalizations on the study population, analysis 
of the time to death or first HF hospitalization is frequently used. 
During the first 6 months of the Randomized Access Period, the 
applicant noted that the proportion of patients who died or that had at 
least one HF hospitalization that were enrolled in the treatment group 
(n=63, 23.3 percent) was lesser than the proportion of patients who 
died or that had at least one HF hospitalization that were enrolled in 
the control group (n=91, 32.5 percent), with a significant relative 
risk reduction rate of 31 percent (HR 0.69, 95 percent CI 0.50-0.95; 
p=0.0239). During the entire Randomized Access Period, the applicant 
noted that the proportion of patients who died or had at least one HF 
hospitalization that were enrolled in the treatment group (n=121, 44.8 
percent) was lesser than the proportion of patients who died or had at 
least one HF hospitalization that were enrolled in the control group 
(n=145, 51.8 percent), with a significant relative risk reduction rate 
of 23 percent (HR 0.77, 95 percent CI 0.60-0.98, p=0.0330). The 
applicant further noted that other endpoints other than time to event 
analyses are event rate analyses for repeat events, including HF 
hospitalization rates (primary efficacy endpoint) and all cause 
hospitalization rates. The applicant also indicated that event rate 
analyses for composite events also are frequently used to assess the 
impact of both mortality and HF hospitalizations (combined deaths and 
HF hospitalization rates) and total morbidity and mortality (combined 
deaths and all cause hospitalizations rates). According to the 
applicant, the large treatment effect size on long-term outcomes and 
the low number needed to treat and prevent hospitalizations and deaths 
demonstrated that CardioMEMSTM HF Monitoring System 
represents a substantial clinical improvement.
    CMS also was concerned that while the data supported a reduction in 
total hospitalizations, the rate of

[[Page 49940]]

hospitalization in each group (0.32 versus 0.44) does not appear to be 
clinically meaningful. The applicant stated in response that the days 
alive outside of the hospital (DAOH) endpoint was a secondary endpoint 
in the CHAMPION trial. The applicant further stated that the endpoint 
is used in clinical trials as an alternative measure for evaluating the 
combined impact of mortality and hospitalizations on the study 
population. Endpoints that are traditionally used to measure this 
combined effect include time to event analyses (for example, time to 
death or first HF hospitalization) and composite event rate analyses 
(for example, rate of death and repeat HF hospitalizations). The 
applicant noted that, for many HF drug and device trials, these more 
traditional analyses are frequently used as the primary or co-primary 
efficacy endpoints. The applicant further stated that the DAOH endpoint 
is susceptible to many influences including variable follow-up time 
(that is, patients with longer follow-up time have the potential for 
more DAOH than patients with shorter follow-up time), the length of the 
study duration interval for which the DAOH endpoint is being analyzed, 
and differences in proportion of patients experiencing a mortality or 
hospitalization event relative to the proportion of patients not 
experiencing a mortality or hospitalization event (that is, a shorter 
duration interval will have a greater proportion of patients without 
any events when compared to a longer duration interval where the 
proportion of patients experiencing events increases over time). In 
response to CMS' concerns in regard to the numerical similarity of DAOH 
between the treatment and control groups which is based on the shorter 
follow-up interval of 6 months, the applicant stated that during this 
shorter follow-up interval, approximately 70 percent of the patients 
did not experience a mortality or HF hospitalization event. The 
applicant stated that indication skews the dataset because these 
patients are experiencing 100 percent in measurement of DAOH. Despite 
this fact, the applicant stated that there was a statistically 
significant difference of 2.3 days in favor of the treatment group. The 
applicant asserted that a treatment effect that increases the number of 
DAOH by 2.3 days over a 6-month period is clinically meaningful to this 
patient population, as evidenced by the improved quality of life of the 
patients that were enrolled in the treatment group. DAOH rates were 
also analyzed over a longer period of follow-up during the Randomized 
Access Period. To reduce the effects of variable follow-up time and to 
have a consistent study duration interval, DAOH was analyzed over the 
first 12 months of follow-up. Patients enrolled in the treatment group 
being managed using the CardioMEMSTM HF Monitoring System 
experienced 6.1 more DAOH than the patients that were enrolled in the 
control group after 12 months of follow-up. The applicant believed that 
this increase represents a substantial clinical improvement with 
respect to current treatment options available to Medicare 
beneficiaries.
    In regard to CMS' concern about the cause of the significant 
dropouts in the Kaplan Meier curves, which further demonstrates lack of 
impact on survival, the applicant provided the following information in 
response. According to the applicant, the dropout rates in the CHAMPION 
trial were low; the patients transitioning from Randomized to Open 
Access are being misconstrued as dropouts. The applicant reported that 
CHAMPION enrolled 550 patients from September 2007 to October 2009. In 
addition, all of the patients remained in their randomized groups until 
the last patient enrolled in the CHAMPION trial completed at least 6 
months of follow-up. As result of this enrollment over time, the 
applicant stated that the average patient follow-up in the Randomized 
Access Period was significantly longer at 18 months. The applicant 
further indicated that patients with a lower enrollment number and 
implanted earlier in 2008 had the potential for longer follow-up times 
in the Randomized Access Period than patients with a higher enrollment 
number and implanted later in 2009. As a result, the applicant believed 
that these patients are being construed as dropouts on the Kaplan Meier 
curve, but actually are patients being censored at the time of their 
transition to the Open Access Period. According to the applicant, 
because the maximum follow-up for the Randomized Access Period was 
already achieved, patients in this category were not eligible or ``at 
risk'' for the longer follow-up periods represented in the Kaplan Meier 
curve understanding that the follow-up time is now part of the Open 
Access Period.
    In response to CMS' invitation for public comments on whether or 
not the CardioMEMSTM HF Monitoring System technology 
represents a substantial clinical improvement in the Medicare 
population, the applicant stated that heart failure is a significant 
clinical burden to Medicare beneficiaries, their caregivers, and 
hospitals throughout the U.S. health care system. The applicant 
believed that rising HF hospitalizations rates and the increasing cost 
of care for Medicare beneficiaries diagnosed with HF and the 
detrimental effect the condition is having on the U.S. health care 
system is not sustainable.
    The applicant believed that the CardioMEMSTM HF 
Monitoring System technology represents a substantial clinical 
improvement treatment options available to Medicare beneficiaries. In 
the CHAMPION trial, 245 patients (45 percent) were 65 years or older at 
the time of sensor implantation (120 in the treatment group and 125 in 
the control group). Patients who were enrolled in the treatment group 
and managed on the basis of PA pressure information obtained from the 
CardioMEMSTM HF Monitoring System had a significantly 
reduced HF hospitalization rate (0.34 events/patient-year) compared to 
patients who were enrolled in the control group (0.67 events/patient-
year) and managed according to best available practices (HR 0.51, 95 
percent CI 0.37-0.70, p<0.0001).
    Response: We appreciate the applicant's response to each of CMS' 
concerns and the additional data provided. Other than data indicating 
that the primary endpoint of reduced hospitalizations was met, 
additional longer term data demonstrated improved mortality. Therefore, 
we believe that the data indicates that the CardioMEMSTM 
Monitoring System meets the substantial clinical improvement criterion.
    After consideration of the public comments we received, we believe 
that the CardioMEMSTM HF Monitoring System meets all of the 
new technology add-on payment policy criteria. Therefore, we are 
approving the CardioMEMSTM HF Monitoring System for new 
technology add-on payments in FY 2015. Cases involving the 
CardioMEMSTM HF Monitoring System that are eligible for new 
technology add-on payments will be identified by ICD-9-CM procedure 
code 38.26 (Insertion of implantable wireless pressure sensor for 
intracardiac or great vessel hemodynamic monitoring), which was 
effective October 1, 2011. With the new technology add-on payment 
application, the applicant stated that the total operating cost of the 
CardioMEMSTM HF Monitoring System is $17,750. 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 payment for a case involving the CardioMEMSTM HF 
Monitoring System is $8,875 for FY 2015.

[[Page 49941]]

d. 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 cooptation (``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.
    CMS received a formal National Coverage Decision (NCD) request from 
the Society of Thoracic Surgeons (STS), the American College of 
Cardiology Foundation (ACCF), the Society for Cardiovascular 
Angiography and Interventions (SCAI), and the American Association for 
Thoracic Surgery (AATS) jointly asking that CMS cover Transcatheter 
Mitral Valve Repair procedures using a system that has received FDA 
premarket approval (PMA) for the treatment of MR when performed 
according to an FDA-approved indication. We refer readers to the CMS 
Web site at: http://www.cms.gov/medicare-coverage-database/details/nca-tracking-sheet.aspx?NCAId=273 for information related to this ongoing 
NCD. The tracking sheet for this National Coverage Analysis (NCA) 
indicates an expected NCA completion date of August 13, 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited 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.
    Comment: The applicant stated that the technology is a first in 
kind and is not substantially similar to any FDA approved technology on 
the market. Therefore, the applicant believed that the technology meets 
the newness criterion. Several other public comments believed that the 
MitraClip[supreg] System meets the newness criterion.
    Response: We appreciate the commenters' input. After consideration 
of the application, we agree with the commenters that the 
MitraClip[supreg] System meets the newness criterion. Therefore, for 
purposes of determining eligibility for FY 2015 IPPS new technology 
add-on payments, we consider the technology to be ``new'' as of October 
24, 2013, and will use ICD-9-CM procedure code 35.97 (Percutaneous 
mitral valve repair with implant) to identify the technology for new 
technology add-on payments.
    Comment: One commenter noted that the application to request a NCD 
was not made by the applicant, as stated in the proposed rule. Rather, 
the commenter stated that this request was made by a coalition of four 
national physician specialty societies that specialize in treating 
patients diagnosed with valve disease.
    Response: We appreciate the commenter's input concerning this 
clarification.
    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

[[Page 49942]]

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[supreg] System, 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on whether or not the MitraClip[supreg] System meets the cost 
criterion. In addition, we invited public comments on the methodologies 
used by the applicant in its two analyses.
    Comment: In response to CMS' statement in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28049) that it believed use of the FY 2012 final 
rule impact file is more appropriate rather than the FY 2014 final rule 
impact file for standardization, the applicant submitted the following 
supplemental data updating its cost analyses.
    With regard to the second analysis, the applicant submitted revised 
data using the FY 2012 MedPAR file and the FY 2012 impact file to 
standardize the charges. We note that in the proposed rule we 
inadvertently listed $232,670 as the average case-weighted standardized 
charge per case. This amount is the average case-weighted non-
standardized charge per case. Based on the revised data, the corrected 
average case-weighted standardized charge per case is $151,111.
    Using the same methodology described above and the FY 2012 impact 
file, under the second analysis, the applicant determined an inflated 
average case-weighted standardized charge per case of $136,479 under 
the first inflation factor (4.57 percent), $139,151 under the second 
inflation factor (9.2 percent), and $139,509 under the third inflation 
factor (4.63 percent). The applicant compared these amounts to the 
average case-weighted threshold of $71,467 for MS-DRGs 250 and 251 (all 
calculations above were performed using unrounded numbers). Because the 
inflated 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 of $71,467, 
the applicant maintained that the MitraClip[supreg] System meets the 
cost criterion.
    The applicant also revised the second analysis using FY 2013 MedPAR 
and the FY 2013 impact file. Based on this data, similar to above, the 
applicant searched the FY 2013 MedPAR file for claims for cases 
reporting ICD-9-CM procedure code 35.97. The applicant found 43 cases 
in MS-DRG 250 (28.66

[[Page 49943]]

percent of the total number of cases), and 107 cases in MS-DRG 251 
(71.33 percent of the total number of cases), which resulted in an 
average case-weighted standardized charge per case of $149,725.
    The first methodology used an inflation factor of 3.20 percent, 
which was based on data from the BLS' non-seasonally adjusted CPI for 
all urban consumers between January 2012 and January 2013. This 
resulted in an inflated average case-weighted standardized charge per 
case of $152,945 (which included a fixed amount of commercial charges 
based on post-FDA approval pricing). The second methodology used an 
inflation factor of 11.46 percent (second quarter of FY 2012 through 
first quarter of FY 2014), which was based on the outlier inflation 
factor in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28321). This 
resulted in an inflated average case-weighted standardized charge per 
case of $158,425 (which included a fixed amount of commercial charges 
based on post-FDA approval pricing). The third methodology used an 
inflation factor of 4.53 percent, which was based on the MEI from the 
IPPS market basket update between the third quarter of 2013 projected 
through the third quarter of 2015. This resulted in an average case-
weighted standardized charge per case of $153,827 (which included a 
fixed amount of commercial charges based on post-FDA approval pricing).
    Using the FY 2014 IPPS Table 10 thresholds, the average case-
weighted threshold for MS-DRGs 250 and 251 is $75,772 (all calculations 
above were performed using unrounded numbers). Because the inflated 
average case-weighted standardized charge per case for the applicable 
MS-DRGs calculated under each methodology under this analysis discussed 
above exceeds the average case-weighted threshold amount, the applicant 
maintained that the technology meets the cost criterion.
    Several other commenters believed that the MitraClip[supreg] System 
meets the cost criterion.
    Response: We appreciate the applicant's submission of the 
supplemental data. We agree with the commenters that the 
MitraClip[supreg] System meets the cost criterion. We note that in 
section II.I.4.b. of the preamble of this final rule, we denied the 
applicant's request to reassign cases reporting a TMVR using the 
MitraClip[supreg] System from MS-DRGs 250 and 251 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). We also denied the applicant's request to create a new base MS-
DRG for transcatheter valve therapies. We refer readers to section 
II.G. for a complete discussion on these requests.
    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 10 11 12 13 14 15 16 17 18 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.
---------------------------------------------------------------------------

    \10\ Feldman, et al., ``Percutaneous Repair or Surgery for 
Mitral Regurgitation,'' New England Journal of Medicine, 2011, Vol. 
364, pp. 1395-1406.
    \11\ Foster, et al., ``Percutaneous Mitral Valve Repair in the 
Initial EVEREST Cohort: Evidence of Reverse Left Ventricular 
Remodeling,'' Circulation in Cardiovascular Imaging, July 2013, Vol. 
6(4), pp. 522-530.
    \12\ 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.
    \13\ 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.
    \14\ 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 Europe,'' Journal of American 
College of Cardiology, 2013, doi: 10.1016/j.jacc.2013.02.094.
    \15\ 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, p. 317-328.
    \16\ 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.
    \17\ 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.
    \18\ 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

[[Page 49944]]

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 \19\ ``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.''
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
    We stated in the FY 2015 IPPS/LTCH PPS proposed rule that, 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 noted 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.
    [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.
    We stated in the FY 2015 IPPS/LTCH PPS proposed rule that 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.
    We stated that 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited 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.
    Comment: A number of commenters agreed with the applicant that the 
MitraClip[supreg] System meets the substantial clinical improvement 
criterion. The commenters also recommended the approval of the 
MitraClip[supreg] System for new technology add-on payments in FY 2015. 
One commenter, an association of thoracic surgeons, expressed support 
for the approval of the MitraClip[supreg] System for new technology 
add-on payments. The commenter explained that the MitraClip[supreg] 
System provides a treatment option to Medicare beneficiaries that

[[Page 49945]]

represents a substantial clinical improvement for patients who are too 
high risk for surgical mitral valve repair or replacement. Other 
commenters indicated that they had experience using the 
MitraClip[supreg] System.
    Response: We appreciate the commenters' support. Many of the 
commenters described their positive experiences using the 
MitraClip[supreg] System, which improved the clinical outcome of the 
patients treated. Furthermore, the commenters believed that most, if 
not all, of the cases treated using the MitraClip[supreg] System would 
have had no other treatment option available. In addition, the 
commenters asserted that the MitraClip[supreg] System helped to provide 
improvements to the quality of life of the patients treated with the 
technology. We considered the commenters' positive experiences using 
the MitraClip[supreg] System in our determination of whether the 
MitraClip[supreg] System represents a substantial clinical improvement 
in the treatment options available to Medicare beneficiaries.
    Comment: The applicant submitted a public comment that stated peer-
reviewed evidence supported the belief that the MitraClip[supreg] 
System meets the substantial clinical improvement criterion. The 
applicant further noted that in previous rulemaking, CMS has indicated 
that new technologies represent a substantial clinical improvement if 
``the device offers a treatment option for a patient population 
unresponsive to, or ineligible for, currently available treatment.'' 
The commenter believed that the MitraClip[supreg] System meets this 
criterion when used in accordance with the FDA-approved indication for 
the treatment of prohibitive risk degenerative mitral regurgitation 
(DMR). Specifically, the applicant stated that for those patients who 
are ineligible for surgery due to prohibitive surgical risk, the 
MitraClip[supreg] System offers the first available option to 
mechanically correct their mitral valve disease and, therefore, improve 
cardiac functioning and functional status and quality of life, while 
decreasing heart failure related hospitalizations and potentially 
reducing mortality.
    The applicant reiterated the opinion that the clinical evidence 
20 21 demonstrated that the technology represents a 
substantial clinical improvement in the treatment options available to 
Medicare beneficiaries for the following reasons:
---------------------------------------------------------------------------

    \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, JACC (2013), In Press, Accepted 
Manuscript, Available online 31 October 2013.
    \21\ MitraClip[supreg] Clip Delivery System Instructions for 
Use, at abbottvascular.com/ifu.
---------------------------------------------------------------------------

     A majority of patients experience MR reduction from 3+/4+ 
to <=2+ after the procedure. This improvement is sustained in 83 
percent of patients at 12 months. Results at 2 years demonstrated that 
82.5 percent of surviving patients remained at <=2+, which demonstrated 
that there is no evidence of deterioration of MR severity between 1-
year and 2-year follow up.
     Reduction in MR with the MitraClip therapy to <=2+ has 
been shown to provide significant symptomatic DMR patients with 
meaningful clinical benefits including reduction of left ventricular 
volumes.
     Patients experienced clinically important improvement in 
NYHA Functional Class at 12 months; roughly 87 percent of patients 
experienced NYHA Class III or Class IV symptoms at baseline, which 
improved to less than 15 percent at 12 months.
     Despite the elderly and highly comorbid nature of the 
population, quality of life scores improved. The improvements in both 
the Physical Component Summary and Mental Component Summary scores 
exceeded the 2-3 point threshold generally considered to represent a 
minimum clinically important difference.
     Heart failure hospitalizations were reduced by 73 percent 
in the 12 months post-MitraClip procedure from the 12 months pre-
MitraClip procedure.
    The commenter concluded that, in recognition of these benefits, the 
2014 AHA/ACC Guidelines for the Management of Patients with Valvular 
Heart Disease recommended the MitraClip therapy as a treatment option 
for the FDA-approved indication. The commenter noted that the 
guidelines state that TMVR may be considered for severely symptomatic 
patients (NYHA Class III to Class IV) with chronic severe primary MR 
(stage D) who have favorable anatomy for the repair procedure and a 
reasonable life expectancy, but who have a prohibitive surgical risk 
because of severe comorbidities and remain severely symptomatic despite 
optimal GDMT for HF.
    The applicant also addressed CMS' concerns presented in the 
proposed rule. Specifically, with respect to the concern regarding the 
appropriate target population for this technology, the commenter 
believed that the target population has been clearly defined in the FDA 
approval indication and associated labeling for the MitraClip[supreg] 
System. The applicant noted that since the publication of the proposed 
rule, as stated above, the AHA/ACC has reviewed the MitraClip[supreg] 
System evidence and updated their guidelines to recommend consideration 
for the use of the MitraClip[supreg] System for patients meeting the 
FDA-approved indication. In addition, the applicant indicated that the 
CMS Coverage and Analysis Group has also reviewed the MitraClip[supreg] 
evidence and issued a proposed decision memorandum to extend coverage 
for the FDA-approved indication at highly experienced centers of 
excellence meeting specific criteria. Further, the applicant noted that 
detailed multi-society requirements have been published specifying 
operator and institutional criteria for performing the 
MitraClip[supreg] System procedure, and these have been incorporated by 
CMS into the proposed decision memorandum. Finally, the applicant 
stated that it has worked together with national societies and CMS to 
establish a new mitral module of the national TVT registry to 
systematically track adherence to these requirements by all health care 
centers using the MitraClip[supreg] System and to collect data on 
patient outcomes with linkage to the CMS claims database.
    With respect to CMS' concerns regarding how the MitraClip[supreg] 
system compares to other surgical therapies, such as mitral valve 
repair or replacement, the applicant stated that clinical outcomes from 
the prohibitive risk DMR Cohort were determined by the FDA to 
adequately establish the safety, effectiveness, and positive benefit-
risk profile of the MitraClip[supreg] System for the indicated 
population, and these data are the basis for Premarket Approval 
Application (PMA) approval. In conclusion of thought, the applicant 
stated that the FDA concluded that the totality of clinical evidence 
demonstrated the reasonable assurance of safety and effectiveness of 
the MitraClip[supreg] System to reduce MR and provide patient benefit 
in this discrete and specific patient population.
    The applicant also commented that the prohibitive risk DMR Cohort, 
on which FDA approval was granted, included 127 consecutively-enrolled 
patients who completed 12 months of follow-up after treatment with the 
MitraClip[supreg] System device. The applicant explained that this 
Cohort included 25 patients from the EVEREST II High Risk Registry 
(HRR) study, 98 patients from the high risk arm of the REALISM 
Continued Access study, and 4 Compassionate Use patients. The applicant 
further explained that the four Compassionate Use patients are included 
for analysis in the Prohibitive

[[Page 49946]]

Risk DMR Cohort because they meet the definition of prohibitive risk 
and all valve anatomic criteria for eligibility. For inclusion in this 
Cohort, three physicians (two experienced mitral valve surgeons and one 
experienced mitral valve cardiologist) had to concur that the patient 
met the definition of prohibitive risk.
    The applicant further stated that patients in the prohibitive risk 
DMR Cohort were all enrolled under a highly-rigorous IDE clinical trial 
protocol that included pre-specified eligibility criteria and 
adjudicated endpoints. The applicant stated that pooling of the EVEREST 
II Continued Access Study (REALISM) data with EVEREST II HRR was 
intended and pre-specified in the REALISM protocol. The applicant noted 
that one of the REALISM protocol's stated objectives was to gather 
additional safety and effectiveness data to support the PMA. The 
applicant further stated that the same device design was used, and care 
was taken to ensure the two studies had identical entry criteria, data 
collection, monitoring, and analysis methods. In addition, the 
applicant stated that the REALISM protocol defined the evaluation of 
poolability and specified clinically important baseline variables to be 
compared. The applicant stated that the majority (10/13) of these 
baseline characteristics, especially high-risk characteristics/
comorbidities, was similar in REALISM and HRR, resulting in comparable 
average STS predicted mortality risk scores.
    The applicant stated that the findings from the prohibitive risk 
DMR Cohort were highly consistent with real-world evidence from a large 
number of published European studies that included similar groups of 
high-risk patients.
    The applicant concluded that despite some limitations in evaluating 
evidence from pooled datasets, it should be noted that all available 
evidence on the MitraClip[supreg] System consistently indicate that the 
use of this technology provides both mechanistic and clinical benefit 
for these high surgical risk patients.
    Response: We appreciate the applicant's subsequent analysis of 
data. With respect to the substantial clinical improvement represented 
by this technology, we considered all the case specific clinical 
information presented by the applicant and the public to determine 
whether there is evidence to support a conclusion that the use of the 
MitraClip[supreg] System represents a substantial clinical improvement 
in the treatment options available to Medicare beneficiaries. 
Specifically, we considered the peer-reviewed medical literature, 
clinical studies, and the clinically accepted use of the device. We 
believe that it is important that the MitraClip[supreg] System be used 
in the treatment of the appropriate target population and that the NCD 
will establish the appropriate Medicare patient population for this 
procedure. We agree with the applicant that the MitraClip[supreg] 
System offers a treatment option for a patient population unresponsive 
to, or ineligible for, currently available treatment; specifically 
those patients that have been determined to be at prohibitive risk for 
mitral valve surgery (per the FDA indications). In addition, we 
received positive comments from a major cardiovascular and a major 
thoracic society and from many physicians who indicated that the 
MitraClip[supreg] System helped to produce positive clinical outcomes 
by providing a treatment option for patients with no other available 
options, as well as resolving MR. Furthermore, the MitraClip[supreg] 
System is the only device currently available to mechanically correct 
mitral valve disease. Without the availability of this device, patients 
with DMR might otherwise receive general treatment to maintain their 
condition, which would eventually result in death rather than a 
treatment to resolve their condition. Also, the MitraClip[supreg] 
System can be an effective treatment option that improves quality of 
life and reduces heart failure symptoms and hospitalizations. 
Therefore, after reviewing the totality of the evidence, we believe 
that the MitraClip[supreg] System represents a substantial clinical 
improvement over existing therapies. We remain interested in seeing 
whether the clinical evidence will continue to find that the 
MitraClip[supreg] System will be effective. We will continue to monitor 
the clinical data as the data become available.
    After consideration of the public comments we received, we are 
approving the MitraClip[supreg] System for new technology add-on 
payments in FY 2015. As noted above, any payment made under the 
Medicare program for services provided to a beneficiary is contingent 
upon CMS' coverage of the item, and any restrictions on the coverage 
apply. This approval is on the basis of using the MitraClip[supreg] 
consistent with any coverage decision that will be issued by CMS after 
the publication of this final rule. Subject to any coverage 
determinations made by CMS regarding the MitraClip[supreg] System, 
cases involving the MitraClip[supreg] System that are eligible for the 
new technology add-on payments will be identified by ICD-9-CM procedure 
code 35.97. The average cost of the MitraClip[supreg] System is 
reported as $30,000. Under section 412.88(a)(2), new technology add-on 
payments are limited to the lesser of 50 percent of the average cost of 
the device or 50 percent of the costs in excess of the MS-DRG payment 
for the case. As a result, the maximum add-on payment for a case 
involving the MitraClip[supreg] System is $15,000 for FY 2015.
e. 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

[[Page 49947]]

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)).
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public 
comments on whether the technology meets the newness criterion. 
However, we did not receive any public comments in response to the 
proposed rule regarding whether the technology meets the newness 
criterion. The applicant received FDA premarket approval on November 
14, 2013. Therefore, for the purpose of evaluation for determinng 
eligibility for FY 2015 IPPS new technology add-on payments, we 
consider this technology to be ``new'' as of November 14, 2013, and we 
will use the following ICD-9-CM procedure codes to identify the 
technology for purposes of new technology add-on payments: 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)).
    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 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

[[Page 49948]]

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.
    In the FY 2015 IPPS/LTCH PPS proposed rule, we invited 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. However, we did not receive any public comments 
in response to the proposed rule regarding whether this technology 
meets the cost criterion. After further evaluation of the new 
technology add-on payment application, we believe that the technology 
meets the cost criterion.
    With regard to substantial clinical improvement, as previously 
stated, some patients diagnosed with partial 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 respective 
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 trial. 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 
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 
stated in the proposed rule that 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

[[Page 49949]]

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 stated in 
the proposed rule that 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 invited 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.
    Comment: Commenters stated that the technology is currently used 
and will continue to be used in the treatment of Medicare beneficiaries 
who have been diagnosed with epilepsy. One commenter noted that 31 
percent of individuals in the RNS[supreg] System clinical trial were 
Medicare beneficiaries, and all of these individuals were enrolled in 
the Medicare program because of a disability as opposed to being 
enrolled in the Medicare program because of their age. In addition, the 
commenter provided an analysis of data obtained from publicly available 
databases, specifically using the Premier Perspective all payor 
database for the time period from 2008 through 2013 and the CMS MedPAR 
database for FY 2012 and FY 2013. This analysis showed that, for 
Medicare beneficiaries who have been diagnosed with medically 
intractable partial epilepsy, 72 to 77 percent of the Medicare claims 
were submitted for payment of services provided to patients who were 
under the age of 65. The commenter also queried the public Web sites of 
the healthcare centers that participated in the RNS[supreg] System 
Pivotal trial, which included data on patients who have participated in 
specific programs directed by 120 adult comprehensive epilepsy centers, 
and found that these centers reported that 33 percent of their patients 
who have been diagnosed with epilepsy were enrolled in the Medicare 
program and 76 percent of these Medicare beneficiaries were under the 
age of 65. Several other commenters asserted that patients who have 
been diagnosed with epilepsy and receive treatment using this 
technology would be eligible for Medicare based on a disabling 
condition. The commenter provided examples of the types of patients 
that they have treated who are younger than the age of 65, but who are 
insured through the Medicare program based on a disabling condition.
    Response: We appreciate the information detailed within the 
commenter's analysis. We agree with the commenters that this technology 
will be available for use by Medicare beneficiaries.
    Comment: Commenters provided comparison analyses for this 
technology and VNS therapy, DBS, surgical resection, and other 
medications, and also conducted assessments of the durability of the 
RNS[supreg] System. (We further discuss the results of the comparison 
analyses and assessments conducted by these commenters below.) Many of 
these commenters pointed out that this technology is capable of 
capturing and storing information regarding seizure activity, which 
could enable the use of this technology to initiate possible changes in 
medical management of patients treated with an implant over time.
    In comparison to VNS therapy, commenters stated that the 
RNS[supreg] System is a closed loop system that provides electrical 
stimulation in response to brain activity, while VNS therapy is an open 
loop system that provides electrical stimulation continuously or 
intermittently at programmed intervals. In addition, commenters stated 
that the RNS[supreg] System can be applied directly to the seizure 
focus or foci in the brain, while VNS therapy provides stimulation to 
the vagus nerve. The commenters noted that this distinction represents 
an improvement relative to VNS therapy because patients receive less 
stimulation using the RNS[supreg] System. The commenters also pointed 
out that the side effects of VNS therapy, such as hoarseness, coughing, 
and throat pain, are distressing and uncomfortable for patients and can 
make VNS therapy difficult to tolerate. These commenters also noted 
that these side effects do not emerge with the use of the RNS[supreg] 
System. One commenter provided data from the clinical trials for VNS 
therapy, which showed that more than half of the patients treated with 
VNS therapy ``perceived'' stimulation. The commenter also provided data 
from clinical trials for VNS therapy that showed that the side effects 
for VNS therapy included voice alternation, increased coughing, 
pharyngitis, dyspnea, dyspepsia, nausea, and laryngismus. The commenter 
compared the indications from the clinical trial data with data from 
the RNS[supreg] System trials, which indicate that there were no 
patients with ongoing complaints related to ``perception of 
stimulation,'' although some patients experienced symptoms such as 
flashing lights or focal muscle twitching. The commenter stated that 
stimulation with the RNS[supreg] System was adjusted for patients 
experiencing these symptoms, such that the symptoms became 
imperceptible. Many commenters stated that they were able to use the 
RNS[supreg] System to reduce the frequency of seizures in patients who 
have been diagnosed with epilepsy for whom VNS therapy did not reduce 
seizures. One commenter provided clinical trial data regarding VNS 
therapy that showed that in two studies in blinded periods VNS therapy 
reduced median seizures per day by 6 to 23 percent, and that over 3 
years VNS therapy reduced median seizures per day by 31 to 41 percent. 
The commenter also provided clinical trial data regarding the 
RNS[supreg] System that showed in the blinded period a 28 percent 
reduction of median seizures per day compared to 19 percent for the 
control group. In addition, the commenter also provided clinical trial 
data regarding the RNS[supreg] System that showed that over 3 years the 
RNS[supreg] System reduced median seizures by 44 to 60 percent. The 
commenter also pointed out that 34 percent of patients enrolled in the 
RNS[supreg] System trial were previously treated with VNS therapy, but 
experienced positive outcomes with the RNS[supreg] System.
    In comparison to DBS, commenters stated that the RNS[supreg] System 
was not approved by the FDA for treatment of epilepsy, and DBS is not 
considered to be the standard of care for the treatment of epilepsy by 
the American Academy of Neurology or the American Epilepsy Society. The 
commenters stated that they did not have experience with the 
RNS[supreg] System to compare with DBS to because it is not typically 
used, or approved for, treating patients diagnosed with epilepsy. One 
commenter noted that DBS is only available to patients on an 
experimental or investigational basis for the treatment of epilepsy. 
Another commenter stated that no direct comparison trial has been 
conducted between DBS and the RNS[supreg] System. The commenter 
reviewed data from a clinical trial that studied the use

[[Page 49950]]

of DBS treatment of the anterior nucleus of the thalamus in subjects 
with medically intractable partial seizures. While the commenter stated 
that some of the data appeared to be comparable to the results of the 
RNS[supreg] System trials in terms of seizure reduction and quality of 
life, differences existed in the construction of the trials, including 
inclusion and exclusion criteria and primary efficacy endpoints. The 
commenter also stated that, similar to VNS therapy, DBS provides 
continuous or intermittent stimulation at program intervals, resulting 
in more stimulation being delivered than delivered using the 
RNS[supreg] System.
    In comparison to surgical resection, commenters noted that the 
RNS[supreg] System can be used when surgical resection is not available 
as a treatment option. Commenters stated that some patients who have 
been diagnosed with epilepsy have seizure focus or foci area(s) in 
regions of the brain that should not be removed because removal would 
result in serious neurological defects. Therefore, commenters stated 
that the RNS[supreg] System represents a treatment option for patients 
who have been diagnosed with epilepsy for whom surgery is not an 
option. In addition, commenters stated that they were able to use the 
RNS[supreg] System to reduce the frequency of seizures in patients who 
had been treated with surgical resection and did not experience a 
reduction in seizures after surgery.
    In comparison to antiepileptic medications used to treat patients 
who have been diagnosed with epilepsy, commenters stated that the 
RNS[supreg] System offers a treatment option that does not have the 
unpleasant side effects associated with some of these medications. The 
commenters stated that these side effects include problems with 
cognition or coordination, depression, and fatigue.
    With regard to durability, one commenter provided data from the 
RNS[supreg] System clinical trial for 6 years. The results of the trial 
indicate that the median percent reduction in seizures compared to the 
baseline year was sustained or improved at 60 percent 3 years after 
implantation and 66 percent 6 years after implantation. The median 
follow-up time for this group of patients based on the trial's data was 
5.4 years. The commenter indicated that these results are comparable, 
or better, for the subset of patients who were enrolled in the 
RNS[supreg] System clinical trial and that were Medicare beneficiaries. 
The commenter further stated that the updated data showed that the 
proportion of patients who were enrolled in the RNS[supreg] System 
clinical trial that experienced extended periods of seizure freedom of 
3 or 6 months was slightly larger than previously shared in the 
November 1, 2012 new technology add-on payment application for the 
RNS[supreg] System.
    Response: We appreciate the commenters' input. We agree with the 
commenters that the RNS[supreg] System offers a treatment option for a 
patient population that is unresponsive to currently available 
treatments. Specifically, we agree with the commenters that the 
RNS[supreg] System clinical trial data showed that the technology 
reduces seizure frequency in patients who have received treatment with 
VNS therapy or surgical resection and continued to have seizures 
subsequent to those treatments. We also agree with the commenters that 
the technology could be a treatment option for patients for whom 
surgical resection is not appropriate due to the location of the 
seizure focus or foci area(s). In addition, we agree with the 
commenters that use of the device improves clinical outcomes compared 
to currently available treatments. For example, it appears that seizure 
reduction over time using the RNS[supreg] System appears to be at least 
comparable with documented seizure reductions using VNS therapy, 
although no direct comparison of the two systems has been completed, 
and the RNS[supreg] System appears not to have the side effects that 
have been associated with VNS therapy. We agree with the commenters 
that it is inappropriate to compare the RNS[supreg] System to a 
technology that is not FDA approved for the same treatment.
    After consideration of the public comments we received, we believe 
that the RNS[supreg] System meets all of the new technology add-on 
payment criteria. Therefore, we are approving new technology add-on 
payments for the RNS[supreg] System for FY 2015. Cases involving the 
RNS[supreg] System that are eligible for new technology add-on payments 
will be identified using the following ICD-9-CM procedure codes: 01.20 
(Cranial implantation or replacement of neurostimulator pulse 
generator) in combination with 02.93 (Implantation or replacement of 
intracranial neurostimulator lead(s)). According to the applicant, 
cases using the RNS[supreg] System would incur an anticipated cost per 
case of $36,950. Under Sec.  412.88(a)(2) of the regulations, new 
technology add-on payments are limited to the lesser of 50 percent of 
the average costs of the device or 50 percent of the costs in excess of 
the MS-DRG payment rate for the case. As a result, the maximum add-on 
payment for cases involving the RNS[supreg] System is $18,475 for FY 
2015.

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

A. Background

    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary adjust the standardized amounts ``for area differences in 
hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level.'' We 
currently define hospital labor market areas based on the delineations 
of statistical areas established by the Office of Management and Budget 
(OMB). A discussion of the FY 2015 hospital wage index based on the 
statistical areas appears under section III.B. of the preamble of this 
final rule.
    Section 1886(d)(3)(E) of the Act requires the Secretary to update 
the wage index annually and to base the update on a survey of wages and 
wage-related costs of short-term, acute care hospitals. This provision 
also requires that any updates or adjustments to the wage index be made 
in a manner that ensures that aggregate payments to hospitals are not 
affected by the change in the wage index. The adjustment for FY 2015 is 
discussed in section II.B. of the Addendum to this final rule.
    As discussed in section III.H. of the preamble of this final 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 budget neutrality adjustment for FY 2015 is discussed in section 
II.A.4.b. of the Addendum to this final rule.
    Section 1886(d)(3)(E) of the Act also provides for the collection 
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in 
order to construct an occupational mix adjustment to the wage index. A 
discussion of the occupational mix adjustment that we are applying to 
the FY 2015 wage index

[[Page 49951]]

appears under section III.F. of the preamble of this final rule.

B. 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 
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 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 through 37252) and Census 
Bureau data.'' In this FY 2015 IPPS/LTCH PPS final 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 
the FY 2015 IPPS/LTCH PPS proposed rule. As discussed below, in the FY 
2015 IPPS/LTCH PPS proposed rule (79 FR 28054 through 28064, we 
proposed 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. Implementation of New Labor Market Area Delineations
    As discussed previously, CMS did not implement the new OMB labor 
market area delineations for FY 2014 because we needed 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 
delay implementation. Therefore, we proposed 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. In the FY 2015 IPPS/LTCH 
PPS proposed rule (79 FR 28055), we also proposed 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 
proposed 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.
    Comment: Commenters were supportive of the proposal to adopt the 
new OMB delineations. One commenter, while supportive of CMS' proposal 
to adopt the new OMB delineations, effective for FY 2015, recommended 
that CMS adopt an alternative hospital wage index system in future 
rulemaking. Another commenter suggested that CMS implement new labor 
market area definitions to distinguish ``core'' urban areas from 
surrounding areas within a CBSA.
    Response: We appreciate the support for our proposal to adopt the 
new OMB delineations. For FY 2015, we did not propose any modification 
to the current CBSA-based labor market area methodology, aside from 
proposing to adopt the new OMB labor market area delineations. However, 
we thank the commenters for their continued interest in examining 
alternative means for defining labor market areas. CMS presented an 
alternative wage index methodology in a Report to Congress on April 11, 
2012 (http://www.cms.gov/

[[Page 49952]]

Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/
Wage-Index-Reform-Report-to-Congress-2012.zip). As discussed in the 
report, implementation of such a reform would require revisions to 
several statutory provisions that provide various forms of wage index 
reclassification and redesignation. Until a consensus on wage index 
reform is achieved, we believe that implementing the most recent OMB 
delineations is critical in maintaining the efficacy and integrity of 
the Medicare hospital wage index system. We did not propose, nor will 
we finalize, any additional changes to the CBSA-based labor market area 
delineations, including the concept of defining core and noncore 
portions of a CBSA.
    After consideration of the public comments we received, we are 
finalizing the implementation of 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. We received public comments on our 
proposals with respect to the use of these new OMB delineations to 
calculate the area wage indexes and the transition periods, which we 
address in sections III.B.2.a. through d. of the preamble of this final 
rule. We also finalize our policies in those sections.
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, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28055), we proposed to continue to treat 
Micropolitan Areas as ``rural'' and to include the Micropolitan Areas 
in the calculation of each State's rural wage index.
    Comment: A number of commenters supported CMS' proposal to continue 
to treat Micropolitan Areas as rural for hospital wage index purposes.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, in 
conjunction with our policy to implement the new OMB labor market area 
delineations beginning in FY 2015, we are continuing 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 Became Rural Under the New OMB Delineations
    As previously discussed, we proposed to implement the new OMB labor 
market area delineations (based upon the 2010 Decennial Census data) 
beginning in FY 2015. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28055 through 28056), we stated that 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. In 
the proposed rule, we included a listing of the 37 urban counties that 
would be rural if we finalized our proposal to implement the new OMB 
delineations.
    We proposed that the wage data for all hospitals currently located 
in the 37 urban counties listed in the proposed rule would be 
considered rural under the new OMB delineations when calculating their 
respective State's rural wage index. We stated that 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 final rule for a discussion of the proposed and 
finalized wage index transition period, in particular, the discussion 
regarding the 3-year transition for hospitals located in these specific 
counties.
    Comment: Commenters were supportive of the proposal to adopt the 
new OMB delineations, including the proposed reassignment of counties 
from urban areas to rural areas.
    Response: We appreciate the commenters' support.
    As discussed above, we are finalizing our proposal to adopt the new 
OMB delineations. After consideration of the public comments we 
received, we also are finalizing our proposed reassignment of counties 
from urban areas to rural areas based on these new OMB delineations. 
The following chart lists the 37 urban counties that are considered to 
be rural under this policy.

[[Page 49953]]



                                                  Counties That Will Lose Urban Status and Become Rural
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Previous
                 County                         State           CBSA No.                                        CBSA
--------------------------------------------------------------------------------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------------------------------------------------------------------------------

c. Rural Counties That Became Urban Under the New OMB Delineations
    As previously discussed, we proposed to implement the new OMB labor 
market area delineations (based upon the 2010 Decennial Census data) 
beginning in FY 2015. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28056 through 28058), we indicated that 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. In the proposed 
rule, we included a listing of the 105 rural counties that would be 
urban if we finalized our proposal to implement the new OMB 
delineations.
    We proposed that when calculating the area wage index, the wage 
data for hospitals located in these 105 rural 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 proposed 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 final rule for 
further discussion of this transition.
    Comment: Commenters were supportive of the proposal to adopt the 
new OMB delineations, including the proposed reassignments of counties 
from rural areas to urban areas for purposes of the wage index.
    Response: We appreciate the commenters' support.
    As discussed above, we are finalizing our proposal to adopt the new 
OMB delineations. After consideration of the public comments we 
received, we also are finalizing our proposed reassignment of counties 
from rural to urban for purposes of the wage index based on these new 
OMB delineations. The following chart lists the 105 rural counties that 
will be urban for purposes of the wage index for FY 2015 under this 
policy.

                                                  Counties That Will Lose Rural Status and Become Urban
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               New  CBSA
                 County                         State             No.                                           CBSA
--------------------------------------------------------------------------------------------------------------------------------------------------------
Utuado Municipio.......................  PR                         10380  Aguadilla-Isabela, PR.
Linn County............................  OR                         10540  Albany, OR.
Oldham County..........................  TX                         11100  Amarillo, TX.

[[Page 49954]]

 
Morgan County..........................  GA                         12060  Atlanta-Sandy Springs-Roswell, GA.
Lincoln County.........................  GA                         12260  Augusta-Richmond County, GA-SC.
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.

[[Page 49955]]

 
Gulf County............................  FL                         37460  Panama City, FL.
Custer County..........................  SD                         39660  Rapid City, SD.
Fillmore County........................  MN                         40340  Rochester, MN.
Yates County...........................  NY                         40380  Rochester, NY.
Sussex County..........................  DE                         41540  Salisbury, MD-DE.
Worcester County.......................  MD                         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.
--------------------------------------------------------------------------------------------------------------------------------------------------------

d. Urban Counties That Moved to a Different Urban CBSA Under the New 
OMB Delineations
    As we stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28058 through 28060), 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. For the proposed rule, we 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. In the proposed rule, we included a table listing those 19 
counties.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28059), we did 
not discuss further in this section the above proposed changes because 
they are inconsequential changes with respect to the IPPS wage index. 
However, we did discuss that, in other cases, which if we adopted 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). We stated that if we adopted 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 adopted 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28059 through 
28060), we included a listing of the urban counties that would move 
from one urban CBSA to another urban CBSA if we adopted the new OMB 
delineations. 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 
referred readers to section III.B.2.e. of the preamble of the proposed 
rule for a discussion of our proposals to moderate the impact of our 
proposed adoption of the new OMB delineations.
    Comment: Commenters were supportive of the proposal to adopt the 
new OMB delineations, including the proposed reassignments of counties

[[Page 49956]]

from one urban area to another urban area.
    Response: We appreciate the commenters' support.
    As discussed above, we are finalizing our proposal to adopt the new 
OMB delineations. After consideration of the public comments we 
received, we also are finalizing our proposed reassignment of counties 
from one urban area to another urban area for purposes of the wage 
index based on these new OMB delineations. The following chart 
identifies the 19 counties that remain in a CBSA that experienced a 
change in name or number under this policy, but will retain the same 
constituent counties for purposes of the FY 2015 wage index.

                              Counties That Will 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 County........  CA
44600....................................              48260  Jefferson County............  OH
44600....................................              48260  Brooke County...............  WV
44600....................................              48260  Hancock County..............  WV
13644....................................              43524  Frederick County............  MD
13644....................................              43524  Montgomery County...........  MD
----------------------------------------------------------------------------------------------------------------

    The following chart lists the urban counties that will move from 
one urban CBSA to another urban CBSA under our adoption of the new OMB 
delineations for purposes of the FY 2015 wage index.

                                    Counties That Will 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 Municipio..........  PR
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 County..........  NY
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

[[Page 49957]]

 
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 Municipio......  PR
48900....................................              34820  Brunswick County............  NC
49500....................................              38660  Gu[aacute]nica Municipio....  PR
49500....................................              38660  Guayanilla Municipio........  PR
49500....................................              38660  Pe[ntilde]uelas Municipio...  PR
49500....................................              38660  Yauco Municipio.............  PR
----------------------------------------------------------------------------------------------------------------

e. Transition Period
(1) Background
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28060), we stated 
that, 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 recognized that some hospitals would experience decreases in wage 
index values as a result of the implementation of the new labor market 
area delineations. We also realize that some hospitals would have 
higher wage index values due to the implementation of the new labor 
market area delineations.
    We explained that, in the past, we have provided for transition 
periods when adopting changes that have significant payment 
implications, particularly large negative impacts. For example, when 
implementing the new OMB definitions after the 2000 Census in the FY 
2005 IPPS final rule (69 FR 49032 through 49034) for FY 2005, we 
evaluated several options to ease the transition to the new CBSA 
system.
    As discussed in that FY 2005 IPPS final 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 labor market area 
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 adoption of new labor market area 
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 area definitions. Hospitals that benefitted from the labor 
market area transition received their new wage index at the time the 
new labor market area definitions became effective.
    We continue to have the same concerns expressed in the FY 2005 IPPS 
final rulemaking. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28060 through 28064), we proposed 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) Transition for Hospitals in Urban Areas That Would Become Rural
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28060 through 
28061), 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 proposed 
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 proposed to 
assign these hospitals the area wage index value of the urban CBSA in 
which they were geographically 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

[[Page 49958]]

delineations, one of those counties, County X, would no longer be part 
of CBSA 12345 and would become rural for FY 2015, we proposed 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 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 proposed to apply a 1-year blended wage index.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28061), we noted 
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 proposed 
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 
proposed 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 proposed 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 proposed 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 proposed 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28061), with 
respect to the wage index computation, we proposed 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 proposed 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. After the 3-year transition 
period, beginning in FY 2018, we proposed that these formerly urban 
hospitals discussed above would receive their statewide rural wage 
index, absent any reclassification or redesignation.
    In addition, we proposed 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 did not propose 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 preambles of 
the proposed rule and this final rule).
    Comment: Commenters were supportive of CMS' proposals to provide

[[Page 49959]]

a 3-year transition adjustment for hospitals that are shifting from 
urban to rural areas. Commenters appreciated CMS' attempt to mitigate 
the negative effects of the application of the new OMB labor market 
delineations. Some commenters questioned why hospitals that switch from 
urban to rural could benefit from a longer 3-year transition 
adjustment, while other hospitals that would also be negatively 
affected by the transition could only benefit from a single year of a 
blended transition adjustment. They suggested a similar 3-year 
transition adjustment for all hospital experiencing a negative impact, 
including hospitals that are moving from urban to urban, or are not 
moving at all, but are being impacted by other hospitals moving in or 
out of the labor market area.
    Response: We appreciate the commenters' support for our proposals. 
We address comments pertaining to the difference between the 3-year 
urban to rural transition adjustment and the 1-year 50/50 blended wage 
index transition adjustment, as well as the requested 3-year transition 
period for all hospitals experiencing a negative impact in section 
III.B.2.e.(4) of the preamble of this final rule.
    After consideration of the public comments we received, we are 
finalizing our proposals without modification. We will provide 
hospitals that are changing from an urban to a rural labor market area 
a 3-year wage index adjustment. Specifically, for hospitals that are 
currently located in an urban county that became rural under the new 
OMB delineations, and 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 will 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). 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 is split apart and no longer exists, and some or all 
of its constituent counties are added to another urban labor market 
area under the new OMB delineations, hospitals located in such counties 
that became rural under the new OMB delineations will 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. 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 
preexisting reclassification or redesignation granted prior to FY 
2015), will not be eligible for the 3-year transition wage index. 
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, the hospital will permanently 
lose its 3-year transitional assigned wage index status, and will not 
be eligible to reinstate it.
    With respect to the wage index computation, we will 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)). Beginning with FY 2015, 
the wage data of all hospitals receiving this type of 3-year transition 
adjustment will be included in the statewide rural area in which they 
are geographically located under the new OMB delineations. After the 3-
year transition period, beginning in FY 2018, these formerly urban 
hospitals discussed above will receive their statewide rural wage 
index, absent any reclassification or redesignation. In addition, the 
hospitals receiving this 3-year transition because they are in counties 
that are urban under the current CBSA definitions, but become rural 
under the new OMB delineations, will not be considered urban hospitals. 
Rather, they will maintain their status as rural hospitals for other 
payment considerations.
(3) Transition for Hospitals Deemed Urban Under Section 1886(d)(8)(B) 
of the Act Where the Urban Area Became Rural Under the New OMB 
Delineations
    As discussed in section II.H.3. of the preamble of the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28061 through 28062) and this final 
rule, there are some hospitals that are currently 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 final rule. Similar to the policy implemented in the 
FY 2005 IPPS final rule (69 FR 49059), and consistent with the policy 
we proposed for other hospitals in counties that were urban and would 
become rural under the new OMB delineations, we proposed to apply the 
3-year transition to these hospitals currently redesignated to urban 
areas under section 1886(d)(8)(B) of the Act 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 proposed 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 proposed 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 proposed 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.
    We did not receive any specific public comment addressing these 
proposals. In general, commenters were supportive of CMS' proposal to 
implement the new OMB labor market delineations, including the policy 
to mitigate the negative effects of the transition to a new labor 
market area. We are finalizing our proposal to provide a 3-year 
adjustment to hospitals that were deemed urban under 1886(d)(8)(B) of 
the Act under the current labor market delineations, but are considered 
rural under the new delineations. We will

[[Page 49960]]

apply the 3-year transition to these hospitals currently redesignated 
to urban areas under section 1886(d)(8)(B) of the Act that are no 
longer be deemed urban under the new OMB delineations and will 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 will 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 was split apart and no longer exists, and 
some or all of its constituent counties were added to another urban 
labor market area under the new OMB delineations, such hospitals will 
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 will 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. Beginning 
in FY 2015, affected hospitals will be assigned the reclassified wage 
index of an urban area (as described above) for a period of up to 3 
years. This wage index assignment will be forfeited if the hospital 
obtains any form of wage index reclassification or redesignation.
(4) Transition for Hospitals That Will 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, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28062), we proposed 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 proposed 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 proposed 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 proposed that a blended wage 
index would be computed, consisting of 50 percent of each of the two 
wage indexes added together. We proposed that this blended wage index 
would be the hospital's wage index for FY 2015. We stated our belief 
that 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 proposed 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 proposed 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).
    Comment: Commenters were generally supportive of CMS' efforts to 
mitigate the negative impacts from the transition to the new OMB 
delineations. A number of commenters requested that CMS expand the 1-
year 50/50 blended wage index adjustment for a longer period of time. 
One commenter suggested the adjustment be phased in over multiple 
years, with a first year adjustment equal to the hospital's wage index 
under the current CBSA definitions. Several of these commenters stated 
that because hospitals cannot obtain an MGCRB reclassification under 
the new OMB delineations until FY 2016, the adjustment for FY 2015 
should negate any negative impacts from the transition to the new OMB 
delineations. These commenters explained that the MGCRB timetable would 
not allow them to benefit from newly available reclassification 
opportunities until at least 1 year following the implementation of new 
OMB delineations. Other commenters questioned why hospitals that switch 
from urban to rural could benefit from a longer 3-year transition 
adjustment, while other hospitals that also would be negatively 
affected by the transition could only benefit from a single year of a 
blended transition adjustment, and requested a 3-year transition period 
for all hospitals experiencing a negative impact. They suggested a 
similar 3-year

[[Page 49961]]

transition adjustment for affected hospitals experiencing a negative 
impact, including the hospitals that are moving from urban to urban, or 
are not moving at all, but are being impacted by other hospitals moving 
in or out of the labor market area.
    Response: We appreciate the commenters' support. We explored 
multiple alternatives to the proposed 1-year 50/50 blended wage index 
adjustment. While we acknowledge that some providers will see negative 
impacts based upon the adoption of the new OMB delineations, we also 
point out that some providers will experience increases in their wage 
index values from the new OMB delineations. It is CMS' longstanding 
policy to provide temporary adjustments to mitigate negative impacts 
from the adoption of new policies or procedures. However, these 
adjustments must be made in a budget-neutral manner, and all wage index 
values would be reduced to provide for any such transition benefit.
    We continue to believe that, in general, rural labor markets tend 
to have lower area wage index values than nearby urban areas. We 
proposed 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 on 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. We 
identified nine hospitals that could be negatively affected by their 
transition from urban to rural status under the new OMB delineations. 
Based on our experience regarding the impact of the policy established 
in FY 2005, we believe it is necessary to provide up to a 3-year 
transition adjustment for these hospitals to prevent the potential for 
drastic reductions in wage index values. The relatively small number of 
affected providers causes little concern for potential budget 
neutrality adjustment distortions in overall wage index values. 
However, significantly more providers will be negatively affected by 
other impacts from adopting the new labor market area delineations. 
Moving away from a 1-year 50/50 blend to an adjustment value that more 
closely approximates the hospital's previous labor market assignment, 
or providing for a longer transition period, would result in a 
significantly larger national budget neutrality adjustment. We believe 
the implementation of the new labor market area delineations will 
create more accurate representations of a hospital's labor market 
areas, and we do not believe it is appropriate to expand or extend the 
50/50 blended wage index adjustment further than what was proposed, 
because doing so would only further delay what we believe are the more 
refined and accurate labor market areas, based on the recent 2010 
Census. Because the wage index is a relative measure of the value of 
labor in prescribed labor market areas, we believe it is important to 
implement the new delineations with as minimal a transition as is 
reasonable.
    Hospitals currently must wait more than a year for an MGCRB 
reclassification application to become effective. We do not believe the 
implementation of new OMB delineations requires any modification to 
this policy. We believe the 1-year 50/50 blended wage index adjustment 
provides an adequate safeguard against significant hospital payment 
reductions, and provides hospitals time to assess their 
reclassification options for future fiscal years.
    Comment: One group of commenters suggested CMS made an error in 
calculating the Connecticut rural wage index value under the old FY 
2014 OMB definitions. Commenters claimed that CMS incorrectly assigned 
a hospital as being reclassified under section 1886(d)(8)(B) of the Act 
(that is, a ``Lugar'' hospital) when calculating the wage index under 
the old delineations. This hospital is located in a county that became 
urban under the new OMB delineations. Commenters claimed that the 
hospital opted to waive its ``Lugar'' status effective for FYs 2013, 
2014, and FY 2015 in order to receive its outmigration adjustment. 
However, when CMS calculated the FY 2014 rural wage index for the 
purpose of applying the proposed transition blend, CMS calculated the 
rural wage index with this hospital being reclassified. By including 
this hospital as reclassified to an urban area, the commenters claimed 
that the wage index based on the ``old'' labor market area definitions, 
and therefore, the proposed FY 2015 payment wage index was 
significantly lower than it would be if this provider was properly 
identified as rural under the old definitions.
    Response: In prior fiscal years, the Connecticut rural wage index 
was set by a single hospital. While there were multiple hospitals 
located in rural areas in the State, all but one obtained or was 
granted some form of reclassification to another area. The wage data of 
rural hospitals that reclassify elsewhere may only be included in their 
State's rural wage index if doing so would increase the wage index 
value (section 1886(d)(8)(C)(ii) of the Act). Because including the 
reclassified rural Connecticut hospitals would have lowered the State's 
rural area wage index value, the wage index was instead based on that 
single hospital's data. That hospital was designated urban under 
section 1886(d)(8)(B) of the Act but waived this status to receive an 
out-migration adjustment. As discussed in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51599 through 51600), a hospital may submit a request 
to waive its ``Lugar'' status for a period of 3 years. By doing so, we 
would no longer consider the hospital to be reclassified and would 
always use that hospital's data in the calculation the State's rural 
wage index. (We note that while we agree that the hospital waived its 
reclassification status for FY 2014 by accepting the out-migration 
adjustment, we disagree that the hospital in question waived its 
reclassified status for FY 2015. According to our records, the hospital 
sent a letter to CMS dated July 15, 2011, requesting to accept the out-
migration adjustment and waive its Lugar redesignation for FYs 2012, 
2013, and 2014.) When calculating the wage index based on the ``old'' 
labor market area definitions, CMS considered this hospital as being 
reclassified under section 1886(d)(8)(B) of the Act. Because all the 
rural Connecticut hospitals were now considered reclassified, the wage 
index was based upon their combined data because the baseline rural 
wage index did not include any hospitals. The result of including all 
reclassified hospitals was a rural wage index value that was 
significantly lower than in previous years. Considering that several 
hospitals in Connecticut benefited from the State's rural floor, this 
reduction in the rural wage index affected multiple hospitals in the 
State.
    After further consideration of the commenters' concerns, we agree 
with the commenters that this hospital should be treated as rural for 
the portion of the 1-year blended wage index under the FY 2014 
delineations because this hospital had waived it Lugar status by 
accepting the out-migration adjustment in FY 2014. Therefore, we are 
revising this hospital's wage index and the wage index of the hospitals 
affected by this change for FY 2015, as reflected in Tables 2-2, 4A-2 
and 4B-2, 4C-2, and 4D-2.
    After consideration of the public comments we received, we are 
finalizing the transition policy as proposed. We will apply a 1-year

[[Page 49962]]

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. In FY 2015, a post-
reclassified wage index with the rural and imputed floor applied will 
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 will be computed based 
on the hospital's new FY 2015 CBSA (that is, the FY 2015 constituent 
county/ies). We will compare these two wage indexes. If the FY 2015 
wage index with FY 2015 CBSAs is lower than the FY 2015 wage index with 
FY 2014 CBSAs, a blended wage index will be computed, consisting of 50 
percent of each of the two wage indexes added together. This blended 
wage index will be the hospital's wage index for FY 2015.
    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). In this situation, we will 
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.
(5) Impact of Adoption of New OMB Labor Market Area Delineations
    As we did for the proposed rule (79 FR 28062 through 28063), for 
this final rule, to illustrate how the adoption of the new OMB labor 
market area delineations will impact hospitals' FY 2015 wage indexes, 
we compared the final FY 2015 occupational mix adjusted post-
reclassified wage indexes with rural floor budget neutrality applied 
under the FY 2014 CBSAs and under the FY 2015 CBSAs using the new OMB 
delineations. (This analysis does not include the effects of the out-
migration adjustment, the frontier floor, the 3-year hold harmless 
transition wage indexes, or the 1-year transition blended wage 
indexes). As a result of applying the new OMB delineations to the wage 
data, the wage index values for 2,409 urban hospitals (85.6 percent) 
and 412 (65.2 percent) rural hospitals will increase. The wage index 
values of 2,372 (84.3 percent) urban hospitals will increase by less 
than 5 percent, and the wage index values of 14 (0.5 percent) urban 
hospitals will increase by at least 5 percent but less than 10 percent. 
The wage index values of 23 (0.8 percent) urban hospitals will increase 
by greater than or equal to 10 percent. The wage index values of 383 
(60.6 percent) rural hospitals will increase by less than 5 percent, 18 
rural hospitals (2.8 percent) will increase by at least 5 percent but 
less than 10 percent, and 11 rural hospitals (1.7 percent) will 
increase by greater than or equal to 10 percent. However, the wage 
index values for 397 urban hospitals (14.1 percent) and 220 (34.8 
percent) rural hospitals will decrease. The wage index values of 341 
(12.1 percent) urban hospitals will decrease by less than 5 percent, 50 
urban hospitals (1.8 percent) will decrease by at least 5 percent but 
less than 10 percent, and 6 urban hospitals (0.2 percent) will decrease 
by greater than or equal to 10 percent. The wage index values of 191 
(30.2 percent) rural hospitals will decrease by less than 5 percent, 28 
rural hospitals (4.4 percent) will decrease by 5 percent and less than 
10 percent, and 1 rural hospital (0.2 percent) will decrease by greater 
than or equal to 10 percent. The wage index values of 8 (0.3 percent) 
urban hospitals and zero rural hospitals will remain unchanged by the 
adoption of the new OMB delineations. The largest positive impacts are 
for 8 hospitals in 5 States (Texas, Michigan, Minnesota, Louisiana, and 
Alabama) that will be moving from a rural to an urban area under the 
new OMB delineations (ranging from a 17.23 percent increase in Texas to 
a 24.02 percent increase in wage index in Alabama), and for 14 
hospitals that will 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) under the new OMB delineations, representing 
a 15.13 percent increase in wage index. The largest negative impacts 
will be for 5 hospitals in 4 States (New York, Alabama, Idaho, and 
North Carolina) that will be moving from an urban to a rural area under 
the new OMB delineations (ranging from a 12.18 percent decrease in 
North Carolina to a 27.06 percent decrease in wage index in New York). 
One hospital in Delaware is moving from a rural to an urban area under 
the new OMB delineations and will experience an 11.38 percent decrease 
in wage index. Another hospital in Texas is moving from one urban area 
to another urban area under the new OMB delineations and will 
experience a 10.19 percent decrease in wage index. These results 
illustrate that hospitals that move from rural CBSAs to urban CBSAs 
under the new OMB delineations generally will benefit significantly, 
while hospitals that move from urban to rural CBSAs generally will have 
negative impacts. For all hospitals combined, the wage index values of 
2,821 hospitals (81.9 percent) overall will increase, and 617 hospitals 
(17.9 percent) overall will decrease, indicating that most hospitals 
will be positively affected by the adoption of the new OMB 
delineations. Furthermore, the magnitude of the changes will be 
relatively small overall, with only 151 hospitals (4.4 percent) 
experiencing either an increase or decrease of at least 5 percent.
    The following table shows the impact of the adoption of the new OMB 
delineations on hospitals' FY 2015 wage indexes, comparing the FY 2015 
occupational mix adjusted post-reclassified wage indexes with rural 
floor budget neutrality applied under the FY 2014 CBSAs and the FY 2015 
CBSAs using the new OMB delineations. (This analysis does not include 
the effects of the out-migration adjustment, the frontier floor, the 3-
year hold harmless transition wage indexes, or the 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      based on  FY        hospitals
                                                                2014 CBSA         2014 CBSA
----------------------------------------------------------------------------------------------------------------
Decrease greater than or equal to 10.0....................                 1                 6                 7
Decrease greater than or equal to 5.0 but less than 10.0..                28                50                78
Decrease greater than or equal to 2.0 but less than 5.0...                33                88               121

[[Page 49963]]

 
Decrease greater than 0.0 but less than 2.0...............               158               253               411
No change.................................................                 0                 8                 8
Increase greater than 0.0 but less than 2.0...............               376             2,331             2,707
Increase greater than or equal to 2.0 but less than 5.0...                 7                41                48
Increase greater than or equal to 5.0 but less than 10.0..                18                14                32
Increase greater than or equal to 10.0....................                11                23                34
                                                           -----------------------------------------------------
    Total.................................................               632             2,814             3,446
----------------------------------------------------------------------------------------------------------------

    We did not receive any public comments on the analysis in the 
proposed rule showing the effects of adopting the new CBSA 
delineations.
(6) Budget Neutrality
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28063), for FY 
2015, we proposed to apply both the 3-year transition and 50/50 blended 
wage index adjustments in a budget neutral manner. We proposed 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.
    We did not receive any public comments specific to our proposal to 
implement the 3-year transition and the 50/50 blended wage index 
adjustments in a budget neutral manner. We are finalizing the policy as 
proposed. For a complete discussion on this budget neutrality 
adjustment for FY 2015, we refer readers to section II.A.4.b. of the 
Addendum to this final 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) Determining Disproportionate Share Hospital (DSH) Payments Under 
the New OMB Delineations
    As noted in the FY 2005 IPPS final rule (69 FR 49033), the 
provisions of Sec.  412.102 of the regulations continue to apply with 
respect to determining DSH payments for hospitals affected by our 
adoption of the new OMB delineations. 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28063 through 
28064), we proposed to make changes to the regulations to delete Sec.  
412.64(b)(1)(ii)(D). In this provision, 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 the term ``hospital reclassified as rural'' is not used 
in Sec.  412.64, but is used in Sec.  412.102, we proposed 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 proposed 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 proposed 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 proposed 
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 the section.
    We did not receive any public comments regarding either of these 
proposals. We are finalizing the changes to Sec.  412.102 and Sec.  
412.64(b)(1)(ii)(D) as proposed, effective for FY 2015.

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

    The 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 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

[[Page 49964]]

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 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 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 Suppliers and Providers Other Than Acute 
Care Hospitals Under the IPPS
    Data collected for the IPPS wage index also are currently used to 
calculate wage indexes applicable to suppliers and other providers, 
such as SNFs, home health agencies (HHAs), ambulatory surgical centers 
(ASCs), 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 of any supplier or provider except IPPS 
providers and LTCHs. Such comments should be made in response to 
separate proposed rules for those suppliers and providers.

D. Verification of Worksheet S-3 Wage Data

    The wage data for the 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 FY 2015 wage index includes FY 2011 data submitted to 
us as of June 25, 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 stated 
that we identified and excluded 50 providers with aberrant data that 
should not be included in the wage index, although we stated that if 
data elements are corrected, we intended to include data from those 
providers in the final FY 2015 wage index (79 FR 28064). We have since 
determined that we had only removed 49, not 50, providers with aberrant 
data from the proposed wage index. We have received corrected data from 
19 providers and data from an additional provider, and therefore, we 
are including the data for these 20 providers in the final FY 2015 wage 
index. However, since issuance of the proposed rule, we have determined 
that the data from 4 other providers (not included in the original 49 
providers) were aberrant and should not be included in the final FY 
2015 wage index. Therefore, in total, we are excluding the data of 34 
providers from the final FY 2015 wage index.
    In constructing the 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 the 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 final FY 2015 wage index is calculated based on 3,416 
hospitals.
    For the final 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 final FY 2015 wage index associated with this final rule 
(available via the Internet on the CMS Web site) includes separate wage 
data for the campuses of 6 multicampus hospitals.
    Comment: Commenters representing hospitals located in CBSA 46140 
disagreed with the removal of the wage data of one hospital in that 
CBSA from the FY 2015 wage index. They argued that CMS's removal of the 
hospital's data is arbitrary and capricious, based only on the fact 
that the hospital's average hourly wage is higher than those of the 
other hospitals in the CBSA. The commenters noted that the hospital's 
data were included in the wage index in previous years, and CMS has 
provided ``no rational explanation for its inconsistent treatment 
now.'' The commenters further stated that ``if CMS were to adopt a 
policy of excluding the hospital with the highest wage data from each 
CBSA, fairness would require that CMS also exclude the hospital with 
the lowest wage data from each CBSA.'' The commenters stated that if 
CMS is employing a ``bright-line cut off,'' CMS must publish such 
``bright-line tests.''
    Response: Section 1886(d)(3)(E) of the Act requires the Secretary 
to adjust the proportion of hospitals' costs attributable to wages and 
wage-related costs for area differences reflecting the relative 
hospital wage level in the geographic area of the hospital compared to 
the national average hospital wage level. We also refer readers to 
section 1886(d)(9)(C)(iv)(I) of the Act. Since the origin of the IPPS, 
the wage index has been subject to its own annual review process, first 
by the MACs, and then by CMS. Hospitals are aware that both the MACs 
(via instructions issued by CMS) and CMS evaluate the accuracy and 
reasonableness of hospitals' wage index data. Each year, in every IPPS 
proposed rule, we discuss the process wherein CMS asks the MACs to 
``revise or verify data elements that result in specific edit 
failures'' (most recently, in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28064)). We state that, in constructing the wage index, we 
include the wage data for facilities that were IPPS hospitals in the 
relevant cost reporting year (that is, FY 2011 for the FY 2015 wage 
index), and that we include ``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

[[Page 49965]]

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'' (emphasis added; 79 FR 28064). CMS 
has historically exercised its discretion in developing a wage index 
that reflects a relative measure of the value of the labor provided to 
a typical hospital in a particular labor market area. We applied these 
same procedures, as discussed below, to the hospital at issue, and we 
disagree with the commenters that we have arbitrarily and capriciously 
removed the wage data of the cited hospital from the FY 2015 wage 
index.
    In the instance of the particular hospital to which the commenters 
refer, while the hospital's wage data was properly documented, it did 
not merely have the highest average hourly wage in the CBSA; its 
average hourly wage was extremely and unusually high, significantly 
higher than the next highest average hourly wage in that CBSA and in 
the surrounding areas. We do not believe that the average hourly wage 
of this particular hospital accurately reflects the economic conditions 
in its labor market area during the FY 2011 cost reporting period, and, 
therefore, its inclusion in the wage index would not ensure that the FY 
2015 wage index represents the labor market area's current wages as 
compared to the national average of wages. Accordingly, we have 
exercised our discretion to remove this hospital's wage data from the 
February 20, 2014 PUF, and from the May 2, 2014 PUF as well. Similarly, 
we have exercised our discretion by removing from the wage index (in FY 
2015 and in prior years) the data of hospitals with average hourly 
wages that are unusually and uncharacteristically low for their 
respective CBSAs because we believe that the wage data of those 
hospitals also do not accurately reflect the economic conditions in 
their labor market area. We included the hospital's data in the wage 
index in previous years because the hospital's average hourly wage was 
lower and more reasonable relative to its labor market area in the 
prior years and, thus, we did not remove the hospital's wage data from 
the prior years' wage index.
    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 MACs 
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{time} 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

[[Page 49966]]

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 MACs 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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28065 through 
28066) rule, we reiterated 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 MACs zero out these line items if 
the hospital's contract does not 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 MACs 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, MACs 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, MACs 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, 
MACs must determine that the data used are reasonable.
    Comment: One commenter encouraged CMS to instruct the MACs to be 
consistent across their entire jurisdiction in how the MACs estimate 
wages and hours for contract dietary and housekeeping services, in the 
instances where there is a lack of documentable wages and hours for 
these services. Another commenter noted that CMS stated that commenters 
may suggest alternatives for imputing reasonable estimates for possible 
consideration by CMS. This commenter asked that CMS consider 
eliminating entirely all wages and hours associated with dietary and 
housekeeping services, both for hospital employees and contract labor, 
based on the belief that these services represent an ``immaterial'' 
3.27 percent of total Worksheet S-3, Part II, line 1 wages, and their 
removal from the wage index would remove a time-consuming burden for 
both providers and MACs. The commenter asserted that if all wages and 
hours associated with dietary and housekeeping services were eliminated 
from the wage index, the ``comparison among hospitals would remain 
meaningful and would remove any disparity among hospitals related to 
the issue.''
    Response: We agree with the first commenter that it is important 
for CMS' policies and instructions to be implemented uniformly by the 
MACs across all jurisdictions. We provide updated and uniform 
instructions to the MACs each year prior to the start of the annual 
wage index desk review process, and also communicate with the MACs 
through various media throughout each annual wage index cycle, 
including instructions on how to estimate wages and hours for contract 
dietary and housekeeping services in the absence of documentable wages 
and hours for these categories. We do not agree with the second 
commenter's request that CMS eliminate entirely all wages and hours 
associated with dietary and housekeeping services, both for hospital 
employees and contract labor. The IPPS wage index is a relative measure 
of the value of all types of labor provided to a typical hospital in a 
particular labor market area, not just the labor with high average 
hourly wages. We believe it would be inappropriate to agree to 
selectively include, or exclude, certain categories of labor from the 
wage index because doing so would result in a less accurate measure of 
labor costs and would undermine the relativity of the wage index as 
whole. 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, and the 
accuracy of the wages and hours of contract labor

[[Page 49967]]

will continue to be reviewed by the MACs as part of the annual desk 
review process. As we stated in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28065 through 28066), 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 MACs to estimate such salaries, wages, and hours in the 
rare instance where a hospital cannot provide such information for its 
dietary and housekeeping services under contract. We will continue to 
instruct the MACs to use reasonable estimates for these services, in 
the absence of documentable wages and hours for contract housekeeping 
and dietary services.

E. Method for Computing the FY 2015 Unadjusted Wage Index

    The method used to compute the 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 did not propose any changes to the usage for FY 2015 (79 
FR 28066). 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 FY 2015 national average 
hourly wage (unadjusted for occupational mix) is $39.2971. The FY 2015 
Puerto Rico overall average hourly wage (unadjusted for occupational 
mix) is $16.9893.

F. Occupational Mix Adjustment to the 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 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 wage index, we proposed to use 
the occupational mix data collected on the 2010 survey to compute the 
occupational mix adjustment for FY 2015. We did not receive any public 
comments on this proposal; therefore, we are finalizing our policy to 
use the occupational mix data collected on the 2010 survey to compute 
the occupational mix adjustment for FY 2015. We are including data for 
3,183 hospitals that also have wage data included in the 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 FY 2015 wage 
index associated with this final rule. Therefore, a new measurement of 
occupational mix is 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

[[Page 49968]]

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/Medicare-Wage-Index-Occupational-Mix-Survey2013.html?DLPage=1&DLSort=1&DLSortDir=descending. Hospitals were 
required to submit their completed 2013 surveys to their MACs by July 
1, 2014. The preliminary, unaudited 2013 survey data was posted on the 
CMS Web site afterward, on July 11, 2014. The FY 2012 Worksheet S-3 
wage data for the FY 2016 wage index review and correction process was 
posted on the CMS Web site in May 2014. Both the preliminary FY 2016 
wage data and occupational mix survey data can be found on the CMS Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2016-Wage-Index-Home-Page.html?DLPage=1&DLSort=1&DLSortDir=descending.
3. Calculation of the Occupational Mix Adjustment for FY 2015
    For FY 2015, we proposed 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 labor market area delineations) was $39.1177. The 
proposed FY 2015 occupational mix adjusted Puerto Rico-specific average 
hourly wage (based on the proposed new OMB labor market area 
delineations) was $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 FY 2015 wage 
index. For the proposed FY 2015 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 the FY 2015 IPPS/LTCH PPS 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 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.
    Comment: One commenter stated that all hospitals should be 
obligated to submit the occupational mix survey because failure to 
complete the survey jeopardizes the accuracy of the wage index. The 
commenter added that a penalty should be instituted for nonsubmitters. 
The commenter also stated that pending CMS' analysis of the Commuting 
Based Wage Index and the Institute of Medicine's study on geographic 
variation in hospital wage costs, CMS should eliminate the occupational 
mix survey and the significant reporting burden it creates.
    Response: We appreciate the commenter's concern for the accuracy of 
the wage index, and we have continually exhorted all hospitals to 
complete and submit the occupational mix surveys. We did not propose a 
particular penalty for hospitals that do not submit the CY 2013 
occupational mix survey, but we are continuing to consider for future 
rulemaking various options for ensuring full compliance. Examples 
include applying a hospital's occupational mix survey data from a 
previous survey period to the current wage index of a given fiscal 
year; including the occupational mix survey as part of the cost report, 
and if not completed, the cost report would be rejected by the MAC; or 
application of a State-specific minimum or reduced occupational mix 
adjustment. Regarding the commenter's request that CMS should eliminate 
the survey due to the burden it creates, section 1886(d)(3)(E) of the 
Act requires us to measure the earnings and paid hours of employment by 
occupational category. As long as the requirement to apply an 
occupational mix adjustment to the wage index remains in place in the 
statute, there may be some amount of administrative burden involved in 
reporting that data.
    After consideration of the public comments we received, for FY 
2015, we are finalizing our proposal 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 FY 2015 occupational mix 
adjusted national average hourly wage (based on the new OMB labor 
market area delineations) is $39.2591. The FY 2015 occupational mix 
adjusted Puerto Rico-specific average hourly wage (based on the new OMB 
labor market area delineations) is $17.0410. For the FY 2015 wage 
index, because we are using the Worksheet S-3, Parts II and III wage 
data of 3,416 hospitals, and we are using the occupational mix surveys 
of 3,183 hospitals for which we also have Worksheet S-3 wage data, that 
represents a ``response'' rate of 93.2 percent (3,183/3,416).

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

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix 
Adjusted Wage Index
    As discussed in section III.F. of the preamble of this final rule, 
for FY 2015, we apply the occupational mix adjustment to 100 percent of 
the FY 2015 wage index. We calculated the occupational mix adjustment 
using data from the 2010 occupational mix survey data, using the 
methodology described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51582 through 51586).
    Using the occupational mix survey data and applying the 
occupational mix adjustment to 100 percent of the FY 2015 wage index 
results in a national average hourly wage (based on the new OMB labor 
market area delineations) of $39.2591 and a Puerto-Rico specific 
average hourly wage of $17.0410. 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 FY 2015 wage index, we calculated the FY 2015 
wage index using the occupational mix survey data from 3,183 hospitals. 
For the FY 2015 wage index, because we are using the Worksheet S-3, 
Parts II and III wage data of 3,416 hospitals, and we are using the 
occupational mix survey data of

[[Page 49969]]

3,183 hospitals for which we also have Worksheet S-3 wage data, those 
data represent a ``response'' rate of 93.2 percent (3,183/3,416). The 
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:

------------------------------------------------------------------------
                                                              Average
          Occupational mix nursing subcategory              hourly wage
------------------------------------------------------------------------
National RN.............................................    37.420970136
National LPN and Surgical Technician....................     21.78229118
National Nurse Aide, Orderly, and Attendant.............     15.31107725
National Medical Assistant..............................    17.251053917
National Nurse Category.................................    31.769556957
------------------------------------------------------------------------

    The national average hourly wage for the entire nurse category as 
computed in Step 5 of the occupational mix calculation is 
$31.769556957. 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 43.46 
percent, and the national percentage of hospital employees in the all 
other occupations category is 56.54 percent. At the CBSA level, using 
the new OMB delineations 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 62.04 percent in another CBSA.
    We compared the FY 2015 occupational mix adjusted wage indexes for 
each CBSA to the unadjusted wage indexes for each CBSA. We used the FY 
2015 new OMB delineations for this analysis. As a result of applying 
the occupational mix adjustment to the wage data, the wage index values 
for 219 (53.8 percent) urban areas and 29 (61.7 percent) rural areas 
increased. One hundred and nineteen (29.2 percent) urban areas will 
increase by 1 percent but less than 5 percent, and 4 (1.0 percent) 
urban areas will increase by 5 percent or more. Fourteen (29.8 percent) 
rural areas will increase by 1 percent but less than 5 percent, and no 
rural areas will increase by 5 percent or more. However, the wage index 
values for 186 (45.7 percent) urban areas and 18 (38.3 percent) rural 
areas decreased. Seventy nine (19.4 percent) urban areas will decrease 
by 1 percent but less than 5 percent, and 1 (0.2 percent) urban area 
will decrease by 5 percent or more. Seven (14.9 percent) rural areas 
will decrease by 1 percent and less than 5 percent, and no rural areas 
will decrease by 5 percent or more. The largest positive impacts will 
be 6.58 percent for an urban area and 3.36 percent for a rural area. 
The largest negative impacts will be 5.32 percent for an urban area and 
1.73 percent for a rural area. Two urban areas' wage indexes, but no 
rural area wage indexes, will remain unchanged by application of the 
occupational mix adjustment. These results indicate that a larger 
percentage of rural areas (61.7 percent) will benefit from the 
occupational mix adjustment than will urban areas (53.8 percent). 
However, approximately one-third (38.3 percent) of rural CBSAs will 
still experience a decrease in their wage indexes as a result of the 
occupational mix adjustment.
2. Application of the Rural, Imputed, and Frontier Floors
a. Rural Floor
    Section 4410(a) of Public Law 105-33 provides that, for discharges 
on or after October 1, 1997, the area wage index applicable to any 
hospital that is located in an urban area of a State may not be less 
than the area wage index applicable to hospitals located in rural areas 
in that State. This provision is referred to as the ``rural floor.'' 
Section 3141 of Public Law 111-148 also requires that a national budget 
neutrality adjustment be applied in implementing the rural floor. In 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28068), based on the 
proposed FY 2015 wage index associated with the proposed rule and based 
on the proposed implementation of the new OMB delineations discussed in 
section III.B. of the preamble of the 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.
    Based on the final FY 2015 wage index associated with this final 
rule and available on the CMS Web site and based on the implementation 
of the new OMB delineations, 422 hospitals are receiving an increase in 
their FY 2015 wage index due to application of the rural floor.
    We received some public comments concerning the application of the 
rural floor. We respond to these public comments in Appendix A of this 
final rule.
b. 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).) Currently, there are two all-urban States, New Jersey 
and Rhode Island, that have a range of wage indexes assigned to 
hospitals in these States, including through reclassification or 
redesignation (we refer readers to discussions of geographic 
reclassifications and redesignations in section III.H. of the preamble 
of the proposed rule and this final 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

[[Page 49970]]

the imputed floor wage index to address the concern that the original 
imputed floor methodology guaranteed a benefit 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28068 through 
28069), for FY 2015, we proposed 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 the proposed rule, we proposed 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 referred 
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 the 
proposed rule. We proposed 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 invited public comments on our proposal regarding 
the 1-year extension of the imputed floor.
    Comment: Several commenters supported the CMS proposal to extend 
the imputed floor for 1 year, stating that it establishes an approach 
to remedy the competitive disadvantage suffered by all-urban States in 
the absence of an imputed wage index floor; and that the imputed wage 
index floor policy creates a climate of symmetry, equity and 
consistency in the Medicare reimbursement process. One commenter 
suggested that the industry have an opportunity to provide input to CMS 
prior to finalizing any decisions regarding the imputed floor policy. 
The commenter also suggested that if CMS decides to finalize a policy 
that would result in the expiration of the imputed floor, CMS afford 
hospitals a multiyear phase-out in order to offset their lost revenue.
    One commenter stated that CMS should reconsider the extension of 
the imputed floor policy, and questioned what statutory authority CMS 
has to extend the imputed floor policy and declare new States eligible. 
Another commenter objected to the proposal and stated that it does not 
support the policy behind the imputed floor. The commenter recommended 
that CMS not finalize the proposal to extend the imputed floor, and 
stated it agreed with the rationale that CMS previously provided in the 
FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25878 through 25879) for not 
proposing to extend the imputed floor policy, and urged CMS to let the 
policy expire.
    Response: We appreciate the commenters' support for our proposal to 
extend the imputed floor for 1 year and are finalizing this proposal. 
In response to the commenters who objected to the proposed policy and 
made other recommendations, we will give further consideration to those 
comments as we continue to explore potential wage index reforms. As we 
have done every year since the proposal of the imputed floor, we 
provide and will continue to provide the industry with the opportunity 
to provide input on our proposals prior to finalizing any decisions 
regarding the imputed floor policy. We will take the commenters' 
recommendation to afford hospitals a multiyear phase-out into 
consideration should we propose not to extend the imputed floor policy 
in future years.
    In response to the commenter who questioned what statutory 
authority CMS has to extend the imputed floor policy and declare new 
States eligible, as we stated in the FY 2005 IPPS final rule (69 FR 
49110), we note that the Secretary has broad authority under section 
1886(d)(3)(E) of the Act to ``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 . . . for area differences in hospital wage levels by a 
factor (established by the Secretary) . . .'' Therefore, we believe 
that we do have the discretion to adopt a policy that would adjust area 
wage indexes in the stated manner. We adopted the imputed floor policy 
and subsequently extended it through notice-and-comment rulemaking to 
address concerns from hospitals in all-urban states. Under the new OMB 
delineations discussed in section III.B. of the preamble of this final 
rule, Delaware becomes an all-urban State and, therefore, is subject to 
an imputed floor as well.
    After consideration of the public comments we received, we are 
finalizing our proposal without modification to extend the imputed 
floor policy under both the original methodology and the alternative 
methodology for an additional year, through September 30, 2015, while 
we continue to explore potential wage index reform. We also are 
adopting as final the proposed revisions to Sec.  412.64(h)(4) and 
(h)(4)(vi) to reflect the 1-year extension of the imputed floor.
    The wage index and impact tables associated with this FY 2015 IPPS/
LTCH PPS final rule that are available on the CMS Web site reflect the 
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 15 providers in New Jersey, and no providers in 
Delaware that will receive an increase in their FY 2015 wage index due 
to the continued application of the imputed floor policy under the 
original methodology. The wage index and impact tables for this FY 2015 
final rule also reflect the application of the alternative methodology 
for computing

[[Page 49971]]

the imputed floor, which will benefit four hospitals in Rhode Island.
c. 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 implementation of the 
new OMB delineations discussed in section III.B. of the preamble of 
this final rule, 46 hospitals will receive the frontier floor value of 
1.0000 for their FY 2015 wage index in this final rule. These hospitals 
are located in Montana, North Dakota, South Dakota, and Wyoming. 
Although Nevada also is defined as a frontier State, its FY 2015 rural 
floor value of 1.1373 is greater than 1.0000, and therefore, no Nevada 
hospitals will receive a frontier floor value for their FY 2015 wage 
index.
    We did not propose any changes to the frontier floor policy for FY 
2015, and we did not receive any public comments on the issue.
    The areas affected by the rural, imputed, and frontier floor 
policies for the FY 2015 wage index are identified in Table 4D 
associated with this final rule, which is available via the Internet on 
the CMS Web site.
3. FY 2015 Wage Index Tables
    The 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 occupational mix adjustment, geographic reclassification or 
redesignation as discussed in section III.H. of the preamble of this 
final rule, and the application of the rural, imputed, and frontier 
State floors as discussed in section III.G.2. of the preamble of this 
final rule. We note that because we are adopting 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 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 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 FY 2015 
wage index. The 3-year averages are calculated by dividing the sum of 
the dollars (adjusted to a common reporting period using the method 
described in Step 5 in section III.G. of the preamble of this final 
rule) across all 3 years, by the sum of the hours. If a hospital is 
missing data for any of the previous years, its average hourly wage for 
the 3-year period is calculated based on the data available during that 
period. The average hourly wages in Tables 2, 3A, and 3B, which are 
available on the CMS Web site, include the occupational mix adjustment. 
The wage index values in Tables 4A, 4B, 4C, and 4D also include the 
national rural floor budget neutrality adjustment (which includes the 
imputed floor). The wage index values in Table 2 also include the out-
migration adjustment for eligible hospitals. As stated above, because 
we are adopting 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 area definitions 
and the new OMB labor market area delineations. In addition, for 
certain applicable hospitals, the wage index values included in Table 2 
are computed to reflect the transitional wage index or the 50/50 
blended wage index discussed in detail in section III.B.2.e. of the 
preamble of this final 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 proposed 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 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 final rule. For a 
discussion of the new CBSA changes based on the new OMB labor market 
area delineations and our implementation of those changes, we refer 
readers to sections III.B. and VI.C. of the preamble of this final 
rule.
    Comment: One commenter stated that because the new OMB labor market 
area delineations will be effective October 1, 2014, for FY 2015, 
hospitals should have been given an opportunity to apply for 
reclassification to these new labor market areas a year ago. The 
commenter suggested that CMS provide a one-time expedited MGCRB 
application and approval process to be effective October 1, 2014.
    Similarly, another commenter stated that a hospital would not have 
had an adequate opportunity to assess reclassification options for FY 
2015 because CMS did not publish 3-year average hourly wage data based 
on the new OMB labor market area delineations with the FY 2014 IPPS/
LTCH PPS final rule. The commenter therefore suggested that either the 
effective date of the implementation of the new OMB labor market areas 
delineations be postponed until FY 2016, or a new period be opened to 
allow hospitals to reclassify for FY 2015.

[[Page 49972]]

    Response: We do not agree with these comments. We did not propose 
to adopt the new OMB labor market area delineations in the FY 2014 
IPPS/LTCH PPS proposed rule and, therefore, did not finalize the new 
OMB delineations in the FY 2014 IPPS/LTCH PPS final rule. Instead, we 
notified hospitals of our intention to propose changes to the wage 
index based on the new OMB delineations in the FY 2015 IPPS/LTCH 
proposed and final rules (78 FR 27552 through 27553; 78 FR 50586). 
Therefore, hospitals could not apply for reclassification on the basis 
of the new OMB labor market area delineations a year ago because they 
had not yet been implemented. Because we had not implemented the new 
OMB delineations, we were unable to release data, including average 
hourly wage data, based on these new delineations last year.
    Section 1886(d)(10)(C) of the Act mandates that 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), and the MGCRB must issue its decision 
within 180 days after the first day of the 13-month period preceding 
the fiscal year for which a hospital has filed its application. 
Therefore, we believe we have balanced our obligation to implement the 
reclassification decisions of the MGCRB with our responsibility to 
implement the most accurate labor market areas through the new OMB 
delineations in as uniform a manner as possible.
    However, we recognized that the new OMB delineations could affect 
reclassification decisions. Therefore, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28073), we stated that hospitals that wished 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 could request reassignment 
within 45 days from the publication of the proposed rule. We also 
stated that if, for whatever reason, a hospital still finds itself 
assigned to a labor market area that would provide a wage index for FY 
2015 that is lower than the wage index the hospital would have received 
under the FY 2014 CBSA delineations, we proposed a 50/50 blended wage 
index adjustment in FY 2015 for all hospitals that would experience a 
decrease in their FY 2015 wage index value due to the implementation of 
the new OMB delineations and are finalizing this transition adjustment 
in this rule. This transitional adjustment will mitigate negative 
payment impacts for FY 2015, while providing hospitals additional time 
to fully assess any additional reclassification options available to 
them under the new OMB delineations for FY 2016. Therefore, we do not 
believe it is necessary to implement a one-time expedited MGCRB 
application and approval process, postpone the effective date of the 
implementation of the new OMB delineations until FY 2016, or open a new 
period to allow hospitals to reclassify for FY 2015.
    Comment: A few commenters stated that, in cases where a countywide 
(group) reclassification had been previously approved by the MGCRB, a 
new hospital is not able to obtain the same reclassified wage index 
until the first year that individual hospital's wage index data match 
one of the 3 years' data used by the MGCRB and a new 3-year countywide 
reclassification is requested by the county's hospitals (which can be a 
4-year delay). The commenters stated that the hospital will have a wage 
index lower than the hospitals with which it competes for skilled 
labor. The commenter suggested that CMS change its policy to allow for 
a timelier competitive wage index for new hospitals.
    Two commenters suggested that the proximity rule for countywide 
reclassifications for hospitals in an urban county be modified to 
permit adjacent county reclassifications, regardless of whether they 
are in the same CSA or CBSA, or at a minimum, create an exception that 
would allow this in the event that half of the hospitals in the county 
are seeking to reclassify.
    Another commenter suggested that a county be permitted to apply for 
designation as a ``core county'' if its 3-year average hourly wage is 
at least 108 percent of the 3-year average hourly wage of its CBSA, 
excluding the core county. The commenter also suggested that other 
counties within the same CBSA that are either adjacent to or within the 
same city as the core county, and whose 3-year average hourly wage is 
at least 85 percent of the core county's average hourly wage, be 
permitted to join the core county to form a ``core area'' if the 
resulting wage index is beneficial to all hospitals in the core area.
    Response: We thank the commenters for their comments. We already 
have established criteria and processes for MGCRB reclassification, 
which are specified in 42 CFR 412.230 et. seq, and we did not propose 
any changes to these provisions for FY 2015. Consequently, we are not 
making any changes to address the commenter's concerns at this time. We 
refer the commenters to these regulations for complete details on wage 
index reclassifications.
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.
    At the time this final rule was constructed, the MGCRB had 
completed its review of FY 2015 reclassification requests. Based on 
such reviews, there were 309 hospitals approved for wage index 
reclassifications by the MGCRB starting in FY 2015 that did not 
withdraw or terminate their reclassifications within 45 days of the 
publication of the proposed rule. 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 155 hospitals approved for wage index reclassifications in 
FY 2013 that continue for FY 2015, and 270 hospitals approved for wage 
index reclassifications in FY 2014 that continue for FY 2015. Of all 
the hospitals approved for reclassification for FY 2013, FY 2014, and 
FY 2015, based upon the review at the time of this final rule, 734 
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

[[Page 49973]]

index corrections, appeals, and the Administrator's review process for 
FY 2015 are incorporated into the wage index values published in this 
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.
    Comment: One commenter stated that CMS' policy that hospitals must 
request to withdraw or terminate MGCRB reclassifications within 45 days 
of the proposed rule is problematic because a hospital could terminate 
a reclassification based on information in the proposed rule, and with 
the publication of the final rule, discover that its original 
reclassified status was more desirable. The commenter stated that 
hospitals cannot make informed decisions concerning their 
reclassification status based on values in a proposed rule that are 
likely to change and, therefore, recommended that CMS revise its 
existing policy to permit hospitals to withdraw or terminate their 
reclassification status within 45 days of the publication of the final 
rule. Similarly, another commenter stated that the requirement for 
withdrawal of an existing reclassification is unnecessary and unfair 
because it requires that a hospital give up the certain benefit of the 
existing reclassification for the uncertain benefit of a proposal. The 
commenter stated that it is possible that CMS could modify the 
reclassification rules, and suggested that hospitals be allowed 30 days 
after the publication of the final rule to withdraw their 
reclassification requests or to reverse a withdrawal that was made 
based on the proposed rule in situations where data corrections could 
result in the hospital no longer benefiting by the alternative they 
selected.
    Response: We did not make any proposals to change any of the 
reclassification processes or criteria for FY 2015. Any changes to the 
reclassification processes or criteria would first need to be proposed 
in a separate rulemaking. Consequently, we are not making any changes 
to address the commenters' concerns at this time. We maintain that 
information provided in the proposed rule constitutes the best 
available data to assist hospitals in making reclassification 
decisions. The values published in the final rule represent the final 
wage index values reflective of reclassification decisions.
b. Effects of Implementation of New OMB Labor Market Area Delineations 
on Reclassified Hospitals
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28070 through 
28074), we indicated that because hospitals that have been reclassified 
beginning in FY 2013, 2014, or 2015 were reclassified based on the 
current labor market delineations, if we adopted 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, we stated that many existing 
CBSAs would be reconfigured. We encouraged hospitals with current 
reclassifications to verify area wage indexes on Tables 4A-2 and 4B-2 
associated with the 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. We stated that hospitals 
may withdraw their FY 2015 reclassifications by contacting the MGCRB 
within 45 days from the publication of the proposed rule.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28070), we stated 
that, 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. In the FY 2015 IPPS/LTCH 
PPS proposed rule (79 FR 28071), we indicated that, 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 proposed a policy to assure that current 
geographic reclassifications (applications approved for 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 
the policy finalized in FY 2005 (69 FR 49054 and 49055), we proposed 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 stated our belief 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 proposed to reassign to a different CBSA 
based on our proposed policy above were listed in a special Table 9A-2 
for the proposed rule, which is available via the Internet on the CMS 
Web site. In addition, we proposed 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28071), we stated 
that 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

[[Page 49974]]

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 the proposed rule, we proposed 
(and are finalizing in this final rule) 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, we proposed 
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, we proposed that the hospital would be assigned 
a blended wage index (50 percent of the current; 50 percent of the 
proposed). We stated our belief 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 is 
appropriate.
(1) Reclassifications to CBSAs That Are Subsumed by Other CBSAs
    For the proposed rule (79 FR 28070), 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 proposed 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 proposed 
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, we included a table in the proposed rule that 
reflected the hospitals' current reclassified CBSA, and the CBSA to 
which we proposed to assign them for FY 2015 (79 FR 28071).
    We did not receive any public comments regarding this proposal to 
reassign hospitals reclassified to CBSAs that were subsumed by another 
CBSA. Therefore, we are finalizing this provision as proposed. For any 
hospital that is reclassified to a CBSA that no longer exists, and all 
of the CBSA's constituent counties moved to another CBSA under the new 
OMB delineations, we assigned that hospital's reclassification to the 
subsuming CBSA to which all of the original constituent counties in the 
FY 2014 CBSA are transferred.
    The following table lists 63 hospitals that are currently located 
in CBSAs that will be subsumed by another CBSA under the new OMB labor 
market area delineations and reflects the hospitals' current 
reclassified CBSA and the CBSA to which we are assigning them for FY 
2015. We note that three hospitals have terminated their 
reclassification since publication of the proposed rule and have been 
omitted.

 Hospital Reclassification Reassignments for Hospitals Reclassified to a
                  CBSA That Is Subsumed by Another CBSA
------------------------------------------------------------------------
CMS Certification Number   Current  reclassified
          (CCN)                     CBSA                  New 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
          230165                     47644                   47664
          230176                     47644                   47664
          230244                     47644                   47664
          230270                     47644                   47664
          230273                     47644                   47664
          230297                     47644                   47664
          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 Changed or 
to CBSAs Containing Counties That Moved to Another CBSA
    For the proposed rule (79 FR 28072), 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 did 
not propose any

[[Page 49975]]

reassignment for hospitals reclassified to those labor market areas.
    In the proposed rule, 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.
------------------------------------------------------------------------

    In the proposed rule, we determined that 69 hospitals had 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 proposed to follow the general policy discussed in section 
III.H.2.b. of the preamble of the proposed rule. Specifically, we 
proposed 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 proposed, we proposed 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 
proposed to reassign this hospital's reclassification from the FY 2014 
CBSA 39100 to the new CBSA 20524.
    For the proposed rule, we also identified affected county group 
reclassifications. For these reclassifications, we proposed that we 
would follow our proposed policy discussed above, except that, for 
county group reclassifications, we proposed 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 proposed 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 identified in the proposed rule 
as reclassified to 1 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 the remaining 14 reclassified hospitals, we 
proposed 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 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 stated our belief that 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 stated our belief that this would 
more accurately reflect the geographic labor market area of the 
reclassified hospital.
    Consistent with refinements implemented in the FY 2005 IPPS final 
rule (69 FR 49055), we proposed 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. We stated 
that hospitals that wished 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 could request reassignment within 45 days from the publication 
of the proposed rule. Hospitals had to 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 stated our belief that 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

[[Page 49976]]

policy, a hospital could 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.
    In the proposed rule (79 FR 28073), we included a table showing 
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 table showed 
the current reclassified CBSA and the CBSA to which CMS proposed 
reassignment.
    We proposed that hospitals that disagreed with our determination of 
the most proximate county had to provide an alternative method for 
determining proximity to CMS within 45 days from the publication of the 
proposed rule. We stated that 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 would be 
announced in this FY 2015 IPPS/LTCH PPS final rule.
    Comment: Commenters were generally supportive of our proposal to 
adopt the new OMB delineations. Commenters did not specifically address 
the proposed assignment of reclassification status for hospitals that 
are reclassified to labor market areas where the CBSA number or name 
changed or to CBSAs containing counties that moved to another CBSA.
    Response: We thank the commenters for their support of our proposal 
to implement the new OMB delineations for the hospital wage index.
    After consideration of the public comments we received, we are 
finalizing the reassignment methodology as proposed. Hospitals that 
were reclassified to a CBSA that had one or more counties that split 
off and moved to another CBSA under the new OMB delineations are 
reclassified to a CBSA that will contain the most proximate county that 
(1) is located outside of the hospital's FY 2015 geographic labor 
market area; and (2) is included in the current CBSA to which they are 
reclassified. Group reclassifications are assigned to the CBSA under 
the new OMB delineations to which the majority of hospitals in that 
group reclassification are geographically closest and that (1) is 
located outside of the hospital's FY 2015 geographic labor market area; 
and (2) is included in the current CBSA to which they are reclassified.
    We also allowed 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 wished 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 needed to request 
reassignment within 45 days from the publication of the proposed rule. 
We received one request in the [email protected] mailbox to request 
reassignment to another eligible labor market area. A rural hospital in 
North Carolina was originally reclassified to CBSA 48900 (Wilmington, 
NC). This CBSA had more than one county that was split off and moved to 
another CBSA under the new OMB delineations. Thus, under our proposed 
policy (which we are finalizing in this final rule), we reclassified 
this hospital to a CBSA that contained the most proximate county that 
is located outside of the hospital's FY 2015 geographic labor market 
area and is included in the current CBSA to which it is reclassified. 
Of all the former constituent counties of CBSA 48900, the hospital is 
geographically closest to Brunswick County, NC, which is outside of the 
hospital's FY 2015 geographic labor market area and is included in the 
current CBSA to which the hospital is reclassified. However, under the 
new OMB delineations, Brunswick County is moved from CBSA 48900 to CBSA 
34820 (Myrtle Beach-Conway-North Myrtle Beach, SC-NC). Therefore, we 
assigned this hospital's reclassification to CBSA 34820 in the proposed 
rule. The hospital provided adequate evidence to demonstrate that it is 
located within 35-miles from Pender County, NC, which remains part of 
CBSA 48900. Because the proximity criteria limit for MGCRB 
reclassification of an individual rural hospital is 35 miles (Sec.  
412.230(b)(1)), we are approving the hospital's request for 
reassignment back to CBSA 48900. The change is reflected in the 
proceeding table.
    The following table shows hospital reclassification assignments for 
hospitals reclassified to CBSAs from which counties were 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 
making reassignments. We note that 23 hospitals terminated their 
reclassification status since the proposed rule was published and have 
been omitted.

     Hospital Reclassification Reassignments for Hospitals That Are
 Reclassified to CBSAs From Which Counties Are Split Off and Moved to a
                             Different CBSA
------------------------------------------------------------------------
CMS Certification Number   Current  reclassified    FY 2015  reassigned
          (CCN)                     CBSA                    CBSA
------------------------------------------------------------------------
          140012                     16974                   20994
          140110                     16974                   16974
          140155                     16974                   16974
          140161                     16974                   16974
          140186                     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
          310050                     35644                   35614
          310054                     35644                   35614
          310076                     35644                   35614
          310083                     35644                   35614
          310096                     35644                   35614
          310119                     35644                   35614
          330027                     35644                   35614
          330106                     35644                   35614
          330167                     35644                   35614
          330181                     35644                   35614
          330182                     35644                   35614
          330198                     35644                   35614
          330224                     39100                   20524
          330225                     35644                   35614
          330259                     35644                   35614
          330331                     35644                   35614
          330332                     35644                   35614
          330372                     35644                   35614
          340042                     48900                   48900

[[Page 49977]]

 
          340068                     48900                   48900
          390044                     37964                   33874
          390096                     37964                   33874
          390316                     37964                   33874
          420085                     48900                   48900
------------------------------------------------------------------------

    Table 9A-2 for this final rule (which is available via the Internet 
on the CMS Web site) reflects all reassignments of hospital 
reclassifications for FY 2015.
(3) Reclassifications to CBSAs That Contain Hospital's Geographic 
County
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28074), 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 
expected that all such affected hospitals would wish to terminate their 
reclassification status. Therefore, we assumed, for purposes of the 
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 proposed to assign them 
the wage index of the CBSA in which they are geographically located. We 
stated that affected hospitals should inform CMS if they wish to retain 
their current reclassification by sending notice to CMS within 45 days 
from the publication of the proposed rule. If an affected hospital did 
not inform us that they wished to retain their current 
reclassification, we assumed that the hospital had elected to terminate 
the reclassification. For purposes of the proposed rule, we presented 
tables under the presumption that all 14 hospitals would opt to cancel 
their reclassification status. We proposed to assign these hospitals 
the wage index value of their home area from Table 4A-2 for the 
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 
the proposed rule (which is available via the Internet on the CMS Web 
site).
    We did not receive any public comments on this proposal, nor did 
any hospital contact CMS through the [email protected] mailbox. 
Therefore, we are finalizing the proposal without any modifications. 
The following hospitals' reclassifications are terminated, and they are 
assigned the wage index of the CBSA to which they are geographically 
located under the new OMB delineations.

            Hospitals Reclassified to Home Labor Market Area
------------------------------------------------------------------------
CMS Certification Number   Current  geographic   Reclassified 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
------------------------------------------------------------------------

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 final rule, we are 
adopting the new OMB labor market area delineations announced on 
February 28, 2013. Therefore, hospitals should apply for 
reclassifications based on the new OMB delineations we are using 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28074, 28075, and 
28304), we proposed 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 they seek redesignation qualify as 
meeting the proximity requirements for reclassification to the urban 
area to which they seek redesignation. We did not propose any changes 
to the reclassification policy, but included language in the 
regulations to reflect use of the most recent OMB standards for 
delineating statistical areas (using the most recent Census Bureau data 
and estimates) that are adopted by CMS in consideration of group 
reclassification applications submitted for review in FY 2015 (that is 
submitted by September 2, 2014 (this date was erroneously stated in the 
proposed rule as September 30, 2014), reviewed by the MGCRB in FY 2015, 
to be effective in FY 2016) and future years.
    We did not receive any public comments on our proposed changes to 
the regulations at Sec.  412.232(b)(2) and Sec.  412.234(a)(3)(iv) to 
include a reference to the most recent OMB standards for delineating 
statistical areas (using the most recent Census Bureau data and 
estimates) that are adopted by CMS. Therefore, we are adopting as final 
the proposed changes to Sec.  412.232(b)(2) and Sec.  
412.234(a)(3)(iv).
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

[[Page 49978]]

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 the proposed 
rule, we proposed 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, in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28075 through 28078), we also proposed 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 proposed 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. In the FY 
2015 IPPS/LTCH PPS proposed rule, we stated that, by applying the new 
OMB delineations, the number of qualifying counties would increase from 
98 in FY 2014 to 127 in FY 2015, as reflected in a chart published in 
the proposed rule. Since publication of the proposed rule, we have 
discovered a mistake where we inadvertently did not account for 
Davidson County, NC (which was a Lugar county in FY 2014 but is in a 
rural county no longer qualifying to be Lugar under the new OMB 
delineations, as discussed in section III.H.3.c. of the preamble of 
this final rule). Therefore, the number of qualifying counties 
increases from 99 in FY 2014 to 127 in FY 2015, and we are correcting 
this oversight in the preamble of this final rule. After evaluating and 
analyzing the 2010 Census commuting data, we proposed 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 table in the proposed rule would be 
designated as part of the urban area listed in the second column based 
on the criteria discussed above.
    Comment: One commenter suggested that Lugar hospitals be considered 
rural for all Medicare IPPS purposes other than receiving the urban 
wage index.
    Response: Lugar status is a deemed status, and there are only two 
provisions under the Medicare statute that would allow a Lugar hospital 
to be treated as a rural provider: (1) if the hospital is eligible for 
an out-migration adjustment under section 1886(d)(13) of the Act; or 
(2) if the hospital applies for an urban to rural reclassification 
under section 1886(d)(8)(E) of the Act. In either case, the hospital 
would be treated as rural for all IPPS purposes, which includes the 
wage index.
    We did not receive any other specific comments with regard to our 
proposal to use the new OMB delineations to identify rural counties 
that would qualify as ``Lugar'' under section 1886(d)(8)(B) of the Act. 
Therefore, we are finalizing the policy as proposed. We also are 
finalizing our proposed revision of the regulations at Sec.  
412.64(b)(3)(i) to reflect the most recent OMB standards for 
delineating statistical areas adopted by CMS.
    In addition, since publication of the proposed rule we discovered 
that, in the FY 2015 IPPS/LTCH proposed rule, for five of the Lugar 
counties, we had erroneously printed the names and codes of the entire 
Metropolitan Statistical Areas rather than the Metropolitan Division 
names and codes. Because we recognize Metropolitan Divisions as CBSAs, 
we should have printed the division names and codes for the following 
counties: Starke County, IN; Fannin County, TX; Hill County, TX; Van 
Zandt County, TX; and Island County, WA. The table below contains the 
corrected listing of the rural counties designated as urban under 
section 1886(d)(8)(B) of the Act. We note that this error was made only 
in the chart; that is, the wage index tables and data associated the FY 
2015 IPPS/LTCH PPS proposed rule (available via the Internet on the CMS 
Web site) properly captured the Metropolitan Divisions for hospitals in 
these five counties. We are finalizing 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 chart below will be designated as part of the urban area 
listed in the second column based on the finalized criteria discussed 
above.
    We note that rural counties that no longer meet the qualifying 
criteria to be Lugar are discussed in section III.H.3.c. of the 
preamble of this final 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................  ................

[[Page 49979]]

 
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                  23844  Gary, IN....................  ................
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.
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.
New.aygo 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.

[[Page 49980]]

 
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.
New berry 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                  19124  Dallas-Plano-Irving, TX.....  ................
Grimes County........................  TX                  17780  College Station-Bryan, TX...  ................
Harrison County......................  TX                  30980  Longview, TX................  ................
Henderson County.....................  TX                  46340  Tyler, TX...................  ................
Hill County..........................  TX                  23104  Fort Worth-Arlington, TX....  New.
Milam County.........................  TX                  12420  Austin-Round Rock, TX.......  ................
Van Zandt County.....................  TX                  19124  Dallas-Plano-Irving, 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                  42644  Seattle-Bellevue-Everett, 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. New Lugar Areas for FY 2015
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28077), we stated 
that 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, would 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.
    In the proposed rule (79 FR 28077), we stated that 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 the proposed rule, we proposed 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 chose to waive Lugar status for FY 2015 (as 
discussed later in this section) and sought no other form of wage index 
reclassification.
    As discussed above, we did not receive any public comments with 
regard to our proposal 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 we are finalizing the policy as proposed. 
We refer readers to the summary of public comments and our responses 
regarding the proposed transition policies for the wage index as a 
result of adoption of the OMB delineations for FY 2015 in section 
III.B.2.e. of the preamble of this final rule.

[[Page 49981]]

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. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28077), we 
stated that by using Table 4C associated with the proposed rule (which 
is available via the Internet on the CMS Web site), affected hospitals 
could 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. We stated that hospitals may withdraw from an 
MGCRB reclassification within 45 days of the publication of the 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.)
    Since publication of the proposed rule, we discovered that there 
are four hospitals in rural counties that are newly deemed Lugar areas 
for FY 2015 that also have MGCRB reclassifications to the same CBSAs to 
which they are redesignated as Lugar. Lugar hospitals are treated like 
reclassified hospitals for purposes of determining their applicable 
wage index and receive the reclassified wage index for the urban area 
to which they have been redesignated. Because the Lugar redesignated 
CBSA is now the same as the MGCRB reclassified CBSA, the MGCRB 
reclassification becomes redundant. We note that hospitals with Lugar 
redesignations and hospitals with MGCRB reclassifications receive the 
wage index for hospitals that are reclassified as provided in Table 4C-
2 associated with this final rule (which is available via the Internet 
on the CMS Web site). Table 9A-2 associated with this final rule (which 
is available via the Internet on the CMS Web site) reflects the 
reclassified and redesignated hospitals. Hospitals that are 
redesignated as Lugar are indicated as such when the ``Lugar'' column 
is populated. Although we did indicate in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28077) that hospitals redesignated as Lugar that 
also had an MGCRB reclassification 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, and terminate 
or withdraw from an MGCRB reclassification within 45 days of the 
publication of the proposed rule, we acknowledge that we did not 
highlight these four hospitals that also are Lugar that would have 
redundant reclassifications. We also note that these hospitals did not 
send requests to the MGCRB to terminate their reclassifications. 
Because the new Lugar status would deem these hospitals redesignated to 
the same area to which they have an approved MGCRB reclassification, 
the reclassified wage index would be the same for these four hospitals 
in either scenario. We realize that, for this reason, the hospitals may 
not have seen a need to withdraw the MGCRB reclassification. Because we 
did not state in the proposed rule that we would expect that these 
affected hospitals would be terminating the remaining years of their 3-
year reclassification period, for FY 2015 we are not updating the Lugar 
column on Table 9A-2 for this final rule. However, we have indicated in 
a footnote that, under the new OMB delineations, these providers are 
now redesignated as Lugar to the same area to which they have an 
existing MGCRB reclassification that they did not terminate. We 
emphasize that the effect on the wage index of these four hospitals is 
immaterial because hospitals redesignated as Lugar as well as hospitals 
with approved MGCRB reclassifications both receive the reclassified 
wage index for the urban area to which they have been redesignated or 
reclassified.

    Hospitals Redesignated as Lugar to an Area Where They Have an Approved MGCRB Reclassification for FY 2015
----------------------------------------------------------------------------------------------------------------
                                                                                                      MGCRB
        CMS Certification No. (CCN)                 Rural county name            Lugar CBSA     reclassification
                                                                                                      CBSA
----------------------------------------------------------------------------------------------------------------
150076.....................................  Marshall County, IN............             43780             43780
190017.....................................  St. Landry Parish, LA..........             29180             29180
390016.....................................  Lawrence County, PA............             38300             38300
420030.....................................  Colleton County, SC............             16700             16700
----------------------------------------------------------------------------------------------------------------

c. Rural Counties No Longer Meeting the Criteria To Be Redesignated as 
Lugar
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28077 through 
28078), we discussed that if we adopted 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. Since the publication of the 
proposed rule, we have discovered a mistake where we inadvertently did 
not account for Davidson County, NC. Therefore, the number of rural 
counties that will no longer meet the qualifying criteria to be 
redesignated as Lugar effective October 1, 2014, as indicated above, is 
30 as opposed to 29. We are correcting this oversight in the preamble 
of this final rule.
    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
Davidson County, NC
Lincoln County, NC

[[Page 49982]]

Cotton County, OK
Linn County, OR
Adams County, PA
Monroe County, PA
Falls County, TX
Buckingham County, VA
Floyd County, VA
Green County, WI

    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 the 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 proposed 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 proposed 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 proposed 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 proposed 
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 proposed 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 the proposed rule, we proposed 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 proposed 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 proposed 
that these hospitals would receive their statewide rural wage index.
    As indicated earlier, we did not receive any public comments with 
regard to our proposal to use the new OMB delineations to identify 
rural counties that would qualify as ``Lugar'' under section 
1886(d)(8)(B) of the Act. Therefore, we are finalizing the policy and 
designations as proposed. As discussed previously, for FYs 2015, 2016, 
and 2017, assuming no other form of wage index reclassification or 
redesignation is granted, we are assigning hospitals that are in urban 
counties that will become rural under the new OMB delineations to 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 will remain assigned to the statewide 
rural area in which they are located.) Similarly, the same 3-year 
transition will apply to hospitals located in those counties that will 
lose their deemed urban designation under section 1886(d)(8)(B) of the 
Act and will become rural under the new OMB delineations. We will use 
the wage data from these hospitals as part of computing the rural wage 
index. In FY 2018, these hospitals will receive their statewide rural 
wage index. Furthermore, if any such hospital seeks and is granted any 
reclassification or redesignation during FYs 2015, 2016, or 2017, the 
hospital will permanently lose its 3-year transitional assigned wage 
index and will not be able to reinstate it. We refer readers to 
summaries of public comments and our responses regarding proposed 
transition policies for the wage index in section III.B.2.e. of the 
preamble of this final rule.
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 final rule.)
    In addition, we adopted a minor procedural change in that rule 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.
    Comment: One commenter sought clarification about whether a 
hospital can waive Lugar status in other

[[Page 49983]]

instances, such as to retain a special rural status such as CAH, SCH, 
or MDH, and not just when a hospital is eligible for the out-migration 
adjustment.
    Response: As stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51599 through 51600, the statute provides two methods for a Lugar 
hospital to be treated as rural for Medicare payment purposes: (1) If 
the hospital is eligible for an out-migration adjustment under section 
1886(d)(13) of the Act; or (2) if the hospital applies for an urban to 
rural reclassification under section 1886(d)(8)(E) of the Act. There 
are no other provisions under the Medicare statute that would allow a 
Lugar hospital to be treated as a rural provider.
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 
that is located in an urban area must meet one of the following four 
criteria under section 1886(d)(8)(E)(ii) of the Act (codified at Sec.  
412.103): (1) The hospital is located in a rural census tract of an 
MSA, as determined under the most recent version of the Goldsmith 
Modification, the Rural-Urban Commuting Area (RUCA) codes; (2) the 
hospital is located in an area designated by any law or regulation of 
such State as a rural area or is designated by such State as a rural 
hospital; (3) the hospital would qualify as a RRC or SCH if the 
hospital were located in an urban area; and (4) the hospital meets such 
other criteria as the Secretary may specify.
    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 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, in the FY 
2015 IPPS/LTCH PPS proposed rule (79 FR 28078), we encouraged 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 the 
proposed rule, we proposed 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 the proposed rule, we did not propose a grace period for 
other types of hospitals to seek a new rural reclassification. We noted 
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.
    Comment: Several commenters requested that additional provider 
types (SCHs and MDHs) be afforded the 2-year transition period of 
deemed rural status that was granted to CAHs. Commenters stated the 
critical role these hospitals serve in their communities, and cited the 
administrative burden that would be required to obtain rural status in 
order to maintain their provider type. Commenters asserted that 
hospitals that obtain an urban to rural reclassification are not 
entitled to receive an outmigration adjustment and would require 
additional time to assess their appropriate options.
    Response: We thank commenters for sharing their concerns. However, 
we do not believe that extending a 2-year transition period of deemed 
rural status is necessary for additional provider types. While it is 
true that there are potential payment consequences for a CAH, SCH, or 
MDH currently located in a rural area that becomes urban under the new 
OMB delineations, the payment consequences for CAHs are generally 
greater, because, unlike SCHs and MDHs, CAHs are entirely excluded from 
the IPPS and would face an end to payments based on 101 percent of 
their reasonable costs. In addition, given the different Conditions of 
Participation (CoPs) for CAHs, and that it would be generally more 
difficult for a CAH to have to meet the hospital CoPs instead of the 
CAH CoPs, only a CAH also faces the potential loss of its ability to 
continue to participate in the Medicare and Medicaid programs. 
Specifically, to avoid termination not only of its CAH status (and 
associated cost-based reimbursement), but of its Medicare agreement in 
its entirety, the CAH would have to convert back to a hospital, 
including demonstrating via a survey that it complies with the hospital 
CoPs, which are generally more stringent than those for CAHs. We 
believe that the combination of the generally greater payment 
consequences for CAHs relative to other provider types combined with 
the unique consequences for CAHs with respect to the CoPs make it 
appropriate for CAHs to be afforded a 2-year transition period in which 
to reclassify not afforded to other provider types.
    SCHs and MDHs that were located in rural areas that became urban 
under the new OMB delineations could have known of the upcoming change 
since February 2013 (when OMB published the new delineations); thus, 
these hospitals have had adequate time to assess options. SCHs and MDHs 
still can seek approval for rural reclassification for FY 2015 under 
Sec.  412.103 if they meet the requirements of this section, provided 
that they apply before the beginning of FY 2015. This approval of rural 
status would be effective as of the date of the application. If any 
hospital's wage index is negatively affected due to the adoption of the 
new OMB

[[Page 49984]]

delineations, the hospital will receive a 50/50 blended wage index for 
FY 2015 (as discussed previously).
    With respect to the out-migration adjustment, commenters noted 
correctly that hospitals reclassified rural under section 412.103 are 
not eligible to receive an out-migration adjustment. Section 
1886(d)(13)(G) of the Act specifies that a hospital is not eligible to 
receive an out-migration adjustment if it is granted any form of wage 
index reclassification, including urban to rural reclassification. We 
believe that a hospital that chooses to reclassify to a particular 
labor market area should not also receive an additional payment benefit 
to reflect commuting patterns within its home area.
    After consideration of the public comments we received, we are not 
implementing any additional changes to grant other provider types a 
transition period during which to reclassify as rural similar to that 
being adopted for CAHs. We refer readers to section VI.C.2. of the 
preamble of this final rule for a discussion of the CAH transition 
period policy.

I. 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, in the FY 2015 IPPS/LTCH 
PPS proposed rule (79 FR 28079 through 28080), we proposed that the FY 
2015 out-migration adjustments continue to be based on the 2000 Census 
data. We also proposed 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 did not receive any public comments with regard to the out-
migration adjustment for FY 2015. Therefore, for FY 2015, we are 
finalizing our proposal that the FY 2015 out-migration adjustment 
continue to be based on the 2000 Census data used for the FY 2014 out-
migration adjustment. We also are finalizing our proposal that the out-
migration adjustment 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 out-migration adjustments for the 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 continuing to use the out-migration adjustment data used 
for FY 2014, consistent with the statute, we also proposed 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 
proposed 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 did not receive any public comments with regard to our 
proposals. Therefore, we are finalizing our proposal that 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 will continue to receive the same out-migration adjustment 
for the remainder of their 3-year qualification period. If a hospital 
qualifies for and opts to receive the out-migration adjustment for the 
first time in FY 2015, we will allow that hospital to receive the out-
migration adjustment based on the data used for FY 2014 for FYs 2015, 
2016, and 2017.
    We intend to address application of the FY 2016 out-migration 
adjustment in greater detail in the FY 2016 proposed rule. However, in 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28079), we solicited 
public 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. We did not receive any public comments on how to 
implement the new out-migration adjustment data for FY 2016.
    As discussed in section III.B. of the preamble of this final rule, 
we are using 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 final 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 are counties 
newly qualifying as Lugar as well as counties that were previously 
Lugar counties that will no longer meet the criteria to be redesignated 
as Lugar. As discussed in

[[Page 49985]]

section III.H.4. of the preamble of this final 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 will 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 the current OMB delineations that waived their Lugar status 
for the out-migration adjustment, but are not Lugar under the new OMB 
delineations. These hospitals will 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 is 
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 final 
rule, we are finalizing our proposal to apply a 1-year blended wage 
index for any provider that experiences a decrease in wage index value 
due to the implementation of the new OMB labor market area 
delineations. This policy creates 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 new OMB delineations. As 
discussed in section III.B.2.e.(4) of the preamble of this final rule, 
as we proposed, we are applying this blended wage index value to any 
affected hospital in a budget neutral manner. However, we proposed 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 established the blended wage index transition adjustment 
specifically to address any negative impact that may be caused by the 
adoption of the new OMB delineations in FY 2015. To specifically 
identify and address any such negative payment impact, we proposed 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.
    One group of commenters suggested CMS made an error in calculating 
the rural wage index for Connecticut under the old OMB delineations (as 
discussed in section III.B.2.e.(4) of the preamble of this final rule) 
for the purpose of applying the proposed transition blend. We respond 
to this comment in section III.B.2.e.(4) of the preamble of this final 
rule, and we refer readers to this section for further discussion.
    After consideration of the public comments we received, we are 
finalizing our proposal without modification that we will add the out-
migration adjustment for hospitals receiving such adjustment to the 
result of the 50/50 blended wage index, after budget neutrality is 
applied. Therefore, we will 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.

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

[[Page 49986]]

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, 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 April appeals 
had to be sent via mail and email. We refer readers to the wage index 
timeline for complete details.
    Hospitals were given the opportunity to examine Table 2, which was 
listed in section VI. of the Addendum to the proposed rule and 
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2015-Wage-Index-Home-Page.html. Table 2 contained 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 noted that the 
proposed hospital average hourly wages shown in Table 2 only reflected 
changes made to a hospital's data that were transmitted to CMS by 
February 26, 2014.
    The final wage index data public use files were 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 could 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 
believed that its wage or occupational mix data were incorrect due to a 
MAC or CMS error in the entry or tabulation of the final data, the 
hospital was given the opportunity to 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 was 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 
were required to 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 final rule where 
we are making 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) were incorporated into the 
final wage index in this 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 did not meet the procedural deadlines set forth above 
will not be afforded a later opportunity to submit wage index data 
corrections or to dispute the 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 had access to the final wage index data by early May 
2014, they had 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. Given these processes, 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

[[Page 49987]]

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 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. of the preamble of this final 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 initiates 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 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 want to take steps 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. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28082), 
we stated that we believe that the changes we proposed in that proposed 
rule 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 proposed 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 proposed to make significant changes 
beginning with the FY 2017 wage index cycle. We listed the proposed 
changes for FY 2017 in a table in the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 28082) shown below side by side with the existing timetable 
so that commenters could read the proposed changes in the context of 
the existing timetable. Under the proposed changes for FY 2017, 
although we did not provide exact dates for the FY 2017 wage index 
timetable, we noted that, with every change listed, 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. 
We stated that the proposed revisions would not reduce the amount of 
time that either hospitals or MACs have to review wage data. Therefore, 
the 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

[[Page 49988]]

to ensure an even more accurate wage index.

----------------------------------------------------------------------------------------------------------------
                Deadlines                     FY 2015 timetable               Proposed FY 2017 timetable
----------------------------------------------------------------------------------------------------------------
Posting of Preliminary PUF on CMS Web     September 13, 2013.......  Mid-May 2015.
 site.
Deadline for Hospitals to Request         November 21, 2013........  Early August 2015.
 Revisions to Preliminary PUF.
Deadline for MACs to Complete Desk        January 29, 2014.........  Mid-October 2015.
 Reviews.
Posting of February PUF on CMS Web site.  February 20, 2014........  Late January 2016.
Deadline Following Posting of February    March 3, 2014............  Mid-February 2016.
 PUF 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 16, 2014...........  Early April 2016.
 April.
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.
----------------------------------------------------------------------------------------------------------------

    With regard to the FY 2016 wage index cycle, we believe it can 
serve as a transition to the more significant changes we proposed 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28083), 
we stated that we were 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 were 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 stated that we were not 
changing the remainder of the FY 2016 timetable at this time. We stated 
that we expect that making these changes for the FY 2016 timetable will 
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 will help hospitals, MACs, and CMS adjust to 
the more significant timeline changes proposed for FY 2017. We listed 
only the changes for FY 2016 in the table shown below side by side with 
the existing FY 2015 timetable so that commenters could read the FY 
2016 changes in the context of the existing timetable. We stated that 
we were 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       January 29, 2014...................  Mid-December 2014
 Reviews.
----------------------------------------------------------------------------------------------------------------

    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 were 
required to submit their CY 2013 occupational mix surveys to their MACs 
no later than July 1, 2014. Therefore, we did 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 posted the preliminary FY 2016 wage 
data by itself first in late May 2014, followed by a separate posting 
of the preliminary CY 2013 occupational mix survey data when the data 
became available, in mid-July 2014.
    We invited public comments on our proposals set forth above to make 
revisions to the wage index timetables for FY 2017.
    Comment: Numerous commenters were supportive of the general concept 
of changing the wage index timeline, and that the overall accuracy of 
the wage index could be improved by altering the timing of the process. 
Commenters generally agreed with CMS' adjusted FY 2016 timetable, which 
specified that the preliminary PUF would be posted in May 2014, and 
hospitals would request revisions to the preliminary PUF by early 
October, 2014. Commenters believed the extra time between the posting 
of the preliminary PUF and the desk review program would allow 
hospitals more time to ``scrub'' their data. However, commenters also 
asked that CMS work with its MACs to ensure that the MACs also are 
meeting their respective deadlines, as some hospitals have noticed that 
their MACs missed deadlines to submit revisions to CMS.
    With respect to the adjustments to the FY 2017 timetable, the 
commenters believed that an early August 2015 deadline for hospitals to 
request revisions to the May 2015 preliminary PUFs was too ambitious 
because it would not provide sufficient time for hospitals to review 
their data, particularly when key personnel may be on vacation during 
the summer months. The commenters added that an August deadline would 
leave less time to compare the preliminary wage index information to 
the prior year's wage index data, given that the prior year's data are 
not even finalized and available to the public before August 1. Some 
commenters recommended an early October deadline, while others stated 
that an early September, mid-September, or a late September deadline 
would be feasible. One commenter believed that a December deadline 
would be best for hospitals with June 30

[[Page 49989]]

fiscal year ends, while another commenter stated that a late September 
or early October deadline would be acceptable for such hospitals. One 
commenter stated that the proposed FY 2017 deadline does not provide 
enough time for hospitals to incorporate their pension data into the 
desk review process because the Internal Revenue Service (IRS) Form 
5500 (used as the basis for reporting pension contributions for defined 
benefit plans) is due 7 months after the end of the plan year (July 
31), with possible extensions through mid-September. The commenter 
recommended that CMS either move the proposed deadline to October, or 
allow hospitals to submit their revisions for pension data during the 
MAC desk review process.
    Response: We appreciate the commenters' general support for our 
proposed revisions to the wage index timetable. We listed general 
timeframes in the FY 2016 timetable but will communicate the exact 
dates for the FY 2016 timetable to hospitals through their MACs after 
issuance of this FY 2015 final rule. Regarding the FY 2017 Wage Index 
Timetable, we understand the commenters' concerns that an August 
deadline for hospitals to submit revisions to their preliminary wage 
data may be too challenging to meet. However, while almost all of the 
commenters believed that an August deadline was too ambitious, there 
was no consensus from the commenters regarding when the deadline should 
be, with recommendations ranging from early September to December. We 
also partially agree with the commenter who raised the point that 
hospitals may not be able to provide their pension data until October, 
as further discussed below. In addition, we noted that commenters 
requested that CMS work with the MACs to ensure that the MACs are 
meeting their respective deadlines. We understand that the MACs have 
also faced pressure to accurately complete desk reviews and submit to 
CMS the appropriate revisions on behalf of hospitals in a timely 
fashion. The longer the time that hospitals have to submit revisions to 
their preliminary wage data, the less time the MACs have to conduct 
their desk reviews. Therefore, we believe that it is important to 
accommodate both the hospitals' and MACs' need for more time to 
adequately review the wage and occupational mix data. Because the 
earliest deadline that commenters stated would be feasible is early 
September, we are finalizing a date within the first week of September 
2015 (rather than early August) as the deadline for hospitals to 
request revisions to their FY 2017 preliminary wage and occupational 
mix data. A deadline in early September would be manageable for 
hospitals, yet also provide the MACs with the most amount of time 
possible to complete their desk reviews. In addition to a general 
deadline of early September, we are providing a limited exception for 
submission of a certain hospital's pension data. Specifically, we are 
only providing an extension for hospitals that have a fiscal year begin 
date on or after August 15 of a year to submit their pension data by 
mid-October because hospitals with fiscal year begin dates prior to 
August 15 would have already made their 3-year pension contributions by 
the end of September. We believe that the majority of hospitals, which 
do have fiscal year begin dates prior to August 15 of a year, would be 
able to submit their pension data, along with the remainder of their 
wage index documentation, to their MACs by the beginning of September 
each year. In this final rule, we are changing our wage index timetable 
for FY 2016 and after so that hospitals with fiscal years that begin on 
or after August 15 may submit their pension data to their MACs by mid-
October. However, in future rulemaking, we may consider revisions to 
the 3-year average pension policy, which would allow all hospitals to 
submit their pension data at the same time. For FY 2017, the MACs would 
work on the desk reviews until mid-November 2015 (instead of mid 
October, as proposed). Following are the revised FY 2016 and FY 2017 
Wage Index Timetables that we are finalizing:

                                          FY 2016 Wage Index Timetable
----------------------------------------------------------------------------------------------------------------
               Deadlines                          FY 2015 timetable               Adjusted FY 2016 timetable
----------------------------------------------------------------------------------------------------------------
Posting of Preliminary Wage Data PUF on  September 13, 2013.................  May 23, 2014.
 CMS Web site.
Posting of Preliminary CY 2013           September 13, 2013.................  July 11, 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 Hospitals with FYBs on or   November 21, 2013..................  Mid October 2014.
 after August 15 to Submit Pension Data
 to MACs.
Deadline for MACs to Complete Desk       January 29, 2014...................  Mid-December 2014.
 Reviews.
----------------------------------------------------------------------------------------------------------------


                                          FY 2017 Wage Index Timetable
----------------------------------------------------------------------------------------------------------------
               Deadlines                          FY 2015 timetable                    FY 2017 timetable
----------------------------------------------------------------------------------------------------------------
Posting of Preliminary PUF on CMS Web    September 13, 2013.................  Mid-May 2015.
 site.
Deadline for Hospitals to Request        November 21, 2013..................  First week of September 2015.
 Revisions to Preliminary PUF.
Deadline for Hospitals with FYBs on or   November 21, 2013..................  Mid-October 2015.
 after August 15 to Submit Pension Data
 to MACs.
Deadline for MACs to Complete Desk       January 29, 2014...................  Mid-November 2015.
 Reviews.
Posting of February PUF on CMS Web site  February 20, 2014..................  Late January 2016
Deadline Following Posting of February   March 3, 2014......................  Mid-February 2016.
 PUF 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 16, 2014.....................  Early April 2016.
 April.
Posting of Final Rule PUF..............  May 2, 2014........................  Late April 2016.
Deadline for Hospitals to Appeal in      June 2, 2014.......................  Late May 2016.
 June.
Expected Issuance of IPPS final rule...  August 1, 2014.....................  August 1, 2016.
----------------------------------------------------------------------------------------------------------------

    Comment: Commenters asked that CMS instruct MACs to notify State 
hospital associations of aberrant data, in addition to the current 
practice of notifying State hospital associations about hospitals that 
do not respond to

[[Page 49990]]

requests for data. In addition, commenters recommended that CMS provide 
more instructions to MACs and hospitals regarding how to correct errors 
and the timeframe for correcting errors. They believed that this action 
is necessary because the notification to hospital associations would be 
after the deadline for hospitals to request data adjustments. Another 
commenter suggested that accuracy and consistency in wage index 
verification would be improved if CMS would assign a single MAC to 
review all wage index data.
    Response: We will take these comments into consideration as we 
develop the details of the Wage Index Timetables and the desk review 
instructions that we provide to the MACs.

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. However, 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 
1.0000 being paid using a labor-related share lower than the labor-
related share of hospitals with a wage index greater than 1.0000.
    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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28083), for 
FY 2015, we did not propose to not 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 proposed 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 were published in section VI. of the 
Addendum to the FY 2015 IPPS/LTCH PPS proposed rule and available via 
the Internet on the CMS Web site, reflected this proposed labor-related 
share. For FY 2015, for all IPPS hospitals whose wage indexes are less 
than or equal to 1.0000, we proposed 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 proposed to apply the wage index to a proposed labor-
related share of 69.6 percent of the national standardized amount. We 
note that, for Puerto Rico hospitals, the national labor-related share 
is 62 percent because the national wage index for all Puerto Rico 
hospitals is less than 1.0000.
    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 the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28084), for FY 2015, we did not propose 
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. For FY 2015, we proposed 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 proposed 
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 
greater than 1.000 for FY 2015, we proposed 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 1.000 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 was published in section 
VI. of the Addendum to the FY 2015 IPPS/LTCH PPS proposed rule and 
available via the Internet on the CMS Web site.
    Comment: One commenter believed that CMS has provided incentives 
for hospitals to reduce costs through a declining wage index. The 
commenter stated that CMS has not kept pace by adjusting the labor-
related share of 62 percent for hospitals with a wage index below 
1.0000. The commenter noted that current law requires a labor-related 
share of 62 percent for hospitals with a wage index less than or equal 
to 1.0000. However, the commenter requested that, despite current law, 
in consideration of its comments, CMS lower the labor-related share 
from 62 percent to 42 percent for hospitals with a wage index below 
1.0000.
    One commenter recommended that CMS compute an alternative labor and 
nonlabor-related share percentage under the national standardized 
amount for hospitals in Puerto Rico. The

[[Page 49991]]

commenter explained that the current labor-related share percentage of 
62 percent under the national standardized amounts meets the statutory 
definition in section 1886(d)(3)(E) of the Act, resulting in lower 
payments for providers in Puerto Rico. Therefore, the commenter 
believed that CMS should calculate an alternative national labor-
related share percentage for hospitals in Puerto Rico that is lower 
than 62 percent.
    Response: As mentioned by the commenter, current law requires that 
the labor-related share be set at 62 percent for hospitals with a wage 
index less than or equal to 1.0000. Specifically, as discussed above, 
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.'' Therefore, we are unable to 
change the labor-related share of 62 percent. In addition, the 
commenters did not provide any empirical data to demonstrate why a 
lower labor-related share percentage is justified. Therefore, we are 
unable to verify the commenters' statement.
    After consideration of public comments received, we are finalizing 
our proposals without modification. For FY 2015, we are continuing 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 final rule and available via the 
Internet on the CMS Web site, reflect this labor-related share. For FY 
2015, for all IPPS hospitals whose wage indexes are less than or equal 
to 1.0000, we are applying the wage index to a labor-related share of 
62 percent of the national standardized amount. For all IPPS hospitals 
whose wage indexes are greater than 1.0000, for FY 2015, we are 
applying the wage index to a labor-related share of 69.6 percent of the 
national standardized amount. 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 1.0000. For FY 2015, we also are 
continuing 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, the labor-
related share of a hospital's Puerto Rico-specific rate will be either 
the Puerto Rico-specific labor-related share of 63.2 percent or 62 
percent, depending on which results in higher payments to the hospital. 
If the hospital has a Puerto Rico-specific wage index greater than 
1.000 for FY 2015, we will set the hospital's rates using a labor-
related share of 63.2 percent for the 25-percent portion of the 
hospital's payment determined by the Puerto Rico standardized amounts 
because this amount will result in higher payments. The 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 final 
rule and available via the Internet on the CMS Web site.

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

A. 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.  412.4(f), provides that when 
a patient is transferred and his or her length of stay is less than the 
geometric mean length of stay for the MS-DRG to which the case is 
assigned, the transferring hospital is generally paid based on a 
graduated per diem rate for each day of stay, not to exceed the full 
MS-DRG payment that would have been made if the patient had been 
discharged without being transferred.
    The per diem rate paid to a transferring hospital is calculated by 
dividing the full DRG payment by the geometric mean length of stay for 
the MS-DRG. Based on an analysis that showed that the first day of 
hospitalization is the most expensive (60 FR 45804), our policy 
generally provides for payment that is 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. Changes to the Postacute Care Transfer MS-DRGs
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28084 through 
28086), we discussed that, based on our annual review of MS-DRGs, we 
had identified a number of MS-DRGs that should be included on the list 
of MS-DRGs subject to the postacute care transfer policy. In response 
to public comments and based on our analysis of

[[Page 49992]]

FY 2013 MedPAR claims data, we proposed to make several changes to MS-
DRGs to better capture certain severity of illness levels, to be 
effective for FY 2015. Specifically, we proposed 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 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 proposed 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 proposed 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 the 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 proposed 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 final 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 determined that proposed 
revised MS-DRG 483 would no longer meet the postacute care transfer 
criteria. Therefore, we proposed 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 care                  postacute care
                                                                                 transfers      Short-stay     transfers to    Postacute transfer policy
            MS-DRG                      MS-DRG title            Total cases        (55th      postacute care     all cases              status
                                                                                percentile:      transfers         (55th
                                                                                  1,471)                        percentile:
                                                                                                                 7.9060%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 Reattachment          41,372          17,289           2,271          * 5.49  NO.
                                Procedure of Upper
                                Extremities.
518..........................  Back & Neck Procedure Except            3,844           2,136             412           10.72  YES.
                                Spinal Fusion with MCC or
                                Disc Device/Neurostimulator.
519..........................  Back & Neck Procedure Except           15,238           7,405           1,126          * 7.39  YES.**
                                Spinal Fusion with CC.
520..........................  Back & Neck Procedure Except           31,792           7,859               0          * 0.00  YES.**
                                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 determined that MS-DRGs 266, 267, 518, 519, and 520 
also would meet the criteria for the special payment methodology. 
Therefore, we proposed that they would be subject to the MS-DRG special 
payment methodology, effective FY 2015.

[[Page 49993]]



                    List of MS-DRGs That Changed DRG Special Payment Policy Status in FY 2015
----------------------------------------------------------------------------------------------------------------
                                                                                  50% of
                                              Geometric mean      Average         average
        MS-DRG              MS-DRG title        length  of    charges of  1-    charges for   Special pay policy
                                                   stay             day         all  cases          status
                                                                discharges    within  MS-DRG
----------------------------------------------------------------------------------------------------------------
266..................  Endovascular Cardiac           8.3643         $42,081        $126,326  YES.*
                        Valve Replacement
                        with MCC.
267..................  Endovascular Cardiac           5.0271         128,013          95,141  YES.
                        Valve Replacement
                        without MCC.
518..................  Back & Neck Procedure          4.2882          68,515          43,514  YES.
                        Except Spinal Fusion
                        with MCC or Disc
                        Device/
                        Neurostimulator.
519..................  Back & Neck Procedure          3.0507               0               0  YES.*
                        Except Spinal Fusion
                        with CC.
520..................  Back & Neck Procedure          1.7315               0               0  YES.*
                        Except 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.

    We did not receive any public comments regarding our proposals to 
change the postacute care transfer and the special payment policy 
status for the identified MS-DRGs. Therefore, we are adopting the 
proposed changes as final for FY 2015.

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

1. 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) of the Act requires that any hospital that is not a 
meaningful electronic health record (EHR) user (as defined in section 
1886(n)(3) of the Act and not subject to an exception under section 
1886(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. In 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28086), we proposed to 
continue to use the FY 2010-based IPPS operating and capital market 
baskets for FY 2015. We also proposed to continue to use a labor-
related share that is reflective of the FY 2010 base year. For FY 2015, 
we

[[Page 49994]]

proposed to continue using the labor-related share of 69.6 percent, 
which is based on the FY 2010-based IPPS market basket. We did not 
receive any public comments on this proposal and, therefore, for FY 
2015, we will continue to use the FY 2010-based IPPS operating and 
capital market baskets and the labor-related share of 69.6 percent.
    Based on the most recent data available for the FY 2015 proposed 
rule, in accordance with section 1886(b)(3)(B) of the Act, we proposed 
in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28087) 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 was estimated to be 2.7 percent. We proposed that if more recent 
data became subsequently available (for example, a more recent estimate 
of the market basket and the MFP adjustment), we would use such data, 
if appropriate, to determine the FY 2015 market basket update and MFP 
adjustment in the final rule.
    Based on updated data for this FY 2015 IPPS/LTCH PPS final rule, 
that is, the IGI's second quarter 2014 forecast of the FY 2010-based 
IPPS market basket rate-of-increase with historical data through first 
quarter 2014, we estimate that the FY 2015 market basket update used to 
determine the applicable percentage increase for the IPPS is 2.9 
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 did not propose to make any change in 
our methodology for calculating and applying the MFP adjustment. For FY 
2015, we proposed a MFP adjustment of -0.4 percentage point. Similar to 
the market basket adjustment, for the proposed rule, we used the most 
recent data available to compute the MFP adjustment.
    Based on updated data for this final rule, we computed an MFP 
adjustment is 0.5 percentage point for FY 2015.
    Comment: One commenter stated that the FY 2015 update factor is 
understated, as the productivity adjustment should be 0.4 (as projected 
in the proposed rule), not 0.5. The commenter stated that, as a result, 
instead of a 1.2 percent update factor, the projection should use a 1.3 
percent update factor.
    Response: As stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 
FR 28087), the proposed productivity adjustment for FY 2015 was 0.4 
percent. Furthermore, we proposed to make a 1.3 percent update to the 
national standardized amount (79 FR 28355), which reflects a proposed 
2.7 percent market basket update, the proposed reduction of 0.4 
percentage point for the multifactor productivity adjustment, the 0.2 
percentage point reduction in accordance with the Affordable Care Act 
and 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 stated in the proposed rule, we proposed to use more recently 
available data to determine the final market basket and multifactor 
productivity adjustment. We did not receive any public comments on this 
proposal. Therefore, for this final rule, we are finalizing a market 
basket update of 2.9 percent and an MFP adjustment of 0.5 percent based 
on more recently available data.
    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), we discussed in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28087) that there are four possible applicable 
percentage increases that can be applied to the standardized amount. As 
noted above, we proposed that if more recent data became subsequently 
available (for example, a more recent estimate of the market basket and 
the MFP adjustment), we would use such data, if appropriate, to 
determine the FY 2015 market basket update and MFP adjustment in the 
final rule.
    We did not receive any public comments on the four applicable 
percentage increases and our finalizing our proposal. Based on the more 
recent data described earlier, we have determined final applicable 
percentage increases to the standardized amount for FY 2015, as 
specified below.
     For a hospital that submits quality data and is a 
meaningful EHR user, we are finalizing an applicable percentage 
increase to the FY 2015 operating standardized amount of 2.2 percent 
(that is, the FY 2015 estimate of the market basket rate-of-increase of 
2.9 percent less an adjustment of 0.5 percentage point for economy-wide 
productivity (that is, the MFP adjustment) and less 0.2 percentage 
point).
     For a hospital that submits quality data and is not a 
meaningful EHR user, we are finalizing an applicable percentage 
increase to the operating standardized amount of 1.475 percent (that 
is, the FY 2015 estimate of the market basket rate-of-increase of 2.9 
percent, less an adjustment of 0.725 percentage point (the market 
basket rate-of-increase of 2.9 percent x 0.75)/3) for failure to be a 
meaningful EHR user, less an adjustment of 0.5 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 finalizing an applicable percentage 
increase to the operating standardized amount of 1.475 percent (that 
is, the FY 2015 estimate of the market basket rate-of-increase of 2.9 
percent, less an adjustment of 0.725 percentage point (the market 
basket rate-of-increase of 2.9 percent/4) for failure to submit quality 
data, less an adjustment of 0.5 percentage point for the MFP 
adjustment, and less an additional adjustment of 0.2 percentage point).
     For a hospital that does not submit quality data and is 
not a meaningful EHR user, we are finalizing 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 2.9 
percent, less an adjustment of 0.725 percentage point (the market 
basket rate-of-increase of 2.9 percent/4) for failure to submit quality 
data, less an adjustment of 0.725 percentage point (the market basket 
rate-of-increase of 2.9 percent x 0.75)/3) for failure to be a 
meaningful EHR user, less an adjustment of 0.5 percentage point for the 
MFP adjustment, and less an additional adjustment of 0.2 percentage 
point). Below we provide a table summarizing the four final applicable 
percentage increases.

[[Page 49995]]



                           Final FY 2015 Applicable Percentage Increases for the IPPS
----------------------------------------------------------------------------------------------------------------
                                                     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..................             2.9           2.9             2.9             2.9
Adjustment for Failure to Submit Quality Data                0.0           0.0            -0.725          -0.725
 under Section 1886(b)(3)(B)(viii) of the Act.
Adjustment for Failure to be a Meaningful EHR                0.0          -0.725           0.0            -0.725
 User under Section 1886(b)(3)(B)(ix) of the
 Act.
MFP Adjustment under Section 1886(b)(3)(B)(xi)              -0.5          -0.5            -0.5            -0.5
 of the Act.....................................
Statutory Adjustment under Section                          -0.2          -0.2            -0.2            -0.2
 1886(b)(3)(B)(xii) of the Act..................
Final Applicable Percentage Increase Applied to              2.2           1.475           1.475           0.75
 Standardized Amount............................
----------------------------------------------------------------------------------------------------------------

    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28087), we 
proposed 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 proposed 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 proposed 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 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 proposed 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 proposed 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.
    We did not receive any public comments on our proposed changes to 
the regulations at Sec. Sec.  412.64(d)(1), (d)(1)(i) through 
(d)(1)(v), (d)(2)(i), (d)(2)(ii), and (d)(3) introductory text and 
therefore are finalizing these proposed changes without modification.
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase to the hospital-specific rates for SCHs and MDHs 
equals the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all 
other hospitals subject to the IPPS). Therefore, the update to the 
hospital-specific rates for SCHs and MDHs is also subject to section 
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 
10319(a) of the Affordable Care Act. Accordingly, in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28088), for FY 2015, we proposed 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 did not 
propose 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 the proposed rule, we used IGI's 
first quarter 2014 forecast of the FY 2010-based IPPS market

[[Page 49996]]

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 proposed to use the most recent data 
available. We did not receive any public comments on these proposals 
and therefore our finalizing them as proposed to set the update for 
SCHs and MDHs in this final rule using the most recent data available.
    As discussed above, based on the more recent data for IGI's second 
quarter 2014 forecast of the FY 2010-based IPPS market basket update 
with historical data through first quarter 2014, we estimate that the 
FY 2015 market basket update used to determine the update factor for 
this final rule for the hospital-specific rates of SCHs and MDHs is 2.9 
percent. Similarly, for this final rule, we used IGI's second quarter 
2014 forecast of the MFP adjustment, which is estimated at 0.5 
percentage point for FY 2015. Accordingly, we are finalizing the 
following updates to the hospital-specific rates applicable to SCHs and 
MDHs: An update of 2.2 percent for a hospital that submits quality data 
and is a meaningful EHR user; an update of 1.475 percent for a hospital 
that fails to submit quality data and is a meaningful EHR user; an 
update of 1.475 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.
    We note that, as discussed in section IV.G. of the preamble of this 
final 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 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, in 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28088), we proposed an 
applicable percentage increase to the Puerto Rico-specific operating 
standardized amount of 2.1 percent for FY 2015. We also proposed, for 
the final rule, to use the most recent data available to determine the 
FY 2015 applicable percentage increase. 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.
    We did not receive any public comments concerning our proposal. 
Therefore, using the most recent data available, we are finalizing an 
applicable percentage increase to the Puerto Rico-specific operating 
amount of 2.2 percent for FY 2015. As we noted above, for the proposed 
rule, we used the first quarter 2014 forecast of the FY 2010-based IPPS 
market basket update with historical data through fourth quarter 2013. 
For this final rule, we used the most recent data available, which is 
IGI's second quarter 2014 forecast of the FY 2010-based IPPS market 
basket update with historical data through first quarter 2014. 
Similarly, for the proposed rule, we used IGI's first quarter 2014 
forecast of the MFP adjustment. For this final rule, we used the most 
recent data available, which was IGI's second quarter 2014 forecast of 
the MFP adjustment.
    For FY 2015, the existing regulations in Sec.  412.211(c) set the 
update factor for Puerto Rico-specific standardized amount equal to the 
update factor applied to the national standardized amount for all IPPS 
hospitals. Therefore, we are not making any further changes to this 
regulatory provision to reflect the FY 2015 update factor for the 
Puerto Rico-specific standardized amount.
    Comment: One commenter indicated that the nonlabor costs in Puerto 
Rico are closer or equal to those in the United States. It is unclear 
what the commenter was requesting. Based on our interpretation of the 
comment, it appears that the commenter may be requesting that CMS make 
equal the nonlabor payment amount of the Puerto Rico-specific 
standardized amount to the nonlabor payment amount of the national 
standardized amount.
    Response: The commenter did not provide any empirical data to 
demonstrate how the nonlabor costs in Puerto Rico are equal to those in 
the United States. Therefore, we are unable to verify the commenter's 
statement. In addition, we did not propose to make any updates to the 
national or Puerto Rico-specific standardized amounts aside from 
applying the statutory updates as discussed earlier. We will continue 
to work with Puerto Rico and other stakeholders to ensure we are using 
appropriate data for ratesettting.

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

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

[[Page 49997]]

hourly wage must exceed, by a certain percentage, the average hourly 
wage of the labor market area where the hospital is located.
    Section 4202(b) of Public Law 105-33 states, in part, ``[a]ny 
hospital classified as an RRC by the Secretary . . . for fiscal year 
1991 shall be classified as such an RRC for fiscal year 1998 and each 
subsequent year.'' In the August 29, 1997 IPPS final rule with comment 
period (62 FR 45999), CMS reinstated RRC status for all hospitals that 
lost the status due to triennial review or MGCRB reclassification. 
However, CMS did not reinstate the status of hospitals that lost RRC 
status because they were now urban for all purposes because of the OMB 
designation of their geographic area as urban. Subsequently, in the 
August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were 
revisiting that decision. Specifically, we stated that we would permit 
hospitals that previously qualified as an RRC and lost their status due 
to OMB redesignation of the county in which they are located from rural 
to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC 
status must satisfy all of the other applicable criteria. We use the 
definitions of ``urban'' and ``rural'' specified in Subpart D of 42 CFR 
Part 412. One of the criteria under which a hospital may qualify as an 
RRC is to have 275 or more beds available for use (Sec.  
412.96(b)(1)(ii)). A rural hospital that does not meet the bed size 
requirement can qualify as an RRC if the hospital meets two mandatory 
prerequisites (a minimum CMI and a minimum number of discharges), and 
at least one of three optional criteria (relating to specialty 
composition of medical staff, source of inpatients, or referral 
volume). (We refer readers to Sec.  412.96(c)(1) through (c)(5) and the 
September 30, 1988 Federal Register (53 FR 38513).) With respect to the 
two mandatory prerequisites, a hospital may be classified as an RRC 
if--
     The hospital's CMI is at least equal to the lower of the 
median CMI for urban hospitals in its census region, excluding 
hospitals with approved teaching programs, or the median CMI for all 
urban hospitals nationally; and
     The hospital's number of discharges is at least 5,000 per 
year, or, if fewer, the median number of discharges for urban hospitals 
in the census region in which the hospital is located. (The number of 
discharges criterion for an osteopathic hospital is at least 3,000 
discharges per year, as specified in section 1886(d)(5)(C)(i) of the 
Act.)
1. Case-Mix Index (CMI)
    Section 412.96(c)(1) provides that CMS establish updated national 
and regional CMI values in each year's annual notice of prospective 
payment rates for purposes of determining RRC status. The methodology 
we used to determine the national and regional CMI values is set forth 
in the regulations at Sec.  412.96(c)(1)(ii). The national median CMI 
value for FY 2015 is based on the CMI values of all urban hospitals 
nationwide, and the regional median CMI values for FY 2015 are based on 
the CMI values of all urban hospitals within each census region, 
excluding those hospitals with approved teaching programs (that is, 
those hospitals that train residents in an approved GME program as 
provided in Sec.  413.75). These values are based on discharges 
occurring during FY 2013 (October 1, 2012 through September 30, 2013), 
and include bills posted to CMS' records through March 2014.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28089), we 
proposed that, in addition to meeting other criteria, if rural 
hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting periods beginning on or after October 1, 
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. (We refer readers to the table set forth 
in the FY 2015 IPPS/LTCH PPS proposed rule at 79 FR 28089.)
    The final CMI values for FY 2015 are based on the latest available 
data (FY 2013 bills received through March 2014). 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--
     1.5723; or
     The median CMI value (not transfer-adjusted) for urban 
hospitals (excluding hospitals with approved teaching programs as 
identified in Sec.  413.75) calculated by CMS for the census region in 
which the hospital is located.
    The final CMI values by region are set forth in the following 
table:

------------------------------------------------------------------------
                                                          Case-mix index
                         Region                                value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................          1.3587
2. Middle Atlantic (PA, NJ, NY).........................          1.4318
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          1.4807
4. East North Central (IL, IN, MI, OH, WI)..............          1.4938
5. East South Central (AL, KY, MS, TN)..................          1.4107
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......          1.5459
7. West South Central (AR, LA, OK, TX)..................          1.6039
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............          1.6586
9. Pacific (AK, CA, HI, OR, WA).........................          1.5658
------------------------------------------------------------------------

    A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its fiscal intermediary 
or MAC. Data are available on the Provider Statistical and 
Reimbursement (PS&R) System. In keeping with our policy on discharges, 
the CMI values are computed based on all Medicare patient discharges 
subject to the IPPS MS-DRG-based payment.
2. Discharges
    Section 412.96(c)(2)(i) provides that CMS set forth the national 
and regional numbers of discharges in each year's annual notice of 
prospective payment rates for purposes of determining RRC status. As 
specified in section 1886(d)(5)(C)(ii) of the Act, the national 
standard is set at 5,000 discharges. In the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28090), we proposed 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 the proposed rule was developed.
    We proposed that, in addition to meeting other criteria, a 
hospital, if it is

[[Page 49998]]

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. (We refer readers to 
the table set forth in the FY 2015 IPPS/LTCH PPS proposed rule at 79 FR 
28090.)
    Based on the latest discharge data available at this time (that is, 
based on FY 2012 cost report data), the final median number of 
discharges for urban hospitals by census region are set forth in the 
following table:

------------------------------------------------------------------------
                                                             Number of
                         Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................           7,635
2. Middle Atlantic (PA, NJ, NY).........................          10,841
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          10,642
4. East North Central (IL, IN, MI, OH, WI)..............           8,530
5. East South Central (AL, KY, MS, TN)..................           7,975
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......           7,925
7. West South Central (AR, LA, OK, TX)..................           4,960
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............           8,525
9. Pacific (AK, CA, HI, OR, WA).........................           8,504
------------------------------------------------------------------------

    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. 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, for FY 2014 (and subsequent years), 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) (hereafter referred to as the 
``March 2014 IFC''). In that March 2014 IFC, 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. (In section IV.P. of the 
preamble of this final rule, we are responding to the public comments 
we received on the March 2014 IFC and are stating our finalized policy 
for the extension of the temporary changes to the low-volume hospital 
payment policy through March 31, 2014, under the Pathway for SGR Reform 
Act.)
2. Provisions of the Protecting Access to Medicare Act of 2014
    Section 105 of the Protecting Access to Medicare Act of 2014 (PAMA) 
(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 addressed 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 the PAMA in a notice that appeared in the Federal 
Register on June 17, 2014 (79 FR 34444). However, in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28090), we proposed to make conforming 
changes to the existing regulations text at Sec.  412.101 to reflect 
the extension of the changes to the qualifying criteria and the payment 
adjustment methodology for low-volume hospitals through the first half 
of FY 2015 (that is, through March 31, 2015) in accordance with section 
105 of the PAMA. Specifically, we proposed 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).
    We did not receive any public comments on our proposed conforming 
changes to the existing regulations text at Sec.  412.101 to reflect 
the extension of the changes to the qualifying criteria and the payment 
adjustment methodology for low-volume hospitals through the first half 
of FY 2015 (that is, through March 31, 2015) in accordance with section 
105 of the PAMA. Therefore, in this final rule, we are adopting our 
proposed revisions to

[[Page 49999]]

paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), (c)(2), and (d) of Sec.  
412.101 as final without modification. We note that these revisions 
supersede the conforming changes to these same regulatory provisions 
made in the March 2014 IFC to reflect the extension of the changes to 
the qualifying criteria and the payment adjustment methodology for low-
volume hospitals through March 31, 2014, under the Pathway for SGR 
Reform Act, as discussed in section IV.P. of the preamble of this final 
rule. The public comments we received on our proposals related to the 
low-volume hospital payment policy for FY 2015 and our responses are 
presented in section IV.D.3. of the preamble of this final rule.
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 the PAMA, in accordance with proposed Sec.  
412.101(b)(2)(ii) and consistent with our historical approach, we 
proposed 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 proposed 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 the 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). We noted that the list of hospitals with fewer 
than 1,600 Medicare discharges in Table 14 did not reflect whether or 
not the hospital meets the mileage criterion. Eligibility for the low-
volume hospital payment adjustment for the first 6 months of FY 2015 
would also be dependent upon meeting the mileage criterion specified at 
proposed Sec.  412.101(b)(2)(ii); that is, the hospital is located more 
than 15 road miles from any other IPPS hospital. In addition, we 
indicated that if more recent Medicare discharge data become available, 
we intended 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.
    We did not receive any public comments on our proposal that 
qualifying low-volume hospitals and their payment adjustment for FY 
2015 discharges occurring before April 1, 2015 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. 
Therefore, in this final rule, as we proposed, we are establishing that 
qualifying low-volume hospitals (that is, the list of ``subsection 
(d)'' hospitals with fewer than 1,600 Medicare discharges) and their 
potential low-volume payment adjustment for FY 2015 discharges 
occurring before April 1, 2015 (if eligible) will be based on Medicare 
discharge data from the March 2014 update of the FY 2013 MedPAR file. 
Table 14 listed in the Addendum of this final 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 March 2014 update of the FY 2013 MedPAR file and their 
low-volume payment adjustment for FY 2015 discharges occurring before 
April 1, 2015 (if eligible). 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. Eligibility 
for the low-volume hospital payment adjustment for FY 2015 discharges 
occurring before April 1, 2015, is also 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 revised Sec.  
412.101(b)(2)(ii) (that is, the hospital is located more than 15 road 
miles from any other subsection (d) hospital).
    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 PAMA). Therefore, as we stated in the 
proposed rule, consistent with section 1886(d)(12) of the Act, as 
amended, 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. Consistent with our 
existing policy for FYs 2005 through 2010, we stated that, 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). Also 
consistent with our existing policy for FYs 2005 through 2010, for FY 
2015 discharges occurring on or after April 1, 2015 (and subsequent 
years), we stated that 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 based on the hospital's most recently submitted cost report. 
We use cost report data to determine if a hospital meets the discharge 
criterion because these data are the best available

[[Page 50000]]

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 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.
    Comment: A few commenters expressed concern about the financial 
impact of the expiration of the temporary changes in the low-volume 
hospital adjustment originally provided for by the Affordable Care Act. 
Some of these commenters requested that CMS permanently adopt the 
temporary changes in the low-volume hospital adjustment, while other 
commenters urged CMS to support legislative efforts to permanently 
extend these provisions beyond the current March 31, 2015 statutory 
expiration date. (These comments are similar to comments we received 
previously, prior to the statutory extensions of the temporary changes 
in the low-volume hospital adjustment for FYs 2013 and 2014 provided by 
subsequent legislation.)
    Response: While we appreciate the commenters' concerns about the 
change to the low-volume hospital policy that will occur for discharges 
occurring on or after April 1, 2015 under current law, we are unable to 
extend the temporary changes to the low-volume hospital adjustment 
originally provided for by the Affordable Care Act beyond the current 
March 31, 2015 statutory expiration date. As discussed in response to 
similar comment in both the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53408 through 53409) and the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50612 through 50613), to implement the original low-volume hospital 
payment adjustment provision, and as mandated by statute, we developed 
an empirically justified adjustment based on the relationship between 
costs and total discharges of hospitals. (For more information on this 
analysis, we refer readers to the FY 2005 IPPS final rule (69 FR 49101 
through 49102).) Under current law, the low-volume hospital definition 
and payment adjustment methodology will revert back to the policy 
established under statutory requirements that were in effect prior to 
the amendments made by the Affordable Care Act and subsequent 
legislation (include the PAMA) beginning with discharges occurring on 
after April 1, 2015.
    Therefore, consistent with section 1886(d)(12) of the Act, as 
amended, under the 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. Consistent with our 
existing policy for FYs 2005 through 2010, effective for FY 2015 
discharges occurring on or after April 1, 2015, and subsequent years, 
qualifying hospitals will 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). The discharge 
determination for the low-volume hospital payment adjustment will be 
made based on the hospital's number of total discharges, that is, 
Medicare and non-Medicare discharges, as specified at 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 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28091 through 
28092), for FY 2015, we proposed a process for requesting and obtaining 
the low-volume hospital payment adjustment that was consistent with our 
previously established procedure. We proposed that 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. Specifically, 
for FY 2015, we proposed 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 
occurring on or after October 1, 2014, and through March 31, 2015, or 
through September 30, 2015, for hospitals that also meet the low-volume 
hospital payment adjustment qualifying criteria for discharges 
occurring during the second half of FY 2015. Under this proposal, 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 and the distance criterion. However, the hospital must send 
written verification that is received by its MAC no later than 
September 1, 2014, stating that it continues to be more than 15 miles 
from any other ``subsection (d)'' hospital. We also proposed that 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, 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.
    Comment: One commenter requested that CMS not impose a notification 
requirement for hospitals that qualified for the low-volume hospital 
payment adjustment in FY 2014. The commenter stated that eliminating 
this verification would reduce the administrative burden for those 
hospitals and their MACs.
    Response: We appreciate the commenter's suggestion to reduce the 
administrative burden for hospitals and MACs by not having a 
notification requirement under the FY 2015 low-volume hospital policy 
for hospitals that qualified for the low-volume hospital payment 
adjustment in FY 2014. However, as we explained in the proposed rule, 
under our proposal a hospital that qualified for the low-volume payment 
adjustment in FY 2014 does not need to reapply for FY 2015 if it 
continues to meet the applicable discharge and distance criteria (that 
is,

[[Page 50001]]

such a hospital would not have to resubmit a low-volume hospital 
request with supporting documentation to demonstrate that it meets the 
mileage criterion). Rather, such a hospital would only be required to 
send written verification that it continues to meet the distance 
criterion that is received by the MAC by the proposed notification 
deadline. This written verification could be a brief letter to the MAC 
stating that the hospital continues to meet the low-volume hospital 
distance criterion as documented in a prior low-volume hospital status 
request. We proposed this abridged notification requirement for 
hospitals that qualified for the low-volume payment adjustment in FY 
2014 because we believe compliance with the statutory low-volume 
hospital criteria should be monitored while recognizing that it is not 
necessary to have such hospitals resubmit a low-volume hospital request 
with the necessary documentation. In addition, if we were to consider 
no longer requiring verification for hospitals that qualified for the 
low-volume hospital payment adjustment in the prior year, we may also 
want to develop alternative policies for monitoring compliance with the 
statutory low-volume hospital qualifying criteria. Therefore, we are 
not adopting the commenter's suggestion regarding hospitals that 
qualified for the low-volume hospital payment adjustment in FY 2014. 
However, should the temporary changes to the low-volume hospital 
adjustment be extended beyond March 31, 2015, by subsequent 
legislation, we may consider modifying the verification process in 
conjunction with developing an alternative compliance policy.
    In this final rule, we are adopting our policy as proposed without 
modification. Therefore, 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 revised Sec.  412.101(b)(2)(ii) for FY 2015 
discharges occurring before April 1, 2015, and under revised 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, 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 occurring on or after October 1, 2014, and through March 31, 
2015, under revised Sec.  412.101(b)(2)(ii) or through September 30, 
2015, for hospitals that also qualify under revised 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 l, 2015, 
without reapplying if it continues to meet the Medicare discharge 
criterion established for FY 2015 (shown in Table 14 of this final 
rule, 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. This written verification could be a brief 
letter to the MAC stating that the hospital continues to meet the low-
volume hospital distance criterion as documented in a prior low-volume 
hospital status request.
    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 revised Sec.  412.101(b)(2)(ii), the MAC will 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 revised Sec.  412.101(b)(2)(i), 
the MAC will 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 revised Sec.  
412.101(b)(2)(i), the MAC will 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.
    Comment: One commenter stated it has a longstanding commitment to 
graduate medical education, the practice of academic medicine, and 
successful training of surgical residents. The commenter expressed 
appreciation of Federal support of IME payments. The commenter stated 
these payments are an important part of ensuring a strong general 
surgery workforce, which is currently experiencing a growing shortage.
    Response: We acknowledge the commenter's support. We note that the 
IME formula multiplier is set by Congress. We are specifying in this 
final rule that the IME formula multiplier for FY 2015 is set at 1.35.
2. IME Medicare Part C Add-On Payments to Sole Community Hospitals 
(SCHs) That Are Paid According to Their Hospital-Specific Rates and 
Change in Methodology in Determining Payment to SCHs
    Section 1886(d)(11) of the Act provides for an additional payment

[[Page 50002]]

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 a separate 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. 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28092), for the 
reasons specified below, effective for discharges occurring in cost 
reporting periods beginning on or after October 1, 2014, we proposed: 
(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 (hereinafter also referred to as the 
``Federal rate payment'') and payments based on the hospital-specific 
rate (hereinafter also referred to as the ``hospital-specific rate 
payment'') 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 for Medicare Part C patient discharges 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 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 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 
included only as part of the payments based on the Federal rate but not 
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, 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 
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. 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, currently, 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 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 reflects or accounts for the additional 
costs that a teaching

[[Page 50003]]

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 based on 
the Federal rate and the hospital-specific rate, it would be 
appropriate for IME add-on payments under section 1886(d)(11) of the 
Act to no longer be included as part of the Federal rate payment. 
Therefore, we proposed 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 provider 
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).''
    We invited public comments on both of these proposals and any 
alternatives that we should consider.
    Comment: Several commenters supported CMS' proposal to make IME 
add-on payments for Medicare Part C discharges to SCHs paid based on 
the hospital-specific rate. Some of these commenters also supported the 
proposal to change the methodology in determining whether an SCH is 
paid based on the Federal rate or the hospital-specific rate by 
excluding the IME add-on amount for Medicare Part C discharges from the 
comparison.
    Although commenters supported the proposal to make IME add-on 
payments for Medicare Part C discharges to SCHs that are paid based on 
the hospital-specific rate, several commenters objected to the proposal 
to make a corresponding change to the methodology for determining 
whether an SCH is paid based on the Federal rate or the hospital-
specific rate by excluding the IME add-on amount for Medicare Part C 
discharges from the comparison. The commenters claimed that this change 
would have the unintended consequence of precluding hospitals from 
receiving DSH and uncompensated care payments, which would disadvantage 
a subset of SCHs that receive payment based on the hospital-specific 
rate. They recommended making no changes to the comparison.
    Response: We appreciate the commenters' support of our proposal to 
make IME add-on payments for Medicare Part C discharges to SCHs that 
are paid based on the hospital-specific rate. While we agree that a 
provider that receives payment based on the hospital-specific rate 
would not be eligible for DSH or uncompensated care payments, we do not 
agree that exclusion of the IME add-on payment for Medicare Part C 
discharges from the comparison of the Federal rate payments to the 
hospital-specific rate payments would disadvantage a given hospital. 
Our proposal does not preclude a provider from receiving payment based 
on the Federal rate (which includes DSH and uncompensated care payments 
as applicable), if the Federal rate payment is higher than the 
hospital-specific rate payment. However, it is true that a provider 
that receives payment based on the hospital-specific rate would not be 
eligible for DSH or uncompensated care payments.
    As we stated in the proposed rule, we believe that the proposed 
methodology more accurately reflects the comparable payments for 
Medicare Part A discharges for SCHs. Generally the hospital-specific 
rate payment already reflects the additional costs that a teaching 
hospital incurs for its Medicare Part A patients. However, because the 
costs associated with Medicare Part C patient discharges are not 
reflected in the hospital-specific rate, we believe that excluding 
these amounts from the Federal rate payment provides for a more 
accurate comparison of payments for Medicare Part A discharges. The 
commenters did not provide any explanation in support of maintaining 
our current methodology of comparing the Federal rate payment with the 
IME add-on amount for Medicare Part C discharges to the hospital-
specific rate payment. Moreover, these commenters did not include any 
explanation of how our proposal to exclude the IME add-on payments for 
Medicare Part C discharges from both sides of the comparison would 
specifically disadvantage a given provider by precluding it from 
receiving DSH and uncompensated care payments. For these reasons, we 
are not adopting the commenters' suggestion to maintain the current 
comparison methodology.
    Comment: One commenter urged CMS to extend the same payment IME 
add-on for Part C patients to MDHs because they also are paid the 
higher of the Federal rate payment or ``the blended rate incorporating 
a hospital-specific rate.''
    Response: Unlike SCHs, an MDH receives the higher of the Federal 
rate or the Federal rate payment plus 75 percent of the amount by which 
the Federal rate payment is exceeded by its hospital-specific rate 
payments (that is, payment based on the highest of its hospital-
specific rates based on costs in one of its base years). Because 
payment, whether in whole or in part to an MDH, is always based on the 
Federal rate, an MDH that is a teaching hospital receives IME add-on 
payments for Medicare Part A patient discharges under section 
1886(d)(5)(B) of the Act, and, therefore, under our historical 
interpretation of section 1886(d)(11)(C) of the Act, is entitled to 
receive IME add-on payments for Medicare Part C patient discharges. 
Consequently, there is no need to ``extend'' this payment add-on to 
MDHs that are teaching hospitals because they are already receiving IME 
add-on payments for Medicare Part C discharges. We also note that, as 
explained elsewhere, the Federal rate payment used in the MDH payment 
methodology is the same Federal rate payment that is used in the SCH 
payment methodology (79 FR 28096). This means that, under the proposed 
change to the comparison methodology to exclude IME add-on payments for 
Medicare Part C discharges from the Federal rate payment, the Federal 
rate payment used for the purpose of the MDH payment methodology, that 
is, to calculate the 75 percent of the amount by which the Federal rate 
payment is exceeded by the highest of its hospital-specific rate 
payments based on costs in one of the MDH's base years, would likewise 
exclude the IME add-on payment for Medicare Part C discharges. After 
determining the higher of the Federal rate payment or the Federal rate 
payment plus 75 percent of the amount by which the Federal rate payment 
is exceeded by the hospital-specific rate payment, any add-on payments 
under section 1886(d)(11) of the Act for Medicare Part C patient 
discharges will be added to that payment for purposes of determining 
the hospital's total payment amount.
    Comment: One commenter addressed the general payment methodology 
for SCHs and the limited number of specified years upon which the 
hospital-specific rate is based. The commenter stated that the proposal 
to make additional IME Part C add-on

[[Page 50004]]

payments to SCHs does not cover IME costs for SCHs that did not have a 
teaching program during or prior to FY 2006. The commenter suggested 
allowing rural hospitals to rebase their hospital-specific rate in the 
fiscal year following the start of a new residency program.
    Response: We consider this comment to be outside of the scope of 
the proposals described above. We also note that the fiscal years upon 
which the hospital-specific rates are based are specified in the 
statute. CMS does not have authority to authorize a rebasing of 
hospital-specific rates absent additional legislation.
    After consideration of the public comments we received, we are 
adopting our proposals without modification. In summary, effective with 
discharges occurring in cost reporting periods beginning on or after 
October 1, 2014, our final policies are: (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) 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 based on the Federal rate. After the 
higher of the Federal rate payment or the hospital-specific rate 
payment under section 1886(d)(5)(D) of the Act is determined, the Part 
C IME adjustment factor is multiplied by the Federal rate 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 are 
added to the payment amount under section 1886(d)(5)(D) of the Act for 
purposes of determining the hospital's total payment amount.
3. Other Policy Changes Affecting IME
    In section IV.K. of the preamble of this final rule, we present 
other policy changes relating to GME payments, which may also apply to 
IME payments. We refer readers to that section of the preamble of this 
proposed rule where we present these 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 Implementation of New 
OMB Labor Market Delineations
    As discussed in section III.B. of the preamble of this final rule, 
in the FY 2015 IPPS/LTCH PPS proposed rule, we proposed to implement 
the new OMB labor market area delineations (which are based on 2010 
Decennial Census data) for the FY 2015 wage index. We stated that 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 proposed to revise the 
regulation at Sec.  412.102 to remove references to the urban and rural 
standardized amounts.
    We did not receive any public comments on this proposal and we are

[[Page 50005]]

adopting the revisions to the regulation at Sec.  412.102 to remove 
references to the urban and rural standardized amounts.
    The provisions of Sec.  412.102 will continue to apply with respect 
to the calculation of the DSH payments to hospitals that are currently 
located in urban counties that will become rural under our adoption of 
the new OMB delineations as described in section III.B.2. of the 
preamble to this final rule. 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 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 final rule, any hospital that was 
previously urban but will change to rural status in FY 2015 as a result 
of the adoption of the new OMB labor market area delineations will 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 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 
final rule.)
    For FY 2018 and subsequent years, the second factor is 1 minus the 
percent change in the percent of individuals who are uninsured, as 
determined by comparing the percent of individuals ``who are uninsured 
in 2013 (as estimated by the Secretary, based on data from the Census 
Bureau or other sources the Secretary determines appropriate, and 
certified by the Chief Actuary'' of CMS, and 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

[[Page 50006]]

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.
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 hospital 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.
    Comment: Several commenters representing the hospital community of 
Puerto Rico stated that the DSH payment methodology has historically 
disadvantaged hospitals in Puerto Rico because U.S. citizens residing 
in Puerto Rico are not entitled to SSI benefits. Because the formula 
prior to the enactment section 3133 of the Affordable Care Act relied 
so heavily on SSI and because SSI is statutorily excluded for citizens 
residing on Puerto Rico, these commenters asserted that DSH payments to 
Puerto Rico hospitals were disproportionately depressed in comparison 
to payments to hospitals in the 50 States. The commenters acknowledged 
that the new DSH payment formula implemented in FY 2014 represents an 
improvement because it significantly reduces the value of SSI 
enrollment in calculating DSH payments. However, the commenters also 
contended that the continued reliance under the new formula upon SSI 
enrollment means that payments remain unintentionally and unfairly 
lowered for hospitals in Puerto Rico. In particular, the commenters 
noted that one of the three factors in determining the uncompensated 
care payment is intended to account for a hospital's specific portion 
of uncompensated care as a percent of uncompensated care by all 
hospitals. They stated that although CMS has adopted a policy of 
measuring uncompensated care as the sum of insured low-income Medicaid 
patient days and SSI days, the use SSI days in determining 
uncompensated care is not required by statute. Rather, they noted that 
the statute (section1886(r)(2)(C) of the Act) states only that the 
Secretary determine uncompensated care ``as estimated by the Secretary, 
based on appropriate data.'' Therefore, the commenters pointed out that 
CMS has the discretion to consider other data in place of SSI days to 
determine uncompensated care. The commenters maintained that the 
Secretary is obligated to identify a substitute data source for Puerto 
Rico because section 1886(d)(9)(D) requires the Secretary to ensure 
that Medicare DSH payments made to Puerto Rico hospitals are made ``in 
the same manner and to the extent as they apply'' to PPS hospitals in 
the United States. The commenters believed that the revised DSH formula 
fails to make payments to Puerto Rico hospitals ``in the same manner'' 
because it factors in and is based upon an indicator that is not even 
available in Puerto Rico. Therefore, the commenters believed that DSH 
payments are applied in a disproportionately reduced manner to Puerto 
Rico hospitals based upon the inclusion of SSI data. The commenters

[[Page 50007]]

believed that this outcome is illogical because the main purpose of the 
DSH payment is to compensate hospitals for the higher costs of treating 
low-income Medicare patients.
    Response: As we discussed in the proposed rule, we believe that SSI 
data combined with Medicaid data are the best data currently available 
for estimating hospitals' uncompensated care burdens. Accordingly, we 
proposed to use both SSI and Medicaid data in our estimates of 
uncompensated care for all hospitals. We employ the same payment 
methodology for hospitals in Puerto Rico and the 50 States, and 
therefore, consistent with section 1886(d)(9)(D) of the Act, Medicare 
DSH payments are made to subsection (d) Puerto Rico hospitals ``in the 
same manner and to the extent as they apply'' elsewhere. Accordingly, 
we do not agree with the commenters that the statute requires us to 
develop an alternative methodology for making uncompensated care 
payments to hospitals in Puerto Rico. Nevertheless, we will consider 
the issues posed by the commenters for future rulemaking. We would also 
point out that hospitals in Puerto Rico experienced a significant 
increase in Medicare DSH payments under the new uncompensated care 
provision. For example, the impact statement in the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 51009) showed that Puerto Rico hospitals were 
expected to experience a 41.3 percent increase in payments from the 
implementation of the new Medicare DSH payment methodology under 
section 3133 of the Affordable Care Act.
    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 final 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 will be paid under the Maryland All-Payer Model. However, 
under the Maryland All-Payer 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.
    Comment: One commenter stated that the uncompensated care payment 
amount should be excluded from the payment under the Federal rate when 
being compared to payments under the hospital-specific rate in order to 
determine which payment rate an SCH receives. The commenter stated that 
the hospital-specific rate does not include the cost of care for 
indigent patients and, therefore, the uncompensated care payment amount 
should not be part of the comparison of the Federal payment and the 
hospital-specific payment. The commenter also stated that the 
uncompensated care payment should be given to a qualifying SCH, 
regardless of whether the SCH is paid under the hospital-specific rate 
or the Federal rate.
    Response: We addressed a similar comment in the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50624) where we stated that we did not agree that 
an SCH that is paid under the hospital-specific rate should also 
receive an uncompensated care payment. We found that section 1886(r)(2) 
of the Act specifies that the uncompensated care payment amount is made 
in addition to the empirically justified Medicare DSH payment under 
section 1886(r)(1) of the Act. Therefore, in order to receive an 
uncompensated care payment, a hospital must receive an empirically 
justified Medicare DSH payment and if an SCH is paid under the 
hospital-specific rate, it does not receive an empirically justified 
Medicare DSH payment. Furthermore, for the reasons that we discussed in 
the FY 2014 IPPS/LTCH PPS final rule, we believe it is appropriate to 
include the uncompensated care payment amount in the payment under the 
Federal rate for purposes of making the comparison to the hospital-
specific payment rate.
    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

[[Page 50008]]

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 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 and final policies for FY 2015.
(1) 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 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.

[[Page 50009]]

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 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, 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 were based on the December 2013 update of the Medicare 
Hospital Cost Report Information System (HCRIS), 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, the data are based on the March 2014 update of the 
HCRIS data, cost report data provided by IHS hospitals to CMS as of 
March 2014, and the FY 2015 IPPS Proposed Rule Impact File, published 
in conjunction with the FY 2015 IPPS/LTCH PPS proposed rule (and which 
is available via the Internet on the CMS Web site). For purposes of the 
proposed rule, we used the February 2014 Medicare DSH estimates to 
calculate Factor 1 and to model the proposed impact of this provision. 
For this final rule, we 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, 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, was $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, was 
$14.205 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 proposed that Factor 1 for FY 2015 
would be $10.654 billion ($14.205 billion minus $3.551 billion). We 
invited public comment on our proposed calculation of Factor 1 for FY 
2015.
    Comment: A number of commenters supported CMS' methodology for 
determining Factor 1 and/or the proposed Factor 1 for FY 2015. However, 
other commenters complained that CMS did not provide enough information 
in the proposed rule regarding the methodologies, calculations, and 
data sources used to develop this and other estimates to provide a 
sufficient basis for comment. With regard to the estimate of Factor 1 
in particular, these commenters contend:
     The estimated DSH payments do not account for the impact 
of Allina v. Sebelius, by excluding Medicare Advantage days from the 
SSI ratio and including dual-eligible Medicare Advantage days in the 
Medicaid fraction, thus understating Factor 1 DSH estimate.
     The 2012 estimated DSH payments of $11.720 billion figure 
is understated because the 2012 ``update'' factor (provided for in the 
FY 2015 IPPS Proposed Rule DSH Supplemental Data File that displays the 
Office of the Actuary's assumptions in determining the Medicare DSH 
estimate) is understated. Specifically, a 1.1 percent increase in light 
of the Cape Cod litigation result was not applied. As a result, instead 
of a -0.1 percent update factor, the projection should use a +1.0 
percent update factor. Therefore the

[[Page 50010]]

2012 estimated DSH amount should be $11.732 billion.
     The estimate of DSH payments for FY 2015 of $14.205 
billion is understated because the 2015 update factor is understated. 
Specifically, the productivity adjustment should be 0.4 percent (as 
projected in the FY 2015 IPPS/LTCH PPS proposed rule), not 0.5 percent. 
As a result, instead of a 1.2 percent update factor, the projection 
should use a 1.3 percent update factor. Therefore, including the 2012 
correction and the cumulative impact, the 2015 estimated DSH amount 
should be $14.234 billion.
     The summary analysis of the DSH estimate includes an 
adjustment factor for discharges. However, CMS has not provided the 
detail supporting the discharge factor used. In addition, the footnote 
to the discharge column states that all inpatient hospitals were used, 
not just IPPS hospitals. Because the purpose of the projection is to 
estimate the amount of DSH that will go to a subset of all inpatient 
hospitals, it would seem appropriate that factors that drive the 
estimate likewise would include only the hospitals projected to share 
in the payments.
     The DSH estimate is subject to 100 percent of any 
documentation and coding adjustments due to MS-DRGs. The FY 2015 IPPS/
LTCH PPS proposed rule refers to a recoupment adjustment of ``$11 
billion over a 4-year period of FYs 2014, 2015, 2016, and 2017.'' CMS 
should model the impact of such adjustments to the DSH and 
uncompensated care payments before subjecting the DSH estimate to 
dramatic adjustments.
     The ``Other'' column from the Factor 1 source file is 
supposed to contain the DSH payment impact factor: The ``Other'' column 
includes impact of only IPPS discharges and impact of DSH payments 
increasing or decreasing at a different rate than other IPPS payments. 
This single input should at least reflect the changes in DSH payments, 
which will be significantly impacted by the effects of Medicaid/CHIP 
expansion. According to the February 2014 CBO report, an additional 12 
million people are projected to enroll in Medicaid/CHIP during 2014 and 
2015. That represents a 35-percent increase in Medicaid/CHIP 
population. Yet, the latest FY 2014 and 2015 ``Other'' factor only 
applied a 3.28 percent and a 2.92 percent increase, respectively. Even 
the pre-Affordable Care Act FY 2012 and 2013 ``Other'' factor reflected 
4.45 percent and 1.56 percent increases, and that was prior to 
widespread Medicaid expansion.
    In the light of these and other concerns about data sources and 
methods, the commenters insisted that CMS adopt a process of 
reconciling the initial estimates of Factor 1 with actual data for the 
payment year in conjunction with the final settlement of hospital cost 
reports.
    Response: Below we present the Office of the Actuary's updated 
estimate of Factor 1. In order to satisfy the commenters' request for 
additional information, we also provide additional information 
regarding the data sources, assumptions, and methods employed by the 
actuaries. We acknowledge that commenters have requested that we 
establish a reconciliation procedure for Factor 1. However, we continue 
to believe that applying our best estimates prospectively would be most 
conducive to administrative efficiency, finality, and predictability in 
payments (78 FR 50628). As we noted in the FY 2014 IPPS/LTCH PPS final 
rule, we do not know the aggregate Medicare DSH payment amount that 
would be paid for each Federal fiscal year until the time of cost 
report settlements, which occur several years after the end of the 
fiscal year. Furthermore, because the statute provides that Factor 1 
shall be determined based on estimates of the aggregate amount of DSH 
payments that would be made in the absence of section 1886(r) of the 
Act and the aggregate amount of empirically justified DSH payments that 
are made under section 1886(r)(1) of the Act, we do not agree with 
commenters that we should establish such a reconciliation process at 
this time. However, we note the following about the Office of the 
Actuary's estimates. Factor 1 is an estimate of the expected DSH 
payments under the previous DSH payment methodology under section 
1886(d)(5)(F) of the Act. We believe it is reasonable that an estimate 
should represent a 50-percent chance of being too high and a 50-percent 
chance being too low in comparison to actual experience. In reviewing, 
the Office of the Actuary's prior estimates for DSH payments compared 
to actual experience, from FY 2005 to FY 2015, the original estimates 
have been higher than actual experience for 7 of the 11 years, and 
lower than actual experience in only 4 years. This result is reasonably 
consistent with the expectation that an estimate has a 50-percent 
chance of being too high and a 50-percent chance of being too low.
    As indicated above, 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, 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 
July 2014 Medicare DSH estimate for FY 2015, without regard to the 
application of section 1886(r)(1) of the Act, is $13,383,462,195.71. 
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 
$3,345,865,548.93 (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, in 
this final rule, we are providing that Factor 1 for FY 2015 is 
$10,037,596,646.78 ($13,383,462,195.71 minus $3,345,865,548.93). Below 
we provide additional detail regarding the development of this estimate 
in response to the commenters.
    The Office of the Actuary's estimates begins with a baseline of 
$11.499 billion in Medicare DSH expenditures for FY 2011. The following 
table shows the factors applied to update this baseline through the 
current estimate for FY 2015:

                                                                   Increases From 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           FY                                 Update         Discharge       Case-mix          Other           Total            DSH
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012....................................................           0.999          0.9701           1.007          1.0447        1.019537           11724
2013....................................................           1.028          0.9799           1.014          1.0132        1.034923           12133
2014....................................................           1.009          0.9855           1.005          1.0355        1.034818           12556

[[Page 50011]]

 
2015....................................................           1.014          1.0116           1.005           1.034        1.065942           13383
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In this table, the discharge column shows the increase in the 
number of Medicare inpatient hospital discharges. The figures for FYs 
2012 and 2013 are based on Medicare claims data which have been 
adjusted by a completion factor. The discharge figure for FY 2014 is 
based on preliminary data for 2014. The discharge figure for FY 2015 is 
an assumption based on recent trends recovering back to the long-term 
trend and assumptions related to how many beneficiaries will be 
enrolled in Medicare Advantage (MA) plans. The case-mix column shows 
the increase in case-mix for IPPS hospitals. The case-mix figures for 
FYs 2012 and 2013 are based on actual data adjusted by a completion 
factor. The FY 2014 and FY 2015 increases are based on the 
recommendation of the 2010-2011 Medicare Technical Review Panel. The 
``other'' column shows the increase in other factors which contribute 
to the Medicare DSH estimates. These factors include the difference 
between the total inpatient hospital discharges and the IPPS 
discharges, various adjustments to the payment rates which have been 
included over the years but are not reflected in the other columns 
(such as the increase in rates for the Cape Cod litigation and the 
reduction in rates for the 2-midnight policy). In addition, this column 
includes a factor for the Medicaid expansion due to the Affordable Care 
Act. However, the increase due to the Medicaid expansion is not as 
large as commenters contended due to the actuarial assumption that the 
new enrollees are healthier than the average Medicaid recipient and, 
therefore, use fewer hospital services. We have included the impact of 
the Medicaid expansion in the FY 2015 DSH estimate and note that it was 
also included in the FY 2014 DSH estimate. Our estimates are as 
follows:

------------------------------------------------------------------------
                                              FY 2014         FY 2015
------------------------------------------------------------------------
Medicaid enrollment pre-ACA (in                     56.0            55.9
 millions)..............................
Medicaid enrollment post-ACA (in                    64.7            69.8
 millions)..............................
Under 65 pre-ACA enrollment (in                     50.6            50.4
 millions)..............................
Under 65 post-ACA enrollment (in                    59.3            64.3
 millions)..............................
Increase in Medicare DSH................            4.9%            3.4%
------------------------------------------------------------------------

    As can be seen in the table above, there is assumed to be a 4.9 
percent increase in Medicare DSH due to the Medicaid expansion in FY 
2014, and an additional 3.4 percent increase in Medicare DSH in FY 
2015. This results in approximately an 8.5 percent increase due to the 
Medicaid expansion by FY 2015. This estimate is lower than the 
commenters may have expected due to the assumption that the expansion 
population is healthier than the rest of the Medicaid population and 
will utilize fewer hospital services. This factor in the estimate is 
included in the ``other'' column of the breakdown.
    The next table below shows the factors that are included in the 
``update'' column of the above table:

----------------------------------------------------------------------------------------------------------------
                                                  Affordable
                                                   Care Act                       Documentation
              FY                Market basket       payment       Productivity      and coding         Total
                                                  reductions
----------------------------------------------------------------------------------------------------------------
2012.........................              3               0.1              1               -2              -0.1
2013.........................              2.6             0.1              0.7              1               2.8
2014.........................              2.5             0.3              0.5             -0.8             0.9
2015.........................              2.9             0.2              0.5             -0.8             1.4
----------------------------------------------------------------------------------------------------------------

    In this table, all numbers are based on mid-session review of FY 
2015 Budget projections.
    With regard to the assumed update factor for FY 2012, the 
commenters are correct that the update to the Federal standardized 
amount due to the Cape Cod litigation should be reflected in our DSH 
estimate. However, we have included it in the DSH estimate and the 1.1 
percent increase is reflected in the ``other ``column. We consider it 
not to be part of the update and that is consistent with our treatment 
of the 0.2 percent reduction to the rate in FY 2014 for the 2-midnight 
policy finalized in the FY 2014 IPPS/LTCH PPS final rule, which is also 
included in the ``other'' column.
    We agree with the commenters that the update for FY 2015 should 
include the productivity adjustment finalized for FY 2015 in our FY 
2015 Medicare DSH estimates. Accordingly, we have revised our FY 2015 
Medicare DSH estimates to reflect this final productivity adjustment. 
We also agree with the commenters that the DSH estimates are only 
affected by IPPS discharges. However, the discharge figures reflect all 
inpatient hospitals, and we adjust the Medicare DSH estimates to take 
into account the difference between the increase in discharges for all 
inpatient hospitals and the IPPS hospital discharge increase in the 
``other'' column. If the ``discharge'' column was limited to IPPS 
hospitals, the ``discharge'' column would be lower and the ``other'' 
column would be higher, and the increase reflected in the ``total'' 
column would be the same.
    The commenters also are correct that the documentation and coding 
numbers for future years could be more than a 0.8 percent reduction to 
comply with the $11 billion requirement, but those figures have not yet 
been determined. The reason for the higher possibility is

[[Page 50012]]

that the number of discharges has decreased significantly.
    Lastly, we do not believe that the decision in Allina v. Sebelius 
is relevant to our estimate of Factor 1 for FY 2015. The decision in 
Allina did not address the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50614 through 50620) in which we readopted the policy of counting 
Medicare Advantage days in the SSI ratio for FY 2014 and all subsequent 
fiscal years. Accordingly, consistent with that policy, our estimate of 
Factor 1 for FY 2015 appropriately accounts for Medicare Advantage days 
by including them in the SSI ratio.
(2) 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 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 - [(0.17 - 0.18)/0.18][bond] = 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

[[Page 50013]]

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 the FY 2015 proposed rule, we 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 was 84 
percent. Therefore, the CBO's most recent estimate of the rate of 
uninsurance in CY 2014 at the time of the FY 2015 IPPS/LTCH PPS 
proposed rule was 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 was 86 percent. Therefore, the 
CBO's most recent estimate of the rate of uninsurance in CY 2015 
available at the time of the FY 2015 IPPS/LTCH PPS proposed rule was 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, was 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 - [(0.145 - 0.18)/0.18] = 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 proposed that Factor 2 for FY 2015 would be 0.8036. 
We indicated that our proposal for Factor 2 was subject to change if 
more recent CBO estimates of the insurance rate became available at the 
time of the preparation of the final rule. We invited public comments 
on our proposed calculation of Factor 2 for FY 2015.
    Comment: A number of commenters supported the use of the CBO 
estimates for determining Factor 2. However, other commenters objected 
to CMS' proposed calculation of Factor 2. Some commenters found that 
the calculation of Factor 2 appeared arbitrary. For example, some of 
the commenters complained that a 2-percent decrease in the percentage 
of uninsured does not seem reasonable based on current economic 
conditions. Other commenters asserted that, in their views, the 
Affordable Care Act was not implemented until January 1, 2014, so that 
such a large decrease in uninsured is very speculative and without 
historical data. Commenters requested additional information on how the 
CBO calculates its insurance estimates, including the assumptions in 
its estimates. Commenters also requested reconciliation of the Factor 2 
estimates with actual data at the time of cost report settlements. 
While these commenters understood that estimates must be used for 
interim payments, they believed that more accurate numbers based on 
actual experience should be available for purposes of determining final 
payments at the time of cost report settlement.
    Response: We note that, in the FY 2014 IPPS/LTCH PPS final rule, we 
finalized a policy to employ the most recent CBO estimates of the rates 
of uninsurance in the calculation of Factor 2 for FY 2014 and 
subsequent years, and did not adopt any policy for reconciling those 
estimates. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50632), we 
stated that we believe that employing actual data as the basis for 
reconciling the projections employed to determine Factor 2 would impose 
an unacceptable delay in the final determination of uncompensated care 
payments. Actual data on the rates of insurance and uninsurance would 
not become available until several years after the payment year, and 
the initial data for the year would continue to be adjusted for several 
years after that as further data become available.
    In its April 2014 report,\22\ the CBO and the Joint Committee on 
Taxation (JCT) estimated that the Affordable Care Act would result in 
insurance coverage for 12 million more nonelderly individuals in FY 
2014 than in the absence of the Affordable Care Act. The coverage 
projections included the changes arising from participation in the 
health insurance exchanges, Medicaid and CHIP enrollment, and changes 
in employer-sponsored, nongroup and other insurance coverage. Included 
in the uninsured population are undocumented immigrants who are not 
eligible for Medicaid and exchange coverage and low-income residents of 
States not participating in the Medicaid expansion. In addition, other 
individuals will choose to remain uninsured, despite being eligible for 
Medicaid or having access through an employer, the exchange, or from an 
insurer.
---------------------------------------------------------------------------

    \22\ Congressional Budget Office. Updated Estimates of the 
Insurance Coverage Provisions of the Affordable Care Act, April 2014 
(April 2014). http://www.cbo.gov/sites/default/files/cbofiles/attachments/45231-ACA_Estimates_OneColumn.pdf.
---------------------------------------------------------------------------

    The CBO and JCT estimate of the increase in insurance coverage 
represents the number of people who are expected to be insured this 
year under current law minus the number who would have been insured 
this year in the absence of the Affordable Care Act. More people are 
expected to obtain insurance through the exchanges over time due to 
subsidies and penalties for noncoverage. CBO and JCT expected more 
people to obtain insurance through Medicaid and CHIP because of 
increased eligibility due to the Medicaid expansion and more 
enrollments among those who were previously eligible for Medicaid or 
CHIP but would not have enrolled in the absence of the Affordable Care 
Act. Overall, the net coverage effect is a large decrease in the 
uninsured population.
    Because not all States have expanded their Medicaid programs, the 
CBO and JCT revised their estimates for changes in the insured 
population due to Medicaid expansion. The table below presents the 
updated estimates of the change in insurance coverage under Medicaid 
and CHIP under the Affordable Care Act. The CBO and JCT revised their 
estimates to indicate a decrease in the number of insured individuals 
in CYs 2014 and 2015. In addition, CBO and JCT did not rely on State 
predictions about the Medicaid expansion under the Affordable Care 
Act.\23\ Instead, they projected the approximate shares of the affected 
population residing in States that will fall into different broad 
categories. The broad categories range from States that did not expand 
their Medicaid program to States that choose Medicaid expansion. Due to 
the uncertainty of States' actions, estimates by the CBO and JCT 
reflected an assessment of the different outcome probabilities and the 
middle of the distribution of all possible

[[Page 50014]]

outcomes. For instance, the CBO's and JCT's estimates considered 
multiple factors that are associated with a State's choice on whether 
to expand Medicaid eligibility: Overall budgetary situation; current 
thresholds for Medicaid eligibility; the amounts that States and local 
governments spend to provide health care to the uninsured or to pay 
providers for uncompensated care; the number of people likely to enroll 
in the program after expansion; the Federal contributions toward the 
cost of their care, and other factors.
---------------------------------------------------------------------------

    \23\ Congressional Budget Office. Estimates for the Insurance 
Coverage Provisions of the Affordable Care Act Updated for the 
Recent Supreme Court Decision (July 2012). http://www.cbo.gov/sites/default/files/cbofiles/attachments/43472-07-24-2012-CoverageEstimates.pdf.

                        Estimates of the Increase in Insurance Coverage Due to Medicaid and CHIP Under the Affordable Care Act *
--------------------------------------------------------------------------------------------------------------------------------------------------------
             Last updated date                 2013       2014       2015       2016       2017       2018       2019       2020       2021       2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
July 2012.................................          1          7          9         10         10         11         11         11         11         11
February 2013.............................          1          8         11         11         11         11         11         12         12         12
May 2013..................................          1          9         12         12         12         12         12         13         13         13
February 2014.............................  .........          8         12         12         12         12         12         13         13         13
April 2014................................  .........          7         11         12         12         13         13         13         13         13
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: CBO reports on effects of the Affordable Care Act on health insurance coverage (July 2012-April 2014) http://www.cbo.gov/sites/default/files/cbofiles/attachments/43900-2014-04-ACAtables2.pdf.
* Millions of nonelderly people, by calendar year.

    In their April 2014 report, CBO and JCT estimated that an average 
of 6 million people will be covered by insurance obtained through the 
exchanges by the end of CY 2014. The estimate was determined at the 
national level instead of at the level of individual States. Although 
CBO and JCT did not account for the variations of success in obtaining 
health insurance through the exchanges by State, they did account for 
the possibility of individuals moving in and out of insurance coverage 
over time due to changes in employment, family circumstances, and other 
factors.
    The CBO and JCT estimates therefore do take into account some 
uncertainties and risks under the Affordable Care Act, including the 
probabilities of different outcomes of Medicaid expansions and changes 
in insurance coverage status over time.
    For the FY 2015 final rule, we use the CBO's April 2014 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/43900-2014-04-ACAtables2.pdf). The CBO's April 
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 April 2014 estimate of 
individuals under the age of 65 with insurance in CY 2015 is 87 
percent. Therefore, the CBO's most recent estimate of the rate of 
uninsurance in CY 2015 available for this final rule is 13 percent 
(that is, 100 percent minus 87 percent.)
    The calculation of the final 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 (April 2014 CBO 
estimate): 84 percent.
     CY 2015 rate of insurance coverage (April 2014 CBO 
estimate): 87 percent.
     FY 2015 rate of insurance coverage: (84 percent * .25) + 
(87 percent * .75) = 86.25 percent.
     Percent of individuals without insurance for 2013 (March 
2010 CBO estimate): 18 percent.
     Percent of individuals without insurance for FY 2015 
(weighted average): 13.75 percent.

1 - [bond]((0.1375 - 0.18)/0.18)[bond] = 1 - 0.2361 = .7639 (76.39 
percent)
0.7639 (76.39 percent) - .002 (0.2 percentage points for FY 2015 under 
section 1886(r)(2)(B)(i) of the Act) = 0.7619 or 76.19 percent
0.7619 = Factor 2

    Therefore, the final Factor 2 for FY 2015 is 76.19 percent.
    The FY 2015 Final Uncompensated Care Amount is: $10,037,596,646.78 
x 0.7619 = $7,647,644,885.18.
    FY 2015 Final Uncompensated Care Total Available--
$7,647,644,885.18.
(3) 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.

[[Page 50015]]

    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 
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 to 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, in the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 28101), we proposed 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 proposed 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 
invited public comments on this proposal and indicated that 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 invited public comments on what would be a reasonable 
timeline for adopting Worksheet S-10 of the Medicare cost

[[Page 50016]]

report as the data source for determining Factor 3.
    As we did for the FY 2014 IPPS/LTCH PPS proposed rule, for the FY 
2015 IPPS/LTCH PPS proposed rule, we published 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 had 60 days from the date of public 
display of the FY 2015 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.
    Comment: Most commenters agreed that the Worksheet S-10 data are 
not yet sufficiently consistent and reliable to be employed for 
purposes of determining each hospital's share of uncompensated care 
payments. The commenters therefore supported the proposal to continue 
employing SSI days and Medicaid days for this purpose in FY 2015. Some 
of these commenters did express support for eventually employing the 
Worksheet S-10 data for this purpose, once cost reporting instructions 
have been appropriately revised and the hospital community has been 
adequately instructed to render those data sufficiently consistent and 
reliable. Some commenters also requested a more specific timetable for 
adopting the Worksheet S-10 data. However, MedPAC and a few other 
commenters supported the use of the Worksheet S-10 data for FY 2015. 
MedPAC expressed disagreement with CMS' statement that the data on 
utilization for insured low-income patients can serve as a reasonable 
proxy for the treatment costs of uninsured patients. MedPAC 
specifically cited its 2007 analysis of data from the GAO and data from 
the American Hospital Association (AHA), which suggests that Medicaid 
days and low-income Medicare days are not a good proxy for 
uncompensated care costs. Given its prior findings that the Medicaid 
and SSI shares were poor predictors of uncompensated care costs, MedPAC 
argued that there is a need to transition to new measures. MedPAC 
therefore supported Worksheet S-10 in the Medicare cost report as an 
appropriate measure of uncompensated care that could begin to replace 
the reliance on Medicaid and SSI shares. Specifically, it recommended 
employing charity care for the uninsured, which is reported on the 
Worksheet S-10 (line 23, column 1) as a reasonable proxy for the costs 
of treating the uninsured. In response to concerns about whether the 
quality of the data reported on Worksheet S-10 is adequate for use in 
distributing uncompensated care payments, MedPAC argued that it is 
already better than using Medicaid and SSI days as a proxy for 
uncompensated care costs, and that the data on Worksheet S-10 will 
improve over time as they are actually used in making payments. MedPAC 
also expressed its view that the Worksheet S-10 data currently 
available should only establish an interim allocation of uncompensated 
care payments; the final allocation of payments to each hospital should 
be determined based on the Worksheet S-10 data available at year-end 
settlement. To prevent financial shocks to hospitals, some commenters 
suggested that CMS could transition to use of the Worksheet S-10 data 
over 3 years.
    Response: As we stated in the FY 2014 IPPS/LTCH PPS final rule, 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 that continue to be expressed by a large 
majority of commenters regarding the accuracy and consistency of the 
data reported on the Worksheet S-10, we continue to believe that these 
alternative data on utilization for insured low-income patients, which 
are currently reported on the Medicare cost report, remain a better 
proxy for the amount of uncompensated care provided by hospitals. 
Accordingly, in this final rule, we are finalizing for FY 2015 the 
policy that we originally adopted in the FY 2014 IPPS/LTCH PPS final 
rule, of employing the utilization of insured low-income patients 
defined as inpatient days of Medicaid patients plus inpatient days of 
Medicare SSI patients as defined in 42 CFR 412.106(b)(4) and 
412.106(b)(2)(i), respectively, to determine Factor 3. However, we also 
remain convinced that 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 will continue to take steps to revise and 
clarify cost report instructions, as appropriate. We also are 
undertaking benchmarking analyses to compare available Worksheet S-10 
data to other data sources on uncompensated care, such as on 
uncompensated care costs reported to the IRS on Form 990 by not-for-
profit hospitals. Because the data submitted through Form 990 are 
audited and come from an external source, they represent a suitable 
standard of comparison. It remains 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.
    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

[[Page 50017]]

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, in the FY 2015 IPPS/LTCH 
PPS proposed rule, we did not propose to adopt such an adjustment to 
low-income days for purposes of calculating Factor 3 in FY 2015.
    Comment: Several commenters agreed that applying the wage index to 
Factor 3 is not an appropriate measure of variations in uncompensated 
care costs. One commenter stated that CMS should apply a wage and case-
mix adjustment to the Medicaid and SSI days using the hospital area 
wage index and hospital-specific case mix index. The commenter believed 
that this information is readily available, well-understood, and is 
appropriate for measuring cost variation among hospitals.
    Response: We appreciate the comments and continue to believe it is 
not appropriate to adopt a wage index adjustment to low-income days to 
calculate Factor 3 for FY 2015. Although wage index information is 
readily available, for the reasons discussed in the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50639), we continue to believe that is it not an 
accurate measure of the intensity of uncompensated care costs and would 
not serve as an appropriate basis for making adjustments to Factor 3.
    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 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, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not 
propose to include those days in the calculation of a hospital's share 
of uncompensated care payments for FY 2015. 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 invited public comments on this issue.
    Comment: Several commenters supported the proposal to not include 
Medicaid and SSI days from excluded units in the calculation. One 
commenter believed it would be inconsistent to distribute uncompensated 
care payments based on non-IPPS days and unfair to providers that do 
not have exempt units. Some commenters supported including Medicaid and 
SSI days from excluded units in our calculation of Factor 3. One 
commenter stated that the inclusion of days for psychiatric and 
rehabilitation units that are exempt from IPPS would improve the 
accuracy of these data, as IPPS days and exempt unit days combined 
would function as a proxy for total hospital uncompensated care 
services.
    Response: We thank the commenters for their feedback and continue 
to believe that we should finalize our proposal to calculate Factor 3 
based on a DSH hospital's share of their Medicaid and SSI days 
associated with their acute care units. We believe that it would be 
inappropriate to include Medicaid and SSI days from psychiatric units, 
as those days are not audited for payment purposes, and 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.
    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

[[Page 50018]]

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. The data used are located in the HCRIS 
database for most hospitals, but the data for IHS hospitals are not 
included in that database. Accordingly, in the FY 2014 IPPS interim 
final rule with comment period (78 FR 61195), we revised our policy to 
also include cost report data submitted to CMS 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 (that is, cost reports that have cost reporting periods that 
begin in either FY 2010 or FY 2011) for the Medicaid days taken from 
the March 2013 update of the HCRIS database, 2011 cost report data 
submitted to CMS by IHS hospitals by March 2013, and the FY 2011 SSI 
ratios for the Medicare SSI days to estimate Factor 3 for FY 2014. In 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28102), for FY 2015, we 
again proposed to use data from the most recently available full year 
cost report for the Medicaid days (that is, we proposed 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 proposed to use the cost report from 2012 or 
2011 that is closest to being a full 12-month cost report), cost report 
data submitted to CMS by IHS hospitals and the most recently available 
SSI ratios. For purposes of the proposed rule, we used data from the 
2011/2012 Medicare cost reports (that is, from cost reports that have 
cost reporting periods that begin in either FY 2011 or FY 2012) taken 
from the December 2013 update of the HCRIS database 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 used supplemental cost report data 
provided by IHS hospitals to CMS as of December 2013 in order to 
calculate the proposed Factor 3. We indicated that, for the FY 2015 
IPPS/LTCH PPS final rule, we intended to use the March 2014 update of 
the HCRIS database for the 2011/2012 Medicare cost reports, 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 stated 
that we believed the March update to the Medicare cost reports would be 
the most recently available data to calculate Factor 3 at the time of 
publication of the FY 2015 IPPS final rule. We also indicated that this 
proposal 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, we noted that this approach 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 would cause delay of the publication of the IPPS final 
rule.
    Comment: Several commenters questioned the data used to calculate 
the hospitals' Factor 3. Several commenters stated that their Medicaid 
days were understated. Furthermore, commenters stated that they 
submitted their updated cost report to be included in the March 2014 
update of the Medicare cost report data but the contractor had not yet 
uploaded the information in the HCRIS database. In addition, some 
commenters indicated that they had updated Medicaid days and had 
submitted their cost report to their contractors after the March 2014 
update of the Medicare hospital cost report data and wanted their 
updated data included. Some commenters requested use of the June update 
of cost report data to obtain Medicaid days to calculate Factor 3. Some 
commenters sought clarification of why some hospitals have their 
Medicaid days based on Worksheet S-2 and some hospitals have their 
Medicaid days based on Worksheet S-3. Some commenters stated that their 
Medicaid days were based on a 6-month cost report and they should be 
based on a 12-month cost report either by combining cost reports or 
annualizing the data. Some commenters questioned their DSH eligibility, 
stating that their hospitals had been listed as not being eligible for 
DSH for FY 2015, when they had previously received DSH on their cost 
report. Other commenters submitted corrections because their hospitals 
had been identified as SCHs, but were actually operating as MDHs. 
Finally, several commenters requested additional time after the 
publication of the final rule to review the data used to calculate 
Factor 3 and submit corrections.
    Response: We are finalizing our proposal to use the most recently 
available full year cost report for the Medicaid days (that is, our 
proposal 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 will use the cost 
report from 2012 or 2011 that is closest to being a full 12-month cost 
report) and the most recently available SSI ratios. For this FY 2015 
final rule, we are using the March 2014 update of the hospital cost 
report data in the HCRIS database and cost report data submitted to CMS 
by IHS hospitals as of March 2014 to obtain the Medicaid days to 
calculate Factor 3. In addition, we are using the FY 2012 SSI ratios 
published on the CMS Web site to calculate Factor 3 (http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html).
    We note that we are unable to use a later update of the cost report 
data, like the June update, and still calculate the final Factor 3 in 
time for publication of the IPPS final rule. Any delay in the 
publication of the final rule would prevent changes and updates to 
payments under the IPPS from taking effect on October 1, the first day 
of the fiscal year. We are not able to accept supplemental data for 
hospitals, as we are not able to validate the information included in 
that supplemental data. We note that hospitals have ample time after 
the close of their fiscal year to submit the data that are used in this 
calculation. Specifically, Chapter I, section 104 of the Provider 
Reimbursement Manual, Part 2, generally allows a hospital 5 months 
after the close of its cost reporting

[[Page 50019]]

period to file its cost report. In addition, CMS allows hospitals to 
request amendments of their cost report submissions before CMS issues a 
Notice of Program Reimbursement. In response to the commenters that 
indicated they had submitted their updated cost reports, but that the 
MAC had not yet uploaded the information, we note that MACs follow 
guidelines to upload revised cost report information. In accordance 
with Medicare Financial Management Manual, Chapter 8, Section 10.4--
Submission of Cost Report Data to CMS, the MACs are required to submit 
an extract of the following Medicare cost reports to CMS in accordance 
with the HCRIS specifications within 210 days of the cost reporting 
period ending date or 60 days after receipt of the cost report, 
whichever is later.
    With respect to the comments requesting clarification on whether 
Worksheet S-2 or Worksheet S-3 is used to obtain Medicaid days, we 
addressed this concern in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50642) and reiterate that we use the Medicaid days reported on 
Worksheet S-2 of the Medicare Hospital Cost Report version 2552-10 for 
hospitals projected to receive Medicare DSH because the Medicaid days 
reported on Worksheet S-2 are used in the computation of the Medicaid 
fraction for Medicare DSH payments. Therefore, because they are used 
for payment of Medicare DSH, we believe that these data are more 
reliable than data not used for payment purposes. Hospitals that were 
not eligible to receive Medicare DSH payments on that cost report were 
unable to report Medicaid days on Worksheet S-2, but could report their 
Medicaid days on Worksheet S-3. Therefore, for hospitals that we 
project to not be eligible for Medicare DSH payments, we are using the 
Medicaid days reported on Worksheet S-3 to calculate their Factor 3. A 
transmittal has been issued to allow for hospitals that are not 
receiving DSH to report their Medicaid days on Worksheet S-2, and we 
hope to rely only on the data reported on that Worksheet S-2 in the 
future, if we continue to use this data on low-income insured days in 
the future.
    With regard to the comments from hospitals that found that their 
Factor 3 was calculated using a cost report that was less than 12 
months, we are finalizing our proposal 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 would use the cost report from 2012 or 2011 that is closest 
to being a full 12-month cost report. In the case where a less than 12-
month cost report was used to calculate a hospital's Factor 3, this 
would indicate that both the 2012 and 2011 cost reports were less than 
12 months. In such a case, we would use the longer of the two cost 
reports to calculate a hospital's Factor 3. We did not make a proposal 
to annualize or combine cost reports to calculate Factor 3. We note 
that section 1886(r)(2)(c) of the Act specifies that Factor 3 is equal 
to the percent that represents ``the amount of uncompensated care for 
such hospital for a period selected by the Secretary (as estimated by 
the Secretary, based on appropriate data . . .'' divided by ``the 
aggregate amount of uncompensated care for all subsection (d) hospitals 
that receive a payment under this subsection for such period (as so 
estimated . . .'' In implementing this provision, as we did through 
rulemaking in FY 2014, we believe it is appropriate to first select the 
period--in this case, the period for which we have the most recently 
available data--and then to select the data from a cost report that 
aligns best with that period. However, we acknowledge that the 
situations presented by commenters, where a hospital remains in 
operation in both Federal fiscal years for which we analyze cost report 
data but submits cost reports for both Federal fiscal years that 
reflect substantially less than a full year of data, pose unique 
challenges in the context of estimating Factor 3. As a result, this is 
an issue that we intend to consider further and may address in future 
rulemaking.
    With regards to the comments from hospitals stating that their DSH 
eligibility is inaccurate, we note that we used the FY 2012 SSI ratios 
and the Medicaid fraction listed in the March 2014 update of the 
Provider Specific File in order to identify which hospitals are 
projected to receive DSH for FY 2015, and thus are eligible to receive 
uncompensated care payments and interim uncompensated care payments for 
FY 2015. We did not use historical cost report data to make this 
determination. We believe that the FY 2012 SSI ratios and the Medicaid 
fraction in the March 2014 update of Provider Specific File are the 
most recently available information regarding whether a hospital is 
currently being paid Medicare DSH on an interim basis, and therefore, 
we believe they are an appropriate data source to make our 
determination of which hospitals are projected to receive DSH for FY 
2015, and thus are eligible to receive uncompensated care payments, as 
presented in Table 18. As we have stated previously, final 
determination of DSH eligibility and uncompensated care payments are 
made at cost report settlement.
    In making our DSH projections for FY 2015, we also identify which 
hospitals are SCHs that we estimate will be paid the hospital-specific 
rate and not the Federal rate and, therefore, will not receive a 
Medicare DSH payment and will be ineligible to receive the 
uncompensated care payment. In the FY 2015 IPPS/LTCH PPS proposed rule, 
we inadvertently identified several MDHs as SCHs in our projections and 
have updated our list of SCHs for the final rule accordingly.
    Finally, we accept the recommendation of many commenters to provide 
the public with an additional 30 days subsequent to the publication of 
the final rule in order to review and submit comments limited to 
whether any hospitals should be added to the list of hospitals eligible 
to receive interim empirically justified DSH payments and uncompensated 
care payments or if any hospitals should be removed from the list based 
on changes in their subsection(d) status, as we did in the FY 2014 
IPPS/LTCH PPS final rule. Commenters can submit their comments to our 
inbox at [email protected]. After receiving and reviewing 
comments, if we make any changes to the list, we will post on the Web 
site a revised table showing the final Factor 3 for each hospital prior 
to October 1, 2014. This timetable will give MACs sufficient time in 
order to enter the final data into the provider specific file and make 
timely payments for discharges occurring on or after October 1, 2014.
    Comment: Several commenters asked whether the Medicaid days used to 
calculate Factor 3 can be reconciled based on audit by the Medicare 
contractor and whether any recouped uncompensated care payments would 
be redistributed to the providers receiving an uncompensated care 
payment at cost report settlement.
    Response: As we discussed in the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50645), at this time, we do not intend to reconcile Factor 3 
because we believe the statute provides the authority to make 
uncompensated care payments on the basis of estimates of Factors 1, 2, 
and 3 and that it is preferable to do so in order to avoid unacceptable 
delays in the final determination of uncompensated care payments.
    Comment: One commenter objected to the proposal to calculate Factor 
3 based on a hospital's share of total Medicaid days and Medicare SSI 
days as a proxy for measuring a hospital's share of uncompensated care. 
The commenter believed that this proxy does not

[[Page 50020]]

appropriately target hospitals with the highest burden of uncompensated 
care costs and instead rewards hospitals in states where Medicaid has 
expanded.
    Response: For the reasons discussed in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50639), we continue to believe that our methodology 
to calculate Factor 3 based on a hospital's share of Medicaid days and 
SSI days does not inappropriately reward States that expand Medicaid 
coverage. Furthermore, as discussed above and in the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50634 through 50639), we believe that using the 
low-income insured days as a proxy for uncompensated care costs 
provides a reasonable basis to determine Factor 3 on a temporary basis 
as we work to improve Worksheet S-10 to accurately and consistently 
capture uncompensated care costs.
    Comment: Several commenters requested that hospitals have the 
opportunity to request to have the SSI days recalculated on the basis 
of their cost reporting period, not Federal fiscal year, as part of 
their Factor 3 calculation.
    Response: We do not believe that this would improve our estimates 
for Factor 3. For the DSH calculation, CMS generally issues SSI ratios 
based on a Federal fiscal year to be used to determine a hospital's 
Medicare DSH payments at cost report settlement. For the purpose of the 
Medicare DSH payment, a provider may request a realignment under Sec.  
412.106(b)(3) such that its SSI ratio is recalculated based on the 
hospital's specific cost-reporting period. The choice to request a 
realignment and the timing of this choice may vary. Therefore, a 
hospital's decision whether to have its SSI ratio calculated on the 
basis of its cost reporting period may not have been made at the time 
we determine Factor 3 for a specific Federal fiscal year. Furthermore, 
we do not believe that allowing hospitals the option of having their 
SSI days calculated on the basis of their cost reporting period would 
improve our estimates of Factor 3. Therefore, to preserve consistency 
and administrative efficiency, we continue to believe it is appropriate 
to use SSI ratios based on the Federal fiscal year.
    Comment: Several commenters asked how the decision in Allina v. 
Sebelius would affect the calculation of Factor 3. Commenters stated 
that the SSI days should exclude MA days, and MA dual-eligible days 
should be included as Medicaid days in the calculation of Factor 3 for 
FY 2015 and that CMS should reconcile the FY 2014 Factor 3 estimates 
based on the decision in Allina v. Sebelius.
    Response: Similar to what we stated earlier in this final rule, we 
do not believe the Allina decision has any bearing on our estimate of 
Factor 3 for either FY 2014 or FY 2015. The decision in Allina did not 
address our decision to readopt the policy of counting Medicare 
Advantage days in the SSI ratio for FY 2014 and subsequent fiscal 
years. Nor did the decision address the issue of how patient days 
should be counted for purposes of estimating uncompensated care. 
Moreover, section 1886(r)(2)(C) of the Act provides discretion for the 
Secretary to determine how to estimate uncompensated care costs, and 
for FY 2015, we are finalizing our proposal to continue to apply the 
methodology adopted in the FY 2014 IPPS/LTCH PPS final rule to define 
uncompensated care based on the proxy of utilization by low-income 
insured patients. Specifically, Factor 3 will be based on a hospital's 
share of total Medicaid days and SSI days. Consistent with the policy 
that we finalized in the FY 2014 IPPS/LTCH PPS final rule regarding the 
counting of SSI days, we believe that, for purposes of determining 
uncompensated care payments, SSI days should include both MA and FFS 
SSI days.
    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 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, in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28103 through 28104), we proposed 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 proposed 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 
proposed 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 the proposal, we defined 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 &

[[Page 50021]]

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 proposed 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 the 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/
LTCH PPS 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 proposed to 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 
proposed to 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 
proposed 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 was published on the CMS Web site in conjunction with the 
issuance of the FY 2015 proposed rule. The affected hospitals had the 
opportunity to comment during the public comment period on the accuracy 
of this information.
    We proposed 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 proposed 
to treat newly merged hospitals in a similar manner as new 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 proposed 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 invited public comment on our 
proposed change to the treatment of hospital mergers in the calculation 
of a hospital's uncompensated care payment.
    Comment: Commenters uniformly supported the proposal to establish a 
process to identify the hospitals that have merged so CMS can calculate 
the merged hospital's share of the total uncompensated care amount 
available using the low-income patient days from all hospitals that 
existed prior to the merger. Several commenters identified additional 
hospitals that had undergone a merger that were not included on the 
list of mergers identified in the FY 2015 IPPS/LTCH PPS proposed rule. 
A number of commenters requested that the public have additional time 
after the publication of the final rule to review and submit 
corrections to CMS' list of identified mergers. One commenter asked CMS 
to clarify that, under the proposal, CMS would recalculate the 
hospital's uncompensated care payments by combining the Medicaid days 
and SSI days published with the final rule from the applicable ``data 
year'' for the surviving CCN, as well as for any acquired CCNs that 
were retired through the merger process.
    Response: We appreciate the commenters' support and are finalizing 
our proposal as proposed. We have updated our list of mergers based on 
information submitted by the Medicare contractor as of June 2014. In 
addition, we have reviewed the commenters' submissions of mergers not 
previously identified in the proposed rule and have updated our list 
accordingly. In response to the request from one commenter, for the 
hospitals that we have listed as undergoing a merger, we are confirming 
that we would recalculate the hospital's uncompensated care payments by 
combining the Medicaid days and SSI days published with the final rule 
from the applicable ``data year'' for the surviving CCN, as well as for 
any acquired CCNs that were retired through

[[Page 50022]]

the merger process. For example, to calculate the FY 2015 Factor 3 
using the FY 2012 SSI ratio and the full year cost report from 2012 or 
2011, we would combine the FY 2012 SSI days and Medicaid days from the 
2012 or 2011 cost report from the surviving and retiring providers. We 
would not update the merged hospital's Factor 3 after that. For a newly 
merged hospital, defined for the purpose of this policy as a hospital 
that we do not identify as undergoing a merger until after the public 
comment period and additional review period after the final rule or 
that undergoes a merger during the fiscal year, the final Factor 3 
would be recalculated based on the Medicaid days and SSI days reported 
on the cost report used for the applicable fiscal year since the Factor 
3 that we are publishing in this final rule would not reflect the 
merger. For example, for a newly merged hospital that merged in FY 
2015, the numerator of its Factor 3 would be recalculated based on the 
FY 2015 SSI days and the Medicaid days reported on its 2015 cost 
report. Finally, in response to the comments seeking additional review 
of CMS' list of identified mergers, we are providing an additional 30 
days after the publication of this final rule for hospitals to review 
and submit comments on the accuracy of the list of mergers that we have 
identified in this final rule. Comments can be submitted to our inbox 
at [email protected] and any changes to Factor 3 will be 
posted on the CMS Web site prior to October 1, 2014.
    Comment: One commenter expressed concern about the process of 
requesting that MACs provide information to CMS on mergers/
acquisitions. The commenter noted that the MACs may not have the most 
up-to-date information on mergers to provide to CMS because 
documentation of the merger, such as tie-in or tie-out notices, can be 
delayed in getting to a contractor.
    Response: We appreciate the commenters' concerns. We believe that 
we have implemented several safeguards in the event that a merger is 
not identified by the MACs, including allowing opportunity for comment 
on the accuracy of the mergers that we have identified during the 
comment period for the proposed rule and after the publication of the 
final rule. In addition, as described earlier, for any newly merged 
hospital or for a hospital that we do not identify as having undergone 
a merger, we will recalculate the merged hospital's Factor 3 at the end 
of the applicable fiscal year based on the Medicaid days and SSI days 
reported on the cost report used for the applicable fiscal year since 
the Factor 3 published in the final rule would not reflect the merger.
    Comment: MedPAC and one other commenter expressed concern about our 
policy of distributing the uncompensated care payments as a per-
discharge add-on. They believed this policy is problematic because the 
per-discharge add-on varies widely from hospital to hospital. The 
variability of the add-on payments in turn distorts the MS-DRG prices 
and creates problematic incentives for ACOs and MA plans. Therefore, 
MedPAC and the other commenter believed that it would be better to 
provide a common interim add-on payment for all DSH hospitals in a 
county. Any underpayments or overpayments to an individual hospital 
could be corrected at year-end settlement or on an interim basis during 
the year (as is already necessary under the current system). One 
commenter also suggested applying a growth factor based on CBO 
projections to CMS' historical discharge data to calculate the interim 
per-discharge uncompensated care payments to mitigate overpayments and 
stabilize cash flow. Another commenter opposed MedPAC's recommendation 
and supported CMS' current methodology to calculate interim 
uncompensated care payments, stating that MedPAC's recommendation could 
cause cash-flow problems for providers.
    Response: We consider these comments to be outside the scope of the 
proposed rule, as we did not propose any revision in our method of 
making interim payments for uncompensated care. However, we would like 
to make two preliminary reactions to this recommendation. The first 
observation is that we have received very few comments from the 
hospital industry indicating that the problem cited by these two 
commenters actually exists. We would expect that, if hospitals were 
truly disadvantaged in the manner cited by these commenters by our 
methodology for making interim payment uncompensated care payments, we 
would have received many more comments to that effect. The second 
preliminary reaction is that adopting the recommendation may pose, for 
some hospitals, serious problems that may conceivably exceed the 
problem that the recommendation is designed to solve. For example, 
reducing the interim uncompensated care payments of high DSH hospitals 
to a county-wide average payment may cause serious cash flow problems 
during the period before the interim payments can be adjusted or 
settled. Similarly, low DSH hospitals may receive significantly higher 
interim payments than would be warranted by their actual uncompensated 
care data. As a result, these hospitals would have to take financial 
management steps to ensure that they are capable of making significant 
repayments when interim payments are adjusted or settled.
    Comment: Commenters suggested that CMS implement a stop-loss and 
stop-gain policy to limit the amount by which a hospital's DSH payment 
could change in a single year.
    Response: As we previously stated in a response to a similar 
comment in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622), we do 
not believe that the statute provides authority for adopting a stop-
loss and stop-gain policy designed to limit changes in DSH payments.
    Comment: Commenters expressed concern that there shall be no 
administrative or judicial review of the uncompensated care factors.
    Response: Section 1886(r)(3) of the Act provides that there will be 
no administrative or judicial review under section 1869 of the Act, 
section 1878 of the Act, or otherwise of any of the following:
     Any estimate of the Secretary for purposes of determining 
the factors described in paragraph (2) of section 1886(r) of the Act.
     Any period selected by the Secretary for such purposes.
    The regulation at Sec.  412.106(g)(2), which was finalized in the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50643), is consistent with 
these statutory limitations on review.

G. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
412.108) and Sole Community Hospitals (SCHs) (Sec.  412.92)

1. Background for MDH Program
    Section 1886(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.

[[Page 50023]]

    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 (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 interim final rule with comment 
period (IFC) that appeared in the Federal Register on March 18, 2014 
(the ``March 2014 IFC'') (79 FR 15025 through 15027), we discussed the 
expiration of the MDH program on March 31, 2014. (In section IV.P. of 
the preamble of this final rule, we are responding to any public 
comments we received on the March 2014 IFC and are stating our 
finalized policy for the extension of the MDH program for the first 
half of FY 2014, through March 31, 2014, under the Pathway for SGR 
Reform Act of 2013.) In the March 2014 IFC, we explained how providers 
may be affected by the 6-month extension of the MDH program under the 
Pathway for SGR Reform Act of 2013 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 March 2014 IFC (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 of 
2013, respectively. Lastly, under current law, section 106 of the PAMA 
(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 the PAMA 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 the PAMA also made 
conforming amendments to sections 1886(b)(3)(D)(i) and 
1886(b)(3)(D)(iv) of the Act.
    We addressed the extension of the MDH program for the second half 
of FY 2014 (that is, from April 1, 2014 through September 30, 2014) 
under the PAMA in a notice that appeared in the Federal Register on 
June 17, 2014 (79 FR 34446 through 344449). For additional information 
on the extensions of the MDH program after FY 2012, we refer readers to 
the following: the FY 2013 IPPS/LTCH PPS final rule that appeared in 
the Federal Register on August 31, 2012 (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 that appeared in the Federal Register on August 19, 2013 
(78 FR 50647 through 50649); the FY 2014 interim final rule with 
comment period that appeared in the Federal Register on March 18, 2014 
(the ``March 2014 IFC'') (79 FR 15025 through 15027); and the FY 2014 
notice that appeared in the Federal Register on June 17, 2014 (79 FR 
34446 through 34449).
2. PAMA Provisions for FY 2015 for MDHs
    Prior to the enactment of the PAMA, under section 1106 of the 
Pathway for SGR Reform Act of 2013, the MDH program authorized by 
section 1886(d)(5)(G) of the Act was set to expire midway through FY 
2014. Section 106 of the PAMA 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 the PAMA also made conforming amendments 
to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28104), we 
proposed to make conforming changes to the regulations at Sec. Sec.  
412.108(a)(1) and (c)(2)(iii) to reflect the statutory extension of the 
MDH program for the first 6 months of FY 2015 made by section 106 of 
the PAMA.
    We did not receive any public comments on our proposed conforming 
changes to the existing regulations text at Sec. Sec.  412.108(a)(1) 
and (c)(2)(iii) to reflect the statutory extension of the MDH program 
through the first half of FY 2015 (that is, through March 31, 2015) in 
accordance with section 106 of the PAMA. Therefore, in this final rule, 
we are adopting our proposed revisions to the regulations at Sec. Sec.  
412.108(a)(1) and (c)(2)(iii) as final without modification. We note 
that these regulatory provisions supersede the conforming changes to 
Sec. Sec.  412.108(a)(1) and (c)(2)(iii) made in the March 2014 IFC to 
reflect the extension of the MDH program through March 31, 2014, under 
the Pathway for SGR Reform Act, as discussed in section IV.P. of the 
preamble of this final rule.
3. Expiration of the MDH Program
    Because section 106 of the PAMA extends the MDH program through the 
first half of FY 2015 only, beginning 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.
    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 
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).
    Although we made no proposals related to the expiration of the MDH 
program, we received the following comments.
    Comment: A few commenters expressed concern about the financial

[[Page 50024]]

impact of the expiration of the MDH program. Some of these commenters 
urged CMS to continue the MDH program permanently, while other 
commenters urged CMS to support legislative efforts to extend these 
provisions beyond the current March 31, 2015 statutory expiration date. 
Some commenters urged CMS to work with Congress to extend the MDH 
provision because these hospitals are vitally needed in serving elderly 
persons with health care needs. Other commenters stated that the MDH 
program provides needed funding for hospitals with Medicare as their 
predominant payor. The commenters stated that many of these hospitals 
provide primarily outpatient services, and the low Medicare OPPS rates, 
which pay less than cost, threaten the financial viability of these 
hospitals without the added funding that Medicare dependent status 
provides. In order to maintain access to care for Medicare 
beneficiaries and others in many rural communities, the commenters urge 
CMS to continue the MDH program permanently.
    Response: While we appreciate the commenters' concerns about the 
expiration of the MDH program, CMS does not have the authority under 
current law to extend the MDH program beyond the March 31, 2015 
statutory expiration date. These comments are similar to comments we 
received previously, prior to the statutory extensions of the MDH 
program for FYs 2013 and 2014 provided by subsequent legislation, and 
discussed in both the FY 2013 IPPS/LTCH PPS final rule (77 FR 53413 
through 53414) and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50647 
through 50649.
    Therefore, under current law, beginning April 1, 2015, all 
hospitals that previously qualified for MDH status will no longer have 
MDH status.
4. Effect on MDHs of Adoption of New OMB Delineations
    We received some comments regarding the effect of the 
implementation of the new OMB delineations (discussed in section 
III.H.5. of the preamble of this final rule) on MDHs, including 
requests for a transition period for MDHs to adapt to the changes that 
would result from the new OMB delineations; in particular, changes from 
rural to urban status. We refer readers to section III.H.5. (Update of 
Application of Urban to Rural Classification Criteria) of the preamble 
of this final rule for our summary of public comments received and our 
responses to those comments.
5. Effect on SCHs of Adoption of New OMB Delineations and 2-Year 
Transition for CAHs
    Section 1886(d)(5)(D)(iii) of the Act defines a sole community 
hospital (SCH) generally 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 inpatient hospital services reasonably available to Medicare 
beneficiaries. The regulations at 42 CFR 412.92 set forth the criteria 
that a hospital must meet to be classified as a SCH. For more 
information on SCHs, we refer readers to the FY 2009 IPPS/LTCH PPS 
final rule (74 FR 43894 through 43897).
    In connection with the implementation of the new OMB delineations 
for urban and rural areas, as discussed in section III.H.5. of the 
preamble of this final rule, we received public comments requesting a 
transition period for SCHs affected by implementation of the new OMB 
delineations, similar to the 2-year transition period for affected 
CAHs, as discussed in section VI.D.2. of the preamble of this final 
rule, during which the CAH must reclassify as rural in order to retain 
its CAH status after the 2-year transition period ends. We refer 
readers to section III.H.5. of the preamble of this final rule for the 
discussion of and responses to those public comments.
    We also were asked to clarify the status of a CAH during the 2-year 
transition period and its effect on SCHs.
    Comment: One commenter requested that CMS clarify that a hospital's 
SCH status would not be affected by a CAH that is now located in an 
urban area as a result of a new OMB delineation while that CAH is in 
its 2-year transition period to reclassify as rural.
    Response: We are clarifying that during an affected CAH's 2-year 
transition period, the facility will continue to be considered a CAH 
and, therefore, would not fall under the definition of ``like 
hospital'' at Sec.  412.92(c)(2). Therefore, an affected CAH will not 
impact the status of an SCH during that CAH's 2-year transition period. 
For purposes of determining whether an SCH is located near a CAH 
affected by the most recent change in OMB delineations implemented in 
this final rule effective October 1, 2014, we plan to post on the CMS 
Web site, a list of the affected CAHs. We refer readers to section 
VI.D.2. of the preamble of this final rule for a discussion related to 
the CAH 2-year transition period.

H. Hospital Readmissions Reduction Program: 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

[[Page 50025]]

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 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 Policies for the FY 2015 Hospital Readmissions Reduction 
Program
    In this final rule, we are--
     Making refinements to the readmissions measures and 
related methodology for FY 2015 and subsequent years (section IV.H.4. 
of the preamble of this final rule);
     Expanding the scope of ``applicable conditions'' for FY 
2017 to include coronary artery bypass graft (CABG) (section IV.H.6. of 
the preamble of this final rule);
     Discussing the maintenance of technical specifications for 
quality measures (section IV.H.7. of the preamble of this final rule);
     Describing a waiver from the Hospital Readmissions 
Reduction Program for hospitals formerly paid

[[Page 50026]]

under section 1814(b)(3) of the Act (Sec.  412.154(d)) (section IV.H.8. 
of the preamble of this final rule);
     Specifying the adjustment factor floor for FY 2015 
(section IV.H.9. of the preamble of this final rule);
     Specifying the applicable period for FY 2015 (section 
IV.H.10. of the preamble of this final rule);
     Making 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 final rule); and
     Discussing whether to establish an exceptions process to 
address hospitals with extraordinary circumstances (section IV.H.12. of 
the preamble of this final rule).
4. Refinement of the Readmission Measures and Related Methodology for 
FY 2015 and Subsequent Years Payment Determinations
    We note that, during the comment period following the proposed 
rule, we received comments that were not related to our specific 
proposals and considered out of scope for the Hospital Readmissions 
Reduction Program in the FY 2015 IPPS/LTCH PPS proposed rule. Some of 
the out-of-scope comments were related to a wide range of aspects of 
the Hospital Readmissions Reduction Program and its readmission 
measures. For example, there were recommendations for statutory changes 
to the program payment structure and previously finalized program 
definitions, changes to the program goals, frequency of assessing and 
reporting performance on measures, and changes to the 30-day window of 
measuring readmissions. Notably, there were many comments on risk 
adjustment for socioeconomic status (SES) at the patient- and hospital-
level. While we appreciate the commenters' feedback, these topics are 
out of scope of this rule, and we will not be specifically addressing 
them, with the exception of risk-adjustment for SES.
    Among the out-of-scope topics, we are addressing the risk-
adjustment for SES because of the volume of comments and the importance 
of this topic for outcome measures in payment programs. All other out-
of-scope topics not specifically addressed in this rule will be taken 
into consideration when developing policies and program requirements 
for future years.
    Comment: Many of the commenters on CMS quality programs and those 
specifically commenting on the Hospital Readmissions Reduction Program 
expressed concern that these programs do not risk-adjust for SES. Many 
commenters expressed concern that the lack of risk adjustment for SES 
leads to the unintended consequences of unfair payment adjustments 
which: (1) Disproportionately penalize hospitals serving high 
proportions of low-SES patients; (2) penalize hospitals for patient 
characteristics outside of their control; and (3) decrease financial 
resources of the hospitals most likely to serve low-SES patients which 
would lead to lower quality of care for these patients. Many commenters 
outlined specific SES characteristics that are not adjusted for in the 
current readmission measures, including Medicare dual-eligible status, 
life circumstances, access to health care post-discharge, literacy, 
education level, community factors, language, income, poverty level, 
living conditions and support in the home (that is, post-discharge 
support structure), complex medical histories, and having chronic 
conditions.
    One commenter noted that claims data cannot be used to identify 
SES, making it difficult for the commenter to support the Hospital 
Readmissions Reduction Program, which uses claims-based measures. Other 
commenters believed that risk adjustment for SES ``levels the playing 
field'' among all hospitals while still illuminating disparities.
    Response: We appreciate the commenters' concerns and note that 
these concerns were addressed in the FY 2014 IPPS/LTCH PPS final rule 
(79 FR 50653 through 50654; 50673 through 50674). As described in prior 
rulemaking, we do not currently risk-adjust for SES in the Hospital 
Readmissions Reduction Program. However, we do risk-adjust for 
comorbidities (that is, correlated illnesses) and other factors to 
ensure that hospitals are not penalized for serving populations that 
are sicker or have higher incidences of chronic disease.
    We are aware that there are differing opinions regarding this 
approach. We appreciate the commenters' suggestions on the importance 
of addressing SES in the Hospital Readmissions Reduction Program. We 
have continued to consider and evaluate stakeholder concerns regarding 
the influence of patient SES status on readmission rates.
    Comment: One commenter noted that the purpose of the Hospital 
Readmissions Reduction Program is to transform the Medicare payment and 
delivery system. Other commenters supported this belief and urged CMS 
not to adjust the readmission measures for SES.
    Response: We appreciate the feedback and support not to adjust the 
readmissions measures for SES.
    Comment: Some commenters urged that CMS not risk-adjust the 
readmission measures with SES until it is proven that the program is 
biased against low-SES hospitals. These commenters noted that the 
Hospital Readmissions Reduction Program is designed to provide 
incentives for changes that also enhance the quality of health care and 
that the same care protocols that work with a different population of 
patients who are not low-SES may also work with low-SES patients.
    Response: We appreciate support of the Hospital Readmissions 
Reduction Program's goal to encourage improved health care through this 
program. Like the commenters, we continue to believe that the same care 
protocols and processes that are successful in caring for nonlow-SES 
patient populations may also be successful in caring for low-SES 
patient populations.
    Comment: Many commenters provided recommendations on how to risk-
adjust for SES and specifically recommended adopting the 
recommendations of the draft report issued by NQF's Expert Panel on 
Risk-Adjustment for Sociodemographic Factors (Draft Report available 
at: http://www.qualityforum.org/Risk_Adjustment_SES.aspx). A few 
commenters supported risk adjustment for SES as recently proposed in 
two bills in the 113th Congress (S. 2501, ``The Hospital Readmissions 
Program Accuracy and Accountability Act,'' and H.R.4188, the 
``Establishing Beneficiary Equity in the Hospital Readmission Program 
Act''). Both bills attempt to address the potential disproportionate 
impact of payment penalties on hospitals that serve high proportions of 
low-SES patients.
    Response: We appreciate these comments and the importance of the 
role that SES plays in the care of patients. We are aware that there 
are differing opinions regarding our current approach in risk-adjusting 
measures in the Hospital Readmissions Reduction Program for SES. We 
note that the readmission measures aim to reveal differences related to 
the quality of care provided. We believe that quality of care received 
by patients of lower SES contributes at least in part to the observed 
association between SES status and the readmissions rate. We continue 
to have concerns about holding hospitals to different standards for the 
outcomes of their patients of low SES--we do not want to mask potential 
disparities or minimize incentives to

[[Page 50027]]

improve the outcomes of disadvantaged populations.
    We routinely monitor the impact of SES on hospitals' results. To 
date, we have found that hospitals that care for large proportions of 
patients of low SES are capable of performing well on our measures (we 
refer readers to the 2013 Medicare Hospital Quality Chart Book on pages 
46 through 53 at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/-Medicare-Hospital-Quality-Chartbook-2013.pdf). Previous analyses 
presented at the NQF during endorsement proceedings of the Hospital-
Wide All-Cause Unplanned Readmission Measure (available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=70813) also show that adding SES 
to the risk-adjustment has a negligible impact on hospitals' risk-
standardized rates. The risk adjustment for clinical factors likely 
captures much of the variation due to SES, therefore resulting in an 
attenuation of the impact of SES factors on hospitals' results.
    We continue to monitor related activities at NQF, such as the July 
23, 2014 decision by the NQF Board in which the Board approved a trial 
period to test the impact of sociodemographic factor risk adjustment of 
performance measures (available at: http://www.qualityforum.org/Press_Release/2014/NQF_Board_Approves_Trial_Risk_Adjustment.aspx), and 
in Congress. As we stated in the past, we are committed to working with 
the NQF and other stakeholder communities to continuously refine our 
measures and to address the concerns associated with SES and risk 
adjustment. We believe that continued collaboration with the 
stakeholder communities will enable us to identify feasible ways to 
appropriately address any unintended consequences for providers serving 
high proportions of low-SES patients.
    Comment: Many commenters provided recommendations on how to risk-
adjust for SES and specifically referenced MedPAC's recommendation to 
use ``peer group stratification,'' that is, stratifying hospitals by 
the hospital's proportion of low-SES patients, as a method to correlate 
readmission rates and penalties with patient income. These commenters 
also recognized that this new method would require legislative changes 
because the current payment adjustment formula used to compute the 
readmission penalty is set in law.
    Response: We appreciate the suggestion for risk-adjustment by 
``peer group stratification'' as a method to address SES. We will take 
MedPAC's recommendations into consideration for the Hospital 
Readmissions Reduction Program, but also note that MedPAC recognizes 
that statutory changes would be required for us to adopt this 
recommendation because the current payment adjustment formula used to 
compute the readmission penalty is established by statute.
    Comment: A few commenters supported the use of an unplanned 
hospital-wide readmission measure (some of these commenters 
specifically asked CMS to consider adding the Hospital-Wide All-Cause 
Readmission Measure (NQF #1789)) as this type of measure would 
capture a global perspective on hospital performance and urged CMS to 
consider these measures instead of CABG.
    Response: We thank the commenters for this input and will continue 
to take the recommendation into consideration, as we stated previously 
in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50658). We developed the 
Hospital-Wide All-Cause Readmission Measure (NQF #1789) (HWR 
measure) that has been implemented in the Hospital IQR Program. The HWR 
measure estimates the hospital-level, risk-standardized rate of all-
cause, unplanned readmission within 30 days of hospital discharge with 
any eligible condition. The measure reports a single composite risk-
standardized readmission rate (RSRR), derived from the volume-weighted 
results of five different models, one for each of the following 
specialty cohorts (groups of related discharge condition categories or 
procedure categories): surgery/gynecology; general medicine; 
cardiorespiratory; cardiovascular; and neurology.
    While we appreciate the commenters' recommendations to consider 
this measure for the Hospital Readmissions Reduction Program, we 
believe that section 1886(q)(5)(A) of the Act (defining ``applicable 
condition'') prohibits us from adopting the many categories of 
diagnoses and procedures comprising the HWR measure as a single 
``condition.'' Based on the limitations of the current statutory 
provisions for the Hospital Readmissions Reduction Program, we have not 
implemented the HWR measure in the Hospital Readmissions Reduction 
Program.
    Comment: One commenter opposed the addition of the 30-day Ischemic 
stroke readmission measure in the Hospital Readmissions Reduction 
Program because it is not risk-adjusted using the National Institutes 
Stroke Severity Scale.
    Response: We thank the commenter for this feedback and note that we 
did not propose this measure for the Hospital Readmissions Reduction 
Program. We note that, in the FY 2014 IPPS/LTCH PPS final rule, we 
discussed this issue with respect to the Hospital IQR Program (79 FR 
50801). At that time we stated that we appreciated the concerns of the 
stakeholders on this issue. We also stated that not only are we 
committed to working with the stakeholder communities and to 
continuously refine our measures, which for the stroke outcome measures 
includes risk-adjusted patient severity, but also committed to working 
with the stroke communities and other stakeholders to seek feasible 
ways to incorporate additional severity adjustment as suggested. 
Finally, we highlighted that stroke is the fifth leading cause of adult 
mortality in the United States, and therefore we believe it would be a 
disservice to patients to delay inclusion of these current stroke 
outcome measures in quality reporting and quality improvement 
initiatives. We are committed to making these measures better and 
working with stakeholders to do so, and will take these comments into 
consideration.
    Comment: A few commenters noted that heart failure readmission 
rates are inversely related to heart failure mortality rates.
    Response: We appreciate the commenters' concerns and note that this 
issue was addressed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50650).
    Comment: A few commenters recommended that the Hospital 
Readmissions Reduction Program be improved by excluding admissions that 
are part of the natural disease or treatment progression, in order to 
fairly assess hospitals and avoid unintended consequences for patients 
and their families. One commenter specifically highlighted readmissions 
due to ongoing care for patients suffering traumatic injury and 
requiring staged operative therapies should also be excluded.
    Response: We appreciate these suggestions and agree that admissions 
that are part of planned management to address disease progression 
should not be counted in the outcome. We identify and do not count in 
the measure results and the readmission outcomes those admissions that 
are planned readmissions for ongoing care management. For example, 
ongoing treatments such as maintenance chemotherapy for cancer or 
cardiac device placement for cardiovascular disease patients are 
excluded from the

[[Page 50028]]

calculation of the measure result for readmission rates.
    Comment: Many commenters requested that CMS be more transparent and 
collaborative in its approach to all measures in the Hospital 
Readmissions Reduction Program.
    Response: We appreciate this feedback regarding our proposed 
changes to the planned readmission algorithm and the proposed 
refinements to the measure cohort in the Elective Primary Total Hip 
Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) All-Cause 
Unplanned 30-Day Risk-Standardized Readmission Measure. We strive to 
collaborate with stakeholders, as well as be transparent about the 
direction of the Hospital Readmissions Reduction Program and the 
measures proposed for the program. We previously discussed in the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50657 through 50658) that we use 
multiple methods to communicate with stakeholders; for example, through 
press releases, open door forums, as well as through the Federal 
rulemaking process. We also post all measure methodology documents 
online for broad public access at our Web site (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html).
    In addition, during measure development, we seek public comments on 
various stages of development, and also have the measures undergo the 
NQF's endorsement processes and measure maintenance reviews. We also 
adhere to the Affordable Care Act's provision that requires all 
measures that will be proposed in future rulemaking be reviewed by 
NQF's MAP as part of the pre-rulemaking process. All of these processes 
are open to the public for comment. While we believe all of these 
processes help to inform the public of our plans for and decisions 
regarding the Hospital Readmissions Reduction Program, we will strive 
to collaborate with all of our stakeholders to identify more effective 
ways of communicating our plans and decisions.
a. 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. In the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28106 through 28108) we proposed to use a 
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 also proposed 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 refined.
    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 lists 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 
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, a 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

[[Page 50029]]

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-CM 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 invited public comment on these proposals.
    Comment: Several commenters specifically supported all of the 
proposed modifications to the planned readmissions algorithm. Some 
commenters supported the use of the algorithm in general and others 
specifically supported the inclusion of the algorithm in the Hospital-
Level 30-Day Readmission Following Admission for an Acute Exacerbation 
of Chronic Obstructive Pulmonary Disease.
    Response: We appreciate the support for the inclusion of the 
planned readmission algorithm in the Hospital Readmissions Reductions 
Program measures.
    Comment: Several commenters support the periodic update to the 
Hospital Readmissions Reduction Program's planned readmission algorithm 
to ensure its lists of inclusions and exclusions are accurate.
    Response: We appreciate the comment and, as discussed in the FY 
2015 IPPS/LTCH PPS proposed rule (79 FR 28106), we have revised the 
planned readmission algorithm based on a validation study conducted at 
7 hospitals. During the revision of the algorithm, we also collaborated 
with technical and medical experts.
    Comment: Several commenters commended CMS for including the planned 
readmission algorithm updates in the FY 2015 IPPS/LTCH PPS proposed 
rule updates specifically related to the proposed exclusions. They also 
suggested CMS exclude unrelated readmissions.
    Response: We appreciate the commenters' support and the support to 
remove the two procedure Clinical Classification Software (CCS) 
categories of Therapeutic Radiation (CCS 211) and Cancer Chemotherapy 
(CCS 224) as we strive to be transparent with the stakeholders. We note 
that we addressed the concern for exclusion of unrelated readmissions 
in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50654). We indicated 
last year that unrelated readmissions are addressed through the planned 
readmission algorithm and, in coordination with medical experts, we 
expanded the list of conditions considered planned. Generally, planned 
readmissions are not a signal of quality of care. Therefore, we have 
worked with experts in the medical community, as well as other 
stakeholders, to carefully identify procedures and treatments that 
should be considered ``planned'' and, therefore, not counted as 
readmissions.
    Comment: Several commenters were concerned with the exclusion of 
two cancer related Clinical Classification Software (CCS) groups. Some 
commenters were specifically concerned that removal of Clinical 
Classification Software (CCS) groups CCS 211--Therapeutic Radiation and 
CCS 224--Cancer Chemotherapy from the potentially planned procedure 
table of the planned readmission algorithm will have the unintended 
consequences of discouraging needed cancer care. These commenters 
requested that CMS therefore initiate an ad hoc review of this change. 
One commenter was unconvinced that the validation study findings for 
Maintenance Chemotherapy holds true for all hospitals and therefore 
hospitals that deliver a large amount of cancer services could be 
affected by this change.
    Response: We note that removal of CCS 211 would be appropriate 
because patients are not typically admitted for therapeutic radiation, 
and admissions with this treatment were noted in general to be 
unplanned. In addition, we removed CCS 224 because the validation study 
showed admissions for individuals who receive cancer chemotherapy but 
do not have a principal diagnosis of maintenance chemotherapy are 
typically unplanned admissions. All admissions for patients with a 
principal diagnosis of Maintenance Chemotherapy (that is, CCS 45) will 
continue to be considered planned and will not be counted in the 
measure outcome. Therefore, we expect removal of CCS 211 and CCS 224 to 
improve the accuracy of the planned readmission algorithm and do not 
anticipate it will have the unintended consequence of discouraging 
needed cancer care. We appreciate the concern that the validation study 
findings may not apply to all hospitals and will consider further 
evaluation of this concern.
    Comment: One commenter noted that he/she was aware of the 
methodologies that separate preventable versus nonpreventable 
readmissions while measures in the Hospital Readmissions Reduction 
Program continue to penalize hospitals for circumstances outside of 
their control. The commenter asserted that ``well researched and 
documented methodologies'' exist to separate potentially preventable 
versus nonpreventable readmissions.
    Response: We note that it is difficult, and can be subjective, to 
categorize a readmission as preventable or unpreventable. The 
difficulty, and risk for being subjective, occurs because a readmission 
cannot be determined as being preventable or unpreventable based on the 
reason or diagnoses for the admission alone. For this reason, we have 
not chosen to categorize readmissions as preventable or unpreventable, 
but rather planned or unplanned. The planned readmission algorithm 
identifies those diagnoses codes, identified by medical experts in 
multiple specialties, as those frequently and most likely to be 
associated with planned reasons for a readmission. By categorizing 
readmissions as planned, we are trying to remove the subjective

[[Page 50030]]

nature of deeming readmissions as preventable or unpreventable.
    Finally, we are not aware of any publicly known NQF-approved 
methodology for identifying preventable versus unpreventable 
readmissions. The goal of the Hospital Readmissions Reduction Program 
is to lower the risk of all types of admissions through the most 
appropriate care and care transitions. We believe this goal can best be 
achieved through measuring and reporting a risk-standardized metric of 
excess readmissions that reflects how well hospitals are doing in 
decreasing unplanned readmissions relative to hospitals with similar 
patients.
    Comment: One commenter believed that CMS' measures would benefit 
from refinement, including exclusion of planned readmissions and 
unrelated readmissions. Other commenters were disappointed that CMS did 
not propose a process for excluding readmissions unrelated to the 
initial reason for admission in calculating the measures, which they 
characterize as being mandated by the Affordable Care Act. Several 
commenters continued to urge CMS to exclude from the Hospital 
Readmissions Reduction Program admissions unrelated to the prior 
hospital stay, including, for example, admissions for chemotherapy, 
trauma, burns, end-stage renal disease, maternity, and substance abuse, 
because, the commenters stated, by their nature, they are not 
preventable readmissions.
    Response: We note that we have been responsive to stakeholder 
suggestions to not include planned readmissions in the calculations, as 
discussed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50654), and as 
evidenced by multiple versions of the planned readmission algorithm 
since 2012. As with other aspects of any measure, we continue to review 
and revise the area of unrelated readmissions through our refinement of 
the planned readmissions algorithm. Regarding other types of unrelated 
readmissions, we currently do not seek to differentiate between related 
and unrelated readmissions because readmissions not directly related to 
the index condition may still be a result of the care received during 
the index hospitalization. For example, a patient hospitalized for COPD 
who develops a hospital associated infection may ultimately be 
readmitted for sepsis. It would be inappropriate to treat this 
readmission as unrelated to the care the patient received during the 
index hospitalization.
    Furthermore, the range of potentially avoidable readmissions also 
includes those not directly related to the initial hospitalization, 
such as those resulting from poor communication at discharge or 
inadequate follow-up. Therefore, we believe that creating a 
comprehensive list of potential complications related to the index 
hospitalization would be arbitrary, incomplete, and, ultimately, 
extremely difficult to implement. However, in coordination with medical 
experts, we created a planned readmission algorithm to determine which 
conditions and therefore, readmissions, that are generally considered 
planned. Generally, planned readmissions are not indicative of an 
inferior quality of care, therefore are not counted as readmissions.
    Regarding the suggestion to remove ``extreme circumstances [such 
as] chemotherapy, trauma, burns, end stage renal disease, maternity, 
and substance abuse because, by their nature, they are not preventable 
readmissions,'' we addressed this comment in the FY 2013 IPPS/LTCH PPS 
final rule. In that rule and the current rulemaking, the commenters 
requested that circumstances like those listed in the above comment be 
excluded from the index hospitalizations. In FY 2013 IPPS/LTCH PPS 
final rule, (77 FR 53377), we stated that ``we appreciate the concern 
expressed by some commenters that patients of these `extreme 
circumstances' clinically could be sicker and more likely to be 
readmitted. The measures address clinical differences in hospitals' 
case-mix through risk adjustment rather than through excluding patients 
from the measure as suggested by the commenter. The goal in developing 
outcomes measures is to create a clinically cohesive cohort that 
includes as many patients as possible admitted with the given 
condition. Greatly expanding our list of exclusions would result in a 
measure that was less useful and meaningful because it would reflect 
the care of fewer patients. In addition, we believe that, by excluding 
patients with significant comorbidities, the measure would not assess 
of the quality of care for those patients. To fairly profile hospitals' 
performance, it is critical to place hospitals on a level playing field 
and account for their differences in the patients that present for 
care. This is accomplished through adequate risk-adjustment for 
patients' clinical presentation rather than exclusion of patients.''
    Comment: One commenter urged CMS to work with the physician and 
hospital communities to identify other planned readmissions that should 
be excluded.
    Response: We will continue to involve all stakeholders in the 
process of measure development and measure maintenance. We also 
collaborate with various medical specialty societies and associations 
whenever feasible and appropriate to ensure that their input and 
feedback are considered in real-time during measure development and 
maintenance, which also include input from expert panels, and public 
comment periods. We will consider the comment in future revisions to 
the algorithm.
    Comment: Many commenters believe that CMS should have had the 
proposed Planned Readmission Algorithm Version 3.0 changes reviewed by 
NQF before finalizing and using in the readmission measures. One 
commenter believed the changes to be substantive and did not support 
adopting changes for measures to incorporate the Planned Readmission 
Algorithm Version 3.0 until the revised measures have been recommended 
by the MAP. One commenter stated that the size of the validation study 
for the Planned Readmission Algorithm Version 3.0 was limited, and 
making recommendations based on this information, without external 
review from NQF, could create unintended consequences.
    Response: We note that the NQF has reviewed the Planned Readmission 
Algorithm Version 3.0 multiple times over the past 6 to 8 months as it 
was submitted for review as part of the NQF's annual measure 
maintenance review for re-endorsement of the Hospital-Level 30-Day 
Readmission Following Admission for Heart Failure, Pneumonia, Chronic 
Obstruction Pulmonary Disease, and Total Hip Arthroplasty/Total Knee 
Arthroplasty measures. As of July 2014, all of these measures are still 
under review by NQF. NQF also reviewed the Planned Readmission 
Algorithm Version 3.0 with the Coronary Artery Bypass Surgery 
readmission measure during its endorsement proceedings of this measure, 
which led to the measure being recommended for endorsement. We will 
consider the comment in future revisions to the algorithm.
    Comment: Several commenters requested that CMS clarify what is a 
``related'' readmission or a ``planned'' readmission, while others 
noted the measures fail to distinguish between a planned and unplanned 
readmission. Other commenters expressed appreciation for the proposed 
exclusions for certain readmissions, but requested exclusion of 
unrelated readmissions.
    Response: We note that the issue of excluding unrelated 
readmissions from the Hospital Readmissions Reduction Program was 
addressed in FY 2014 IPPS/LTCH PPS final rule (78 FR 50654 through 
50655). Regarding clarification

[[Page 50031]]

of what is a planned readmission, we refer readers to the technical 
reports for each measure that define specifically how planned 
readmissions are defined for the measure. The technical reports can be 
found in the planned readmission algorithm at the following Web site: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. Finally, we 
continue to review and revise our algorithm for planned readmissions to 
improve its accuracy.
    Comment: One commenter emphasized the need to continuously improve 
and evaluate the accuracy of a signal provided by a specific 
readmission measure.
    Response: We thank the commenter for this feedback. We believe that 
unplanned readmissions, in general, are a signal of the quality of care 
that hospitals provide to their patients. The commenter is concerned 
with the accuracy of the readmission measures; we note that these 
measures have been NQF-endorsed and widely vetted by technical experts 
during measure development and annual measure maintenance. We will 
continue to monitor and update the measures to ensure their accuracy.
    Comment: Some commenters recommended that CMS create a system to 
monitor unintended consequences related to planned readmissions and 
implement an audit function that will accurately account for true 
planned readmissions.
    Response: We note that we have been concerned about the unintended 
consequence of hospitals' increased use of observation stays and 
emergency department visits to avoid counting a patient as having been 
readmitted, and we are tracking these incidences in the Medicare 
Hospital Quality Chartbook available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/-Medicare-Hospital-Quality-Chartbook-2013.pdf. Regarding the recommendation to create an audit function that 
will accurately account for ``true planned readmissions,'' we 
understand this to mean that the commenter is concerned about the 
validity of the planned readmission algorithm. We note that, during 
development and maintenance of the planned readmission algorithm, there 
have been several iterations of the algorithm as a result of review by 
medical experts and other stakeholders like the NQF. We believe that 
the constant review and update of the algorithm by medical experts and 
other stakeholders provide a planned readmissions algorithm that 
accurately identifies truly planned readmissions.
    After consideration of the public comments we received, we are 
finalizing our proposal to update the planned readmission algorithm. We 
believe the updated Planned Readmission Algorithm Version 3.0 continues 
to fulfill statutory requirements to remove planned readmissions, as 
well as addresses stakeholder recommendations to continually refine and 
adjust the algorithm.
b. Refinement of Total Hip Arthroplasty and Total Knee Arthroplasty 
(THA/TKA) 30-Day Readmission Measure Cohort
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28107), for FY 
2015 and subsequent years, we proposed 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. Therefore, this measure excludes patients 
who have a principal discharge diagnosis of femur, hip, or pelvic 
fracture on their index admission because 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 
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 
nonelective total hip arthroplasty.
    To ensure that all such hip fracture patients are excluded from the 
measure, we proposed 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.
    Comment: Several commenters supported the refinements to the Total 
Hip Arthroplasty and Total Knee Arthroplasty 30-day readmission cohort.
    Response: We appreciate support of these refinements to this 
measure cohort.
    Comment: Several commenters acknowledged that the change to the 
THA/TKA measure is likely appropriate, but recommended that CMS submit 
the proposal to NQF in an ad hoc review of updates to the planned 
readmission algorithm and this measure cohort, before finalizing this 
proposal.
    Response: We appreciate this feedback, especially acknowledgement 
that the change to the THA/TKA measure is likely to be appropriate. We 
appreciate the suggestion for an ad hoc NQF review of this change to 
the THA/TKA measure cohort. We also understand the importance of 
seeking broad stakeholder review during routine measure maintenance and 
note that this measure was submitted to NQF for annual maintenance 
review in June 2014. We note that the proposed changes to the cohort 
were the result of feedback from hospitals that had participated in the 
dry run of this measure and noted that the prior measure methodology 
failed to identify, and therefore appropriately exclude, a small number 
of patients (that, is 0.42 percent of patients in the 2009-2010 data) 
with hip fracture who had nonelective total hip arthroplasty. The 
recommendations resulting from the hospitals participating in the dry 
run were also reviewed by a group of medical experts working with our 
measure developer.
    Notwithstanding this expert medical opinion, we realize that 
broader stakeholder review is necessary as we continue to strive for 
transparency with management of the Hospital Readmissions Reduction 
Program. We will work towards improving and broadening stakeholder 
review of measure updates; we will take this recommendation under 
consideration.
    Comment: One commenter encouraged CMS to continue to work with 
appropriate clinicians and stakeholder groups (for example, the 
American Association of Hip and Knee Surgeons and the American Academy 
of Orthopaedic Surgeons) to identify planned readmissions that may 
occur within 30 days of discharge from the hospital that are unrelated 
to the quality of care received during the initial admission.
    Response: We continually work towards improving and broadening 
stakeholder review of measure updates.

[[Page 50032]]

    Comment: One commenter encouraged CMS to work with the Yale-New 
Haven Hospital Health Services Corporation, Center for Outcomes 
Research and Evaluation (YNHHSC/CORE) to determine the most appropriate 
method for excluding or risk-adjusting for cases that involve 
conversion of previous hip surgery to total hip arthroplasty 
(represented by CPT code 27132).
    Response: We note that the commenter's concerns focused on having 
us revise our Elective Primary Total Hip Arthroplasty (THA) and/or 
Total Knee Arthroplasty (TKA) All-Cause Unplanned 30-Day Risk-
Standardized Readmission Measure to exclude additional specific groups 
of patients with prior hip surgeries that place them at a significantly 
increased risk of complications, including revision procedures and 
those requiring removal of implanted devices from the femur (ICD-9-CM 
codes 78.65). We will continue to work closely with the YNHHSC/CORE to 
determine the most appropriate method for exclusions or risk-adjustment 
for these cases \24\ for this measure.
---------------------------------------------------------------------------

    \24\ Suter L.G., Parzynski C.S., Searfoss R., Dorsey K.B., Grady 
J.N., Keenan M., Okai M., Nwosu M., Ngo C., Lin Z., Bhat K.R., 
Krumholz H.M., Bernheim S.M. 2014 Procedure-Specific Readmission 
Measures Updates and Specifications Report: Report prepared for the 
Centers for Medicare & Medicaid Services. 2014.
---------------------------------------------------------------------------

    After consideration of the public comments we received, we are 
finalizing our proposal to the refinements to the THA/TKA readmission 
measure cohort.
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 did not propose 
to revise the measure calculations for the FY 2014 payment 
determination. Rather, we proposed 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 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 
(as shown in Table IV.H.1. below).
    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/THA/TKA Readmission Measures
                                                                       [Based on 2009-2012 discharges from 3025 hospitals]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           AMI                       HF                        PN                       COPD                     THA/TKA
                                                               ---------------------------------------------------------------------------------------------------------------------------------
                                                                   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 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); and (2) Hospital-level 30-day all-cause risk-
standardized readmission rate following chronic obstructive pulmonary 
disease (COPD) (NQF #1891). This brought the total number of 
finalized applicable conditions to five over the past 2 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 five applicable conditions before adding other 
applicable conditions in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28108), we did not propose any new applicable conditions for FY 2016.
    Comment: Several commenters encouraged CMS to strengthen the 
Hospital Readmissions Reduction Program through the inclusion of new

[[Page 50033]]

measures for FY 2016 and FY 2017 so that momentum of recent successes 
in the reduction of readmission rates is not lost. Other commenters not 
only supported CMS' decision not to expand measures in FY 2016 for the 
Hospital Readmissions Program, but also recommended that CMS delay 
expanding the program in FY 2017.
    Response: We agree that it is important for the nation's hospitals 
to continue to be successful in the reduction of readmission rates and 
to utilize this momentum to implement other condition specific 
readmission measures. However, we noticed over the past 2 years a 
persistent dichotomy in stakeholder recommendations where some 
recommended expansion of the program with new measures each fiscal year 
and others recommended not expanding the program in FY 2016 and FY 
2017.
    In response to last year's proposed rule (78 FR 50657), 
stakeholders requested that they be given time to become familiar with 
the measures and the program. For this reason, we did not propose 
expanding the program in FY 2016. However, we proposed to expand the 
program in FY 2017 with the Hospital-Level, 30-Day, All-Cause, 
Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) 
Surgery measure. We will continue to review condition-specific 
readmission rate performance gaps in conjunction with our Quality 
Improvement Strategy (available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html) and the 
availability of robust risk-adjusted readmission measures. As we 
indicated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50657), we 
will continue to ensure that hospitals are aware of future proposed 
program expansion through press releases, open door forums, as well as 
through the Federal rulemaking process. We also continue to strive to 
ensure our measure selection process for the Hospital Readmissions 
Reduction Program is transparent and allows the public several 
opportunities to comment on measures being selected for the Hospital 
Readmissions Reduction Program.
    Comment: Several commenters suggested expanding the Hospital 
Readmissions Reduction Program by adding the Society of Thoracic 
Surgeons' (STS) Risk-Adjusted Coronary Artery Bypass Graft (CABG) 
Readmission Rate measure (NQF #2514) in conjunction with CMS' 
Hospital 30-DayDay, All-Cause, Unplanned, Risk-Standardized Readmission 
Rate (RSRR) Following Coronary Artery Bypass Graft (CABG) Surgery 
measure (NQF #2515). These commenters believed that having the 
STS registry-based measure in addition to CMS' claims-based measure 
would help providers and patients fully understand CABG care. Others 
commenters not only recommended including the Hospital 30-Day Risk--
Standardized Readmission Rates following Percutaneous Coronary 
Intervention (PCI) measure (NQF #0695), believing it would 
drive improvements in quality and patient outcomes while simultaneously 
realizing significant cost savings for Medicare, but also implementing 
the Hospital 30-Day Risk-Standardized Readmission Rates following 
Percutaneous Coronary Intervention (PCI) measure (NQF #0695) no 
later than FY 2017.
    Response: We note that both the STS and the CMS Coronary Artery 
Bypass Graft (CABG) Readmission measures (NQF # 2514 and 2515 
respectively) were both recommended for endorsement by NQF in May 2014, 
and a final decision on the endorsement status will be forthcoming in 
the third quarter of 2014. We note that both measures are fully 
harmonized, despite using different data sources. The STS' Risk-
Adjusted Coronary Artery Bypass Graft (CABG) Readmission Rate measure 
(NQF #2514) uses the STS National Database, while CMS' Hospital 
30-DayDay, All-Cause, Unplanned, Risk-Standardized Readmission Rate 
(RSRR) following Coronary Artery Bypass Graft (CABG) Surgery measure 
(NQF #2515) uses administrative claims. We believe having two 
measures that are fully harmonized using two different data sources 
provides the greatest flexibility for stakeholders to identify which 
measure best fits their current capabilities for data collection and 
submission.
    We also note that we believe the use of the administrative claims-
based measure would be less burdensome for participating hospitals in 
the Hospital Readmissions Reduction Program. Regarding the 
recommendation to expand the program in FY 2017 with the Hospital 30-
Day Risk-Standardized Readmission Rates following Percutaneous Coronary 
Intervention (PCI) measure (NQF #0695), we note that this issue 
was addressed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50657). We 
stated that the addition of measures for the other vascular and PCI 
conditions are not feasible for two reasons: (1) Inpatient admissions 
for PCI and other vascular conditions appear to be decreasing; and (2) 
the hospitals are increasingly performing procedures relating to these 
conditions in outpatient departments. For these reasons, addition of 
these measures in the Hospital Readmissions Reduction Program is not 
practical.
    After consideration of the public comments we received, we are 
finalizing our proposal not to expand the applicable conditions in the 
Hospital Readmissions Reduction Program in FY 2016.
6. 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28108 through 
28111), we proposed 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 proposed 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

[[Page 50034]]

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 (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 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).\25\ The annual cost to Medicare for 
potentially preventable CABG readmissions was estimated at $151 
million.\26\
---------------------------------------------------------------------------

    \25\ Medicare Payment Advisory Committee. Report to the 
Congress: Promoting Greater Efficiency in Medicare, 2007.
    \26\ 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.\27\ Although data documenting 
readmission reductions in CABG are limited, there are data that support 
CABG readmission as an important quality metric.\28\ 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.\29\ 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.
---------------------------------------------------------------------------

    \27\ 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.
    \28\ Rumsfield J, Allen L. Reducing Readmission Rates: Does 
Coronary Artery Bypass Graft Surgery Provide Clarity? JACC 
Cardiovasc Interv. May 2011;4(5):2.
    \29\ 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 measure 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 invited public comments on this proposal.
    Comment: Many commenters supported the use of the Hospital-Level, 
30-Day All-Cause Unplanned Readmission Following Coronary Artery Bypass 
Graft Surgery (NQF #2515) measure unconditionally, while other 
commenters only supported the use of the measure if it was endorsed by 
the NQF. Some commenters supported the measure because it will add more 
conditions and procedures to the Hospital Readmissions Reduction 
Program. Other commenters supported the measure but encouraged CMS to 
implement the measure in FY 2016 instead FY 2017 because the measure 
will be NQF-endorsed by FY 2016 and the MAP conditionally recommended 
the measure upon endorsement.
    Response: We appreciate the commenters' support for the inclusion 
of the Hospital-Level, 30-DayDay All-Cause Unplanned Readmission 
Following Coronary Artery Bypass Graft Surgery measure (NQF 
#2515) in the Hospital Readmissions Reduction Program. We also 
appreciate the recommendation to expand the program by another 
condition-specific measure a year earlier than proposed. We note that, 
in last year's final rule, we stated we would allow the stakeholders 
time to become familiar with the current finalized measures, and for 
this reason, we proposed to implement the measure in FY 2017 rather 
than FY 2016.
    Finally, on May 5-6, 2014, both the STS Risk-Adjusted Coronary 
Artery Bypass Graft (CABG) Readmission Rate measure (NQF #2514) 
and the CMS Hospital 30-DayDay, All-Cause, Unplanned, Risk Standardized 
Readmission Rate (RSRR) Following Coronary Artery Bypass Graft (CABG) 
Surgery measure (NQF #2515) were recommended for endorsement by 
the NQF (Draft Report for Commenting at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=73619).
    Comment: Many commenters did not support the use of the CMS 
Hospital 30-DayDay, All-Cause, Unplanned, Risk Standardized Readmission 
Rate (RSRR) Following Coronary Artery Bypass Graft (CABG) Surgery 
measure (NQF #2515) for the Hospital Readmissions Reduction 
Program. Some of the reasons commenters gave for not supporting the 
CABG readmission measure (NQF #2515) included:
     Not being given enough time to establish their quality 
improvement program before having to incorporate additional medical 
conditions into its program. These commenters indicated that expansion 
of the Hospital Readmissions Reduction Program

[[Page 50035]]

through additional conditions (that is, readmission measures) and 
penalties while these hospital programs are being established will 
place additional strain on hospitals before they are given a chance to 
succeed in reducing their readmission rates;
     Not being given time to become familiar with the CABG 
readmission measure (NQF #2515) through the Hospital IQR 
Program;
     CMS not addressing Hospital Readmissions Reduction Program 
policies related to a lack of risk-adjustment for SES and excessive 
payment penalties for a single readmission;
     Belief that there is the potential negative consequence of 
unfairly targeting hospitals that do perform CABG surgical procedures, 
when CABG is not a universally performed procedure; and
     Belief that there is the potential negative unintended 
consequence of reducing access for high-risk, older patients to CABG 
procedures due to their increased potential for complications and 
readmissions. This commenter asked that CMS monitor CABG utilization in 
high-risk, older patients to ensure these patients are offered 
medically indicated care.
    Finally, one commenter did not support the CABG readmission measure 
(NQF #2515) until concerns over the limitations of the 
readmissions exclusions, risk adjustment, and access to information on 
hospital performance on the readmission measures were resolved.
    Response: We acknowledge that there is a balance between allowing 
time for stakeholders to initiate and establish programs to improve 
readmission rates and expanding the Hospital Readmissions Reduction 
Program to narrow the performance gaps noted throughout the nation with 
various medical conditions. We take into account many factors when we 
decide how and when to expand the readmission measure set, and believe 
that addition of the CABG readmission measure (NQF #2515) for 
FY 2017 is reasonable, especially considering that we had signaled in 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27597) that we were 
considering how to expand the Hospital Readmissions Reduction Program 
based on the recommendations in MedPAC's June 2007 report (available 
at: http://www.medpac.gov/documents/jun07_entirereport.pdf) which 
included CABG surgical procedures. We understand that hospitals prefer 
time to become familiar with new measures and, for this reason, we had 
posted the CABG readmission measure (NQF #2515) measure 
methodology reports in April 2014 the CMS Web site (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html), as well as alerted the 
public of these reports documents in the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 28109). We also have intermittently performed dry runs for 
certain measures and may consider plans to have a dry run for the CABG 
readmission measure (NQF #2515) in order to allow hospitals and 
other stakeholders to become more familiar with the measure.
    We also provide the opportunity for hospitals to review and correct 
their readmissions data relating to these measures prior to its release 
to the public on the Hospital Compare Web site. We anticipate the 
review and correction period to be in late July 2014. Because we have 
instituted a sequential pattern of implementing a readmission measure 
in the Hospital IQR Program before implementing it in the Hospital 
Readmission Reduction Program, we believe that stakeholders have 
sufficient time to become familiar with this measure because it will 
not be implemented until FY 2017. We also note suggestions we received 
from some commenters that we take advantage of the readmissions' 
improvement momentum, as evidenced by nationwide reductions in the rate 
of hospital readmissions, by expanding the Hospital Readmission 
Reduction Program measure set beginning in FY 2016 instead of FY 2017. 
We will continue to take into consideration comments regarding 
expansion of the Hospital Readmission Reduction Program during future 
deliberations on when to expand the readmission measure set.
    Regarding the concern for a lack of SES risk-adjustment SES in the 
CABG readmission measure (NQF #2515), we refer readers to 
section IV.H.4 of this preamble of this final rule for our discussion 
of SES.
    We note the commenter's views that CMS imposes excessive payment 
penalties for a single readmission. We recognize that not all hospitals 
perform CABG procedures. However, we also note that in the January 
2009-September 2011 Medicare FFS data, there were over 150,000 CABG 
procedures eligible for inclusion in this measure, and that there was a 
broad range of hospital-level risk-standardized readmission rates after 
CABG surgical procedures among hospitals ranges from 12.0 percent to 
23.1 percent.\30\ We also note in MedPAC's June 2007 report (available 
at: http://www.medpac.gov/documents/jun07_entirereport.pdf) that CABG 
has 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). For these reasons, and 
because of the physical and emotional burden of readmissions on 
patients themselves, we seek to ensure readmission rates following 
these common, costly, and preventable procedures are adequately 
monitored and hospitals are provided with performance data to allow 
quality improvement.
---------------------------------------------------------------------------

    \30\ 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.
---------------------------------------------------------------------------

    Finally, regarding the concern for a potential negative unintended 
consequence of reducing access for high-risk, older patients to CABG 
procedures due to such patients' increased potential for complications 
and readmissions, we note that the readmission measures take into 
account the care of older patients in the risk-adjustment model in 
order not to create disincentives to care for older patients. We also 
note that the goal of the readmissions measures is not to have 
readmission rates of zero, but rather to evaluate hospitals relative to 
hospitals with similar patients for excess readmissions. We will 
consider ways to monitor for this unintended consequence as well.
    Comment: Many commenters stated that the CMS Hospital 30-DayDay, 
All-Cause, Unplanned, Risk Standardized Readmission Rate (RSRR) 
Following Coronary Artery Bypass Graft (CABG) Surgery measure (NQF 
#2515) is unreliable due to a small number of CABG surgeries 
performed during the measurement period. One commenter suggested that 
hospitals may be unfairly penalized because of variation in readmission 
rates that results from a small number of cases during the measurement 
period.
    Response: We appreciate the commenters' feedback, and note that 
reliability is related to sample size. We do not agree that the CABG 
readmission measure is unreliable. We note that the same statistical 
approach to reliability for the CMS Hospital 30-Day, All-Cause, 
Unplanned, Risk Standardized Readmission Rate (RSRR) Following Coronary 
Artery Bypass Graft (CABG) Surgery measure (NQF #2515) is used 
and established for all other CMS NQF-

[[Page 50036]]

approved, hospital risk-adjusted outcome measures, including the 
mortality and readmissions measures. We adopted a risk adjustment 
modeling methodology for our outcome measures that takes into account 
sample size.
    We note that this issue was raised and responded to in part in the 
FY 2013 and FY 2014 IPPS/LTCH PPS final rules (77 FR 53379 and 78 FR 
50659, respectively) in our discussion of the readmission measures for 
the Hospital Readmissions Reduction Program. In the former rule, we 
stated that ``[w]e determined the 25-case threshold for public 
reporting based on a reliability statistic that is calculated from the 
intercluster correlation, a parameter of the model [we refer readers to 
pages 14 through 17 of the document ``PulmonaryAdditionalComment.pdf'' 
which can be retrieved at: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB0QFjAA&url=https%3A%2F%2Fwww.qualityforum.org%2FWorkArea%2Flinkit.aspx%3FLinkIdentifier%3Did%26ItemID%3D71385&ei=CRDYU4D6BYPhsASm4oDACA&usg=AFQjCNEvsLpiX23smKpBINVSv-91IAsXGA&sig2=UMJeMe1LdVq3lP69ks-1Hg&bvm=bv.71778758,d.cWc&cad=rja]. We 
are maintaining the minimum 25-case threshold that we adopted through 
rulemaking last year.''
    We acknowledge that smaller hospitals typically have less certain 
estimates because they have fewer cases for use in assessing quality. 
Our approach to modeling addresses the concern that small hospitals 
will be penalized due to random variation, and this challenge is 
inherent in outcome measurements. However, one advantage of the 
statistical model used for the CMS outcome measures is that it allows 
for the inclusion of small hospitals while characterizing the certainty 
of their estimates. The hierarchical logistic regression model that we 
use to calculate the risk-standardized outcome measures allows the 
inclusion of hospitals with relatively few observations, but takes into 
account the uncertainty associated with sample size in estimating their 
risk-standardized outcome rates. The model takes into account the 
uncertainty in the estimate of outcome rates for low-volume hospitals 
by assuming that each hospital is a typically performing hospital. It 
weighs that assumption along with the outcomes for the particular 
hospital in calculating the outcome rate. Therefore, the estimated 
outcome rates for smaller hospitals will likely be closer to the 
national rate because the limited number of eligible cases in the 
hospital indicated little about that hospital's true outcome rate.
c. 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.
    Comment: One commenter supported the minimum case size and believed 
that hospitals that are included in this measure will far exceed the 
minimum case volume, which will result in better measurement of a 
predicted readmission rate.
    Response: We appreciate the commenter's support.
    Comment: One commenter believed that, for the CABG measure, there 
should be areas for accountability on both the index and discharge 
hospitals. For example, if the discharge hospital does not perform 
accurate medication reconciliation, an error resulting in readmission 
should not reasonably be attributed to the index hospital.
    Response: We acknowledge that, unlike our other readmission 
measures in the Hospital Readmissions Reduction Program, the CABG 
readmission measure (NQF #2515) attributes the readmission 
outcome to the hospital that performed the initial CABG procedure, even 
if that hospital was not responsible for discharging the patient home 
or to a postacute setting for care. We took this approach for CABG 
readmission measure (NQF #2515) because, unlike for medical 
conditions, transfer to another acute care facility following CABG 
surgery is most likely due to a complication of the initial CABG 
procedure or the peri-operative care the patient received.\31\ 
Therefore, the care provided by the hospital performing the CABG 
procedure likely dominates readmission risk, even among transferred 
patients. We believe that the transferring hospital has control over 
the hospital to which they transfer their CABG patients and will be 
encouraged by this measure to work closely with the institutions they 
transfer patients to, to provide optimal continuity of care for their 
patients. We note that this approach is supported by the high 
proportion of CABG readmissions for diagnoses such as heart failure, 
pleural effusion, and pneumonia and is endorsed by clinical experts 
from the Society of Thoracic Surgeons and the nationally convened 
Technical Expert Panel members who helped develop this measure.\32\
---------------------------------------------------------------------------

    \31\ Hannan EL, Racz MJ, Walford G, Ryan TJ, Isom OW, Bennett E, 
Jones RH. Predictors of Readmission for Complications of Coronary 
Artery Bypass Graft Surgery. JAMA. 2003;290:773-780.
    \32\ 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.
---------------------------------------------------------------------------

    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 Medicare FFS 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

[[Page 50037]]

hospitalization. A number of studies demonstrate that improvements in 
care at the time of discharge can reduce 30-day readmission 
rates.33 34 Thirty days is 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.
---------------------------------------------------------------------------

    \33\ 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.
    \34\ 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 associated 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 
because 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 noncardiac 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.\35\ 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).
---------------------------------------------------------------------------

    \35\ 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.
---------------------------------------------------------------------------

    Comment: One commenter supported focusing on isolated CABG cases 
for the measure because it reflects a much more cohesive clinical 
population.
    Response: We appreciate the commenter's support.
    (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 FFS 
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 
FFS (excluded because the 30-day readmission outcome cannot be assessed 
in this group).
    Comment: One commenter did not support the CABG measure because it 
does not exclude readmissions unrelated to the initial reason for 
admission.
    Response: We addressed a similar comment in the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50654). We continue to review and revise the area 
of unrelated readmissions through our expansion of planned 
readmissions. Regarding other types of unrelated readmissions, we 
currently do not seek to differentiate between related and unrelated 
readmissions because readmissions not directly related to the index 
condition may still be a result of the care received during the index 
hospitalization. For example, a patient hospitalized for CABG who 
develops a hospital associated infection may ultimately be readmitted 
for sepsis. It would be inappropriate to treat this readmission as 
unrelated to the care the

[[Page 50038]]

patient received during the index hospitalization. Furthermore, the 
range of potentially avoidable readmissions also includes those not 
directly related to the initial hospitalization, such as those 
resulting from poor communication at discharge or inadequate follow-up. 
Therefore, we believe that creating a comprehensive list of potential 
complications related to the index hospitalization would be arbitrary, 
incomplete, and, ultimately, extremely difficult to implement. However, 
in coordination with medical experts, we created a planned readmission 
algorithm to determine conditions considered planned. Generally, 
planned readmissions are not a signal of quality of care. Therefore, we 
have worked with experts in the medical community, as well as other 
stakeholders, to carefully identify procedures and treatments that 
should be considered ``planned'' and, therefore, not counted as 
readmissions.
(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, HF, and PN 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 YNHHSC/CORE, and the STS CABG 
readmission measure development working groups 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 the patient 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.
    Comment: One commenter supported attributing the readmission 
following a CABG procedure to the hospital performing the first CABG 
procedure.
    Response: We appreciate the commenter's support.
(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. We refer readers to section IV.H.4 of the preamble of this final 
rule for further discussion of risk-adjustment for socioeconomic 
factors.
    Comment: One commenter was concerned with the CABG readmission 
measure's predictive ability, but the commenter did not provide 
additional details of its concern.
    Response: We believe the commenter's primary concern is with the c-
statistic of the measure, and would like to clarify the important 
difference between predictive models intended for patient-level risk-
stratification versus models used to profile hospital performance. 
First, in a patient-level predictive model, the objective is to predict 
patient outcomes and the risk-adjustment variables as a means to best 
predict these outcomes. As an example, a patient who has a serious 
complication of care may be at higher risk of mortality and 
readmission, and therefore complications might be useful to include in 
a model used for patient-level prediction. Second, and in contrast, the 
role of risk-adjustment in hospital profiling models is to level the 
playing field for hospitals in measures that assess hospitals on their 
relative performance--that is, on how well a hospital is doing compared 
to other hospitals with similar patients. The risk-adjustment variables 
should only include those that are inherent to the patient and are 
present at the start of the time period. Although risk-adjusting for 
complications of care could increase the statistical power of a 
profiling model, it would not make sense to risk-adjust for 
complications because it could lead hospitals with high rates of 
complications to appear to be performing better than hospitals that 
admitted similar patients even though the quality of care is worse. We 
note that, in addition to this clarification, the CABG readmission 
measure (NQF #2515) risk model has been validated using 
registry data from the STS' Adult Cardiac Surgery Database and produced 
nearly identical c-statistics in a matched set of patients with 
correlation coefficients between 0.92 and 0.96, depending upon the 
statistic used.\36\
---------------------------------------------------------------------------

    \36\ 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.
---------------------------------------------------------------------------

    Comment: One commenter encouraged CMS to ensure measures risk-
adjust for comorbidities and preexisting conditions for vascular 
patients as these are major determinants of patient outcomes.
    Response: We agree with the commenter that vascular comorbidities 
and preexisting conditions for vascular patients are important 
determinants of CABG patient outcomes. The CABG readmission measure 
adjusts for a range of preexisting comorbidities, including vascular 
and circulatory conditions, stroke and cerebrovascular disease, and 
other cardiac disorders such as congestive heart failure and 
arrhythmias, as well as comorbidities that place patients at risk for 
these conditions, such as diabetes and end-stage renal disease.\37\
---------------------------------------------------------------------------

    \37\ 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.
---------------------------------------------------------------------------

(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 proposed 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.

[[Page 50039]]

    We note that the set of hospitals for which this measure is 
calculated for the Hospital Readmissions Reduction Program differs from 
the set of hospitals used in calculations for the Hospital IQR Program. 
The Hospital Readmissions Reduction Program includes only subsection 
(d) hospitals as defined in 1886(d)(1)(B) of the Act, 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.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the Hospital-Level, 30-Day, All-Cause, 
Unplanned Readmission Measure Following CABG Surgery measure for 
inclusion in the Hospital Readmissions Reduction Program for FY 2017.
7. Maintenance of Technical Specifications for Quality Measures
    Technical specification of the readmission 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=1228
772412995).
    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 that, for this calendar year, the AMI readmission 
measure is undergoing the NQF maintenance endorsement process.
    For the Hospital Readmissions Reduction Program, in the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28111), we proposed 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 the 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 invited public comment on this 
proposal.
    Comment: One commenter commended the proposal 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 the proposed rule (79 FR 28218). The commenter noted that 
this policy of handling substantive and nonsubstantive changes to 
measures that arise through measure maintenance processes allows CMS 
two mechanisms to address measure updates: (1) The use of future 
proposed rules and review periods for substantive changes; (2) 
subregulatory processes for nonsubstantive changes which also preserves 
CMS' autonomy and flexibility to rapidly implement nonsubstantive 
updates to measures.
    No commenters opposed or recommended changes to the proposal.
    Response: We appreciate the commenter's support.
    Comment: One commenter indicated that any changes to a measure 
developed for adults but now include those <18 years of age should not 
be considered nonsubstantive.
    Response: We appreciate this comment and note that this concern was 
addressed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50776).
    After consideration of the public comments we received, we are 
finalizing the proposed maintenance of technical specifications for 
quality measures for the Hospital Readmissions Reduction Program.
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.
    As part of this agreement, Medicare will no longer 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 but, for the model, would be included in 
the Hospital Readmissions Reduction Program. In other words, the 
exemption

[[Page 50040]]

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) of the Act and its implementing 
regulations have been waived for purposes of the model, under the terms 
of the agreement.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28111 through 
28112), we proposed to make conforming changes to the implementing 
regulations to reflect this change. Under Sec.  412.152, we proposed 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 
proposed to delete Sec.  412.154(d) in its entirety.
    We invited public comment on these proposals.
    Comment: Several commenters supported CMS' proposal to continue to 
exempt Maryland hospitals, now being paid under the Maryland All-Payer 
Model, from the Hospital Readmissions Reduction Program and the 
proposed conforming changes to the Hospital Readmissions Reduction 
Program regulations.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing the changes to the Hospital Readmissions Reduction Program 
regulations as proposed without modification. Specifically, we are 
finalizing our proposal to make conforming changes to our regulations 
at Sec.  412.152 and Sec.  412.154(d) to reflect that Maryland elected 
to no longer have Medicare pay Maryland hospitals in accordance with 
section 1814(b)(3) of the Act.
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 (no 
reduction) and 0.9700 (greatest possible reduction).
    Comment: One commenter expressed concern that the maximum reduction 
has been raised from 2 percent to 3 percent and that, in conjunction 
with adding two new measures to the program, this change will only 
increase harm to safety net hospitals.
    Response: We recognize the commenter's concern regarding the 
magnitude of the maximum payment reduction for FY 2015 provided under 
the statute. Section 1886(q)(3) of the Act requires that, effective for 
discharges occurring in FY 2015 and beyond, the maximum readmissions 
payment adjustment factor or the floor adjustment factor to be 0.97 or 
a 3 percent reduction, applied to a hospital's base operating DRG 
payment amount. We note that we estimate that only 39 hospitals will be 
subject to the maximum reduction for FY 2015.
    After consideration of the public comments we received, we are 
finalizing our proposal that the floor adjustment factor be 0.97 for FY 
2015, consistent with section 1886(q)(3) of the Act, as codified at 
Sec.  412.154(c)(2).
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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28112), for FY 
2015, consistent with the definition at Sec.  412.152, we proposed 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 proposed 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 invited public comment on these proposals.
    Comment: Several commenters requested that CMS make real-time 
reporting of readmission rates accessible to hospitals, while other 
commenters suggested that CMS monitor reported data for correlation and 
trends to identify if hospitals are making unacceptable trade-offs by 
reducing readmissions at the expense of increasing post discharge 
mortality.
    Response: We note that these requests are considered out of scope 
for the Hospital Readmissions Reduction Program in the FY 2015 IPPS/
LTCH PPS proposed rule and will take these requests under consideration 
during future rulemaking.
    Comment: Several commenters requested that CMS revise the 
applicable time period to only include the most recent year. One 
commenter believed that it is unfair to penalize hospitals for 
performance from 2 or 3 years ago, especially if they have improved in 
the most recent year.
    Response: We note that we addressed this concern in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53380), and that

[[Page 50041]]

we use a 3-year period of index admissions to increase the number of 
cases per hospital used for measure calculation, which improves the 
precision of each hospital's readmission estimate. Although this 
approach utilizes older data, it also identifies more variation in 
hospital performance and still allows for improvement from one year of 
reporting to the next.
    After consideration of the public comments we received, we are 
finalizing as proposed the applicable period of the 3-year time period 
of July 1, 2010 to June 30, 2013 to calculate the excess readmission 
ratios and the readmission payment adjustment factors for FY 2015.
11. 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, in the 
FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28112 through 282117), we 
proposed 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 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 section IV.H.11. of the preamble of the 
proposed rule, we discussed the proposed methodology to include these 
two additional measures in the calculation of the readmissions payment 
adjustment for FY 2015. Specifically, we proposed 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 proposed to use MedPAR claims with discharge dates

[[Page 50042]]

that are on or after July 1, 2010, and no later than June 30, 2013. 
Under our established methodology 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.
    In the proposed rule, we proposed to determine aggregate payments 
for excess readmissions and aggregate payments for all discharges using 
data from MedPAR claims with discharge dates that are on or after July 
1, 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 the proposed rule, we used 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 the proposed rule, for FY 2015, we proposed to use MedPAR data 
from July 1, 2010 through June 30, 2013. Specifically, in the proposed 
rule, we used 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 discharge dates no later than June 30, 2013. For the final rule, 
we proposed 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 
proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 the proposed rule, for FY 2015, we proposed 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 proposed 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 proposed 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.

[[Page 50043]]

     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 proposed the following steps to 
identify admissions specifically for THA/TKA for the purposes of 
calculating aggregate payments for excess readmissions:
     We proposed 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 proposed 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 proposed 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 proposed 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 proposed to exclude admissions for THA/TKA for cases 
where the discharge includes more than two hip/knee procedures.
     We proposed to exclude admissions for THA/TKA for cases 
that meet either any of the following conditions or following 
procedures concurrent with THA/TKA: Revision procedures; partial hip 
arthroplasty (PHA) procedures; resurfacing procedures; and removal of 
implanted devices/prostheses.
    Furthermore, we proposed 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 proposed 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 proposed 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.

[[Page 50044]]

 
486.........................................  Pneumonia organism unspecified.
487.0.......................................  Influenza with pneumonia.
488.11......................................  Influenza due to identified novel H1N1 influenza virus with
                                               pneumonia.
----------------------------------------------------------------------------------------------------------------


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


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

[[Page 50045]]

 
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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 did not propose any changes to our existing methodology 
to calculate ``aggregate payments for all discharges'' (the denominator 
of the ratio).
    We proposed the following methodology for FY 2015 as displayed in 
the chart below.

        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 invited public comment on these proposals.
    Comment: Several commenters supported the inclusion of the Elective 
Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty 
(TKA) All-Cause Unplanned 30-Day Risk-Standardized Readmission and the 
Hospital-level 30-day Readmission Following Admission for an Acute 
Exacerbation of Chronic Obstructive Pulmonary Disease measures. Others 
commenters supported the modified exclusions for both of these 
measures, as well as the payment adjustment factor and calculation of 
aggregate payments.
    Response: We thank the commenters for support of the exclusions, 
payment adjustment factor, and calculation of aggregate payments for 
the Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee 
Arthroplasty (TKA) All-Cause Unplanned 30-Day Risk-Standardized 
Readmission and the Hospital-Level 30-day Readmission Following 
Admission for an Acute Exacerbation of Chronic Obstructive Pulmonary 
Disease measures, and the support to expand the Hospital Readmissions 
Reduction Program with this measures.
    Comment: On CMS' proposed methodology to identify THA/TKA 
admissions to include in the calculation of Aggregate Payments for 
Excess Readmissions, one commenter recommended that CMSCMS expand the 
list of exclusions to specifically exclude conversion of previous hip 
surgery to total hip arthroplasty (represented by CPT code 27132). The 
commenter noted that, while the current granularity of the ICD-9-CM 
coding framework may complicate isolating these cases, the commenter 
believed that the previous surgery of the hip is a specific risk factor 
for complications (for example, infection, fracture), and therefore 
these cases should be identified for purposes of the readmission 
measure.
    Response: As discussed earlier in this final rule, in order to 
calculate aggregate payments for excess readmissions, consistent with 
our existing policy, we proposed to identify each applicable condition 
using the ICD-9-CM codes used to identify applicable conditions to 
calculate the excess readmissions ratios. We do not believe it would be 
appropriate to apply an exclusion to the set of admissions used to 
calculate the aggregate payments that is not applied in the measure 
cohort definition that is calculation of the excess readmission ratio. 
The current measure for THA/

[[Page 50046]]

TKA excludes specific groups of patients with prior hip surgeries that 
place them at a significantly increased risk of complications, 
including revision procedures and those requiring removal of implanted 
devices from the femur (ICD-9-CM codes 78.65). We are currently 
exploring the specificity of ICD-9-CM versus CPT codes for prior hip 
surgery to assess whether the measure cohort definition could be 
further refined by including CPT codes. If we determine that any 
changes to the measure cohort may be appropriate, we would propose such 
changes through future rulemaking.
    Comment: Several commenters recommended changes to the methodology 
to calculate the readmission payment adjustment factors. Several 
commenters stated that the proposed calculation of the readmission 
payment adjustment factor creates excessive payment reductions. 
Commenters noted that the calculation of the readmissions payment 
adjustment factors is flawed because the excess readmission ratio 
should be applied to the number of a hospital's readmissions, not 
admissions, in order to determine the hospital's excess payments for 
readmissions.
    Furthermore, these commenters asserted that CMS has the authority 
through rulemaking to apply the excess readmission ratio to a 
hospital's readmissions to determine a hospital's excess payments for 
readmissions, which they believed would be consistent with 
Congressional intent. Commenters noted that CMS' estimated savings 
exceed the Congressional Budget Office (CBO) score for the provision, 
which commenters believed demonstrates that CMS' literal reading of the 
statute is not consistent with Congressional intent. Commenters also 
suggested that CMS could determine the magnitude of the readmission 
reduction using the 25th percentile of hospital performance on the 
readmission measures rather than assuming average hospital performance, 
which is the assumption of the current methodology used to determine 
the number of expected readmissions.
    Response: We received a similar comment in response to the FY 2013 
IPPS/LTCH PPS proposed rule (77 FR 53393) and to the FY 2014 IPPS/LTCH 
PPS proposed rule (78 FR 50673). We continue to believe that the 
statute is prescriptive with respect to the calculation of ``aggregate 
payments for excess readmissions'' where the statute specifies that the 
``aggregate payments for excess readmissions'' is the sum for each 
condition of the product of ``the operating DRG payment amount for such 
hospital for such applicable period for such condition'' and ``the 
number of admissions for such condition'' and ``the excess readmission 
ratio'' minus one. We believe that section 1886(q)(4)(A) of the Act 
requires us to include all admissions for a condition in the 
calculation of ``aggregate payments for excess readmissions.'' We do 
not believe we have the discretionary authority to implement an 
alternative methodology under the existing the statute. We continue to 
believe that we are implementing the provision as required by law.
    Comment: Several commenters stated that the Hospital Readmissions 
Reduction Program does not account for improvement in readmission 
rates. One commenter asserted that there is no incentive for 
improvement under the Hospital Readmissions Reduction Program as there 
is in the Hospital VBP Program and stated that penalties under this 
program are due to issues out of the control of the hospital. One 
commenter suggested that the penalty should equal the cost of excess 
readmissions over a fixed target level of readmissions, as opposed to a 
hospital being measured against the national average.
    Response: We appreciate the comments on various ways to change the 
calculations of the readmissions payment adjustment factors and 
readmissions measures to account for improvement in readmission rates 
or provide incentives for readmissions, as opposed to penalties. We 
received similar comments in responses in previous rulemaking (77 FR 
53394 and 78 FR 50673). The Hospital Readmissions Reduction Program 
under section 1886(q) of the Act is structured to compare a hospital's 
performance for certain conditions compared to the average hospital. If 
a hospital can improve over time and those improvements result in a 
performance on readmissions for the applicable conditions that is 
better than the average hospital, the hospital has the potential to 
reduce its penalty or not be subject to a penalty at all. As we have 
stated in previous rules, the statute does not provide us with the 
authority to reward hospitals for improvement, which is allowed under 
section 1886 (p) of the Act for the Hospital VBP Program.
    Comment: MedPAC provided several recommendations to change the 
Hospital Readmissions Reduction Program related to the calculation of 
the readmissions payment adjustment factor, which MedPAC acknowledged 
would require statutory changes. Specifically, MedPAC stated that the 
readmission penalty formula is flawed because aggregate penalties 
remain constant even as national readmission rates decline. In 
addition, MedPAC pointed out that the condition-specific penalty per 
excess readmission is higher for conditions with low readmission rates, 
which becomes more important with the inclusion of elective total hip 
and total knee arthroplasty (relatively low readmission rate 
conditions) to the Hospital Readmissions Reduction Program. Lastly, 
MedPAC believed the readmissions multiplier should be removed from the 
formula and replaced with a penalty that roughly equals the cost of 
excess readmissions over a fixed target level of readmissions. Given a 
fixed target, under this approach penalties would decline if hospitals' 
collective performance improves.
    Response: We appreciate the comments and suggestions made by 
MedPAC. We note that these comments are similar to comments submitted 
year for the FY 2014 IPPS/LTCH PPS final rule (78 FR 50674), and we 
agree that to implement these recommendations would require statutory 
changes.
    Comment: Several commenters requested that CMS clarify whether 
admissions denied by the CMS Recovery Audit Contractor (RACs) are 
excluded from either the numerator or the denominator in the 
calculation of the excess readmission ratios or in the calculation of 
the readmissions payment adjustment factors. Commenters believed that 
by including admissions denied by the CMS RACs, a hospital would be 
penalized twice for the same admission--once by the RAC denial and a 
second time by having the admission included in the readmission payment 
penalty.
    Response: As we explained in the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50675), we use MedPAR claims data as our data source to 
calculate readmissions payment adjustment factors, specifically the 
excess payments for readmissions and payment for all discharges. In 
this final rule, for FY 2015, we are finalizing a policy to use MedPAR 
data for discharges from July 1, 2010 through June 30, 2013, consistent 
with our historical practice. We also are finalizing the policy to use 
the March 2011 update of the FY 2010 MedPAR file, the March 2012 update 
of the FY 2011 MedPAR, the March 2013 update of the FY 2012 MedPAR file 
and the March 2014 update of the FY 2013 MedPAR file to identify the 
discharges occurring from July 1, 2010 through June 30, 2013. In 
addition, the Standard Analytic File is the data source used to 
calculate the excess readmission ratios. We use the June 2011 update of 
the 2010 SAF file, the June 2012 update of the 2011 file, the June 2012 
update of

[[Page 50047]]

the 2012 file, and the September 2013 update of the 2013 file.
    RACs have up to 3 years to review claims to determine whether a 
claim was inappropriately billed as inpatient when it should have been 
an outpatient claim. If a claim is denied as an inpatient stay, the 
claim is adjusted through the standard Medicare claims processing 
systems, going through the CWF, SAF and MedPAR. However, given the 
timing of the RAC audits and the updates of the SAF and MedPAR files 
used to calculate the readmissions measures and readmissions payment 
adjustment factors, it is not certain that all denied claims will be 
reflected in our claims files at the time of our calculations. However, 
we continue to believe that using these updates of the MedPAR and SAF 
files is consistent with IPPS ratesetting and allows for transparency 
for the public to obtain this dataset for replication. Furthermore, 
inpatient stays that are denied payment under Medicare Part A typically 
remain classified as inpatient stays, and can be billed to Medicare 
Part B as an Medicare Part B inpatient stay. These inpatient stays that 
are denied payment under Medicare Part A will typically continue to 
count as a qualifying inpatient stay for other payment purposes such as 
qualifying for SNF benefits and Medicare DSH patient days. Therefore, 
we continue to believe that it is appropriate to include these 
admissions in the Hospital Readmissions Reduction Program.
    Comment: One commenter opposed the proposal that the base operating 
DRG payment amount for MDHs include the difference between the 
hospital-specific rate payment and the Federal rate payment in FY 2015, 
noting that, for teaching MDHs, the hospital-specific rate add-on 
payment is inclusive of costs associated with teaching and that the 
inclusion of such payment would violate the Affordable Care Act. This 
commenter requested that CMS maintain the current definition of ``base 
operating DRG payment amount,'' which excludes this additional 
hospital-specific payment rate amount.
    Response: We disagree with the commenter. The ``base operating DRG 
payment amount'' is generally defined as the wage-adjusted DRG 
operating payment plus any applicable new technology add-on payments 
(Sec.  412.152 and Sec.  412.160). For years prior to FY 2014, the 
statutory provisions related to the definition of ``base operating DRG 
payment amount'' under section 1886(q)(2)(B)(i) of the Act excluded the 
difference between an MDH's applicable hospital-specific payment rate 
and the Federal payment rate (referred to as the hospital-specific add-
on) from the definition of the base operating DRG payment amount. (MDHs 
are paid based on the Federal rate or, if higher, the Federal rate plus 
75 percent of the amount by which the Federal rate is exceeded by the 
updated hospital-specific rate from certain specified base years.) 
However, section 1886(q)(2)(B)(i) of the Act states that the exclusion 
of the hospital-specific add-on from the base operating DRG payment 
amount is only effective for MDHs with respect to discharges occurring 
during FYs 2012 and 2013. Furthermore, section 1886(q)(2)(B)(ii) of the 
Act requires that the definition of base operating DRG payment amount 
exclude payments made under section 1886(d)(5)(B) of the Act (IME 
payments). While a portion of the hospital-specific rate is related to 
teaching services provided by teaching MDHs, we do not consider that 
amount to be a payment under section 1886(d)(5)(B) of the Act. We 
otherwise do not have authority to exclude the difference between the 
hospital-specific payment rate for MDHs from the definition of base 
operating DRG payment amount for discharges.
    Therefore, in accordance with the statute, beginning in FY 2014, 
the definition of ``base operating DRG payment amount'' includes the 
difference between an MDH's applicable hospital-specific rate payment 
and Federal rate payment (that is, the hospital-specific add-on). As a 
result, in the calculation of the readmissions payment adjustment 
factor, which is a ratio of a hospital's ``aggregate payments for 
excess readmissions'' and a hospitals ``aggregate payments for all 
discharges'', the base operating DRG payment amounts used in this 
calculation for MDHs also includes the hospital-specific add-on, if 
applicable. Furthermore, the statute specifies that the readmissions 
payment adjustment factor is applied to the base operating DRG payment 
amount for each Medicare FFS discharge in a Federal fiscal year.
    Therefore, we are adopting our proposal as final, and for FY 2015, 
the readmissions payment adjustment factor will be applied to the base 
operating DRG payment amount, including the hospital-specific add on 
for MDHs as applicable. This is consistent with the policy established 
for the treatment of MDHs under the Hospital Readmissions Reduction 
Program and the Hospital VBP Program for FY 2014 in the notice that 
appeared in the Federal Register on June 17, 2014 (79 FR 34448 through 
34449) that implemented the extension of the MDH program through 
September 30, 2015, as provided by the PAMA. In that notice, we 
explained that this change in the determination of base operating DRG 
for MDHs consistent is with the section 1886(q)(2)(B)(i) of the Act, 
and affects both the calculation of the readmission payment adjustment 
factor and the payments reduced by the readmission payment adjustment 
factor for MDHs that receive the hospital-specific add-on payment.
    As noted previously, MDHs are paid the higher of the Federal rate 
payment or Federal rate payment plus the hospital-specific add-on 
payment on a per claim basis. At cost report settlement, the MAC 
determines which of the payment options yields a higher aggregate 
payment for an MDH, and also determines the final hospital-specific 
add-on payment (if applicable) for that MDH for each cost reporting 
period. Because a final payment determination for an MDH's cost 
reporting period is not done until cost report settlement, if an MDH 
ultimately receives the hospital-specific add-on (that is, its final 
payment is determined to be the Federal rate payment plus 75 percent of 
the amount by which the Federal rate payment is exceeded by the updated 
hospital-specific rate payment), then additional adjustments under the 
Hospital Readmissions Reduction Program will be made during cost report 
settlement and not on the claim. If at cost report settlement an MDH 
ultimately does not receive a hospital-specific add-on for the cost 
reporting period (that is, its final payment is determined to be the 
Federal rate payment only), then no additional adjustment (if otherwise 
applicable) under the Hospital Readmissions Reduction Program will be 
made.
    Comment: Some commenters supported the proposed series of changes 
to calculate the aggregate payments for excess readmissions for FY 2015 
including the two additional conditions of COPD and TKA/THA. 
Specifically, some commenters supported CMS' exclusions of admissions 
to calculate aggregate payments for excess readmissions, most of which 
conformed to the calculation exclusions of the individual measures. 
Commenters supported CMS' proposals where index admissions that are not 
considered readmissions for the purpose of the readmissions measures 
and are excluded from the calculation of the excess readmission ratio, 
would also be excluded from the admissions used to determine a 
hospital's aggregate payments for excess readmissions, such as 
exclusions for admissions for patients who did not have Medicare Part A 
and B for 12 months prior to the admission or 3030 days after the 
admission, as identified by linking MedPAR claims

[[Page 50048]]

files to the Medicare Enrollment Database (EDB). Some commenters 
supported CMS' proposal to use of MedPAR data to calculate the 
readmissions payment adjustment factors.
    Response: We thank the commenters for their support of our proposed 
methodology to calculate the readmission payment adjustment factors 
with the inclusion of two additional readmissions measures of THA/TKA 
and COPD, and we are finalizing the policies as proposed. The MedPAR 
data we are finalizing to use to calculate the readmissions payment 
adjustment factors for FY 2015 is specified above.
    We note that we stated in the proposed rule (79 FR 28113) that, 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. In 
previous years, the review and correction period occurred prior to the 
publication of the final rule, and we published the final excess 
readmission ratios and readmission payment adjustment factors on the 
CMS IPPS Web site and the final readmission payment adjustment factors 
in Table 15 in conjunction with the issuance of the final rule. Since 
the publication of the proposed rule, we experienced unexpected delays 
in the production of the excess readmission ratios, which has resulted 
in a later than expected start to the 30-day review and corrections 
period. For the data from the FY 2015 applicable period, the review and 
corrections period will still be ongoing through August 19, 2014, which 
extends beyond the issuance of this FY 2015 IPPS/LTCH PPS final rule. 
As a result, in Table 15A listed in the Addendum of this final rule 
(which is available only via the Internet on the CMS Web site), we are 
providing proxy FY 2015 readmission payment adjustment factors, and are 
posting the corresponding proxy excess readmission ratios, which are 
based on the FY 2015 application period of July 1, 2010 to June 30, 
2013, on the CMS IPPS Web site. After the completion of the review and 
corrections process, we will publish the final FY 2015 readmissions 
payment adjustment factors in Table 15B that will be effective for 
determining payments for discharges occurring on or after October 1, 
2014, and the corresponding final excess readmission ratios on the CMS 
IPPS Web site. We expect the final FY 2015 readmissions payment 
adjustment factors in Table 15B and the corresponding final excess 
readmission ratios to be posted on the CMS IPPS Web site prior to 
October 1, 2014.
    After consideration of the public comments we received, we are 
finalizing without modification our proposals pertaining to the 
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
    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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28117) we 
welcomed 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.
    Comment: A few commenters supported the creation of an 
extraordinary circumstance exemption process. The commenters 
recommended that an extraordinary circumstance exemption process should 
be allowed for hospitals that experience a natural disaster and should 
also be applied to the payment year in which the date of the disaster 
occurs because the Hospital Readmissions Reduction Program uses 2 years 
of performance data that also overlaps with subsequent payment years. 
Two commenters specifically indicated that the extraordinary 
circumstance exemption process should be similar to the existing 
Hospital VBP Program exceptions process. Finally, a commenter suggested 
establishing a 90-day period, beginning with the date of the disaster, 
for hospitals to submit a request for an exemption from the Hospital 
Readmissions Reduction Program for a specific fiscal year. No 
commenters made other recommendations on how to operationalize an 
extraordinary circumstance exemption policy and supporting processes.
    Response: We appreciate the input from the commenters. We will take 
into consideration these recommendations as we consider whether an 
exemption process for the Hospital Readmissions Reduction Program 
should be implemented.

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

[[Page 50049]]

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 Title 42, Sections 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. In the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28117 through 28118), using the 
methodology we adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53571 through 53573), we estimated that the total amount available for 
value-based incentive payments for FY 2015 was $1.4 billion, based on 
the December 2013 update of the FY 2013 MedPAR file. We stated that we 
intended to update this estimate for the FY 2015 IPPS/LTCH PPS final 
rule, using the March 2014 update of the FY 2013 MedPAR file. Based on 
the March 2014 update of the FY 2013 MedPAR file, we continue to 
estimate that the amount available for value-based incentive payments 
for FY 2015 is $1.4 billion.
    As finalized in the FY 2013 IPPS/LTCH PPS final rule, 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 noted in the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 28117-28118) that we were publishing proxy value-based 
incentive payment adjustment factors in Table 16 of that 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, was also published in Table 16.
    We stated that we intended to update this table as Table 16A in 
this 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 stated that we intended to update the slope 
of the linear exchange function used to calculate those updated proxy 
value-based incentive payment adjustment factors. The slope of the 
linear exchange function used to calculate those updated proxy value-
based incentive payment adjustment factors is 2.0950773214. The updated 
proxy value-based incentive payment adjustment factors for FY 2015 
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 this 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.
    We received a number of public comments on our stated intention to 
update Table 16 as Table 16A for the final rule:
    Comment: Commenters found Table 16 misleading and urged CMS to 
adopt a change in the process that would allow for a more meaningful 
release of information in the proposed rule on Hospital VBP 
performance. Specifically, commenters stated that Table 16 is not 
useful to hospitals that attempt to assess their performance in 
comparison to others when CMS has added or removed new measures and 
changed the domain weights. As a result, commenters urged CMS to 
calculate proxy factors using the updated measures and domain weights 
finalized in last year's rule for FY 2015 so that hospitals are not 
forced to rely on data provided to them from other entities, such as 
State hospital associations that provide updated information to their 
members.
    Response: While we understand commenters' concerns with comparing 
Hospital VBP performance information across program years, we make 
these calculations using the most recently-available performance data 
that hospitals have had the opportunity to review, which at the time of 
the IPPS/LTCH PPS rule's publication does not include the scoring data 
for the next fiscal year. We do not believe it would be useful to 
publish proxy factors using domain weights finalized for the next 
fiscal year without the corresponding performance scoring data from the 
same program year because that action would mix policies between fiscal 
years, which is why we have adopted the practice of calculating proxy 
factors from the previous year. We believe that these calculations 
represent the most accurate data available at the time of the final 
rule's publication and appropriately reflect policies for a single 
program year.
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,

[[Page 50050]]

does not apply to discharges occurring after FY 2013.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28118), for FY 
2015 and subsequent years, for purposes of calculating the payment 
adjustment factors and applying the payment methodology, we proposed 
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 also proposed to revise the definition 
of ``base operating DRG payment amount'' in section 412.160 paragraph 
(2) of our regulations to reflect this change. We welcomed comments on 
this proposal.
    Comment: One commenter opposed CMS' proposal to revise the 
definition of base operating DRG payment amount for MDHs to include the 
difference between the hospital-specific payment rate add-on payment 
amount and the Federal payment rate, noting that for teaching MDHs, the 
hospital-specific rate add-on payment amount is inclusive of costs 
associated with teaching and that the inclusion of such payment would 
violate the Affordable Care Act. This commenter requested that CMS 
maintain the current definition of base operating DRG payment amount, 
which excludes this additional hospital-specific payment rate amount.
    Response: We disagree with this comment. Section 
1886(o)(7)(D)(i)(II) of the Act requires that the definition of base 
operating DRG payment amount exclude payments made under section 
1886(d)(5)(B) of the Act. While a portion of the hospital-specific rate 
is related to teaching services provided by teaching MDHs, we do not 
consider that amount to be a payment under section 1885(d)(5)(B) of the 
Act. We do not believe that we have authority to exclude the difference 
between the hospital-specific payment rate and the Federal payment rate 
for MDHs from the definition of base operating DRG payment amount for 
discharges after FY 2013.
    We did not receive any public comments on the corresponding 
proposed regulatory revision at 42 CFR 412.160.
    After consideration of the public comments we received, we are 
finalizing our policy, as proposed, to revise the definition of ``base 
operating DRG payment amount'' for MDH to include the difference 
between the hospital-specific payment rate and the Federal payment rate 
(as applicable). We also are finalizing the revision to the definition 
of ``base operating DRG payment amount'' in section 412.160, paragraph 
(2), of our regulations, as proposed.
    We also received a number of general comments on the Hospital VBP 
Program:
    Comment: Commenters asked that CMS to clarify why CMS did not 
address FY 2018 Hospital VBP Program requirements in the proposed rule.
    Response: We adopted certain FY 2018 policies related to claims-
based measures that require a long performance period in the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50692 through 50694 and 50698 through 
50699). For the same reason, we are adopting certain policies related 
to FY 2019 and FY 2020 measures in this final rule. We intend to 
propose additional FY 2018 policies, including additional measures, 
performance periods, performance standards, and other policies in 
future rulemaking.
    Comment: One commenter expressed concern about the instability and 
changing requirements of the Hospital VBP Program. The commenter was 
especially concerned that 60 percent of the measures are calculated 
based on coding that could result in inaccurate measure rates. The 
commenter suggested that there be some sort of validation for hospitals 
performing well to assure that coding practices are being met.
    Response: As discussed in the Hospital Inpatient VBP Program final 
rule (76 FR 26537 through 26538), we have finalized a policy under 
which we will use the validation process that we use for the Hospital 
IQR Program to ensure that Hospital VBP data are accurate. As we 
described in that final rule, we view the Hospital IQR Program's 
validation processes as sufficient to ensure that Hospital VBP Program 
data are accurate, and we intend to continue working with stakeholders 
to develop additional validation processes as necessary to ensure data 
accuracy for the Hospital VBP Program.
    Comment: One commenter urged CMS to put measures in place prior to 
affecting Medicare payments. The commenter suggested the best way to 
improve patient care is to ``put into practice'' a measure and track it 
over time. According to the commenter, if there is no improvement in 
the results, the measure could then be included in the Hospital VBP 
Program.
    Response: We interpret the comment as suggesting that we adopt 
measures for reporting purposes prior to adopting them under the 
Hospital VBP Program. We note that we can only select measures for the 
Hospital VBP Program that have been specified under the Hospital IQR 
Program and publicly reported on the Hospital Compare Web site. 
However, we appreciate the suggestion that we track measures over time 
before adopting them for the Hospital VBP Program to ensure that these 
measures will serve the goals of the program, and we will take the 
suggestion into consideration as we develop future policies.
    Comment: Commenters strongly supported CMS' removal of process 
measures that use chart-abstracted data and supported the use of 
outcomes measures.
    Response: We thank the commenters for their support.
    Comment: One commenter urged CMS to return a hospital's ``carve-
out'' if the hospital is deemed ineligible for the Hospital VBP Program 
as a result of the policy by which CMS requires that hospitals submit a 
minimum number of cases and measures across domains in order to receive 
a Total Performance Score.
    Response: Hospitals that are excluded from the Hospital VBP Program 
for a fiscal year for any reason do not have the applicable percentage 
withheld from their base operating DRG payment amounts.
    Comment: Several commenters stated that they do not believe 2 
percent of the amount of Medicare hospital payments is significant 
enough to drive value-based change in the system. A few commenters 
suggested that CMS consider alternative ways to align Medicare payments 
with the policies developed in the Hospital VBP Program to promote more 
change.
    Response: The statute ultimately caps the Hospital VBP Program's 
funding at 2 percent of base-operating DRG payment amounts, and we view 
this amount as substantial enough to provide significant incentives to 
hospitals to improve the quality of care they provide to Medicare 
beneficiaries.
    Comment: Several commenters supported CMS' efforts to align the 
Hospital VBP Program with existing hospital and physician quality 
reporting initiatives, including the Physician Value-Based Modifier 
(VM) Program. One commenter stated that the programs should encourage 
consistent quality throughout the continuum of care.
    However, one commenter cautioned CMS in its goal of increasing 
alignment between the Hospital VBP and physician quality reporting 
initiatives because, despite generally supporting alignment between 
Medicare reporting requirements to decrease the administrative burden 
on providers, the commenter expressed concern that the Medicare 
Spending per Beneficiary

[[Page 50051]]

(MSPB) measure is inappropriate for inclusion in the physician quality 
reporting programs.
    Response: We will consider possible policies aimed at aligning our 
quality programs across different care settings in future rulemaking. 
We disagree, however, that the MSPB measure is generally inappropriate 
for inclusion in physician quality reporting programs. We view measures 
of efficiency like MSPB as critical components of quality measurement 
and pay-for-performance programs.
    Comment: One commenter suggested that CMS adopt more specific 
achievement thresholds and benchmarks to draw comparisons between 
hospitals of similar size, with similar access to technology, 
specialized staff, and patient populations.
    Response: We do not believe that these types of specific 
adjustments to Hospital VBP Program performance standards are feasible 
at this time. To implement this change, we would need to incorporate 
detailed adjustment methodologies in each of the measures that we have 
adopted for the Hospital VBP Program. We do not believe we have 
sufficient data on the various comparison points that the commenter 
suggests to create separate Hospital VBP Program performance standards 
for different types of hospitals at this time.
    Moreover, the Hospital VBP Program's scoring methodology, based on 
several years' research and policy development, is designed to provide 
incentives to hospitals based on national performance metrics. As 
discussed further below, we continue to believe that the scoring 
methodology appropriately holds hospitals accountable based on 
established and well-understood metrics. However, we may consider 
adjustments of the type the commenter suggests in the future as more 
data becomes available for analyses.
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.
------------------------------------------------------------------------
                             Outcomes 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.
------------------------------------------------------------------------

    We received a number of comments on measures that we have 
previously adopted for the Hospital VBP Program.
    Comment: Several commenters urged CMS to consider updating and 
researching the HCAHPS Survey as a whole because the measure has been 
used for over a decade and the technology and tools have changed in 
this period of time. Several commenters stated that less expensive 
survey administration modes should be available to minimize survey 
costs for participating hospitals. One commenter noted that the methods 
for delivering the survey are outdated given today's Internet-based 
society.
    Response: While the HCAHPS Survey has been in use for nearly a 
decade, we continually review the survey and, when warranted, make 
changes to improve its content, implementation and data submission 
processes, and public reporting of its results. For instance, in recent 
years we added five new survey items, including the Care Transition 
Measure, made the patient-mix adjustment for `language spoken at home' 
more granular to account for differences among speakers of major 
languages, investigated the suitability of new modes of survey 
administration, and made survey results and analytical tools available 
to the public via downloadable databases on CMS Web sites. We 
continually examine and

[[Page 50052]]

refine HCAHPS protocols for survey implementation, oversight, and 
public reporting to maintain the integrity of the survey and increase 
the usefulness and accessibility of its results. We will continue to 
asses, analyze and improve the HCAHPS Survey to increase its value to 
consumers and hospitals.
    With regard to comments urging us to update the HCAHPS tool, we 
note that the HCAHPS Survey was purposely designed to accommodate, to 
the degree possible, the variety of patient survey methodologies 
hospitals employed prior to the introduction of HCAHPS. Thus, the 
HCAHPS Survey was made available in four modes of survey administration 
(mail only; telephone only; mail with telephone follow-up; and Active 
Interactive Voice Response modes). Hospitals are given the option to 
either self-administer the survey or engage an approved survey vendor, 
of which several dozen are listed on the official HCAHPS On-Line Web 
site, www.HCAHPSonline.org. In addition, hospitals are permitted to add 
their own supplemental items to the survey.
    We are sensitive to the costs of survey administration, especially 
as patient experience surveys become a standard element of quality 
improvement and public reporting programs for other types of healthcare 
providers. In 2008, we conducted a large-scale mode experiment to test 
the suitability of a Web-based mode of the HCAHPS Survey and concluded 
that a number of factors, including unavailability of email addresses 
for a substantial portion of the hospital patient population and low 
response rates, preclude the adoption of a Web-based mode at this time. 
We will continue to monitor and periodically evaluate the suitability 
of alternative, electronic survey modes. We are continuing to look at 
this issue. In particular, we are tracking access to the Internet among 
the elderly and minority populations since currently access to the 
Internet is lower for these critical populations that participate in 
our surveys.\38\
---------------------------------------------------------------------------

    \38\ ``A Randomized Experiment Investigating the Suitability of 
Speech-Enabled IVR and Web Modes for Publicly Reported Surveys of 
Patients' Experience of Hospital Care.'' M.N. Elliott, J.A. Brown, 
W.G. Lehrman, M.K. Beckett, K. Hambarsoomian, L.A. Giordano and E. 
Goldstein. Medical Care Research and Review. 70: 165-184. 2013.
---------------------------------------------------------------------------

    Comment: Several commenters expressed concerns about the 
sufficiency of the risk adjustment of the HCAHPS composite measures. 
One commenter pointed out that research shows that high-acuity patients 
score their patient experience at a lower level, systematically 
disadvantaging hospitals that take on complex and sicker patients, and 
suggested that CMS incorporate additional adjustments to account for 
patients' illness severity. One commenter urged CMS to further research 
broad improvements to the HCAHPS survey delivery and adjustment 
methodologies. A few commenters suggested that CMS exclude HCAHPS 
scores from the Hospital VBP Program until risk-adjustments are updated 
and its validity has been determined.
    Response: Research on health care providers indicates that a number 
of quality measures differ on a regional basis, which is indicative of 
true differences that should not be obscured by data adjustment.
    CMS and the HCAHPS Project Team are familiar with the studies 
commenter cited. We also are aware of a number of studies published in 
peer-reviewed journals that have found that patient experience of care, 
as measured by the HCAHPS Survey, is strongly and positively related to 
clinical process measures, outcomes, readmissions, and mortality. For 
brief reviews of these findings, we refer readers to: ``The Patient 
Experience and Health Outcomes'' \39\ and ``What does the patient know 
about quality?'' \40\
---------------------------------------------------------------------------

    \39\ Matthew Manary, William Boulding, Richard Staelin, and Seth 
Glickman. New England Journal of Medicine, 368 (3): 201-203. 2013.
    \40\ Karen Luxford. International Journal for Quality in Health 
Care. 24 (5): 439-440. 2012.
---------------------------------------------------------------------------

    With respect to the articles cited by the commenter, we note that 
other researchers have cited flaws in the approach, data and 
methodology employed in the Fenton, et al., study, which did not 
directly examine the HCAHPS Survey. The study by Lyu, et al. is 
premised upon the misunderstanding that we use patient experience as 
the sole criterion for measuring and assessing hospital quality. In 
addition, their findings, based on examination of 31 hospitals, may 
insufficiently represent the over 3,000 hospitals that participate in 
the Hospital VBP Program and the approximately 4,000 hospitals that 
participate in the Hospital IQR Program.
    In addition, a recent national study found a significant positive 
relationship between patient experience of care and surgical quality, 
which suggests that incentives to improve surgical patient experience 
and surgical quality are aligned.\41\
---------------------------------------------------------------------------

    \41\ Tsai, et al. ``Patient Satisfaction and Quality of Surgical 
Care in US Hospitals.'' Annals of Surgery, 2014.
---------------------------------------------------------------------------

    Comment: One commenter suggested that CMS separate the Cleanliness 
& Quietness dimension on the HCAHPS Survey, stating that it would be 
more helpful for consumers to know which element is driving hospitals' 
performance and improvement in those areas.
    Response: ``Hospital Environment'' is one of eight equally-weighted 
dimensions in the Patient Experience of Care Domain of the Hospital VBP 
Program. The Hospital Environment dimension is itself composed of two 
equally-weighted measures from the HCAHPS Survey: Percent of patients 
who responded ``Always'' to the hospital cleanliness item, and percent 
of patients who responded ``Always'' to the hospital quietness item. 
Therefore, the Hospital Environment dimension assigns 5 points to each 
of the environment measures. The Hospital Environment dimension is 
given the same weight in Hospital VBP Program as other key HCAHPS 
measures, such as Communication with Nurses, and Discharge Information 
(``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,'' available on HCAHPS On-Line Web 
site at: http://www.hcahpsonline.org/HospitalVBP.aspx.) While the two 
environment measures have been combined in the Hospital VBP Program, 
consumers can see how hospitals perform on cleanliness and quietness 
separately by examining the measure scores posted on the Hospital 
Compare Web site.
    Comment: One commenter urged CMS to reevaluate the validity of 
questions used on the HCAHPS Survey related to pain management, 
including whether the survey appropriately reflects patient 
satisfaction and whether or not it may encourage inappropriate 
treatment. The commenter expressed concern about the abuse of opioid 
pain relievers in hospital settings. The commenter explained that the 
HCAHPS Survey principally focuses on effective use of pharmacotherapy, 
which may be consistent with the patient's wishes but is not always in 
his or her best interest.
    Response: The Pain Management domain is derived from three items on 
the HCAHPS Survey. It is important to note that the HCAHPS Survey is 
designed to capture and report patient experience of care at the 
hospital level, not at the level of physician, and that only adult 
inpatients are eligible for the HCAHPS Survey (emergency room patients 
would be eligible for the survey only if they were subsequently 
admitted as inpatients). The HCAHPS sampling protocol does not support 
reliable measurement of performance at the physician level. Any use of 
the

[[Page 50053]]

HCAHPS Survey to evaluate individual physicians is inconsistent with 
our guidance.
    We understand and share the commenter's concerns about the rising 
level of abuse of opioid pain relievers in the United States. The 
HCAHPS Survey includes three questions about pain control to measure 
and publicly report patient experience with this common, yet critical, 
aspect of hospitalization; and neither the patient nor the physician(s) 
is identified in survey data submitted to CMS. Pain control is an 
important part of patient care in a hospital and should be evaluated at 
the hospital level. There are non-opioid options for pain control that 
many hospitals use.
    All items on the HCAHPS Survey have been carefully constructed and 
tested, both in the field and in focus groups of patients and 
caregivers.\42\ The statistical reliability of the Pain Management 
domain was 0.80 in 2013.
---------------------------------------------------------------------------

    \42\ Sofaer, et al., Health Services Research, 40: 6, 2018-2036. 
2005.
---------------------------------------------------------------------------

    We share the commenter's commitment to reducing abuse of opioids 
and will reach out to hospitals and physicians to help them more fully 
understand the capacities and limits of the HCAHPS Survey in this 
regard and will pursue further research on the wording of the pain 
management items in the HCAHPS Survey.
    Comment: One commenter proposed replacing the MSPB measure with the 
NQF-endorsed Relative Resource Use (RRU) measure, or a measure designed 
to track health care resource use by providers, health plans, or other 
units for individuals having one of five chronic diseases (COPD, 
cardiovascular disease, diabetes, asthma, and hypertension).
    Response: We disagree that the MSPB should be replaced with an RRU 
measure. We note that the MSPB measure is also NQF-endorsed. Inclusion 
of an overall measure of cost is an essential complement to the 
condition-specific measures included in the clinical process of care 
and outcomes domains. Relying on condition-specific measures alone, 
such as RRU measures, would disregard differences in overall cost. The 
MSPB measure is reported as a ratio of the payment-standardized, risk-
adjusted MSPB amount for each hospital divided by the weighted median 
MSPB amount across all hospitals. As discussed in section IV.I.6.b. of 
the preamble of this final rule (Possible Future Efficiency and Cost 
Reduction Domain Measure Topics), we are considering expansion of the 
Efficiency and Cost Control domain to include six condition-specific 
Medicare payment measures (three medical and three surgical condition-
specific episodes) in addition to the MSPB measure and would do so 
through public notice and comment rulemaking.
    Comment: Several commenters recommended that CMS refine its 
policies on risk-adjustment in the MSPB and other measures to include 
socioeconomic status because a patient's socioeconomic status affects 
clinical outcomes.
    Commenters explained that comorbidities, socioeconomic status, and 
sociodemographic factors are major determinants of outcomes, and 
penalizing physicians and hospitals for readmissions of the most 
chronically ill patients without proper risk adjustment could provide 
unintended negative consequences. Commenters stated that, without a 
risk-adjustment factor, hospitals treating these patients become 
subject to penalizations for readmissions not related to the care 
provided as well as penalizations for extending an inpatient stay in 
order to better optimize the patient's health status. Further, 
commenters suggested that hospitals that serve a disproportionate share 
of these patients could conceivably do the most to improve their health 
status but are disproportionately penalized without a risk adjustment.
    One commenter suggested that CMS examine NQF's Risk Adjustment for 
Socioeconomic Status or Other Sociodemographic Factors Draft Report for 
determining the appropriate risk adjustment methodology for the 
Hospital VBP Program. (Draft Report available at: http://www.qualityforum.org/Risk_Adjustment_SES.aspx.) Another commenter 
strongly supported the recommendations contained in the draft report 
and urged CMS to accordingly modify its risk-adjustment methodology to 
include such factors.
    Response: We appreciate these comments and the importance of the 
role that SES plays in the care of patients. With regard to the MSPB 
measure's risk adjustment specifically, we note that the MSPB measure 
was finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51619 
through 51627). In that rule, we addressed concerns about risk 
adjustment. We are aware that there are differing opinions regarding 
our current approach in risk-adjusting measures in the Hospital 
Readmissions Reduction Program for SES. We note that the readmission 
measures aim to reveal differences related to the quality of care 
provided. We believe that quality of care received by patients of lower 
SES contributes at least in part to the observed association between 
SES status and the readmissions rate. We continue to have concerns 
about holding hospitals to different standards for the outcomes of 
their patients of low SES--we do not want to mask potential disparities 
or minimize incentives to improve the outcomes of disadvantaged 
populations.
    We routinely monitor the impact of SES on hospitals' results. To 
date, we have found that hospitals that care for large proportions of 
patients of low SES are capable of performing well on our measures (see 
the 2013 Medicare Hospital Quality Chart Book on pages 46 through 53 
at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/-Medicare-Hospital-Quality-Chartbook-2013.pdf). Previous analyses presented at the NQF during 
endorsement proceedings of the Hospital-Wide All-Cause Unplanned 
Readmission Measure (available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=70813) also show that 
adding SES to the risk-adjustment has a negligible impact on hospitals' 
risk-standardized rates. The risk adjustment for clinical factors 
likely captures much of the variation due to SES, therefore resulting 
in an attenuation of the impact of SES factors on hospitals' results.
    We continue to monitor related activities at NQF, such as the July 
23, 2014 decision by the NQF Board in which the Board approved a trial 
period to test the impact of sociodemographic factor risk adjustment of 
performance measures (available at: http://www.qualityforum.org/Press_Release/2014/NQF_Board_Approves_Trial_Risk_Adjustment.aspx), and 
in Congress. As we stated in the past, we are committed to working with 
the NQF and other stakeholder communities to continuously refine our 
measures and to address the concerns associated with SES and risk 
adjustment. We believe that continued collaboration with the 
stakeholder communities will enable us to identify feasible ways to 
appropriately address any unintended consequences for providers serving 
high proportions of low-SES patients.
    Comment: Some commenters expressed concern about the influence of 
factors that are outside the hospital's control on the MSPB measure and 
the lack of associated quality or outcome measures. One of these 
commenters stated that any measures focusing exclusively on cost such 
as the MSPB measure create incentives to reduce services in ways that 
adversely affect patient outcomes and that such cost

[[Page 50054]]

measures also create disincentives to adopt new technologies.
    One commenter expressed concern that the measure does not track the 
frequency of hospitalization, noting that a community that reduces 
avoidable hospitalizations may experience higher per-hospitalization 
costs, even if overall costs go down.
    Response: Regarding the commenters' concern with the degree of the 
hospital's control over the MSPB measure, we continue to disagree that 
care furnished to beneficiaries after they are discharged from an acute 
care hospital is outside of the hospital's control. As we stated in the 
FY 2012 IPPS/LTCH PPS final rule, we believe that hospitals that 
provide quality inpatient care, conduct appropriate discharge planning, 
and work with providers and suppliers on appropriate follow-up care can 
achieve efficiencies and perform well on the measure (76 FR 51621).
    Regarding the comment that the MSPB measure does not account for 
quality, we continue to agree that it is beneficial to view a cost 
measure in light of other quality measures. We do not believe that a 
including measure of cost, independent of quality in the Hospital VBP 
Program, would result in a reduction of needed services or in a 
disincentive to develop new technologies, because as we stated in the 
FY 2012 IPPS/LTCH PPS final rule, for purposes of the Hospital VBP 
Program, we will weight and combine the Efficiency and Cost Control 
domain with the other domain scores, in order to calculate each 
hospital's TPS, ensuring that that MSPB and any other Efficiency and 
Cost Control Domain measures we adopt make up only a portion of the TPS 
and that the remainder is based on hospitals' performance on the other 
quality measures (76 FR 51622). As we stated in the FY 2013 IPPS/LTCH 
PPS final rule, section 1886(o)(2)(B)(ii) of the Act expressly requires 
the inclusion of ``measures of Medicare spending per beneficiary'' in 
the Hospital VBP Program. We do not believe that the MSPB measure 
itself should assess both cost and quality. We believe that a inclusion 
of a distinct measure of cost, independent of quality, as part of the 
Hospital VBP Program enables us to identify hospitals involved in the 
provision of high quality care at a lower cost to Medicare (77 FR 
53586).
    With regard to tracking the frequency of hospital admissions, we do 
not believe that the measure would adversely affect communities 
involved in minimizing hospitalizations because the risk adjustment 
takes into account the severity of illness of hospitalized 
beneficiaries so that hospitals admitting more complex patients would 
have their Medicare spending compared to the expected spending for 
similarly complex patients.
    Comment: One commenter recommended that CMS delay any further 
implementation of the MSPB measure until after the Physician VM Program 
is implemented, stating that hospitals should not be expected to bear 
the consequences of physicians' decisions.
    Response: We agree that alignment of incentives across programs is 
important. In the CY 2014 Physician Fee Schedule final rule (78 FR 
74774 through 74780), we finalized the inclusion of the MSPB amount in 
the cost composite portion of the physician value-based modifier (VM), 
beginning with the 2016 VM. We do not believe that it would be 
appropriate to suspend the further use of the MSPB measure until after 
the VM is implemented.
    We continue to believe, as we stated in the FY 2012 IPPS/LTCH PPS 
final rule, that the MSPB measure is an important step in encouraging 
hospitals to redesign and coordinate care with other providers and 
suppliers of care, and that its timely implementation is critical to 
incentivizing hospitals to provide the highest-quality, most efficient 
care possible to Medicare beneficiaries (76 FR 51657).
    Comment: One commenter expressed concern that the MSPB measure 
overlaps conceptually with the Hospital Readmissions Reduction Program, 
as hospitals are already being penalized for excessive readmissions 
under that program. The commenter urged CMS to reevaluate the MSPB 
measures so that CMS does not place disproportionate domain weighting 
on spending outside of hospitals' control.
    Response: We disagree that the MSPB measure inappropriately 
overlaps with measures used in the Hospital Readmissions Reduction 
Program. As we stated in the FY 2012 IPPS/LTCH PPS final rule, the MSPB 
measure is not a measure of readmission rates, but rather it is a 
measure of total Medicare spending per beneficiary, relative to a 
hospital stay. A Medicare spending per beneficiary measure is required 
by the section 1886(o)(2)(B)(ii) of the Act to be included in the 
Hospital VBP Program, and therefore, in the Hospital IQR Program. We 
also continue to believe that the Medicare payments made for 
readmissions must be attributable to the index hospital stay, in order 
to: fully capture Medicare spending relative to a hospital stay; 
encourage the provision of comprehensive inpatient care, discharge 
planning, and follow-up; and strengthen incentives to reduce 
readmissions (76 FR 51621).
    We further disagree, as we stated earlier, that the MSPB measure 
represents services that are outside of the hospital's control. As we 
stated above, and in the FY 2012 IPPS/LTCH PPS final rule, we believe 
that hospitals that provide quality inpatient care, conduct appropriate 
discharge planning, and work with providers and suppliers on 
appropriate follow-up care can achieve efficiencies and perform well on 
the measure (76 FR 51621).
    We thank commenters for this feedback.
b. Changes Affecting ``Topped-Out'' Measures
(1) 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28119), based on 
our evaluation of the most recently available data, we stated our 
belief 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 proposed 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 welcomed public comments on this proposal.
    Comment: Many commenters supported CMS' proposal to remove 
``topped-out'' measures, expressing appreciation for our efforts to 
streamline the program.
    Response: We thank the commenters for their support.
    Comment: One commenter suggested that CMS flag additional measures 
that

[[Page 50055]]

are approaching ``topped-out'' status in future rulemaking.
    Response: We thank the commenter for this suggestion and will take 
it into consideration in future rulemaking.
    Comment: Commenters urged caution with CMS' proposed removal of 
``topped-out'' measures, stating that several are only recently 
``topped-out.'' Commenters also suggested that CMS consider adding more 
measures to the Hospital VBP Program to make up for the proposed 
removal of ``topped-out'' measures and to ensure that no single measure 
has a disproportionate impact on hospital performance in more than one 
program.
    Response: We will consider new measures as they become eligible for 
inclusion in the Hospital VBP Program.
    Comment: One commenter suggested that identified ``topped-out'' 
measures remain available in other reporting programs because the 
commenter believes that reporting these six specific measures has 
contributed to recent increases and emphasis on improved healthcare 
quality in hospitals, with a significant impact on local improvement 
efforts.
    Response: While we appreciate commenter's observation that quality 
reporting has contributed to improved healthcare quality in hospitals, 
we believe that topped-out measures should be assessed to supplement a 
clinically-based assessment of the measure's impact on a clinical topic 
or domain.
    Comment: Commenters supported the removal of the ``topped-out'' 
measures but expressed confusion at why the measures will not be 
removed sooner than 2017.
    Response: We evaluate the Clinical Care--Process Domain measures 
for ``topped-out'' status on an annual basis in order to propose 
changes, if necessary, during the rulemaking process, and we do not 
believe it would be helpful to participating hospitals to remove 
measures that have been previously adopted for the Program in previous 
rulemakings. We note that, for example, we are currently in the middle 
of the Clinical Process of Care domain's performance period for the FY 
2016 Hospital VBP Program, which was adopted as CY 2014. We do not 
believe it would be helpful to hospitals to attempt to retire a measure 
in the middle of their performance period, barring substantial 
extenuating circumstances. We believe removing these measures for the 
FY 2017 Hospital VBP Program, adopted with a CY 2015 performance 
period, is most feasible.
    Comment: Some commenters suggested that CMS retire measures when 
their evidentiary basis has changed, when the collection and 
measurement costs exceed their utility, or when measures have been 
demonstrated to have minimal impact on health outcomes and status.
    Response: We thank the commenters for their suggestions, and may 
consider additional ``topped-out'' criteria in future rulemaking.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove PN-6, SCIP-Card-2, SCIP-Inf-2, SCIP-
Inf-3, SCIP-Inf-9, and SCIP-VTE-2 from the FY 2017 measure set due to 
their being ``topped-out.''
(2) 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28119), we 
proposed 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 determine what measures are 
``topped-out'' for purposes of the Program.
    We welcomed public comments on this proposal.
    Comment: Commenters agreed with the methodology regarding 
calculations to determine whether a measure is topped-out, and agreed 
with the proposal to alter the threshold from ``less than 0.10'' to 
``less than or equal to 0.10.''
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our modification to the truncated coefficient of variation 
criterion for determining whether a measure is ``topped-out'' as 
proposed.
c. 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 National Quality Strategy (NQS) (available for 
download at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/CMS-Quality-Strategy.pdf).
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28119 through 
28121) we stated that 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.
    We received a number of general comments on quality measures for 
the Hospital VBP Program:
    Comment: Many commenters supported CMS' proposals to adopt MRSA, C. 
difficile Infection, and PC-01 for the FY 2017 Program. These 
commenters believed that the measures are appropriate for the Program 
and will have been publicly posted on Hospital Compare in accordance 
with the Hospital VBP Program's statute.
    Response: We agree and thank the commenters.
    Comment: Commenters supported CMS' proposal to readopt the IMM-2 
measure for FY 2017 and suggested that CMS consider adopting additional 
immunization measures in the future.
    Response: As with other suggested measure topics, we will consider 
new measures as they become available to us under the statutory 
requirements for the Hospital VBP Program.
    Comment: A few commenters recommended that the Hospital VBP Program 
should include a mix of measures, including measures that would test 
adherence to evidence-based medical interventions.

[[Page 50056]]

    Response: We agree, and we have attempted to introduce a variety of 
quality measure types into the Hospital VBP Program, including measures 
of processes, outcomes, and efficiency.
    Comment: One commenter believed that all measures in the Hospital 
IQR, HAC Reduction, and Hospital VBP Programs should be NQF-endorsed 
before their adoption by CMS, because NQF-endorsement ensures that the 
measures have been evaluated by a panel of experts in quality 
measurement. The commenter therefore supported the removal of measures 
that have lost NQF-endorsement.
    Response: We note that the Hospital VBP Program relies on data 
submitted under the Hospital IQR Program, and the Hospital IQR 
Program's statute enables us to select measures that have not been 
endorsed by NQF, as long as due consideration is given to measures that 
have been endorsed or adopted by a consensus organization identified by 
the Secretary. Our statistical and clinical assessment of the measures 
chosen for adoption in the Hospital VBP Program supports our belief 
that the measures are sufficiently valid and reliable. Each measure has 
been used in the Hospital IQR Program for at least one year, and we 
believe each measure we adopt will improve patient outcomes.
    Comment: Commenters suggested that CMS consider exploring measures 
related to sepsis mortality as an alternative to current proposals. 
Commenters recommended that CMS prioritize the development of quality 
measures that promote nutrition screening and assessment of nutrition 
interventions. Additional commenters recommended that CMS consider 
measures of advance care planning, malnutrition care, measures related 
to diabetes, atrial fibrillation, COPD, and oncology, additional 
process measures, immunization measures, and a measure of all-cause 
readmission. Other commenters suggested that CMS consider PSI-4: Death 
among surgical inpatients with serious treatable complications, COPD 
30-day mortality, and AMI Payment per Episode for the Hospital VBP 
Program.
    Additional commenters suggested that CMS consider adopting STK-1 
(venous thromboembolism (VTE) prophylaxis); STK-2 (discharged on 
antithrombotic therapy); and STK-4 (percentage of eligible patients 
receiving thrombolytic therapy within 0-3 hours of symptom onset). One 
commenter specifically noted that the STK-4 measure in the Hospital VBP 
Program as it is e-specified and has not been deemed ``topped-out.''
    Response: We will consider new measures for the Hospital VBP 
Program as they become eligible for inclusion in the measure set. We 
note, however, that section 1886(o)(2)(A) of the Act specifically 
excludes measures of readmissions from the Hospital VBP Program.
    Comment: One commenter urged CMS to expand the Surgical Site 
Infection list within the Outcomes domain to include Major Joint 
Replacement Surgeries and Spine procedures so that surgical specialty 
hospitals are able to participate in future Hospital VBP Programs. 
Otherwise, the commenter believed, hospitals that qualify for the 
Hospital VBP Program, and whose excellent performance records bolster 
the overall quality and efficacy of the program, may be excluded 
because the SSI list does not include these common procedures which 
make up the majority of the procedures they perform.
    Response: We thank the commenter for this suggestion. We are 
continuously evaluating the program and working to identify new, 
potentially suitable measures to fill measure gaps. We appreciate the 
commenter's input for measure selection and will take this feedback 
into consideration in future rulemaking. We note that CDC maintains 
ongoing collaborations with a number of professional surgical 
organizations and is currently in the process of developing additional 
SSI metrics for higher volume surgical procedures. Once these measures 
are finalized, we may consider them for future inclusion in our quality 
reporting and pay for performance programs.
    Comment: Many commenters expressed concern that measures in both 
the Hospital VBP and HAC Reduction Programs overlap. Commenters pointed 
to a wide variety of concerns, including: Multiple competing 
benchmarks, various penalty calculation methodologies, wasting precious 
resources, and the potential for confusion among hospitals and 
beneficiaries.
    Many commenters noted that using measures in both HAC Reduction and 
the Hospital VBP Programs potentially penalizes participating hospitals 
twice, or could result in instances where hospitals perform well in one 
program and are penalized in the other. Another commenter stated that 
the overlap inappropriately magnifies the impact and importance of the 
measures.
    Some commenters were concerned that the overlap between measures in 
the HAC Reduction and Hospital VBP Programs may create a defeatist 
attitude among certain hospitals that are disproportionately affected, 
such as safety net hospitals. Commenters noted that such duplication 
between quality programs could draw needed dollars away from the very 
organizations that need to be focusing in this area.
    Response: We acknowledge that there is some overlap in quality 
measures between the Hospital VBP Program and the HAC Reduction 
Program. While we are aware that commenters object to the possibility 
of scoring hospitals on certain measures under both programs, we note 
that these measures cover topics of critical importance to quality 
improvement in the inpatient hospital setting, and to patient safety. 
We selected these quality measures because we believe that HAC measures 
comprise some of the most critical patient safety areas therefore 
justifying the use measures in more than one program. The MRSA 
Bacteremia and C. difficile Infection measures that we have proposed to 
adopt track infections that could cause significant health risks to 
Medicare patients, and we believe it is appropriate to provide 
incentives for hospitals to avoid them under more than one program.
    We further stress that the HAC Reduction Program and the Hospital 
VBP Program are separate programs with different purposes and policy 
goals. For example, the HAC Reduction Program is a program that reduces 
payments to hospitals for excess HACs to increase patient safety in 
hospitals. On the other hand, the Hospital VBP Program is an incentive 
program that redistributes a portion of the Medicare payments made to 
hospitals based on their performance on various measures. Therefore, 
although the measures exist in more than one program, the measures are 
used and calculated for very distinct purposes. Accordingly, as stated 
above, we believe that the critical importance of these measures to 
patient safety warrants their inclusion in both programs. We will, in 
the future, monitor the HAC Reduction and Hospital VBP Programs and 
analyze the impact of our measures selection, including any unintended 
consequences with having a measure in more than one program, and will 
revise the measure set in one or both programs if needed.
    Comment: Many commenters stated that CMS' proposed measures for FY 
2017, despite appearing to have the potential to be positive additions 
to the program, have not been publicly reported on the Hospital Compare 
Web site for 1 year as required by the Act.
    Response: Section 1886(o)(2)(C)(i) of the Act requires that 
measures must have been ``included on the Hospital Compare Internet Web 
site for at least 1

[[Page 50057]]

year prior to the beginning of the performance period.'' As commenters 
noted, we first reported these measures' data in December 2013, and 
have proposed an FY 2017 performance period for these measures of CY 
2015, which complies with the statutory requirement in section 
1886(o)(2)(C)(i) of the Act. Accordingly, we believe that the 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. However, to the extent that there remains 
any question regarding our interpretation of section 1886(o)(2)(C)(i) 
of the Act, we are finalizing that the effective date of the new FY 
2017 measures, PC-01, MRSA Bacteremia, and C. difficile Infection, will 
be January 1, 2015, consistent with the beginning of the performance 
period for those measures.
    Comment: One commenter believed that the AMI-7a measure is 
inappropriate for the Hospital VBP Program because it does not apply to 
most hospitals due to a low volume of cases.
    Response: While we understand that many hospitals do not provide 
services that would be measured by the AMI-7a measure, the finalized 
Hospital VBP Program scoring methodology does not penalize hospitals 
that do not have sufficient cases for that measure, or any measures 
that we have adopted. Even if the measure will only apply to a small 
number of hospitals, we believe that this measure accomplishes the 
goals of the Hospital VBP Program and will improve patient outcomes in 
the hospitals where the measure will apply. We will consider proposing 
removal of this measure in future policy making.
    Comment: Commenters expressed continued concern about the three 30-
day mortality measures that we have adopted and placed into the 
Clinical Care--Outcomes domain. Commenters stated that the measures do 
not meaningfully reflect hospital performance because they do not meet 
the lower limit of moderate reliability identified by CMS' analytical 
contractor in a 2012 report. Commenters expressed their appreciation 
for our adoption of longer performance periods for these measures, but 
noted that even at 24 months, the measures' reliability is 
significantly less than we require for chart-abstracted measures. 
Commenters suggested that we consider a plan to improve or replace the 
mortality measures and consider reducing the domain weighting allocated 
to the Clinical Care--Outcomes domain in the meantime.
    Response: As we stated in the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53591) and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50693), we 
believe that the mortality measures capture important quality data for 
purposes of the Hospital VBP Program. We believe that the three 30-day 
mortality measures are sufficiently reliable for inclusion in the 
Hospital VBP Program, particularly in light of our finalized policies 
to set a 25 case minimum and to extend the performance period's 
duration for these measures over successive years to reach 36 months.
    Comment: One commenter requested that CMS change the mortality 
measures' populations to ensure that the same patient is not counted 
under more than one measure. The commenter explained that its mortality 
measure scores had been adversely affected by a patient that had been 
counted under both pneumonia and AMI mortality.
    Response: If a patient was hospitalized for AMI and Pneumonia on a 
different date and died within 30 days from the first hospitalization 
in the three-year time frame we used to calculate the mortality 
measures, the patient could be included in both AMI and Pneumonia 
mortality measures. However, cohorts of mortality are determined by the 
principle diagnosis on the index hospitalization claims (that is, the 
denominator is defined as discharges/admissions not patients). There is 
only one principal diagnosis on each claim, therefore it is not likely 
that a specific patient's claim or admission would be in both AMI and 
Pneumonia measures.
(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 Bacteremia bloodstream infection events using the 
standardized infection ratio (MRSA Bacteremia SIR) among all inpatients 
in the facility. The MRSA Bacteremia SIR is reported via the Center for 
Disease Control and Prevention's (CDC) 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). Initial measure data were 
posted on Hospital Compare in December 2013.
    We remain concerned about the persistent public health threat 
presented by MRSA Bacteremia infections. According to a 2013 study 
available at the National Institute of Health's Web site, MRSA 
Bacteremia ``results in longer hospitalization, increased expenses, and 
poorer patient prognosis'' and ``has been swiftly increasing worldwide 
over the past several decades.'' \43\ As we noted in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51630), invasive MRSA Bacteremia infections 
may cause about 18,000 deaths during a hospital stay a year.\44\
---------------------------------------------------------------------------

    \43\ 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
    \44\ 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 Measure Application Partnership (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 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 Bacteremia infections present to patients and to 
public health, we further believe that this measure is appropriate for 
the Hospital VBP Program. Therefore, we proposed to adopt the MRSA 
Bacteremia measure for the FY 2017 Hospital VBP Program, and we 
proposed to place the measure into the Safety domain.
    We invited public comment on this proposal.
    Comment: Commenters supported CMS' proposal to adopt MRSA 
Bacteremia and C. difficile infection measures for the FY 2017 Program, 
stating that the measures will provide incentives for hospitals to 
employ appropriate infection control and prevention and antimicrobial 
stewardship programs. (CMS discusses C. difficile infection in more 
detail in the next section). Another commenter noted that the measure 
is a first step towards encouraging hospitals to focus

[[Page 50058]]

on prevention and appropriate treatment of these infections.
    One commenter noted that quality measures implemented in the U.K. 
had a positive effect on C. difficile infections and treatments and 
that appropriate treatment of C. difficile infections have important 
implications for patient outcomes, society, and the reduction of 
healthcare expenditures. Another commenter noted that MRSA Bacteremia 
and C. difficile infections are both largely preventable diseases. 
Another commenter expressed specific support for CMS' proposal to adopt 
the C. difficile Infection measure, stating that stoma care management 
is necessary at all clinical stages to avoid life threatening and 
costly infections.
    Response: We thank the commenters for their support.
    Comment: One commenter urged CMS to delay use of the MRSA 
Bacteremia and C. difficile measures until FY 2018 because, while the 
measures are NQF-endorsed, the MAP did not fully support them for the 
Hospital VBP Program. The commenter stated that the MAP voted to 
``support direction'' and noted that the measure should be publicly 
reported for a sufficient amount of time prior to being added to the 
Hospital VBP Program.
    Response: We disagree. We view the MRSA Bacteremia and C. difficile 
Infection measures as important quality measures to be added to the 
Safety domain because they track infections that present significant 
danger to patients. We believe that tracking hospitals on these 
measures--and providing incentives for better performance--will result 
in reduced harm to patients, better health care quality, and an 
improved health care system.
    Comment: One commenter urged caution with the C. difficile 
infection and MRSA Bacteremia measures, and argued that they must track 
to hospital onset-infections. Commenters suggested that many infections 
emerge in the community, meaning hospitals are not at fault for the 
origination of the infection. One commenter noted that infections 
caused by MRSA Bacteremia vary widely geographically, and there has 
been a rise in the frequency of community-associated MRSA Bacteremia 
skin/soft tissue infections, many of which are likely best treated with 
direct interventions at the site of infection and do not require 
antibiotics. The commenter believed that as the proportion of 
community-associated strains become predominant, hospitals will have 
less ability to have any appreciable impact on their frequency.
    A few commenters requested that the MRSA Bacteremia and C. 
difficile Infection measures control for known regional variation in 
the infection rates so that hospitals that care for high-risk 
populations are not inadvertently targeted or encouraged to limit 
access to care by such high-risk patients. Some commenters suggested 
that a better way to track MRSA Bacteremia and C. difficile infections 
is to include measures that focus on best practices and guidelines for 
patients who contract MRSA Bacteremia or C. difficile infections.
    One commenter also asked CMS to consider that C. difficile 
infections are higher in surgical patients, rather than non-surgical 
patients, and are particularly high in gastrointestinal surgery 
patients. Therefore, the commenter believed that hospitals that perform 
a greater number of colorectal procedures will have higher rates of C. 
difficile infections in their patients, even if they are perfectly 
compliant with all the applicable guidelines and practices.
    Response: The MRSA and C. difficile measures differentiate between 
community-acquired and hospital-onset events based on a patient's date 
of admission and date(s) of specimen collection, and includes an 
adjustment for many risk factors specifically facility size, medical 
teaching hospital affiliation, prevalence of community-onset infection, 
and for CDI test type. Therefore, we do not believe the measures need 
to be revised to account for these factors because the current approach 
already addresses many of the commenters' concerns. However, we will 
collaborate with CDC to evaluate whether there is a need to consider 
additional risk adjustment factors, such as occurrence of 
gastrointestinal surgeries, suggested by the commenters for future 
policy development. While we are willing to consider other risk 
factors, the additional adjustment gained must be weighed against the 
extra burden added to collected more required data elements. The issue 
of the same measures being included in multiple programs is addressed 
further below.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the MRSA Bacteremia measure for the FY 
2017 Hospital VBP Program.
(2) Clostridium difficile (C. difficile) Infection (NQF #1717)
    C. 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. The C. difficile SIR is reported via 
CDC's 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 through 51631). Initial measure data were 
posted on Hospital Compare in December 2013.
    As with MRSA Bacteremia infections, we are concerned about the 
seriousness of C. difficile infections. According to a 2012 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 the 
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.'' \45\
---------------------------------------------------------------------------

    \45\ 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.
---------------------------------------------------------------------------

    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.
    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 proposed to adopt the C. difficile SIR measure 
for the FY 2017 Hospital VBP Program, and we proposed to place the 
measure into the Safety domain.
    We invited public comment on this proposal.
    Comment: One commenter urged CMS to delay use of the C. difficile 
Infection measure until FY 2018

[[Page 50059]]

because C. difficile infections have diverse sources and are not 
associated with symptomatic cases for which infection control 
interventions are primarily targeted. Further, the commenter had 
concerns about current lab identification definitions used for public 
reporting because (1) asymptomatic cases with positive lab 
identification events are included, (2) recurrences are counted as new 
cases if tested again after two weeks, and (3) patients may be 
asymptomatically colonized prior to admission and develop the disease, 
resulting in attribution of a healthcare associated infection, 
regardless of any hospital's infection prevention strategies. Finally, 
the commenter noted that there is no standard strategy for testing 
patients for C. difficile infections.
    Response: The CDC Web site includes posted information for 
appropriate clinical practice, testing, and identification of C. 
difficile infections at: http://www.cdc.gov/HAI/organisms/cdiff/Cdiff_clinicians.html. These practices are strongly suggested when tracking 
C. difficile cases for reporting to NHSN, and include guidance to only 
perform the test for C. difficile and its toxins on diarrheal 
(unformed) stool from symptomatic patients, unless ileus due to C. 
difficile is suspected, and to avoid testing stool from asymptomatic 
patients, for routine identification of asymptomatic carriers, or as a 
test of cure. Following this guidance as a standard of practice will 
avoid reporting of asymptomatic, colonized patients, who are not to be 
reported per NHSN protocol. Recurrent cases are counted separately from 
incident cases and are not included in the hospital-onset, incident C. 
difficile metric reported to CMS. Per published research and the NHSN 
protocol, a recurrent C. difficile LabID Event is defined as a specimen 
obtained >2 weeks (>= 2 weeks is a duplicate and not reported) and <=8 
weeks after the most recent CDI LabID Event for that patient. Incident 
cases are defined and counted as specimens obtained >8 weeks after the 
most recent CDI LabID Event for that patient (McDonald LC, et al. 
Infect Control Hosp Epidemiol 2007; 28:140-145).
    Comment: One commenter cautioned that the C. difficile Infection 
measure may result in discouraging healthcare professionals from 
screening for or attempting to diagnose mild cases of CDI because the 
measure focuses on rates of infection rather than screening. The 
commenter suggested that CMS consider rewarding hospitals for limiting 
prolonged periods of multiple antibiotic use among patients, for 
optimizing antimicrobial therapy, and for instituting CDI prevention 
programs.
    Response: We will consider this feedback; however we do not think 
that this measure will discourage healthcare professionals from testing 
for C. difficile when clinically indicated, particularly given the 
potential for serious harm that C. difficile infections present to 
patients. Though healthcare professionals may have incentives to avoid 
diagnostic testing, they also have incentives to treat with 
confirmation of the diagnosis, in part because of the danger of 
overprescribing antibiotics and its associated complications for 
patients. We will consider the commenter's suggestions in the future.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the C. difficile infection measure for 
the FY 2017 Hospital VBP Program.
(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.\46\ 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.47 48 49 50 Early elective 
births are a public health problem that has significant consequences 
for families well into a child's life.
---------------------------------------------------------------------------

    \46\ 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.
    \47\ Glantz, J. (Apr. 2005). Elective induction vs. spontaneous 
labor associations and outcomes. J Reprod Med. 50(4):235-40.
    \48\ 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.
    \49\ 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.
    \50\ 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 health care costs. In addition, the 
rate of cesarean sections should decrease with fewer elective 
inductions, resulting in decreased length of stay and health care 
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 proposed to adopt this measure for the Hospital VBP Program and 
we proposed to place the measure into the Clinical Care--Process domain 
because we believe this measure furthers the NQS's three-part aim of 
better healthcare for individuals, better health for populations, and 
lower costs of healthcare. In addition, although the

[[Page 50060]]

PC-01 Elective Delivery 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 whom 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 welcomed public comment on this proposal.
    Comment: Many commenters supported CMS' proposal to include the PC-
01 measure in the Hospital VBP Program, noting that many hospitals 
continue to have rates of early elective delivery in excess of 15 
percent despite the American College of Obstetricians and Gynecologists 
recommendations that no elective delivery be performed before the 
gestational age of 39 weeks without a medical indication. One commenter 
believed that this measure will reduce costs and also have the 
potential to greatly improve newborn outcomes of care.
    Response: We thank the commenters for their support.
    Comment: Several commenters expressed opposition to the PC-01 
measure for the FY 2017 Hospital VBP Program because the measure is 
Web-based, and there has not been any chart validation for accuracy and 
consistency of data collection across hospitals. Some commenters 
specifically opposed using any data that are not validated under the 
Hospital VBP Program, stating that PC-01 should therefore not be 
finalized for the program based on data accuracy concerns. Commenters 
stated that, while hospitals are working diligently to collect accurate 
data for this measure, it is possible that hospitals collecting the 
most accurate data will have the lowest scores.
    Commenters stated that the benchmark of 0 percent is not realistic 
considering that justifications for Elective Delivery are based off of 
ICD-9-CM codes and The Joint Commission (TJC) has stated that not all 
the justifications for an elective delivery are included on the ICD-9-
CM Justification Table. Further, commenters noted that TJC has stated 
that the purpose of this measure is to enable hospitals to establish a 
baseline for their performance, which in turn serves as a determinant 
of whether improvement efforts are effective over time.
    One commenter suggested that CMS wait to adopt this type of measure 
until the electronic clinical quality measure version is available. One 
commenter did not support the recommendation to add the PC-01 measure 
to the Clinical Care--Process domain because the measure algorithm 
exclusions are applied prior to denominator selection. The commenter 
stated that these exclusions make the quarterly denominators very low, 
even for a large facility, and that, therefore, the measure does not 
truly assess the quality of care provided.
    Response: We disagree with the concept that this measure may be 
inherently invalid because not all justifications for an elective 
delivery are included in the ICD-9-CM Justification Table, or invalid 
because of the volume of exclusions. All NQF-endorsed measures must 
meet strict reliability and validity criteria to gain endorsement. PC-
01 is NQF-endorsed therefore the measure as defined is clinically 
valid. Regarding the accuracy of the submitted data, hospitals are 
required to acknowledge the accuracy of the data submitted through the 
Hospital IQR Program's Data Accuracy and Completeness Acknowledgment 
statement on an annual basis. To validate the accuracy of submitted 
data, we employ logic checks as we do for other measures. For example, 
the number of cases entered in the numerator cannot be greater than the 
number of cases entered in the denominator.
    As explained in section IX.A.11 of this preamble, because the PC-01 
data are collected in aggregate instead of for individual patients, we 
cannot use the same mechanism to assess reliability of PC-01 as we use 
for chart-abstracted clinical process of care measures reported at the 
patient level. The approach for other clinical process of care measures 
involves sampling, whereas the analogous approach for aggregate data 
would involve collecting all data from a hospital. We believe that the 
benefits of validating aggregate data in this way are outweighed by the 
burden to hospitals in submitting potentially hundreds of records to 
validate one measure, and also believe that this approach would be 
cost-prohibitive for CMS.
    However, we are exploring different options to assess the general 
validity of PC-01 data more robustly. For the reasons outlined in the 
proposed rule, we continue to believe this measure is appropriate for 
the Hospital VBP Program. We have adopted the e-CQM version of this 
measure under our voluntary electronic reporting option for the 
Hospital IQR Program.
    Comment: Some commenters opposed CMS' proposed adoption of the PC-
01 measure, stating that CMS should first determine that there is 
sufficient room for making additional substantive improvements that 
would result in better patient care.
    Response: The NQF notes that pre-term births are a rapidly 
escalating public health problem, and that early elective delivery 
contributes to this problem.\51\ As stated above, many commenters have 
noted that many hospitals continue to have rates of early elective 
delivery in excess of 15 percent despite the American College of 
Obstetricians and Gynecologists recommendations that no elective 
delivery be performed before the gestational age of 39 weeks without a 
medical indication. Therefore, we believe that hospitals have the 
opportunity to improve upon a detrimental practice that was until very 
recently rapidly expanding.\52\
---------------------------------------------------------------------------

    \51\ https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72746.
    \52\ Osterman MJK, Martin JA. Changes in cesarean delivery rates 
by gestational age: United States, 1996-2011. NCHS data brief, no 
124. Hyattsville, MD: National Center for Health Statistics. 2013.
---------------------------------------------------------------------------

    Comment: Commenters expressed concerns about CMS' proposal to adopt 
the PC-01 measure, noting that many hospitals do not provide perinatal 
care services and stating that the volume of Medicare births is not 
high enough to justify this measure's placement into the Hospital VBP 
Program. Commenters suggested that CMS remove PC-01 from the proposed 
measure set.
    Response: We continue to believe this measure is appropriate for 
the Hospital VBP Program, as we described in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28120). The measure is NQF-endorsed and was 
supported for the Hospital VBP Program by the MAP, and addresses an NQS 
priority not adequately addressed in the Program's measure set to date. 
In addition, as we noted, nearly 2 million Medicare beneficiaries are 
aged 44 and under, and in 2011, Medicare paid for roughly 14,000 
births.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the PC-01 measure for the FY 2017 
Hospital VBP Program.
d. Adoption of the Current Central Line-Associated Bloodstream 
Infection (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 recommendation in the MAP Pre-Rulemaking 
Report: 2013 Recommendations on Measures Under

[[Page 50061]]

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 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 CLABSI measure or 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28120 
through 28121), we proposed 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 welcomed public comment on this proposal.
    Comment: Commenters requested that CMS clarify whether the CLABSI 
and CAUTI measures will include non-ICU locations. Commenters also 
requested that CMS clarify whether hospitals that report CLABSI and 
CAUTI to NHSN as Mixed Acuity Units instead of ICUs will receive SIRs 
for the Hospital VBP Program, or if the measures will not be applicable 
for hospitals that do not report for ICUs.
    Response: For the CLABSI and CAUTI measures, we will score 
hospitals using adult, pediatric, and neonatal ICU data only for the FY 
2017 and FY 2018 Hospital VBP Programs, because the baseline periods 
for FY 2017 and FY 2018 are CY 2013 and 2014 respectively. These 
baseline periods are prior to the Hospital IQR Program requirement that 
hospitals report data on selected non-ICU locations (78 FR 50787). 
Therefore, we will have no data on non-ICU locations to use for 
performance or improvement benchmarks for these program years.
    Beginning with the FY 2019 Program, we intend to publicly report 
the CLABSI and CAUTI SIR data reported to the Hospital IQR Program on 
selected non-ICU locations (that is, adult or pediatric medical ward, 
surgical ward, and medical/surgical ward). We will consider inclusion 
of these locations in the Hospital VBP Program as soon as applicable 
reliable baseline data are available.
    Mixed acuity units do not meet NHSN definitions for the six select 
non-ICU locations, and therefore are not required to be reported for 
Hospital IQR Program purposes, so we will not use data from those units 
for the Hospital VBP Program for any of the baseline or performance 
periods. We refer readers to the NHSN Helpdesk Mailbox ([email protected]) 
with any specific questions about correctly defining and mapping 
patient care locations into NHSN.
    Comment: One commenter supported the continued inclusion of the 
existing risk-adjusted, rate-based ICU-only NHSN CLABSI measure in the 
FY 2017 Hospital VBP Program. The commenter also urged CMS to calculate 
the CLABSI measure using the ICU-only specifications until the 
facility-wide measure is available for both the baseline and 
performance periods of the Hospital VBP Program. The commenter was 
unaware of how CMS will deal with the CLABSI measure once it 
transitions to a facility-wide measure and expressed concern that CMS 
might dispense with the improvement score when the baseline and 
performance periods do not match. The commenter noted that the CDC has 
sufficiently granular data to continue reporting ICU-only results to 
CMS despite the collection moving to facility wide.
    Response: We agree that improvement scores are an important part of 
the Hospital VBP Program. We refer readers to our response to the 
previous commenter, in which we explain our intention to follow the 
commenter's suggestion, and provide the timelines for transitioning 
from the ICU-only measure to the broader measure of CLABSI in ICU and 
select non-ICU locations.
    Comment: One commenter urged CMS to rapidly incorporate a 
reliability-adjusted Standardized Infection Ration (SIR) calculation 
for the CLABSI measure because it provides a more robust calculation to 
identify differences among hospital rates.
    Response: We continue to believe that the CLABSI measure encourages 
hospitals to minimize infection events that present significant health 
risks to patients. However, in the absence of NQF-endorsement of the 
reliability-adjusted measure and any additional MAP recommendations, 
and unless we decide to adopt the reliability adjustments in the 
Hospital IQR Program, we believe we may only consider the current 
version of the CLABSI measure for adoption under the Hospital VBP 
Program. If a reliability-adjusted version of the measure becomes 
available to us in the future, we will consider adopting it.
    Comment: One commenter stated that CMS should not finalize the 
CLABSI measure and should wait until the reliability-adjusted version 
of the measure is endorsed by NQF. The commenter explained that many 
hospitals are having difficulty reporting the current measure, 
resulting in deviations in accuracy that may create profound 
differences in hospital performance.
    Response: We will consider adopting the new version of the measure 
if it is endorsed by NQF. However, reliability adjustment is a 
methodology designed to address hospitals with small numerators and 
denominators. The methodology is not designed to assist hospitals in 
reporting CLABSI data accurately. To assist hospitals in accurately 
reporting CLABSI, CMS and CDC have been working collaboratively to 
clarify NHSN protocol specifications and to educate hospitals on these 
protocols.
    Comment: One commenter was pleased with CMS' proposal to adopt the 
CLABSI measure, stating that it measures important safety outcomes for 
consumers and purchasers.
    Response: We agree and thank the commenter.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the current CLABSI measure for the FY 
2017 Hospital VBP Program.
e. Summary of Previously Adopted and New Measures for the FY 2017 
Hospital VBP Program
    The following table outlines the measures for the FY 2017 Hospital 
VBP Program, including those that we are readopting and those measures 
we are

[[Page 50062]]

adopting for the first time. As discussed further below, this table 
also includes the FY 2017 domains into which we are placing the 
readopted measures, as well as the domains into which we are placing 
the newly adopted measures.

                    Previously Adopted and 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 #1716).
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 2017 Hospital VBP Program that were not previously subject to automatic
  readoption.
*** Measures newly adopted for the FY 2017 Hospital VBP Program in this final rule.

5. 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&blobheader=multipart%2Foctet-stream&blobheadername1=Content-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, in the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28121 through 28122), we proposed 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 proposed to 
adopt this measure for FY 2019 now 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 proposed to place it 
in the Clinical Care--Outcomes domain.
    We welcomed public comments on this proposal.
    Comment: Several commenters supported CMS' proposal to adopt THA/
TKA for the FY 2019 Program, stating that the measure will further 
drive hospitals to boost their care quality initiatives focused on this 
procedure. Some commenters urged CMS to consider adopting it as early 
as FY 2018.
    Response: We believe that the time periods necessary to collect 
sufficiently reliable performance data on this measure preclude us from 
adopting the measure sooner than FY 2019.
    Comment: Several commenters opposed adoption of the THA/TKA 
measure, stating that it has not met the one-year public reporting 
requirement outlined in the Hospital VBP Program statute.

[[Page 50063]]

    Response: As described above with respect to measures proposed for 
FY 2017, section 1886(o)(2)(C)(i) of the Act requires that measures 
must have been ``included on the Hospital Compare Internet for at least 
1 year prior to the beginning of the performance period.'' As 
commenters noted, we reported these measures' data in December 2013, 
and have proposed an FY 2017 performance period for these measures of 
CY 2015, which complies with the statutory requirement in section 
1886(o)(2)(C)(i) of the Act. We believe that this measure meets the 
statutory requirements for inclusion in the FY 2019 Hospital VBP 
Program. We also believe that this measure represents an important 
component of quality improvement in the acute inpatient hospital 
setting. However, to the extent that there remains any question 
regarding our interpretation of section 1886(o)(2)(C)(i) of the Act, we 
are finalizing that the effective date of the THA/TKA measure will be 
July 1, 2015, consistent with the beginning of the performance period 
for that measure.
    Comment: One commenter supported the addition of the THA/TKA 
quality measure because it is MAP-approved and will further drive 
hospitals to boost their quality of care initiatives around these high-
volume procedures that reduce pain and increase mobility for hundreds 
of thousands of Medicare beneficiaries each year. The commenter noted 
that this measure is particularly important because it captures 
multiple complications and adverse events at various post-operative 
time intervals and would give hospitals a common benchmark around which 
to organize their quality improvement efforts.
    Response: We agree and thank the commenter for its support.
    Comment: One commenter expressed concern about the accuracy of the 
administrative data sets that are the basis for the THA/TKA measure, 
stating that the coding data have been known to underreport significant 
comorbidities that may therefore skew quality measurement.
    Response: We believe that the administrative claims data used for 
the Hip/Knee Complication measure is sufficiently accurate for purposes 
of Hospital VBP Program inclusion. We have validated the AMI, HF, and 
pneumonia mortality measures by building comparable models using 
medical record data for risk adjustment for heart failure patients 
(National Heart Failure data), AMI patients (Cooperative Cardiovascular 
Project data), and pneumonia patients (National Pneumonia Project 
dataset). When the medical record-based models were applied to the 
corresponding patient population, the hospital risk-standardized rates 
estimated using the claims-based risk adjustment models had a high 
level of agreement with the results based on the medical record model, 
thus supporting the use of the claims-based models for public 
reporting.
    Regarding the commenter's concern about underreporting significant 
comorbidities, during measure development, we also conducted a medical 
record validation study of the THA/TKA complications measure. The goal 
of that study was to determine the overall agreement between 
arthroplasty patients identified as having a complication (or no 
complication) in the claims-based measure and those who had a 
complication (or no complication) also documented in the medical 
record. Overall measure agreement was 93 percent (598/644 patients) 
before any changes were made to the model specifications. After the 
measure specifications were changed based upon both the results of this 
validation study, the measure agreement between claims data and the 
medical record was 99 percent (635/644).
    Comment: Some commenters opposed the proposed adoption of the THA/
TKA measure, stating that CMS should verify that the measure is 
properly risk-adjusted across patient populations to ensure that 
hospitals are not deterred from performing these surgeries for older, 
high-risk beneficiaries. One commenter opposed the adoption of the THA/
TKA measure because it uses the same hierarchical logical modeling 
methodology that is specified for the mortality measures included in 
the Hospital VBP Program, and the commenter continued to have concerns 
about the ability of this model to accurately distinguish between 
hospitals' performance. The commenter suggested instead that the model 
should include an adjustment for socioeconomic status, which commenter 
believes is an important predictor of complication rates. The commenter 
believes the measure is insufficient for inclusion in payment policies, 
for these reasons. Another commenter expressed support for the proposed 
THA/TKA measure, conditioned on CMS' adoption of a sociodemographic 
adjustment to the measure.
    Response: We refer readers to our earlier discussion of risk 
adjustment based on socioeconomic status with respect to the MSPB 
measure in section IV.I.4. of the preamble of this final rule, which 
also is relevant for this measure. As discussed in the previous 
section, we believe that the THA/TKA measure's risk adjustment 
methodology appropriately considers and adjusts for clinical factors.
    After consideration of the public comments we received, we are 
finalizing the THA/TKA measure for the FY 2019 Hospital VBP Program and 
subsequent years.
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 Agency for Healthcare Research 
and Quality (AHRQ) Patient Safety Indicator (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, in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28122), we proposed to readopt the PSI-90 measure for FY 2019 
Hospital VBP Program and subsequent years.
    We welcomed public comments on this proposal.
    Comment: Several commenters supported CMS' proposal to adopt the 
PSI-90 measure for the FY 2019 Program. One commenter noted that the 
measure captures important patient safety outcomes for consumers and 
purchasers.
    Response: We thank the commenters for their support.
    Comment: Several commenters suggested that CMS publish hospitals' 
performance on both the full composite measure and its individual 
indicators. One commenter suggested that CMS consider separate patient 
safety indicators for the Hospital VBP Program rather than the 
composite.
    Response: With respect to commenters' suggestions that we publish 
hospitals' performance on individual indicators, we may consider doing 
so in the future. However, since we have adopted the composite measure 
for the Hospital VBP Program, we believe it is appropriate to publish 
hospitals' performance on that measure, rather than its components, as 
a reflection of performance measured and scored under the Program. The 
composite measure is the basis for awarding achievement and

[[Page 50064]]

improvement points under the Hospital VBP Program, not its underlying 
indicators, and we believe it is appropriate to focus the Program's 
public reporting on the measures that receive points under the Program.
    Comment: Some commenters urged CMS to remove the PSI-90 measure 
from the Hospital VBP, Hospital IQR, and HAC Reduction Programs 
immediately based on NQF's recent report on patient safety measures. 
Several commenters noted that the NQF's Patient Safety Standing 
Committee did not recommend the measure for endorsement during 
maintenance review.
    Commenters also noted that the PSI-90 measure is undergoing 
maintenance review by the NQF. One commenter stated that AHRQ's 
proposed changes to the measure to regain NQF's endorsement may be 
significant and suggested that CMS consider whether it should continue 
to adopt the measure for the Hospital VBP, HAC Reduction, and Hospital 
IQR Programs.
    Response: We would like to clarify the status of the PSI-90 measure 
with regard to NQF endorsement. As part of the routine NQF measure 
maintenance process, the Patient Safety Committee expressed concerns 
about the weighting of the PSI-90 component measures and requested to 
see additional measure information related to re-weighting of PSI-90 
with three additional components (PSI-9, PSI 10 and PSI-11 before 
deciding if it would recommend continued endorsement of the measure. 
AHRQ has submitted the requested data for the NQF Patient Safety 
Committee's consideration.
    If, during the NQF review process, significant changes are made to 
the measure, we will evaluate those changes, including whether the 
measure remains appropriate for the Hospital VBP Program.
    Comment: Several commenters stated that the PSI-90 measure lacks 
robust risk-adjustment and tends to penalize hospitals with larger case 
volumes. Several commenters argued that the measure relies on 
inadequately validated claims data. Commenters stated that claims-based 
measures are not necessarily reliable for Hospital VBP Program 
purposes. Commenters argued that the measure's basis in administrative 
claims data presents significant limitations and that using 
administrative claims data is a less accurate method of identifying 
patient severity than clinical data abstracted from medical records.
    Another commenter was opposed to further adoption of the PSI-90 
measure for the Hospital VBP Program, stating that composite measures 
calculated using retrospective claims data create many problems for 
quality improvement activities, as the commenter believes claims-based 
data create inherent difficulties that are not present in non-claims 
data. The commenter was also opposed to rebalancing the PSI-90 measure 
by adding new metrics or shifting weighting to better measures in the 
composite, and stated that non-claims data should be considered for 
future composites when feasible.
    Response: Each of the PSI-90 composite component measures includes 
detailed risk-adjustment for clinical factors (for example, modified 
diagnostic related groupings, major diagnostic categories, 
comorbidities), age, and gender that influence the risk for 
experiencing a patient safety event during hospitalization. AHRQ's 
Quality Indicator program continually updates and refines the 
indicators to capture the best possible quality indicators for the 
measure.
    We also note that there are previously conducted validation studies 
examining the relationship between billing or claims data and medical 
records.
    In addition, AHRQ has advised us that the NQF-convened a group of 
experts to determine what criteria should be used for evaluating the 
indicators in the PSI-90 measure. The Technical Expert Panel provided 
clear guidance on the relationship between the individual component 
indicators and the composite in the Composite Performance Measure 
Evaluation Guidance document (NQF, April 2013), available at http://www.qualityforum.org/Publications/2013/04/Composite_Performance_Measure_Evaluation_Guidance.aspx. Specifically, individual component 
measures that are included in the composite performance measure: (1) 
Should be justified based on the clinical evidence; (2) do not need to 
be NQF endorsed; (3) generally should demonstrate a gap in performance; 
and (4) may not be sufficiently reliable independently, but contribute 
to the reliability of the composite performance measure.
    AHRQ convened a Composite Measure Workgroup of experts in the field 
to determine the best weighting strategy. The methodology of the PSI-90 
measure is detailed in the original technical report by the AHRQ 
Composite: http://qualityindicators.ahrq.gov/Downloads/Modules/PSI/PSI_Composite_Development.pdf. Several alternative approaches were 
discussed with the AHRQ Composite Measure Workgroup and the first NQF 
Composite Measure Steering Committee. Factor analysis was considered as 
one approach and was deemed to have no clear advantages over less 
complex, more intuitively clear weighting schemes. In brief, numerator 
weighting that is used in PSI-90 was preferred due to its greater 
simplicity and clarity.
    Comment: A few commenters strongly opposed the duplicative use of 
PSI-90 in both the Hospital VBP and HAC Reduction Programs.
    Response: As discussed further above, while we are aware that 
commenters object to the possibility of scoring hospitals on certain 
NHSN measures under both the Hospital VBP and HAC Reduction Programs, 
we note that these measures cover topics of critical importance to 
quality improvement in the inpatient hospital setting, and to patient 
safety.
    Comment: Some commenters opposed adoption of the PSI-90 composite 
measure, stating that its component indicators have serious flaws. 
Commenters stated that, for example, the PSI-15 indicator (accidental 
puncture or laceration), does not clearly define what constitutes an 
``accidental puncture.'' Commenters also stated that PSI-12 
(postoperative PE/DVT rate) relies on risk adjustment criteria that 
could lead to potential unintended consequences such as tagging every 
LE thrombophlebitis, whether or not they are clinically significant. 
One commenter stated that emergent cases and patients with a prior 
history of PE or DVT should also be excluded from that measure.
    Response: We continue to believe the PSI-90 measure is an important 
measure of patient safety, and therefore warrants inclusion in the 
Hospital VBP Program. PSI 15--accidental puncture and laceration and 
PSI 12--Perioperative Pulmonary Embolism or Deep Vein Thrombosis Rate 
are endorsed as valid and reliable measures (NQF 0345, NQF 0450, 
respectively). Expert panels have felt that these are scientifically 
sound measures.
    Comment: One commenter expressed concern about the reliability and 
reproducibility of the PSI-90 claims-based composite measure because of 
generally poor agreement between these and NHSN-based surveillance 
criteria, with the exception of surgical site infection (SSI). The 
commenter encouraged AHRQ and other independent researchers to examine 
the value, validity, reliability, and reproducibility of PSI-90 by 
comparing it to epidemiologic measures within NHSN's domain. The 
commenter recommended that CMS study how these measures correlate with 
SSI and NHSN-based surveillance criteria.

[[Page 50065]]

    Response: We agree with the commenter that studying the correlation 
between PSI-90 and with SSI and NHSN-based surveillance criteria would 
provide additional insights into PSI-90 measure validity, and will 
consider this in the future. We note that we are finalizing a policy to 
access certain NHSN data reported to the Hospital IQR Program which 
would make it possible to conduct this type of alignment analysis 
between the PSI-90 measure and the NHSN measures.
    Comment: Commenters suggested that CMS consider removing the PSI-12 
indicator from the PSI-90 composite for the FY 2015 Program until 
stakeholder concerns with the indicator's validity have been resolved.
    Response: We do not believe the PSI-12 indicator should be removed 
from the PSI-90 composite measure because it is designed to improve 
surveillance and awareness of post-operative deep vein thrombosis and 
pulmonary embolism. We believe that monitoring these conditions is 
important to protect patients from post-operative complications.
    Comment: A few commenters asked CMS not to finalize several 
proposed new measures for the FY 2019 Hospital VBP Program until they 
are NQF-endorsed, recommended by the MAP, and hospitals have experience 
in reporting and understanding the measures.
    Response: We believe that we have complied with the Hospital VBP 
Program's statutory requirements with respect to endorsement from NQF, 
MAP recommendations, and reporting through the Hospital IQR Program 
prior to adopting these measures under the Hospital VBP Program. 
Further, for the reasons we described in the proposed rule and in our 
responses to comments on that proposed rule, we continue to believe 
that the proposed measures represent improvements to the Hospital VBP 
Program's measure set by expanding to new clinical topics and 
addressing public health concerns.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the PSI-90 composite measure for the 
FY 2019 Hospital VBP Program.
6. Possible Measure Topics for Future Program Years
a. Care Transition Measure (CTM-3) Items for Hospital Consumer 
Assessment of Healthcare Providers and Systems (HCAHPS) Survey
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28122), we stated 
that we are considering proposing to add the Care Transition Measure 
(CTM) from the HCAHPS Survey to the Patient and Caregiver Centered 
Experience of Care/Care Coordination (PEC/CC) domain of the FY 2018 
Hospital VBP Program. We sought public comments on this topic.
    The 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 CTM 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 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 sought 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 dimensions would 
be calculated in the same manner as the eight existing HCAHPS 
dimensions. For each of the nine dimensions, Achievement Points (0-10 
points) and Improvement Points (0-9 points) would be calculated, the 
larger of which would 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 welcomed public comments on this approach to including the CTM-3 
dimensions in the PEC/CC domain score.
    Comment: Many commenters supported incorporating the HCAHPS Care 
Transition Measure (CTM-3) into the PEC/CC domain, given the critical 
importance of the care transition for improving patient outcomes and 
reducing patient suffering. Other commenters strongly supported the 
addition and urged CMS to finalize it. Commenters also supported the 
proposed methodology for scoring and weighting the measure within the 
domain.
    One commenter noted that the measure develops a ninth dimension of 
the HCAHPS Survey in the PEC/CC domain for FY 2018. The commenter 
stated that this measure is a significant first step in addressing 
shared accountability and quality of care during transitions of care 
periods and discharges from the health-system setting. The commenter 
further agreed that the normalization approach should be used for this 
care transition measure and calculation of total performance score.
    One commenter commended CMS for considering adopting the CTM-3 
items on the HCAHPS Survey, stating that effective management of care 
transitions is essential to ensuring proper patient recoveries while 
reducing readmissions and ensuring medication adherence. Another 
commenter supported our plan to include the CTM-3 items on the HCAHPS 
survey in the Hospital VBP Program in future years, noting that

[[Page 50066]]

providing incentivizes for hospitals to coordinate patient transitions 
will aid significantly in decreasing readmissions and potentially 
mortality among Medicare patients. Other commenters supported adoption 
of the CTM-3 items on the HCAHPS Survey under the Hospital IQR Program 
and offered to evaluate their inclusion under the Hospital VBP Program 
once the items have been publicly reported. Other commenters noted that 
their support because managing safe and effective transitions of care 
is a critical competency in the health care system.
    Response: We appreciate the comments in support of adding the Care 
Transition Measure to the Hospital VBP Program and the proposed 
methodology and weighting of this dimension in the PEC/CC domain.
    Comment: Several commenters did not support the addition of the 
three-question care transition measure as a ninth dimension to the 
HCAHPS Hospital VBP Program scoring before evidence supporting its 
validity and materiality to the Hospital VBP Program was released. One 
commenter suggested that CMS exclude HCAHPS scores from the program or 
adjust provider scores to account for demographic factors that have 
been shown to impact survey results. One commenter requested additional 
analysis of the measure results after its first year of implementation.
    Response: Should we decide to formally propose the addition of the 
HCAHPS Care Transition Measure to the Patient Experience of Care domain 
of the Hospital VBP Program through the rulemaking process, we will 
release additional information about the validity, reliability and 
statistical properties of the CTM.
    In order to achieve the goal of fair comparisons across all 
hospitals that participate in HCAHPS, it is necessary to adjust for 
factors that are not directly related to hospital performance but do 
affect how patients answer HCAHPS survey items. The HCAHPS patient-mix 
adjustment is intended to eliminate any advantage or disadvantage in 
scores that might result from patient characteristics beyond a 
hospital's control. We do not collect or adjust for patients' 
socioeconomic status, however the HCAHPS patient-mix adjustment does 
include patients' highest level of education, which can be related to 
socioeconomic status. (HCAHPS On-Line Web site, Mode and Patient-mix 
Adjustment: http://www.hcahpsonline.org/modeadjustment.aspx.)
    Comment: One commenter pointed to an analysis by the Cleveland 
Clinic that that shows that as patients' severity of illness worsens, 
HCAHPS scores decline in a statistically significant manner. Further, 
the commenter notes that the same relationship was observed when the 
researchers examined the relationship between patients' symptoms of 
depression and responses to HCAHPS--as symptoms of depression worsened, 
HCAHPS scores declined. The commenter believed this trend also may 
affect scores for other surveys in the CAHPS family. The commenter 
encouraged CMS to conduct an analysis that assesses the extent of the 
issue, and identifies potential mechanisms for enhancing how CAHPS 
scores are adjusted for patient factors.
    Response: Since its national implementation in 2006, the HCAHPS 
Survey has included an item that asks for patients' assessment of their 
overall health. We use this information in a transparent manner in the 
standard patient-mix adjustment of HCAHPS scores, as explained on the 
official HCAHPS On-Line Web site, www.HCAHPSonline.org, in our research 
documents, in the patient-mix adjustment coefficients that are posted 
on this Web site, and in published research.
    Responding to comments about HCAHPS in previous IPPS/LTCH PPS 
rulemaking, we added an item to the HCAHPS Survey in January 2013 that 
asks patients to assess their overall mental or emotional health. We 
have analyzed the impact of this item and found that its inclusion in 
patient-mix adjustment does not explain more or improve the model in 
which the `overall health' item also appears. Therefore we include only 
the `overall health' item in the HCAHPS patient-mix adjustment, as this 
adequately adjusts for patient severity.
    With respect to a Cleveland Clinic analysis that is said to show a 
greater than expected impact of severity of illness on HCAHPS scores, 
we understand that this analysis does not examine associations between 
patient characteristics and HCAHPS scores after the standard HCAHPS 
patient-mix adjustment has been applied. The standard HCAHPS patient-
mix adjustment would be expected to remove most or all of the 
association mentioned. We also understand that the Cleveland Clinic 
analysis is not based on national data. In addition, recent research 
found that using patients' clinical characteristics in adjustment 
models had relatively little impact relative to survey questions about 
patients' health and that adding such measures to the existing HCAHPS 
case-mix adjustment model would have very little effect.\53\
---------------------------------------------------------------------------

    \53\ Cleary, et al. Medical Care. 52: 619-625. 2014.
---------------------------------------------------------------------------

    Comment: One commenter urged CMS to expedite the initiative to 
include additional patient-centered palliative care measures into the 
Hospital VBP Program because the HCAHPS Survey is currently the only 
measure of patient experience, which misses all who die in the hospital 
or who are too ill to fill out the survey. The commenter noted that 
these individuals are most vulnerable due to the severity of their 
illness and deserve to have their and their families' experiences 
measured.
    Response: The survey methodology and question wording at this point 
cannot accommodate proxy respondents, so HCAHPS cannot measure the 
experience of care of those who died in the hospital. However, as about 
6.6 percent of hospice patients in 2012 died in a hospital setting,\54\ 
the new Hospice Experience of Care Survey, which is specifically 
designed for proxy respondents, will be able to capture some 
information about the experience in the hospital setting.
---------------------------------------------------------------------------

    \54\ NHPCO's Facts and Figures: Hospice Care in America, 2013 
Edition. National Hospice and Palliative Care Organization. 
Available at http://www.nhpco.org/sites/default/files/public/Statistics_Research/2013_Facts_Figures.pdf.
---------------------------------------------------------------------------

b. Possible Future Efficiency and Cost Reduction Domain Measure Topics
    In the interest of expanding the Efficiency and Cost Reduction 
domain to include a more robust measure set, including measures that 
supplement the MSPB measure with more condition and/or treatment 
specific episodes, as well as facilitating alignment with the Physician 
VM Program, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28122 
through 28224), we stated that we are considering proposing to add new 
episode-based payment measures to the Hospital VBP Program through 
future rulemaking. Expanding the Efficiency and Cost Reduction domain 
to include such measures would create incentives for coordination 
between hospitals and physicians to optimize the care they provide to 
Medicare beneficiaries and 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.
    As we discussed in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28123), the six episode-based standardized

[[Page 50067]]

payment measures we are considering are similar in many ways to the 
NQF-endorsed MSPB measure already included in the Efficiency domain 
and, like the MSPB measure, 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). In the FY 2013 IPPS/LTCH 
PPS proposed rule (79 FR 28123 through 28124), we also discussed 
notable differences between these new measures under consideration and 
the MSPB measure.
    Most notably, 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. We stated that 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 stated our belief 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.
    We noted another difference between the episode-based measures we 
are considering and the MSPB measure, which 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. 
We provided 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 stated that we are considering three medical and three surgical 
episodes for the potential inclusion in 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 welcomed 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.
    Comment: A few commenters expressed support for one or more 
specific episodes, and some commenters suggested that CMS also consider 
adding additional measures to the domain in the future. One commenter 
supported the proposal to adopt a hip/knee replacement/revision measure 
in the future efficiency domain, as the episode would encourage care 
coordination. Some of those commenters who supported one or more of 
these episodes also expressed concerns.
    Many commenters did not support inclusion of the episode-based 
standardized measures into the Hospital VBP Program. One commenter 
stated that the DRG triggers for urinary tract infection and cellulitis 
are often unrelated to an index inpatient admission. A few commenters 
also requested additional information on the measures CMS is 
considering.
    Response: We appreciate the commenter's support of the hip and knee 
replacement/revision condition-specific measures.
    Regarding the comment on the kidney/urinary tract infection and 
cellulitis episodes, we would like to clarify that these episode are 
only triggered by the presence of a specific MS-DRG on an inpatient 
claim. Thus, the episodes can only be initiated when the kidney/urinary 
tract infection or cellulitis is the primary reason for inpatient 
hospitalization.
    With regard to the request for additional information, we note that 
we provided detailed measure specifications at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/index.html?redirect=/hospital-value-based-
purchasing, and we reiterate that would implement any future measures 
for the Hospital VBP Program by first proposing and finalizing them for 
inclusion in the Hospital IQR Program, through notice and comment 
rulemaking.
    We thank the commenters for the responses and we will consider them 
as we develop future measures for the Hospital VBP Program.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28122 through 
28123), we noted that 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 stated that we are exploring data related to 
episodes for these types of conditions under the Physician VM Program. 
We welcomed comment regarding the applicability of episode-based 
measures for these or other conditions for future expansion of the 
Efficiency domain.
    Comment: One commenter applauded CMS' consideration of condition-
specific episode-based cost measures, and suggested that CMS consider 
focusing on additional high-impact conditions such as heart failure, 
stroke, and diabetes. The commenter also suggested that CMS attempt to 
identify geographic areas and hospitals where volume may be unduly 
high. Another commenter stated that, in FY 2017, CMS will be reporting 
Cost per Episode for pneumonia and heart failure through the Hospital 
IQR Program and was unclear why CMS is using different medical episodes 
here. Another commenter recommended that CMS consider the development 
and inclusion of additional measures outside of therapeutic areas 
already represented in the Hospital VBP Program, including measuring 
relating to diabetes, atrial fibrillation, COPD, and oncology. Several 
commenters who supported the measures encouraged CMS to develop 
additional episodes although these commenters did not identify specific 
episode names.
    Response: We thank the commenters for the support of the six 
measures and the suggestions for additional high impact conditions and 
will consider their suggestions in the future. Regarding the comment 
that pneumonia and heart failure episodes were in the Hospital IQR 
Program but not among the six measures among the proposed conditions 
for potential inclusion in the Efficiency domain, the 6 measures were 
selected for common conditions with the five criteria discussed below. 
Other measures such as pneumonia and heart failure could be considered 
among the medical episodes for potential inclusion in the future. As 
stated earlier, we would first propose any future Hospital VBP Program 
measures for the Hospital IQR Program, through notice and comment 
rulemaking.

[[Page 50068]]

    We thank the commenters for the responses and we will consider them 
as we develop future measures for the Hospital VBP Program.
    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 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 welcomed public comments on the 
episode selection criteria we utilized.
    Comment: Some commenters expressed support for the criteria. One 
commenter asked who is responsible for defining the episodes of care 
for cost management purposes.
    Response: We thank the commenters for the support of the criteria. 
We have worked closely with clinicians and contractors experienced in 
health services research to develop the episode measure selection 
criteria and to define the episodes of care cost measures.
    We thank the commenters for the responses and we will consider them 
as we develop future measures for the Hospital VBP Program.
    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 welcomed public comments on these 
specifications and the construction of the six episode-based payment 
measures that we are considering.
    Comment: A number of commenter expressed concern regarding the lack 
of assessment of quality within the 6 cost measures or association with 
existing quality measures, both among those who supported the measures 
and those who did not. One commenter did not support the addition of 
six episode-based payment measures to the Efficiency domain in addition 
to the MSPB measure until a sufficient number of appropriate clinical 
outcome or clinical process measures related to these therapeutic areas 
are included in the program and have demonstrated high provider 
performance, and noted that the inclusion of cost measures without 
relevant quality measures could have the unintended consequence of 
sacrificing quality of care for the sake of cost reduction.
    Response: As we take incremental steps towards providing all 
stakeholders with comprehensive metrics, we have selected condition-
specific cost measures for common conditions with evidence of large 
variation in payments to encourage higher value care where there is the 
most opportunity for improvement, the greatest number of patients to 
benefit from improvements, and the largest sample size to ensure 
reliability. Regarding the comment that the measures under 
consideration do not account for quality, we continue to believe that 
it is beneficial to view a cost measure in light of other quality 
measures. As we stated in the FY 2012 IPPS/LTCH PPS final rule, for 
purposes of the Hospital VBP Program, we would weight and combine the 
Efficiency and Cost Control domain with the other domain scores, in 
order to calculate each hospital's TPS. This ensures that any future 
spending measures would make up only a portion of the TPS and that the 
remainder would be based on hospitals' performance on the other quality 
measures (76 FR 51622). We continue to believe that distant measures of 
cost, independent of quality, enable us to identify hospitals involved 
in the provision of high quality care at a lower cost to Medicare (77 
FR 53586).
    Comment: Several commenters expressed concern about the potentially 
small number of episodes, which leads to more random variation. These 
commenters expressed concern about the reliability of the proposed 
condition-specific cost measures. One commenter noted that there would 
be fewer observations for each condition than there would be for an 
all-condition measure, such as the MSPB measure, and expressed concern 
that this would result in more random variation without providing clear 
additional information about the average costliness of the hospitals' 
care. To ensure reliability, the commenter expressed the belief that it 
is important that the cost measures used should be as broadly based as 
possible. Another commenter expressed concern that CMS may not be able 
to reliably and validly calculate Hospital VBP improvement scores and 
recommended that CMS focus on achievement scores. This commenter 
suggested that condition-specific cost measures will split efficiency 
data into small pools of information that are more prone to random 
variation and inconclusive results.
    Response: As we take incremental steps towards providing all 
stakeholders with comprehensive metrics, we have selected for potential 
future inclusion in the Efficiency domain condition-specific cost 
measures for common conditions with evidence of large variation in 
payments to encourage higher value care where there is the most 
opportunity for improvement, the greatest number of patients to benefit 
from improvements, and the largest sample size to ensure reliability. 
To further ensure reliability, inclusion of the condition-specific cost 
measures for individual hospitals would require a minimum number of 
cases, which would be based on statistical tests of reliability and 
would be proposed through future rulemaking.
    We also note that commenters have previously suggested that we 
narrow the MSPB measure to condition-specific measures, and we 
responded in the FY 2012 IPPS/LTCH PPS final rule that we would 
consider adding condition-specific measures to the Efficiency domain 
through future rulemaking (76 FR 51623). As we stated in the FY 2015 
IPPS/LTCH PPS proposed rule, we believe that these condition-specific, 
cost and-outcome-measure groupings would allow patients and payers to 
make more fully informed comparisons

[[Page 50069]]

of hospitals' performance. Including condition-specific cost measures 
would also provide hospitals with actionable feedback that would better 
assist them in targeting resources for improvements than would an 
overall cost-measure alone.
    Comment: A number of commenters expressed their concern that the 
episode measures, like the MSPB measure, include the cost of services 
that they perceived to be beyond hospitals' control, including post-
acute care and readmissions. Commenters also expressed their concern 
that including post-acute care may skew measure results, due to 
including greater effects of patient comorbidities. Some commenters 
suggested that the measures would be more appropriate for inclusion in 
the Shared Savings Program or after they are implemented in the 
Physician Value Modifier (VM). Some commenters also suggested that the 
measures account for site of service choices made by beneficiaries.
    Response: We disagree that Medicare payments for post-discharge 
services are beyond the influence of hospitals, and we believe that 
including post-acute care services in the episodes of care is important 
because it ensure that these high-cost services, often with alternative 
post-acute options with large variations in cost, are included in the 
overall condition-specific episode costs. Patient comorbidities that 
contribute to higher post-acute care costs are included in the risk 
adjustment models to address the concerns raised.
    We agree that it is important to align incentives across CMS 
payment incentive programs. While these measures have not been proposed 
for inclusion in the Shared Savings Program or the VBM at present, they 
have been included in the Supplemental Quality and Resource Use Reports 
distributed to groups of 100 or more EPs in the summer of 2014 and we 
intend to continue to include them in these reports, as they are 
disseminated to more groups of EPs, including solo practitioners, in 
the future. We would also consider proposing them for inclusion in the 
VM and MSSP programs through future rulemaking.
    As we stated in the stated in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51625), we do not believe that site of service adjustments are 
appropriate for spending measures, because such adjustments would 
undermine the ability of the measures to meaningfully capture 
differences in Medicare spending. However, we would consider the 
potential inclusion of site of service choice as we further examine the 
measure.
    Comment: Some commenters suggested that CMS explore the Bundling 
Payments for Care Improvement (BPCI) initiative before these six 
potential measures are implemented. These commenters expressed concern 
that the measure specifications and episode construction rules were not 
aligned with the Bundled Payments for Care Improvement initiative, 
resulting in confusion among hospitals, and suggested that CMS consider 
this initiative before further pursuing these six episodes.
    Response: We considered the BPCI methodology when we developed the 
episode based payment measures we discuss in this rule. We believe the 
episodes included in the Hospital VBP Program should be more specific 
in their inclusion of clinically-related costs, because these measures 
would be publicly reported and used to evaluate hospitals and adjust 
their payments, based on performance for specific conditions.
    The BPCI approach (model 2) includes the inpatient hospital stay 
for the anchor MS-DRG and all related care covered under Medicare Part 
A and Part B within 30, 60, or 90 days following discharge from the 
acute care hospital. Unrelated services are not included in the BPCI 
episode. These excluded services can be found at http://innovation.cms.gov/Files/x/BPCI2-4_PartA-B_Exclusion.pdf. In 
contrast, the 6 condition-based episodes discussed in the proposed rule 
include all costs from the index admission and only clinically-related 
costs from Part A and B services occurring immediately before and after 
the index admission. Service costs may only be included in the 
condition-based episodes if they meet certain cost thresholds and are 
billed with select procedures, services, and/or diagnoses. In other 
words, the BPCI approach is designed to pay for an episode of care, 
which includes all relevant services for a set period of time. The six 
condition-based episodes proposed for potential future consideration 
are designed to support more targeted assessments of hospital 
performance by using the cost of major, clinically-related services in 
the post-discharge period as an indicator of a hospital's success in 
delivering clinically-relevant, high quality, and appropriate services 
during the index hospital admission.
    Comment: Many commenters stated that the 6 condition-based episode 
measures under consideration did not risk adjust for sociodemographic 
factors and encouraged CMS to review its risk adjustment models. One 
commenter noted that lack of proper risk-adjustment for 
sociodemographic status could result in unintended negative 
consequences. Some commenters discussed the recent NQF draft report on 
the subject that suggested that measures take these factors into 
account.
    Response: We refer readers to our earlier discussion of risk 
adjustment based on socioeconomic status with respect to the MSPB 
measure which also is relevant for these measures.
    Comment: Many commenters stated that inclusion of the 6 measures 
would mean double counting the services that are already included in 
the MSPB measure, which is the only measure in the Efficiency domain. 
Some commenters suggested that if these measures are adopted for 
inclusion in the Efficiency domain, then they should replace, rather 
than supplement the MSPB.
    Response: We disagree that inclusion of additional condition-
specific measures in the Efficiency and Cost Control domain would 
inappropriately double count payments for episodes attributed to 
hospitals. Unlike the MSPB measure, the condition-specific cost 
measures only include costs from services/procedures related to the 
condition. These condition-specific, cost-and-outcome-measure groupings 
would allow patients and payers to make more fully informed comparisons 
of hospitals' performance.
    Including condition-specific cost measures would also provide 
hospitals with actionable feedback that will better equip them to 
implement targeted improvements than an overall cost-measure alone. 
Relying on condition-specific measures alone would disregard 
differences in overall cost. The MSPB-1 measure is reported as a ratio 
of payment-standardized, risk-adjusted MSPB amount for each hospital 
divided by the weighted median MSPB amount across all hospitals. These 
six clinical episode measures, if adopted in the future, are intended 
to supplement the information provided by the MSPB. We note that, as 
mentioned above, commenters have previously suggested that we narrow 
the MSPB measure to condition-specific measures, and we responded in 
the FY 2012 IPPS/LTCH PPS final rule that we would consider adding 
condition-specific measures to the Efficiency domain through future 
rulemaking (76 FR 51623).
    Comment: Several commenters noted that CMS should follow the MAP 
process and propose to include these measures in the Hospital IQR 
Program first, prior to inclusion in the Hospital VBP Program.
    Response: Any future Hospital VBP Program measures would first be

[[Page 50070]]

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)(i) of the Act.
    Comment: Several commenters, including those who supported the 
measure, requested additional information on the six measures. One 
commenter expressed concern about the proposed cost measures and 
recommended that the public have additional opportunity to review and 
comment on this proposal before CMS moves ahead on a hip/knee surgical 
episode under the Hospital VBP Program.
    Response: The six episode cost measures have been designed 
specifically for the Medicare program using transparent methodology 
that is described in materials that are publicly available on the CMS 
hospital value-based purchasing Web site: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/index.html. There will be additional opportunity to 
review and comment on this proposal before we would move ahead on any 
of the six episodes under consideration.
    Comment: One commenter stated that readmissions for a condition 
clinically related to the index admission should not start a new index 
admission because it would be holding hospitals accountable twice for 
the care provided.
    Response: The methodology of the condition-specific cost measures 
assigns separate significance to a readmission that is grouped to a 
related previous hospitalization and a second triggered episode for the 
same condition. These admissions would not necessarily be attributed to 
the same hospitals, and assigning one as a readmission to the previous 
hospitalization and also allowing it to begin a second episode provides 
an opportunity for both managing hospitals to be evaluated.
    We will consider the suggestion that readmissions not trigger new 
episodes, but we believe that it may be appropriate to begin a new 
episode in these cases, because Medicare payments made for the care 
provided during these subsequent hospitalizations represents a 
significant cost that would otherwise not be captured. We also note 
that the measures could be calculated similarly to the MSPB measure, 
where the total cost per episode could be divided by the number of 
episodes, so that the amount would represent an average of the episode 
costs for multiple admissions.
    Comment: One commenter suggested that CMS focus on the development 
of a multi-dimensional patient-reported composite measure of maternity 
care in the near-term, which could be collected six weeks after birth 
to measure outcomes and identify common new-onset morbidities during a 
post-partum visit. Another commenter recommended the adaption of the 
generic Consumer Assessment of Healthcare Providers and Systems (CAHPS) 
survey to measure the experience of care of childbearing women and 
newborns.
    Response: Patients admitted for maternity care are eligible for the 
HCAHPS Survey and comprise a significant portion of patients who report 
their experience of care. We are considering whether to extend the 
HCAHPS Survey to encompass the pediatric population; currently the 
HCAHPS Survey is oriented toward patients 18 years of age and older.
    We thank the commenters for the responses and we will consider them 
as we develop future measures for the Hospital VBP Program.
7. Previously Adopted and Newly Finalized 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 Care--Process, Patient Experience of Care, Clinical 
Care--Outcomes, and Efficiency and Cost Reduction 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 in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28124 through 28125), we proposed 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. 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 Care--Process 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. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28124), we proposed 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 proposed 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 invited public comment on these proposals.
    Comment: Many commenters supported CMS' proposed baseline and 
performance periods for FY 2017 measures in the Safety, Clinical Care--
Process, and Efficiency and Cost Reduction domains.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing the FY 2017 Clinical Care--Process performance and baseline 
periods as proposed.

[[Page 50071]]

d. 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28124), we 
proposed 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 
proposed 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 invited public comment on these proposals. However, we did not 
receive specific comments on the PEC/CC domain's performance period for 
FY 2017. Accordingly, we are finalizing the FY 2017 performance and 
baseline periods for the PEC/CC domain as proposed.
e. Performance Period and Baseline Period for NHSN Measures in the 
Safety Domain 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 (Catheter-Associated Urinary Tract Infection 
(CAUTI), CLABSI, and Surgical Site Infection (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 noted 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, 
in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28124) for the FY 
2017 NHSN measures in the Safety domain (including the proposed CLABSI, 
C. difficile Infection and MRSA Bacteremia measures), we proposed 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 invited public comment on these proposals.
    Comment: One commenter supported the performance and baseline 
periods for the FY 2017 NHSN measures in the Safety domain but 
recommended collaboration with NHSN on limitations of SIR analysis, 
especially for smaller size facilities or those with lower volumes of 
use of devices such as central lines, urinary catheters, and surgical 
procedures. The commenter also expressed concern that an SIR may not 
calculate even for a 12-month block of time for some hospitals.
    Response: We intend to continue working with CDC to ensure that 
reliable SIRs are calculated for participating hospitals.
    After consideration of the public comment we received, we are 
finalizing the FY 2017 performance period and baseline periods for the 
NHSN measures in the Safety domain as proposed.
f. 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 
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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28124 through 
28125), we proposed 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 noted 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 invited public comments on these proposals.
    Comment: Commenters supported CMS' proposed baseline and 
performance periods for FY 2017 measures in the Safety, Clinical Care--
Process, and Efficiency and Cost Reduction domains.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing the FY 2017 performance and baseline periods for the 
Efficiency and Cost Reduction domain as proposed.
g. Summary of Previously Adopted and Newly Finalized Performance 
Periods and Baseline Periods for the FY 2017 Hospital VBP Program
    The table below summarizes the newly finalized 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 Newly Finalized 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,
                               January 1,    2015.*
                               2013-December 31,
                               2013.
     NHSN (CAUTI,     ....................   January 1,
     CLABSI, SSI, C.                                 2015-December 31,
     difficile Infection,                            2015.
     MRSA Bacteremia).
Clinical Care--Outcomes:

[[Page 50072]]

 
     Mortality*        October 1,    October 1,
     (MORT-30-AMI, MORT-30-    2010-June 30, 2012*.  2013-June 30,
     HF, MORT-30-PN).                                2015.*
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 Newly Finalized Performance Periods and 
Baseline Periods for Certain Measures for the FY 2019 Hospital VBP 
Program
a. Previously Adopted and Newly Finalized Performance Period and 
Baseline Period for the FY 2019 Hospital VBP Program for Clinical 
Care--Outcome 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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28121 through 
28122), we proposed 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 supported 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 proposed to adopt an FY 2019 performance period of 
January 1, 2015 through June 30, 2017 for the THA/TKA measure. Further, 
we proposed 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 welcomed public comments on these proposals.
    We did not receive any specific public comments on these proposals 
and are finalizing the FY 2019 performance and baseline periods for the 
THA/TKA measure as proposed.
b. 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 
50694), 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, in the 
FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28126) we proposed to adopt 
an FY 2019 performance period for the PSI-90 measure of July 1, 2015 
through June 30,

[[Page 50073]]

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 welcomed public comments on these proposals. However, we did not 
receive any specific public comments on this proposal and are 
finalizing the FY 2019 performance and baseline periods for the PSI-90 
measure as proposed.
c. Summary of Previously Adopted and Newly Finalized 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 Newly Finalized Performance and Baseline Periods
        for Certain Measures for the FY 2019 Hospital VBP Program
------------------------------------------------------------------------
           Domain                Baseline period     Performance period
------------------------------------------------------------------------
Safety:
     PSI-90.........   July 1,       July 1,
                               2011-June 30, 2013.   2015-June 30, 2017.
Clinical Care--Outcomes:
     Mortality*        July 1,       July 1,
     (MORT-30-AMI, MORT-30-    2009-June 30, 2012*.  2014-June 30,
     HF, MORT-30-PN).                                2017.*
     THA/TKA........   July 1,       January 1,
                               2010-June 30, 2013.   2015-June 30, 2017.
------------------------------------------------------------------------
* Previously adopted performance and baseline periods.

9. 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 proposed 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28126 
through 28127) we proposed 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.
    We welcomed public comment on these proposals.
    We did not receive any specific public comments on this proposal 
and are finalizing the FY 2020 performance and baseline periods for the 
Clinical Care--Outcomes domain as proposed.
    The following table summarizes the finalized performance and 
baseline period for the Clinical Care--Outcomes domain for the FY 2020 
Hospital VBP Program:

 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,              2010-June 30,       2015-June 30,
     MORT[dash]30-PN).             2013.               2018.
     THA/TKA............   July 1,     July 1,
                                   2010-June 30,       2015-June 30,
                                   2013.               2018.
------------------------------------------------------------------------

10. 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

[[Page 50074]]

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 42 CFR 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 section 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. 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)), in the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28127 through 28128) we proposed 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. We will award achievement and 
improvement points to each stratum separately and then compute a 
weighted average of the points awarded to each stratum by predicted 
infections. We note that we misstated PC-01 measure's benchmark in the 
proposed rule and have corrected that error in the table below.

  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          0.7927.................  0.0000.
                                  Infection.
MRSA Bacteremia................  Methicillin-Resistant          0.8613.................  0.0000.
                                  Staphylococcus aureus
                                  Bacteremia.
PSI-90*........................  Complication/patient safety    *0.577321..............  *0.397051.
                                  for 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          *0.882986..............  *0.908124.
                                  mortality 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.

[[Page 50075]]

 
PC-01..........................  Elective Delivery Prior to 39  0.031250...............  0.000000.
                                  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 performance   across all hospitals
                                                                 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
                   HCAHPS survey dimension                          Floor          threshold        Benchmark
                                                                  (percent)        (percent)        (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 welcomed public comments on these proposed performance 
standards.
    We did not receive any specific public comments on the proposed 
performance standards. We are therefore finalizing the FY 2017 
performance standards as outlined below.
    Set out below are the updated the numerical values for the 
performance standards. As with the NHSN measures and the PSI-90 
measure, we note that better performance on the PC-01 measure is 
represented by lower numerical values.

   Previously Adopted and Newly Finalized 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    0.845..................  0.000.
                                  Tract Infection.
CLABSI.........................  Central Line-Associated Blood  0.457..................  0.000.
                                  Stream Infection.
C. difficile...................  Clostridium difficile          0.750..................  0.000.
                                  Infection.
MRSA Bacteremia................  Methicillin-Resistant          0.799..................  0.000.
                                  Staphylococcus aureus
                                  Bacteremia.
PSI-90*........................  Complication/patient safety    *0.577321..............  *0.397051.
                                  for selected indicators
                                  (composite)*.
SSI............................  Surgical Site Infection......
                                    Colon                0.751.........   0.000.
                                    Abdominal            0.698.........   0.000.
                                 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          *0.882986..............  *0.908124.
                                  mortality rate*.
----------------------------------------------------------------------------------------------------------------
                                         Clinical Care--Process Measures
----------------------------------------------------------------------------------------------------------------
AMI-7a.........................  Fibrinolytic Therapy Received  0.954545...............  1.000000.
                                  Within 30 Minutes of
                                  Hospital Arrival.
IMM-2..........................  Influenza Immunization.......  0.951607...............  0.997739.

[[Page 50076]]

 
PC-01..........................  Elective Delivery Prior to 39  0.031250...............  0.000000.
                                  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 performance   across all hospitals
                                                                 period.                  during the performance
                                                                                          period.
----------------------------------------------------------------------------------------------------------------
*Previously adopted performance standards.


  Performance Standards for the FY 2017 Hospital VBP Program Patient and Caregiver-Centered Experience of Care/
                                            Care Coordination Domain
----------------------------------------------------------------------------------------------------------------
                                                                                  Achievement
                   HCAHPS survey dimension                          Floor          threshold        Benchmark
                                                                  (percent)        (percent)        (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses....................................            58.14            78.19            86.61
Communication with Doctors...................................            63.58            80.51            88.80
Responsiveness of Hospital Staff.............................            37.29            65.05            80.01
Pain Management..............................................            49.53            70.28            78.33
Communication about Medicines................................            41.42            62.88            73.36
Hospital Cleanliness & Quietness.............................            44.32            65.30            79.39
Discharge Information........................................            64.09            85.91            91.23
Overall Rating of Hospital...................................            35.99            70.02            84.60
----------------------------------------------------------------------------------------------------------------

e. 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. In the 
FY 2015 IPPS/LTCH PPS proposed rule, we also proposed 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, PSI-90, and MSPB 
measures, better performance is represented by lower values for the 
THA/TKA measure. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28128 through 28129) we proposed to adopt the following 
performance standards for the FY 2019 Hospital VBP Program:

   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 welcomed public comments on these proposed performance 
standards.
    We did not receive any specific public comments on this proposal 
and are finalizing the FY 2019 performance standards as outlined below.
    Set out below are the updated numerical values for the FY 2019 
performance standards. We note that, as described above with respect to 
the NHSN, PSI-90, and MSPB measures, better performance is represented 
by lower values for the THA/TKA measure.

[[Page 50077]]



   Previously Adopted and Newly Finalized 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          0.840335         0.589462
                                      indicators (composite).
----------------------------------------------------------------------------------------------------------------
                                                Outcomes Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI\*\.....................  Acute Myocardial Infarction (AMI) 30-day        *80.850671       *80.873263
                                      mortality rate\*\.
MORT-30-HF\*\......................  Heart Failure (HF) 30-day mortality             *80.883472       *80.908094
                                      rate\*\.
MORT-30-PN\*\......................  Pneumonia (PN) 30-day mortality rate\*\..       *80.882334       *80.907906
THA/TKA............................  Hospital-level Risk-Standardized                  0.032229         0.023178
                                      Complication Rate Following Elective
                                      Primary Total Hip Arthroplasty (THA) And/
                                      Or Total Knee Arthroplasty (TKA).
----------------------------------------------------------------------------------------------------------------
\*\ Previously adopted performance standards.

    We also proposed 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 welcomed public comments on these proposed performance 
standards.
    We did not receive any specific public comments on this proposal 
and are finalizing the FY 2020 performance standards as outlined below.
    Set out below are the updated the numerical values for the FY 2020 
performance standards. We note that, as described above with respect to 
the NHSN, PSI-90, and MSPB measures, better performance is represented 
by lower values for the THA/TKA measure.

     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          0.853715         0.875869
                                      mortality rate.
MORT-30-HF.........................  Heart Failure (HF) 30-day mortality rate.         0.881090         0.906068
MORT-30-PN.........................  Pneumonia (PN) 30-day mortality rate.....         0.882266         0.909532
THA/TKA............................  Hospital-level Risk-Standardized                  0.032229         0.023178
                                      Complication Rate Following Elective
                                      Primary Total Hip Arthroplasty (THA) And/
                                      Or Total Knee Arthroplasty (TKA).
----------------------------------------------------------------------------------------------------------------

f. 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 42 CFR 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 section 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

[[Page 50078]]

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.
    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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28129 
through 28130) we proposed to amend the definition of ``performance 
standards'' under section 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 
proposed 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 noted 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 (that is, changes in acceptable timing of 
medication, procedure/process, or test administration). We also noted 
that the NQF process incorporates an opportunity for public comment and 
engagement in the measure maintenance process.
    We also proposed to include in our revised definition of 
``performance standards'' under section 412.160 of our regulations the 
policy we adopted in the FY 2013 IPPS/LTCH PPS 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 proposed to make this change so that our policies 
governing updates to the performance standards appear together.
    We welcomed public comments on these proposals. We also 
specifically sought 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 nonsubstantive updates to be 
substantive.
    Comment: Several commenters opposed CMS' proposal to adopt 
technical updates for performance standards, stating that there is no 
reason we cannot use the public notice and technical corrections 
process to disseminate changes in performance standards to 
stakeholders. Some commenters stated that not all stakeholders have 
access to QualityNet to receive the updates that CMS proposed. One 
commenter noted that changing performance standards targets with more 
than annual frequency would undermine hospitals' ability to implement 
performance improvement efforts. Commenters noted that the Hospital VBP 
Program is designed to hold hospitals accountable for their performance 
during a specified time period based on standards that are

[[Page 50079]]

published before that performance period begins.
    One commenter recommended that CMS apply changes in the risk 
adjustment system only when a new performance standard is published and 
then use those same updates when performance is measured for the 
performance period--if the changes are indeed ``nonsubstantive,'' as 
the proposed regulatory text would specify, delaying the application of 
such updates should not be detrimental to the Hospital VBP Program. The 
commenter expressed concern that changes could be made resulting both 
in different hospital performance and a different performance standard, 
which would eliminate the usefulness of the minimal amount of 
information currently available to hospitals on these measures.
    Response: We disagree with the recommendation to have all measure 
changes subject to notice-and-comment rulemaking. As previously noted 
in FY 2014 IPPS/LTCH PPS final rule (78 FR 50776), we believe that the 
maintenance of technical specifications for quality measure policy for 
the Hospital IQR Program also is applicable to the Hospital VBP 
Program. We believe this policy adequately balances our need to 
incorporate nonsubstantive NQF updates to NQF-endorsed measures in the 
most expeditious manner possible, while preserving the public's ability 
to comment on updates that so fundamentally change an endorsed measure 
that it is no longer the same measure that we originally adopted. We 
also note that the NQF process incorporates an opportunity for public 
comment and engagement in the measure maintenance process. These 
policies regarding what is considered substantive versus nonsubstantive 
apply to all measures in the Hospital IQR Program and the Hospital VBP 
Program, and we believe the same standard applies when determining what 
should be considered substantive changes to performance standards.
    We believe that it is of paramount importance that the performance 
standards that we adopt accurately reflect hospitals' actual 
performance during the baseline period. We view our Technical Updates 
authority policy as a means to ensure that accuracy and to ensure that 
the program scores hospitals based on performance standards that 
reflect the actual provision of care in hospitals around the country.
    With respect to commenters' concerns that we may update performance 
standards more than annually, we are aware that updates may have 
unintended consequences on hospitals' quality improvement efforts. We 
do not intend to make updates to performance standards except to 
improve the standards' accuracy and to ensure that the numerical values 
that we display for hospitals accurately reflect hospitals' performance 
during the baseline period, as applicable. In addition, with respect to 
commenters' suggestion that delays to performance standards updates 
would not be detrimental to the Hospital VBP Program, we disagree. We 
believe that we must provide hospitals with as much accurate 
information as is possible so that they may develop and implement 
quality improvement policies. We do not believe it would be helpful to 
hospitals for us to delay publishing a technical update on the basis 
that the update will not significantly affect performance.
    We note further that we do not intend to limit any updates made to 
performance standards using this authority to QualityNet 
accountholders. We intend to publish any changes made under this policy 
on the public QualityNet Web site and through our Hospital VBP Program 
listserv entitled, ``Hospital Inpatient Value-Based Purchasing (HVBP) 
and Improvement,'' available under the notifications and discussions 
link on our home page.
    Comment: One commenter suggested that CMS should define in specific 
terms what should constitute a ``substantive'' versus a 
``nonsubstantive'' update to the Hospital VBP Program performance 
standards before adopting the authority to make technical updates. The 
commenter further stated that CMS should be as transparent with 
stakeholders as possible about these changes, noting that midstream 
updates could have profound impacts on hospitals' performance under 
Hospital VBP Program.
    Response: 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. However, as commenters have requested, we 
intend to be as transparent as possible with stakeholders about any 
technical updates that we would adopt, including the rationale for any 
such updates and their effects on finalized performance standards.
    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.
    After consideration of the public comments we received, we are 
finalizing the technical updates policy for performance standards as 
proposed. We are also finalizing our proposed revisions to the 
definition of ``performance standards'' in section 412.160 of our 
regulations.
g. Request for Public Comments on International Classification of 
Diseases, Tenth Revision, Clinical Modification/Procedure Coding System 
(ICD-10-CM/PCS) Transition
    Beginning October 1, 2015, when the ICD-10-CM/PCS codes become the 
required code set, we will collect non-electronic 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 requested public comments on how we should 
accommodate the transition.
    Specifically, we requested 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 
performances and, if substantive

[[Page 50080]]

differences result, retrospectively adjust 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 International 
Classification of Diseases, Ninth Revision, Clinical Modification (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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28130) we stated 
that we intended 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 stated that 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 stated that 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 welcomed public comments on this topic.
    Comment: One commenter supported CMS' implementation of ICD-10-CM/
PCS on October 1, 2015 without any further delays. The commenter also 
warned that, while adoption is welcome and overdue, implementation of 
the new system must be carefully orchestrated to minimize the 
administrative burden on hospitals. The commenter noted their 
appreciation of CMS' efforts to offer extensive educational 
opportunities for hospitals and noted that extensive end-to-end testing 
of both the electronic transaction and the adjudication of the claim by 
Medicare contractors and State Medicaid agencies will be needed to 
ensure a smooth transition from ICD-9-CM to ICD-10-CM/PCS.
    Response: We thank the commenter for its support. We would like to 
clarify that HHS has not yet finalized an ICD-10 implementation date 
through rulemaking. We refer readers to the CMS Web page on ICD-10 
(http://cms.hhs.gov/Medicare/Coding/ICD10/index.html) and the Federal 
Register for current information.
    Comment: A few commenters recommended that CMS work with more than 
nine hospitals, as well as other national hospital associations and 
stakeholders interested in volunteering to participate in the ICD-10-
CM/PCS transition process, to gain a broader understanding of the 
coding transition and its impact on CMS' quality reporting and pay-for-
performance programs.
    Response: We believe an initial limited analysis will enable us to 
better understand the impact of the ICD-10-CM/PCS transition on 
hospitals' performance. We intend to continue discussing this topic 
with stakeholders in the future.
    Comment: One commenter supported CMS' suggested strategy for 
analyzing Hospital VBP Program performance scores to accommodate the 
ICD-10-CM/PCS transition, but requested that CMS make any adjustment 
methodology public and continue to score hospitals on both achievement 
and improvement.
    Response: We intend to discuss publicly any adjustments that we 
would subsequently propose through rulemaking for the Hospital VBP 
Program.
    Comment: Many commenters urged CMS not to adopt achievement-only 
scoring as a result of the ICD-10-CM/PCS transition, stating that 
improvement points are a balancing feature of the Hospital VBP Program 
that provide incentives for progress. Some commenters stated that the 
Hospital VBP Program statute requires that CMS score hospitals on both 
achievement and improvement, and suggested that CMS ``waive'' 
hospitals' participation in the program until we have adequate data to 
provide both elements of performance scoring.
    Several commenters suggested that CMS remove measures from the 
program for a year if we cannot calculate reliable improvement scores. 
Other commenters requested that CMS allow sufficient time to analyze 
the impact of the ICD-10-CM/PCS transition and address any potential 
issues before penalizing hospitals in future Hospital VBP Program 
years. One commenter suggested holding hospitals harmless if CMS cannot 
accurately accept and calculate quality measures.
    Response: We thank the commenters for this feedback and will take 
it into consideration as we develop our policy on this issue.
    Comment: Several commenters expressed concern that transitioning 
the Hospital VBP Program to the ICD-10-CM/PCS system could 
significantly alter how measures are scored between the baseline and 
performance periods. The commenter opined that comparisons between the 
ICD-9-CM and ICD-10-CM/PCS systems would be unfair, and suggested that 
CMS score hospitals using ICD-9-CM data and an ICD-10-CM/PCS crosswalk. 
Commenters suggested that CMS run both the baseline data and the 
performance data using ICD-9-CM (using crosswalk software) and make the 
results of the testing publicly available. A few commenters urged CMS 
to formalize its ICD-10-CM/PCS testing plans to ensure that end-to-end 
testing begins no later than January 2015 and is made available to all 
hospitals.
    Response: We thank the commenters for this feedback and will take 
it into consideration as we develop our policy on this issue.
    Comment: One commenter recommended that CMS update its quality 
measures in order to best take advantage of the added granularity 
offered by ICD-10-CM/PCS. The commenter does not believe that it will 
be possible to accurately adjust performance standards retrospectively 
in order to correct the substantive differences in ICD-9-CM and ICD-10-
CM/PCS quality data. The commenter suggested that evaluating quality 
measures solely on achievement would minimize the administrative costs 
associated with identifying the feasibility, validity, and reliability 
of comparing quality measures based on dissimilar code sets, and would 
also allow measure developers to freely update quality measures without 
the fear of distorting comparisons between baseline and performance 
period data coded in dissimilar formats.
    Commenters agreed that the ICD-10-CM/PCS transition may have an 
impact on quality measurement based on claims data, and encouraged CMS 
to analyze those effects rigorously once data are available.
    Response: We thank the commenters for this feedback and will take 
it into consideration as we develop our policy on this issue.
    We thank the commenters for these responses and we will consider 
them as we plan for the ICD-10-CM/PCS transition under the Hospital VBP 
Program.
11. FY 2017 Hospital VBP Program Scoring Methodology
a. General Hospital VBP Program Scoring Methodology
    In the Hospital Inpatient VBP Program final rule (76 FR 26514), we 
adopted a

[[Page 50081]]

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 hospitals 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28130 
through 28131) we proposed 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 welcomed public comment on this proposal. We also received a 
number of general comments on the Hospital VPB Program's scoring 
methodology.
    Comment: Several commenters stated that CMS should consider phasing 
out improvement scoring for selected measures or the entire Hospital 
VBP Program that have been included in the Hospital VBP Program for 
several years in order to emphasize comparative performance on the 
measures. Several commenters agreed that phasing out improvement 
scoring after several years (one commenter suggested 3 years) would 
emphasize comparative performance on the measures. While some 
commenters noted that improvement at the outset of the program is very 
important to encouraging historically poor-performing hospitals to 
invest in improvement, those commenters believe that hospitals should 
be compared and paid on their achievements and not merely for improving 
on subpar performance after a period of time.
    Several other commenters, on the other hand, expressed strong 
support for pay-for-performance programs that assess multiple aspects 
of care and recognize hospitals for achievement versus national 
benchmarks and improvement versus baseline performance. Commenters 
stated that this incentive structure can provide greater inducement for 
hospitals to improve performance. Commenters believed this construct is 
foundational for hospitals to improve performance in a rational and 
predictable manner.
    Response: We thank the commenters for this feedback. We will take 
it under consideration as we develop Hospital VBP Program policies.
    Comment: One commenter recommended that CMS consider comparing 
``like'' hospitals--such as those of similar sizes, teaching status, 
and case mix--under the Hospital VBP Program in order to avoid 
inadvertently providing scoring advantages or disadvantages to 
participating hospitals.
    Response: We do not believe the quality measures that we have 
adopted for the Hospital VBP Program incorporate the necessary data to 
disaggregate hospitals' performance by size, teaching status, or case 
mix any further than they already do through risk adjustment. We do 
intend, however, to assess the feasibility of this suggestion through 
our program monitoring and evaluation efforts.
    After consideration of the public comments we received, we are 
finalizing our proposal 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 modifications to 
our scoring methodology are limited to reclassified quality domains, 
new placements for measures within those domains, and domain weighting.
b. 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's 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.

[[Page 50082]]

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

    However, as discussed in more detail above, in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28119), we are finalizing our proposal to 
remove six ``topped-out'' measures from the FY 2017 Clinical Care--
Process subdomain. This substantial reduction in the number of measures 
adopted for the Clinical Care--Process subdomain 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 also finalizing our 
proposal 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, which raises the 
total number of measures in this domain for FY 2017 to six. Because we 
proposed to make changes in the number of measures in only two domains 
(Safety and Clinical Care), we focused our proposed domain weighting 
changes in the 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 proposed to add to that domain, we proposed 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.
Patient and Caregiver Centered Experience of Care/Care       25 percent.
 Coordination.........................................
------------------------------------------------------------------------

    We welcomed public comments on the proposed revised domain weights.
    Comment: Several commenters expressed broad support for CMS' 
proposed revision to the domain weighting for FY 2017, agreeing that it 
appropriately shifts the program's focus to the Safety domain and away 
from Clinical Care--Process domain. One commenter commended CMS' 
efforts to move the delivery system towards value-driven paradigms that 
reward high quality and cost effective health care providers. A few 
commenters noted that the Safety domain is largely comprised of well-
developed HAI outcome measures. One commenter noted that the domain 
weights largely align with the National Quality Strategy's quality 
priorities and places an increased focus on patient safety. Some 
commenters specifically expressed support for maintaining the weight of 
the Efficiency and Cost Reduction domain at 25 percent.
    Response: We thank the commenters for their support.
    Comment: Several commenters wanted CMS to maintain the Clinical 
Care--Process domain weighting at 35 percent, and noted that measures 
of clinical processes continue to play an important role in improving 
the quality of care. One commenter suggested CMS not reduce the weight 
for Clinical Care--Process measures to 5 percent because commenter 
believed that these measures play a vital role in quality improvement 
and should remain a significant component of the Hospital VBP Program. 
The commenter also noted that a hospital's level of performance on 
Clinical Care--Process measures reflects a hospital's overall 
discipline and commitment to quality improvement that extends beyond 
just the specific topics being measured.
    Other commenters suggested that the final rule should increase the 
weight for the Clinical Care--Process domain in order to ensure that 
the Hospital VBP Program's focus is appropriately on improving patient 
outcomes. A few commenters noted that measuring clinical processes 
gives hospitals the data they need to improve performance and identify 
good process measures that are not burdensome to collect. One commenter 
stated that the Clinical Care--Outcomes and Safety domains already 
reflect higher priority than Clinical Care--Process domain measures. 
This commenter suggested that process measures may be used to identify 
gaps that may not be readily apparent from outcome measures. One 
commenter encouraged CMS to give the Clinical Care--Process measures 
the greatest weight because of the limitations of the measures in the 
other domains and because this domain provides hospitals with the most 
actionable information on quality performance.
    One commenter questioned the extent to which measures of clinical 
process are necessary given the low domain weighting allocated to the 
Clinical Care--Process domain. The commenter suggested that CMS 
consider phasing the measures out of the program entirely.
    Other commenters suggested additional measures that should be added 
to the Clinical Care--Process Domain, including one commenter who 
suggested the Medicare Service Utilization measure be added to the 
Efficiency and Cost Reduction domain.
    Response: Because we proposed to remove six ``topped-out'' measures 
from the FY 2017 Clinical Care--Process subdomain, the number of 
measures adopted for that subdomain will be significantly reduced. For 
that reason, we reconsidered the finalized domain weighting for FY 2017 
that we adopted in the FY 2014 IPPS/LTCH PPS final rule. We continue to 
believe that hospitals should be provided strong incentives to perform 
well on measures of patient safety, and we believe the

[[Page 50083]]

revised domain weighting appropriately reduces the relative weighting 
allocated to the Clinical Care--Process domain, in accordance with the 
substantially reduced number of measures adopted under that domain. As 
we have stated in prior rulemaking, we believe that the Hospital VBP 
Program should shift from its initial focus on measures of processes to 
measures of outcomes and efficiency, and we believe that the proposed 
domain weighting change appropriately continues that policy change.
    Comment: One commenter urged that CMS ensure that the IMM-2 measure 
is afforded sufficient weight in determining hospital value-based 
payments, such as by including this measure in the Safety domain.
    Response: We believe we have placed the IMM-2 measure appropriately 
within the Clinical Care--Process domain, as it is a chart-abstracted 
measure. We further believe that we have allocated sufficient domain 
weighting to the Clinical Care--Process domain, and respond to 
additional comments on the FY 2017 domain weighting in subsequent 
sections below.
    Comment: One commenter recommended that CMS decrease the weight of 
the consistency score in the HCAHPS survey to 10 percent and weight the 
HCAHPS measure total score with the new care transition measures at 90 
percent. Alternatively, the commenter suggested that CMS revise the 
methodology of the consistency score to more accurately measure 
consistent performance and leave the weight of 20 percent in place. 
Instead of using the HCAHPS floor values as the minimum range for 
consistency, the commenter suggested that CMS use the 25th percentile 
value so that consistency points would only be rewarding hospitals 
maintaining a reasonable level of performance in each HCAHPS measure.
    Response: We continue to believe that the HCAHPS survey is an 
important and significant component of the Total Performance Score. We 
further believe that Consistency Points appropriately encourage 
hospitals to attempt to improve their scores on all dimensions of the 
HCAHPS survey, and are therefore appropriately allotted 20 points 
within the domain. While we may reexamine the HCAHPS survey's scoring 
methodology if we adopt the CTM-3 items in the future, we do not 
believe that it is appropriate at this time to reduce the Consistency 
Points component of the PEC/CC domain to 10 percent.
    Comment: Many commenters urged CMS to revise the MSPB measure to 
include both quality and cost outcomes, which means achieving better 
outcomes at lower total health costs, rather than simply and crudely 
cutting costs. A few commenters stated that basing 25 percent of the 
TPS on a measure of cost comparison with no quality component will 
encourage hospitals to further cut costs beyond the incentives of the 
DRG system, with uncertain checks on corresponding quality impacts. 
Several commenters stated that because so much of the MSPB measure is 
outside of the hospital's control, the domain should not be factor so 
heavily into the TPS.
    A few commenters urged CMS to consider removing the MSPB measure 
entirely or dropping the Efficiency and Cost Reduction domain's 
weighting to 5 percent because the commenters suggested that measures 
aimed at improving efficiency should be grounded in current best 
evidence, should evaluate clinical outcomes concurrently with resource 
use, and should be interpretable based on outcomes achieved with 
resources expended. Another commenter recommended lowering the weight 
of the Efficiency domain when the new episode-based payment measures' 
initial implementation begins to provide CMS and hospitals an 
opportunity to gain experience with these measures. The commenter noted 
that lowering the weight of the Efficiency domain provides a period of 
time for the development of more accurate or relevant Efficiency 
measures into the program.
    However, several commenters suggested that CMS increase weighting 
of the Efficiency and Cost Reduction domain. A few commenters suggested 
that CMS consider incrementally increasing the Efficiency and Cost 
Reduction domain's weight to 50 percent as more efficiency measures are 
developed in the coming years. One commenter suggested that this change 
should occur in six years.
    Response: We believe we have appropriately balanced our desire to 
provide strong incentives for hospitals to consider the cost and the 
quality of the care that they provide to Medicare beneficiaries and to 
all patients by assigning the Efficiency and Cost Reduction domain to 
25 percent of the Total Performance Score. We note that the MSPB 
measure is still relatively new to the Hospital VBP Program, and 
represents the incorporation of efficiency metrics for the first time 
in the program. We view that step as important, and we continue to 
believe it merits significant domain weighting in order to ensure that 
hospitals monitor the costs of the care they provide to Medicare 
beneficiaries during the inpatient hospitalization and are involved in 
the coordination of beneficiaries' care immediately prior to a 
hospitalization and post-discharge.
    However, we thank the commenters for their thoughts and intend to 
continue examining domain weighting and will consider revisiting this 
issue in the future.
    Comment: A few commenters wanted to decrease the PEC/CC weight. One 
commenter stated that anecdotal evidence shows significant variation in 
HCAHPS survey scores due to differences in acuity level and region. The 
commenter also noted that a recent study found that patient 
satisfaction was independent of hospital compliance with surgical 
processes and with hospitals' safety culture.
    One commenter urged CMS to retain the PEC/CC domain's weighting at 
25 percent, stating that the patient's experience is a critical 
component of quality health care. The commenter stated that, if CMS 
retains the Safety domain, CMS should not increase its allocated domain 
weighting, and should leave the Clinical Care--Process domain's 
weighting at 10 percent.
    A few commenters suggested adding additional measures to the PEC/CC 
domain, in order to strengthen those domains.
    Response: We disagree with commenters that suggested that we 
consider lower weighting for the PEC/CC domain. We continue to believe 
that the patient's experience is an important component of high-quality 
health care, and we believe that allocating significant domain 
weighting to the PEC/CC domain reflects that priority appropriately. As 
described further above, we also believe that the Consistency Points 
are properly set at 20 points within the domain. We believe the PEC/CC 
domain's weighting appropriately provides hospitals with strong 
incentives to improve their patients' experience during acute care 
hospitalizations.
    Comment: A few commenters urged that CMS remove the Safety domain 
from the Hospital VBP Program and consider the HAC Reduction Program as 
its Safety domain, redistributing the weight to the other domains. In 
the alternative, one commenter suggested that CMS leave the Clinical 
Care--Process domain's weighting at 10 percent.
    One commenter suggested that CMS increase the Safety or Clinical 
Care--Outcomes domain weights.
    Response: We consider measures of patient safety to be of critical

[[Page 50084]]

importance to the Hospital VBP Program, and we believe that their 
inclusion in the program with significant domain weighting 
appropriately provides hospitals with substantial incentives to protect 
their patients during acute care episodes.
    Comment: A few commenters suggested that CMS replace the Clinical 
Care--Outcome measures or develop a plan to improve the measures' 
reliability. One commenter expressed concern that three mortality 
measures in the Clinical Care--Outcomes domain do not reliably assess 
hospital performance and could have negative unintended consequences 
for certain hospitals.
    One commenter urged CMS to modify the domain weights so that more 
emphasis is placed on achieving outcomes, providing quality clinical 
processes, and improving patient experience. Commenters expressed 
support for the goal of improving quality and cost outcomes within the 
system, which means achieving better outcomes at lower total health 
costs, rather than simply and crudely cutting costs.
    Response: We believe that we have taken appropriate steps to 
increase the reliability of the 30-day mortality measures that we have 
placed into the Clinical Care--Outcomes domain by extending the 
performance periods for those measures. We believe that the measures 
appropriately receive substantial domain weighting in order to ensure 
that hospitals focus quality improvement efforts on patients with these 
harmful conditions. In addition, we believe that, our future measure 
set should evolve to emphasizing outcomes, safety cost and efficiency, 
population health, and patient experience of care as noted in the HHS 
National Quality Strategy. We continue to evaluate measures that assess 
these critical components of the HHS National Quality Strategy, and as 
we add more measures in this area, we intend to increase the weight of 
this domain.
    We also believe that safety and the patient experience of care is 
important in assessing quality. As we note above, because we are adding 
two new measures to the Safety domain, we are increasing this domain's 
weight by 5 percent, we believe that this increase appropriately 
balances the importance of patient safety while balancing the need for 
excellence in the remaining domains. Likewise, we believe that a 25 
percent weight for the Patient and Caregiver Centered Experience of 
Care/Care Coordination domain appropriately balances the need to 
address the patient experience with the importance of stressing quality 
clinical processes, outcomes, efficiency and safety.
    After consideration of the public comments we received, we are 
finalizing the revised domain weighting for the FY 2017 Hospital VBP 
Program as proposed.
c. 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 stated that we intended 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28132) 
we proposed 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 proposed to consider either the Clinical 
Care--Process or Clinical Care--Outcomes 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 would 
therefore not reallocate the Clinical Care--Process and Clinical Care--
Outcomes 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--Outcomes subdomain. Instead, the 5 percent weighting 
from the Clinical Care--Process subdomain would be proportionately 
reallocated across all domains.
    We welcomed public comments on this proposal.
    Comment: One commenter supported CMS' proposal to require hospitals 
to have sufficient data on at least three domains in order to receive a 
Total Performance Score in FY 2017.
    Response: We thank the commenter for their support.
    Comment: One commenter expressed concern that CMS' proposal would

[[Page 50085]]

result in lower participation rates in the program. The commenter 
recommended that CMS retain the minimum number of domain scores at two.
    Response: As described above, we are concerned that requiring just 
two domains to receive a Total Performance Score for FY 2017 may 
provide an insufficient basis in quality data for robust performance 
scoring. We believe that the proposed requirement appropriately 
balances our desire to include as many hospitals as possible in the 
Hospital VBP Program while ensuring that Total Performance Scores are 
based on reliable quality data.
    After consideration of the public comments we received, we are 
finalizing the requirement that hospitals have sufficient data on at 
least three of the four domains for the FY 2017 Program as proposed. We 
also are finalizing that hospitals with sufficient data on at least 
three of four domains for FY 2017 will have their Total Performance 
Scores proportionately reweighted, and for purposes of that 
reweighting, we will not reallocate the Clinical Care--Process and 
Clinical Care--Outcomes subdomains' weighting within the Clinical Care 
domain if a hospital does not have sufficient data for one of the 
subdomains.
12. 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 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 noted 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, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28132), we proposed to adopt the specified case 
minimums for the FY 2016 Hospital VBP Program and subsequent years.
    We welcomed public comment on this proposal. We noted that we 
proposed below to specify minimum numbers of measures for the FY 2017 
Hospital VBP Program and subsequent years based on the new domain 
structure.
    We did not receive any specific public comments on this proposal. 
Therefore, we are finalizing this policy as proposed.
b. Minimum Number of Measures--Safety Domain
    As described in more detail above, we 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 Outcomes domain, whose measures formed the 
basis for part of the new Safety domain, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28133) we proposed 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 also clarified 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 
of one predicted infection during the applicable period.
    We welcomed public comment on this proposal.
    We did not receive any specific public comments on this proposal, 
and therefore are finalizing this policy as proposed.
c. 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 NQS. In that final rule, we adopted a Clinical Care domain 
that was subdivided into the Clinical Care--Process and Clinical Care--
Outcome 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 Outcomes domains whose measures formed the basis for the 
new Clinical Care domain, in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28133), we proposed 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 TPSs.
(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 Outcomes 
domain that formed the basis for the Clinical Care--Outcomes subdomain 
(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 stated our intent to post a summary of the

[[Page 50086]]

reliability and minimum numbers analysis on the CMS Web site during the 
public comment period. Therefore, in the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 281333), we proposed to adopt a minimum number of two 
measures in the Clinical Care--Outcome subdomain for FY 2017 and 
subsequent years.
    We welcomed public comment on this proposal.
    We did not receive any specific public comments on this proposal, 
and therefore are finalizing this policy as proposed.
(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 proposed in the 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 that formed 
the basis for the Clinical Care--Process domain, in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28133) we proposed to require hospitals 
to report a minimum of one measure in the Clinical Care--Process domain 
for the FY 2017 Hospital VBP Program and subsequent years to receive a 
domain score.
    We welcomed public comment on this proposal.
    We did not receive any specific public comments on this proposal, 
and therefore are finalizing this policy as proposed.
d. 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, in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28133) we proposed 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 welcomed public comments on this proposal.
    We did not receive any specific public comments on this proposal, 
and therefore are finalizing this policy as proposed.
e. Minimum Number of Measures--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, 
in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28133), we proposed 
to require that hospitals receive an 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 welcomed public comments on this proposal.
    We did not receive any specific public comments on this proposal, 
and therefore are finalizing this policy as proposed.
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 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 section 
1814(b)(3) of the Act 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

[[Page 50087]]

model, subject to the terms of the agreement.
    Accordingly, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28133 through 28134) we proposed to make conforming revisions to 
section 412.160, in the definition of ``base-operating DRG payment 
amount'' and to section 412.161, which describes the applicability of 
the Hospital VBP Program. We proposed 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 welcomed public comment on these proposals. After receiving no 
specific public comment on these proposals, we are finalizing our 
proposed regulation text changes to delete references in the regulation 
text to hospitals paid under section 1814(b)(3) of the Act because no 
hospitals are paid under that section.
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. 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 certain 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 program 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. For hospitals 
with HAC scores in the worst performing quartile relative to other 
applicable hospitals for a given fiscal year, the amount of Medicare 
payment is reduced to 99 percent of the amount of payment that would 
otherwise apply to 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 in calculating HAC scores for each 
hospital.
    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 confidential 
reports to each applicable hospital with respect to the HAC Reduction 
Program scores for the applicable period, to give the hospitals an 
opportunity to review and correct the data. 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 HAC scores 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 scores 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 as an applicable 
hospital; the specifications of a HAC; the Secretary's determination of 
the ``applicable period'; the provision of confidential reports 
submitted to the applicable hospital; and the information publicly 
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

[[Page 50088]]

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.
    Comment: Commenters supported the HAC Reduction Program as a 
mechanism to identify hospitals that underperform in preventing well-
identified, measurable, and preventable adverse events.
    Response: We appreciate the commenters' support. We are committed 
to reduce HACs, which are important markers of quality of care and 
whose reduction can positively impact patient outcomes and the cost of 
care.
    Comment: Several commenters suggested changing the terminology of 
``hospital-acquired conditions'' to ``hospital-acquired complications'' 
to signal more clearly the intent of the program is to focus on 
complications that arise from inappropriate delivery of care.
    Response: The name of the HAC Reduction Program is specified in 
section 1886(d) of the Act. We believe that the name of the program 
reflects Congress' intent in passing this provision of the Affordable 
Care Act.
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'' are to be adjusted for hospitals 
in the worst performing quartile relative to other applicable hospitals 
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 final 
rule and the Hospital Readmissions Reduction Program is discussed in 
section IV.H. of the preamble of this final rule.) Section 
1886(p)(2)(A) of the Act defines ``applicable hospitals'' as subsection 
(d) hospitals that meet certain criteria. Section 1886(p)(2)(B)(i) of 
the Act defines these criteria and specifies that the payment 
adjustment would apply to an applicable hospital that ranks in the top 
quartile (25 percent) of all subsection (d) hospitals, relative to the 
national average of 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 FR 50967), 
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) of the Act but 
without regard to this section 1886(p) of the Act.
    Comment: Many commenters noted that the proposed 1-percent 
reduction in payment for the top quartile of lower performing hospitals 
will provide a stronger penalty than the current DRA HAC policy and has 
the potential to stimulate improvements in safety. The commenters 
supported CMS' efforts to reduce HACs by paying less to hospitals for 
instances involving patients contracting HACs during a hospital stay. 
These commenters noted that quality payment adjustments continue to 
positively affect provider performance. Commenters further noted that 
several commercial health plans have implemented similar actions, 
processes, and guidelines to align their payment policies with CMS to 
adjust payment for reasonably preventable errors made by hospitals and 
health care facilities.
    Response: We appreciate the commenters' support and agree that the 
HAC Reduction Program, along with the other CMS quality initiatives set 
forth under the Affordable Care Act (for example, the Hospital VBP and 
Hospital Readmissions Reduction Programs), will lead to improvements in 
patient care, safety and outcomes.
    Comment: Some commenters indicated that it was not clear in the FY 
2015 IPPS/LTCH PPS proposed rule how the HAC Reduction Program payment 
adjustment would specifically be applied. The commenters stated that 
the HAC Reduction Program penalty appears to apply to all hospital 
payments (for example, outliers, DSH, uncompensated care, and IME) and 
they questioned why the policy should apply to IME and DSH payments 
that they asserted are not related to the underlying quality policy the 
provision enforces.
    These commenters urged CMS to use administrative authority under 
section 1886(d)(5)(I)(i) of the Act to limit the HAC penalty to the 
base operating DRG payment only, which they reported would be 
consistent with Congressional intent and with the Hospital VBP and 
Hospital Readmissions Reduction Programs. The commenters noted that by 
restricting the penalty to the base operating DRG payment it could 
ensure consistency across the programs and reduce any confusion because 
under the Hospital VBP and Hospital Readmissions Reduction Programs the 
payment adjustment applies to the base operating DRG payment, not the 
base DRG rate and the additional add-on payments of outliers, DSH, 
uncompensated care, and IME.
    Response: We did not propose to change the application of the 
payment adjustment that we finalized in the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50711). As we discussed in that rule, the statutory 
requirements for the HAC Reduction Program payment adjustment differ 
from those for the Hospital VBP and Hospital Readmissions Reduction 
Programs. In accordance with section 1886(q)(1) of the Act, the 
Hospital Readmissions Reduction Program adjustment is applied to the 
base operating DRG payment amount, which is defined at section 
1886(q)(2) of the Act to exclude certain payments under subsection (d). 
Similarly, in accordance with sections 1886(o)(7)(A) and 1886(o)(7)(B) 
of the Act, the Hospital VBP Program applies adjustments to the base 
operating DRG payment amount, which is defined at section 1886(o)(7)(D) 
of the Act to exclude certain payments under subsection (d).
    For the HAC Reduction Program, no such statutory exclusion exists 
and section 1886(p)(1) of the Act states that the payment for 
applicable hospitals ``shall be equal to 99 percent of the amount of 
payment that would otherwise apply.'' Therefore, the HAC Reduction 
Program payment adjustment will be applied after the application of the 
other program adjustments

[[Page 50089]]

including add-on payments consisting of outliers, DSH, uncompensated 
care, and IME.
    As we have stated previously, our goal for the HAC Reduction 
Program is to heighten the awareness of HACs and reduce the number of 
incidences that occur through implementing the adjustments required by 
section 1886(p) of the Act. We believe that our efforts in using 
payment adjustments and our measurement authority will encourage 
hospitals to eliminate the incidence of HACs that could be reasonably 
prevented by applying evidence-based clinical guidelines. Given this 
goal, and the statutory language in 1886(p) of the Act, we do not 
believe this is an appropriate situation for us to exercise our 
authority under 1886(d)(5)(I)(i) 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.b of the preamble of this final rule, because hospitals 
paid under section 1814(b)(3) of the Act are subsection (d) hospitals, 
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 would be exempted from the application of the payment 
adjustments under the HAC Reduction Program for a given fiscal year, 
under Sec.  412.172(c). Pursuant to our rule, if the State submitted 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, the State would be exempt from the HAC 
Reduction Program. 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 stipulated 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, 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, in 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28135), we proposed that 
the Total HAC Scores for Maryland hospitals would 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, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28136), we proposed conforming changes to these 
regulations and sought public comment on this proposal. Specifically, 
we proposed to remove the entire contents of paragraph (c) under Sec.  
412.172 and reserve the paragraph (c) designation.
    No commenters opposed our proposal to exclude the Total HAC Scores 
for Maryland hospitals when identifying the top quartile of all 
hospitals and no commenters opposed CMS' proposed changes to the 
regulations regarding Maryland hospitals. Therefore, we are finalizing 
our proposal to exclude the Total HAC Scores for Maryland hospitals 
when identifying the top quartile of all hospitals and our proposed 
changes to the regulations regarding Maryland hospitals.
c. Measure Selection and Conditions, Including Risk-Adjustment Scoring 
Methodology
(1) General Selection of Measures
    We did not propose any new measures for the HAC Reduction Program 
in the FY 2015 IPPS/LTCH PPS proposed rule. Although we are not 
required under section 1886(p) of the

[[Page 50090]]

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. 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 (78 FR 50712 through 50719).
    Comment: A few commenters thanked CMS for not adding any new 
measures to the HAC program for FY 2015 and FY 2016. One commenter 
encouraged CMS to fill measure gaps as soon as possible to ensure that 
this program provides the greatest possible value for quality 
improvement and consumer education. Several commenters suggested that 
CMS identify new measures for the HAC Reduction Program that would 
address a variety of quality and safety issues relevant to the broadest 
possible range of hospitals and affect a greater number of patients, as 
commenters asserted that this approach is more fair and would ensure 
hospitals are not penalized for the type of patients they treat. In 
addition, the commenters believed this approach would help improve the 
ability of the program to identify the real poor performers. One 
commenter recommended that these new measures should not be entirely 
claims-based.
    Commenters made additional recommendations for future new measures 
including PSI-4: Death rate among surgical inpatients with serious, 
treatable complications (NQF #0351), PSI-16: Transfusion 
reaction count (NQF #0349), surgical site infections (SSIs) 
following hip and knee arthroplasty and SSIs following high-volume 
procedures such as caesarean section surgery. One commenter recommended 
expanding the iatrogenic pneumothorax rate (PSI-6), which currently 
addresses iatrogenic pneumothorax with venous catheterization, to also 
include iatrogenic pneumothorax with paracentesis and thoracentesis. 
One commenter recommended that new measures of infection be developed 
that incorporate infection rates per thousand discharges in order to 
inform patients of their likelihood of acquiring an infection at a 
given hospital.
    Response: We did not propose new measures in this rulemaking as we 
intend to allow time for providers to gain experience with the 
finalized measures. We are continuously evaluating the program and 
working to identify new, potentially suitable measures to fill measure 
gaps. We appreciate the commenters' input for measure selection and 
will take this feedback into consideration in future rulemaking.
    Comment: Many commenters suggested that all HAC Reduction Program 
measures should be NQF-endorsed and, while recognizing it is not a 
requirement for the HAC Reduction Program, commenters also recommended 
that CMS use the formal pre-rulemaking process of the Measure 
Applications Partnership (MAP) for any measures being considered for 
the program.
    Response: While we note that section 1886(p)(3) of the Act does not 
require NQF endorsement for a measure to be considered for the HAC 
Reduction Program, we are aware of the value of the NQF endorsement and 
MAP processes in facilitating information exchange and agreement among 
stakeholders. We also note that all of the measures adopted for the HAC 
Reduction Program went through the pre-rulemaking process and were 
either recommended for inclusion by the MAP, or represent 1 of the 12 
HACs that have been identified by the Secretary and which are 
referenced in section 1886(p) of the Act for the HAC Reduction Program.
(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) because 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 measure 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 Pulmonary Embolism/Deep Vein Thrombosis 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 measure. We consider the inclusion of additional 
component measures in the PSI-90 composite measure to be a significant 
change to the PSI-90 composite measure that we finalized in the FY 2014 
IPPS/LTCH PPS final rule. If the changes are significant, we will 
engage in notice-and-comment rulemaking prior to requiring reporting of 
this revised 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. If there are significant changes to these measures, 
we will engage in 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.
    Comment: Several commenters supported CMS' commitment to use the 
notice-and-comment rulemaking process for any HAC measure with 
significant changes made during the NQF review process.
    One commenter specifically recommended that the AHRQ PSI-90 measure 
and the CDC NHSN CLABSI and CAUTI measures currently undergoing NQF 
maintenance review only be included for FY 2016 and beyond contingent 
upon continued NQF endorsement and any updates recommended for 
continued endorsement.
    Response: We appreciate the commenters' support of our rulemaking 
process. As for the comments regarding NQF endorsement of the measures, 
we refer readers to our response in section IV.J.3.c. of the preamble 
of this final rule.
(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 the CDC NHSN Surgical Site 
Infection (SSI) measure for FY 2016; and (iii) addition of the 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

[[Page 50091]]

Program and are reported on the Hospital Compare Web site.
    Comment: One commenter supported the implementation schedule of 
quality measures for the program, specifically stating that the AHRQ 
PSI-90 composite measure and the CDC NSHN CLABSI and CAUTI measures are 
sufficient starting points for the HAC Reduction Program. A few 
commenters also supported the addition of the CDC NHSN SSI, MRSA and C. 
difficile measures which they believed would address the increasing 
incidence of these infections in hospital settings. A few commenters 
supported the adoption of the NHSN SSI measure in Domain 2 for FY 2016.
    Response: We thank the commenters for the recognition of the 
significance of potential patient harms in hospitals as well as for 
their support of our proposals for the implementation of the HAC 
Reduction Program. We emphasize that patient safety is our primary 
objective for the HAC Reduction Program.
    Comment: A few commenters supported maintaining claims-based 
measures such as the PSI-90 composite measure in quality reporting 
programs because they are the least burdensome, least costly and most 
widely accessible and available reporting method.
    Response: We agree that claims-based measures have the advantages 
of being minimally burdensome to providers while providing data 
covering a large proportion of the Medicare population. We consider 
several factors when selecting measures for quality programs, including 
but not limited to measurement gap areas, opportunities for quality 
improvement, and feasibility and burden for implementation. Claims-
based measures, including AHRQ PSIs, are collected and widely accepted 
by States and other health care purchasers for payment purposes.
    In addition to the claims-based measure in the FY 2015 HAC 
Reduction Program, we also adopt chart-abstracted measures as 
appropriate. There are currently two chart-abstracted measures in the 
program and the number of chart-abstracted measures will increase in 
subsequent years (three in FY2016 and five in FY 2017). We also are 
exploring options for new measures, including electronically specified 
measures, that could be incorporated into the HAC Reduction Program in 
future years.
    Comment: Many commenters believed that coding biases result in 
unacceptable levels of reliability and validity for the PSI-90 
composite measure and thus the measure fails to accurately and 
meaningfully reflect hospital performance. A few commenters expressed 
concerns that the PSI measures are not clinically validated against 
medical records.
    Response: We have previously addressed commenters' specific 
concerns regarding validity and coding issues of PSI-90 composite 
measure, and we refer readers to our responses to these comments in the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50715). We also note that there 
are validation studies examining the relationship between billing or 
claims data and medical records.\55\
---------------------------------------------------------------------------

    \55\ (1) Zrelak PA, Romano PS, Tancredi DJ, Geppert JJ, Utter 
GH. Validity of the AHRQ Patient Safety Indicator for Postoperative 
Physiologic and Metabolic Derangement based on a national sample of 
medical records. Medical Care 2013; 51(9):806-11. (2) Utter GH, 
Zrelak PA, Baron R, Tancredi DJ, Sadeghi B, Geppert JJ, Romano PS. 
Detecting postoperative hemorrhage or hematoma from administrative 
data: The performance of the AHRQ Patient Safety Indicator. Surgery 
2013; 154(5):1117-25. (3) Borzecki AM, Cevasco M, Chen Q, Shin M, 
Itani KM, Rosen AK. How valid is the AHRQ Patient Safety Indicator 
``postoperative physiologic and metabolic derangement''? J Am Coll 
Surg. 2011 Jun;212(6):968-976. (4) Borzecki AM, Kaafarani H, Cevasco 
M, Hickson K, Macdonald S, Shin M, Itani KM, Rosen AK. How valid is 
the AHRQ Patient Safety Indicator ``postoperative hemorrhage or 
hematoma''? J Am Coll Surg. 2011 Jun;212(6):946-953.
---------------------------------------------------------------------------

    Comment: Many commenters expressed a lack of confidence about the 
PSI-90 composite measure due to recent discussions at the NQF Patient 
Safety Standing Committee (``Patient Safety Committee'' or 
``Committee''). Some commenters stated that the Patient Safety 
Committee did not recommend the measure for endorsement and other 
commenters noted that NQF Patient Safety Committee requested changes to 
the weighting of the individual components in the composite measure to 
better reflect their relative importance or preventability. One way the 
Committee suggested this reweighting could be achieved is through 
including three additional component measures (PSI-9--Perioperative 
Hemorrhage or Hematoma Rate, PSI-10--Postoperative Physiologic and 
Metabolic Derangement Rate and PSI-11--Postoperative Respiratory 
Failure Rate) in the composite. A few commenters expressed support for 
the potential inclusion of PSI-9, 10 and 11 in the PSI-90 composite 
measure. However, one commenter did not support the addition of any new 
components to the composite measure, while a few commenters opposed the 
inclusion of PSI-9 and PSI-10 in particular because they claimed that 
these components had a high false-positive rate due to lack of clarity 
on the coding criteria.
    In the event that the composite measure is not re-endorsed by NQF, 
some commenters recommended that CMS not consider using individual PSI-
90 component measures that may still be endorsed. They also recommended 
that additional testing for consistency between individual components 
and the composite scores be undertaken and the results released. Other 
commenters had concerns that several of the PSI-90 component measures 
are not NQF-endorsed. Some commenters supported and understood that CMS 
may need to retain the PSI-90 composite measure, regardless of NQF 
endorsement status.
    Response: We would like to clarify the status of the PSI-90 measure 
with regard to NQF endorsement. As part of the routine NQF measure 
maintenance process, the Patient Safety Committee expressed concerns 
about the weighting of the PSI-90 component measures and requested to 
see additional measure information related to re-weighting of PSI-90 
with three additional components (PSI-9, PSI 10 and PSI 11) before 
deciding if the measure would be recommended for continued endorsement. 
AHRQ has submitted the requested data for the NQF Patient Safety 
Committee's consideration in making their decision regarding continued 
endorsement of the composite. As we stated earlier, if during the NQF 
review process, substantive changes are made to the measure, we will go 
through a notice-and-comment rulemaking process.
    Regarding the concern for the claimed high false-positive rate of 
some of the PSI-90 component measures, we conferred with AHRQ which 
noted that most of the studies that examine positive predictive values 
predate the use of Present on Admission (POA) coding that is now 
integral to the PSIs. Detailed reviews of these studies indicate that 
most of the false positives were due to events that were POA. POA 
coding for IPPS hospitals was required by CMS beginning October 1, 2007 
with a payment penalty beginning October 1, 2008. Studies that use data 
prior to 2009 would not have captured POA information. Therefore, we 
believe that proper coding will address the commenters' concerns.
    In addition, AHRQ noted that the NQF convened a group of 12 experts 
to determine what criteria should be used for evaluating composite 
performance measurement for NQF endorsement. The Technical Expert Panel 
provided clear guidance on the relationship between the individual 
component indicators and the composite in the Composite Performance 
Measure Evaluation Guidance document (NQF, April 2013). Specifically, 
individual component measures that are included in the composite 
performance measure:

[[Page 50092]]

(1) should be justified based on the clinical evidence; (2) do not need 
to be NQF endorsed; (3) generally should demonstrate a gap in 
performance; and (4) may not be sufficiently reliable independently, 
but contribute to the reliability of the composite performance measure.
    AHRQ convened a Composite Measure Workgroup of experts in the field 
to determine the best weighting strategy. The methodology of the PSI-90 
composite measure is detailed in the original technical report by the 
AHRQ Composite Measure Workgroup: http://qualityindicators.ahrq.gov/Downloads/Modules/PSI/PSI_Composite_Development.pdf. Several 
alternative approaches were discussed with the AHRQ Composite Measure 
Workgroup and the first NQF Composite Measure Steering Committee. 
Factor analysis was considered as one approach and was deemed to have 
no clear advantages over less complex, more intuitively clear weighting 
schemes. In brief, numerator weighting that is used in the PSI-90 
composite measure was preferred due to its greater simplicity and 
clarity.
    Comment: A few commenters stated that many of the AHRQ PSI-90 
composite component measures are rare events and do not meet the high-
volume requirement for the HAC Reduction Program.
    Response: We note that section 1886(d)(4) (D)(iv) of the Act 
defines a hospital-acquired condition for the HAC Reduction Program as 
one that is high cost, high volume or both or any other conditions 
determined appropriate by the Secretary. We believe the PSI-90 
composite measure and its components meet the statutory requirement for 
inclusion in the program.
    Comment: Some commenters asserted that composite measures such as 
PSI-90 do not provide actionable information to hospitals.
    Response: We disagree and note that hospitals have access to their 
results on the individual PSI-90 component measures and how they 
compare to the national risk adjusted rate on their Hospital Specific 
Reports which are issued during the review and corrections period. In 
addition, the component measure scores are available to hospitals and 
the public on our Web site at: http://www.medicare.gov/. Therefore, 
hospitals can use the individual component measure results to identify 
specific areas for improvement efforts.
    Comment: Based on the belief that the PSI-90 composite measure has 
significant flaws as described above, many commenters recommended 
identifying alternatives to the PSI-90 composite measure and phasing it 
out of the HAC Reduction Program as soon as possible. Some commenters 
suggested that the alternative measure(s) be derived from the NQF 
portfolio of safety measures.
    Response: In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27625 
through 27626), we explained the rationale for including the PSI-90 
composite measure in the HAC Reduction Program. We continue to believe 
the PSI-90 is an appropriate tool for calculation of HAC scores. 
Nonetheless, we will continue to explore options for new measures, 
including electronically specified measures that could be incorporated 
into the HAC Reduction Program to supplement or replace the PSI-90 
composite measure. We also note that the PSI-90 is one of three 
measures included in the Program for FY 2015. The other two measures 
are chart-abstracted and we are increasing the number of chart-
abstracted measures in subsequent years of the program (three in FY 
2016 and five in FY 2017).
    Comment: One commenter suggested revisions to four of the PSI-90 
composite component measures. For PSI-6, the commenter recommended 
exclusion of high frequency outliers, such as iatrogenic pneumothorax 
in patients with a lack of intravenous access; acuity; and cases where 
iatrogenic pneumothorax is secondary to a life-saving procedure. The 
commenter also recommended that CMS not apply this measure if 
clinicians have used all available means of avoiding iatrogenic 
pneumothorax, such as ultrasound guidance. For PSI-7, the commenter 
recommended exclusions for trauma. For PSI-12, the commenter 
recommended clear definition of the inclusion criteria in order to 
avoid misclassification of providers and subsequent inappropriate 
penalties. For PSI-14, the commenter requested adding exclusions for 
trauma cases and patients in shock that require emergency procedures.
    Another commenter recommended that PSI-7 be removed from the HAC 
calculation because it is not as well-validated as the NSHN CLABSI 
measure, the transition from ICD-9 to ICD-10 coding which some 
hospitals have already undergone could compromise the validity of this 
component and that, as it currently exists, some vascular catheter 
infections might be double counted.
    Response: AHRQ's Quality Indicator program continually updates and 
refines measures to provide the best possible quality indicators to the 
public. We conferred with AHRQ, which welcomed the commenters' 
suggestions and will examine the feasibility of including these 
exclusions. All of the AHRQ quality indicators go through a rigorous 
testing process prior to changes being made to the indicators. It 
should be noted that NQF policy and guidance generally has favored risk 
adjustment approaches over exclusion of high-risk patients, when 
possible, to optimize the generalizability and value of quality 
measures. Suggestions regarding potential PSI measure revisions can be 
made directly to [email protected].
    With regard to the commenter's specific suggestion for PSI-6--
Iatrogenic Pneumothorax Rate, it is impossible to identify patients who 
lack peripheral intravenous access using ICD-9-CM coded data. However, 
given exclusions for trauma and respiratory disease, it is assumed that 
all patients who experienced this event had some type of procedure 
(such as central venous catheter placement or thoracentesis) that 
placed them at risk for iatrogenic (hospital-acquired) pneumothorax. 
For PSI-7--Central Venous Catheter-Related Blood Stream Infection Rate, 
ICD-10 implementation will take effect no sooner than October 1, 2015 
and may be subject to additional delays. AHRQ will conduct extensive 
testing on the ICD-10 specified measures to ensure events are not 
double counted.
    For PSI-12--Perioperative Pulmonary Embolism or Deep Vein 
Thrombosis Rate, inclusion criteria are clearly defined and have been 
narrowed as a result of changes in ICD-9-CM codes and user feedback. 
For example, the numerator inclusion criteria no longer include upper 
extremity or thoracic venous thrombosis, due to concern about the 
uncertain preventability of these events among patients who require 
long-term use of central venous catheters. The numerator inclusion 
criteria also no longer include superficial venous thrombosis, due to 
concern about the uncertain preventability of these events.
    Comment: One commenter was concerned that several of the PSI 
composite component measures in the HAC Reduction Program--including 
PSI-6, PSI-12 and PSI-15--were finalized for removal from the Hospital 
IQR Program after FY 2014 in the FY 2013 IPPS/LTCH PPS final rule. The 
commenter contended that because these measures have been deemed unfit 
for use in a public reporting application, they are equally unsuitable 
for use in a payment penalty program.

[[Page 50093]]

    Response: As we stated in the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53507 through 53509), to avoid duplication, we removed PSI-6, PSI-12 
and PSI-15 from Hospital IQR Program as these individual measures are 
already included in the PSI-90 composite measure which is currently 
part of the Hospital IQR Program measure set. The measures were not 
deemed to be unfit, as characterized by the commenter.
    Comment: One commenter described its experience with the AHRQ 
Quality Indicator Software not allowing its organization to identify 
specific patient encounters included in the measure components and not 
always accurately reflecting POA. This commenter recommended that CMS 
ask AHRQ to update the software outputs to provide accurate case level 
patient information for patients in the numerator, to update the 
software to define which ICD code triggers the measure, to include 
simultaneous SAS and MonAHRQ releases and to include the PSI-90 outputs 
in the AHRQ process the same way as other measures.
    Response: AHRQ informed us that they are constantly improving the 
AHRQ QI software and welcomes this and other suggestions for 
improvements. The AHRQ QI software and the MonAHRQ software are under 
different timelines for release for a variety of external reasons. 
Additional suggestions for improvements can be made directly to 
[email protected].
    Comment: One commenter recommended revisions to the CAUTI measure 
to minimize the potential for the possible unintended consequence of 
premature urinary catheter removal. The commenter's recommended 
revisions included adding exclusions for bedridden elderly patients 
whose urine output cannot be monitored otherwise, those who have had 
complex pelvic surgery, and those with a history of urinary retention; 
and inclusion of a data capture point for catheter reinsertion to 
capture the rate of repeat instrumentation and infection risk for those 
with early catheter removal.
    Response: We refer readers to the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50716) for our discussion of the issue of potential unintended 
consequences of the CAUTI measure. In regard to the addition of a data 
capture point in the NHSN system, we conferred with CDC, which stated 
that they weigh each datum piece that is required for NHSN surveillance 
very carefully, considering the burden required to capture and collect 
the information and the benefits of the data collected. Individuals 
performing validation of CAUTI data have stated that locating insertion 
documentation is very difficult, if not impossible in many cases. For 
this reason, NHSN does not require the documentation of the date of 
insertion of indwelling urinary catheters. The NHSN UTI data collection 
form and system do allow for voluntary collection of this information 
and NHSN encourages facilities to utilize these capabilities to inform 
their CAUTI prevention efforts as they deem necessary. However, it is 
not appropriate to require such documentation by all facilities.
    Comment: Several commenters contended that the MRSA and C. 
difficile measures do not adequately distinguish between community-
acquired and hospital-acquired infections and suggested the measures 
not be included in the HAC Reduction Program for that reason. Another 
commenter had the same concern and supported the inclusion of the MRSA 
measure but not the C. difficile measure. A commenter noted that rates 
of C. difficile are generally higher in patient with surgical 
procedures (particularly with gastrointestinal surgical procedures) 
versus non-surgical patients and that there are known regional 
variations in MRSA and C. difficile infection rates. For these reasons, 
this commenter recommended that process measures focusing on best 
practices and guidelines for patients who contract MRSA or C. difficile 
as inpatients would be more appropriate than outcome measures tracking 
MRSA and C. difficile infection rates. A few commenters recommended 
that the C. difficile measure be included in the Hospital VBP program, 
and not in the HAC Reduction Program.
    Response: With respect to some commenters' concerns about MRSA and 
C. difficile measures, we note that these measures do enable 
differentiation between community-acquired and health care-associated 
events based on date of admission and date(s) of specimen collection. 
Therefore, we do not believe the measures need to be revised. While we 
appreciate the recommendations for process measures, we note that 
process measures are not usually risk adjusted and current statute 
requires risk-adjustment for the HAC Reduction Program. The issue of 
the same measures being included in multiple programs is addressed 
below.
    Comment: Many commenters urged CMS to eliminate the overlap of 
measures between the Hospital VBP and HAC Reduction Programs. The 
commenters understood CMS' desire to align the programs in order to 
draw more attention to these important patient safety issues and to 
spur quicker and more meaningful change in patient care. However, the 
commenters believed that this approach creates multiple operational 
challenges, results in the potential for double payment penalties, and 
sends conflicting signals about the true state of hospital performance 
(a hospital could incur a penalty under the HAC Reduction Program but 
receive an incentive under the Hospital VBP Program). Commenters 
overwhelmingly recommended that the HAC Reduction Program measures 
should only be included in either the HAC Reduction Program or the 
Hospital VBP program but not in both programs. One commenter 
recommended that either the HAC Reduction Program or the Hospital VBP 
program be eliminated completely.
    Response: We acknowledge that there is overlap in measures between 
the Hospital VBP Program and the HAC Reduction Program and refer 
readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50716) for our 
discussion of the rationale for this overlap. As for elimination of 
these programs, they are statutory requirements and eliminating them is 
beyond the scope of the Secretary's authority.
    Comment: Several commenters recommended that CMS consider a 
comprehensive strategy in which measures are placed into pay-for-
performance programs using a staged approach: the Hospital IQR Program 
would be the basis for selection into the pay-for-performance programs; 
the Hospital VBP Program would be the next step and would include 
measures covering important safety issues but ones for which it is 
unclear if effective strategies exist to improve performance; and the 
HAC Reduction Program would be the final stop and would include 
measures that have generally good but not topped out performance with a 
limited performance gap to close and a set of highly effective, proven 
strategies that are widely implementable. Many commenters also 
suggested that measures should be publicly reported for at least one 
year before they are included in the HAC Reduction Program so that any 
unintended consequences of measurement and reporting can be addressed.
    Response: We appreciate the commenters' feedback and will consider 
these suggestions in future rulemaking.
(4) Measure Risk-Adjustment Methodology
    In the FY 2014 IPPS/LTCH PPS final rule, we established that we 
would use the existing measure-level risk-adjustment that is already 
part of the risk-adjustment methodology for the

[[Page 50094]]

individual measures in 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. Links to the measure specification 
documents can be found in section IV.J.4. of the preamble of this final 
rule. 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 current 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 rulemaking.
    Comment: Many commenters had concerns about the PSI-90 risk-
adjustment methodology. Most commenters believed that inadequate risk-
adjustment results in a disproportionate impact on teaching hospitals 
or hospitals that treat many sick and vulnerable patients, perform a 
high volume of emergency trauma and burn care, and perform a large 
number of surgical procedures. Another commenter expressed the opposite 
concern--that small hospitals might have artificially inflated HAC 
scores as a result of the risk-adjustment methodology algorithm, which 
gives hospitals with poor data reliability a low reliability weight 
therefore skewing their rates closer to the national mean.
    Response: Each of the PSI-90 composite measure component measures 
includes detailed risk-adjustment for clinical factors (for example, 
modified diagnostic related groupings, major diagnostic categories, 
comorbidities), age, and gender that influence the risk for 
experiencing a patient safety event during hospitalization. The three 
risk factors mentioned explicitly above--trauma, burns, and surgical 
discharges--are accounted for in the PSI risk-adjustment models. For 
example, acknowledging that some hospitals do more transplants and 
trauma care than others, the models account for this heterogeneity of 
risk. AHRQ's Quality Indicator program continually updates and refines 
measures to provide the best possible quality indicators to the public.
    Comment: Several commenters expressed concerns that the HAC 
Reduction Program does not contain adequate adjustment for 
socioeconomic (SES) factors that influence HAC rates. Commenters 
recommended comparing providers to their peers, adjusting provider 
penalties based on SES of patients served, incorporating a provider's 
annual improvement into performance calculations, and adopting new 
measures that better adjust for socioeconomic factors. One commenter 
specifically recommended complying with the recommendations of the 
NQF's Expert Panel on Risk-Adjustment for Sociodemographic Factors 
(Draft Report available at: http://www.qualityforum.org/Risk_Adjustment_SES.aspx).
    Response: We appreciate the commenters' suggestions on the 
importance of addressing socioeconomic status in the HAC Reduction 
Program and have continued to consider and evaluate these stakeholder 
concerns. We also note that these concerns were addressed in the FY 
2014 IPPS/LTCH PPS final rule (79 FR 50653 through 50654, 50673 through 
50674) and again in section IV.H.4. of the preamble of this final rule. 
While these discussions in section IV.H.4. of the preamble of this 
final rule are in response to comments regarding the Hospital 
Readmissions Reduction Program, we have received similar comments with 
respect to other quality reporting programs and our responses address 
considerations which also apply to the HAC Reduction Program.
    To the extent that these commenters were requesting that CMS 
mitigate the HAC Reduction Program payment adjustment despite a 
hospital being in the top quartile, section 1886(p) of the Act 
specifies that the amount of payment for such a hospital ``shall be 
equal to 99 percent of the amount of payment that would otherwise 
apply'' and we refer readers to the earlier discussion of the payment 
adjustment in section IV.J.3.b. of the preamble of this final rule.
(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 measure 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. As noted in section IV.J.3.b. of the preamble 
of this final 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 PPS 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

[[Page 50095]]

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.
    Comment: One commenter supported use of the 2-year applicable time 
periods for the collection of Domain 1 and 2 measures for FY 2015. A 
few commenters suggested aligning the duration of performance periods 
for Hospital VBP and the HAC Reduction Programs, in particular 
suggesting using 1 year of data for the CDC NHSN measures. A few 
additional commenters had concerns that the data are retrospective and 
therefore do not provide actionable information.
    One commenter disagreed with the finalized 2-year data collection 
period for the CDC measures for CAUTI and CLABSI and requested that CMS 
reconsider quarterly collection and calculation of these measures for 
Domain 2. The commenter stated that quarterly data would be more useful 
for providers in addressing areas in which they would like to improve, 
and would also allow consumers and purchasers to have timely 
information regarding areas of care that are meaningful and important 
to them.
    Response: We refer readers to our response to the applicable time 
period comments in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717). 
We understand that hospitals might find quarterly data more useful and 
for that purpose, we refer stakeholders to Hospital Compare that 
includes quarterly updates of the measures included in the HAC 
Reduction Program.
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. In addition, 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 be made. 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 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 were 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.
    In addition, 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 measure, 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 measure, we will calculate a Domain 1 score.
    The calculation of the SIR for the CDC measures requires that the 
facility have a >= 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 the SIR cannot be calculated for 
any domain 2 measures because the facility has < 1 predicted infection 
for each measure, 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

[[Page 50096]]

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
----------------------------------------------------------------------------------------------------------------
                                                                                            Individual measure
             Measure name                   Measure result              Scenario              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
                                        Ratio (SIR).                                      A).
----------------------------------------------------------------------------------------------------------------
*** 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
------------------------------------------------------------------------
     If Hospital A's PSI-90 rate falls into this        Then assign this
                      percentile                        number of points
------------------------------------------------------------------------
1st-10th.............................................                  1
11th-20th............................................                  2
21st-30th............................................                  3
31st-40th............................................                  4
41st-50th............................................                  5
51st-60th............................................                  6
61st-70th............................................                  7
71st-80th............................................                  8
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, have an active IQR pledge), but do not have an ICU, 
can apply for ICU waivers so that the hospitals 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 (78 FR 50723), we noted in 
the second quarter of 2012, among the 3,321 IPPS hospitals with active 
IQR pledges 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 active IQR pledges, 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 encourage 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.

[[Page 50097]]

[GRAPHIC] [TIFF OMITTED] TR22AU14.001

    Comment: Several commenters supported the use of a scoring 
methodology for the HAC Reduction Program that aligns with the 
achievement methodology of the Hospital VBP Program and agreed that 
this scoring alignment reduces confusion.
    Response: We appreciate the commenters' support.
    Comment: A few commenters stated that CMS implemented as reasonable 
a scoring methodology as was permitted by statute. A few commenters 
expressed support for the creation of two domains of measures using 
measures that are risk adjusted at the patient, unit and hospital 
levels and expressed support for the weighted contributions of Domain 1 
and Domain 2 measures to the Total HAC score. Another commenter found 
the scoring to be very complex and detailed, making it difficult for 
hospitals to replicate.
    Response: We acknowledge that the scoring methodology is complex. 
The scoring methodology was described in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50719 through 50725) and is clarified later in the 
preamble to this final rule. During the review and correction period 
that will occur prior to assessment of the HAC Reduction Program 
penalty or posting of the data on Hospital Compare, hospitals will be 
given access to their HAC Reduction Program measure scores, domain 
scores and total HAC score accompanied by a document that describes how 
the scores were calculated.
    Comment: One commenter questioned whether the HAC Reduction Program 
scores reflect meaningful differences in quality between hospitals. The 
commenter specifically stated that the HAC scoring methodology makes 
distinctions between hospitals whose performance is not statistically 
different from one another which results in payment adjustments being 
levied on hospitals whose performance is not statistically different 
from the national benchmarks. The commenter also believed that there 
will be inconsistencies between results for the CMS programs using the 
same measures but different scoring methodologies.
    Response: We note that HAC Reduction Program does not have national 
benchmarks in the current scoring methodology. We also recognize the 
possibility for inconsistencies between our programs when measures like 
the AHRQ PSI-90 composite measure and the CDC NHSN HAI measures are 
used in multiple programs; we refer readers to the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50728)

[[Page 50098]]

where we addressed this issue. We note that different CMS programs have 
different purposes and thus it is not unexpected that programs use 
different approaches to score hospitals' performance. For example, the 
Hospital IQR Program, which publicly reports measure performance on 
Hospital Compare, is intended to provide consumers with the information 
needed to allow them to make informed decisions about hospital quality 
when seeking care.
    The HAC Reduction Program is intended to motivate hospitals to 
reduce the incidence of HACs. We will continue to monitor the HAC 
Reduction Program and take the commenter's concerns under consideration 
as we strive to improve the program.
    Comment: A few commenters supported using the same method of 
determining if a hospital has enough data to calculate a PSI-90 score 
in both the Hospital VBP and HAC Reduction Programs and the same 
inclusion criteria for the CDC NHSN measures as is used in the Hospital 
IQR Program.
    Response: We appreciate the commenters' support. This alignment was 
described in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50722).
    Comment: One commenter requested the posting of more HAC Reduction 
Program measure thresholds and benchmark data in advance as has been 
accomplished with the Hospital VBP Program.
    Response: We note that the HAC Reporting Program is not required by 
law to create measure thresholds and benchmarks, as is the Hospital VBP 
Program. By statute, the payment adjustments for the HAC Reporting 
Program are applied to hospitals with a Total HAC score in the 75th 
percentile. Based on the differing statutory approaches, we do not 
believe that the commenter's requests are applicable to this program.
(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 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.
    Comment: A few commenters applauded CMS for clarifying the process 
by which measure scores will be assigned in the case of hospitals with 
tied measure results spanning multiple deciles.
    Response: We appreciate the commenters' support for the clarified 
process and believe it makes clear that we are applying the scoring 
criteria in a manner that is most equitable to hospitals.
(2) 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). In the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28141), we proposed 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 proposed 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:
    [squf] 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.
    [squf] 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 measure 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 measure 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 
measure 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 measure score for Domain 1 or any of the measures in Domain 
2, we will not calculate a Total HAC Score for this hospital.
    Comment: A few commenters were concerned that a hospital without 
any Domain 2 measure scores would have their Total HAC score based 
entirely on Domain 1, which comprises claims-based data. Because this 
situation could happen when a hospital does not have enough data to 
reliably calculate an SIR for the CDC NHSN HAI measures, one commenter 
recommended that CMS collaborate with CDC to determine if there are 
analytic approaches besides the SIR that would allow more hospitals to 
meet the minimum data criteria for reliable measure results for the CDC 
NHSN HAI measures.
    Response: We understand the commenters' concern and point out that 
the intention of the scoring rules described above for calculating a 
Total HAC score is to make use of the available data for each hospital 
and encourage hospitals to report HAI data to CDC NHSN, even if they do 
not have enough data to reliably calculate an SIR for the CDC NHSN HAI 
measures in

[[Page 50099]]

Domain 2. In section IV.J.3.c. of the preamble of this final rule, we 
address stakeholders concerns about using claims data in general and 
the PSI-90 measure in particular, for the HAC Reduction Program.
    We conferred with CDC, which indicated that they continuously 
evaluate the data reported to NHSN and consider the best measures for 
monitoring and comparative purposes. Currently the SIR is the best 
measure to allow for risk adjustment and production of a facility-level 
and/or CCN-level metric that can be used for comparison across similar 
facility types. This provides the opportunity to most accurately 
represent a facility's success. If the data are insufficient (for 
example, too few device days) to produce the SIR, CDC indicated that 
any calculation produced from such low numbers would be imprecise. CDC 
continues to review the data and evaluate options for metric 
development, including situations where facilities have low denominator 
volume and/or few infections.
    After consideration of the public comments we received, we are 
finalizing the scoring clarifications for the HAC Reduction Program as 
proposed.
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 measure scores, 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 scores; 
and (3) the hospital's Total HAC Score (78 FR 50725).
    Comment: One commenter supported the public availability of 
facility-specific data on HACs. The commenter was concerned that these 
data had previously been available on Hospital Compare but were no 
longer posted there and urged that CMS repost these data. One commenter 
recommended that, at a minimum, in spite of the absence of measures for 
some HACs, CMS should make the raw counts of HACs publicly available on 
Hospital Compare or https://data.medicare.gov/.
    Response: We appreciate the commenter's recognition of the 
importance of having facility level HAC data available publicly. 
Although the commenter did not specify which data were being 
referenced, we interpret this comment to refer to the eight HAC 
measures that were removed from the Hospital IQR Program (Air Embolism, 
Blood Incompatibility, CAUTI, Falls and Trauma, Foreign Object Retained 
After Surgery, Manifestation of Poor Glycemic Control, Pressure Ulcer 
Stages III or IV, and Vascular Catheter Associated Infections). The 
rationale for removing these measures from the Hospital IQR Program can 
be found in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53506 through 
53507). The measures included in the HAC Reduction Program (PSI-90 
composite, CLABSI and CAUTI) have been available on Hospital Compare 
since December 2010, January 2012 and January 2013, respectively. The 
HAC Reduction Program scores will also be publicly available later this 
year.
(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 our regulation 
regarding the reporting of hospital-specific information at Sec.  
412.172(f) (78 FR 50968). 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 previously 
paid under section 1814(b)(3) of the Act, under the HAC Reduction 
Program (paragraph (f)). As noted in section IV.J.3.b. of the preamble 
of this final 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 HACs measure scores, domain scores, and 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 (paragraph 
(f)(2)). CMS will post the HAC Reduction Program scores 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.
    CMS provided hospitals with their confidential hospital-specific 
reports and discharge level information used in the calculation of 
their Total HAC Score in late July 2014 on the Quality Net Web site. In 
order to have access to their hospital-specific report, hospitals must 
register for a Quality Net Secure Portal account. Hospitals have a 
period of 30 days after the information is posted on Quality Net to 
review and submit corrections for the calculation of their

[[Page 50100]]

HACs measure scores, domain scores, and Total HAC Score for the fiscal 
year.
(4) Preliminary Analysis of the HAC Reduction Program
    In order to model estimated payment changes for the 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/LTCH PPS proposed rule Home Page link as Table 17.--FY 2015 
Preliminary Analysis of the Hospital-Acquired Condition Reduction 
Program. We stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28142) that when the actual data for the performance periods finalized 
in the FY 2014 IPPS/LTCH PPS final rule for each measure are available, 
hospitals will have an opportunity to review and submit corrections as 
discussed in section IV.J.3.e. of the preamble of the proposed rule and 
this final rule.
    Comment: One commenter objected to CMS making Table 17--FY 2015 
Preliminary Analysis of the Hospital-Acquired Condition Reduction 
Program, publicly available via the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html 
under the FY 2015 IPPS/LTCH PPS proposed rule Home Page link. This 
commenter stated that the data had not yet been reviewed and its 
sources auditable and in compliance with the requirements of the law. 
The commenter stated that the Table did not provide insight into how 
the Composite Score was developed. The commenter acknowledged that 
there was a methodology included in the proposed rule preamble, 
however, also noted that any attempts to recalculate and confirm the 
scores in the Table with other information available to the public 
(such as CMS' Hospital Compare Web site) were not possible. Lastly, the 
commenter stated that the reporting periods used to calculate the Score 
in Table 17 (both for Domain 1 (Patient Safety) and Domain 2 (CLASBI 
and CAUTI) are not those that are set in law.
    Response: We acknowledge the commenter's objection and point out 
that as stated in the 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 to model 
estimated payments. In addition, as stated earlier in this section, we 
established that we 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 HACs measure scores, domain scores, and 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 (paragraph 
(f)(2)). CMS will post the HAC Reduction Program scores 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.
    Providing a preliminary analysis of the HAC Reduction Program using 
currently available historical data as a proxy for the actual data is 
consistent with the law. We clearly indicated that these were not the 
final data. However, because this is the first year of the HAC 
Reduction Program, we wish to gain some initial experience under the 
review and correction process discussed in section IV.J.3.e. of the 
preamble of this final rule and determine to what extent the review and 
corrections process in this first year changes the preliminary hospital 
level data we provided in Table 17 of the proposed rule before 
providing updated hospital level data. Updated hospital level data will 
be made publicly available following the review and corrections 
process.
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.J.3.e. of the 
preamble of this final rule will provide hospitals with the opportunity 
to correct data prior to its release on the Hospital Compare Web site.
4. 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.

[[Page 50101]]

    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, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28142), we proposed 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 final 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 
invited public comments on this proposal.
    Comment: One commenter supported the proposed method of maintaining 
and updating the technical specifications for the quality measures, 
including adoption of a subregulatory process for nonsubstantive 
changes released by measure developers.
    Response: We appreciate the commenter's support.
    Comment: A few commenters believed that nonsubstantive changes 
identified during routine measure maintenance processes and during NQF 
measure maintenance review should all be subject to the annual notice-
and-comment rulemaking process.
    Response: We disagree with the recommendation to have all measure 
changes subject to notice-and-comment rulemaking. As previously noted 
in FY 2014 IPPS/LTCH PPS final rule (78 FR 50776) we believe that the 
maintenance of technical specifications for quality measure policy for 
the Hospital IQR Program also is applicable to the HAC Reduction 
Program. We believe this policy adequately balances our need to 
incorporate nonsubstantive NQF updates to NQF-endorsed measures in the 
most expeditious manner possible, while preserving the public's ability 
to comment on updates that so fundamentally change an endorsed measure 
that it is no longer the same measure that we originally adopted. We 
also note that the NQF process incorporates an opportunity for public 
comment and engagement in the measure maintenance process. These 
policies regarding what is considered substantive versus nonsubstantive 
apply to all measures in the Hospital IQR Program and the HAC 
Reductions Program.
    Comment: One commenter indicated that any changes to a measure 
developed for adults but now including those less than 18 years of age 
should be considered nonsubstantive.
    Response: We refer the reader to our response to a similar 
suggestion in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50776). We 
will make a decision as to whether such changes constitute substantive 
changes on a case-by-case basis.
    After consideration of the public comments we received, we are 
finalizing the maintenance of technical specifications for quality 
measures in the HAC Reduction Program as proposed.
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. In the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 28142), we welcomed public comments on whether an exemption 
process should be implemented and the policy and operational 
considerations for a potential HAC Reduction Program ECE policy.
    Comment: Many commenters supported the creation of an extraordinary 
circumstance exemption process for hospitals that experience a natural 
disaster. Some commenters recommended that CMS consider adopting 
several aspects of the Hospital VBP waiver process for the HAC 
Reduction Program, including allowing hospitals to have 60 days from 
the occurrence of the extraordinary circumstance to file for an 
exemption. The commenters believed this would ensure that hospitals do 
not seek an advantage on their HAC scores long after a disaster period 
has ended. Other commenters recommended that hospitals be given 90 
calendar days from the date of the disaster to request an exemption and 
that the exemption apply for at least 2 payment years because the HAC 
Reduction Program currently uses a 2-year performance period.
    Response. We appreciate the commenters' support. We will take into 
consideration these recommendations as we consider whether an exemption 
process for the HAC Reduction Program should be implemented.
6. Implementation of the HAC Reduction Program for FY 2016
a. Measure Selection and Conditions, Including 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). In the 
FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28143), we did not propose 
any new additional measures for the HAC Reduction Program for FY 2016. 
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/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, 
as we stated in the FY 2015 IPPS/LTCH PPS proposed rule, 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 FY 2015 
IPPS/LTCH PPS final rule relate to the performance methodology used to 
determine the applicable hospitals subject to the payment adjustment 
under the HAC Reduction Program.

[[Page 50102]]

(2) Measure Selection and Scoring Methodology for FY 2016
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we finalized 
for FY 2016 and onwards CDC's NHSN Surgical Site Infection (SSI) 
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 (78 FR 50717). In the FY 2015 IPPS/
LTCH PPS proposed rule, we did not propose 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 measure for Domain 1 and 
the risk-adjustment for CDC's NHSN measures for Domain 2 (78 FR 50718 
through 50719). In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28143), we did not propose any risk-adjustment changes for any of the 
measures finalized in the FY 2014 IPPS/LTCH PPS final rule.
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 (78 FR 50718 
through 50719). In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28143), we did not propose any measure calculation changes for any of 
the measures finalized in the FY 2014 IPPS/LTCH PPS final rule.
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, in the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28143), we proposed 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 finalized in the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50717) that we will use 2 years of data 
to calculate the Domain 2 score for FY 2015 for the CAUTI and CLABSI 
measures. For FY 2016, in the FY 2015 IPPS/LTCH PPS proposed rule (79 
FR 28143), we proposed 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28143), we proposed a change to the scoring methodology of the Total 
HAC Score. This proposal, which is discussed below, was 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 domain scores. 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) Scoring Methodology of Domain 2 and New Weighting of Domains 1 and 
2 for FY 2016
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28143), we 
proposed 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. We would like to clarify that the scoring 
methodology for Domain 1 in FY2016 is unchanged from the scoring 
methodology for Domain 1 in FY 2015. This methodology is described 
above under our discussion of Criteria for Applicable Hospitals and 
Performance Scoring Policy. For the scoring of CDC's NHSN SSI measure, 
we proposed 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 
proposed to calculate an abdominal hysterectomy procedure SSI SIR and a 
colonic procedure SSI SIR and pool both SIRs for each hospital. We 
proposed 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 
proposed 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 infections among 
abdominal hysterectomy and colonic procedures performed at the 
applicable hospital.

[[Page 50103]]

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 final rule). To determine a Domain 2 score, we proposed 
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 proposed 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)), and the proposed changes in section 
IV.J.6.e. of the preamble of the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28144), which are included in section IV.J.6.e. of the preamble 
of this final rule. We invited public comments on this proposal.
    In addition, for FY 2016 we proposed to weight Domain 1 at 25 
percent and Domain 2 at 75 percent. We proposed to decrease the weight 
of Domain 1 from 35 percent to 25 percent for two reasons. First, with 
the implementation of CDC's SSI measure, we believed the weighting of 
both domains needed 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, we proposed for FY 2016 that 
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 invited public comments on this proposal.
    Comment: Several commenters supported the proposed approach of 
creating a pooled SIR for the SSI measure that includes colon surgeries 
and abdominal hysterectomy surgeries because this is consistent with 
how CDC currently reports the measure. A few commenters noted that this 
approach allows for risk adjusted weighting of the surgical volume 
between the two procedures. One commenter recommended that CMS 
collaborate with NHSN leadership and professional organization 
representing surgeons to develop a profile of surgical procedures that 
are high volume across the spectrum of acute care hospitals that might 
be added to the existing procedures in the SSI measure. The commenters 
suggested that an expansion of the number of procedures may increase 
the likelihood that the SSI SIR is reliable.
    Response: We appreciate the commenters' support for the approach of 
creating a pooled SIR for the SSI measure. We note that CDC maintains 
ongoing collaborations with a number of professional surgical 
organizations and is currently in process of developing additional SSI 
metrics for higher volume surgical procedures. Once these measures are 
finalized, we may consider them for future rulemaking.
    Comment: A few commenters suggested that CMS and CDC monitor the 
impact of the consolidated SIR for hospitals that perform a higher 
volume of hysterectomies. The commenters pointed out that based on 
Hospital Compare data, where the SSI rates for the two procedures are 
reported separately, hysterectomies have a higher infection rate 
compared to colon surgeries, and fewer hospitals have a reported 
hysterectomy SIR. Commenters recommended that when the consolidated SIR 
adversely impacts hospitals that perform more hysterectomies, then the 
SIR should be modified to account for the different mix of services. 
One commenter recommended CMS weigh each individual SSI metric 
separately as they believe the combined SIR is a complicated, 
burdensome composite metric.
    Response: We will consider these suggestions in future rulemaking.
    Comment: A few commenters were concerned that adding the SSI 
measure to Domain 2 could lead to an average score that lacks 
specificity in determining a hospital's true HAI scores. In addition, 
one commenter stated that adding the MRSA bacteremia and C. difficile 
measures to Domain 2 score would further dilute the domain. The 
commenters suggested assigning each CDC NHSN HAI measure a separate 
percentage to total the domain weight versus averaging all HAIs in 
Domain 2. A few commenters stated that, with only two procedures in the 
SSI measure, it is reasonable to continue equally weighting the 
measures in Domain 2. However, if more procedures are added to the SSI 
measure, the commenters recommended that CMS consider providing a 
higher weight to the SSI measure.
    Response: We note that the purpose of the domain scores is to 
provide a summary of a hospital's performance with regard to patient 
safety (Domain 1) and HAI (Domain 2) measures. A hospital's performance 
with regard to the individual measures is available on Hospital Compare 
and is updated quarterly for hospitals that participate in the Hospital 
IQR Program. We appreciate the suggestion for weighting the CDC NHSN 
HAI measures separately and will take this into consideration in future 
rulemaking.
    Comment: One commenter recommended that the weighting of measures 
in the Total HAC Score correspond to the relative amounts of harm found 
in the patient population based on what is reported in peer-reviewed 
literature.
    Response: We will take this feedback into consideration as we add 
more measures to the program and evaluate if changes to the scoring 
methodology are needed.
    Comment: Many commenters supported the CMS proposal to increase the 
weight given to Domain 2 and decrease the weight given to Domain 1 
because Domain 2 includes the chart abstracted NHSN measures which the 
commenters believed to be more reliable and actionable than the claims-
based PSI-90 composite measure in Domain 1. One commenter recommended 
that CMS continue to decrease the Domain 1 weight in future years. A 
few commenters believed that the overlap of measures between the 
Hospital VBP Program and the HAC Reduction Program should be 
eliminated, but expressed their support for the domain weight change if 
CMS retained all measures that overlap despite the commenters' 
objections.
    Response: We agree that an increase in the Domain 2 weight is 
warranted, given that the number of measures in the domain is 
increasing.
    Comment: A few commenters did not support the proposal to change 
the weight of Domain 1 to 25 percent from 35 percent and Domain 2 to 75 
percent from 65 percent. One commenter stated that this approach would 
promote an overly narrow definition of HACs that places too much 
emphasis on infections alone and not enough on other patient safety 
risks. The commenter added that CMS should take a more balanced 
approach to weighting the existing domains in order to place a high bar 
for hospitals to avoid both infections and harmful complications that 
can be prevented, and seek and develop measures for hospital safety 
problems that have the most prevalence and impact.
    Response: We agree that both patient safety events and infections 
are important components of the HAC Reduction Program. In the FY 2014 
IPPS/LTCH PPS proposed rule (79 FR 28143 through 29144), we explain the 
rationale for assigning a higher weight to Domain 2. We believe that 
the AHRQ PSI-90 measure plays a vital role in

[[Page 50104]]

patient safety and it continues to comprise an integral part of the HAC 
Reduction Program with a weight of 25 percent of the Total HAC Score.
    After consideration of the public comments we received, we are 
finalizing the scoring methodology of Domain 2 and new weighting of 
Domains 1 and 2 for FY 2016 as proposed.
f. Rules To Calculate the Total HAC Score for FY 2016
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28141, 28144), 
and in section IV.J.3.d. of the preamble of this final rule, we discuss 
our proposal to adopt the ``Clarification of FY 2015 Finalized 
Narrative of Rules to Calculate the Total HAC Score.'' We invited 
public comments on this proposal.
    After consideration of the public comments we received, we 
finalized the proposed clarification of the FY 2015 rules to calculate 
the Total HAC Score. We received no public comments on this specific 
proposal for FY 2016; therefore, we are finalizing the clarification 
for FY 2016 as well.
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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28144), we sought 
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 welcomed any suggestions of specific all-cause harm 
electronic measures, including detailed measure specifications. 
Specifically, we invited 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 Score. In 
addition, we requested suggestions on the timeframe for which such a 
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 stated in the FY 2015 IPPS/LTCH PPS proposed rule 
that 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.
    Comment: Many commenters supported leveraging electronic technology 
to capture, calculate, and submit data. Commenters recommended that 
ultimately electronic measures could replace claims-based measures and 
could provide information in a timelier manner. Several commenters 
cautioned that electronic measures must undergo careful testing and 
that implementation occur in a phased manner and not mandated until 
technically feasible for all hospitals to comply. One commenter 
recommended that an e-measure related to antimicrobial stewardship be 
considered. One commenter recommended that, beginning in FY 2015, 
hospitals be given a waiver from complying with existing Domain 1 
requirements, provided that they demonstrate transition toward or 
current use of an approach utilizing electronic measures in a manner 
supported by the peer reviewed literature.
    Response: We appreciate the commenters' feedback and support for 
the use of electronic measures in general. We will take the suggestions 
into account in future rulemaking.
    Comment: Many commenters supported the development of an all-cause 
harm measure derived from electronic health records. Some commenters 
believed that all-cause harm measures could capture information on 
never events, adverse drug events, ventilator-associated events, 
diagnostic errors, hypoglycemia, transfusion reactions, and medication 
reconciliation (unintentional medication discrepancies per patient (NQF 
#2456)). Another commenter encouraged innovative approaches and 
collaboration with organizations, hospitals and the CMS Innovation 
Center when developing all-cause patient harm measures derived from 
electronic health records. One commenter recommended an all cause harm 
measure be incorporated as a third domain.
    Several other commenters expressed concern about use of composite 
measures in general stating that they do not provide actionable data 
and that inappropriate weighting of measure components may skew 
results. If a composite measure is used, commenters recommended that 
data on the component measures and the weighting methodology also be 
reported.
    Response: We thank commenters for their viewpoints on the use of an 
electronic all-cause harm measure for inclusion in the HAC Reduction 
Program and will take them into consideration in future rule making.
    Comment: One commenter requested more insight into what CMS 
envisions for the measure and how the measure will be reported through 
the EHR system, in order to provide feedback to CMS.
    Response: At this time, we do not have a specific measure in mind 
but rather are soliciting feedback on the feasibility and perceived 
value of a standardized electronic composite measure of all-cause harm 
in the HAC Reduction Program. As we develop a more specific plan we 
will share that information in future rulemaking.

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

[[Page 50105]]

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 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. 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 program 
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 started. 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

[[Page 50106]]

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 states that 
if a hospital qualified for an adjustment to the limit established 
under paragraph (f)(1)(iv) of the section for new medical residency 
programs created under paragraph (f)(1)(vii) of the 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 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) states that the exception 
for new programs described in paragraph (f)(1)(vii) of the 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 states that if a hospital qualifies for an 
adjustment to the limit established under paragraph (c)(2) of the 
section for new medical residency programs created under paragraph (e) 
of the 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 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 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

[[Page 50107]]

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 MACs, 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 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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28147), we 
proposed 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 proposed 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 proposed 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 proposed 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 proposed that, instead of the FTE 
resident caps being effective beginning with the sixth program year of 
the first new program started, those FTE resident caps, the 3-year 
rolling average, and the 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 proposed 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 proposed 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 proposed 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

[[Page 50108]]

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, 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 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28148), we stated 
that we understood 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 proposed 
to make the effective date of the FTE resident caps earlier than under 
current policy, because we also proposed 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 stated in the 
FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28148) that 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, we 
indicated that if the 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 MACs for 
instructions on how to complete those lines, as both hospitals and MACs 
would understand how to report the number of FTE residents in new 
programs, even when those programs have different accredited lengths. 
Instead, hospitals and MACs 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 MACs 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 the 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 the proposed 
methodology, unlike the complicated process currently in place. 
Therefore, clarity, efficiency, and payment accuracy would be improved 
for hospitals, MACs, and CMS.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28148), we stated 
that 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 proposed 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 proposed 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 year 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,

[[Page 50109]]

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 proposed 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 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 would be 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 proposed 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.
    Comment: Many commenters supported CMS' proposal to simplify and 
synchronize the timing of when FTE residents in new medical residency 
training programs are subject to the FTE resident caps, the 3-year 
rolling average, and the IRB ratio cap. However, the commenters 
believed that the specific part of the proposal related to making the 
FTE resident caps 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 would result in premature application 
of the FTE resident cap while the hospital would still be within the 5-
year cap building window, thereby reducing the number of FTEs to which 
the new teaching hospital would otherwise be entitled to payment. The 
commenters disputed CMS' suggestion in the proposed rule that the 
effect on a hospital's payment would be inconsequential or nonexistent 
``in most typical circumstances.'' The commenters provided examples of 
where they believed CMS' proposal would result in the loss of payment 
for new teaching hospitals establishing an FTE resident cap. The 
commenters acknowledged CMS' statement in the proposed rule that a new 
teaching hospital could experience a payment benefit from the proposed 
changes related to the synchronized implementation of the 3-year 
rolling average and the IRB ratio cap. However, the commenters did not 
believe this ``benefit justifies an imposition of the FTE resident cap 
within the 5-year cap building window.'' The commenters urged CMS to 
finalize an alternative effective date that would be the start of the 
hospital's cost reporting period that follows the start of the sixth 
program year of the start of the first new program. The commenters 
believed this alternative would achieve the simplicity that CMS seeks 
in its proposal, yet would also permit new teaching hospitals to retain 
the payments they are ``entitled'' to receive for at least a full 5 
program years under existing regulations.
    Response: We appreciate the commenters' support of the proposal, 
and the commenters' concern that, by proposing that the effective date 
would be the applicable hospital's cost reporting period that precedes 
the start of the sixth program year of the first new program started, 
this earlier application of the FTE resident cap might result in 
reduced payment because some amount of FTE residents would be in excess 
of the hospital's newly calculated FTE resident caps. We also agree 
that the streamlining and simplification that we are seeking would be 
achieved by revising the proposal to instead take effect, as the 
commenters suggested, with the beginning of the hospital's cost 
reporting period that follows the start of the sixth program year of 
the first new program started. Therefore, in this final rule, we are 
modifying our proposal as follows, 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, 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

[[Page 50110]]

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 finalizing a policy that, instead of 
the FTE resident caps being effective beginning with the sixth program 
year of the first new program started, those FTE resident caps, the 3-
year rolling average, and the IRB ratio cap would be effective 
beginning with the applicable hospital's cost reporting period that 
coincides with or follows the start of the sixth program year of the 
first new program started. (We are specifying ``that coincides with or 
follows'' the start of the sixth program year of the first new program 
started, rather than only specifying ``that follows'' the start of the 
sixth program year of the first new program started as the commenters 
suggested, in consideration of hospitals that have a fiscal year begin 
date of July 1, for whom the cost reporting period that starts after 
completion of the 5-year cap building window coincides with the 
beginning of the sixth program year of the first new program started. 
Under this finalized policy, hospitals with a fiscal year begin date of 
July 1 would not wait an entire 12 months after completion of their 5-
year cap building window for their next cost reporting period to start 
in order for the FTE resident caps, the 3-year rolling average, and the 
IRB ratio cap to take effect. Rather, for hospitals with a fiscal year 
begin date of July 1, the FTE resident caps, the 3-year rolling 
average, and the IRB ratio cap would be effective beginning with the 
applicable hospital's cost reporting period that coincides with the 
start of the sixth program year of the first new program started.)
    Using the example of Hospital A that we presented in the proposed 
rule, 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, 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 follows July 1, 2018; that is, the FTE resident caps for Hospital 
A would be effective permanently on January 1, 2019, the start of 
Hospital A's cost reporting period that follows the start of the sixth 
program year of the first new program started. The hospital would file 
its fiscal year end December 31, 2019 cost report including the FTE 
resident caps applicable to the entire cost reporting period 
accordingly.
    Regarding the application of the 3-year rolling average and the IRB 
ratio cap, using the example of Hospital A, 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 the IRB ratio cap beginning on January 1, 2019. 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, 2018, 
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, 2018, 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, 2019, the number of FTE residents in these three programs 
would be subject to the FTE resident caps, 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, 2019, 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 caps, the 3-year rolling average, and the IRB ratio cap.) 
We note that once the 3-year rolling average is effective, 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, 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, 2018, the fiscal year begin date that follows 
July 1, 2018, the sixth program year. If Hospital A's fiscal year begin 
date would have been July 1, the FTE residents caps, the 3-year rolling 
average, and the IRB ratio cap would be effective on July 1, 2018, the 
fiscal year begin date that follows completion of the fifth program 
year, and coincides with July 1, 2018, the sixth program year.
    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 
finalizing 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 finalizing 
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 coincides with or follows 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 year end dates of December 31, 2013 through and 
including December 31, 2018, the number of family medicine FTE 
residents would be reported so as

[[Page 50111]]

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, 2018, 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.) Beginning with Hospital B's cost report for 
fiscal year ending December 31, 2019, 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 caps, 
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, 2019, 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, 2021, 
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. 
Beginning with Hospital B's cost report for fiscal year ending December 
31, 2022, 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 caps, the 3-year rolling 
average, and the IRB ratio cap. We note that once the 3-year rolling 
average is effective, 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.
    After consideration of the public comments we received, we are 
finalizing our proposal with certain modifications. Specifically, the 
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 will 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 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 policy will be 
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 revising 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 coincides with or follows 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 coincides with or follows 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). Beginning with the applicable hospital's cost 
reporting period that coincides with or follows 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 
beginning with the applicable hospital's cost reporting period that 
coincides with or follows 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. 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 final 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 final rule for a discussion of our proposal and 
final policy 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 final rule, we discuss 
the final policies we are implementing 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28149 
through 28150), we proposed 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

[[Page 50112]]

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 
proposed 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 proposed 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 proposed that these regulatory 
revisions be effective for cost reporting periods beginning on or after 
October 1, 2014.
    Comment: Commenters supported the proposal to allow a rural 
hospital that was training residents in a new program when it was 
redesignated as urban due to the most recent OMB delineations, to be 
able to continue with the cap-building period for that new program and 
receive a permanent cap adjustment for that new program. Commenters 
stated that rural hospitals develop and build their new programs with 
the expectation that they will have a 5-year cap building period in 
which to grow these new programs. Commenters stated that the proposal 
is fair and equitable and helps address physician shortages in rural 
areas by promoting residency training in these areas. However, several 
commenters requested that CMS take the proposal one step further. These 
commenters stated that if a rural hospital has received a letter of 
accreditation for a new program prior to the hospital being 
redesignated as urban, the hospital should be able to receive a 
permanent cap adjustment for that new program. One commenter stated 
that there are substantial resources and upfront costs that go into 
starting a new family medicine program. The commenter noted it may take 
some time for the program to begin training residents because the 
hospital must receive an initial letter of accreditation and then the 
program may have to wait for up to a year until it can participate in 
the match for residents to begin the following July 1.
    Response: We thank the commenters for their support of our 
proposal. We appreciate that significant resources go into developing a 
brand new residency training program and that there may be a lag 
between when a program is accredited and when residents begin training 
in that program. We are persuaded by these comments and, therefore, we 
are finalizing our proposed policy with a modification, such that a 
rural hospital that has been redesignated as urban can receive a 
permanent cap adjustment for a new program (after a 5-year cap building 
period for that new program), if it received a letter of accreditation 
for the new program, and/or started training residents in the new 
program, prior to being redesignated as urban. Expanding upon the 
example that was included in the proposed rule, if a 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, but did 
receive a letter of accreditation for the general surgery program prior 
to October 1, 2014, the rural hospital would receive a permanent cap 
adjustment for the new internal medicine program, and would receive a 
permanent cap adjustment for the new general surgery program. We are 
amending the regulations at Sec.  412.105(f)(1)(iv)(D) and Sec.  
413.79(c)(6) to implement this policy. Consistent with the effective 
date of the implementation of the new OMB delineations, we are making 
this final policy effective October 1, 2014.
    Comment: Several commenters requested that CMS propose a policy 
through an interim final rule that would permit hospitals that remain 
rural referral centers (RRCs), even if they are no longer in a labor 
market designated as rural, to receive a cap increase for residents 
training in new programs. The commenters stated that RRCs are high-
volume hospitals that treat complex cases, which may be referred to 
them from significant geographic distances. The commenters stated that 
RRCs meet important health care needs of rural communities because 
residency programs in RRCs train physicians who are equipped to deal 
with rural populations. The commenters requested that CMS specify that 
grandfathered RRCs are able to increase their caps for new programs so 
long as during the current Federal fiscal year, they continue to meet 
all RRC requirements other than being located in a rural area.
    Response: Section 1886(h)(4)(H)(i) of the Act states in part, 
``[i]n promulgating such rules for purposes of subparagraph (F), the 
Secretary shall give special consideration to facilities that meet the 
needs of underserved rural areas.'' Subparagraph (F) refers to the 
establishment of a hospital's FTE resident cap. We read this statutory 
language as providing special consideration only to rural hospitals for 
purposes of establishing their FTE resident caps, not that special 
consideration be provided to hospitals that are either not physically 
located in rural areas or have not reclassified as rural facilities 
(for IME payment purposes). Therefore, we are not making any special 
exceptions specific to RRCs that are no longer in rural areas in this 
final rule. As we have stated above for other hospitals that lose their 
rural status due to the new OMB delineations, an RRC that has been 
redesignated as urban may receive a permanent cap adjustment for a new 
program (after a 5-year cap building period for that new program), if 
it received a letter of accreditation for the new program, and/or 
started training residents in the new program, prior to being 
redesignated as urban. We note that if the redesignated RRC 
subsequently reclassified back to rural, it would be able to receive 
additional adjustments to its IME FTE resident cap for training 
residents in new programs.
    Comment: One commenter stated that it operates a rural teaching 
hospital that received the 30-percent cap increase applicable to rural 
teaching hospitals. The commenter stated that, due to the most recent 
OMB delineations proposed to be implemented, the hospital will be 
located in an urban area. The commenter asked whether the 30-percent 
cap increase would carry over with the hospital's urban status.
    Response: The regulations at Sec.  412.105(f)(1)(iv)(D) and Sec.  
413.79(c)(6) implemented in this final rule state in part that 
effective October 1, 2014, if a rural hospital is redesignated as urban 
due to the most recent OMB standards for delineating statistical areas 
adopted

[[Page 50113]]

by CMS, the redesignated urban hospital may retain any existing 
increases to its FTE resident cap that it had received prior to when 
the redesignation became effective. Therefore, in the situation the 
commenter described, the hospital that is redesignated from rural to 
urban may retain the 30-percent cap increase it received while it was 
still rural.
    After consideration of the public comments we received, we are 
finalizing the proposed policy with a modification, such that a rural 
hospital that has been redesignated as urban can receive a permanent 
cap adjustment for a new program (after a 5-year cap building period 
for that new program), if it received a letter of accreditation for the 
new program, and/or started training residents in the new program, 
prior to being redesignated as urban. The finalized regulations at 
Sec.  412.105(f)(1)(iv)(D) state the following:
     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 the 
section while it was located in a rural area.
     Effective 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, the redesignated urban 
hospital may retain any existing increases to its FTE resident cap that 
it had received prior to when the redesignation became effective.
     Effective 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, the redesignated urban 
hospital may receive an increase to its FTE resident cap for a new 
program, in accordance with paragraph (e) of the section, if it 
received a letter of accreditation for the new program and/or started 
training residents in the new program, prior to the redesignation 
becoming effective.
    The finalized regulations at Sec.  413.79(c)(6) state the 
following:
     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 the section while it was located 
in a rural area.
     Effective 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, the redesignated urban 
hospital may retain any existing increases to its FTE resident cap that 
it had received prior to when the redesignation became effective.
     Effective 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, the redesignated urban 
hospital may receive an increase to its FTE resident cap for a new 
program, in accordance with paragraph (e) of the section, if it 
received a letter of accreditation for the new program and/or started 
training residents in the new program prior to the redesignation 
becoming effective.
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 (subsection (iv)) 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, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28054), we proposed 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 are 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

[[Page 50114]]

continue receiving a FTE resident cap adjustment for new programs that 
started while the redesignated hospital was still rural, we proposed to 
revise the existing regulations applicable to urban hospitals 
generally. Specifically, we proposed to address the status of the 
``original'' urban hospital's (throughout this preamble, ``original'' 
urban hospital refers to the hospital that is the urban participant in 
the rural track program) 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 
``original'' urban hospital's rural track FTE limitation. We proposed 
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 ``original'' urban hospital's 
rural track FTE limitation. That is, we proposed 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 ``original'' 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 ``original'' urban 
hospital has already become effective. (We note that we proposed 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 proposed 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 ``original'' urban hospital, or after the 
3-year period that is used to establish the rural track FTE limitation 
for the ``original'' 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 proposed 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 
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 proposed to apply these two 
criteria both in the case where the rural hospital is redesignated as 
urban after the ``original'' 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 ``original'' 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 proposed that the timeframe for the 
``original'' 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 ``original'' 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 ``original'' 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

[[Page 50115]]

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 proposed 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 noted 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 proposed 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 proposed 
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 MAC in order for the calculation to be completed 
and the rural track FTE limit to be set.
    In summary, we proposed 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 ``original'' urban 
hospital's rural track FTE limitation, the ``original'' urban hospital 
may receive a cap adjustment for that rural track after the rural 
hospital has been redesignated as urban. Furthermore, we proposed 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 ``original'' 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 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 proposed 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.
    Comment: In general, commenters supported the rural track 
proposals. Some commenters requested that, instead of providing for a 
2-year transition period, CMS provide a 3-year transition period for 
the original urban hospital to find a new rural site. Commenters stated 
that it usually takes 3 years of financial and operational planning in 
order to develop a new training site and that it may take more time in 
rural areas where staffing is limited. Commenters stated that the 
program would also need time to request approval from the ACGME or the 
AOA to move its training site.
    Response: We appreciate the commenters' support of our proposals 
related to rural track programs. As a result of commenters' concerns 
that 2 years is not a sufficient transition period to allow the 
``original'' urban hospital to find another rural hospital to 
participate as the rural site for purposes of the rural track, we are 
finalizing a policy providing for an alternative transition period. The 
transition period will begin effective with the date of the 
implementation of the new OMB delineations and extend through the end 
of the second residency training year following the implementation date 
of the new OMB delineations. For example, if as a result of the OMB 
delineations implemented effective October 1, 2014, the rural hospital 
participating in a rural track program is redesignated as urban, the 
transition period for the ``original'' urban hospital to find a new 
rural site or for the redesignated hospital to reclassify back to rural 
for IME payment purposes, would last from October 1, 2014 through June 
30, 2017. In addition, consistent with the effective date of the new 
OMB delineations, we are making these final policies effective October 
1, 2014. We are revising the regulations at Sec.  413.79(k)(7) to 
implement this change.
    The following examples illustrate how the policy finalized in this 
rule would be applied to an urban hospital that is training residents 
as part of a rural track program in the case where the rural hospital 
participating in the rural track program is redesignated as urban.
     In this scenario, the rural hospital is redesignated as 
urban during the cap-building period for the urban hospital's rural 
track FTE limitation. The urban hospital (referred to as the 
``original'' urban hospital) and the rural hospital are participating 
in training residents in a rural track program that begins July 1, 
2014. Effective October 1, 2014, the rural hospital is redesignated as 
urban. Because urban teaching hospitals have a 3-year cap-building 
period in which to grow their rural track FTE limitation, the timeframe 
for the ``original'' urban hospital to build the rural track program 
for purposes of calculating its rural track FTE limitation will be July 
1, 2014 (when the program begins) through June 30, 2017. In addition, 
for purposes of meeting the requirement that residents in a rural track 
program spend more than one-half of their time training at a rural 
site, the ``original'' urban hospital will have a transition period 
that lasts from October 1, 2014 (the implementation date of the new OMB 
delineations) through June 30, 2017 (the end of the second residency 
training year following the implementation date of the new OMB 
delineations, instead of September 30, 2016, as proposed). During the 
time period of October 1, 2014 through June 30, 2017, the redesignated 
urban hospital would continue participating as a rural hospital and the 
``original'' 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 receive a rural track FTE 
limitation effective July 1, 2017, and to continue to get paid for its 
rural track program after June 30, 2017, by June 30, 2017, the 
redesignated urban hospital must either reclassify as rural under Sec.  
412.103 of the regulations for purposes of IME payment only, or the 
``original'' urban

[[Page 50116]]

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 June 30, 
2017, 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 be provided in a rural setting. 
If at some point later, the ``original'' urban hospital is able to find 
a new rural site to participate in the rural track program, the 
``original'' urban hospital would be able to receive a rural track FTE 
limitation based on the training that occurred from July 1, 2014 
through June 30, 2017, and be paid for residents training in the rural 
track.
     Another scenario could be one in which the rural hospital 
is redesignated as urban after the 3-year cap-building period for the 
``original'' urban hospital's rural track FTE limitation has passed. 
For example, the rural track program began July 1, 2007, but effective 
October 1, 2014, the rural hospital is redesignated as urban. Again, in 
this example, the ``original'' urban teaching hospital has a transition 
period that runs from October 1, 2014 through June 30, 2017 (instead of 
September 30, 2016, as proposed). In this scenario, by June 30, 2017, 
either the redesignated urban hospital must reclassify to rural under 
Sec.  412.103 for purposes of receiving 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 June 30, 2017, 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. If at 
some point later, the ``original'' urban hospital is able to find a new 
rural site to participate in the rural track program, the ``original'' 
urban hospital would be able to use its rural track FTE limitation and 
be paid for residents training in the rural track.
    Comment: Several commenters had concerns regarding rural tracks in 
general and concerns about what they believed would be unintended 
consequences resulting from the proposed policies. Commenters 
recommended that changes to OMB delineations be carefully managed with 
respect to rural track programs. Commenters stated that rural track 
programs are one of the best ways to expose residents to practicing in 
rural areas which, in turn, helps to address physician shortages in 
those areas. Commenters stated that if a rural hospital is the rural 
site for a rural track program and that rural hospital is subsequently 
redesignated as urban, it may not want to reclassify back to rural for 
a variety of reasons. Commenters stated that if the newly redesignated 
urban hospital does not want to reclassify back to rural and the 
``original'' urban hospital wants to train residents in another rural 
area, the ``original'' urban hospital does not have any means by which 
to grow its cap. Commenters stated that even if the rural track program 
would be able to find and move to a different rural site, because the 
program would usually have the same staff and program director, CMS' 
policies would consider the program to be an existing program rather 
than a new program, and therefore, a rural hospital that is a new site 
for purposes of the rural track program would not be able to receive a 
cap adjustment for training residents in that program. Commenters 
stated that it is within CMS' purview to address this problem by 
changing the definition of a ``new'' program through the authority 
provided to the Secretary under section 1886(h)(4)(H)(i) of the Act, 
which states, ``[in] promulgating such rules for purposes of 
subparagraph (F), the Secretary shall give special consideration to 
facilities that meet the needs of underserved rural areas.'' Commenters 
believed CMS could use this authority to allow rural hospitals that are 
new rural track participants to receive a cap adjustment for training 
residents in the existing rural track program.
    One commenter expressed concern that CMS, in its rulemaking, has 
not provided enough consideration to the promoting of physician 
training in rural areas. The commenter referred to a study by Candice 
Chen, MD, et al, in Academic Medicine, which ``reports that only 4.8% 
of all graduates of 759 sponsoring institutions practiced in rural 
areas and 198 of those 759 institutions produced no rural physicians. 
This percentage compares extremely unfavorably to the 19.3% of the 
population classified as rural by the 2010 census.'' The commenter 
stated that it expects that hospitals that have been reclassified as 
urban will still have a focus on training residents to practice in 
rural areas. The commenter stated that CMS should realize that the 
training these hospitals provide is more important than the location of 
these hospitals, and therefore, CMS should give special consideration 
to residents training in programs at these hospitals by changing its 
definition of ``new'' programs. The commenter included comments it 
previously submitted on the clarification of the definition of new 
residency training programs in the rule in the May 22, 2009 Federal 
Register.
    Response: We appreciate the commenters' support of residency 
training in rural areas, and we may consider their general concerns 
regarding CMS' policies related to new programs and training in rural 
areas for future rulemaking. However, because we did not specifically 
propose any changes to our existing policy regarding what constitutes a 
``new'' versus an ``existing'' program, we are not addressing those 
comments at this time. Instead, we wish to focus on several of the 
commenters' concerns specifically related to our proposals in the FY 
2015 IPPS/LTCH PPS proposed rule.
    In response to the commenters' concerns that if the ``original'' 
urban hospital wishes to establish training in another rural area, 
there is no way for the ``original'' urban hospital to grow its cap, we 
believe that the commenters have misunderstood our proposal. We 
proposed that if the ``original'' urban hospital does find a new rural 
hospital for its existing rural track program, the original urban 
hospital would be able to apply its existing rural track FTE limitation 
to the residents that train at its hospital as part of that rural 
track. In addition, if the ``original'' urban hospital was not able to 
receive a rural track FTE limitation because either the redesignated 
urban hospital did not reclassify back to rural for IME payment 
purposes during the transition period or the ``original'' urban 
hospital was not able to find a new rural site during the transition 
period, but either of these conditions is met in the future, the 
``original'' urban hospital would receive a rural track FTE limitation 
at that time, based on the training that occurred during the 3-year 
cap-building period for the rural track FTE limitation. We also point 
out that if the ``original'' urban hospital moves the rural portion of 
its training to a nonprovider site that is located in a geographically 
rural area, under existing regulations at 42 CFR 413.79(k)(2), the 
``original urban'' hospital may continue to count the FTE residents 
training in the rural nonprovider site for more than one-half the 
duration of the program up to its own existing rural track FTE 
limitation. In addition, if in the future, the ``original'' urban 
hospital would want to develop a rural track program in a different 
specialty, it would be able to receive a separate rural track FTE

[[Page 50117]]

limitation for that rural track program in a different specialty.
    In terms of any potential cap adjustment for a rural hospital that 
trains residents as part of the rural track, if the rural track is 
considered a new program for Medicare payment purposes, and if at the 
time that the ``original'' urban hospital moves the program to the new 
rural hospital, the new rural training track is still within its cap-
building period, any rural hospital that trains residents in that new 
program during the cap-building period for that new program will 
receive a permanent cap adjustment. Therefore, if the ``original'' 
urban hospital is able to find a new rural hospital to participate in 
the rural track during the cap-building period for the new rural track 
program, that new rural hospital will, in fact, also be able to receive 
a cap adjustment and receive direct GME and IME payments for training 
residents in the new rural track program.
    After consideration of the public comments we received, we are 
finalizing a policy that if a rural hospital is training residents in a 
rural training track and is in an area redesignated by OMB as urban 
during the 3-year period that is used to calculate the ``original'' 
urban hospital's rural track FTE limitation, the ``original'' urban 
hospital may receive a cap adjustment for that rural track after the 
rural hospital has been redesignated as urban. However, regardless of 
whether the redesignation of the rural hospital occurs during the 3-
year period that is used to calculate the ``original'' urban hospital's 
rural track FTE limitation, or even after the 3-year period used to 
calculate the ``original'' urban hospital's rural track FTE limitation, 
the redesignated urban hospital may continue to be considered a rural 
hospital for purposes of the rural track for the term of a transition 
period. That transition period begins effective with the date the new 
OMB delineations are implemented by CMS and lasts through the end of 
the second residency training year following the implementation date of 
the new OMB delineations. By the end of the transition period, 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). The 
finalized regulations at Sec.  413.79(k)(7) state the following:
     Effective prior to October 1, 2014, if an urban hospital 
had established a rural track training program under the provisions of 
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 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.
     Effective October 1, 2014, if an urban hospital started a 
rural track training program under the provisions of 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 paragraph (k) and 
subject to paragraph (k)(7)(iii) for the rural track programs started 
prior to the adoption of such new OMB standards for delineating 
statistical areas.
     Effective October 1, 2014, if an urban hospital started a 
rural track training program under the provisions of 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 paragraph (k) based on the rural track programs started 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 started 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 period that begins when the most recent OMB 
standards for delineating statistical areas are adopted by CMS and 
continues through the end of the second residency training year 
following the date the most recent OMB delineations are adopted by CMS: 
the hospital that has been redesignated from rural to urban must 
reclassify as rural under Sec.  412.103, 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 participate in 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, as we proposed, we are making a technical correction to the 
definition of ``Rural track FTE limitation'' so that it 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. 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, but did so only on a prospective basis in connection with 
certain specified cost reporting

[[Page 50118]]

periods. Notably and more specifically, section 5504(a)(3) of the 
Affordable Care Act amended the Act effective only 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 only 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 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. Indeed, in Borgess Medical Center 
v. Sebelius (966 F.Supp.2d at *6-*7 (D.D.C. 2013)), a court noted that 
CMS had done so in 1998, 2003, and 2007 preambles of rules. 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), the May 11, 2007 final 
rule (72 FR 26953 and 26969), the August 1, 2003 final rule (68 FR 
45439), the July 31, 1998 final rule (63 FR 40954 and 40995), the 
September 29, 1989 final rule (54 FR 40286 and 40288), and the 
September 21, 1988 proposed rule (53 FR 36589 and 36591).
    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 
1, 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. . . .''
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28153), we stated 
that 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 section 5504 and our policy as it could be. Specifically, 
Sec.  413.78(g)(6) states that the provisions of paragraphs (g)(1)(ii), 
(g)(2), (g)(3), and (g)(5) of the 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 the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28152 through 28154 and 28307), we 
reiterated our existing interpretation of the statutory amendments made 
by sections 5504(a), (b), and (c) of the Affordable Care Act and also 
proposed to clarify the regulation text implementing these provisions 
by revising the language at Sec.  413.78(g)(6) to

[[Page 50119]]

read more consistently with our reading of section 5504 and 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 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 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 1, 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 1, 2010 cost 
reporting periods and pre-July 1, 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 1, 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)(6) 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 1, 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.

[[Page 50120]]

    In the FY 2015 IPPS/LTCH PPS proposed rule, we reiterated our 
existing interpretation of the statutory amendments made by sections 
5504(a) and (b) of the Affordable Care Act and also proposed 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 proposed 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 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 regulation at Sec.  412.105(f)(1)(ii)(E) includes a 
reference to Sec.  413.78(g)(6); therefore, no proposed change was 
needed to this section.
    Comment: One commenter supported CMS' proposed changes with regard 
to implementation of section 5504 of the Affordable Care Act. Other 
commenters objected to CMS' interpretation that section 5504 is fully 
prospective with an effective date of July 1, 2010, and that CMS' 
proposed revision of Sec.  413.78(g)(6) would be with a ``retroactive 
effective date.'' The commenters asserted that CMS' interpretation is 
contrary to the plain meaning of the statute because Congress expected 
that cost reports that were settled prior to 2010 would not be 
reopened, thereby explicitly adding under section 5504(c) that if the 
cost report was not settled, and if there was a jurisdictionally proper 
appeal pending as of the date of the enactment of the Affordable Care 
Act, the provisions of section 5504 would apply. One commenter noted 
that an interpretation must ``give effect, if possible, to every clause 
and word of the statute'' (United States v. Menasche, 348 U.S. 528, 
538-39 (1955)). The commenter therefore believed that subsection (c) 
would be superfluous if section 5504 were only prospective, 
particularly considering that Congress had no need to instruct the 
Secretary not to do something that she would not have done anyway (that 
is, reopen cost reports without a statutory mandate). The commenters 
asserted that CMS, in the August 3, 2010 proposed rule (75 FR 46385), 
initially interpreted section 5504(c) to effectively override the 
directives in sections 5504(a) and (b) and to require reopening and 
application of the new standards set forth in section 5504(a)(3) and 
section 5504(b)(2) to pre-July 1, 2010 cost reporting periods and 
patient discharges whenever a hospital had a pending, jurisdictionally 
proper appeal pending on a direct GME or IME issue as of March 23, 
2010. The commenters also did not believe it is appropriate for CMS to 
contend that section 5504 is strictly prospective but, at the same 
time, propose to clarify an amendment to the regulations at Sec.  
413.78(g)(6) ``with retroactive effect to 2010.'' One commenter argued 
that a final rule must be a ``logical outgrowth'' of the proposed rule, 
and the final regulation implemented in the November 24, 2010 final 
rule with comment period was the same as that proposed. The commenter 
surmised that CMS ``likely did not revise the final codified regulation 
in order to avoid a challenge that the final rule was not the `logical 
outgrowth' of the proposed rule,'' and asserted that CMS' proposed 
clarification of Sec.  413.78(g)(6) in the FY 2015 IPPS/LTCH PPS 
proposed rule cannot be applied prior to October 1, 2014. The 
commenters suggested that the Secretary and CMS reconsider its proposal 
to change Sec.  413.78(g)(6), and acknowledge that, as promulgated in 
the November 24, 2010 final rule with comment period, Sec.  
413.78(g)(6) required reopening of a hospital cost report for which a 
jurisdictionally proper appeal was pending regarding GME and/or IME as 
of the date of enactment of the Affordable Care Act.
    Response: We agree with the commenters that some meaning must be 
attributed to the statutory language at section 5504(c) of the 
Affordable Care Act 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. 
. . .'' Congress knows how to explicitly provide for retroactive 
application or apply new standards to pending appeals when it so 
desires. Indeed, the same statute at issue here, the Affordable Care 
Act, contains numerous sections that, unlike section 5504 of the 
Affordable Care Act, are either explicitly retroactive or expressly 
apply new standards to pending appeals. For example, section 5505 of 
the Affordable Care Act (unlike section 5504) contains explicitly 
retroactive language. Section 5505 (c)(1) of the Affordable Care Act 
states, ``[e]xcept as otherwise provided, the Secretary . . . shall 
implement the amendments made by this section in a manner so as to 
apply to cost reporting periods beginning on or after January 1, 
1983''; section 5505(c)(2) instructs that a subsection ``shall apply to 
cost reporting periods beginning on or after July 1, 2009''); section 
5505(c)(3) instructs that another subsection ``shall apply to cost 
reporting periods beginning on or after October 1, 2001''. Section 5504 
has nothing comparable to the express retroactive language which is to 
be found in section 5505. As another example, section 1556(c) is 
explicitly retroactively and expressly applies a standard to pending 
appeals, unlike section 5504 of the Affordable Care Act. Section 
1556(c) of the Affordable Care Act states, ``[t]he amendments made by 
this section shall apply with respect to claims filed under [a 1976 
statute] after January 1, 2005, that are pending on or after the date 
of enactment of this Act''. The fact that Congress was explicit when it 
intended for particular provisions of the Affordable Care Act to apply 
retroactively and/or to apply to pending proceedings, but section 5504 
of the Affordable Care Act contains no such statements, suggests that 
Congress did not intend for the new substantive standards set forth in 
sections 5504(a)(3) and (b)(2) of the Affordable Care Act to apply to 
earlier periods and discharges and/or to pending appeals. Instead, we 
can presume that Congress acted intentionally and purposely by omitting 
such language in section 5504 of the Affordable Care Act. As we 
explained in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28152 
through 28154), 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 (the new standards being that hospitals would be 
permitted 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, and if

[[Page 50121]]

more than one hospital incurs the residency training costs in a 
nonprovider setting, under certain circumstances, each hospital could 
count a proportional share of the training time that a resident spends 
training in that setting). As we stated in the November 24, 2010 final 
rule with comment period (75 FR 72136), ``Section 5504 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 [MACs] 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.''
    Therefore, we believe we were clear in the November 24, 2010 final 
rule with comment period that we did not interpret section 5504(c) to 
override the clear directives in sections 5504(a) and (b) concerning 
the substantive standards that would apply to pre- and post-July 1, 
2010 cost reporting periods and discharges. We rejected the notion 
there that section 5504(c) requires reopening and application of the 
new, more generous standard (which sections 5504(a)(3) and (b)(2) 
created and expressly made ``effective'' only for cost reporting 
periods beginning and discharges occurring ``on or after July 1, 
2010'') to earlier periods and discharges whenever a hospital had a 
jurisdictionally proper appeal pending on direct or indirect GME as of 
the Affordable Care Act's enactment. Since that time, we have 
maintained our position that the new, more generous standard set forth 
in sections 5504(a)(3) and (b)(2) only apply to cost reporting periods 
beginning, and discharges occurring, ``on or after July 1, 2010.'' We 
have at the same time noted that Congress chose in sections 5504(a) and 
(b) to explicitly and pointedly retain the longstanding statutory 
substantive standard (that requires a single hospital to incur ``all, 
or substantially all'' of the costs of the nonprovider residency 
training before it may receive Medicare direct GME and IME payment for 
that training), and make it applicable to pre-July 1, 2010 cost 
reporting periods and discharges, while creating a new, more generous 
standard which it directed would apply to later periods and discharges. 
It is Congress who decided that the July 1, 2010 date would be 
significant, and we are honoring the choice Congress made. Therefore, 
we disagree with the commenters that it is inappropriate for CMS to 
propose to clarify an amendment to the regulations at Sec.  
413.78(g)(6) ``with retroactive effect to 2010.'' Moreover, we have 
consistently expressed our position that the new substantive standards 
which sections 5504(a)(3) and (b)(2) added to the Medicare statute 
apply only to cost reporting periods beginning, and discharges 
occurring, on or after July 1, 2010 (75 FR 46385) and 75 FR 72136). 
Accordingly, our proposed clarification of Sec.  413.78(g)(6) 
reiterating our existing interpretation of the statutory amendments 
made by sections 5504(a) and (b) of the Affordable Care Act is 
appropriate.
    Commenters argued that CMS' statements in the August 3, 2010 
proposed rule initially interpreted section 5504(c) to mean that 
section 5504 could be applied retroactively to hospitals that indeed 
had a pending, jurisdictionally proper appeal pending on a direct GME 
or IME issue as of March 23, 2010. However, the commenters 
misapprehended the position we took in the August 3, 2010 proposed 
rule. While it is true that the proposed rule defined the meaning of 
the term ``pending, jurisdictionally proper appeal'' that appears in 
section 5504(c) of the Affordable Care (75 FR 46385), it did not state 
that reopening was required when a hospital had such an appeal pending 
as of the date of enactment or in other circumstances. In addition, it 
never stated that the new standard set forth in sections 5504(a) and 
(b) could ever apply to a cost reporting period beginning prior to July 
1, 2010 for direct GME purposes, or to a discharge occurring before 
July 1, 2010 for IME purposes. Quite to the contrary, the proposed rule 
noted that ``[f]or direct GME payments, [section 5504] is effective for 
cost reporting periods beginning on or after July 1, 2010; for IME 
payments, the provision is effective for discharges occurring on or 
after July 1, 2010'' (75 FR 46385 and 46386 (along similar lines)), and 
advised that: ``We are proposing to revise our regulation at Sec.  
413.75(b) accordingly to conform to these new statutory requirements 
[in section 5504 of the Affordable Care Act]. Specifically, we are 
proposing to revise the existing definition of ``all or substantially 
all of the costs for the training program in the nonhospital setting'' 
to be effective for cost reporting periods beginning on or after July 
1, 2007, and before July 1, 2010. We also are proposing to add a new 
Sec.  413.78(g) that details how hospitals should count residents that 
train in nonhospital sites for cost reporting periods beginning on or 
after July 1, 2010.''
    Therefore, the August 3, 2010 proposed rule recognized that section 
5504 required pre-July 1, 2010 cost reporting periods and discharges to 
be subject to the longstanding requirement that a single hospital incur 
all or substantially all of the costs of residents training in a 
nonprovider site, not the new, more generous standard set forth in 
section 5504(a) and (b) of the Affordable Care Act. As noted, in the 
November 24, 2010 final rule, in response to comments, the Secretary 
only made it even more explicit that she did not read section 5504(c) 
to require her to retroactively apply the new substantive standard in 
sections 5504(a) and (b) to pre-July 1, 2010 cost reporting periods and 
discharges (75 FR 72136 and 72153).
    At least one court has held that our reading of section 5504 and 
the implementing regulation is reasonable and has rejected many of the 
arguments that the commenters made. The Eastern District of Michigan 
has recognized that ``while section 5504(c) [of the Affordable Care 
Act] establishes that if there was not a pending appeal concerning a 
final cost report when the Affordable Care Act was enacted, that cost 
report will not be reopened, section 5504(c) does not establish that if 
there was a pending appeal concerning a final cost report when the 
Affordable Care Act was enacted, that cost report must be reopened; on 
this point the statute is silent,'' and ``Congress expressly indicated 
in the statute itself what standards apply to what cost periods'' in 
sections 5504(a) and (b) of the Affordable Care Act (Covenant Medical 
Center v. Sebelius, No. 12-12901, 2014 WL 340247, at *8-*10 (E.D. Mich. 
Jan. 30, 2014)). The district court also noted that our reading of 
section 5504 gives effect to every clause and word of the provision as 
it honors the effective dates and standards prescribed in sections 
5504(a) and (b). The court further noted that the current version of 42 
CFR 413.78(g)(6) is ``almost identical to section 5504(c)'' and held 
that CMS' ``interpretation of Sec.  5504(c) is not undermined by her 
identical conclusion regarding section 413.78(g)(6)'' (Covenant Medical 
Center v. Sebelius, No. 12-12901, 2014 WL 340247, at *11-12 (E.D. Mich. 
Jan. 30, 2014)). Therefore,

[[Page 50122]]

we disagree with the commenter that surmised that, in the November 24, 
2010 final rule with comment period, CMS ``likely did not revise the 
final codified regulation in order to avoid a challenge that the final 
rule was not the `logical outgrowth' of the proposed rule.'' Rather, as 
the court noted, the current version of 42 CFR 413.78(g)(6) is ``almost 
identical to section 5504(c)'' and held that CMS' ``interpretation of 
Sec.  5504(c) is not undermined by her identical conclusion regarding 
section 413.78(g)(6)'' (Covenant Medical Center v. Sebelius, No. 12-
12901, 2014 WL 340247, at *11-12 (E.D. Mich. Jan. 30, 2014)). We had 
intended that the language under Sec.  413.78(g)(6) do no more than 
simply paraphrase the language in section 5504(c) of the Affordable 
Care Act. Accordingly, we did not believe that it was necessary to 
revise the final regulation in the November 24, 2010 final rule with 
comment period. Nevertheless, as stated in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28153), because we have received questions about 
the applicability of section 5504(c) and the associated regulation text 
at Sec.  413.78(g)(6), we took the opportunity to revisit the 
regulations and clarify them so that they would be even more consistent 
with the language at section 5504(c).
    Comment: One commenter asked that CMS clarify that section 5504 
``filled a gap in the law'' regarding funding of residency training 
occurring in a nonprovider setting ``by establishing for the first time 
the definitive law regarding Medicare payment for medical education to 
hospitals jointly funding training in a nonprovider setting,'' and that 
section 5504 applies to hospitals with jurisdictionally proper appeals 
regarding that issue that were pending as of the date of the enactment 
of the Affordable Care Act.
    Response: We do not agree with the commenter that section 5504 
``filled a gap in the law'' regarding more than one hospital incurring 
the costs of training residents in a nonprovider setting. Beginning at 
least as early as 1988, the Secretary has 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. Indeed, in Borgess Medical Center 
v. Sebelius (966 F.Supp.2d 1 at *6-*7 (D.D.C. 2013)), a court noted 
that CMS had done so in 1998, 2003, and 2007 preambles of rules. 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), the 
May 11, 2007 final rule (72 FR 26953 and 26969), the August 1, 2003 
final rule (68 FR 45439), the July 31, 1998 final rule (63 FR 40954 and 
40995), the September 29, 1989 final rule (54 FR 40286 and 40288), and 
the September 21, 1988 proposed rule (53 FR 36589 and 36591). 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. Moreover, we continue to believe the language in 
paragraph (g)(6) of Sec.  413.78 (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 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 1, 2010 patient discharges. We had intended that 
the language under Sec.  413.78(g)(6) do no more than simply paraphrase 
the language in section 5504(c) of the Affordable Care Act.
    Accordingly, after consideration of the comments we received, we 
are not making any changes to our proposed clarification to the 
regulatory language at Sec.  413.78(g)(6). The regulatory language at 
Sec.  413.78(g)(6) states that the provisions of paragraphs (g)(1)(ii), 
(g)(2), (g)(3), and (g)(5) of the 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 the section. 
The IME regulations at Sec.  412.105(f)(1)(ii)(E) include a reference 
to Sec.  413.78(g)(6); therefore, no change is needed to this section 
of the IME regulations.
5. 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 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

[[Page 50123]]

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 stated in the FY 2015 IPPS/
LTCH PPS proposed rule our belief that it was 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, in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28155), we proposed that, effective for section 5506 application 
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

[[Page 50124]]

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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28156), we stated 
that, 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 proposed 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 final rule where we discuss our proposal and final policy 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 proposed 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 proposed 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 
existing 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 displaced FTE residents complete their training. 
In the proposed rule (79 FR 28156), we stated that, 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 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.
    Comment: Several commenters supported the proposal and agreed that 
applying the ``no duplication of slots'' policy on a national level, as 
opposed to a hospital-specific level, results in a very complex and 
unnecessarily burdensome review process which further delays the 
permanent distribution of slots from a closed hospital.
    Response: We appreciate the commenters' support.
    Comment: Two commenters opposed the proposal because they believed 
it added an unnecessary restriction to the effective dates of permanent 
section 5506 awards received under Ranking Criteria Four through Eight 
for hospitals that have temporary cap adjustments under Sec.  413.79(h) 
and are training displaced residents from the closed hospital. The 
commenters noted that the proposal would require a hospital that has a 
temporary cap adjustment and is training a displaced resident from the 
closed hospital and is awarded slots under Ranking Criteria Four 
through Eight to wait until the displaced resident graduates in order 
to receive the permanent cap slot. On the other hand, if a hospital 
does not have a temporary cap adjustment and is awarded slots under 
Ranking Criteria Four through Eight, those slots 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 without 
consideration of any temporary cap adjustment at another hospital. The 
commenters asserted that only Ranking Criteria One and Three are 
specifically tied to the training of displaced residents, and if a 
hospital applies under Ranking Criteria Four through Eight, they are, 
in fact, acknowledging that they do not qualify under Ranking Criterion 
One or Three and therefore should not be subject to limitations of the 
effective date of its award related to a temporary cap adjustment 
associated with a displaced resident. The commenters suggested that the 
revised effective date of slots awarded under Ranking Criteria Four 
through Eight apply for all hospitals and award slots, regardless of 
whether the hospitals received a temporary cap adjustment under Sec.  
413.79(h), and that the ``no duplication of slots'' policy should not 
apply when section 5506 slots are being awarded for a completely 
different program or purpose than the program for which the hospital 
was awarded a temporary cap adjustment.
    Response: We appreciates the commenters' concerns and suggestions 
regarding our application of the ``no duplication of slots'' policy as 
it applies to the effective dates for Ranking Criterion Four through 
Eight. However, we continue to believe that allowing a hospital to 
receive a permanent cap slot under section 5506 while at the same time 
receiving a temporary cap adjustment under Sec.  413.79(h) would be 
contrary to the statutory directive of the ``no duplication of slots'' 
policy because as long as the displaced resident is still training and 
the hospital has a temporary cap adjustment for that resident and is 
receiving IME and direct GME payments, that slot is still in use by the 
hospital. 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'' (emphasis 
added). Thus, we disagree with the commenters' overly broad 
interpretation of the statutory

[[Page 50125]]

language, and continue to believe that the statute does not allow for 
duplication of slots within a hospital overall, even when those slots 
are awarded for completely different programs or purposes. In addition, 
prior to our proposal, our existing policy regarding effective dates 
for slots awarded under Ranking Criteria Four through Eight has been 
that where a temporary cap adjustment was in effect for displaced 
residents from a closed hospital, the effective dates for awards under 
Ranking Criteria Four through Eight are tied to the graduation dates of 
the displaced residents because as long as a hospital was awarded a 
temporary cap adjustment for a particular displaced resident, the slot 
associated with that resident is not yet available, regardless of the 
ranking criteria or the program or purpose for which the permanent 
section 5506 FTE cap slot was awarded. We believe that our proposed 
policy strikes the necessary balance of avoiding unnecessary complexity 
in the review of section 5506 applications and maintaining a policy 
that conforms to the statutory requirement for ``no duplication of 
slots'' under section 5506.
    Consistent with policy implemented in subregulatory guidance in 
Change Request 7746, Transmittal 1171 (issued January 31, 2013; http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R1171OTN.pdf) where we stated that slots awarded under a given round 
may only replace temporary FTE cap adjustments associated with 
residents displaced from that same round, we would like to clarify that 
our proposed application of the ``no duplication of slots'' policy 
would only apply for temporary cap adjustments and permanent section 
5506 FTE cap slots associated with the same closed hospital (Sec.  
413.79(h)). In addition, we note that, as we stated in the proposed 
rule (79 FR 28156), 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 existing 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 
displaced FTE residents complete their training. That is, so long as a 
hospital continues to receive a temporary cap adjustment under Sec.  
413.79(h) for residents displaced from a specific closed hospital, that 
hospital's section 5506 award under Ranking Criteria Four through Eight 
associated with that specific closed hospital would also not be fully 
effective. Stating it simply, if a hospital has a temporary FTE cap 
adjustment of three FTEs due to the closure of Hospital Z, and the 
hospital is also awarded three permanent FTE cap slots under the 
section 5506 Round associated with Hospital Z, this hospital's 
permanent FTE cap adjustment of three would not take full effect until 
all three displaced FTEs from Hospital Z graduate, when the hospital's 
temporary FTE cap would go down to zero (Sec.  413.79(h)). When 
determining the effective dates of section 5506 FTE cap slots awarded 
under Ranking Criteria Four through Eight for a given Round of section 
5506 from a given closed hospital, the hospital receiving the section 
5506 slots would consider (1) whether it has a temporary cap adjustment 
associated with residents displaced from the closed hospital associated 
with that Round of section 5506, and (2) the difference (if any) 
between its section 5506 FTE cap slot award from that closed hospital, 
and the temporary cap adjustment associated with the same closed 
hospital. If a hospital is receiving a temporary cap adjustment for 
training displaced residents and its section 5506 award is less than or 
equal to the temporary cap adjustment, the section 5506 slots would 
become effective 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, or the July 1 after 
displaced residents complete their training. If a hospital is receiving 
a temporary cap adjustment for training displaced residents and its 
section 5506 award is greater than the temporary cap adjustment, the 
number of slots by which the section 5506 award exceeds the temporary 
cap adjustment would be available for use when the hospital can 
demonstrate to its MAC that the slots associated with the new program 
or program expansion are filled and, therefore, are needed as of a 
particular date (usually July 1, possibly retroactive). The effective 
dates for those slots in excess of the hospital's temporary cap 
adjustment in a given round would not hinge on whether a displaced 
resident has completed his/her training and, therefore, the temporary 
cap adjustment associated with that resident expires because there 
would be no duplication of slots for that hospital with respect to the 
slots awarded in excess of the hospital's temporary cap adjustment. 
However, the portion of the hospital's section 5506 award that is equal 
to or less than its temporary cap adjustment for displaced residents 
associated with the closed hospital from the same round would be 
subject to the ``no duplication of FTE slots'' requirement, and those 
section 5506 slot awards would become available only as an equivalent 
amount of temporary cap adjustment expires. The following examples 
illustrate the interplay between section 5506 slots awarded and 
temporary cap adjustments under Sec.  413.79(h) associated with the 
same closed hospital:

    Example 1:  Hospital A takes in two displaced FTE residents from 
a closed teaching hospital for which the hospital is receiving a 
temporary cap adjustment of 2.0 FTEs under Sec.  413.79(h). One 
resident is graduating on June 30, 2016, and the second resident is 
graduating on June 30, 2018. When the section 5506 Round is 
announced, Hospital A also applies for two slots to expand an 
internal medicine program under Ranking Criterion Five. In January 
2017, CMS awards two permanent slots to the hospital under Ranking 
Criterion Five. Hospital A would consider (1) whether it has a 
temporary cap adjustment associated with residents displaced from 
the closed hospital associated with that Round of section 5506 (yes, 
2.0 FTEs), and (2) the difference (if any) between its section 5506 
FTE cap slot award from that closed hospital, and the temporary cap 
adjustment associated with the same closed hospital (2.0 temporary 
cap--2.0 section 5506 award = 0, no difference). Because Hospital 
A's section 5506 award is (less than or) equal to the temporary cap 
adjustment, the section 5506 slots would become effective on a flow 
basis; that is, effective after each displaced resident completes 
his/her training, and as the temporary cap adjustment associated 
with that resident expires. For the program year starting July 1, 
2017, Hospital A 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, Hospital A 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.
    Example 2:  Hospital B takes in two displaced FTE residents from 
a closed teaching hospital for which Hospital B is receiving a 
temporary cap adjustment of 2.0 FTEs under Sec.  413.79(h). One 
resident is graduating on June 30, 2018, and the second resident is 
graduating on June 30, 2019. When the section 5506 Round is 
announced, Hospital B applies for five slots to expand a geriatrics 
program under Ranking Criterion Four. In January 2017, CMS awards 
five permanent slots to Hospital B under Ranking Criterion Four. 
Hospital B would consider (1) whether it has a temporary cap 
adjustment

[[Page 50126]]

associated with residents displaced from the closed hospital 
associated with that Round of section 5506 (yes, 2.0 FTEs), and (2) 
the difference (if any) between its section 5506 FTE cap slot award 
from that closed hospital, and the temporary cap adjustment 
associated with the same closed hospital (2.0 temporary cap--5.0 
section 5506 award = 3, absolute value). Because Hospital B's 
section 5506 award is greater than the temporary cap adjustment, 
then the number of slots by which the section 5506 award exceeds the 
temporary cap adjustment would be available for use when the 
hospital can demonstrate to its MAC that the slots associated with 
the new program or program expansion are filled and, therefore, are 
needed. For the program year starting July 1, 2017, Hospital B 
successfully demonstrates to the MAC that it filled all five 
additional geriatrics positions. Even though the displaced residents 
did not yet graduate, the MAC may approve three slots on a permanent 
basis effective July 1, 2016 because Hospital B's section 5506 award 
exceeds its temporary cap adjustment and Hospital B can use up to 
three of its five slots while the displaced residents are still 
training. However, Hospital B would have to wait until July 1, 2018, 
to receive from the MAC the fourth slot for the geriatrics program 
because the first displaced FTE resident is not graduating until 
June 30, 2018, and would then have to wait until July 1, 2019, to 
receive from the MAC the fifth slot for the geriatrics program 
because the second displaced resident is not graduating until June 
30, 2019.
    Example 3:  Hospital C does not take in any displaced residents 
and does not receive a temporary cap adjustment under Sec.  
413.79(h). When the section 5506 Round is announced, Hospital C 
applies for five slots to expand geriatrics program under Ranking 
Criterion Four. In January 2017, CMS awards five permanent slots to 
Hospital C under Ranking Criterion Four. For the program year 
starting July 1, 2017, Hospital C successfully demonstrates to the 
MAC that it filled all five additional geriatrics positions. Because 
Hospital C did not receive a temporary cap adjustment, there would 
be no need to consider displaced residents at other hospitals when 
awarding permanent slots and determining effective dates under 
section 5506 for Hospital C. Therefore, Hospital C could receive a 
permanent adjustment of five FTEs to its cap for training residents 
in its geriatrics program effective July 1, 2017.
    With regard to a hospital that is training displaced FTE 
residents, has a temporary cap adjustment under Sec.  413.79(h), and 
also applies both under Ranking Criteria One or Three, and under 
Ranking Criteria Four through Eight, the current policy with regard 
to the effective date of slots awarded under Ranking Criteria One 
and Three would still apply, and would not impact the policy 
described above for Ranking Criteria Four through Eight. That is, as 
stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53443), slots 
awarded under Ranking Criteria One or Three would continue to become 
permanent (or effective) on a flow basis as displaced FTEs finish 
their training programs. If a hospital has a temporary cap 
adjustment under Sec.  413.79(h) and is awarded slots under Ranking 
Criteria One or Three for training those displaced residents, then 
as the displaced FTE residents graduate, an equivalent amount of 
permanent section 5506 slots can become effective under Ranking 
Criterion One or Three (thereby avoiding duplication of FTE cap 
slots). If the amount of section 5506 slots awarded under Ranking 
Criterion One or Three is equal to the amount of the temporary cap 
adjustment, there would be no concern of duplication of FTE slots 
with respect to a hospital's other awards under Ranking Criteria 
Four through Eight because ``no duplication'' would already be 
addressed with regard to slots awarded within Ranking Criterion One 
or Three. Accordingly, other slots that the hospital is awarded 
under Ranking Criteria Four through Eight would not depend on 
whether a displaced resident has completed his/her training and, 
therefore, would be made available for use when the hospital can 
demonstrate to its MAC that the slots associated with the new 
program or program expansion are filled and, therefore, are needed. 
The following example illustrates this policy:
    Example Four:  Hospital D takes in two displaced FTE residents 
from a closed teaching hospital for which Hospital D is receiving a 
temporary cap adjustment of 2.0 FTEs under Sec.  413.79(h). One 
resident is graduating on June 30, 2018, and the second resident is 
graduating on June 30, 2019. When the section 5506 Round is 
announced, Hospital D applies for two slots under Ranking Criterion 
Three, and also applies for five slots to expand a geriatrics 
program under Ranking Criterion Four. In January 2017, CMS awards to 
Hospital D two permanent slots under Ranking Criterion Three, and 
five permanent slots under Ranking Criterion Four. With regard to 
the effective dates of the slots awarded under Ranking Criteria Four 
through Eight, Hospital D would consider (1) whether it has a 
temporary cap adjustment associated with residents displaced from 
the closed hospital associated with that Round of section 5506 (yes, 
2.0 FTEs), and (2) the difference (if any) between its section 5506 
FTE cap slot award from that closed hospital, and the temporary cap 
adjustment associated with the same closed hospital (2.0 temporary 
cap--7.0 section 5506 award = 5, absolute value). Because Hospital 
D's section 5506 award is greater than the temporary cap adjustment, 
the number of slots by which the section 5506 award exceeds the 
temporary cap adjustment (5 slots) would be available for use when 
Hospital D can demonstrate to its MAC that the slots associated with 
the new program or program expansion are filled and, therefore, are 
needed. For the program year starting July 1, 2017, Hospital D 
successfully demonstrates to the MAC that it filled all five 
additional geriatrics positions. Even though the displaced residents 
did not yet graduate, the MAC may approve all five slots on a 
permanent basis effective July 1, 2017, because Hospital D's section 
5506 award exceeds its temporary cap adjustment by five slots and 
the amount of section 5506 slots awarded under Ranking Criterion 
Three is equal to the amount of the temporary cap adjustment. 
Therefore, ``no duplication'' is already addressed with regard to 
slots awarded within Ranking Criterion Three. On July 1, 2018, one 
displaced FTE graduated, and if Hospital D can demonstrate to the 
MAC that it filled a slot to replace the displaced resident under 
Ranking Criterion Three, Hospital D may receive from the MAC one 
permanent slot awarded under Ranking Criterion Three effective on 
that date. Similarly, on July 1, 2019, when the second displaced 
resident graduates, and Hospital D's temporary cap adjustment goes 
down to zero, if Hospital D recruits an additional resident to 
replace that second displaced resident, Hospital D may receive from 
the MAC its final permanent slot awarded under Ranking Criterion 
Three effective on that date.

    However, if a hospital's number of permanent slots awarded under 
section 5506 Ranking Criterion One or Three is less than its temporary 
cap adjustment, and the hospital is also awarded slots under Ranking 
Criteria Four through Eight, the amount of the section 5506 slots 
awarded under Ranking Criterion Four through Eight that is equal to the 
remaining portion of the temporary cap adjustment would become 
effective 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 on the July 1 after the 
appropriate amount of displaced residents complete their training.
    After consideration of the public comments we received, we are 
finalizing, as proposed, the policy that effective for section 5506 
application rounds announced on or after October 1, 2014, the statutory 
provision at section 5506(d) requiring the Secretary when awarding 
slots under section 5506 to consider any temporary cap adjustment to a 
hospital's FTE cap under Sec.  413.79(h) 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 change, we are finalizing 
our proposal 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). However, if a 
hospital is receiving a temporary cap adjustment under Sec.  413.79(h), 
we would consider

[[Page 50127]]

the number of displaced residents in determining the effective date of 
the slots awarded under section 5506 such that as long as a hospital 
continues to receive a temporary cap adjustment under Sec.  413.79(h) 
for residents displaced from a specific closed hospital, that 
hospital's section 5506 award under Ranking Criteria Four through Eight 
associated with that specific closed hospital would also not be fully 
effective. When determining the effective date of section 5506 FTE cap 
slots awarded under Ranking Criteria Four through Eight for a given 
round of section 5506 from a given closed hospital, the hospital 
receiving the section 5506 slots would consider (1) whether it has a 
temporary cap adjustment associated with residents displaced from the 
closed hospital associated with that round of section 5506, and (2) the 
difference (if any) between its section 5506 FTE cap slot award from 
that closed hospital, and the temporary cap adjustment associated with 
the same closed hospital. If a hospital is receiving a temporary cap 
adjustment for training displaced residents and its section 5506 award 
is less than or equal to the temporary cap adjustment, the section 5506 
slots would become effective 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 or the 
July 1 after displaced residents complete their training. If a hospital 
is receiving a temporary cap adjustment for training displaced 
residents, and its section 5506 award is greater than the temporary cap 
adjustment, the number of slots by which the section 5506 award exceeds 
the temporary cap adjustment would be available for use when the 
hospital can demonstrate to its MAC that the slots associated with the 
new program or program expansion are filled and, therefore, are needed 
as of a particular date (usually July 1, possibly retroactive). The 
effective dates for those slots in excess of the hospital's section 
5506 award in a given round would not depend on whether a displaced 
resident has completed his/her training. However, the portion of the 
hospital's section 5506 award that is equal to or less than its 
temporary cap adjustment for displaced residents associated with the 
closed hospital from the same round would continue to be subject the 
``no duplication of FTE slots'' requirement, and the section 5506 slots 
would become available only as an equivalent amount of temporary cap 
adjustment expires.
    We did not propose 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 greater detail in the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53437 through 53445).
b. Removal of 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 be 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 
and 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

[[Page 50128]]

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, in the FY 2015 IPPS/LTCH 
PPS proposed rule (79 FR 28158), we proposed 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 did not propose 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 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 proposed 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 proposed 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 proposed to remove the seamless requirement 
currently included as part of Ranking Criterion One or Three. We also 
proposed 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.''
    Comment: Commenters supported the proposal to remove the seamless 
requirement for slots awarded under Ranking Criteria One and Three 
effective for section 5506 application rounds announced on or after 
October 1, 2014. One commenter stated that, in addition to complicating 
the CMS review process of section 5506 applications, the seamless 
requirement created an administrative burden for hospitals applying 
under Ranking Criteria One and Three. Another commenter stated it 
supported removing the seamless requirement because it has become very 
complicated and burdensome for hospitals that legitimately plan to 
continue training residents in a program once the displaced residents 
training in that program graduate. However, commenters requested that 
CMS ``provide clear and consistent guidance'' to explain the type of 
documentation that would meet the requirement that a hospital has made 
a commitment to take over the closed hospital's program or has made the 
commitment to permanently expand their own residency training program 
resulting from taking over part of a closed hospital's program.
    Response: We thank the commenters for their support of our proposed 
policy to remove the seamless requirement under Ranking Criteria One 
and Three. We are finalizing the policy as proposed. Effective for 
section 5506 rounds announced on or after October 1, 2014, we are 
removing the seamless requirement previously required as part of 
Ranking Criterion One and Three. We are removing from the CMS 
Application Form the following language: ``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.'' We are adding to the CMS 
Application Form the following language 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).''
    In response to the commenters' request that CMS ``provide clear and 
consistent guidance'' to explain the type of documentation that would 
meet the requirement under Ranking Criterion One or Three, commenters 
should submit documentation as part of their application which 
indicates a commitment to take over the closed hospital's program or 
permanently expand their own residency training program resulting from 
taking over part of a closed hospital's program. We believe that the 
documentation that the hospital submits to demonstrate the likelihood 
that it would fill the requested slots under Demonstrated Likelihood 
Criterion 2 is sufficient. Demonstrated Likelihood Criterion 2 is for 
taking over all or part of an existing residency program from the 
closed hospital, or expanding an existing residency program. Applicants 
should refer to the description of documentation included on the CMS 
Application Form under ``Demonstrated Likelihood Criterion 2: Taking 
Over All or Part of an Existing Residency Program from the Closed 
Hospital, or Expanding an Existing Residency Program,'' for examples of 
acceptable documentation. For example, if a hospital is applying under 
Ranking Criterion Three because it is

[[Page 50129]]

permanently expanding its surgery program as a result of training 
residents displaced from a closed hospital's surgery program and it has 
submitted documentation to the accrediting body requesting approval of 
additional positions, or it has already received approval from the 
accrediting body for the expansion, such documentation would meet the 
requirement that a hospital applying under Ranking Criterion Three has 
made the commitment to permanently expand its own surgery program as a 
result of training displaced residents.
c. 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 
indicated 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 
final 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 the 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 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, 
and as of the issuance of the FY 2015 IPPS/LTCH PPS proposed rule, we 
had 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, in the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 28159 through 28160), we proposed 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 proposed to revise Ranking Criterion Eight so that 
it reads as follows:

[[Page 50130]]

    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 proposed 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 
proposed 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.
    Comment: One commenter supported CMS' proposal to eliminate 
awarding of FTE slots for cap relief because doing so would increase 
the chance for a rural hospital that is located near very few teaching 
hospitals in the same or contiguous CBSA to apply under Level Priority 
Category One, to be awarded slots from a closed teaching hospital in 
the same state or region. One commenter supported the proposal because 
it would make more FTE resident slots available to award to other 
hospitals seeking to establish or expand a primary care or general 
surgery program.
    Many commenters opposed CMS' proposal to eliminate awarding of FTE 
slots for cap relief. They asserted that hospitals are, in fact, being 
awarded slots under Ranking Criterion Eight for cap relief, albeit 
sparingly, and therefore CMS should not remove hospitals' one and only 
opportunity to receive funding for training residents above their caps. 
Several commenters offered suggestions and alternate ways to modify 
Ranking Criterion Eight in order to ease CMS' administrative burden. 
One commenter noted that under section 5506, the only requirement that 
Congress mandated was that hospitals need to demonstrate the likelihood 
of filling the slots within 3 years, and that hospitals applying for 
cap relief meet this requirement.
    Response: We appreciate the commenters' support and the numerous 
comments and suggestions regarding the awarding of FTE slots under 
section 5506 for cap relief. One of the objectives behind our proposal 
to eliminate awarding of slots for cap relief was to find a way to 
reduce the number of applications submitted to CMS, most of which are 
not approved for awards due to the limited number of slots available 
for redistribution. By eliminating the possibility of applying for cap 
relief, the volume of applications that CMS would receive, process, and 
review would be reduced, allowing CMS to award slots in a more timely 
fashion.
    While we appreciate that hospitals are training residents above 
their caps and that being awarded section 5506 slots for general cap 
relief would be a welcome opportunity to receive some funding for these 
positions, we believe that general cap relief is inconsistent with the 
intent of section 5506 and incompatible with the underlying principles 
of section 5506. We continue to believe that Congress intended that 
section 5506 be used to maintain the level of residents training in the 
area after the closure of a hospital by awarding permanent FTE cap 
slots to the hospital that take in and continue to train displaced 
residents from the closed hospital. In addition, the regulations 
promulgated under section 5506 are consistent with current policy goals 
to focus on increasing training in primary care and general surgery. By 
eliminating cap relief for residents that are already being trained by 
a hospital, more slots would be available to award to other hospitals 
in the same State as the closed hospital seeking to establish or expand 
a primary care or general surgery program. Moreover, we believe 
awarding slots for cap relief is contrary to the historical premise of 
Medicare GME payments, as it allows hospitals to shift costs borne by 
other means to the Medicare Trust Fund. Furthermore, we continue to 
believe that Congress did not intend for section 5506 awards to be used 
to pay hospitals for residents that they were already training, 
possibly even before the closure of the hospital whose slots are being 
redistributed.
    For the reasons mentioned above, coupled with our efforts to 
streamline the review process and facilitate publishing section 5506 
awards in a more timely manner, we are finalizing our proposal 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, and would no longer be 
applicable to hospitals seeking cap slots for cap relief. In light of 
the modifications to Ranking Criterion Eight, we also are finalizing 
our proposed change to Ranking Criteria Seven to correctly specify the 
types of applications that would properly be made under this Ranking 
Criterion by removing the reference to cap relief from Ranking 
Criterion Seven.
    Accordingly, we are finalizing Ranking Criterion Seven and Ranking 
Criterion Eight as follows:
    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.
    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.
    We are making changes to the Section 5506 Application Form to 
remove language associated with cap relief, including removal of the 
existing Demonstrated Likelihood Criterin 3, which was for cap relief.
    Separately, we also proposed 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 
proposed 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 the proposed rule was posted on the CMS 
Web site, we were aware of one instance in which CMS erroneously 
reduced a hospital's FTE resident cap contrary to this statutory 
exception. We proposed 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 proposed to 
revise Ranking Criterion One as follows:
    [square] Ranking Criterion One. The applying hospital is requesting 
the

[[Page 50131]]

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.
    Comment: One commenter asked that CMS clarify that this 
modification to Ranking Criterion One does not override the statutory 
priority of the categories included in the text of section 5506. The 
commenter suggested that CMS clarify this by indicating that the 
applying hospitals located within or contiguous to the same CBSA as the 
closed hospital would be eligible to receive cap slots, regardless of 
their ranking criteria before an applying hospital that meets the new 
second clause included within Ranking Criterion One but is not located 
within the same or contiguous CBSA as the closed hospital.
    Response: We are clarifying, as the commenter requested, that the 
applying hospitals located within or contiguous to the same CBSA as the 
closed hospital would be eligible to receive cap slots, regardless of 
their ranking criteria, before an applying hospital that meets the new 
second clause included within Ranking Criterion One but is not located 
within the same or contiguous CBSA as the closed hospital.
    Comment: One commenter expressed concern that the proposed change 
to Ranking Criterion One does not ensure that a hospital that is 
located more than 70 miles from any other medical education program, 
and whose FTE resident caps were erroneously reduced by CMS under 
section 1886(h)(8)(A)(i) of the Act, can regain its lost slots when a 
teaching hospital closes in another part of its State. The commenter 
noted that CMS must follow the statutory categories in distributing 
slots under section 5506, and that, generally, the number of slots 
requested under the first priority category (same or contiguous CBSA as 
the closed hospital) far exceeds the number of slots available from the 
closed hospital, leaving no slots available for hospitals in the second 
or other priority category levels. The commenter cautioned that unless 
CMS takes steps to ensure that slots are awarded not only to hospitals 
in the first priority category, but also to hospitals in the second 
(same state) or third (same region) priority categories, the proposed 
change to Ranking Criterion One will not help a hospital that is 
located more than 70 miles from the nearest medical education program. 
The commenter stated that ``CMS has several options in the FY 2015 IPPS 
final rule to ensure that hospitals located in the same State, and not 
just the same or contiguous CBSA as the closed hospital, have an 
opportunity to add new resident slots under section 5506.'' The 
commenter made the following recommendations for CMS to finalize:
    (1) In addition to finalizing the proposal to eliminate cap relief 
from Ranking Criterion Eight, CMS could further revise Ranking Criteria 
Seven and Eight so that even fewer hospitals located in the same or 
contiguous CBSA can satisfy either criterion. CMS could further narrow 
its Demonstrated Likelihood Criteria to achieve the same result.
    (2) CMS could construe the language at section 
1886(h)(4)(H)(vi)(II) of the Act to require the agency to follow the 
statutory priority categories, but to do so in a manner that at least 
some slots are awarded to hospitals within each of the first three 
priority categories, such as making a large proportion of slots 
available for the first priority category, and then successively 
smaller proportions of the slots available for the second and third 
priority categories.
    (3) CMS could balance the competing statutory importance expressed 
within the statutory priority categories with the need to maintain and 
grow primary care residency programs in rural and underserved areas and 
maintain an adequate distribution of physicians, in general. CMS could 
conclude that one way to recognize this balance is to ensure that a 
hospital that had less than 250 beds and that was located in a rural 
area and had its FTE resident cap erroneously reduced by CMS would be 
awarded some of those slots after another teaching hospital in its 
State closes, even if the closed hospital is not located in the same or 
contiguous CBSA as such a hospital.
    (4) CMS could conclude that section 1886(h)(4)(H)(vi)(II) of the 
Act did not contemplate the exact scenario where a hospital's FTE 
resident caps were erroneously reduced by CMS under section 
1886(h)(8)(A)(i) of the Act, and that the hospital's remote location 
means it almost certainly will never be in the first priority level 
category.
    Response: We regret that the commenter believes that CMS' proposed 
revision to Ranking Criterion One is not sufficient to rectify the 
scenario where a hospital's FTE resident caps were erroneously reduced 
by CMS under section 1886(h)(8)(A)(i) of the Act. We do not agree with 
the commenter's options because each of the options that the commenter 
recommended would have an impact on other hospitals and stakeholders 
with an interest in how CMS implements section 5506. That is, the 
commenter's suggestions could potentially reduce the amount of slots 
available to other stakeholders. Moreover, accepting any such suggested 
options would require notice-and-comment rulemaking on each 
recommendation, respectively. We continue to believe that it is 
appropriate 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, and for 
which CMS CentralOffice was made aware of the error prior to posting of 
the FY 2015 IPPS/LTCH PPS proposed rule on the CMS Web site. Therefore, 
we are finalizing this policy, as proposed, in this final rule.
    Comment: One commenter stated that the proposed language revising 
Ranking Criterion One could lead one to believe that a hospital must 
satisfy both conditions to qualify under this criterion. To clarify 
that this is not the case, the commenter recommended that CMS modify 
the language within Ranking Criterion One by adding an ``or'' as 
follows:
    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); or, 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/LTCH PPS proposed 
rule on the CMS Web site.
    Response: We agree with the commenter that the conditions in the 
revised Ranking Criterion One are separate and distinct, and a hospital 
applying for slots under Ranking Criterion One would need to satisfy 
only one of the requirements, not both. Therefore, we are adopting the

[[Page 50132]]

commenter's suggestion of adding ``or'' between the two conditions, and 
we are modifying the language of Ranking Criterion One in the CMS 
Application Form as well.
    After consideration of the public comments we received, we are 
finalizing the following change to the text of Ranking Criterion One:
    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); OR, 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) 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

[[Page 50133]]

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:
    [square] 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.
    Comment: Commenters supported CMS' clarification that the existing 
Ranking Criterion Two includes emergency Medicare GME affiliation 
agreements.
    Response: We thank the commenters for their support. The revised 
description of Ranking Criterion Two on the CMS Application Form refers 
to both Medicare GME affiliation agreements and emergency Medicare GME 
affiliation agreements.
    The following list includes the final ranking criteria along with 
the final effective dates.
     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); OR, 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/LTCH PPS 
proposed rule on the CMS Web site. (This language reflects the 
finalized modification of Ranking Criterion One. We refer readers to 
section IV.K.5.c. of the preamble of this final rule where we discuss 
this proposed modification.)
     Effective Date: 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.
     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 the proposed rule and 
this final 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 final rule where we discuss 
this clarification.)
     Effective Date: Slots are effective with the date of the 
hospital closure.
     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).
     Effective Date: 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.
     Ranking Criterion Four: The program does not meet Ranking 
Criteria

[[Page 50134]]

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.
     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 final rule where we discuss our 
proposals and final policies to amend Ranking Criteria Seven and 
Eight.)
     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 the proposed rule to revise 
Ranking Criterion Eight. We refer readers to section IV.K.5.c. of the 
preamble of this final rule where we discuss our proposals and final 
policies to amend Ranking Criterion Eight.)
    [cir] Effective Date Policy for Ranking Criterion Four through 
Ranking Criterion Eight: If the hospital is receiving a temporary cap 
adjustment for training displaced residents and its section 5506 award 
is less than or equal to the temporary cap adjustment, the section 5506 
slots would become effective 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, or 
the July 1 after displaced residents complete their training. If the 
hospital is receiving a temporary cap adjustment for training displaced 
residents and its section 5506 award is greater than the temporary cap 
adjustment, the number of slots by which the section 5506 award exceeds 
the temporary cap adjustment would be available for use when the 
hospital can demonstrate to its MAC that the slots associated with the 
new program or program expansion are filled and, therefore, are needed 
as of a particular date (usually July 1, possibly retroactive). If the 
hospital is not receiving a temporary cap adjustment, slots would 
become effective 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).
    At the end of this GME section, we are including a revised Section 
5506 Application Form that reflects all of the final changes discussed 
above.
Out of Scope GME Comments
    We received several comments that were not related to the GME 
proposals in the FY 2015 IPPS/LTCH PPS proposed rule. Some commenters 
urged CMS to be more transparent and provide data on the effects of the 
section 5503 and the section 5506 redistributions. One commenter asked 
that CMS consider changing the calculation of the FTE cap for new 
teaching hospitals so that it is based on the final 1-year period of 
the 5-year growth window, as opposed to the entire 5 years. Another 
commenter stated that policies to redirect funding from specialty to 
primary care do not take into consideration the serious consequences of 
a potential shortage of specialty physicians, and that Medicare GME 
should fully fund the entire length of training required for initial 
board certification for neurosurgery, which is 6 to 7 years. Several 
commenters urged CMS to publish a clear statement that neither a 
hospital's PRA nor its cap-building window is triggered by the presence 
of a small number of residents performing brief rotations at the 
hospital. Another commenter asserted that second-year pharmacy 
residencies should receive Medicare pass-through reimbursement.
    We appreciate these comments. However, because we did not propose 
any changes related to these issues in the proposed rule, we consider 
these comments to be outside the scope of the proposed rule and are not 
addressing these comments at this time.

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6. 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 that 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), the 
RHC or FQHC may receive direct graduate medical education payment for 
those residents.

[[Page 50141]]

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 to state:
     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
     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, as we did 
in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28164), 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 
proposed to revise the regulations at Sec.  405.2468(f)(1) to add a 
sentence at the end of the paragraph that stated that 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), 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.
    We did not receive any public comments regarding our proposed 
clarification and policy change applicable to direct GME payments to 
FQHCs and RHCs for training residents in approved programs. Therefore, 
we are finalized this policy as proposed.

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,

[[Page 50142]]

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 Public Law 108-173, as added by section 3123(a) 
and amended by section 10313 of the Affordable Care Act). Further, the 
Secretary is required to use the same criteria and data that the 
Secretary used to determine the States under section 410A(a)(2) of 
Public Law 108-173 for purposes of the initial 5-year period. The 
Affordable Care Act also allows not more than 30 rural community 
hospitals in such States to participate in the demonstration program 
during the 5-year extension period (section 410A(g)(3) of Public Law 
108-173, as added by section 3123(a) of the Affordable Care Act and as 
further amended by section 10313 of such Act).
    We published a solicitation for applications for additional 
participants in the rural community hospital demonstration program in 
the Federal Register on August 30, 2010 (75 FR 52960). Applications 
were due on October 14, 2010. The 20 States with the lowest population 
density that 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 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

[[Page 50143]]

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 the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28166 through 28167), we proposed 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 Public Law 108-173 
was later amended by the Affordable Care Act.) The reasonable cost-
based methodology authorized by section 410A of Public Law 108-173, as 
amended, is hereafter referred to as the ``reasonable cost 
methodology.'' (We ascertained the estimated amount that would be paid 
in an earlier given year under the reasonable cost methodology and the 
estimated amount that would otherwise be paid without the demonstration 
in an earlier given year from ``as submitted'' cost reports that were 
submitted by the hospitals prior to the inception of the 
demonstration.) We then updated the estimated cost described above to 
the current year by multiplying it by the market basket percentage 
increases applicable to the years involved and the applicable annual 
volume adjustment. For the FY 2010 IPPS/RY 2010 LTCH PPS final rule, 
data from finalized cost reports reflecting the participating 
hospitals' experience under the demonstration were available. 
Specifically, the finalized cost reports for the first 2 years of the 
demonstration, that is, cost reports for cost reporting years beginning 
in FYs 2005 and 2006 (CYs 2004, 2005, and 2006) were available. These 
data showed that the actual costs of the demonstration for these years 
exceeded the amounts originally estimated in the respective final rules 
for the budget neutrality adjustment. In the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule, we included in the budget neutrality offset amount an 
amount in addition to the estimate of the demonstration costs in that 
fiscal year. This additional amount was based on the amount that the 
costs of the demonstration for FYs 2005 and 2006 exceeded the budget 
neutrality offset amounts finalized in the IPPS rules applicable for 
those years.
    Following upon the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we 
continued to propose and use 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 finalized cost reports became available 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 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

[[Page 50144]]

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. 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 proposed in the FY 2015 IPPS/LTCH PPS 
proposed rule (78 FR 28167) 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 methodology proposed for calculating the 
estimated FY 2015 demonstration cost for the participating hospitals 
was as follows:
    Step 1: For each of the participating hospitals, we proposed to 
identify the general reasonable cost amount calculated under the 
reasonable cost methodology for covered inpatient hospital services (as 
indicated on the ``as submitted'' cost report for the hospital's cost 
reporting period ending in CY 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 
proposed to include the cost of these services, as reported on the cost 
reports for the hospitals that provide swing-bed services, within the 
general total estimated FY 2012 reasonable cost amount for covered 
inpatient hospital services under the demonstration. As indicated 
above, we proposed to use ``as submitted'' cost reports for the 
hospital's cost reporting period ending in CY 2012 for this 
calculation.
    We proposed 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 proposed 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 final rule, we are using the 
current estimate of the FY 2015 IPPS market basket percentage increase 
provided by the CMS Office of the Actuary as specified in section 
IV.B.1. of the preamble of this final rule. We 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 is the general total 
estimated FY 2015 reasonable cost amount for covered inpatient hospital 
services for all participating hospitals.
    We proposed to apply the IPPS market basket percentage increases 
applicable for FYs 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 proposed to use the IPPS market 
basket percentage increases because we believe that these update 
factors appropriately indicate the trend of increase in inpatient 
hospital operating costs under the reasonable cost methodology for the 
years involved. The 3-percent annual volume adjustment was stipulated 
by the CMS Office of the Actuary and is being used because it is 
intended to accurately reflect the tendency of hospitals' inpatient 
caseloads to increase. On account of the possibility that inpatient 
caseloads for small hospitals may fluctuate, we are incorporating into 
the estimate of demonstration costs a factor to allow for a potential 
increase in inpatient hospital services.
    Step 2: For each of the participating hospitals, we proposed to 
identify the general estimated amount that would otherwise be paid in 
FY 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 proposed to identify the 
estimated amount that generally would otherwise be paid for these 
services (as indicated on the ``as submitted'' cost report for cost 
reporting periods ending in CY 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 proposed 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 proposed 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. For the proposed rule, the estimate of the FY 2015 
applicable percentage increase was specified in section IV.B. of the 
preamble. This methodology differs

[[Page 50145]]

from Step 1, in which we proposed 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. Then we proposed 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 represents 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 proposed to subtract the amount derived in Step 2 
(representing the sum of estimated amounts that generally would 
otherwise be paid to the participating hospitals for covered inpatient 
hospital services for FY 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 proposed 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 the proposed rule, the resulting difference was $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.
    We did not receive any public comments on our proposed budget 
neutrality offset methodology, as discussed above. Therefore, we are 
finalizing the budget neutrality offset methodology as proposed in the 
FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28165 through 28168).
    In the FY 2015 IPPS/LTCH PPS proposed rule, we noted that if 
updated data became 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, we noted that the 
estimated budget neutrality offset amount might change in the final 
rule, depending on the availability of updated data. In this final 
rule, we have used the market basket update and applicable percentage 
increase that have been finalized for FY 2015. Using these updated 
data, 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 is $54,177,144.
    In addition, similar to previous years, we proposed to include in 
the budget neutrality offset amount the amount by which the actual 
demonstration costs corresponding to an earlier given year (which would 
be determined once we had finalized cost reports for that year) 
exceeded the budget neutrality offset amount finalized in the 
corresponding year's IPPS final rule. In the FY 2015 IPPS/LTCH PPS 
proposed rule, we 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. The amount calculated for 
the FY 2015 IPPS/LTCH PPS proposed rule, $10,389,771, remains unchanged 
for this final rule. We did not receive any public comments on this 
aspect of the proposed budget neutrality offset methodology, and 
therefore, are finalizing this aspect of the methodology as proposed. 
We continue to examine the cost report data for FY 2009, and to work 
with the MACs that service the hospitals participating in the 
demonstration to obtain finalized cost reports for FYs 2010, 2011, and 
2012. We note that if settled cost reports for all of the demonstration 
hospitals that participated in an applicable year (FYs 2009, 2010, 
2011, or 2012) are available prior to the FY 2016 IPPS/LTCH PPS 
proposed rule, we intend to adjust the budget neutrality offset amount 
for FY 2016 for any amounts by which the final settled costs of the 
demonstration for the year (FYs 2009, 2010, 2011, or 2012) differ from 
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 
applying to the FY 2015 IPPS rates is $64,566,915. 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 
($54,177,144); 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)). In this final rule, we are adjusting the national 
IPPS rates by this total amount ($64,566,915). We discuss the final 
payment rate adjustment that is required to ensure the budget 
neutrality of the demonstration program for FY 2015 (the budget 
neutrality adjustment factor) in section II. of the Addendum to this 
final rule.

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 and are responsible for those charges. 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.

[[Page 50146]]

    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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28169), we 
reminded hospitals of their obligation to comply with the provisions of 
section 2718(e) of the Public Health Service Act. We appreciate the 
widespread public support we received for including the reminder in the 
proposed rule. We reiterate that 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. MedPAC suggested that hospitals be required to 
post the list on the Internet, and while we agree that this would be 
one approach that would satisfy the guidelines, we believe hospitals 
are in the best position to determine the exact manner and method by 
which to make the list public in accordance with the guidelines.
    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 improve the public accessibility of 
charge information. As hospitals continue to 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

    As discussed in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28169), 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 sought public 
comments on such a payment methodology, specifically how it might be 
designed. We outlined some specific questions and considerations that 
we identified as critical for developing such a methodology. We noted 
that this list of questions and considerations was not exhaustive, and 
we welcomed 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. 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 
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?
    In the proposed rule, we welcomed input on these and other issues 
related to an alternative payment methodology under the Medicare 
program for short inpatient hospital stays.
    Comment: Many commenters indicated that any short-stay policy 
should adhere to certain general principles, specifically citing some 
or all of the following: a short-stay policy should provide more 
appropriate and adequate payment for medically necessary inpatient 
services that span less than 2 midnights--payment should

[[Page 50147]]

be higher than the outpatient PPS rate for the service, but should not 
exceed the full IPPS payment; a short-stay policy should not apply to 
those procedures on the ``inpatient only'' list; a short-stay policy 
should be budget neutral; hospitals should be eligible for all add-on 
payments they would otherwise receive (for example, DSH and IME), 
either in full or on a pro rata basis; beneficiaries requiring short 
inpatient hospital stays paid under a short-stay policy should be 
considered inpatients and cost-sharing obligations should be calculated 
under Medicare Part A; a short-stay policy should be developed in a way 
that would not increase administrative burden for hospitals, 
physicians, or other medical providers; and CMS should provide clear 
and consistent guidance and allow adequate time for hospitals to 
implement the short-stay policy prior to its effective date.
    Other commenters indicated that CMS could or should consider 
approaches such as a per diem approach modeled after the existing 
transfer policy, creating separate MS-DRG weights for short-stay cases 
and nonshort-stay cases, or allowing the full MS-DRG payment on an 
interim basis while the issue is studied further.
    Some commenters also stated that the MS-DRG system is predicated on 
the understanding that there will be a diversity of treatment patterns 
and individual patient circumstances for any given clinical condition, 
and that this diversity balances out--high-intensity cases are balanced 
by low-intensity cases. These commenters contended that creating a new 
category of ``short stays'' and paying for them differentially 
undermines the MS-DRG system.
    Many commenters stated that additional research and collaboration 
were needed before a formal short-stay policy proposal could be made. 
MedPAC indicated that it intended to explore alternative short-stay 
policies in its upcoming work cycle.
    Almost all commenters provided their comments on Medicare payment 
for short hospital stays in the context of broader comments on the 
current 2-midnight policy.
    Response: We thank commenters for the many comments submitted on 
this issue, and we will take these into account in any potential future 
rulemaking. Although there was no consensus among the commenters, we 
look forward to continuing to actively work with stakeholders to 
address the complex question of how to further improve payment policy 
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 modified and clarified 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. In the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50944), we stated that the medical judgment of the 
physician and the physician's order for inpatient admission should be 
based on the expectation of care surpassing 2 midnights, with both the 
expectation of time and the determination of the underlying need for 
medical care at the hospital supported by complex medical factors such 
as history and comorbidities, the severity of signs and symptoms, 
current medical needs, and the risk of an adverse event. We also 
indicated that, in accordance with longstanding policy, factors that 
may result in an inconvenience to a beneficiary or family would not 
justify an inpatient hospital admission. The factors that lead a 
physician to admit a particular beneficiary based on the physician's 
clinical expectation are significant clinical considerations and must 
be clearly and completely documented in the medical record. Medicare 
review contractors consider complex medical factors that support a 
reasonable expectation of the needed duration of the stay relative to 
the 2-midnight benchmark. 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 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, there will 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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 280170), we 
described the process for submitting suggestions regarding potential 
additional exceptions to the 2-midnight benchmark. Such suggestions may 
be sent to CMS via written correspondence or via email to 
[email protected]. As noted in the proposed rule, CMS 
will notify providers of any additional guidance regarding 2-midnight 
exceptions through subregulatory means, such as postings on the CMS Web 
site or manual instruction.
    Although the FY 2015 IPPS/LTCH PPS proposed rule did not include 
any proposed regulatory changes relating to the 2-midnight benchmark, 
we nonetheless received a number of public comments regarding the 
current regulation. Commenters opined on the

[[Page 50148]]

usefulness of the 2-midnight benchmark for making inpatient admission 
decisions and provided suggestions for improving the policy. During the 
summer and fall of 2014, CMS plans to evaluate the results of the 
``probe & educate'' process (a process by which MACs are reviewing a 
prepayment, provider-specific probe sample of inpatient Part A claims 
for appropriateness of inpatient admission under the revised 2-midnight 
benchmark and providing provider-specific education, as necessary, to 
correct improper payments) and issue additional subregulatory guidance 
to our claim review contractors, if necessary, to ensure consistency in 
application of the 2-midnight policy. We will consider all suggestions 
as we develop this subregulatory guidance. We also will continue to 
maintain open communication with stakeholders to ensure that the 
inpatient classification and payment policies provide a uniform process 
for beneficiary treatment and claim submission.

P. Finalization of Interim Final Rule With Comment Period on the 
Extension of the Payment Adjustment for Low-Volume Hospitals and the 
Medicare-Dependent, Small Rural Hospital (MDH) Program for FY 2014 
Discharges Through March 31, 2014

1. Background
    In the interim final rule with comment period (IFC) that appeared 
in the Federal Register on March 18, 2014 (79 FR 15022) (hereinafter 
referred to as the March 2014 IFC), we implemented the extension of 
temporary changes to the payment adjustment for low-volume hospitals 
and the MDH program under the IPPS for FY 2014 discharges through March 
31, 2014, in accordance with sections 1105 and 1106, respectively, of 
the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) enacted on 
December 26, 2013. In this final rule, we are providing a brief summary 
of the provisions of that IFC, responding to the public comments we 
received, and stating our final policy.
    Section 1105 of the Pathway for SGR Reform Act extended changes to 
the payment adjustment for low-volume hospitals for an additional 6 
months, through March 31, 2014, of FY 2014. Section 1106 of the Pathway 
for SGR Reform Act extended the MDH program for an additional 6 months, 
through March 31, 2014, of FY 2014. (As discussed previously in 
sections IV.D. and IV.G. of the preamble of this final rule, the 
provisions of the PAMA, enacted on April 1, 2014, further extended 
changes to the payment adjustment for low-volume hospitals and the MDH 
program for an additional year, through March 31, 2015.)
2. Summary of the Provisions of the Interim Final Rule With Comment 
Period
a. Extension of the Payment Adjustment for Low-Volume Hospitals
(1) Background
    Section 1886(d)(12) of the Act provides for an additional payment 
to each qualifying low-volume hospital under the IPPS beginning in FY 
2005. The regulations describing the payment adjustment for low-volume 
hospitals are at 42 CFR 412.101.
    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, for FY 2014 (and subsequent years), 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. 
(As previously noted, the provisions of the PAMA, enacted on April 1, 
2014, further extended changes to the payment adjustment for low-volume 
hospitals and the MDH program for an additional year, through March 31, 
2015. The extension of the temporary changes to the low-volume hospital 
payment adjustment for FY 2014 discharges occurring on or after April 
1, 2014 through September 30, 2014 was announced in a notice that 
appeared in the Federal Register on June 17, 2014 (79 FR 34444). The 
extension of the temporary changes to the low-volume hospital payment 
adjustment for FY 2015 discharges occurring on or after October 1, 2014 
through March 31, 2015, is discussed in section IV.D. of the preamble 
of this final rule.
    The Affordable Care Act expanded the definition of low-volume 
hospital and modified the methodology for determining the payment 
adjustment for hospitals meeting that definition for FYs 2011 and 2012. 
In general, the amendments made by the Affordable Care Act modified the 
qualifying criteria for low-volume hospitals such that a hospital 
qualifies as a low-volume hospital if it is more than 15 road miles 
from another subsection (d) hospital and has less than 1,600 Medicare 
discharges during the fiscal year. In addition, the amendments made by 
the Affordable Care Act provide that the low-volume hospital payment 
adjustment (that is, the percentage increase) is determined ``using a 
continuous linear sliding scale'' that ranges from 25 percent for low-
volume hospitals with 200 or fewer Medicare discharges in the fiscal 
year to 0 percent for low-volume hospitals with greater than 1,600 
Medicare discharges. For additional information on the implementation 
of the temporary changes in the low-volume hospital payment policy 
provided by the Affordable Care Act, we refer readers to the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50238 through 50275) and the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51677 through 51680).
    Section 605 of the ATRA extended the temporary changes in the low-
volume hospital payment policy provided for in FYs 2011 and 2012 by the 
Affordable Care Act for FY 2013, that is, for discharges occurring 
before October 1, 2013. For additional information on the extension of 
the temporary changes in the low-volume hospital payment policy for FY 
2013 as provided by the ATRA, we refer readers to the notice that 
appeared in the Federal Register on March 7, 2013 (78 FR 14689 through 
14694). 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 can be found 
in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50610 through 50613).
(2) Summary of the Implementation of the Extension of the Low-Volume 
Hospital Payment Adjustment for FY 2014 (through March 31, 2014)
    Section 1105 of the Pathway for SGR Reform Act extended the changes 
made by the Affordable Care Act and extended by the ATRA by amending 
sections 1886(d)(12)(B), (C)(i), and (D) of the Act. In the March 2014 
IFC (79 FR 15023 through 15025), we amended the regulations text at 42 
CFR 412.101 to make conforming changes to the qualifying criteria and 
the payment adjustment for low-volume hospitals according to the 
amendments made by section 1105 of the Pathway for SGR Reform Act as 
discussed in that rule.
    To implement the extension of the temporary change in the low-
volume hospital payment policy through the first half of FY 2014 (that 
is, for discharges occurring through March 31, 2014) provided for by 
the Pathway for SGR Reform Act, we updated the discharge data source 
used to identify

[[Page 50149]]

qualifying low-volume hospitals and calculate the payment adjustment 
(percentage increase) for FY 2014 discharges occurring before April 1, 
2014. This approach was consistent with the existing regulations at 
Sec.  412.101(b)(2)(ii) and with our implementation of the changes in 
FYs 2011 and 2012 and the extension of those changes in FY 2013. 
Specifically, for FY 2014 discharges occurring before April 1, 2014, 
consistent with our historical policy, we established that qualifying 
low-volume hospitals and their payment adjustment are determined using 
Medicare discharge data from the March 2013 update of the FY 2012 
MedPAR file, as these data were the most recent data available at the 
time of the development of the FY 2014 payment rates and factors 
established in the FY 2014 IPPS/LTCH PPS final rule. Table 14 of the 
March 2014 IFC (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 March 2013 update of the FY 2012 MedPAR files 
and their FY 2014 low-volume payment adjustment (if eligible). However, 
that list of hospitals with fewer than 1,600 Medicare discharges in 
Table 14 does not reflect whether or not the hospital meets the 
distance criterion for FY 2014 discharges occurring before April 1, 
2014.
    We explained in the March 2014 IFC (79 FR 15024 through 15025) that 
in order to receive a low-volume hospital payment adjustment under 
Sec.  412.101, in accordance with our previously established procedure, 
a hospital must notify and provide documentation to its MAC that it 
meets the distance criterion. We explained that the MAC would refer to 
the hospital's Medicare discharge data determined by CMS (as provided 
in Table 14) to determine whether or not the hospital meets the 
discharge criterion, and the amount of the payment adjustment for FY 
2014 discharges occurring before April 1, 2014, once it is determined 
that the distance criterion has been met.
    Consistent with our previously established procedure, we 
implemented a procedure for a hospital to request low-volume hospital 
status for FY 2014 discharges occurring before April 1, 2014. 
Specifically, we established that in order for the applicable low-
volume percentage increase to be applied to payments for its discharges 
beginning on or after October 1, 2013 (that is, the beginning of FY 
2014), a hospital must make its request for low-volume hospital status 
in writing and this request must be received by its MAC no later than 
March 31, 2014. We also stated that a hospital that qualified for the 
low-volume payment adjustment in FY 2013 may continue to receive a low-
volume payment adjustment for FY 2014 discharges occurring before April 
1, 2014 without reapplying if it continues to meet the Medicare 
discharge criterion based on the March 2013 update of the FY 2012 
MedPAR data (shown in Table 14 of the March 2014 IFC), and the distance 
criterion. However, the hospital must send written verification that 
was received by its MAC no later than March 31, 2014, that it continued 
to be more than 15 miles from any other ``subsection (d)'' hospital. We 
noted that this procedure is similar to the policy we established when 
we implemented the extension of the temporary changes to the low-volume 
hospital payment adjustment for FY 2013 provided by the ATRA, as well 
as the procedure for a hospital to request low-volume hospital status 
for FYs 2011 and 2012 under the provisions of the Affordable Care Act.
b. Extension of the MDH Program
    Section 1106 of the Pathway for SGR Reform Act of 2013 provided for 
a 6-month extension of the MDH program, effective from October 1, 2013 
to March 31, 2014. Specifically, section 1106 of the Pathway for SGR 
Reform Act amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) 
of the Act by striking ``October 1, 2013'' and inserting ``April 1, 
2014''. Section 1106 of the Pathway for SGR Reform Act also made 
conforming amendments to sections 1886(b)(3)(D)(i) and 
1886(b)(3)(D)(iv) of the Act.
    In the March 2014 IFC (79 FR 15025 through 15027), we stated that, 
in general, as a result of the extension of the MDH program under the 
Pathway for SGR Reform Act, a provider that was classified as an MDH as 
of the September 30, 2013 expiration of the MDH program, would be 
reinstated as an MDH effective October 1, 2013 through March 31, 2014, 
subject to the requirements of the regulations at Sec.  412.108, with 
no need to reapply for MDH classification. In that same IFC, we amended 
the regulations at Sec.  412.108(a)(1) and (c)(2)(iii) to reflect the 
statutory extension of the MDH program through March 31, 2014, as 
provided for by section 1106 of the Pathway for SGR Reform Act. We also 
discussed that, while generally hospitals that previously qualified for 
MDH status would be reinstated as an MDH retroactively to October 1, 
2013, there were two situations where the effective date of MDH status 
may not have been retroactive to October 1, 2013 (that is, MDHs that 
classified as SCHs on or after October 1, 2013, and MDHs that requested 
a cancellation of their rural classification under Sec.  412.103(b)). 
We provided examples of various scenarios that illustrate how and when 
MDH status under section 1106 of the Pathway to SGR Reform Act would be 
determined for hospitals that were MDHs as of the September 30, 2013 
expiration of the MDH program, subject to the timing considerations 
described in that IFC.
c. Summary of Public Comments, Responses, and Statements of Final 
Policies
    We received approximately four timely pieces of correspondence in 
response to the March 2014 IFC.
    Comment: Commenters generally supported CMS' implementation of the 
extension of the temporary changes to the payment adjustment for low-
volume hospitals and the MDH program through March 31, 2014. However, 
they expressed concern that the March 31, 2014 deadline for hospitals 
to submit a written request for low-volume hospital status to the MAC 
did not allow sufficient and reasonable time period for hospitals to 
submit the documentation necessary to qualify for the low-volume 
payment adjustment during the 6-month extension. Therefore, the 
commenters urged CMS to extend this deadline to allow hospitals a 
minimum of 30 days to submit the documentation necessary to qualify for 
the low-volume payment adjustment for FY 2014 discharges through March 
31, 2014.
    Response: We appreciate the commenters' general support for our 
implementation of the extension of the temporary changes to the payment 
adjustment for low-volume hospitals and the MDH program through March 
31, 2014. While we understand the commenters' concern regarding the 
time available for hospitals to request low-volume hospital status for 
FY 2014 discharges occurring before April 1, 2014, we note that, at 
this time, we are not aware of any hospitals that were unable to meet 
the March 31, 2014 deadline for hospitals to request the low-volume 
hospital payment adjustment for FY 2014 discharges occurring before 
April 1, 2014. Furthermore, as we stated in the March 2014 IFC, a 
hospital that qualified for the low-volume payment adjustment in FY 
2013 did not need to reapply for FY 2014 if it continues to meet the 
applicable discharge and the distance criteria (that is, such a 
hospital did not have to resubmit a low-volume hospital

[[Page 50150]]

request with supporting documentation to demonstrate that it continues 
to meet the distance criterion). Rather, such a hospital was only 
required to send written verification to its MAC that it continues to 
meet the distance criterion (that is, that it continues to be more than 
15 miles from any other ``subsection (d)'' hospital) by the March 31, 
2014 notification deadline. As in prior years, a short letter to the 
MAC stating that the hospital continues to meet the low-volume hospital 
distance criterion as documented in a prior low-volume hospital status 
request would be considered sufficient for this verification 
requirement.
    For hospitals newly eligible for the low-volume hospital payment 
adjustment, in the March 2014 IFC, we included guidance, consistent 
with our previously established procedure, to provide focus to their 
request preparation efforts. Specifically, we stated that the use of a 
Web-based mapping tool, such as MapQuest, as part of documenting that 
the hospital meets the distance criterion for low-volume hospitals, is 
acceptable for the low-volume hospital request, along with providing 
other relevant information such as the name and street address of the 
nearest hospitals, location on a map, and distance from the hospital 
requesting low-volume hospital status. We also stated that the MAC may 
follow up with the hospital to obtain additional necessary information 
to determine whether or not the hospital meets the low-volume hospital 
status distance criterion.
    Given the limited nature of the information required to satisfy the 
request and notification requirement, and the opportunity to provide 
additional information if needed, we believe that the March 31, 2014 
deadline allowed for sufficient and reasonable time for hospitals to 
submit their requests. In addition, as we noted in the March 2014 IFC, 
the process for requesting and obtaining the low-volume hospital 
payment adjustment for FY 2014 discharges occurring before April 1, 
2014 was similar to the policy we established when we implemented the 
extension of the temporary changes to the low-volume hospital payment 
adjustment for FY 2013 provided by the ATRA. For the reasons stated 
above, we are not adopting the commenters' request to allow hospitals a 
minimum of 30 days to submit the documentation necessary to qualify for 
the low-volume payment adjustment for FY 2014 discharges occurring 
before April 1, 2014.
    Comment: One commenter opposed using Medicare discharge data from 
the March 2013 update of the FY 2012 MedPAR file (as listed in Table 14 
of the March 2014 IFC) to assess the discharge criterion for low-volume 
hospital eligibility (that is, to determine if the hospital had less 
than 1,600 Medicare discharges) and to determine the amount of the 
payment adjustment for FY 2014 discharges occurring before April 1, 
2014. The commenter believed certain scenarios were not accounted for 
by using historical Medicare discharge data in the MedPAR file to 
prospectively determine low-volume hospital eligibility and payment. 
For example, a hospital that became an IPPS hospital (either as a newly 
participating hospital or conversion from another provider type, like a 
CAH) would not be included in the historical MedPAR discharge data, or 
a hospital that previously did not meet the discharge criterion based 
on the historical Medicare discharge data in the MedPAR file that now 
has fewer than 1,600 Medicare discharges in the current year. The 
commenter requested that CMS modify its established policy of using 
historical MedPAR discharge data to determine if a hospital meets the 
discharge criterion to allow for scenarios such as the ones described 
above, and noted that CMS could develop a settlement procedure on the 
Medicare cost report for hospitals that did not have fewer than 1,600 
Medicare discharges in the historical Medicare discharge data in the 
MedPAR file but have fewer than 1,600 Medicare discharges in the 
payment year.
    Response: As explained in the March 2014 IFC (79 FR 15024), under 
the existing regulations at Sec.  412.101(b)(2)(ii), for FYs 2011, 2012 
and 2013, 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. Since its initial 
implementation in FY 2005, we established a policy of using historical 
discharge data to determine if the hospital meets the discharge 
criterion to receive the low-volume payment adjustment in the current 
year. Prior to the temporary changes to the low-volume hospital payment 
adjustment policy under the amendments made by the Affordable Care Act, 
discharges from a prior cost reporting period were used to determine if 
the hospital qualified for the low-volume payment adjustment in the 
current year. We adopted the use of historical Medicare discharge data 
from the MedPAR files when we implemented the amendments made by the 
Affordable Care Act because MedPAR data are the most recent available 
data that provide the number of discharges for individuals that are 
entitled to or enrolled for Medicare Part A, as required by statute (75 
FR 50241). The most recent Medicare discharge data are generally 
available in the MedPAR files before the corresponding Medicare 
discharges from the cost report data are available due to the 
established timeframes for completion and submission of the Medicare 
cost report. (We note that the MedPAR file contains only Medicare 
discharge information, and does not contain discharge information for 
non-Medicare patients. Therefore, hospital cost report data are the 
best available data source for total discharges under the discharge 
criterion in Sec.  412.101(b)(2)(i).)
    As we discussed when we initially implemented the low-volume 
hospital payment adjustment in the FY 2005 IPPS final rule (69 FR 49100 
through 49101), if the determination of whether hospitals qualify for 
low-volume payment adjustments and the computation of the payment 
adjustment amount are based on the number of discharges in the current 
fiscal year, neither CMS nor the hospital will know with certainty 
whether a hospital qualifies for the adjustment, or what the amount of 
the adjustment would be, until after the end of the payment year 
(probably not until the time of final cost report settlement for the 
year). In such circumstances, CMS could be faced with the prospect of 
recouping large overpayments in some cases or reimbursing for large 
underpayments in others, and hospitals would face similar 
uncertainties. On the other hand, if these determinations are based on 
discharge counts from a prior fiscal year, hospitals will know in 
advance whether they will be receiving a payment adjustment and what 
the size of the adjustment will be, which provides fiscal stability by 
allowing both hospitals and CMS to plan accordingly. Therefore, we 
established that the count of discharges, for purposes both of meeting 
the qualifying definition of a low-volume hospital and determining the 
amount of the low-volume hospital payment adjustment, is based on the 
number of discharges occurring during the cost reporting period for the 
most recent submitted cost report. In that same final rule, we also 
recognized that this policy may temporarily disadvantage certain 
hospitals, such as the situations mentioned by the commenter. However, 
we believe that the fiscal stability provided under a policy based on

[[Page 50151]]

historical data offsets any temporary disadvantage hospitals in such 
situations may experience until their historical data are used to meet 
the low-volume hospital payment adjustment discharge criterion in a 
future year, and for these reasons we believe a settlement process on 
the Medicare cost report is not needed. Therefore, we are not adopting 
the commenter's suggestion to modify our established policy of using 
historical MedPAR discharge data to determine if a hospital meets the 
low-volume hospital discharge criterion or to determine the amount of 
the low-volume hospital payment adjustment for FY 2014 discharges 
occurring before April 1, 2014.
    After consideration of the public comments we received, we are 
finalizing all of the provisions set forth in the March 2014 IFC 
without modification. We note that the revisions to the low-volume 
hospital payment adjustment regulations at Sec.  412.101 and the MDH 
program regulations at Sec.  412.108 under the March 2014 IFC are 
superseded by the final conforming changes to these same regulatory 
provisions to reflect the subsequent extension of the changes to the 
qualifying criteria and the payment adjustment methodology for low-
volume hospitals and the MDH program through March 31, 2015 under the 
PAMA. We refer readers to sections IV.D. and IV.G. of the preamble of 
this final rule, respectively, for more information on these final 
conforming changes.
    For information on the estimated change in payments to IPPS 
hospitals in FY 2014 as a result of the implementation of sections 1105 
and 1106 of the Pathway for SGR Reform Act, we refer readers to the 
regulatory impact section of the March 2014 IFC (79 FR 15028 through 
15030).

Q. Finalization of Interim Final Rule With Comment Period Relating to 
Changes to Certain Cost Reporting Procedures for Medicare 
Disproportionate Share Hospital (DSH) Uncompensated Care Payments

1. Background
    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 Social Security Act (the Act) that modified the 
methodology for computing the Medicare disproportionate share hospital 
(DSH) payment adjustment beginning in FY 2014. We implemented section 
1886(r) of the Act in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 
through 50647). For a detailed discussion of the background on the 
reduction in DSH payments under section 1886(d)(5)(F) of the Act and 
the uncompensated care payment under section 1886(r) of the Act, we 
refer readers to section IV.F.3.a. of the preamble of this final rule.
    Following the publication of the FY 2014 IPPS/LTCH PPS final rule, 
we issued an interim final rule with comment period (CMS-1599-IFC) in 
which we revised certain policies and processes described in the FY 
2014 IPPS/LTCH PPS final rule. The interim final rule with comment 
period appeared in the Federal Register on October 3, 2013 (78 FR 61191 
through 61197). In the interim final rule with comment period, we 
revised certain operational considerations for hospitals with Medicare 
cost reporting periods that span more than one Federal fiscal year and 
also made changes to the data that will be used in the uncompensated 
care payment calculation in order to ensure that data from Indian 
Health Service (IHS) hospitals are included in Factor 1 and Factor 3 of 
that calculation. We found that there was good cause to waive prior 
notice and comment and the delay in effective date with respect to the 
revisions discussed in the interim final rule with comment period (78 
FR 61195 through 61196). Accordingly, the provisions of the interim 
final rule with comment period went into effect on October 1, 2013.
    We received 12 timely pieces of correspondence in response to the 
interim final rule with comment period. Below we summarize the 
provisions of the interim final rule with comment period and the public 
comments we received, present our responses, and finalize the policies 
that were originally implemented in the interim final rule with comment 
period.
2. Summary of Provisions of the Interim Final Rule With Comment Period, 
Public Comments Received, Responses, and Finalized Policy
a. Operational Considerations for Hospitals With Medicare Cost 
Reporting Periods That Span More Than One Federal Fiscal Year
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50645), we finalized 
``a process to distribute interim uncompensated care payments under the 
IPPS on a per-discharge basis through our claims processing system, 
with a reconciliation of the hospitals' [uncompensated care] payments 
at cost report settlement to ensure that hospitals receive no more than 
the estimated amount included in this final rule''. We described that 
process as follows (78 FR 50646):
    ``[A]t cost report settlement, the . . . fiscal intermediary/MAC 
will issue a notice of program reimbursement that includes a 
determination concerning whether each hospital is eligible for 
empirically justified Medicare DSH payments and, therefore, eligible 
for uncompensated care payments in FY 2014 and each subsequent year. In 
the case where a hospital received interim payments for its empirically 
justified Medicare DSH payments and uncompensated care payments for FY 
2014 or a subsequent year on the basis of estimates prior to the 
payment year, but is determined to be ineligible for the empirically 
justified Medicare DSH payment at cost report settlement, the hospital 
would no longer be eligible for either payment and CMS would recoup 
those monies. For a hospital that did not receive interim payments for 
its empirically justified Medicare DSH payments and uncompensated care 
payments for FY 2014 or a subsequent year, but at cost report 
settlement is determined to be eligible for DSH payments, the 
uncompensated care payment for such a hospital is calculated based on 
the Factor 3 value determined prospectively for that fiscal year. . . . 
The reconciliations at cost report settlement would be based on the 
values for Factor 1, Factor 2, and Factor 3 that we have finalized 
prospectively for a Federal fiscal year.''
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50646), we provided 
an example in which a DSH eligible hospital has a cost reporting period 
of January 1, 2014 through December 31, 2014. We stated that this 
hospital would receive interim payments for its uncompensated care 
payments beginning on October 1, 2013. For cost reporting purposes, we 
stated that the uncompensated care payments for federal FY 2014 would 
be assigned to cost reporting periods beginning on or after October 1, 
2013, and would be reconciled on those cost reports. Thus, in the 
example of the hospital with a cost reporting period beginning on 
January 1, 2014, if the hospital remained eligible for empirically 
justified DSH payments at cost report settlement, it would receive its 
full FY 2014 uncompensated care payment on its cost report for the cost 
reporting period beginning on January 1, 2014. Although we acknowledged 
that it is possible to align interim and final payments for the 
uncompensated care payment with an individual hospital's cost reporting 
periods, we believed it would be administratively efficient and 
practical

[[Page 50152]]

to pay the uncompensated care payment on the basis of the Federal 
fiscal year because that is how it is determined, and to reconcile that 
amount in the cost reporting period that begins in the respective 
Federal fiscal year. We stated in the final rule (78 FR 50647) that we 
believed this methodology would not delay the full payment of FY 2014 
payments to hospitals with cost reporting periods that begin after 
October 1, 2013.
    However, as we prepared to implement the FY 2014 IPPS/LTCH PPS 
final rule, several difficulties regarding this approach that we had 
not previously considered came to our attention. We initially proposed 
to make interim uncompensated care payments on a biweekly basis, 
finalizing a different process to make interim uncompensated care 
payments on a per discharge basis in response to comments. In addition 
to proposing and finalizing a process for making interim uncompensated 
care payments, we also proposed and finalized a reconciliation process 
that would reconcile the uncompensated care payment for a given fiscal 
year, such as FY 2014, on the cost report for the cost reporting period 
beginning in that fiscal year (that is, for FY 2014, the cost report 
for the cost reporting period beginning in FY 2014). We proposed and 
finalized this approach because we believed it would be 
administratively efficient and practical. As indicated previously and 
in the FY 2014 IPPS/LTCH PPS final rule, we initially believed that 
this policy would neither delay nor substantially affect the 
disbursement of final uncompensated care payments; but, since the final 
rule was issued, we came to doubt these conclusions.
    In the interim final rule with comment period, we stated that we 
had come to believe that the policy we adopted in the FY 2014 IPPS/LTCH 
PPS final rule was inconsistent with longstanding cost reporting 
requirements. As a general rule, payments for discharges are reported 
in the cost reporting period in which they occur, and all payments made 
for discharges during a cost reporting period are reconciled on the 
cost report for that period (PRM-I, Section 2805 and 42 CFR 412.1(a)). 
We did not specifically address or propose to change the cost reporting 
rules in either the FY 2014 IPPS/LTCH PPS proposed or final rules. 
However, for hospitals with cost reporting periods that were not 
concurrent with the Federal fiscal year, the policy adopted in the FY 
2014 IPPS/LTCH PPS final rule departed from these cost reporting 
requirements by reconciling interim uncompensated care payments made 
for discharges occurring during the hospital's 2013 cost reporting 
period on the hospital's 2014 cost report. Under ordinary cost 
reporting requirements, those payments (having been made during the 
hospital's 2013 cost reporting period) would have to be treated as an 
overpayment on the hospital's 2013 cost report and therefore recouped. 
However, as finalized in the FY 2014 IPPS/LTCH PPS final rule, if the 
hospital was found to be eligible for DSH payments for its cost 
reporting period that began during FY 2014, we would pay the hospital 
its full FY 2014 uncompensated care payment during the settlement of 
the hospital's 2014 cost report (that is, we would repay the previously 
recouped uncompensated care payments when we reconciled the hospital's 
2014 cost report). We stated that these administrative issues would 
effectively delay uncompensated care payments, frustrate our policy of 
making uncompensated care payments promptly, and would likely lead to 
serious cash flow difficulties for some hospitals. In summary, we did 
not believe the policy we finalized in the FY 2014 IPPS/LTCH PPS final 
rule of reconciling uncompensated care payments for hospitals with cost 
reporting periods that begin after October 1, 2013 would work as 
intended for the large majority of IPPS hospitals that have cost 
reporting periods that are not concurrent with the Federal fiscal year.
    To effectuate a revised process, in the interim final rule with 
comment period, we sought to align final payments for the uncompensated 
care payment with each individual hospital's cost reporting periods and 
to reconcile interim uncompensated care payment amounts on the 
hospital's cost report for the proportion of the cost reporting period 
that overlaps a Federal fiscal year and in which the interim payments 
were made or should have been made. Therefore, the final uncompensated 
care payment amounts that would be included on a cost report spanning 2 
Federal fiscal years would be the pro rata share of the uncompensated 
care payment associated with each Federal fiscal year. This pro rata 
share would be determined based on the proportion of the applicable 
Federal fiscal year that is included in that cost reporting period. We 
considered the same example from the FY 2014 IPPS/LTCH PPS final rule, 
where a hospital is estimated to be eligible for the empirically 
justified DSH payment and also an uncompensated care payment in FY 2014 
and has a cost reporting period of January 1, 2014 through December 31, 
2014. Under the revised process we adopted in the interim final rule 
with comment period, in that example, that hospital would still begin 
to receive interim payments for its uncompensated care on October 1, 
2013. However, instead of having the entire FY 2014 payment reconciled 
on its cost report for the cost reporting period beginning on January 
1, 2014 (which ends on December 31, 2014, and would therefore require 
the hospital to pay back monies received for the portion of its cost 
reporting period beginning on January 1, 2013, that occurs in Federal 
fiscal year 2014), we would reconcile the interim FY 2014 uncompensated 
care payments received for discharges from October 1, 2013 through 
December 31, 2013 on the hospital's cost report for the cost reporting 
period beginning on January 1, 2013 against a pro rata share of its FY 
2014 uncompensated care payment. If this hospital were eligible for DSH 
on its cost report for the cost reporting period ending on December 31, 
2013, it would receive a pro rata share of its FY 2014 uncompensated 
care payment. This pro rata share would be approximately three-twelfths 
(that is, the period of time from October 1, 2013 through December 31, 
2013, divided by the period of time from January 1, 2013 through 
December 31, 2013) of the hospital's FY 2014 uncompensated care 
payment. If the hospital's subsequent cost reporting period is January 
1, 2014 through December 31, 2014, we also would reconcile the interim 
FY 2014 uncompensated care payments received for discharges from 
January 1, 2014 through September 30, 2014 on the hospital's cost 
report for the cost reporting period beginning on January 1, 2014 
against a pro rata share of its FY 2014 uncompensated care payment. We 
also would reconcile the interim FY 2015 uncompensated care payments 
received for discharges from October 1, 2014 through December 31, 2014 
(that is, discharges occurring in FY 2015 during that hospital's cost 
reporting period) on the hospital's cost report for the cost reporting 
period beginning on January 1, 2014 against a pro rata share of its FY 
2015 uncompensated care payment. Accordingly, for the hospital in this 
example, if it remained eligible for Medicare DSH on its cost report 
for the cost reporting period beginning on January 1, 2014, it would 
receive the sum of two pro rata shares of uncompensated care payments, 
one pro rata share equal to approximately nine-twelfths (that is, the 
period of time from January 1, 2014 through September 30, 2014 divided 
by the period of time from January 1, 2014 through December 31,

[[Page 50153]]

2014) of the hospital's FY 2014 uncompensated care payment and one pro 
rata share equal to approximately three-twelfths (that is, the period 
of time from October 1, 2014 through December 31, 2014 divided by the 
period of time from January 1, 2014 through December 31, 2014) of the 
hospital's FY 2015 uncompensated care payment.
    Under the interim final rule with comment period, and in accordance 
with the policies we finalized in the FY 2014 IPPS/LTCH PPS final rule 
regarding eligibility for the uncompensated care payment, hospitals 
with cost reporting periods that span more than one Federal fiscal year 
will be eligible for the respective pro rata shares of their 
uncompensated care payment if they were eligible for DSH in that cost 
reporting period. If they were ineligible for DSH in that cost 
reporting period, they would be ineligible to receive the respective 
pro rata share of the uncompensated care payment for the respective 
Federal fiscal year (or years). We stated that we believed this 
approach remained fundamentally consistent with the policy we finalized 
in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) where we stated 
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.'' However, it avoided 
the cost reporting difficulties that would have arisen from the 
reconciliation process originally adopted in the final rule.
    Comment: Several commenters supported the modifications to align 
uncompensated care payments based on the Federal fiscal year, instead 
of based on a hospital's cost reporting period. Commenters supported 
the change in policy such that the final uncompensated care payment 
amounts that would be included on a hospital's cost report that spans 2 
Federal fiscal years will be the pro rata share of the uncompensated 
care payment associated with each Federal fiscal year.
    Response: We appreciate the commenters' support.
    Comment: One commenter recommended that when CMS reconciles 
uncompensated care payments on a pro rata basis based on the portion of 
a hospital's cost reporting period that falls in the Federal fiscal 
year, CMS prorate on a calendar month basis as opposed to calendar day 
basis for administrative simplicity.
    Response: We appreciate the commenter's recommendation. Under the 
policy finalized in the interim final rule with comment period, we 
determine a pro rata share based on the proportion of the applicable 
Federal fiscal year that is included in that cost reporting period. We 
intend to establish the pro rate share on a calendar day basis, as 
opposed to a calendar month basis. We believe we can more accurately 
account for the uncompensated care payment amounts when we reconcile on 
a calendar day basis, as we can easily obtain the number of days from a 
hospital's cost reporting period on the hospital's Medicare Hospital 
Cost Report. Therefore, this process will not be administratively 
burdensome. Furthermore, we disagree that it would be administratively 
easier or simpler to prorate on a monthly basis, particularly in cases 
where a hospital's cost report may end in the middle of the month.
b. Treatment of Indian Health Service Hospitals
    In the FY 2014 IPPS/LTCH PPS final rule, we discussed the hospitals 
that are eligible to receive the uncompensated care payments under 
section 1886(r)(2) of the Act. Specifically, we stated (78 FR 50622) 
that the ``new payment methodology under subsection (r) applies to 
`subsection (d) hospitals' that would otherwise receive a 
`disproportionate hospital share payment . . . made under subsection 
(d)(5)(F).' '' Therefore, eligibility for empirically justified 
Medicare DSH payments is unchanged under this new provision. Consistent 
with the law, hospitals must receive empirically justified Medicare DSH 
payments in FY 2014 or a subsequent year to receive an additional 
Medicare uncompensated care payment for that year.
    In the FY 2014 IPPS/LTCH PPS final rule, we finalized our 
methodology for calculating the new uncompensated care payments. As we 
discussed in that final rule, 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. Factor 
1 of that methodology is the ``difference between our estimates of: (1) 
the amount that would have been paid in Medicare DSH payments for FY 
2014 and subsequent years, in the absence of the new payment provision; 
and (2) the amount of empirically justified Medicare DSH payments that 
are made for FY 2014 and subsequent years, which takes into account the 
requirement to pay 25 percent of what would have otherwise been paid 
under section 1886(d)(5)(F) of the Act. In other words, this factor 
represents our estimate of 75 percent (100 percent minus 25 percent) of 
our estimate of Medicare DSH payments that would otherwise be made, in 
the absence of section 1886(r) of the Act, for FY 2014 and subsequent 
years'' (78 FR 50627).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50630), we finalized 
our proposal to use the most recently available estimates, as 
calculated by the CMS Office of the Actuary, to determine both the 
aggregate amount of empirically justified DSH payments under section 
1886(r)(1) of the Act and the aggregate amount of payments that would 
otherwise have been made under section 1886(d)(5)(F) of the Act. In 
order to calculate these estimates, the Office of the Actuary used the 
March 2013 update of the Medicare Hospital Cost Report Information 
System (HCRIS) and the proposed rule's IPPS Impact file. The estimate 
excluded Maryland hospitals, SCHs paid under their hospital-specific 
rate, and hospitals in the Rural Community Hospital Demonstration 
Program, as these hospitals do not receive a Medicare DSH payment. The 
CMS Office of the Actuary's final estimate for Medicare DSH payments 
for FY 2014 without regard to the application of section 1886(r)(1) of 
the Act, was approximately $12.772 billion. The estimate for 
empirically justified Medicare DSH payments for FY 2014, with the 
application of section 1886(r)(1) of the Act, was approximately $3.193 
billion. Factor 1 is the difference of these two estimates by our 
Office of the Actuary; therefore, in the FY 2014 IPPS/LTCH PPS final 
rule, we calculated Factor 1 to be approximately $9.579 billion.
    IHS hospitals are subsection (d) hospitals that can receive 
empirically justified Medicare DSH payments under section 1886(r)(1) of 
the Act if they meet the eligibility requirements under subsection 
(d)(5)(F). Therefore, eligible IHS hospitals also receive the new 
uncompensated care payment under subsection (r)(2). However, following 
the issuance of the FY 2014 IPPS/LTCH PPS final rule, it came to our 
attention that, although IHS hospitals can receive Medicare DSH 
payments, they submit Medicare hospital cost reports to CMS that are 
not uploaded in the HCRIS database. Therefore, their Medicare DSH 
payments were not included in the estimates by our Office of the 
Actuary that were used to calculate Factor 1. We stated in the interim 
final rule with comment period that because IHS hospitals are eligible 
to receive Medicare DSH payments and the new uncompensated care 
payments, we believe it is inappropriate to exclude the Medicare DSH 
payments to IHS hospitals from the estimates used to calculate Factor 
1. In addition, we acknowledged that we did not intend to

[[Page 50154]]

finalize a policy that specifically excludes DSH payments to IHS 
hospitals from our estimate of Medicare DSH payments for purposes of 
calculating Factor 1 in the calculation of the uncompensated care 
payment.
    Therefore, in the interim final rule with comment period, we 
revised the policy originally adopted in the FY 2014 IPPS/LTCH PPS 
final rule in order to change the data that will be considered in 
calculating Factor 1 for FY 2014 and subsequent years. Specifically, in 
addition to the March 2013 update of HCRIS, we will also consider cost 
report data provided by IHS hospitals to CMS as of March 2013. We also 
will recalculate Factor 1, to reflect the Office of the Actuary's 
estimate of Medicare DSH payments to IHS hospitals, based on these cost 
report data. With the inclusion of the Medicare DSH payments to IHS 
hospitals, our Office of the Actuary's revised estimate of Medicare DSH 
payments for FY 2014 without regard to the application of 1886(r)(1) of 
the Act was approximately $12.791 billion (this revised estimate also 
includes the correction for Factor 1 made in the correcting document 
for the FY 2014 IPPS/LTCH PPS final rule that also appeared in the 
Federal Register on October 3, 2013 (78 FR 61198)). The CMS Office of 
the Actuary's revised estimate of empirically justified Medicare DSH 
payments for FY 2014, with the application of section 1886(r)(1) of the 
Act, was approximately $3.198 billion (this revised estimate also 
includes the correction for Factor 1 made in the correcting document 
for the FY 2014 IPPS/LTCH PPS final rule (78 FR 61198)). Factor 1 is 
the difference of these two estimates of our Office of the Actuary; 
therefore, in the interim final rule with comment period, we 
recalculated Factor 1 to be approximately $9.593 billion (this revised 
estimate also includes the correction for Factor 1 made in the 
correcting document for the FY 2014 IPPS/LTCH PPS final rule (78 FR 
61198)). We noted that, based on the recalculation of Factor 1, the 
amount available for uncompensated care payments for FY 2014 would be 
approximately $9.046 billion (our determination of Factor 2 as 
finalized in the FY 2014 IPPS/LTCH PPS final rule of 0.943 times our 
revised Factor 1 estimate of $9.593 billion).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50634 through 
50643), we discussed the methodology used to calculate Factor 3 in the 
calculation of the uncompensated care payment. Under the final policy 
adopted in that final rule, for FY 2014 we determined a DSH hospital's 
Factor 3 as the sum of its Medicaid days and SSI days (numerator) 
relative to the total number of Medicaid days and SSI days for all DSH 
hospitals (denominator). We determined a hospital's SSI days based on 
the most recent SSI fraction. As we stated in the FY 2014 IPPS/LTCH PPS 
final rule, the most recent SSI fractions available for making this 
determination for FY 2014 were the FY 2011 SSI fractions. The FY 2011 
SSI fractions for each subsection (d) hospital were published on the 
CMS Web site on June 27, 2013. In addition, under the final policy 
adopted in the FY 2014 IPPS/LTCH PPS final rule, we determine a 
hospital's Medicaid days based on the Medicaid days reported on the 
2011, or if not available, the 2010 Medicare Hospital Cost Report, 
using the March 2013 update of HCRIS.
    Because the cost reports submitted by IHS hospitals are not 
uploaded into HCRIS, we did not include their Medicaid days in our 
calculation of Factor 3. Specifically, Medicaid days for IHS hospitals 
were excluded from the numerator of Factor 3 for those IHS hospitals 
and from the denominator of Factor 3 for all hospitals. As a result, in 
the interim final rule with comment period, we indicated that we 
believed that the Factor 3 that was calculated for each IHS hospital 
under the policies adopted in the 2014 IPPS/LTCH PPS final rule, based 
only on FY 2011 SSI days, significantly understated the actual amount 
of uncompensated care furnished by these hospitals. The uncompensated 
care payment amounts calculated for these hospitals were also 
significantly lower than they would have been had these days been 
included. We were concerned that, under the policy originally adopted 
in the FY 2014 IPPS/LTCH PPS final rule, IHS hospitals that serve a 
significant low income population would be subject to the 75-percent 
reduction to their Medicare DSH payments under section 1886(r)(1) of 
the Act but would receive reduced uncompensated care payments under 
section 1886(r)(2) of the Act due to their cost reports not being 
included in the HCRIS database. Given that we intended to base our 
estimate of the uncompensated care provided by IHS hospitals, in part, 
on the care they provide to Medicaid patients, we believed it was 
appropriate to make a change to the data that are considered in 
determining Factor 3 of the new uncompensated care payment to allow the 
Medicaid days for IHS hospitals to be included. This change would also 
help to ensure that eligible IHS hospitals receive an uncompensated 
care payment that does not significantly understate the amount of 
uncompensated care they provide. Accordingly, in the interim final rule 
with comment period, we revised the policy adopted in the FY 2014 IPPS/
LTCH PPS final rule to permit us to consider cost report data submitted 
to CMS as of March 2013 only by IHS hospitals in addition to data 
reflected in the March 2013 update of HCRIS, in calculating Factor 3 of 
the uncompensated care payment. The Medicaid days for IHS hospitals 
that are reflected in the cost report data would be included in the 
numerator of the Factor 3 calculation for IHS hospitals and would be 
included in the denominator of Factor 3 for all hospitals eligible to 
receive the uncompensated care payment.
    Comment: Several commenters supported the change in policy to 
incorporate hospital cost report data for IHS hospitals that was not 
included in the HCRIS database in the calculation of Factor 1 and 
Factor 3. Commenters agreed that it was inappropriate to exclude cost 
report data for IHS hospitals from the calculation of Factor 1 and 
supported the inclusion of cost report data for these hospitals in the 
calculation of Factor 1, which represents the Secretary's estimate of 
75 percent of Medicare DSH payments in FY 2014. In addition, commenters 
supported using IHS cost report data to identify Medicaid days to 
incorporate into the calculation of Factor 3 for these IHS hospitals. 
One commenter sought clarification of the definition of an IHS hospital 
in order to clarify what category of hospitals are subject to the 
policies finalized in the interim final rule with comment period. The 
commenters sought confirmation that an IHS hospital includes ``any 
hospital operated by an Indian Tribe or Tribal health program carrying 
out IHS programs under the Indian Self-Determination and Education 
Assistance Act (ISDEAA).'' In other words, the commenters sought 
clarification that IHS hospitals include facilities that are either 
owned or leased by IHS or are deemed by CMS to be IHS facilities 
because they are operated by an Indian Tribe or Tribal organization 
under the ISDEAA. The commenters also sought clarification that CMS 
will treat cost reports from all such qualifying hospitals in the same 
way that it treats IHS directly operated hospitals in determining the 
amount of uncompensated care payments.
    Response: We appreciate the commenters' support of our policy 
change. An IHS hospital is defined under section 1880 of the Act as a 
``hospital or skilled nursing facility of the Indian Health Service, 
whether

[[Page 50155]]

operated by such Service or by an Indian tribe or tribal organization 
(as those terms are defined in section 4 of the Indian Health Care 
Improvement Act) . . . .'' Therefore, with regard to the policies in 
the interim final rule with comment period related to IHS hospitals, we 
do not make a distinction with respect to whether the hospital is owned 
or operated by the Indian Health Service or by an Indian tribe or 
tribal organization. Cost report data submitted both by hospitals 
operated by the IHS and by hospitals operated by an Indian tribe or 
tribal organization are excluded from HCRIS. Therefore, the policies 
described in the interim final rule with comment period regarding the 
use of cost report data submitted by IHS hospitals in order to 
calculate Factor 1 and Factor 3 apply to all IHS hospitals whether they 
are owned or operated by the Indian Health Service or by an Indian 
tribe or tribal organization.
    Comment: Several commenters raised concerns that CMS did not 
adequately address mergers in the calculation of the uncompensated care 
payment. The commenters disagreed with CMS' treatment of mergers under 
the policy finalized in the FY 2014 IPPS/LTCH PPS final rule that if 
one DSH-eligible hospital merges with another DSH-eligible hospital, 
only the data associated with the surviving hospital is used to 
calculate the hospital's share of uncompensated care payments. 
Commenters asserted that the policy on mergers understates 
uncompensated care payments for merged providers and does not 
accurately reflect the merged hospital's uncompensated care costs.
    Response: We thank the commenters for these comments. However, we 
consider these comments to be out of the scope of the policies 
addressed in the interim final rule with comment period. We discuss our 
policies regarding the treatment of mergers in the calculation of the 
Factor 3 in section IV.F. of the preamble of this FY 2015 IPPS/LTCH PPS 
final rule.
    Comment: One commenter suggested that, for hospitals that had low-
income insured days calculated using a cost report for a cost reporting 
period that was less than 12 months, CMS should use low-income insured 
days based on an older cost reporting period that was 12 months.
    Response: We thank the commenter for this comment. However, we 
consider this comment to be out of the scope of the policies addressed 
in the interim final rule with comment period. We discuss our 
methodology to calculate Factor 3, including our treatment of short 
cost reporting periods, in section IV.F. of the preamble of this FY 
2015 IPPS/LTCH PPS final rule.
    Comment: One commenter addressed the calculation of the interim per 
claim uncompensated care payment amounts that are paid to hospitals 
projected to be eligible to receive DSH payments in a Federal fiscal 
year; the per claim amount is based on a hospital's total uncompensated 
care amount divided by the hospital's average number of claims from the 
most recent 3 years of data. Specifically, the commenter requested that 
CMS use the claims published in the case-mix files to calculate the 3-
year average because, in the commenter's view, CMS' data source 
understates the average number of claims potentially resulting in an 
overpayment on a per claim basis. The commenter also recommended that 
CMS use a growth factor to account for new enrollees that may increase 
the number of claims in the calculation of the three year average 
number of claims. The commenter also noted the wide variation in per 
claim amounts from approximately $9 to $167,000 and requested that CMS 
place a cap on the per claim amount to minimize swings in cash flow at 
cost report settlement and because it did not make sense that Medicare 
or MA plans pay such a high amount.
    Response: We thank the commenter for this comment. However, we 
consider the issues raised in the comment to be out of the scope of the 
policies addressed in the interim final rule with comment period. We 
received a similar comment on the FY 2015 IPPS/LTCH PPS proposed rule 
and address the comment in section IV.F. of the preamble of this FY 
2015 IPPS/LTCH PPS final rule.
    After consideration of the public comments we received, we are 
finalizing all of the provisions set forth in the interim final rule 
with comment period without modification, to allow final uncompensated 
care payments to be paid on the same schedule as Medicare DSH payments, 
so that both the uncompensated care payment and Medicare DSH payments 
will be paid and reconciled on a hospital's cost report, based on the 
applicable Federal fiscal year(s) and to allow information included in 
the cost reports submitted by IHS hospitals to be used in the 
calculation of Factor 1 and Factor 3. For information on the estimated 
change in payments to hospitals in FY 2014 as a result of the 
provisions set forth in the interim final rule with comment period, we 
refer readers to the regulatory impact statement in the interim final 
rule with comment period (78 FR 61197). We note that the impact of our 
decision to finalize the interim final rule with comment period is 
included in the regulatory impact statement in Appendix A of this FY 
2015 IPPS/LTCH PPS final rule as part of the discussion of the 
estimated change in payments to hospitals in FY 2015 as a result of the 
policies regarding Medicare DSH payments and uncompensated care 
payments that we are adopting in the final rule.

V. Changes to the IPPS for Capital-Related Costs

A. Overview

    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient acute hospital services ``in 
accordance with a prospective payment system established by the 
Secretary.'' Under the statute, the Secretary has broad authority in 
establishing and implementing the IPPS for acute care hospital 
inpatient capital-related costs. 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

[[Page 50156]]

extraordinarily high-cost cases that qualify under the thresholds 
established for each fiscal year.

B. Additional Provisions

1. Exception Payments
    The regulations at Sec.  412.348 provide for certain exception 
payments under the capital IPPS. The regular exception payments 
provided under Sec. Sec.  412.348(b) through (e) were available only 
during the 10-year transition period. For a certain period after the 
transition period, eligible hospitals may have received additional 
payments under the special exceptions provisions at Sec.  412.348(g). 
However, FY 2012 was the final year hospitals could receive special 
exceptions payments. For additional details regarding these exceptions 
policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51725).
    Under Sec.  412.348(f), a hospital may request an additional 
payment if the hospital incurs unanticipated capital expenditures in 
excess of $5 million due to extraordinary circumstances beyond the 
hospital's control. Additional information on the exception payment for 
extraordinary circumstances in Sec.  412.348(f) can be found in the FY 
2005 IPPS final rule (69 FR 49185 and 49186).
2. New Hospitals
    Under the capital IPPS, Sec.  412.300(b) of the regulations defines 
a new hospital as a hospital that has operated (under previous or 
current ownership) for less than 2 years and lists examples of 
hospitals that are not considered new hospitals. In accordance with 
Sec.  412.304(c)(2), under the capital IPPS a new hospital is paid 85 
percent of its allowable Medicare inpatient hospital capital-related 
costs through its first 2 years of operation, unless the new hospital 
elects to receive full prospective payment based on 100 percent of the 
Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51725) for additional information on payments to new hospitals 
under the capital IPPS.
3. Hospitals Located in Puerto Rico
    Section 412.374 of the regulations provides for the use of a 
blended payment amount for prospective payments for capital-related 
costs to hospitals located in Puerto Rico. Accordingly, under the 
capital IPPS, we compute a separate payment rate specific to Puerto 
Rico hospitals using the same methodology used to compute the national 
Federal rate for capital-related costs. In general, hospitals located 
in Puerto Rico are paid a blend of the applicable capital IPPS Puerto 
Rico rate and the applicable capital IPPS Federal rate. Capital IPPS 
payments to hospitals located in Puerto Rico are 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. Annual Update for FY 2015

    The 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 final rule.
    We note that, in section II.D. of the preamble of this final rule, 
we present a discussion of the MS-DRG documentation and coding 
adjustment, including previously finalized policies and historical 
adjustments, as well as the recoupment adjustment to the standardized 
amounts under section 1886(d) of the Act that we are finalizing for FY 
2015 in accordance with the amendments made to section 7(b)(1)(B) of 
Public Law 110-90 by section 631 of the ATRA. As we discussed in the FY 
2015 IPPS/LTCH PPS proposed rule (79 FR 28171), because section 631 of 
the ATRA requires CMS to make a recoupment adjustment only to the 
operating IPPS standardized amount, we are not making 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 final rule, we also note 
our discussion in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50747) 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 did not propose 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 final rule. We will consider 
whether such an adjustment to the capital IPPS Federal rate is 
appropriate in future years' rulemaking.

VI. Changes for Hospitals Excluded From the IPPS

A. 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 
Medicare reimbursement for 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

[[Page 50157]]

Islands, and American Samoa. For the reasons explained in the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50747), we proposed in the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28171) 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 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, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28172) we proposed 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.)
    We did not receive any public comments on these proposals. 
Therefore, we are finalizing our proposals as discussed above and in 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28171 through 28172). 
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 is the 
FY 2015 percentage increase in the FY 2010-based IPPS operating market 
basket.
    For the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28172), 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 
was 2.7 percent (that is, the estimate of the market basket rate-of-
increase). We indicated in the proposed rule that if more recent data 
became available for the final rule, we would use them to calculate the 
IPPS operating market basket update for FY 2015. For this FY 2015 IPPS/
LTCH PPS final rule, based on IHS Global Insight, Inc.'s 2014 second 
quarter forecast (which is the most recent data available), we 
calculated the FY 2010-based IPPS operating market basket update for FY 
2015 to be 2.9 percent. Therefore, the FY 2015 rate-of-increase 
percentage that is applied to the FY 2014 target amounts in order to 
calculate the final FY 2015 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 is 2.9 percent, in accordance with the applicable 
regulations at 42 CFR 413.40.

B. Report on Adjustment (Exceptions) Payments

    Section 4419(b) of Public Law 105-33 requires the Secretary to 
publish annually in the Federal Register a report describing the total 
amount of adjustment payments made to excluded hospitals and hospital 
units by reason of section 1886(b)(4) of the Act during the previous 
fiscal year.
    The process of requesting, adjusting, and awarding an adjustment 
payment is likely to occur over a 2-year period or longer. First, 
generally, an excluded hospital must file its cost report for a fiscal 
year in accordance with Sec.  413.24(f)(2). The MAC reviews the cost 
report and issues a notice of program reimbursement (NPR). Once the 
hospital receives the NPR, if its operating costs are in excess of the 
ceiling, the hospital may file a request for an adjustment payment. 
After the MAC receives the hospital's request in accordance with 
applicable regulations, the MAC or CMS, depending on the type of 
adjustment requested, reviews the request and determines if an 
adjustment payment is warranted. This determination is sometimes not 
made until more than 180 days after the date the request is filed 
because there are times when the applications are incomplete and 
additional information must be requested in order to have a completed 
application. However, in an attempt to provide interested parties with 
data on the most recent adjustments for which we do have data, we are 
publishing data on adjustment payments that were processed by the MAC 
or CMS during FY 2013.
    The table below includes the most recent data available from the 
MACs and CMS on adjustment payments that were adjudicated during FY 
2013. As indicated above, the adjustments made during FY 2013 only 
pertain to cost reporting periods ending in years prior to FY 2012. 
Total adjustment payments given to excluded hospitals during FY 2013 
are $1,829,578. The table depicts for each class of hospitals, in the 
aggregate, the number of adjustment requests adjudicated, the excess 
operating costs over the ceiling, and the amount of the adjustment 
payments.

----------------------------------------------------------------------------------------------------------------
                                                                      Excess cost     Adjustment
                 Class of hospital                      Number       over ceiling      payments
--------------------------------------------------------------------------------------------------
Children's........................................               4      $2,032,227      $1,182,011
Cancer............................................               0             N/A             N/A
Religious Nonmedical Health Care Institution                     3       1,056,142         647,567
 (RNHCI)..........................................
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total.........................................  ..............  ..............       1,829,578
----------------------------------------------------------------------------------------------------------------

C. 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

[[Page 50158]]

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 cost reimbursement for their physicians' direct medical and 
surgical services in accordance with section 1861(b)(7) of the Act are 
subject to the RCE 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 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.'' \56\ (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)):
---------------------------------------------------------------------------

    \56\ 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

[[Page 50159]]

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 direct 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. 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 the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28173), we proposed 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 believed that doing 
so will enhance the accuracy of the RCE limits. In addition, for the 
reasons discussed below, we proposed to eliminate the location 
adjustment to the RCE data, while continuing to adjust the RCE limits 
by specialty. We did not propose changes to any of the other existing 
policies with respect to the application of and exceptions to the RCE 
limits.
    We invited 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 invited 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.
    Comment: One commenter expressed appreciation that CMS is updating 
the RCE limits and suggested that CMS update the RCEs on an annual 
basis. The commenter also requested that the proposed RCEs be effective 
for cost reporting periods beginning on or after January 1, 2014, 
instead of cost reporting periods beginning on or after January 1, 
2015.
    Response: We will continue to review the RCE limits on a regular 
basis by applying the most recent economic index data and publish 
updates as necessary. We plan to keep the proposed effective date for 
the updated RCEs, as we do not believe it would be appropriate in this 
situation to make this provision retroactively effective.
    As discussed in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28173 through 28175), 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 nonmetropolitan 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 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

[[Page 50160]]

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, as we stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 
FR 28174), 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 CBSAs. 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 cost 
reimbursement for their physicians' direct medical and surgical 
services) 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 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

[[Page 50161]]

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 then-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 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, as we stated in 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28175), 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, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28175), we proposed 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.
    Comment: One commenter suggested CMS work with the BLS to obtain 
the information needed to calculate the RCE limits with a location 
adjustment. One commenter suggested that CMS develop an alternative 
method of establishing a location adjustment.
    Response: We plan to evaluate the BLS Occupational Employment 
Statistics and any other alternative data sources to further determine 
if a location adjustment is a viable option for future RCE updates.
    Comment: A few commenters suggested that CMS keep the location 
adjustment as part of the RCE limits. They stated that location-
adjusted RCE limits continue to be important in capturing accurate 
physician salary costs for all providers because all hospitals apply 
the RCE limits to physician salaries on Worksheet A-8-2 of the Medicare 
cost report. A few commenters expressed concern over the accuracy of 
costs, such as GME costs, that would result from applying RCE limits 
without a location adjustment.
    Response: RCE limits currently have a payment impact on 105 
Medicare providers, including 8 cancer hospitals, 51 children's 
hospitals and 46 electing teaching amendment (ETA) hospitals that 
elected cost reimbursement for their physicians' direct medical and 
surgical services. While it is true that all hospitals use the RCE 
limits on Worksheet A-8-2, for hospitals paid under the IPPS, the 
application of the RCE limits on Worksheet A-8-2 does not have a 
Medicare payment impact. Specifically, Worksheet C that is used for 
payment purposes calculates cost-to-charge ratios for IPPS hospitals 
using data prior to the application of the RCE limits on Worksheet A-8-
2. Therefore, RCE limits have no effect on payments to providers paid 
under the IPPS. For the 46 ETA hospitals, Worksheet D-5 is used to 
apply the RCE limits to determine the proper payment on a reasonable 
cost basis of direct medical and surgical services of the physician. 
Given the current limitations of the location designation data 
described in the proposed rule, we believe it is appropriate to 
eliminate the location adjustment to the RCE limits. Based on the 
analysis discussed above and in the proposed rule, we believe that the 
RCE limits calculated without a location adjustment are a reasonable 
reflection of mean annual physician income and will continue to ensure 
that providers subject to the RCE limits are paid in a fair and 
accurate manner. Because of this, and because the RCE limits impact a 
relatively small number of providers, we believe that eliminating the 
location adjustment will have a minimal overall effect on providers 
subject to the RCE limits and on the industry as a whole. While a few 
commenters expressed concern over the accuracy of GME costs, we note 
that, under Sec.  415.70(a)(2) of the regulations, RCE limits do not 
apply to costs of physician compensation attributable to approved GME 
programs that are payable under Sec. Sec.  413.75 through 413.83.
    After consideration of the public comments we received, in this 
final rule, we are adopting as final the proposed methodology for 
establishing the RCE limits. We are setting forth the final updated RCE 
limits on the amount of allowable compensation for services furnished 
by physicians to providers (and for ETA hospitals, for direct medical 
and surgical services of physicians) for cost reporting periods 
beginning on or after January 1, 2015. To calculate these final 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

[[Page 50162]]

updated these data by the CPI-U (from 1982 to 1997) and then by the MEI 
(from 1998 to 2015) to compute the updated RCE limits. The RCE limits 
implemented by this final rule vary slightly from those in the proposed 
rule due to a more recent estimate of the MEI for 2015.
    The chart below sets forth the final 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, established using the same methodology that was used to 
calculate the original and previous updates to the RCE limits, but not 
applying an adjustment based on geographical classification.

                        Final CY 2015 RCE Limits
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total...................................................        $211,500
General/Family Practice.................................         179,000
Internal Medicine.......................................         197,500
Surgery.................................................         246,400
Pediatrics..............................................         169,700
OB/GYN..................................................         237,100
Radiology...............................................         271,900
Psychiatry..............................................         181,300
Anesthesiology..........................................         239,400
Pathology...............................................         260,300
------------------------------------------------------------------------

    In addition, we are adopting as final our proposed revision of 
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.

D. 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), 
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 and Final Policy 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.
    As discussed in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28054 through 28064), we proposed to implement the most recently 
published OMB delineations announced in OMB Bulletin No. 13-01. (We 
refer readers to section III.B. of the preamble of this final rule for 
a discussion of our final decision to implement the new OMB 
delineations 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 implementation of 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 through 49222 and 69 FR 
60242 and 60252) and the FY 2010 IPPS/LTCH PPS final rule (74 FR 43939 
through 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. In 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28176), we stated that 
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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28176), we proposed 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, we stated in the proposed rule that if the 
OMB delineations announced in OMB Bulletin No. 13-01 on February 28, 
2013 discussed in section III.B. of the preamble of the proposed rule 
are implemented in this 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 this FY 2015 IPPS/LTCH PPS final rule would be required 
to reclassify as rural by September 30, 2016, in order to

[[Page 50163]]

retain its CAH status after September 30, 2016.
    To implement this proposed change, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28176), we proposed 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 stated 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.
    Comment: Commenters supported CMS' proposal to provide for a 2-year 
transition period to allow CAHs affected by the implementation of new 
OMB delineations time to reclassify as rural in order to retain their 
CAH status after the 2-year transition period ends. Several commenters 
requested that CMS work with and provide notification to affected CAHs 
to alert them to the need to reclassify as rural in order to retain 
their CAH status. One commenter asked how new OMB delineations would 
impact necessary provider CAHs previously reclassified under prior 
updates.
    Another commenter requested that CMS provide for a 3-year 
transition period to allow affected CAHs additional time to reclassify 
as rural or to prepare to transition to urban PPS facilities. The 
commenter stated that the size of CAHs and the number of regulations 
they must follow make it difficult for these facilities to process and 
respond to new requirements. The commenter stated that although only a 
small number of CAHs are affected by the new OMB delineations, those 
affected require considerable time to locate applicable State law, 
examine Rural Urban Commuting Area (RUCA) scores, and in general 
determine whether they are eligible to reclassify as rural facilities. 
The commenter stated that CMS has a precedent for providing a 3-year 
transition period because it proposed to apply such a grace period to 
urban facilities redesignated as rural so that these facilities have 
time to prepare for lower reimbursement resulting from several factors, 
including a lower wage index. The commenter stated that CAHs that lose 
their CAH status would also be subject to these lower payment rates and 
therefore would also benefit from being provided with a 3-year 
transition period.
    Response: We appreciate the commenters' support of our proposal to 
provide CAHs affected by new OMB delineations with a 2-year transition 
period to reclassify as rural in order to retain their CAH status after 
the 2-year transition period ends. In response to the commenters' 
request that CMS notify each CAH affected by a change in OMB 
delineations, we encourage CAHs to contact CMS if they have questions 
regarding their rural status and whether this status has changed as a 
result of the implementation of the new OMB delineations as discussed 
in section III.B. of the preamble of this final rule.
    In response to the question concerning necessary provider CAHs, 
section 1820(c)(2)(B)(i) of the Act requires that in order for a 
facility to be certified as a CAH, it must be located in a rural area 
or have reclassified as a rural facility. Therefore, if a necessary 
provider CAH is located in an urban area as a result of the new OMB 
delineations implemented in this final rule effective October 1, 2014, 
that CAH must now reclassify as rural in order to keep its CAH status 
after September 30, 2016. If a necessary provider CAH had previously 
reclassified as rural due to a prior change in OMB delineations, that 
CAH's rural status remains unchanged.
    In response to the request to provide affected CAHs with a 3-year 
transition period during which they could either reclassify as rural or 
prepare to transition to an PPS facility, we continue to believe that 2 
years is the appropriate amount of time for such a transition period. 
Consistent with the regulation changes made in FY 2005 and FY 2010 
final rules (69 FR 49221through 49222, 69 FR 60242 and 60252, and 74 FR 
43939 through 43940), we believe 2 years is a sufficient period of time 
in order for the CAH to work with its State to be designated as rural 
and engage in any other research it believes is necessary to determine 
whether it should reclassify as rural. Therefore, we are finalizing our 
proposal to provide CAHs affected by our implementation of the new OMB 
delineations with a 2-year transition period during which they must 
reclassify as rural in order to retain their CAH status after the 2-
year period ends.
    Comment: Commenters requested that, in addition to providing CAHs 
affected by the implementation of a new OMB delineation with a 2-year 
transition period to reclassify as rural, SCHs and MDHs affected by the 
implementation of a new OMB delineation also be provided with a 
transition period to reclassify as rural. One commenter requested that 
CMS clarify that a hospital's SCH status would not be affected by a CAH 
that is now located in an urban area as a result of a new OMB 
delineation while that CAH is in its 2-year transition period to 
reclassify as rural. Specifically, the commenter requested that a CAH 
not be considered a ``like hospital'' as defined at Sec.  412.92(c)(2) 
during its transition period.
    Response: We are clarifying that during an affected CAH's 2-year 
transition period, the facility will continue to be considered a CAH. 
We respond to the public comments related to transition periods for 
SCHs and MDHs in sections IV.G.4. and IV.G.5. of the preamble of this 
final rule.
    After consideration of the public comments we received, we are 
finalizing our policy as proposed to provide for a 2-year transition 
period for CAHs affected by the implementation of a new OMB delineation 
during which the CAH must reclassify as rural in order to retain its 
CAH status after the 2-year transition period ends. To implement this 
change, we are revising Sec.  412.103 by adding a new paragraph (a)(6), 
and revising 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 the 
implementation 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. These regulation changes are effective 
October 1, 2014. For purposes of applying these regulation changes to 
the new OMB delineations implemented in this final rule effective 
October 1, 2014, CAHs affected by these most recent OMB delineations 
will be treated as CAHs through September 30, 2016 and will have until 
September 30, 2016, to reclassify as rural in order to keep their CAH 
status after September 30, 2016.
3. 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 Sec.  424.15.

[[Page 50164]]

    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 that 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, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28176 through 28177), we proposed 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 
proposed to remove the requirement that certification of the 96-hour 
requirement must be completed prior to discharge and we proposed to 
reinstate the timing requirement that was in place prior to October 1, 
2013.
    We proposed 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 proposed to make a conforming amendment to 
Sec.  424.11(d)(5). Section 424.11(d)(5) states that for all inpatient 
hospital or critical access hospital inpatient services, including 
inpatient psychiatric facility services, a delayed certification may 
not extend past discharge. Because we proposed 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 proposed to revise Sec.  424.11(d)(5) to remove the 
phrase ``or critical access hospital inpatient''. We sought public 
comment on these proposed changes to the regulations governing the 
requirement for physician certification of CAH inpatient services.
    Comment: Most commenters supported the proposed change to allow 
physician certification to be completed 1 day prior to when the claim 
for the inpatient service is submitted. Commenters requested that CMS 
provide additional flexibility and avoid further confusion by 
clarifying that CAHs have until no later than 1 day prior to the day on 
which the claim for the inpatient service is submitted to complete all 
certification requirements. One commenter stated that the proposed 
change could cause inaccurate and delayed chart entries because the 
certification may take place 30, 60, or 90 days after the inpatient is 
discharged. The commenter recommended that physician certification be 
completed within 24 hours of admission and that the medical record be 
used to meet all certification requirements. One commenter stated that 
asking a physician to certify his or her expectation for an 
individual's length of stay after the individual's inpatient stay has 
exceeded 96 hours will create additional confusion and will be met with 
greater resistance from physicians. Commenters asked for clarification 
in understanding how the proposal would help CAHs if the certification 
is still required to state that the individual will be discharged or 
transferred to another hospital within 96 hours after admission to the 
CAH.
    Response: We appreciate the commenters' support of our proposal. In 
response to commenters who requested that CMS clarify that all 
certification requirements can be met no later than 1 day prior to when 
the claim is submitted, we are revising our proposed amendment to Sec.  
424.15(b) to provide that a CAH has until 1 day prior to when the claim 
for the inpatient service is submitted to complete all certification 
requirements. In order to finalize this policy, we are amending the 
regulation text at Sec.  424.11(d)(5) to remove the phrase ``or 
critical access hospital inpatient.'' In addition we are revising the 
regulations at Sec.  424.15(b) to state that certification begins with 
the order for inpatient admission. All certification requirements 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. We believe these changes are 
consistent with the 96-hour certification requirement and the existing 
CoP requirements.
    In response to commenters' concerns about providing a delayed 
certification, the policy finalized in this rule requires that all 
certification requirements be completed no later than 1 day prior to 
when the claim for the inpatient service is submitted. Therefore, CAHs 
are not precluded from completing these certification requirements in 
advance of this deadline if they believe an earlier completion of 
certification requirements is appropriate. We note that we are not 
making any changes related to the order requirements for admission and 
that in accordance with Sec.  412.3, an order is required before or at 
the time of admission to admit an individual as an inpatient. In 
addition, we refer readers to the CY 2015 OPPS/ASC proposed rule, 
specifically section ``XVI. Proposed Revision of the Requirements for 
Physician Certification of Hospital Inpatient Services Other 
Psychiatric Inpatient Services'' (79 FR 41056 through 41058). In the CY 
2015 OPPS/ASC proposed rule, we proposed to require inpatient admission 
orders as a condition of payment based upon our general rulemaking 
authority under section 1871 of the Act rather than as an element of 
the physician certification under section 1814(a)(3) of the Act. In 
addition, in the CY 2015 OPPS/ASC proposed rule, we proposed to change 
our interpretation of section 1814(a)(3) of the Act to require a 
physician certification only for long-stay cases and outlier cases. In 
that rule, we proposed that 20 days is an appropriate minimum threshold 
for physician certification and we proposed to define long-stay cases 
as cases with stays of 20 days or longer. These proposed changes refer 
to the general physician certification requirements under section 
1814(a)(3) of the Act and do not address the 96-hour certification 
requirement at section 1814(a)(8) of the Act
    Comment: Although many commenters supported the proposed change, 
many commenters indicated that they continue to have significant 
concerns with the 96-hour certification requirement and that the 
proposed change does not do enough to alleviate these concerns. 
Commenters stated they continue to support the Critical Access Hospital 
Relief Act of 2014, which would remove the 96-hour certification 
requirement for payment. Commenters requested that CMS exercise its 
discretion and make clear it will not enforce the 96-hour certification 
requirement because as long as this requirement is enforced, CAHs may 
not be eligible for Medicare payment. One commenter stated that 
occasionally admitting a patient who is expected to stay longer than 96 
hours is permissible and should be paid. Commenters stated that 
physicians have been given the impossible task of coordinating the 96-
hour certification requirement for payment with the 2-midnight policy 
and that, in some cases, the physician must certify that the patient 
will be transferred or discharged within a 49-hour timeframe. Another 
commenter stated that the 96-hour certification requirement is obsolete 
and does not recognize advancements in services which CAHs provide, 
including telehealth services. Commenters

[[Page 50165]]

requested that CMS seek a legislative change that would align the 
certification requirement for payment with the CAH CoP requirement, 
which requires an annual average length of stay of 96 hours. Commenters 
stated that the certification requirement for payment could be met by 
requiring that the CAH certify that it has the appropriate resources 
and staff to treat the inpatient. Commenters stated that the CAH 
program was established to provide individuals living in rural areas 
with access to critical health care services so that these individuals 
can receive high quality and cost efficient care close to home even 
though providing this type of care may prove to be unprofitable for a 
CAH. Commenters stated that CAHs provide services that may require 
longer lengths of stay, and while the provision of these services does 
not violate the CoP requirement for an annual average length of stay of 
96 hours, CAHs are prevented from providing these types of services 
because they cannot meet the 96-hour certification requirement for 
payment. Commenters stated they are concerned about their ability to 
treat patients, employ new providers, and maintain services essential 
to their community.
    Commenters expressed concern about the impact of the 96-hour 
certification requirement for payment on surgical procedures. 
Commenters stated CAHs have put much effort into providing these 
procedures so that beneficiaries, particularly elderly individuals, can 
receive these services close to home. One commenter stated that 
surgeons who practice in rural areas rely on performing specific 
surgical procedures such as colon resections. The commenter stated that 
if these surgeons are only able to provide short-stay procedures and 
can no longer provide procedures that require longer lengths of stay, 
they would likely discontinue practicing at CAHs. One commenter stated 
that delaying the 96-hour certification requirement is not a resolution 
because it does not eliminate the fact that a surgeon will be unable to 
admit an individual to a CAH if he or she ethically believes that the 
individual will need 5 days as an inpatient.
    One commenter recommended CMS withdraw the policy related to the 
96-hour certification requirement for payment in the final rule for 
several reasons. The commenter stated that the policy jeopardizes a 
physician's ability to care for his or her patient as required by the 
patient's condition because admission should be based on medical 
judgment once an individual's condition and symptoms are evaluated. The 
commenter stated that implementation of the policy will result in 
dissatisfaction and confusion because patients will have to become 
accustomed to new hospitals and new medical staff and a decline in 
patient satisfaction scores is something from which a hospital may not 
be able to recover. The commenter stated that although the 96-hour 
certification requirement is in statute, it was not enforced by CMS 
until FY 2014 and that CAHs were not given advance notification of the 
enforcement and there has been little preparation, training or guidance 
from CMS until very recently. The commenter noted that medical staff of 
its member CAHs are angry and frustrated especially because of the 
detrimental effect of the 96-hour certification requirement on their 
patients.
    Response: As stated earlier in this preamble, we believe the policy 
we are finalizing in this rule is consistent with the 96-hour 
certification requirement and the existing CoP requirements. The 
remainder of this response provides a review of the 96-hour 
certification requirement.
    For inpatient CAH services, section 1814(a)(8) of the Act requires 
for Medicare Part A payment that ``in the case of inpatient critical 
access hospital services, a physician certifies that the individual may 
reasonably be expected to be discharged or transferred to a hospital 
within 96 hours after admission to the critical access hospital.'' 
Because this statutory requirement is based on an expectation, if a 
physician certifies in good faith, that an individual may reasonably be 
expected to be discharged or transferred to a hospital within 96 hours 
after admission to the CAH and then something unforeseen occurs that 
causes the individual to stay longer at the CAH, Medicare will pay for 
the costs of treating that patient and there would not be a problem 
with regard to the CAH designation as long as that individual's stay 
does not cause the CAH to exceed its 96-hour annual average CoP 
requirement. However, if a physician cannot in good faith certify that 
an individual may reasonably be expected to be discharged or 
transferred within 96 hours after admission to the CAH, the CAH will 
not receive Medicare Part A payment for any portion of that 
individual's inpatient stay.
    In addition, time as an outpatient at the CAH is not included in 
applying the 96-hour requirement, nor does time in a CAH swing bed, 
which is being used to provide skilled nursing services, count towards 
the 96-hour requirement. The clock for the 96 hours only begins once 
the individual is admitted to the CAH as an inpatient.
    After consideration of the public comments we received, we are 
finalizing a policy that a CAH is required to complete all physician 
certification requirements no later than 1 day before the date on which 
the claim for the inpatient service is submitted. In order to finalize 
this change, we are amending the regulation text at Sec.  424.11(d)(5) 
to remove the phrase ``or critical access hospital inpatient.'' In 
addition, we are revising the regulations at Sec.  424.15(b) to state 
that certification begins with the order for inpatient admission. All 
certification requirements 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. These 
changes are effective October 1, 2014.

VII. 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

[[Page 50166]]

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 final 
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 final 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 final 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 beginning 
with FY 2016. In section VII.E. of the preamble of this final 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 final 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 final 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 final 
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 finalize a policy to apply a 
payment adjustment under the LTCH PPS to ``subclause (II)'' LTCHs 
beginning in FY 2015 that will 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

[[Page 50167]]

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. The HIT Policy Committee (a Federal 
Advisory Committee) has recommended areas in which HIT certification 
under the ONC HIT Certification Program would help support providers 
that are eligible for the Medicare and Medicaid EHR Incentive Programs, 
such as long-term and postacute care (including LTCHs) and behavioral 
health care providers. 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 ONC HIT 
Certification Program and efforts to develop standards applicable to 
LTCHs can be found by accessing the following Web sites and resources:
     http://www.healthit.gov/sites/default/files/generalcertexchangeguidance_final_9-9-13.pdf;
     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. 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

[[Page 50168]]

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. After finalizing the proposed changes to the MS-DRG 
groupings described in section II.G. of this preamble, there are 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 used 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 
assigned 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 FY 
2015 MS-LTC-DRG relative weights under the LTCH PPS.
    In a departure from the IPPS, and as discussed in greater detail 
below in section VII.B.3.f. of this preamble, we are continuing to use 
low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs with less than 25 LTCH 
cases) in determining the MS-LTC-DRG relative weights because LTCHs do 
not typically treat the full range of diagnoses as do acute care 
hospitals. For purposes of determining the relative weights for the 
large number of low-volume MS-LTC-DRGs, we grouped 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 
accounted for adjustments to payments for short-stay outlier (SSO) 
cases (that is, cases where the covered length of stay at the LTCH is 
less than or equal to five-sixths of the geometric average length of 
stay for the MS-LTC-DRG). Furthermore, we made adjustments to account 
for nonmonotonically increasing weights, when necessary. That is, 
theoretically, cases under the MS-LTC-DRG system that are more severe 
require greater expenditure of medical care resources and will result 
in higher average charges such that, in the severity levels within a 
base MS-LTC-DRG, the relative weights should increase monotonically 
with severity from the lowest to highest severity level. (We discuss 
nonmonotonicity in greater detail and our methodology to adjust the MS-
LTC-DRG relative weights to account for nonmonotonically increasing 
relative weights in section VII.B.3.g. (Step 6) of this preamble.)
2. Patient Classifications into MS-LTC-DRGs
a. Background
    The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under 
the LTCH PPS) are based on the CMS DRG structure. As noted above in 
this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs 
although they are structurally identical to the MS-DRGs used under the 
IPPS.
    The MS-DRGs are organized into 25 major diagnostic categories 
(MDCs), most of which are based on a particular organ system of the 
body; the remainder involve multiple organ systems (such as MDC 22, 
Burns). Within most MDCs, cases are then divided into surgical DRGs and 
medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy 
that orders operating room (O.R.) procedures or groups of O.R. 
procedures by resource intensity. The GROUPER software program does not 
recognize all ICD-9-CM procedure codes as procedures affecting DRG 
assignment. That is, procedures that are not surgical (for example, 
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

[[Page 50169]]

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 final 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. In the FY 2015 
IPPS/LTCH PPS proposed rule, we referred readers to section II.G.1. of 
the preamble of that proposed rule for additional information on the 
implementation of the ICD-10 coding system.
    Comment: One commenter requested that CMS develop a crosswalk 
between ICD-9-CM codes and ICD-10 codes to specifically assist LTCH 
providers in determining the appropriate MS-LTC-DRGs that are affected 
as a result of the transition to ICD-10-PCS. The commenter stated that 
additional guidance is needed regarding the specific MS-LTC-DRGs that 
LTCHs should concentrate their efforts on during the delay in the 
implementation of ICD-10-PCS.
    Response: As noted above, the MS-LTC-DRGs under the LTCH PPS are 
structurally identical to the MS-DRGs used under the IPPS. For a 
detailed discussion of the conversion from the ICD-9-CM to the ICD-10-
PCS code set and the ICD-9-CM to ICD-10 MS-DRGs, we refer readers to 
section II.G.1.a. of the preamble of this FY 2015 IPPS/LTCH PPS final 
rule. Included in this discussion are all the ICD-10 resources publicly 
available via the Internet on the CMS ICD-10 Web site: http://www.cms.gov/Medicare/Coding/ICD10/index.html. For example, the General 
Equivalence Mappings (GEMs) that consist of forward and backward 
mappings of ICD-9-CM and ICD-10-PCS coding sets are available for 
providers to review their current list of ICD-9-CM codes and map (or 
crosswalk) them to the appropriate available ICD-10-PCS codes. However, 
we note that the GEMs are not a substitute for coding from actual 
medical record documentation using the ICD-10-PCS code set. We also 
have held several ICD-10-PCS National Provider Calls where interested 
parties can listen to past presentations and review the accompanying 
slide presentations available. We refer readers to the following Web 
site: http://www.cms.gov/Medicare/Coding/ICD10/CMS-Sponsored-ICD-10-Teleconferences.html.
    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. 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 proposed to update the MS-LTC-DRG classifications effective 
October 1, 2014, through September 30, 2015 (FY 2015) consistent with 
the proposed changes to specific MS-DRG classifications (that is, 
proposed GROUPER Version 32.0). We did not receive any public comments 
on this proposal. Therefore, we are adopting the proposal without 
modification in this final rule. In accordance with Sec.  412.517(a) 
and consistent with our historical practice, we are updating the MS-
LTC-DRG classifications effective October 1, 2014, through September 
30, 2015 (FY 2015) consistent with the changes to specific MS-DRG 
classifications presented in section II.G. of this preamble (that is, 
GROUPER Version 32.0). Therefore, the MS-LTC-DRGs for FY 2015 presented 
in this final rule are the same as the MS-DRGs that are being used 
under the IPPS for FY 2015. In addition, because the MS-LTC-DRGs for FY 
2015 are the same as the MS-DRGs for FY 2015, the other changes that 
affect MS-DRG (and by extension MS-LTC-DRG) assignments under GROUPER 
Version 32.0 as discussed in section II.G. of the preamble of this 
final rule, including the changes to the MCE software and the ICD-9-CM 
coding system, also are applicable under the LTCH PPS for FY 2015.
3. Development of the 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

[[Page 50170]]

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 is generally consistent with the general methodology 
established when the LTCH PPS was implemented in the August 30, 2002 
LTCH PPS final rule (67 FR 55989 through 55991), with the exception of 
some modifications of our historical procedures for assigning relative 
weights in cases of zero volume and/or nonmonotonicity resulting from 
the adoption of the MS-LTC-DRGs. (For details on the modifications to 
our historical procedures for assigning relative weights in cases of 
zero volume and/or nonmonotonicity, we refer readers to the FY 2008 
IPPS final rule with comment period (72 FR 47289 through 47295) and the 
FY 2009 IPPS final rule (73 FR 48542 through 48550).) Under the LTCH 
PPS, relative weights for each MS-LTC-DRG are a primary element used to 
account for the variations in cost per discharge and resource 
utilization among the payment groups (Sec.  412.515). To ensure that 
Medicare patients classified to each MS-LTC-DRG have access to an 
appropriate level of services and to encourage efficiency, we calculate 
a relative weight for each MS-LTC-DRG that represents the resources 
needed by an average inpatient LTCH case in that MS-LTC-DRG. For 
example, cases in a MS-LTC-DRG with a relative weight of 2 will, on 
average, cost twice as much to treat as cases in a MS-LTC-DRG with a 
relative weight of 1.
b. Development of the MS-LTC-DRG Relative Weights for FY 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 the FY 
2015 IPPS/LTCH PPS proposed rule (79 FR 28181 through 28187), we 
proposed to continue to use our existing methodology to determine the 
MS LTC-DRG relative weights for FY 2015, including the application of 
established policies related to the data, the hospital-specific 
relative value methodology, the treatment of severity levels in the MS 
LTC-DRGs, low-volume and no-volume MS-LTC-DRGs, adjustments for 
nonmonotonicity, and the steps for calculating the proposed MS-LTC-DRG 
relative weights with a budget neutrality factor.
    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 proposed to 
continue to apply our established two-step budget neutrality 
methodology. As such, the proposed update to the MS-LTC-DRG 
classifications and relative weights for FY 2015 was 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).
    Comment: A few commenters recommended that CMS review its 
calculation of the proposed FY 2015 MS-LTC-DRG relative weights with 
the proposed budget neutrality factor to confirm that the those weights 
resulted in no change in aggregate LTCH PPS payments under Sec.  
412.517. The commenters made this request after performing their own 
analysis of the proposed relative weight calculations. One commenter 
performed a comparative analysis using the LTCH discharges from the 
MedPAR data and its estimate of LTCH PPS payments using the FY 2014 MS-
LTC-DRGs relative weights and the proposed FY 2015 MS-LTC-DRGs relative 
weights, and found an aggregate reduction in LTCH PPS payments, in 
which the majority of that reduction was due to the proposed decrease 
in the relative weight for MS-LTC-DRG 207. Another commenter's analysis 
found a reduction in the proposed relative weight for 11 of the 20 most 
frequently utilized MS-LTC-DRGs, which the commenter believed suggested 
that the proposed MS-LTC-DRGs relative weights result in an aggregate 
decrease in LTCH PPS payments. Because these commenters believed that 
their analyses revealed an estimated aggregate decrease in LTCH PPS 
payments, they further believed that the proposed MS-LTC-DRGs relative 
are not ``budget neutral'' and, therefore, are not consistent with the 
requirement under Sec.  412.517(b) that CMS ensure that estimated LTCH 
PPS payments are not affected by the annual update to the MS-LTC-DRGs 
classifications and relative weights. We note that the commenters did 
not comment specifically on any of our specific proposals related to 
the determination of the MS-LTC-DRGs relative weights for FY 2015, 
which includes our calculation of the normalization factor and the 
budget neutrality factor determined under the proposed application of 
our two-step budget neutrality methodology (discussed in Step 7 of 
section VII.B.3.g. of the proposed rule).
    Response: We appreciate the commenters' analysis of the 
determination of the proposed MS-LTC-DRG relative weight calculations. 
In consideration of these public comments, we have reviewed the 
application of our methodology and the calculation of the MS-LTC-DRGs 
relative weights for FY 2015. We found no methodological or 
computational errors. In particular, in light of the commenter's focus 
on MS-LTC-DRG 207, we reviewed our budget neutrality calculations to 
ensure that the proposed decrease in the relative weight for MS-LTC-DRG 
207 was accurately reflected in our aggregate LTCH PPS payment 
estimates. As described in step 7 under section VII.B.3.g. of the 
proposed rule, after determining and applying the normalization factor, 
we 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 using LTCH 
claims data from the December 2013 update of the FY 2013 MedPAR file. 
Prior to the application of the proposed budget neutrality factor, we 
estimated that aggregate LTCH PPS payments using the proposed FY 2015 
MS-LTC-DRGs and normalized relative weights would have resulted in an 
increase in aggregate LTCH PPS payments in FY 2015. To remove this 
estimated increase in aggregate LTCH PPS payments, we determined that a 
factor of 0.995275 needed to be applied to each of the

[[Page 50171]]

proposed normalized FY 2015 MS-LTC-DRG relative weights. Therefore, we 
disagree with the commenters that the proposed MS LTC DRG relative 
weights are not ``budget neutral,'' and are not consistent with the 
budget neutrality requirement under Sec.  412.517(b). As noted above, 
the commenters did not comment specifically on our calculation of the 
normalization factor and the budget neutrality factor determined under 
the proposed application of our two-step budget neutrality methodology.
    The budget neutrality provision under Sec.  412.517(b) requires 
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 proposed to continue to apply our established 
two-step budget neutrality methodology. Under both steps of this 
methodology, based on the best data available, we assess the aggregate 
effects of the annual classification and relative weight changes. 
Specifically, as described in the proposed rule, in the first step we 
determine a normalization factor to ensure that estimated payments are 
not affected by changes in the composition of case types or the changes 
to the classification system using a ratio of average CMIs calculated 
across all LTCH PPS cases used for recalibration. Similarly, in the 
second step, the comparison of estimated aggregate LTCH PPS payments 
used to determine the budget neutrality factor is based on the sum of 
the estimated payments for all LTCH claims in the specified database. 
While the commenter is correct that the proposed relative weights for 
11 of the 20 most frequently utilized MS-LTC-DRGs (or approximately 55 
percent) are decreasing (which includes MS-LTC-DRG 207), the LTCH cases 
in those MS-LTC-DRGs only includes less than 60 percent of the LTCH 
claims. When the analysis is expanded to the 50 most frequently 
utilized MS-LTC-DRGs, which includes over 80 percent of the LTCH 
claims, the percentage of MS-LTC-DRGs with a proposed decrease in its 
relative weight drops to approximately 45 percent. This demonstrates 
that the number of MS-LTC-DRGs included in such an analysis can show 
contrary results. Therefore, we disagree with the commenter's assertion 
that its analysis of the proposed relative weights for 11 of the 20 
most frequently utilized MS-LTC-DRGs is an indication that the proposed 
MS-LTC-DRG relative weights will result in an aggregate decrease in 
LTCH PPS payments and, therefore, are not budget neutral.
    In this FY 2015 IPPS/LTCH PPS final rule, after consideration of 
public comments we received, as proposed, we are continuing to apply 
our established methodology to develop the MS-LTC-DRG relative weights 
for FY 2015. Specifically, we are finalizing our proposed methodology 
for developing the FY 2015 MS-LTC-DRG relative weights without 
modification, including the proposed application of established 
policies related to the data, hospital-specific relative value 
methodology, the treatment of severity levels in the MS-LTC-DRGs, low-
volume and no-volume MS-LTC-DRGs, adjustments for nonmonotonicity, and 
the proposed steps for calculating the MS-LTC-DRG relative weights with 
a budget neutrality factor. Below we present the methodology that we 
are continuing 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. In addition, after consideration of the 
public comments we received, we are adopting as final the continued 
application our established two-step budget neutrality methodology, 
which is based on the current year MS-LTC-DRG classifications and 
relative weights (that is, 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. As stated previously in this section, this 
approach is consistent with our proposals regarding the continued 
application of established policies related to the data as presented in 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28181 through 28182), 
which we are finalizing without modification in this final rule. 
Consistent with our historical practice, to calculate the MS-LTC-DRG 
relative weights for FY 2015 in this final rule, we obtained total 
charges from the FY 2013 Medicare LTCH bill data from the March 2014 
update of the FY 2013 MedPAR file, which are the best available data at 
this time, and used Version 32.0 of the GROUPER to classify LTCH cases.
    In this final rule and consistent with our historical methodology, 
we excluded the data from LTCHs that are all-inclusive rate providers 
and LTCHs that are reimbursed in accordance with demonstration projects 
authorized under section 402(a) of Public Law 90-248 or section 222(a) 
of Public Law 92-603. Furthermore, consistent with our historical 
practice, we excluded Medicare Advantage (Part C) claims, which are now 
included in the MedPAR files, in the calculations for the relative 
weights under the LTCH PPS that are used to determine payments for 
Medicare fee-for-service claims. Specifically, we did not use any 
claims from the MedPAR files that had a GHO Paid indicator value of 
``1,'' which effectively removed Medicare Advantage claims from the 
relative weight calculations. Accordingly, in the development of the FY 
2015 MS-LTC-DRG relative weights in this final rule, we excluded the 
data of 12 all-inclusive rate providers and one LTCH that is paid in 
accordance with demonstration projects that had claims in the March 
2014 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. As stated 
previously in this section, this approach is consistent with our 
proposals regarding the continued use of the HSRV methodology as 
presented in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28182), 
which we are finalizing without modification in this final rule. 
Therefore, in this final rule, to account for the fact that cases may 
not be randomly distributed across LTCHs, consistent with the 
methodology we

[[Page 50172]]

have used since the implementation of the LTCH PPS, we are continuing 
to use a hospital-specific relative value (HSRV) methodology to 
calculate the 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 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 continuing 
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 MS-LTC-DRG Relative 
Weights
    For purposes of determining the MS-LTC-DRG relative weights, under 
our historical methodology, there are three different categories of MS-
DRGs based on volume of cases within specific MS-LTC-DRGs: (1) MS-LTC-
DRGs with at least 25 cases are each assigned a unique relative weight; 
(2) low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs that contain between 1 
and 24 cases based on a given year's claims data) are grouped into 
quintiles (as described below) and assigned the relative weight of the 
quintile; and (3) no-volume MS-LTC-DRGs (that is, no cases in the given 
year's claims data are assigned to those MS-LTC-DRGs) are cross-walked 
to other MS-LTC-DRGs based on the clinical similarities and assigned 
the relative weight of the cross-walked MS-LTC-DRG (as described in 
greater detail below). As stated previously in this section, this 
approach is consistent with our proposals regarding the continued use 
of our existing methodology related to the treatment of severity levels 
as presented in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28182), 
which we are finalizing without modification in this final rule.
    Therefore, in this final rule, we are continuing to utilize these 
same three categories of MS-LTC-DRGs for purposes of the treatment of 
severity levels in determining the MS-LTC-DRG relative weights for FY 
2015. (We provide in-depth discussions of our policy regarding weight-
setting for low-volume MS-LTC-DRGs in section VII.B.3.f. of the 
preamble of this final rule and for no-volume MS-LTC-DRGs, under Step 5 
in section VII.B.3.g. of the preamble of this final rule.) Furthermore, 
in determining the FY 2015 MS-LTC-DRG relative weights, when necessary, 
we made 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. Low-Volume MS-LTC-DRGs
    In order to account for MS-LTC-DRGs with low volume (that is, with 
fewer than 25 LTCH cases), consistent with our existing methodology for 
purposes of determining the FY 2015 MS-LTC-DRG relative weights, we are 
continuing to employ the quintile methodology for low-volume MS-LTC-
DRGs, such that we grouped the ``low-volume MS-LTC-DRGs'' (that is, MS-
LTC-DRGs that contained between 1 and 24 cases annually) into one of 
five categories (quintiles) based on average charges (67 FR 55984 
through 55995 and 72 FR 47283 through 47288). As stated previously in 
this section, this approach is consistent with our proposals regarding 
the continued use of our existing methodology for the treatment of low-
volume MS-LTC-DRGs as presented in the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 28182 through 28183), which we are finalizing without 
modification in this final rule. Therefore, in determining the FY 2015 
MS-LTC-DRG relative weights in this final rule, in cases where the 
initial assignment of a 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 made 
adjustments to the treatment of low-volume MS-LTC-DRGs to preserve 
monotonicity, as discussed in detail below in section VII.B.3.g. (Step 
6) of the preamble of this final rule.
    In this final rule, using LTCH cases from the March 2014 update of 
the FY 2013 MedPAR file (which is currently the best available data), 
we identified 295 MS-LTC-DRGs that contained between 1 and 24 cases. 
This list of MS-LTC-DRGs was then divided into one of the 5 low-volume 
quintiles, each containing 59 MS-LTC-DRGs (295/5 = 59). We assigned a 
low-volume MS-LTC-DRG to a specific low-volume quintile by sorting the 
low-volume MS-LTC-DRGs in ascending order by average charge in 
accordance with our established methodology. Based on the data 
available for this final rule, the number of MS-LTC-DRGs with less than 
25 cases was evenly divisible by 5, and therefore, it was not necessary 
to employ our historical methodology for determining which of the low-
volume quintiles contain an additional low-volume MS-LTC-DRG. 
Specifically for this final rule, after organizing the MS-LTC-DRGs by 
ascending order by

[[Page 50173]]

average charge, we assigned the first fifth (1st through 59th) of low-
volume MS-LTC-DRGs (with the lowest average charge) into Quintile 1. 
The MS-LTC-DRGs with the highest average charge cases were assigned 
into Quintile 5. Table 13A, which is listed in section VI. of the 
Addendum to this final rule and is available via the Internet, lists 
the composition of the low-volume quintiles for MS-LTC-DRGs for FY 
2015.
    Accordingly, in order to determine the FY 2015 relative weights for 
the MS-LTC-DRGs with low volume, we used the five low-volume quintiles 
described above. We determined a relative weight and (geometric) 
average length of stay for each of the five low-volume quintiles using 
the methodology that we applied to the MS-LTC-DRGs (25 or more cases), 
as described below in section VII.B.3.g. of the preamble of this final 
rule. We assigned the same relative weight and average length of stay 
to each of the low-volume MS-LTC-DRGs that made up an individual low-
volume quintile. We note that, as this system is dynamic, it is 
possible that the number and specific type of MS-LTC-DRGs with a low 
volume of LTCH cases will vary in the future. Furthermore, we note that 
we will continue to monitor the volume (that is, the number of LTCH 
cases) in the low-volume quintiles to ensure that our quintile 
assignments used in determining the MS-LTC-DRG relative weights result 
in appropriate payment for such cases and do not result in an 
unintended financial incentive for LTCHs to inappropriately admit these 
types of cases.
g. Steps for Determining the FY 2015 MS-LTC-DRG Relative Weights
    In this final rule, we determined the 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).) 
As stated previously in this section, this approach is consistent with 
our proposals regarding the continued use of our existing methodology 
to determine the FY 2015 MS-LTC-DRG relative weights as presented in 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28183 through 28187), 
which we are finalizing without modification in this final rule.
    In summary, to determine the FY 2015 MS-LTC-DRG relative weights, 
we grouped LTCH cases to the appropriate MS-LTC-DRG, while taking into 
account the low-volume quintile (as described above). After grouping 
the cases to the appropriate MS-LTC-DRG (or low-volume quintile), we 
calculated the FY 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 adjusted the number of cases in each MS-LTC-DRG (or 
low-volume quintile) for the effect of SSO cases (Step 3 below). After 
removing statistical outliers (Step 1 below) and cases with a length of 
stay of 7 days or less (Step 2 below), the SSO adjusted discharges and 
corresponding charges were then used to calculate ``relative adjusted 
weights'' for each MS-LTC-DRG (or low-volume quintile) using the HSRV 
method. Below we discuss in detail the steps for calculating the FY 
2015 MS-LTC-DRG relative weights. We note that, as we discussed in 
section VII.B.3.c. of the preamble of this final 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 
March 2014 update of the FY 2013 MedPAR file.
    Step 1--Remove statistical outliers.
    The first step in the calculation of the FY 2015 MS-LTC-DRG 
relative weights is to remove statistical outlier cases. Consistent 
with our historical relative weight methodology, we are continuing to 
define statistical outliers as cases that are outside of 3.0 standard 
deviations from the mean of the log distribution of both charges per 
case and the charges per day for each MS-LTC-DRG. These statistical 
outliers were removed prior to calculating the relative weights because 
we believe that they may represent aberrations in the data that distort 
the measure of average resource use. Including those LTCH cases in the 
calculation of the relative weights could result in an inaccurate 
relative weight that does not truly reflect relative resource use among 
the MS-LTC-DRGs. (For additional information on this step of the 
relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 
43959.)
    Step 2--Remove cases with a length of stay of 7 days or less.
    The MS-LTC-DRG relative weights reflect the average of resources 
used on representative cases of a specific type. Generally, cases with 
a length of stay of 7 days or less do not belong in a LTCH because 
these stays do not fully receive or benefit from treatment that is 
typical in a LTCH stay, and full resources are often not used in the 
earlier stages of admission to a LTCH. If we were to include stays of 7 
days or less in the computation of the FY 2015 MS-LTC-DRG relative 
weights, the value of many relative weights would decrease and, 
therefore, payments would decrease to a level that may no longer be 
appropriate. We do not believe that it would be appropriate to 
compromise the integrity of the payment determination for those LTCH 
cases that actually benefit from and receive a full course of treatment 
at a LTCH by including data from these very short stays. Therefore, 
consistent with our historical relative weight methodology, in 
determining the FY 2015 MS-LTC-DRG relative weights, we removed LTCH 
cases with a length of stay of 7 days or less. (For additional 
information on this step of the relative weight methodology, we refer 
readers to 67 FR 55989 and 74 FR 43959.)
    Step 3--Adjust charges for the effects of SSOs.
    After removing cases with a length of stay of 7 days or less, we 
were left with cases that have a length of stay of greater than or 
equal to 8 days. As the next step in the calculation of the FY 2015 MS-
LTC-DRG relative weights, consistent with our historical relative 
weight methodology, we adjusted each LTCH's charges per discharge for 
those remaining cases for the effects of SSOs (as defined in Sec.  
412.529(a) in conjunction with Sec.  412.503).
    In this final rule, we made this adjustment by counting an SSO case 
as a fraction of a discharge based on the ratio of the length of stay 
of the case to the average length of stay for the MS-LTC-DRG for non-
SSO cases. This has the effect of proportionately reducing the impact 
of the lower charges for the SSO cases in calculating the average 
charge for the MS-LTC-DRG. This process produces the same result as if 
the actual charges per discharge of an SSO case were adjusted to what 
they would have been had the patient's length of stay been equal to the 
average length of stay of the MS-LTC-DRG.
    Counting SSO cases as full discharges with no adjustment in 
determining the FY 2015 MS-LTC-DRG relative weights would lower the FY 
2015 MS-LTC-DRG relative weight for affected MS-LTC-DRGs because the 
relatively lower charges of the SSO cases would bring down the average 
charge for all cases within a MS-LTC-DRG. This would result in an 
``underpayment'' for non-SSO cases and an ``overpayment'' for SSO 
cases. Therefore, we adjusted for SSO cases under Sec.  412.529 in this 
manner because it results in more appropriate payments for all LTCH 
cases. (For additional information on this step of the relative weight

[[Page 50174]]

methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)
    Step 4--Calculate the FY 2015 MS-LTC-DRG relative weights on an 
iterative basis.
    Consistent with our historical relative weight methodology, we 
calculated the FY 2015 MS-LTC-DRG relative weights using the HSRV 
methodology, which is an iterative process. First, for each LTCH case, 
we calculated a hospital-specific relative charge value by dividing the 
SSO adjusted charge per discharge (see Step 3) of the LTCH case (after 
removing the statistical outliers (see Step 1) and LTCH cases with a 
length of stay of 7 days or less (see Step 2)) by the average charge 
per discharge for the LTCH in which the case occurred. The resulting 
ratio was then multiplied by the LTCH's case-mix index to produce an 
adjusted hospital-specific relative charge value for the case. An 
initial case-mix index value of 1.0 was used for each LTCH.
    For each MS-LTC-DRG, we calculated the FY 2015 relative weight by 
dividing the average of the adjusted hospital-specific relative charge 
values (from above) for the MS-LTC-DRG by the overall average hospital-
specific relative charge value across all cases for all LTCHs. Using 
these recalculated MS-LTC-DRG relative weights, each LTCH's average 
relative weight for all of its cases (that is, its case-mix) was 
calculated by dividing the sum of all the LTCH's MS-LTC-DRG relative 
weights by its total number of cases. The LTCHs' hospital-specific 
relative charge values (from above) were then multiplied by the 
hospital-specific case-mix indexes. The hospital-specific case-mix 
adjusted relative charge values were then used to calculate a new set 
of MS-LTC-DRG relative weights across all LTCHs. This iterative process 
was continued until there was convergence between the relative weights 
produced at adjacent steps, for example, when the maximum difference 
was less than 0.0001.
    Step 5--Determine a FY 2015 relative weight for MS-LTC-DRGs with no 
LTCH cases.
    As we stated above, we determined the FY 2015 relative weight for 
each MS-LTC-DRG using total Medicare allowable total charges reported 
in the best available LTCH claims data (that is, the March 2014 update 
of the FY 2013 MedPAR file for this final rule). Using these data, we 
identified the MS-LTC-DRGs for which there were no LTCH cases in the 
database, such that no patients who would have been classified to those 
MS-LTC-DRGs were treated in LTCHs during FY 2013 and, therefore, no 
charge data were available for these MS-LTC-DRGs. Therefore, in the 
process of determining the MS-LTC-DRG relative weights, we were unable 
to calculate relative weights for the MS-LTC-DRGs with no LTCH cases 
using the methodology described in Steps 1 through 4 above. However, 
because patients with a number of the diagnoses under these MS-LTC-DRGs 
may be treated at LTCHs, consistent with our historical methodology, we 
assigned a relative weight to each of the no-volume MS-LTC-DRGs based 
on clinical similarity and relative costliness (with the exception of 
``transplant'' MS-LTC-DRGs and ``error'' MS-LTC-DRGs, as discussed 
below). (For additional information on this step of the relative weight 
methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through 
43960.)
    In general, we determined FY 2015 relative weights for the MS-LTC-
DRGs with no LTCH cases in the March 2014 update of the FY 2013 MedPAR 
file used in this final rule (that is, ``no-volume'' MS-LTC-DRGs) by 
cross-walking each no-volume MS-LTC-DRG to another MS-LTC-DRG with a 
calculated relative weight (determined in accordance with the 
methodology described above). Then, the ``no-volume'' MS-LTC-DRG was 
assigned the same relative weight (and average length of stay) of the 
MS-LTC-DRG to which it was cross-walked (as described in greater detail 
below).
    Of the 753 MS-LTC-DRGs for FY 2015, we identified 237 MS-LTC-DRGs 
for which there are no LTCH cases in the database (including the 8 
``transplant'' MS-LTC-DRGs and 2 ``error'' MS-LTC-DRGs). As stated 
above, we assigned relative weights for each of the 237 no-volume MS-
LTC-DRGs (with the exception of the 8 ``transplant'' MS-LTC-DRGs and 
the 2 ``error'' MS-LTC-DRGs, which are discussed below) based on 
clinical similarity and relative costliness to one of the remaining 516 
(753-237= 516) MS-LTC-DRGs for which we were able to determine relative 
weights based on FY 2013 LTCH claims data using the steps described 
above. (For the remainder of this discussion, we refer to the ``cross-
walked'' MS-LTC-DRGs as the MS-LTC-DRGs to which we cross-walked one of 
the 237 ``no volume'' MS-LTC-DRGs, with the exception of the 8 
``transplant'' MS-LTC-DRGs and the 2 ``error'' MS-LTC-DRGs, for 
purposes of determining a relative weight.) Then, we assigned the no-
volume MS-LTC-DRG the relative weight of the cross-walked MS-LTC-DRG. 
(As explained below in Step 6, when necessary, we made adjustments to 
account for nonmonotonicity.)
    For this final rule, we cross-walked the no-volume MS-LTC-DRG to an 
MS-LTC-DRG for which there were LTCH cases in the March 2014 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 MS-LTC-DRG to which a 
no-volume MS-LTC-DRG was cross-walked in order to assign an appropriate 
relative weight for the no-volume MS-LTC-DRGs in FY 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 no-volume MS-LTC-DRGs in FY 2015, the relative 
weights assigned based on the cross-walked MS-LTC-DRGs would result in 
an appropriate LTCH PPS payment because the crosswalks, which are based 
on similar clinical similarity and relative costliness, generally 
require equivalent relative resource use.
    We then assigned the relative weight of the cross-walked MS-LTC-DRG 
as the relative weight for the no-volume MS-LTC-DRG such that both of 
these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-
walked MS-LTC-DRG) have the same relative weight for FY 2015. We note 
that if the cross-walked MS-LTC-DRG had 25 cases or more, its relative 
weight, which was calculated using the methodology described in Steps 1 
through 4 above, was assigned to the no-volume MS-LTC-DRG as well. 
Similarly, if the MS-LTC-DRG to which the no-volume MS-LTC-DRG was 
cross-walked had 24 or less cases and, therefore, was designated to one 
of the low-volume quintiles for purposes of determining the relative 
weights, we assigned the relative weight of the applicable low-volume 
quintile to the no-volume MS-LTC-DRG such that both of these MS-LTC-
DRGs (that is, the no-volume MS-LTC-DRG and the cross-walked MS-LTC-
DRG) have the same relative weight for FY 2015. (As we noted above, in 
the infrequent case where nonmonotonicity involving a no-volume MS-LTC-
DRG resulted, additional adjustments as described in Step 6 were 
required in order to maintain monotonically increasing relative 
weights.)
    For this final rule, a list of the no-volume MS-LTC-DRGs and the 
MS-LTC-DRGs to which each was cross-

[[Page 50175]]

walked (that is, the cross-walked MS-LTC-DRGs) for FY 2015 is shown in 
Table 13B, which is listed in section VI. of the Addendum to this final 
rule and is available via the Internet.
    To illustrate this methodology for determining the relative weights 
for the FY 2015 MS-LTC-DRGs with no LTCH cases, we are providing the 
following example, which refers to the no-volume MS-LTC-DRGs crosswalk 
information for FY 2015 provided in Table 13B.

    Example:  There were no cases in the FY 2013 MedPAR file used 
for this final rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with 
Use of Thrombolytic Agent with MCC). We determined that MS-LTC-DRG 
70 (Nonspecific Cerebrovascular Disorders with MCC) was similar 
clinically and based on resource use to MS-LTC-DRG 61. Therefore, we 
assigned the same relative weight of MS-LTC-DRG 70 of 0.8632 for FY 
2015 to MS-LTC-DRG 61 (obtained from Table 11, which is listed in 
section VI. of the Addendum to this final rule and is available via 
the Internet).

    Again, we note that, as this system is dynamic, it is entirely 
possible that the number of MS-LTC-DRGs with no volume of LTCH cases 
based on the system will vary in the future. We used the most recent 
available claims data in the MedPAR file to identify no-volume MS-LTC-
DRGs and to determine the relative weights in this final rule.
    Furthermore, for FY 2015, consistent with our historical relative 
weight methodology, we are establishing a relative weight of 0.0000 for 
the following transplant MS-LTC-DRGs: Heart Transplant or Implant of 
Heart Assist System with MCC (MS-LTC-DRG 1); Heart Transplant or 
Implant of Heart Assist System without MCC (MS-LTC-DRG 2); Liver 
Transplant with MCC or Intestinal Transplant (MS-LTC-DRG 5); Liver 
Transplant without MCC (MS-LTC-DRG 6); Lung Transplant (MS-LTC-DRG 7); 
Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8); Pancreas 
Transplant (MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG 652). 
This is because Medicare will only cover these procedures if they are 
performed at a hospital that has been certified for the specific 
procedures by Medicare and presently no LTCH has been so certified. At 
the present time, we include these eight transplant MS-LTC-DRGs in the 
GROUPER program for administrative purposes only. Because we use the 
same GROUPER program for LTCHs as is used under the IPPS, removing 
these MS-LTC-DRGs would be administratively burdensome. (For additional 
information regarding our treatment of transplant MS-LTC-DRGs, we refer 
readers to the RY 2010 LTCH PPS final rule (74 FR 43964).)
    Step 6--Adjust the FY 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, relative weights should increase by severity, from lowest to 
highest. If the relative weights decrease as severity increases (that 
is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC has a higher 
relative weight than one with MCC, or the MS-LTC-DRG ``without CC/MCC'' 
has a higher relative weight than either of the others), they are 
nonmonotonic. We continue to believe that utilizing nonmonotonic 
relative weights to adjust Medicare payments would result in 
inappropriate payments because the payment for the cases in the higher 
severity level in a base MS-LTC-DRG (which are generally expected to 
have higher resource use and costs) would be lower than the payment for 
cases in a lower severity level within the same base MS-LTC-DRG (which 
are generally expected to have lower resource use and costs). 
Therefore, in determining the FY 2015 MS-LTC-DRG relative weights in 
this final rule, consistent with our historical methodology, we 
combined MS-LTC-DRG severity levels within a base MS-LTC-DRG for the 
purpose of computing a relative weight when necessary to ensure that 
monotonicity was maintained. For a comprehensive description of our 
existing methodology to adjust for nonmonotonicity, we refer readers to 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 through 
43966). Any adjustments for nonmonotonicity that were made in 
determining the FY 2015 MS-LTC-DRG relative weights in this final rule 
by applying this methodology are denoted in Table 11, which is listed 
in section VI. of the Addendum to this final rule and is available via 
the Internet.
    Step 7--Calculate the FY 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 updating the MS-LTC-DRG 
classifications and relative weights for FY 2015 based on the most 
recent available LTCH data, and applying a budget neutrality adjustment 
in determining the 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 
continuing to use our established two-step budget neutrality 
methodology. As discussed previously in this section, this approach is 
consistent with our proposals regarding the continued use of our 
existing methodology to calculate the FY 2015 budget neutrality factor 
for the

[[Page 50176]]

FY 2015 MS-LTC-DRG relative weights as presented in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28183 through 28187), which we are 
finalizing without modification after consideration of public comments 
we received in this final rule.
    In this final rule, in the first step of our MS-LTC-DRG budget 
neutrality methodology, for FY 2015, we calculated and applied a 
normalization factor to the recalibrated relative weights (the result 
of Steps 1 through 6 above) to ensure that estimated payments were not 
affected by changes in the composition of case types or the changes to 
the classification system. That is, the normalization adjustment is 
intended to ensure that the recalibration of the MS-LTC-DRG relative 
weights (that is, the process itself) neither increases nor decreases 
the average CMI.
    To calculate the normalization factor for FY 2015 (the first step 
of our budget neutrality methodology), we used the following three 
steps: (1.a.) we used the most recent available LTCH claims data (FY 
2013) and grouped them using the FY 2015 GROUPER (Version 32.0) and the 
recalibrated FY 2015 MS-LTC-DRG relative weights (determined in Steps 1 
through 6 of the Steps for Determining the FY 2015 MS-LTC-DRG Relative 
Weights above) to calculate the average CMI; (1.b.) we grouped 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 computed 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 MS-LTC-DRG 
relative weights for FY 2015, each recalibrated MS-LTC-DRG relative 
weight was multiplied by 1.12464 (determined in Step 1.c.) in the first 
step of the budget neutrality methodology, which produced ``normalized 
relative weights.''
    In the second step of our MS-LTC-DRG budget neutrality methodology, 
we determined a budget neutrality factor to ensure that estimated 
aggregate LTCH PPS payments (based on the most recent available LTCH 
claims data) after reclassification and recalibration (that is, the FY 
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 used 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 FY 2015 MS-LTC-DRGs and relative weights. Specifically, for 
this final rule, as discussed previously in section VII.B.3.c. of this 
preamble, we used LTCH claims data from the March 2014 update of the FY 
2013 MedPAR file, as these are the best available data at this time.
    For this final rule, we determined the FY 2015 budget neutrality 
adjustment factor using the following three steps: (2.a.) we simulated 
estimated total LTCH PPS payments using the normalized relative weights 
for FY 2015 and GROUPER Version 32.0 (as described above); (2.b.) we 
simulated 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 calculated 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 FY 2015 GROUPER (Version 32.0) and 
the normalized MS-LTC-DRG relative weights for FY 2015 (determined in 
Step 2.a.). In determining the FY 2015 MS-LTC-DRG relative weights, 
each normalized relative weight was multiplied by a budget neutrality 
factor of 0.9956326 (determined in Step 2.c.) in the second step of the 
budget neutrality methodology to determine the budget neutral FY 2015 
relative weight for each MS-LTC-DRG.
    Accordingly, in determining the FY 2015 MS-LTC-DRG relative weights 
in this final rule, consistent with our existing methodology, we 
applied a normalization factor of 1.12464 and a budget neutrality 
factor of 0.9956326 (computed as described above). Table 11, which is 
listed in section VI. of the Addendum to this final rule and is 
available via the Internet, lists the MS-LTC-DRGs and their respective 
relative weights, geometric mean length of stay, five-sixths of the 
geometric mean length of stay (used to identify SSO cases under Sec.  
412.529(a)), and the ``IPPS Comparable Thresholds'' (used in 
determining SSO payments under Sec.  412.529(c)(3)), for FY 2015 (and 
reflect both the normalization factor of 1.12464 and the budget 
neutrality factor of 0.9956326).

C. 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 using 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).
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28187 through 
28190), we presented our proposals related to the update to the LTCH 
PPS standard Federal rate for FY 2015, which included the proposed 
annual market basket update to the LTCH PPS standard Federal rate. 
Consistent with our historical practice of using the best data 
available, we also proposed to use more recent data, if available, to 
determine the FY 2015 annual market basket update to the LTCH PPS 
standard Federal rate in the final rule. We did not receive any public 
comments in response to these proposals and, therefore, are adopting 
the proposals as final without modification in this final rule, using 
the most recent available data.
    The update to the LTCH PPS standard Federal rate for FY 2015 is 
presented in section V.A. of the Addendum to this final rule. The 
components of the annual market basket update to the

[[Page 50177]]

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 in section VII.C.2.c. of the preamble of this 
final rule). Furthermore, as discussed in section VII.C.3. of the 
preamble of this final rule, for FY 2015, in addition to the update 
factor, under the final year of the 3-year phase-in under the current 
regulations at Sec.  412.523(d)(3), we are making 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 final rule, we are 
making 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 final 
rule, the 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 budget neutrality adjustment for changes in the area 
wage levels under section V.A. of the Addendum of this final rule.)
2. 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 final 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. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of 
the Affordable Care Act, specifies that, for rate year 2010 and each 
subsequent rate year through 2019, any annual update to the standard 
Federal rate shall be reduced:
     For rate year 2010 through 2019, by the ``other 
adjustment'' specified in sections 1886(m)(3)(A)(ii) and (m)(4) of the 
Act; and
     For rate year 2012 and each subsequent year, by the 
productivity adjustment (which we refer to as ``the multifactor 
productivity (MFP) adjustment'') described in section 
1886(b)(3)(B)(xi)(II) of the Act.
    Section 1886(m)(3)(B) of the Act provides that the application of 
paragraph (3) of section 1886(m) of the Act may result in the annual 
update being less than zero for a rate year, and may result in payment 
rates for a rate year being less than such payment rates for the 
preceding rate year.
    Section 1886(b)(3)(B)(xi)(II) of the Act defines the MFP adjustment 
as equal to the 10-year moving average of changes in annual economy-
wide, private nonfarm business multifactor productivity (as projected 
by the Secretary for the 10-year period ending with the applicable 
fiscal year, calendar year, cost reporting period, or other annual 
period). Under our methodology, the end of the 10-year moving average 
of changes in the MFP coincides with the end of the appropriate FY 
update period. In addition, the MFP adjustment that is applied in 
determining any annual update to the LTCH PPS standard Federal rate is 
the same adjustment that is required to be applied in determining the 
applicable percentage increase under the IPPS under section 
1886(b)(3)(B)(i) of the Act as they are both based on a fiscal year. 
The MFP adjustment is derived using a projection of MFP that is 
currently produced by IHS Global Insight, Inc. (For additional details 
on the development of the MFP adjustment and its application under the 
LTCH PPS, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51691 through 51692 and 51770 through 51771).)
    For FY 2015, as we proposed, we are continuing to use our 
methodology for calculating and applying the MFP adjustment to 
determine the annual update to the LTCH PPS standard Federal rate for 
FY 2015. (For details on the development of the MFP adjustment, 
including our finalized methodology for calculating and applying the 
MFP adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51689 through 51692).)
c. Adjustment to the Annual Update to the LTCH PPS Standard Federal 
Rate under the Long-Term Care Hospital Quality Reporting (LTCHQR) 
Program
1. Background
    In accordance with section 1886(m)(5) of the Act, as added by 
section 3004(a) of the Affordable Care Act, the Secretary established 
the Long-Term Care Hospital Quality Reporting (LTCHQR) Program. (As 
noted above, although the language of section 3004(a) of the Affordable 
Care Act refers to years 2011 and thereafter under the LTCH PPS as 
``rate year,'' consistent with our change in the terminology used under 
the LTCH PPS from ``rate year'' to ``fiscal year,'' for purposes of 
clarity, when discussing the annual update for the LTCH PPS, including 
the provisions of the Affordable Care Act, we use ``fiscal year'' 
rather than ``rate year'' for 2011 and subsequent years.) Under the 
LTCHQR Program, as required by section 1886(m)(5)(A)(i) of the Act, for 
FY 2014 and each subsequent year, in the case of an LTCH that does not 
submit quality reporting data to the Secretary in accordance with 
section 1886(m)(5)(C) of the Act with respect to such a year, any 
annual update to a standard Federal rate for discharges for

[[Page 50178]]

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 
final rule.
2. Reduction to the Annual Update to the LTCH PPS Standard Federal Rate 
under the LTCHQR Program
    Consistent with section 1886(m)(5)(A)(i) of the Act, for FY 2014 
and subsequent fiscal years, 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 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 final rule.
d. 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, as we proposed, we are continuing to use the FY 2009-
based LTCH-specific market basket to update 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. Annual Market Basket Update for LTCHs for FY 2015
    Consistent with our historical practice and as we proposed, we 
estimate the market basket update and the MFP adjustment based on IGI's 
forecast using the most recent available data. Based on IGI's second 
quarter 2014 forecast, the FY 2015 full market basket estimate for the 
LTCH PPS using the FY 2009-based LTCH-specific market basket is 2.9 
percent. Using our established methodology for determining the MFP 
adjustment, the current estimate of the MFP adjustment for FY 2015 
based on IGI's second quarter 2014 forecast is 0.5 percent, as 
discussed in section IV.B. of the preamble of this final rule. In 
addition, consistent with our historical practice of using the best 
available data, as we proposed, we used the most recent data available 
to estimate the market basket update and the MFP adjustment for FY 2015 
in this 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 
reducing the full FY 2015 market basket update by the 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, as we proposed, we subtracted the FY 2015 MFP adjustment 
from the 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 
productivity adjustment, as we proposed, we are reducing the adjusted 
market basket update (that is, the full market basket increase less the 
MFP adjustment) by the ``other adjustment'' specified by sections 
1886(m)(3)(A)(ii) and 1886(m)(4) of the Act. (For additional details on 
our established methodology for adjusting the market basket increase by 
the MFP and the ``other adjustment'' required by the statute, we refer 
readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51771).)
    As discussed previously in section VII.C.2.c. of the preamble of 
this final 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 update 
to the LTCH PPS standard Federal rate for FY 2015 for LTCHs that fail 
to submit

[[Page 50179]]

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, will also be further reduced by 2.0 percentage points.
    In this final rule, in accordance with the statute, we are reducing 
the FY 2015 full market basket estimate of 2.9 percent (based on IGI's 
second quarter 2014 forecast of the FY 2009-based LTCH-specific market 
basket) by the 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 final rule) of 0.5 percentage point 
(based on IGI's second quarter 2014 forecast). Following application of 
the productivity adjustment, the adjusted market basket update of 2.4 
percent (2.9 percent minus 0.5 percentage point) is then 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 final rule, under the 
authority of section 123 of the BBRA as amended by section 307(b) of 
the BIPA, we are establishing an annual market basket update under the 
LTCH PPS for FY 2015 of 2.2 percent (that is, the most recent estimate 
of the LTCH PPS market basket update of 2.9 percent, less the MFP 
adjustment of 0.5 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, consistent with our proposal, we are revising 
Sec.  412.523(c)(3) by adding a new paragraph (xi), which specifies 
that the standard Federal rate for FY 2015 is the standard Federal rate 
for the previous LTCH PPS year updated by 2.2 percent, and as further 
adjusted, as appropriate, as described in Sec.  412.523(d). For LTCHs 
that fail to submit quality reporting data under the LTCHQR Program, 
under Sec.  412.523(c)(3)(xi) in conjunction with Sec.  412.523(c)(4), 
we are further reducing 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, consistent with our proposal, we 
are establishing an annual update to the LTCH PPS standard Federal rate 
of 0.2 percent (that is, 2.2 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 used the most recent data 
available to establish an annual update to the LTCH PPS standard 
Federal rate for FY 2015 under Sec.  412.523(c)(3)(xi) in this final 
rule. (We note that, we also are adjusting the 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 final rule) and by an area wage level 
budget neutrality factor in accordance with Sec.  412.523(d)(4) (as 
discussed in section V.B.5. of the Addendum of this final rule).)
3. Adjustment for the 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 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).)

[[Page 50180]]

    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 final rule, for FY 2015, as we proposed, we are applying 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).
4. Summary of Other Public Comments Received on the Proposed LTCH PPS 
Payment Rates for FY 2015
    We received a number of public comments that were not within the 
scope of the proposed rule, but we appreciate the commenters for 
providing that feedback. We also received a few public comments on 
issues related to the proposed LTCH PPS payment rates for FY 2015, but 
these issues were not specifically addressed by the proposals and 
related discussion presented in the FY 2015 IPPS/LTCH PPS proposed 
rule.
    Comment: One commenter requested that CMS provide additional 
payment for end-stage renal disease (ESRD) patients under the same 
circumstances as under the IPPS under the LTCH PPS, noting that section 
1881(b) of the Act does not limit the adjustment to subsection (d) 
hospitals. The commenter indicated that included information and 
analysis previously provided to CMS supports their request for this 
additional payment amount.
    Response: Despite the fact that this comment is beyond the scope of 
the proposed rule, we note that we have responded to the issue that 
this commenter raised in a detailed response in the FY 2014 IPPS/LTCH 
PPS final rule (79 FR 50767). As discussed in that final rule, based on 
an our analysis of FY 2012 LTCH PPS claims data, we continue to believe 
that the costs of treating ESRD patients in LTCHs are adequately 
reflected in data used to determine the MS-LTC-DRG relative weights for 
non-dialysis MS-LTC-DRGs, and that the additional resources associated 
with renal dialysis treatments are include in the LTCH PPS payments. 
Therefore, we are not adopting the commenters' request to provide for 
an additional payment for ESRD patients under the LTCH PPS.

D. 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 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 final 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

[[Page 50181]]

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). In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28191 through 
28194), we proposed 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. As discussed below, after consideration of the public 
comments we received, in this final rule, under the authority of 
section 123 of the BBRA, as amended by section 307(b) of the BIPA, we 
are adopting the new OMB delineations announced in the February 28, 
2013 OMB Bulletin No. 13-01, effective for FY 2015 under the LTCH PPS 
as proposed without modification. We note that this policy consistent 
with the approach being adopted under the IPPS as discussed in section 
III.B. of the preamble of this final rule.
2. 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 final 
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, as we proposed, we 
are adopting 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 policy discussed in 
section III.B. of the preamble of this final 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), as we proposed, we are revising 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, as we proposed, we are adopting 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). As we noted in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28191), 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 did not 
make any changes to the existing regulations under this policy.
    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 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, in the FY 
2015 IPPS/LTCH PPS proposed rule (79 FR 28191 through 28194), under the 
authority of section 123 of the BBRA, as amended by section 307(b) of 
the BIPA, we proposed to adopt the new OMB delineations as described in 
the February 28, 2013 OMB Bulletin No. 13-01, effective for FY 2015 
under the LTCH PPS. In addition, we proposed to use the 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 
proposed to implement a transitional wage index policy (as discussed in 
more detail below) for LTCHs that would experience a negative payment 
impact due to the adoption of the new OMB delineations. This proposed 
policy, including the transitional wage index policy, is consistent 
with the policy proposed under the IPPS for FY 2015, as

[[Page 50182]]

discussed in section III.B. of this preamble.
    Comment: A few commenters supported the proposal to adopt the new 
OMB delineations and to use these new OMB delineations to calculate 
area wage indexes effective for FY 2015 under the LTCH PPS. We did not 
receive any public comments opposing the proposed adoption of the new 
OMB delineations under the LTCH PPS. We also note that we did not 
receive any public comments that specifically addressed the details of 
our proposals with regard to the adoption of the new OMB labor market 
area delineations relating to Micropolitan Statistical Areas, urban 
counties that would become rural, rural counties that would become 
urban, or urban counties that moved to a different urban CBSA. (We 
refer readers to the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28192 
through 28193) for details regarding these proposals.) A few commenters 
also commented on the proposed transitional wage index policy, which we 
discuss below in section VII.D.2.e. of this preamble.
    Response: We appreciate the commenters' support for the proposal to 
adopt the new OMB delineations under the LTCH PPS, as we believe that 
the new OMB delineations based on 2010 Decennial Census data reflect 
the most recent data available to define geographic classifications 
(market area delineations) for LTCHs and 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. Therefore, under the authority of 
section 123 of the BBRA, as amended by section 307(b) of the BIPA, in 
this final rule, we are adopting the new OMB delineations as described 
in the February 28, 2013 OMB Bulletin No. 13-01, effective for FY 2015 
under the LTCH PPS, as we proposed without modification. We also are 
using 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. In addition, as discussed below in section VII.D.2.e. of 
this preamble, after consideration of the public comments we received, 
as we proposed, we are implementing a budget neutral transitional wage 
index policy for LTCHs that will experience a negative payment impact 
due to the use of the new OMB delineations. This policy, including the 
transitional wage index policy, is consistent with the policy being 
adopted under the IPPS presented in section III.B. of the preamble of 
this final rule. The discussion below focuses on issues related to the 
use of the new OMB delineations to define labor market areas for 
purposes of the wage index adjustment under the LTCH PPS, and as we 
explained in the proposed rule, is consistent with what is being 
adopted under 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). As 
discussed in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28192), we 
believe that it is appropriate to continue the policy established in 
the RY 2006 LTCH PPS final rule, and we are treating 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.
    As previously noted, we did not receive any public comments on our 
proposals relating to the adoption of the new OMB labor market area 
delineations with regard to Micropolitan Statistical Areas. Therefore, 
we are adopting these policies as final without modification in this 
final rule. In conjunction with our policy to adopt 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 
continuing to treat Micropolitan Areas as ``rural,'' and will assign 
the Micropolitan Area the statewide rural wage index for the State in 
which the LTCH is located. We also are establishing that, beginning in 
FY 2015, the wage data for any IPPS hospitals located in the 
Micropolitan Areas will 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 final rule, the LTCH PPS area wage index values are 
calculated using the wage data of IPPS hospitals.) We note that this 
policy is consistent with the policy adopted under the IPPS discussed 
in section III.B.2.a. of the preamble of this final rule. For a 
discussion of our policies to moderate the impact of our adoption of 
the new OMB delineations under the LTCH PPS, we refer readers to 
section VII.D.2.e. of the preamble of this final rule.
b. Urban Counties That Became Rural under the New OMB Labor Market Area 
Delineations
    Under 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

[[Page 50183]]

``urban'' under the previous CBSA designations that are now defined as 
``rural'' under the new OMB delineations. As discussed in the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28193) and 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 will now be 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 final rule that lists the 37 urban counties that are defined as 
rural under our adoption of the new OMB delineations.
    As previously noted, we did not receive any public comments on our 
proposals relating to the adoption of the new OMB labor market area 
delineations with regard to urban counties that would become rural. 
Therefore, we are adopting these policies as final without modification 
in this final rule. Under our adoption of the new OMB delineations for 
the LTCH PPS, we are establishing that LTCHs located in any of the 37 
counties listed in the table under section III.B.2.b. of the preamble 
of this final rule will be considered ``rural,'' and will 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 will be considered to be located in 
a ``rural'' area, beginning in FY 2015. The wage data for any IPPS 
hospitals located in those 37 counties listed in the table now will 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 final rule, the LTCH PPS area wage index 
values are calculated using the area wage data of IPPS hospitals.) We 
note that this policy is consistent with the policy adopted under the 
IPPS discussed in section III.B.2.b. of the preamble of this final 
rule. We refer readers to section VII.D.2.e. of this preamble for a 
discussion of our policies to moderate the impact of our policy 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 using 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) will be considered ``urban'' based on the adoption of the 
new OMB delineations. As discussed in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28193) and in section III.B.2.c. of the preamble 
of this final 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 final 
rule that lists the 105 ``rural'' counties that will now be located in 
an ``urban'' area, based on our policy to adopt the new OMB 
delineations presented in section III.B.2.c. of the preamble of this 
final rule. There are currently no LTCHs located in the 105 ``rural'' 
counties listed in that table.
    As previously noted, we did not receive any public comments on our 
proposals relating to the adoption of the new OMB labor market area 
delineations with regard to rural counties that would become urban. 
Therefore, we are adopting these policies as final without modification 
in this final rule. Under our adoption of the new OMB labor market area 
delineations, we are establishing that LTCHs located in any of those 
105 counties will now be included in their new respective ``urban'' 
CBSAs and will receive the respective ``urban'' CBSA's area wage index. 
We also are establishing that, beginning in FY 2015, the wage data for 
any IPPS hospitals located within those 105 counties will now 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 final rule, the LTCH PPS area wage index values 
are calculated using the area wage data of IPPS hospitals.) We note 
that this policy is consistent with the policy adopted under the IPPS 
discussed in section III.B.2.c. of the preamble of this final rule. We 
refer readers to section VII.D.2.e. of the preamble of this preamble 
for a discussion of our policies to moderate the impact of our policy 
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 became ``urban'' and 
``urban'' counties that became ``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 final rule for additional 
information, including examples, on urban counties that have moved from 
one urban CBSA to a different urban CBSA under the new OMB 
delineations. As discussed in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28193), LTCHs located in these affected counties that will move 
from one urban CBSA to a different urban CBSA under our policy to adopt 
the new OMB delineations will 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 this preamble for a discussion 
of our policies to moderate the impact imposed upon hospitals because 
of our policy to adopt the new OMB labor market area delineations under 
the LTCH PPS. As previously noted, we did not receive any public 
comments on our proposals relating to the adoption of the new OMB labor 
market area delineations with regard to urban counties that moved to a 
different urban CBSA. Therefore, we are adopting these policies as 
final without modification in this final rule.
e. Transition Period
    As indicated above, overall, we believe that our policy to adopt 
the new OMB delineations will result in LTCH PPS wage index values 
being more representative of the actual costs of labor in a given area. 
However, as we discussed in the FY 2015 IPPS/LTCH PPS proposed rule (79 
FR 28193), we also recognize that some LTCHs would experience decreases 
in their area wage index values as a result of our policy. We also 
realize that many LTCHs would have higher area wage index values under 
our policy. 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.

[[Page 50184]]

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 
proposed to implement a transitional wage index 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, we proposed a 1-year transitional wage index policy under 
which any LTCH that would experience a decrease in its area wage index 
value solely due to the adoption of the new OMB delineations would get 
a ``50/50 blended area wage index'' value that would be calculated as 
the sum of 50 percent of the wage index computed under the FY 2014 CBSA 
designations and 50 percent of the wage index computed under the new 
OMB delineations proposed for FY 2015. Furthermore, we proposed that 
this proposed transitional wage index policy would be applied in a 
budget neutral manner, consistent with the existing requirement under 
Sec.  412.525(c)(2) that any changes to the adjustment for differences 
in area wage levels will be made in a budget neutral manner. We also 
presented a proposed methodology for calculating an area wage level 
adjustment budget neutrality factor for FY 2015 that included the 
proposed 50/50 blended wage index as applicable (79 FR 28193 through 
28194).
    Comment: Commenters that supported the proposed adoption of the new 
OMB delineations under the LTCH PPS also supported our proposed 
transitional wage index policy for LTCHs that would experience a 
negative payment impact due to the adoption of the new OMB 
delineations. While the commenters conveyed their appreciation for the 
proposed transitional wage index policy to help mitigate any negative 
financial ramifications, they requested that the proposed transitional 
wage index policy be extended beyond FY 2015 to allow hospitals more 
time to operationally adjust to the change to their area wage 
adjustment. We note that we did not receive any public comments on our 
proposal to apply the proposed transitional wage index policy in a 
budget neutral manner, or on our proposed methodology for calculating 
an area wage level adjustment budget neutrality factor for FY 2015 that 
included the proposed 50/50 blended wage index as applicable.
    Response: We appreciate the commenters' support for the proposed 
transitional wage index policy for LTCHs that would experience a 
negative payment impact due to the adoption of the new OMB 
delineations. While we understand the commenters' concern regarding the 
potential financial impact, as we explained in the proposed rule, the 
revisions under the new OMB delineations are not as extensive as the 
changes that OMB announced in 2003 that were adopted under the IPPS in 
FY 2005 with a 1-year transition and adopted under the LTCH PPS in RY 
2006 with no additional transitional policy other than the transitional 
wage index policy in effect at that time. While it is our longstanding 
policy to provide temporary adjustments to mitigate negative impacts 
from the adoption of new policies or procedures, we continue to believe 
that the 1-year ``50/50 blended wage index'' transitional policy 
provides an adequate safeguard against any significant payment 
reductions, allows for sufficient time to make operational changes for 
future fiscal years, and provides a reasonable balance between 
mitigating some short-term instability in LTCH PPS payments and 
improving the accuracy of the payment adjustment for differences in 
area wage levels.
    While we acknowledge that some LTCHs will experience a reduction in 
their wage index as a result of the adoption of the new OMB 
delineations, we also point out that several LTCHs will experience an 
increase in their wage index based on the adoption of the new OMB 
delineations. Because the new OMB delineations reflect the most recent 
data available to define geographic classifications (market area 
delineations) for LTCHs, we believe that the wage index values computed 
under those delineations will result in more appropriate payments to 
providers by more accurately accounting for and reflecting the 
differences in area wage levels (that is, 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). 
Because we believe that the implementation of the new OMB delineations 
will create more accurate representations of a LTCH's labor market 
areas and result in LTCH PPS wage index values being more 
representative of the actual costs of labor in a given area, we believe 
that it is important to implement the wage index values calculated 
under new OMB delineations with as minimal a transition as possible. 
Extending the transitional ``50/50 blended wage index'' policy beyond 
FY 2015 would only further delay the improved accuracy of area wage 
level adjustments to LTCH PPS payments under the new OMB delineations. 
In addition, because the proposed transitional 50/50 blended wage index 
policy would be made in a budget neutral manner, all LTCH PPS payments 
are reduced to offset the additional payments that result under the 
transitional policy. For these reasons, we are not adopting the 
commenters' suggestion to extend the proposed transitional 50/50 
blended wage index policy beyond FY 2015.
    Therefore, in this final rule, under the authority of section 123 
of the BBRA, as amended by section 307(b) of the BIPA, we are adopting 
a 1-year transitional wage index policy for LTCHs that will experience 
a decrease in their area wage index values due to our policy to adopt 
the new OMB delineations under the LTCH PPS, as we proposed without 
modification. In addition, we are finalizing our proposal to apply the 
transitional area wage index policy in a budget neutral manner, and our 
methodology for calculating an area wage level adjustment budget 
neutrality factor for FY 2015, which includes the proposed 50/50 
blended wage index as applicable, as proposed without modification.
    Under the transitional wage index policy that we are establishing 
for FY 2015 we computed a blended area wage index value for any LTCH 
that will experience a decrease in its area wage index value solely due 
to the adoption of the new OMB delineations. That is, for purposes of 
determining an LTCH's area wage index for FY 2015, we computed LTCH PPS 
wage index values using the area wage data (discussed in section V.B.4. 
of the Addendum to this final rule) under both the FY 2014 CBSA 
designations and the FY 2015 new OMB delineations based on the 2010 OMB 
Decennial Census data. For each LTCH, we compared these two wage 
indexes. If an LTCH's wage index for FY 2015 under the new OMB 
delineations was lower than the LTCH's wage index under the FY 2014 
CBSA designations, we are establishing that, for FY 2015, the LTCH will 
be paid based on a blended wage index that is computed as the sum of 50 
percent of each of the two wage index values described above (referred 
to as the 50/50 blended wage index). If an LTCH's wage index for FY 
2015 under the new OMB delineations is higher than the LTCH's wage 
index under the FY 2014 CBSA designations, we are establishing that, 
for FY 2015, the LTCH will be paid based on 100 percent of the wage 
index

[[Page 50185]]

under the FY 2015 new OMB delineations (and will not receive the 50/50 
blended wage index).
    Furthermore, we are establishing that the transitional area wage 
index policy will be adopted in a budget neutral manner. Under Sec.  
412.525(c)(2), any changes to the adjustment for differences in area 
wage levels will be 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 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 
transitional wage index policy for LTCHs that will 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 
will result in an increase in estimated aggregate LTCH PPS payments 
without such changes, we are including the finalized 50/50 blended wage 
index values in our calculations for the area wage level adjustment 
budget neutrality factor that is applied to the standard Federal rate 
to ensure that any changes to the area wage level adjustment are budget 
neutral. Specifically, consistent with our established methodology, we 
used the following methodology to determine an area wage level 
adjustment budget neutrality factor for FY 2015:
     Step 1--We simulated 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).
     Step 2--We simulated estimated aggregate LTCH PPS payments 
using the FY 2015 wage index values as shown in Tables 12A through 12D 
for this final rule (which are available via the Internet on the CMS 
Web site), including the transitional 50/50 blended wage index values, 
if applicable (as discussed above and in section V.B.4. of the Addendum 
of this final rule), and the FY 2015 labor-related share of 62.306 
percent (as discussed in section V.B.3. of the Addendum to this final 
rule).
     Step 3--We determined 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 Step 1) by 
the estimated total LTCH PPS payments using the FY 2015 area wage level 
adjustments (calculated in Step 2) to determine the FY 2015 area wage 
level adjustment budget neutrality factor.
     Step 4--We applied the FY 2015 area wage level adjustment 
budget neutrality factor from Step 3 to the FY 2015 LTCH PPS standard 
Federal rate after the application of the FY 2015 annual update as 
discussed in section V.A.2. of the Addendum to this final rule.
    As explained above, we are applying this factor in determining the 
FY 2015 standard Federal rate to ensure that the updates to the area 
wage level adjustment for FY 2015 will be implemented in a budget 
neutral manner. For this final rule, using the steps in the methodology 
described above, we determined a FY 2015 area wage level adjustment 
budget neutrality factor of 1.0016703.
    We note that this transitional wage index policy under our policy 
to adopt the new OMB delineations for FY 2015 under the LTCH PPS is 
consistent with the policies adopted under the IPPS presented in 
sections III.B.2.e.(5) and (6) of the preamble of this final rule. As 
noted previously in section VII.D.2.b. of the preamble of this final 
rule, there are currently no LTCHs located in an ``urban'' county that 
became ``rural'' under the policy to adopt the new OMB delineations. 
Therefore, as we discussed in the FY 2015 IPPS/LTCH PPS proposed rule, 
we are not establishing a transitional wage index policy that is 
consistent with the IPPS policy presented in section III.B.2.e.(2) of 
the preamble of this final rule for hospitals that are currently 
located in an ``urban'' county that became ``rural'' under the adoption 
of the new OMB delineations. We also note that we are not establishing 
any transitional policies under the LTCH PPS that are 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 final 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 final 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 Pub. L. 113-67 provides for a permanent exemption from 
the application of the 25-percent policy for certain grandfathered co-
located LTCHs.
    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].''
    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

[[Page 50186]]

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 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. Implementation of Section 1206(b)(1) of Pub. L. 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. In this 
final rule, based on the statutory changes made by sections 
1206(b)(1)(A) and (b)(1)(B) of Public Law 113-67, we are making 
conforming amendments to the regulations governing application of the 
25-percent policy. Specifically, we are revising 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 removing 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.
    Comment: One commenter suggested that the costs associated with the 
new limitations provided by the application of the 25-percent policy, 
that is, any additional costs to the Medicare program because of the 
moratorium on full implementation of the 25-percent policy, be absorbed 
by the hospitals that receive the benefit from the extension of this 
moratorium. The commenter questioned whether this absorption of costs 
could be accomplished by a hospital-specific adjustment similar to the 
one presently used for failure to submit quality data, and whether the 
suggested adjustment amount could be calculated based on a facility's 
compliance with 25-percent policy.
    Response: We appreciate the commenter's suggestion, but note that 
these suggestions are beyond the scope of the proposals presented in 
the FY 2015 IPPS/LTCH PPS proposed rule. We believe that Congress 
specified how we are to implement this policy when it instructed the 
Secretary to extend the relief provided by section 114(c) of the MMSEA 
of 2007, and its amendments, until the moratorium expires, or in the 
case of certain grandfathered LTCHs, indefinitely. The provisions of 
section 114(c) of the MMSEA of 2007, nor its amendments, include any 
measures to absorb any Medicare program costs associated with the 
moratorium on the

[[Page 50187]]

full application of this policy. We do not believe that further 
regulatory initiatives are appropriate at this time.
    Comment: Several commenters urged CMS to repeal the 25-percent 
policy immediately. Some commenters reasoned that ``Congress has not 
required the partial implementation of the 25 percent rule, but rather 
has prohibited the full implementation of the 25 percent rule.'' Other 
commenters believed that applying the 25-percent policy after patient-
level criteria are implemented would ``violate'' the provisions in 
Public Law 113-67 that require use of patient-level criteria to 
determine which cases receive standard or site neutral Medicare 
payments. Some commenters also believed that the 25-percent policy is 
unnecessary recognizing the forthcoming changes to the LTCH PPS, and 
stated that the 25-percent policy would reduce the payment distinctions 
between the number of cases receiving payments based on standard 
payment rates and the number of cases receiving payments based on site-
neutral payment rates, thereby ``weakening'' the incentives that the 
commenters believed Congress intended to impose under the statute.
    Response: Although we initially implemented the 25-percent policy 
under Sec. Sec.  412.534 and 412.536 of the regulations through our 
general rulemaking authority, the 25-percent policy is now mandated 
under section 114(c) of the MMSEA, as amended. This statutory 
moratorium currently expires effective with cost reporting periods 
beginning on July 1, 2016, or October 1, 2016, as applicable. 
Therefore, CMS does not have the authority to ``repeal'' a statutory 
provision. As discussed in the May 22, 2008 interim final rule with 
comment period, and as we further discussed in the FY 2010 IPPS/LTCH 
final rule (74 FR 43980 through 43986), we believe that section 
114(c)(1) of the MMSEA provided a 3-year delay in the application of 
Sec. Sec.  412.534 and 412.536 to ``only two categories of LTCHs . . . 
[s]imilarly, the 3-year relief . . . in section 114(c)(2) in the form 
of increased thresholds . . . was narrowly targeted to only those 
`applicable LTCHs and LTCH satellite facilities,' that is, those 
`subject to the transition rules under Sec.  412.534(g) of title 42 
Code of Federal Regulations' '' (74 FR 43982). In fact, with the 
enactment of the extension of the original moratorium under section 
1206(b)(1)(B) of Public Law 113-67, and the extended relief provided 
from the 25-percent policy, Congress added only one specific change to 
the provisions of the original moratorium, that is, the permanent 
exemption of grandfathered LTCHs from the 25-percent policy. We also 
note that there is an additional provision of the statute that 
specifies the viability of the 25-percent policy, at least until the 
initial implementation of the new payment framework under the LTCH PPS. 
Specifically, section 1206(b)(1)(C) requires CMS to submit a report to 
Congress ``[n]ot later than 1 year before the end of the 9-year period 
referred to in section 114(c) of the Medicare, Medicaid, and SCHIP 
Extension Act of 2007 . . . on the need for any further extensions (or 
modifications of the extensions) of the 25 percent rule . . . 
particularly taking into account the application of section 1886(m)(6) 
of the Social Security Act as added by subsection (a)(1).'' In response 
to the commenters expressed concerns relating to an ``overlapping'' of 
the full implementation of the 25-percent policy and the new payment 
framework specified under section 1206(a) of Public Law 113-67, we 
assure the commenters that any such interplay will be fully considered 
during the development of the required July 2015 Report to Congress. 
This date is at least a full year prior to the expiration of the 
current moratorium. Furthermore, as the statutory payment methodology 
revisions to the LTCH PPS will be phased-in under a ``blended'' payment 
methodology effective with LTCH cost reporting periods beginning during 
FY 2016, there still may be a need for the 25-percent policy during 
that phase-in period, although our study may or may not conclude that 
this policy is not required after full implementation of the new 
statutory payment methodology under the LTCH PPS.

F. Discussion of the ``Greater Than 3-Day Interruption of Stay'' Policy 
and the Transfer to Onsite Providers Policies Under the LTCH PPS

    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 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).)
    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. 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

[[Page 50188]]

of the 3-day or less interruption of stay policy.) In the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28196), we did not propose 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 proposed to revise in our proposed rule.
    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. We refer readers to our proposed rule for a more detailed 
description of the derivation of our day thresholds (79 FR 28196).
    Under the greater than 3-day interrupted stay policy, 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 MS-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, the IRF, or the 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 ``onsite'' 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), 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.
    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 IPPS 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 FY 2000 IPPS final rule, the RY 2003 
LTCH PPS final rule, and the FY 2015 IPPS/LTCH PPS proposed rule for a 
detailed description of the 5-percent policy, its initial application 
under the TEFRA payment system, and our policy concerns (64 FR 41535, 
67 FR 56007 through 56014, and 79 FR 28196 through 28197).
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28196), we 
proposed to revise our policies on interrupted stays. Specifically, we 
proposed to modify 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) consistent with the intervals presently used in two recently 
implemented Medicare initiatives: the Hospital Readmissions Reductions 
Program and the Hospital Inpatient Quality Reporting Program. (We refer 
readers to our proposed rule for a description of these two policies 
(79 FR 28197). We also proposed to remove our regulation at Sec.  
412.532, Special payment provisions for patients who are transferred to 
onsite providers and readmitted to a long-term care hospital, stating 
that as an ``after the fact'' payment adjustment (that is, following 
cost report settlement), we believed that this policy had a limited 
impact on provider behavior, and additionally our proposed changes to 
the interrupted stay policy make it unnecessary.
    Comment: Commenters objected to the CMS proposal to modify the 
fixed-day threshold for the greater than 3-day interrupted stay policy. 
The commenters provided many reasons for their objections to the 
proposal, including that:
     CMS should first implement the new statutory framework 
under Public Law 113-67 that applies patient-level criteria to payments 
under the LTCH PPS in FY 2016 and then ``. . . assess whether any 
problems related to the interrupted stay policy exist under the 
transformed payment system.''
     CMS used an ``inappropriate analogy'' in its proposal to 
change the fixed-day threshold under the greater than 3-day interrupted 
stay policy to 30 days because the referenced thresholds for the 
Hospital IQR Program and the Hospital Readmissions Reduction Program 
are used under the IPPS, but not under the LTCH PPS. Therefore, the 
commenters believed that 30 days is an inappropriate benchmark for the 
LTCH PPS policy. The commenters further noted that the LTCH PPS greater 
than 3-day interrupted stay policy applies a payment adjustment when an 
LTCH discharges a patient for access to clinical services not available 
at the LTCH and the patient is readmitted to the LTCH within the fixed-
day threshold. In contrast, under the Hospital Readmissions Reduction 
Program, a payment reduction is applied to the hospital's payment if 
the patient returns to the hospital for care within the fixed-day 
threshold, and it was not expected that the patient would return to the 
hospital for continuation of care in relation to the most recent 
discharge. The commenters specifically stated that ``the interrupted 
stay thresholds are intended . . . to define a point at which the care 
required for a

[[Page 50189]]

current episode of illness changes significantly enough to warrant `re-
setting the clock' to an entirely separate episode of care for the 
subsequent readmission . . .'' to the LTCH. They added that ``The 30-
day readmission threshold, on the other hand, can be likened to a 30-
day warranty period during which a readmission could indicate 
suboptimal quality of care during the initial admission.'' The 
commenters believed that comparing the interrupted stay policy to the 
readmissions initiatives would result in ``crucial incongruence'' 
because the two policies address fundamentally different clinical care 
scenarios. Furthermore, the commenters stated that a clinical threshold 
is not the same as a quality initiative. Some commenters stated that 
CMS had not demonstrated that an LTCH stay interrupted by 30 days at an 
IPPS hospital followed by a readmission to the LTCH constitutes a 
single episode of care or hospital stay. Several commenters asserted 
that ``the agency's previous research contradicts this premise upon 
which the proposed policy change is based.''
     The proposal did not include an adequate discussion of 
CMS' rationale as an explanation of the Agency's proposal. The 
commenters asserted that the publically available data sets did not 
provide adequate information for stakeholders to study the potential 
impact on hospitals based on this proposed policy. The commenters noted 
that the inclusion of such material in the FY 2012 proposal enabled 
LTCH stakeholders to meaningfully comment in response to the proposals. 
Furthermore, the commenters believed that as a result of the policy 
changes that will be implemented in FY 2016, LTCHs would be subject to 
significant financial and operational upheaval if this new policy is 
implemented as well.
     CMS did not offer evidence to indicate that LTCHs have 
been overpaid under the current policy or adequate data detailing the 
impact this proposed policy would have on LTCHs. The commenters 
suggested a more detailed impact analysis for this policy, including 
whether patient access to care would be harmed.
     Given that the potential impact imposed upon LTCHs based 
on the proposal to change the fixed-day threshold from 9 to 30 days for 
an intervening IPPS stay is so ``drastic,'' if finalized, there should 
be 3-year transition period from the current policy if CMS were to 
finalize such a policy, and CMS should change the MS-LTC-DRG relative 
payment weights to account for the resulting changes in LTCH treatment 
costs and Medicare payments.
    Response: We appreciate the commenters' responses. After careful 
consideration of the public comments we received, we agree with the 
commenters who indicated that, in light of the forthcoming 
modifications to the LTCH PPS, a major revision to the existing greater 
than 3-day interrupted stay policy may be premature at this time. We 
will take the other comments we received into consideration in 
preparation for any potential future rulemaking on this issue.
    Despite our decision to not finalize our proposal to change the 
fixed-day threshold under the LTCH PPS greater than 3-day interrupted 
stay policy, our goal continues to be to help ensure that readmission 
decisions are made on a clinical basis and not based on payment 
considerations. During the past several years, the Office of the 
Inspector General (OIG) has been evaluating the effects of the 
interrupted stay policies for LTCHs, primarily focusing on readmissions 
from acute care hospitals. In the OIG's March 28, 2014 report, 
``Vulnerabilities in Medicare's Interrupted-Stay Policy'' (OEI-04-12-
00490), the OIG stated that ``we identified several vulnerabilities in 
the LTCH interrupted-stay policy, including inappropriate payments 
(and) financial incentives to delay readmissions. . . .'' The report 
further stated that ``. . . 59 LTCHs had a high number of readmissions 
after the fixed-day period. . . .'' (We refer readers to the Executive 
Summary of the OIG's March 28, 2014 report for further details.) The 
report also noted that ``[f]orty-five of the 59 LTCHs were part of a 
chain, and 23 of these LTCHs were part of the same chain . . . For 50 
of these 59 LTCHs, the number of returns doubled immediately after the 
fixed-day period.'' (We refer readers to page 17 of the OIG's March 28, 
2014 report for further details.) The OIG recommended, among other 
things, that CMS take appropriate action regarding LTCHs with a high 
number of readmissions immediately after the fixed-day period and LTCHs 
with a high number of readmissions following multiple short intervening 
facility stays.
    In our response to the OIG's report, CMS agreed that LTCH 
readmission decisions should be based on the patient's clinical needs 
and not the hospital's financial benefit. We stated that if we find 
evidence that an individual hospital or chain is making readmission 
decisions based on financial considerations rather than the patient's 
clinical needs, we would take the appropriate action in those cases to 
rectify the inconsistencies in adhering to the current policy. In 
addition, as noted earlier, we will consider potential changes to the 
greater than 3-day interrupted stay policy as we gain experience under 
the new framework for the LTCH PPS.
    Comment: Commenters supported the proposal to remove the regulation 
at Sec.  412.532 (Special payment provisions for patients who are 
transferred to onsite providers and readmitted to a long-term care 
hospital), noting that the existing greater than 3-day interrupted stay 
policy addresses many of CMS' concerns about patient shifting. 
Commenters also indicated that they believed that the patient-level 
criteria that we will be implementing for FY 2016 will result in 
changes to LTCH PPS that further reduce the need for this policy.
    Response: We appreciate the commenters' support. After 
consideration of the public comments we received, we are finalizing our 
proposal to remove the regulatory requirements under Sec.  412.532 
because we believe that this policy has had a limited impact on 
provider behavior.
    In summary, in this final rule, we are not finalizing our proposal 
to change the fixed day threshold under the greater than 3-day 
interrupted stay policy under Sec. Sec.  412.531(a)(2) and (b)(4) of 
the regulations. However, we are finalizing the proposal to remove 
Sec.  412.532 in its entirety and to 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,

[[Page 50190]]

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 or recognize a new LTCH satellite facility as such, 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 will not need an 
exception to the moratorium on becoming an ``LTCH'' because they will 
already be an LTCH. As such, we are interpreting 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, as distinguished from those which are 
subject to the ``new'' moratoria. Sections 114(d)(2) and 114(d)(3) of 
the MMSEA, as amended, only address exceptions under the ``expired'' 
moratoria. Section 114(d)(6) of the MMSEA, as amended, defines when the 
exceptions addressed in sections 114(d)(2) and 114(d)(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. In this final rule, we are applying the same 
rationale in regard to the interpretation of section 114(d)(7)(A), that 
is, we are interpreting the provision to refer to an acute care 
hospital meeting the stated requirements as the hospital or entity 
seeking 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

[[Page 50191]]

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 interpreting 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 interpreting 
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 limiting 
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, prior to April 1, 2014, has ``obtained an 
approved certificate of need in a State where one is required''. As 
discussed above, we are applying 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 will 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 prior to 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 applying this 
exception requirement to a hospital that is 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) prior to 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 of what is contemplated in 
these LTCH-specific statutory provisions. We are only applying this 
exception requirement where the certificate of need is 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 prior to April 1, 2014, we will 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. ``Final'' instructions on implementing the 
moratoria will be posted following the publication of this final rule.
    In accordance with these policies, in this final rule we also are 
revising 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.
    Comment: Several commenters urged CMS to establish a regulatory 
exception to the statutory moratorium on the increase in the number of 
beds in existing LTCHs and LTCH satellite facilities. The commenters 
pointed out

[[Page 50192]]

that, unlike the ``expired'' moratoria, the ``new'' moratoria under 
section 1206(b)(2) of Public Law 113-67 do not provide for such 
exceptions. The commenters further stated that when the statute was 
further amended by section 112(b) of the PAMA of 2014, Congress elected 
to provide an exception for the establishment of new LTCHs and LTCH 
satellite facilities, but not for the increase in the number of LTCH 
beds. Specifically, the commenters requested that CMS provide two 
regulatory exceptions to the moratorium to allow for the increase in 
the number of beds in existing LTCHs and LTCH satellite facilities if: 
(1) the LTCH has a binding written agreement as of the date of the 
enactment of this paragraph with an outside, unrelated party for the 
actual construction, renovation, lease or demolition for long-term care 
hospital beds, and has expended, before such date of enactment, at 
least 10 percent of the estimated cost of the project (or, if less, 
$2,500,000) (the ``binding written agreement exception''); or (2) if 
the LTCH has obtained an approved certificate of need (CON) from the 
State where one is required on or before the date of enactment (the 
``CON exception''). The commenters believed that the creation of these 
exceptions would be within CMS' authority because: (1) the statute is 
``ambiguous'' and, therefore, CMS may exercise its authority under the 
general rulemaking provisions under sections 1102 and 1871 of the Act 
to ``resolve the ambiguity''; (2) with the enactment of section 112(b) 
of the PAMA, the effective date of the new moratorium on the increase 
in the number of beds in existing LTCHs and LTCH satellite facilities 
was changed from January 1, 2015, to April 1, 2014, which creates a 
disadvantage for those LTCHs that were in the process of increasing the 
number of beds in their facilities based on ``reasonable reliance'' on 
the January 1, 2015 effective date; (3) Congress acted in haste when 
enacting the PAMA, and not including a bed number exception was an 
error; and (4) the health needs of the critically ill Medicare 
beneficiary population will go unmet without these additional beds.
    Response: We do not agree with the commenters' assertion regarding 
CMS' authority to establish two regulatory exceptions to the statutory 
moratorium on the increase in the number of beds in existing LTCHs and 
LTCH satellite facilities. Unlike the ``expired'' moratoria, the 
``new'' moratoria under section 1206(b)(2) of Public Law 113-67 
expressly noted that such exceptions would not apply under the ``new'' 
moratoria. We refer readers to section 1206(b)(2)(B) of Public Law 113-
67. When further amended by section 112(b) of the PAMA of 2014, 
Congress only elected to provide exceptions for the establishment of 
new LTCHs and LTCH satellite facilities, but not for the increase in 
the number of LTCH beds. We do not believe that these two laws, read in 
concert, are ambiguous. Congress explicitly addressed the former 
exceptions as they relate to the ``new'' moratorium. In doing so, 
Congress clearly demonstrated its awareness of the prior exceptions, 
and by stating that the exceptions do not apply under the ``new'' 
moratorium while concurrently not offering new exceptions, clearly 
indicated that Congress intended to offer no such exceptions. 
Furthermore, there is no reason for CMS to presume that the subsequent 
provisions for exceptions under the ``new'' moratoria on the 
establishment of new LTCHs and LTCH satellite facilities, but not for 
the increase in the number of LTCH beds was anything other than 
intentional, absent evidence to the contrary. The commenters did not 
present any evidence of this nature. Therefore, in the absence of some 
indication that Congress intended to reverse its specific statement 
under section 1206(b)(2)(B) of Public Law 113-67 that limits the 
application of exceptions, such as it did in establishing exceptions to 
the moratorium on the establishment of new LTCHs and LTCH satellite 
facilities, we see no reason to infer that the absence of any 
exceptions in regard to the moratorium on the increase in the number of 
beds in existing LTCHs and LTCH satellite facilities was anything other 
than intentional.
    Furthermore, in response to the commenters' ``reasonable reliance'' 
assertions, while we may understand the commenters' concerns regarding 
wasted resources, such concerns do not permit us to offer rulemaking 
that would be contrary to the express intent of Congress. Finally, 
while we understand the commenters' concerns regarding access to care 
for Medicare beneficiaries, we believe that Congress would have 
provided exceptions if it believed that beneficiary access to LTCH and 
LTCH satellite facility beds would be negatively impacted. Furthermore, 
we expect that Congress would address any unanticipated access issues, 
should these issues arise. Therefore, we disagree with the commenters' 
assertions.
    Comment: One commenter urged CMS to revise its interpretation of 
the exceptions provisions under the moratorium on the development of 
new LTCHs and LTCH satellite facilities so as to include ``ownership'' 
of the property in the list of permitted activities that could be 
included in the criteria for qualifying for the ``binding written 
agreement'' exception. The commenter also urged CMS to include the 
purchase of architectural plans as a necessary element that would count 
towards quantifying the total expenditure amount.
    Response: In the FY 2015 IPPS/LTCH PPS proposed rule, we noted that 
the ``new'' moratorium on the development of new LTCHs and LTCH 
satellite facilities provided under section 1206(b)(2) of Public Law 
113-67, as amended by section 112(b) of the PAMA, and incorporated as 
section 114(d)(7) of the MMSEA ``. . . mirrors the expired provisions 
of section 114(d)(2)(A)'' of the `expired' moratorium.'' Because 
Congress used the identical wording for these provisions, we proposed 
to apply the same interpretation of the exceptions provisions that we 
used for the ``expired'' moratorium in regard to the ``new moratorium. 
(We refer readers to the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28198).) The specific exception provision that the commenters are 
questioning is outlined under section 114(d)(7)(B) of the MMSEA, as 
amended, and is defined as the ``binding written agreement'' exception. 
Section 114(d)(7)(B) of the MMSEA of 2007, as amended, specifies one of 
the qualifying criterion for this exception, namely, the requirement 
for the facility to have a binding written agreement with an outside, 
unrelated party for the actual construction, renovation, lease, or 
demolition for a long-term care hospital, and have expended, before the 
date of the enactment of the PAMA, at least 10 percent of the estimated 
cost of the project (or, if less, $2,500,000).
    After we implemented the provisions of the ``expired'' moratorium, 
published in the May 22, 2008 interim final rule with comment period 
(73 FR 29699), in response to the FY 2010 IPPS/LTCH PPS final rule, 
commenters urged CMS to revise its interpretation of the ``binding 
written agreement'' exception under section 114(d)(2)(B) of the MMSEA 
to include ``. . . feasibility studies, land purchases, architectural 
fees, attorneys' fees, appraisals, purchase of rights of way, as well 
as other activities that occur during the development of a hospital . . 
.'' At that time, we stated in our response that, ``. . . Congress 
expressly specified only four `actual' activities in the statute.'' We 
also believe, as we stated in the May 22, 2008 interim final rule with

[[Page 50193]]

comment period, that the use of the term ``actual'' in the context of 
the exception provisions terminology of ``actual construction, 
renovation, lease, or demolition'' limits the activities that Congress 
considers to represent a substantial commitment to that particular 
project of developing an LTCH or an LTCH satellite facility. By using 
the term ``cost of the project,'' we believe that the statute refers to 
the activities enumerated in the first prong, ``the `actual' 
construction, renovation, lease, or demolition for a long-term care 
hospital.'' (We refer readers to the FY 2010 IPPS/LTCH PPS final rule 
with comment period (74 FR 43988).) Our interpretation of the exception 
provisions for a ``binding written agreement'' under the ``expired'' 
moratorium was implemented in FY 2008 with the publication of the May 
22, 2008 interim final rule with comment period (73 FR 29699), and 
finalized in the FY 2010 IPPS/LTCH PPS final rule with comment period 
(74 FR 43754). While we understand that our longstanding interpretation 
of the language in this exception may cause hardship to developing 
LTCHs and LTCH satellite facilities that seek to qualify for the 
exception under the ``expenditure'' prong, we continue to believe that 
only the specific costs cited in the statute may be considered in 
evaluating and granting exceptions to the ``new'' moratorium. 
Furthermore, we also believe that by using the same language in the 
exceptions provisions under the ``new'' moratorium that was used in the 
provisions of the ``expired'' moratorium, Congress had reason to expect 
that CMS would apply the same interpretation under the ``new'' 
exception provisions as were applied under the ``expired'' moratorium 
exception provisions. If Congress disagreed with our interpretation, or 
believed that other costs should be included or considered in 
determining whether an LTCH or LTCH satellite facility would qualify 
for this exception to the moratorium, it could have revised the 
language used under section 112(b) of the PAMA, which applies the 
exceptions, accordingly.

H. Evaluation and 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 final 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 applying a payment 
adjustment to subclause (II) LTCHs beginning in FY 2015, which will 
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

[[Page 50194]]

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 
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 final rule, we 
are not making any specific policy and payment changes in this final 
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 specific policy or 
payment changes in this final 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 the adoption of policies 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 will 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 final 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 final 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

[[Page 50195]]

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 expected to have 
significantly fewer (approximately 5 times fewer) discharges that would 
be expected to 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. 
We refer readers to the FY 2015 IPPS/LTCH PPS proposed rule for a 
detailed description of our analysis and evaluation of the application 
of the TEFRA payment model to a subclause (II) LTCH (78 FR 28202 
through 28203). We note that in describing our estimated operating and 
capital payments under the TEFRA payment system principles in the 
proposed rule, we mistakenly stated that we used FY 2010 cost report 
data when those estimates were determined using FY 2011 cost report 
data.
    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.
    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 final rule, for 
cost reporting periods beginning on or after October 1, 2014 (FY 2015 
and beyond), we are applying a payment adjustment to subclause (II) 
LTCH payments under the LTCH PPS such that these LTCH PPS payments will

[[Page 50196]]

resemble payments made under the reasonable cost-based TEFRA payment 
system. We believe that it is appropriate to apply this 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 implementing this payment adjustment for subclause (II) LTCHs in 
the regulations by adding new Sec.  412.526 under 42 CFR Part 412, 
Subpart O.
    Specifically, in this final rule we are establishing new 
regulations under Sec.  412.526 that will provide that, for cost 
reporting periods beginning on or after October 1, 2014, payments to a 
``subclause (II)'' LTCH will be made under the LTCH PPS under Subpart O 
of Part 412, as adjusted. This adjusted payment amount will 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 payment adjustment under new Sec.  412.526 for inpatient 
operating costs, the adjusted payment amount will generally be 
determined in accordance with the cited provisions of Sec.  413.40. 
Accordingly, we are establishing a ``target amount'' for a subclause 
(II) LTCH for purposes of calculating a hospital-specific ceiling on 
payments for inpatient operating costs under this payment adjustment. 
We will 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 
payment adjustment, consistent with the statute (as explained below), 
we are not including 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 will 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 will ensure that the increases 
provided for by section 307(a) of the BIPA will not be included in the 
LTCH PPS payments to subclause (II) LTCHs under this 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 payment adjustment 
for subclause (II) LTCHs under new Sec.  412.526, we will determine a 
FY 2015 LTCH PPS 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, as with TEFRA payment system, we will pay for 
inpatient capital-related costs in accordance with the regulations 
under 42 CFR Part 413, under which Medicare allowable capital costs are 
paid on a reasonable cost basis, consistent with section 1886(g) of the 
Act.
    Comment: Several commenters supported the proposed policy to apply 
a payment adjustment to subclause (II) LTCHs payments modeled on the 
TEFRA payment system. In addition, the commenters suggested that CMS 
provide the authority for this LTCH to request and receive an 
adjustment to its rate-of-increase ceiling, as specified in our TEFRA 
regulations at 42 CFR 413.40 (e), (g), and (i) for other hospitals paid 
on a TEFRA basis ``. . . to address circumstances that arise that are 
beyond a hospital's control and render an applicable TEFRA ceiling 
amount inadequate.''
    Response: We have evaluated the provisions specified by the 
commenters and considered the fiscal circumstances of the one subclause 
(II) LTCH that will be affected by the payment system revisions 
finalized in this final rule. In response to the commenters' concerns, 
we believe that it would be reasonable to consider circumstances that 
may arise that are beyond a hospital's control and that may render an 
applicable LTCH PPS ceiling amount inadequate. Therefore, we are adding 
new paragraph (c)(5)(i) under new Sec.  412.526 entitled ``Adjustments 
for Extraordinary circumstances.'' Paragraph (c)(5)(i)(A) under new 
Sec.  412.526 states that CMS may adjust the ceiling determined under 
paragraph (c)(1) of the section for one or more cost reporting periods 
when unusual inpatient operating costs have resulted in the hospital 
exceeding its ceiling imposed under this section due to extraordinary 
circumstances beyond the hospital's control. These circumstances 
include, but are not limited to, strikes, fire, earthquakes, floods, or 
similar unusual occurrences with substantial cost effects.
    The other suggestion recommended by the commenters deal with the 
LTCH's ability to request an adjustment to their allowed LTCH PPS rate-
of-increase ceiling, if their costs during a specific period are no 
longer comparable to the base year and the authority to request a new 
base year for its LTCH PPS target amount. Because our data reveal that, 
on average, for the past 6 years, this LTCH's costs are considerably 
below the amount that OACT calculated as its FY 2015 target amount, we 
believe that these additional features are unnecessary at this time. 
Moreover, if future data indicate that a change is warranted, we will 
consider proposing to add these features to our policy in future 
rulemaking.
    In summary, for cost reporting periods beginning on or after 
October 1, 2014, we are establishing that payment to a ``subclause 
(II)'' LTCH will be made under the LTCH PPS, as adjusted. The adjusted 
payment amount will be comprised of 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.

[[Page 50197]]

Under this payment adjustment, Medicare inpatient operating costs will 
be reimbursed on a reasonable cost basis, subject to a ceiling; that 
is, subject to an aggregate upper limit on the amount of a hospital's 
net Medicare inpatient operating costs that will be recognized for 
payment purposes. For each cost reporting period, the ceiling on 
payments for Medicare inpatient operating costs will 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 will 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 will 
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 payment adjustment will be made on a reasonable cost basis, in 
accordance with the cited portions of 42 CFR Part 413. In this final 
rule, we are codifying the provisions of this payment adjustment to 
subclause (II) LTCHs under new Sec.  412.526 of the regulations. We are 
adding paragraph (c)(5), which establishes the general rules for 
requesting adjustments and also includes a provision to provide 
adjustments for unusual costs arising from extraordinary circumstances. 
In addition, we are making conforming changes to Sec.  412.521(a)(2) to 
cross reference this payment adjustment under new Sec.  412.526.

I. Description of Statutory Framework for Patient-Level Criteria-Based 
Payment Adjustment Under the LTCH PPS Under Pub. L. 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 
complex (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 the FY 2015 IPPS/LTCH PPS proposed rule 
was superseded. Accordingly, we did not propose revisions to the LTCH 
PPS based upon the Kennell/RTI framework for FY 2015. Rather, we stated 
that 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.)
    We refer readers to section VII.I.2. of the preamble of the 
proposed rule in which we summarized the statutory provisions of 
section 1206(a) of Public Law 113-67 (78 FR 28204). In section VII.I.2. 
of the preamble of this final rule, we discuss several significant 
issues arising from these statutory changes to the LTCH PPS, on which 
we requested stakeholder feedback prior to developing our proposals for 
FY 2016 implementation. We intend to propose the specific policy and 
payment changes that will be necessary to implement the provisions of 
Public Law 113-67 for cost reporting periods beginning on or after 
October 1, 2015, during the FY 2016 rulemaking cycle. Although we did 
not propose to make any policy and payment changes mandated by section 
1206(a)(1) of Public Law 113-67 in the FY 2015 IPPS/LTCH PPS proposed 
rule, in light of the degree of the forthcoming changes, in section 
VII.I.3. of the preamble of the proposed rule, we discussed some of the 
changes and requested public feedback to inform our proposals for FY 
2016.
2. 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 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

[[Page 50198]]

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 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 final rule, and our policies under the high-
cost outlier payment policy for FY 2015 can be found in section V.D. of 
the Addendum to this final rule.)
    In the FY 2015 IPPS/LTCH PPS proposed rule, we stated that we were 
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 
were 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.
    Comment: In response to our request for feedback from LTCH 
stakeholders, numerous commenters addressed the setting of relative 
payment weights for MS-LTC-DRGs and establishing a high-cost outlier 
policy under the new LTCH PPS framework. MedPAC urged CMS to establish 
``. . . new LTCH base payment rates and new relative payment weights 
for each MS-LTC-DRG based solely on the most recent available 
standardized data associated with discharges meeting the specified 
patient-level criteria.'' MedPAC stated that the change in methodology 
required by the new LTCH PPS framework should not result in increased 
aggregate payments for the cases paid under the standard LTCH PPS rate 
under the new LTCH PPS framework. MedPAC also recommended that both 
standard and site neutral payments receive high-cost outliers, and that 
total outlier payments under the LTCH PPS continue to account for 8 
percent of total LTCH payments for all cases (both payment types 
combined) with the ``same uniform national fixed-loss amount . . . 
applied to both cases being paid the standard LTCH PPS payment amount 
and to cases being paid the site neutral amount.'' Most of the other 
commenters recommended that the high-cost outlier threshold and MS-LTC-
DRG relative payment weights be calculated only using data from cases 
that meet the patient-level criteria established by section 1206 of 
Public Law 113-67; that is, cases for whom Medicare will make standard 
payments under the LTCH PPS, without including data on ``site neutral'' 
payments. Some of the commenters urged CMS to focus on keeping payments 
for standard cases at the same payment level as they have recently 
been, and recommended focusing only on standard cases for the 
calculation of the high-cost outlier threshold and for establishing MS-
LTC-DRG relative payment weights. Other commenters recommended setting 
the fixed-loss threshold for high-cost outliers at 8 percent initially 
and then readjusting the threshold as more data become available. 
Several commenters conducted individual analyses and specifically 
recommended setting the fixed-loss threshold at 8 percent for each of 
the two payment types, standard and site neutral. A number of 
commenters made recommendations regarding specific aspects of the law. 
Other commenters opined that site neutral payments should be based on a 
full IPPS payment rather than the lesser of an IPPS comparable payment 
and the estimated costs of the case. Many commenters expressed concern 
regarding the severity of illness of many LTCH patients for whom site 
neutral payments would be made under the new LTCH PPS framework, and 
noted that the costs of treating such patients would not be covered 
under the statutory framework and could result in patient access 
problems for LTCH care. Other commenters suggested that the patient-
level criteria that would have to be met in order for an LTCH to 
receive the standard payment rate be expanded to include severe wound 
care patients and diabetes diagnoses with post-surgical complications. 
Several commenters suggested that the statutory language be clarified 
regarding the application of IPPS ICU and CCU codes 020X and 021X to 
determine compliance with the 3-day criteria, and urged CMS to consider 
all categories within those codes. Several commenters requested that 
CMS hold public meetings for stakeholders to address the issues 
presented by the implementation of section 1206 of Public Law 113-67.
    Response: We appreciate the commenters' thoughtful and detailed 
feedback, particularly those comments received regarding setting 
relative payment weights for MS-LTC-DRGs and establishing a high-cost 
outlier policy under the new LTCH PPS framework. In preparation for 
proposing the new LTCH PPS framework in the FY 2016 IPPS/LTCH PPS 
proposed rule, we will consider these suggestions and respond to 
stakeholders' concerns with openness and transparency.
    Comment: MedPAC included additional comments on CMS' SSO policy in 
light of the new LTCH PPS framework that it believed are appropriate 
for inclusion in this final rule. MedPAC believed that the existing SSO 
policy, which pays an adjusted amount for cases with lengths of stay 
less than or equal to five-sixths of the geometric average length of 
stay for the MS-LTC-DRG, provides an incentive for LTCHs to make 
discharge decisions based on financial gain rather than purely clinical 
reasons. MedPAC analyses of LTCH discharge patterns indicate that the 
frequency of discharges rises sharply immediately after the SSO 
threshold. Once the statutory changes to the LTCH PPS are implemented, 
MedPAC recommended limiting the application of the existing SSO policy 
solely to cases paid under the standard LTCH PPS rate, and modifying 
the SSO policy to reduce the existing financial incentives by lowering 
the payment penalty for discharging patients before the SSO threshold. 
MedPAC recommended adopting the methodology used under the IPPS 
transfer policy; that is, for the first day of SSO cases payments would 
be twice the per diem rate for the MS-LTC-DRG with payment for each 
additional day set at the per diem rate up to the maximum of the full 
standard per discharge payment, which would only be reached 1 day 
before the average length of stay for the MS-LTC-DRG. For LTCH cases 
paid based on the site neutral payment methodology under the 
forthcoming statutory framework, MedPAC suggested that CMS adopt the 
short-stay policies that apply under the IPPS. Another commenter urged 
CMS to consider implementing a number of the SSO suggestions made by 
MedPAC.

[[Page 50199]]

    Response: We appreciate MedPAC's detailed and thoughtful 
suggestions.

J. Technical Change

    In this final rule, we are updating the legislative authorities 
cited for the regulations governing the LTCH PPS under Subpart O of 
Part 412. Specifically, we are adding 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. Administrative Appeals by Providers and Judicial Review

A. Proposed and Final Changes Regarding the Claims Required in Provider 
Cost Reports and for Provider Administrative Appeals

    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 27978), we 
proposed 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, we proposed that 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 proposed 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 proposed 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, and proposed similar revisions to the Part 405, 
Subpart R regulations for appeals before the contractor hearing 
officers. We proposed that these 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.
    We received numerous public comments of varied legal and procedural 
opinions in response to our proposals to revise the cost reporting 
regulations and the provider appeals regulations. The concerns raised 
by commenters about the breadth of the proposed provisions, and the 
questions raised in public comments about the interpretations we 
provided in the preamble to the proposed rule, have instead provided us 
with an opportunity to further and more fully dissect and digest the 
public comments. Therefore, we are not finalizing our proposals to 
revise the cost reporting regulations and the provider appeals 
regulations as set forth in the FY 2015 IPPS/LTCH PPS proposed rule (79 
FR 27978). We note that, in this final rule, we are not addressing 
public comments received with respect to the provisions of the proposed 
rule that we are not finalizing at this time. Rather, we will address 
them at a later time, in a subsequent rulemaking document, as 
appropriate.

B. Proposed and Final Changes To Conform Terminology From 
``Intermediary'' to ``Contractor''.

    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 27978), we 
proposed 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.
    We did not receive any public comments on our proposal 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. Therefore, we are 
finalizing our proposal to conform the terminology in Part 405, Subpart 
R and all subparts of Part 413 from ``intermediary'' or ``fiscal 
intermediary'' to ``contractor''.

C. Technical Correction to Sec.  405.1835 of the Regulations and 
Corresponding Amendment to Sec.  405.1811 of the Regulations

1. Background and Technical Correction to Sec. Sec.  405.1811 and 
405.1835 of the Regulations
    Section 1878(a) of the Act allows providers to appeal to the 
Provider Reimbursement Review Board (the Board) final determinations of 
program reimbursement made by a contractor, as well as certain final 
determinations by the Secretary involving payment under section 1886(d) 
(the inpatient hospital prospective payment system) and section 1886(b) 
(commonly known as the Tax Equity and Fiscal Responsibility Act of 1982 
(TEFRA) payment system) of the Act. In addition, by regulation, 
providers are given the right to appeal to the Board or to contractor 
hearing officers certain other determinations.
    Under section 1878(a)(1)(A), (2), and (3) of the Act, and Sec.  
405.1835(a)(1), (2), and (3)(i) of the regulations, a provider may 
obtain a Board hearing if it meets three jurisdictional requirements: 
(1) the provider is dissatisfied with a final determination of the 
contractor 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 section 
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; (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.
    As noted, section 1878(a)(1)(A) of the Act requires that the 
provider ``is dissatisfied with a final determination'' of the 
contractor or the Secretary.

[[Page 50200]]

However, section 1878(a)(1)(B) of the Act does not require provider 
dissatisfaction for Board appeals based on an untimely final contractor 
determination.
    Before a 2008 final rule (73 FR 30190; May 23, 2008) substantially 
amended the appeals rules, the regulations tracked fully the statute as 
to whether provider dissatisfaction was a prerequisite for Board 
jurisdiction. In the 2007 edition of the appeals regulations, Sec.  
405.1835(a) addressed the requirements for Board appeals of final 
contractor determinations, and referred to Sec.  405.1841(a), which 
required the provider to set forth its dissatisfaction with specific 
aspects of the contractor determination. Thus, consistent with section 
1878(a)(1)(A) of the Act, Sec.  405.1835(a) and Sec.  405.1841(a) of 
the 2007 regulations required provider dissatisfaction for Board 
appeals of final contractor determinations.
    By contrast, Board appeals based on untimely contractor 
determinations were addressed in Sec.  405.1835(c), which did not 
reference provider dissatisfaction. Instead, Sec.  405.1835(c) simply 
provided that notwithstanding the provisions of paragraph (a)(1) of the 
section, the provider also has a right to a hearing before the Board if 
an intermediary's determination is not rendered within 12 months after 
receipt of a provider's perfected cost report or amended cost report 
provided such delay was not occasioned by the fault of the provider. 
Thus, as with section 1878(a)(1)(B) of the Act, Sec.  405.1835(c) of 
the 2007 regulations did not require provider dissatisfaction for Board 
appeals based on untimely final contractor determinations.
    In the 2008 final rule (73 FR 30190), Sec.  405.1835 was 
substantially revised, Sec.  405.1841 was removed, and the prior 
provisions in paragraph (c) of Sec.  405.1835 for Board appeals based 
on untimely contractor determinations were also eliminated. As amended, 
Sec.  405.1835(a) now states that a provider has a right to a Board 
hearing ``only if'' three criteria are satisfied. First, the provider 
must have ``preserved its right to claim dissatisfaction with the 
amount of Medicare payment'' by making a cost report claim for the item 
in dispute, or by ``self-disallowing'' the item by listing it as a 
``protested amount'' in the cost report. Second, the amount in 
controversy must be at least $10,000. Third, the Board must receive the 
provider's hearing request within 180 days after the provider received 
the final determination of the intermediary or the Secretary. However, 
if a final contractor determination 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, a Board 
hearing must be requested within 180 days after the expiration of that 
12 month period. Under the existing regulations, provider 
dissatisfaction is a requirement for Board jurisdiction over appeals 
based on an untimely contractor determination, as well as for appeals 
of a final determination of the contractor or the Secretary.
    As amended by the 2008 final rule (73 FR 30190), Sec.  
405.1835(a)'s provisions for Board appeals based on untimely contractor 
determinations no longer track fully the provisions for such appeals in 
section 1878(a)(1)(B) of the Act. Specifically, Sec.  405.1835(a) of 
the regulations now requires provider dissatisfaction as a condition 
for Board jurisdiction over appeals based on an untimely contractor 
determination, but section 1878(a)(1)(B) of the Act does not impose a 
provider dissatisfaction requirement for such appeals.
    When this difference between Sec.  405.1835(a) of the regulations 
and section 1878(a)(1)(B) of the Act came to our attention, we looked 
into this matter. After reviewing the 2008 final rule and the 
corresponding parts of the 2004 proposed rule (69 FR 35716; June 25, 
2004), we determined that the inclusion in Sec.  405.1835(a) of a 
provider dissatisfaction requirement for Board appeals based on an 
untimely contractor determination reflects an inadvertent error in the 
drafting of the 2008 final rule and the 2004 proposed rule.
    In this final rule, we are revising Sec.  405.1835 of the 
regulations to eliminate provider dissatisfaction as a requirement for 
Board jurisdiction over appeals based on untimely contractor 
determinations. This is simply a technical correction inasmuch as this 
amendment to Sec.  405.1835 conforms the regulations to the provisions 
in section 1878(a)(1)(B) of the Act for Board appeals based on an 
untimely contractor determination. In effect, this amendment to Sec.  
405.1835 of the regulations restores the full conformity of the 
regulations with the statutory requirements for Board jurisdiction over 
appeals based on untimely contractor determinations--a conformity that 
obtained before the 2008 final rule (73 FR 30190) inadvertently imposed 
a provider dissatisfaction requirement for Board appeals based on 
untimely contractor determinations. Moreover, in order to maintain 
consistency between the regulations for Board appeals and the rules for 
contractor hearing officer appeals, we also are revising Sec.  405.1811 
of the regulations to eliminate provider dissatisfaction as a 
requirement for contractor hearing officer jurisdiction over appeals 
based on untimely contractor determinations.
2. Waiver of Notice of Proposed Rulemaking
    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of a rule take effect in accordance with section 553(b) of 
the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). However, we 
can waive this notice and comment procedure if the Secretary finds, for 
good cause, that the notice and comment process is impracticable, 
unnecessary, or contrary to the public interest, and incorporates a 
statement of the finding and the reasons therefore in the notice.
    We find it unnecessary to undertake notice-and-comment rulemaking 
for the above-described revisions because those revisions are simply 
technical corrections that bring Sec.  405.1835 of the Board appeals 
regulations into full conformity with section 1878(a)(1)(B) of the Act, 
and maintain consistency between Sec.  405.1811 of the intermediary 
(contractor) hearing officer appeals regulations and Sec.  405.1835 of 
the Board appeals regulations. The revisions do not represent changes 
in policy, nor do they have a substantive effect, and the public 
interest would be best served by timely correction of these technical 
errors. Therefore, we find good cause to waive notice and comment 
procedures.
3. Effective Date and Applicability Date; Finality and Reopening
    The technical correction to Sec.  405.1835 of the Board appeals 
regulations and the corresponding revision to Sec.  405.1811 of the 
intermediary (contractor) hearing officer appeals regulations is 
effective October 1, 2014. The revisions to Sec.  405.1835 of the Board 
appeals regulations and Sec.  405.1811 of the intermediary (contractor) 
hearing officer appeals regulations are applicable, subject to the 
rules of administrative finality and reopening in Sec.  405.1807 and 
Sec.  405.1885 of the regulations, to appeals pending or filed on or 
after the August 21, 2008 effective date of the 2008 final rule (73 FR 
30190).
    The technical correction to Sec.  405.1835 of the Board appeals 
regulations and the corresponding revision to Sec.  405.1811 of the 
intermediary (contractor) hearing officer appeals regulations apply 
automatically to appeals, based on an untimely contractor 
determination, pending or filed on or after the October 1, 2014 
effective date of this final rule. If the Board or the Administrator of 
CMS finally dismissed an appeal, based

[[Page 50201]]

on an untimely contractor determination, due to the provider's failure 
to make an appropriate cost report claim for the matter at issue, the 
provider may ask the Board or the Administrator, as applicable, to 
reopen such decision pursuant to Sec.  405.1885 of the regulations and 
apply this technical correction to Sec.  405.1835 of the Board appeals 
regulations, provided that such final jurisdictional dismissal decision 
was issued no more than 3 years before the October 1, 2014 effective 
date of this final rule. Similarly, if the contractor hearing officer 
or the CMS reviewing official finally dismissed an appeal, based on an 
untimely contractor determination, due to the provider's failure to 
make an appropriate cost report claim for the matter at issue, the 
provider may ask the contractor hearing officer or the CMS reviewing 
official, as applicable, to reopen such decision pursuant to Sec.  
405.1885 of the regulations and apply this technical correction to 
Sec.  405.1811 of the intermediary (contractor) hearing officer appeals 
regulations, provided that such final jurisdictional dismissal decision 
was issued no more than 3 years before the October 1, 2014 effective 
date of this final rule.
    We believe that, because the above-described regulatory amendments 
are simply technical corrections that do not make substantive changes 
to the regulations for appeals to the Board and the contractor hearing 
officers, the public interest is served by correcting the inadvertent 
drafting errors in the 2008 final rule's provisions for appeals to the 
Board and the contractor hearing officers based on untimely contractor 
determinations. As technical corrections to the 2008 final rule, we 
believe the above-described amendments to Sec.  405.1811 and Sec.  
405.1835 should apply as of the August 21, 2008 effective date of the 
2008 final rule, subject to the rules of administrative finality and 
reopening in Sec.  405.1807 and Sec.  405.1885 of the regulations.
    We believe that fixing the applicability date, subject to the rules 
of administrative finality and reopening in Sec.  405.1807 and Sec.  
405.1885 of the regulations, of these amendments by reference to the 
August 21, 2008 effective date of the 2008 final rule is not 
impermissibly retroactive in effect because the amendments simply 
correct and clarify longstanding agency policy and practice, and are 
procedural in nature. For example, we refer readers to Heimmermann v. 
First Union Mortgage Corp., 305 F.3d 1257, 1260-61 (11th Cir. 2002) (a 
rule clarifying the law, especially in an unsettled or confusing area 
of the law, is not a substantive change in the law, and thus the rule 
may apply to matters that preceded issuance of the rule.) However, if 
the above-described amendments to Sec.  405.1811 and Sec.  405.1835 
were deemed a retroactive application of a substantive change to a 
regulation, section 1871(e)(1)(A) of the Act permits retroactive 
application of a substantive change to a regulation if the Secretary 
determines that such retroactive application is necessary to comply 
with statutory requirements or that failure to apply the change 
retroactively would be contrary to the public interest. We have 
determined that any retroactive application of these amendments to 
Sec.  405.1811 and Sec.  405.1835 is necessary to ensure full 
compliance with the statutory provisions for Board appeals based on 
untimely contractor determinations (under section 1878(a)(1)(B) of the 
Act). We have further determined that it would be in the public 
interest to apply these amendments, subject to the rules of 
administrative finality and reopening in Sec.  405.1807 and Sec.  
405.1885 of the regulations, to Board appeals and contractor hearing 
officer appeals that were initiated or pending on or after the August 
21, 2008 effective date of the 2008 final rule. The alternative, of not 
applying these amendments to Sec.  405.1811 and Sec.  405.1835 to Board 
appeals and contractor hearing officer appeals that were initiated or 
pending on or after the August 21, 2008 effective date of the 2008 
final rule, would be inconsistent with the statutory provisions for 
Board appeals based on untimely contractor determinations (under 
section 1878(a)(1)(B) of the Act) and would undermine the public 
interest in maintaining consistency between the requirements for Board 
appeals and contractor hearing officer appeals.

IX. 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, care coordination, and improving patient 
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,

[[Page 50202]]

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 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 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 finalizing additional 
policies for this program in section IV.I. of the preamble of this 
final 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. Newly finalized policies for the Hospital VBP Program are 
included in section IV.I. of the preamble of this final rule. Newly 
finalized policies for the HAC Reduction Program are included in 
section IV.J. of the preamble of this final rule.
    Although we intend to monitor the various interactions of programs 
authorized by the Affordable Care Act and their overall impact on 
providers and suppliers, we also view programs that could potentially 
affect a hospital's Medicaid payment as separate from programs that 
could potentially affect a hospital's Medicare payment.
    In the preamble of this final rule, we are finalizing 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 final rule, 
we are finalizing 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

[[Page 50203]]

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 the 
FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28218 through 28219), we did 
not propose 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 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; (5) 
performance or improvement on a measure does not result in better 
patient outcomes; (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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28219), we 
proposed 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 proposed to apply 
the following two criteria, the first of which was previously adopted 
by the Hospital VBP Program in the Hospital Inpatient VBP Program final 
rule (76 FR 26496 through 26497), to Hospital IQR Program 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 ([gteqt]):
     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

[[Page 50204]]

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.
    Comment: A number of commenters supported the criteria for 
determining when a measure is ``topped-out.'' Some commenters 
specifically noted that removing ``topped-out'' measures will reduce 
hospital reporting burden.
    Several commenters supported removing ``topped-out'' chart-
abstracted measures. Some commenters specifically supported the removal 
of structural measures.
    Response: We appreciate the commenters' support for removing 
``topped-out'' measures. We will consider removal of topped-out 
structural measures in future years consistent with our measure removal 
and topped-out status policies.
    Comment: A commenter stated that the process of care measures that 
are ``topped-out'' should be removed both in their chart-abstracted and 
electronic clinical quality measure versions. The commenter believed 
that interpreting disparate and incorrect performance rates for the 
measures as reported in their electronic versions is burdensome to 
stakeholders, and that the specifications for the chart-abstracted and 
electronic versions of measures would be misaligned which may lead to 
issues in capturing the full range of patient care. The commenter also 
expressed concern about which electronic versions of these measures 
will be submitted to CMS. Finally, the commenter stated that process of 
care measures, whether submitted as chart-abstracted or electronic 
versions, distract from measures of outcomes and hospital-acquired 
conditions.
    Response: We would like to clarify that we consider both the chart-
abstracted and the electronically specified versions to be ``topped-
out.'' However, we would like to retain the electronically specified 
versions of these ``topped-out'' measures for the following reasons: 
(1) To align the Hospital IQR Program and the Medicare EHR Incentive 
Program, (2) to allow us to monitor the effectiveness of measure 
reporting by EHRs, and (3) to familiarize hospitals with reporting 
electronically specified measures to us.
    As we continue aligning the Hospital IQR Program and the Medicare 
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. We believe that the benefits outweigh the possible 
disadvantages to reporting the electronic clinical quality measure 
versions of these measures. Collecting the electronic version of these 
measures would prepare hospitals for data submission using our 
electronic measure specifications prior to electronic clinical quality 
measures becoming a requirement in the Hospital IQR Program. Retaining 
of the electronic versions of these topped-out measures creates 
alignment with the Medicare EHR Incentive Program.
    We remind commenters that hospitals could choose whether to submit 
the voluntary electronic clinical quality measures. We also would allow 
the voluntary submission of the chart-abstracted version of the 
``topped-out'' measures for those hospitals that prefer to submit 
measure data in that format. In this way, we believe that we are 
representing the full range of care provided to patients and responding 
to commenters' concerns.
    We acknowledge the commenter's concerns that with multiple versions 
of a particular electronic clinical quality measure creates confusion 
for hospitals to determine which one to use. To address this concern, 
we are modifying our proposal to finalize a policy that hospitals must 
submit the April 2014 version of the electronic clinical quality 
measures as discussed in section IX.A.2.h.(1) of the preamble of this 
final rule.
    Comment: Several commenters urged CMS to consider the broader 
context and uses of measures before removing them based on quantitative 
data only, noting that some measures meeting the ``topped-out'' 
criteria may still provide value to patients and hospitals.
    Response: We agree that both quantitative criteria and clinically-
based qualitative criteria should be used in assessing ``topped-out'' 
measures. These criteria are part of the existing criteria available to 
us to determine whether to remove a measure from the Hospital IQR 
Program. 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; (5) 
performance or improvement on a measure does not result in better 
patient outcomes; (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).
    Comment: A few commenters wanted CMS to continue publicly reporting 
topped-out measures used in pay-for-performance or payment penalty 
programs or to maintain focus on issues hospitals achieved high 
performance.
    Response: We will allow those hospitals that would like to submit 
the voluntary measures in chart-abstracted format or as electronic 
clinical quality measures.
    After consideration of the public comments we received, we are 
finalizing our proposal to update the criteria to determine ``topped-
out'' measure status as proposed.
b. 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

[[Page 50205]]

measure set, we have considered removing additional measures using our 
previously-adopted removal criteria. In the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28219 through 28220), we proposed 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 proposed to remove the first four measures because they were 
previously determined to be ``topped-out'' and suspended (77 FR 53509). 
We proposed 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 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 Program 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 noted that an 
additional 15 chart-abstracted measures were ``topped-out,'' and we 
proposed to remove them from the measure set for the FY 2017 payment 
determination and subsequent years.
    However, we proposed 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 final rule. As we continue aligning the Hospital IQR 
Program and Medicare 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. 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-Card-2: Surgery patients on beta blocker therapy prior to arrival
 who received a beta blocker during the perioperative period (NQF 0284)
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-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-10: Assessed for rehabilitation* (NQF #0441)
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)
VTE-4: Patients receiving un-fractionated Heparin with doses/labs
 monitored by protocol*
Participation in a systematic database for cardiac surgery (NQF 0113)
------------------------------------------------------------------------
* To be retained as an electronic clinical quality measure.

    We welcomed public comments on our proposal to remove these 
measures.
    Comment: Many commenters supported the removal of ``topped-out'' 
measures, some saying that by doing so CMS is reducing hospital burden.

[[Page 50206]]

    Response: We thank the commenters for their support.
    Comment: A commenter opposed the removal of the AMI-1 measure. The 
commenter noted that aspirin after a myocardial infarction is a 
potentially life-saving measure and should continue to be tracked.
    Response: We thank the commenter for their recommendation. We are 
removing AMI-1 because the measure is ``topped-out'' and was previously 
suspended in FY 2012 IPPS/LTCH PPS final rule. We believe that the 
practice of providing aspirin to patients on arrival to the hospital 
addressed by this measure continues to be routinely practiced. As the 
practice measured by the AMI-1 measure is standard procedure among most 
hospitals, we do not believe that retaining it as a chart-abstracted 
measure would be a value to hospitals or for monitoring quality 
performance.
    Comment: A commenter opposed the removal of AMI-8a: Primary PCI 
Received within 90 Minutes of Hospital Arrival because it is ``topped-
out.'' The commenter did not believe that it is appropriate to retire a 
measure without first finding a replacement measure. The commenter was 
concerned that the retirement of numerous AMI and heart failure 
measures may unintentionally shift hospital resources to other measures 
and adversely affect the quality of care received by these patients.
    Response: We respectfully disagree with the commenter that we 
should not remove a measure until a replacement is found. We believe 
that we should retire measures once we determine that there is no 
further value to hospitals or patients because the process of care the 
measure is monitoring has become standard practice. We believe that 
removing ``topped-out'' measures are appropriate and necessary to 
improve patient care. As we stated in the proposed rule, we believe 
that quality measures, once ``topped-out,'' represent care standards 
that have been widely adopted by hospitals (79 FR 28219). Therefore, it 
makes sense to remove the ``topped-out'' measures and adopt other 
measures which may represent care standards that are not widely adopted 
by hospitals, but which we believe should be widely adopted.
    We invite the commenter to recommend measures for the Hospital IQR 
Program through the Measures Under Consideration process for our 
consideration. Information on how to recommend measures for the 
Hospital IQR Program is available at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallForMeasures.html.
    Comment: One commenter opposed the removal of HF-2: Evaluation of 
Left Ventricular Systolic Function because it is ``topped-out.'' With 
the removal of this measure, the commenter noted that the only heart 
failure measures left in the program will be the 30-day readmission and 
30-day mortality measures. The commenter is concerned that removing 
this measure will signal to hospitals that heart failure is not a CMS 
priority.
    Response: We respectfully disagree with the commenter that the 
removal of ``topped-out'' measures will result in hospitals no longer 
focusing on the practice the measure is monitoring. Hospitals are 
committed to providing good quality care to patients and we do not have 
any indication that they will stop doing so in these areas for which 
the quality of care measured has become standard practice.
    Comment: A commenter suggested that CMS continue to collect chart-
abstracted data on SCIP-Inf-3 for another year because is inappropriate 
to assume that the measure will be ``topped-out'' given that the 
measure had significant data definition changes effective January 1, 
2014. SCIP-Inf-3 no longer excludes for patients on home antibiotics or 
that do not receive general anesthesia.
    Response: We acknowledge that SCIP-Inf-3 no longer excludes for 
patients on home antibiotics, however our analysis showed that these 
patients were being excluded by documentation of infection. For this 
reason, this change was not considered to be substantive enough to 
withhold removal of the measure. With regard to the concern about the 
exclusion for patients that do not receive general anesthesia, SCIP-Inf 
3 measure has never had an exclusion for anesthesia type so this would 
have no impact on the measure results, and would not change our topped-
out status analysis. We continue to believe SCIP-Inf-3 is ``topped-
out'' and should be removed from the Hospital IQR Program.
    Comment: Several commenters questioned the removal of SCIP-Inf-4, 
stating that CMS cannot assess whether the measure is topped-out. These 
commenters stated that CMS revised the specifications for the SCIP-Inf-
4: Cardiac Surgery Patients with Controlled Postoperative Blood Glucose 
measure to incorporate the recent NQF endorsement maintenance 
decisions, beginning with January 1, 2014, discharges. These commenters 
stated that the NQF changed the measure from controlled glucose at 6AM 
to a more comprehensive measure of controlled glucose 18-24 hours post-
cardiac surgery, and required that corrective action be documented if 
post-operative glucose is over 180mg/dl. These commenters expressed 
concern that these substantial changes would change the performance 
scores.
    Response: We acknowledge that there were refinements made to SCIP-
Inf-4 that were finalized in the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50787 through 50788). The ``topped-out'' analysis cited in the 
proposed rule (79 FR 28220) was completed using SCIP-Inf-4 data before 
these refinements were implemented. Because we do not yet have 
sufficient data to accurately assess whether this refined measure meets 
``topped-out'' criteria, we are modifying our proposal and will not 
remove this measure. Instead, we will continue to require reporting on 
SCIP-Inf-4 in the Hospital IQR Program as previously finalized.
    Comment: Several commenters supported the removal of STK-2, STK-3, 
STK-5, and STK-10.
    Response: We thank the commenters for their support. We believe 
that these four measures are ``topped-out'' and will be removed from 
the Hospital IQR Program in their chart-abstracted measure version. 
Please note, however, that we will continue to accept STK-2, STK-3, 
STK-5, and STK-10 data as electronic clinical quality measures.
    Comment: A commenter opposed the removal of STK-2, STK-3, STK-5, 
and STK-10 measures because they are ``topped-out.'' The commenter 
believed that CMS should allow hospitals to choose whether they wish to 
report these measures via EHR or via claims registry. The commenter 
stated that providing hospitals with alternate mechanisms for reporting 
is important at this juncture, and can allow for the measure developer 
to identify any issues with the electronic specifications of the 
measures.
    Response: We note that the commenter seeks alternative reporting 
mechanisms for measures. However, submission via a claims registry, 
which would be such an alternative reporting mechanism, is not a 
feasible option at this time as these measures do not have claims-based 
specifications nor do we have a claims registry for the Hospital IQR 
Program. Hospitals may report on these measures using the electronic 
clinical quality measure specifications and submit using QRDA Category 
I. We believe that these four measures are ``topped-out'' and should be 
removed as a requirement from the Hospital IQR Program in their chart-
abstracted measure versions.

[[Page 50207]]

    Comment: A commenter supported the proposal to remove the six 
``topped-out'' measures noted for permanent removal and the 4 ``topped-
out,'' previously suspended measures proposed for permanent removal. 
This same commenter did not support the retention of the electronic 
version of 10 measures to support the voluntary electronic reporting 
option due to the cost of implementing electronic tools, and having the 
loss or convenience of chart abstracted measures that help the 
commenter keep track of their performance of these medical conditions. 
The commenter was also concerned that without clearly established goals 
and expectations for core measures by CMS and TJC that there will be 
discrepancies in performance.
    Response: We thank the commenter for this feedback. We appreciate 
how the commenter is making full use of the ``topped-out'' measures and 
applaud their striving towards constant quality improvement. We note, 
however that we are encouraging, through alignment with Medicare EHR 
Incentive Program, to have all facilities move to electronic measures. 
We also believe that aligning electronic measures across facilities 
will minimize confusion between quality reporting programs. Regarding 
the concern that without clearly established goals and expectations for 
core measures by CMS and TJC there will be discrepancies in 
performance, we appreciate this concern and will take this into 
consideration during our daily operations.
    Comment: A commenter asked CMS to clarify how the SCIP measures can 
be topped-out for the Hospital IQR Program but required for PPS-exempt 
Cancer Hospitals (PCHs). The commenter asked whether the measures 
specifications will be provided in a manual other than the Inpatient 
Specifications Manual if they are removed from the Hospital IQR 
Program. The commenter also asked whether the measures will still be 
programmed into the CMS Abstraction and Reporting Tool (CART).
    Response: Although the SCIP measures are ``topped-out'' under the 
Hospital IQR Program, for the reasons discussed in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50840 through 50841), we believe that the 
SCIP measures are appropriate for the PCH setting. At this time, we do 
not have sufficient data to determine whether these SCIP measures are 
``topped-out'' in the PCH setting, given that hospital inpatient 
facilities and PCHs treat different patient populations and the lack of 
evidence that the SCIP measures are ``topped-out'' in the PCH setting.
    We will assess ``topped-out'' status of the SCIP measures as part 
of our PCHQR measure analysis in our annual measures consideration. We 
believe that this analysis must focus on evidence specific to the PCH 
setting. We recognize that the PCHQR patient population is exclusively 
comprised of cancer patients, unlike ``subsection (d)'' hospitals 
included in the Hospital IQR Program. We will, however, continue to 
monitor and evaluate the PCHQR SCIP measures. In addition, we will 
consider adopting the ``topped-out'' criteria and measure removal 
policies for the PCHQR Program similar to those adopted by other 
quality reporting programs, including the Hospital IQR Program, in 
future years. We will also support PCHQR program reporting of patient 
level data to QualityNet by updating the CART tool to reflect the 
current SCIP measure specifications.
    We intend to post SCIP and other PCHQR measures in the PCHQR 
Specifications Manual. As a result, the existing information technology 
infrastructure will be available for the PCHQR Program.
    Comment: A commenter supported the transition of SCIP-Inf-1, SCIP-
Inf-2, and SCIP-Inf-9 to voluntary electronic clinical quality 
measures.
    Response: We thank the commenter for their support.
    Comment: Some commenters opposed the proposal to retain the 
electronic versions of 10 of the ``topped-out'' chart-abstracted 
measures to support the voluntary electronic measure reporting option. 
A commenter stated that the proposed modification in the voluntary 
electronic reporting program holds the form of the data collected for 
quality measurement to a higher scientific significance than the data 
collected as a metric to assess the delivery of care. The commenter 
stated that this proposal would neither lead to improved hospital 
quality nor offer us insight on how to improve electronic clinical 
quality measures. The commenter recommended that CMS work with the 
Office of the National Coordinator (ONC) and the Agency for Healthcare 
Research and Quality (AHRQ) to study the feasibility, reliability and 
validity of electronic clinical quality measures to effectively 
calculate and report clinical quality measures that are at least as 
accurate as chart-abstracted measures.
    Response: As discussed above, we believe that retaining electronic 
versions of chart-abstracted measures in certain circumstances enables 
us to continue monitoring the covered clinical topic while reducing 
hospitals' reporting burden, and we view both of those actions as 
desirable. We note further that we are encouraging hospitals to 
familiarize themselves with the electronic measure submission process 
by retaining electronic versions of certain measures, and we will also 
be able to assess differences in clinical quality measure data between 
the two data capture methods. We believe that understanding any 
discrepancies between the two data capture methods will help us as we 
transition to electronic reporting of clinical quality measures. This 
also will lead to hospitals improving how they report clinical quality 
data electronically, which can be used to improve patient care.
    We respectfully disagree that the proposed measures lack scientific 
significance. Each measure, as it is fully described, provides evidence 
of its significance.
    We thank the commenter for their suggestion to work with the ONC 
and AHRQ to study the feasibility, reliability and validity of 
electronic clinical quality measures to effectively calculate and 
report clinical quality measures that are at least as accurate as 
chart-abstracted measures. We will take this suggestion under 
consideration.
    Comment: Some commenters asked CMS to delay adopting ``topped-out'' 
measures as voluntary electronic clinical quality measures for one year 
to allow hospitals time to prepare to collect the measure 
electronically.
    Another commenter suggested that including these measures sends the 
wrong message about the goals of the Hospital IQR Program and the Stage 
3 Meaningful Use Program and inappropriately distracts resources from 
areas that would more readily benefit from targeted attention. Instead, 
the commenter recommended that we address further alignment through the 
advancement of electronic quality measures required for the Medicare 
EHR Incentive Program. If CMS decide to move forward with this policy, 
the commenter urged CMS to publicly report the measures somewhere other 
than Hospital Compare to leave the space for measures that are more 
meaningful to consumers and purchasers.
    Response: We respectfully disagree with the commenters. We do not 
agree that delaying by one year the adoption of ``topped-out'' measures 
as voluntary electronic clinical quality measures would be useful 
because reporting is voluntary. Any hospital can choose not to report 
these ``topped-out'' measures as electronic clinical quality measures. 
By retaining ``topped-out'' chart-abstracted measures as voluntary 
electronic clinical quality measures, we

[[Page 50208]]

are encouraging hospital to familiarize themselves with the electronic 
measure submission process and we can assess differences in clinical 
quality measure data between the two data capture methods. Allowing 
voluntary submission of the ``topped-out'' measures will help us 
monitor for declines in performance.
    We also disagree with the commenter that the removal of ``topped-
out'' measures will result in hospitals no longer focusing on the 
practice the measure is monitoring. We believe that hospitals are 
committed to providing good quality care to patients and we do not have 
any indication that they will stop doing so in these areas for which 
the quality of care measured has become standard practice.
    We thank the commenter for their suggestion to publicly report the 
measures somewhere other than Hospital Compare. We will take this 
suggestion under consideration. We welcome any suggestions commenters 
have on further aligning the Hospital IQR Program with the EHR 
Incentive Program.
    Comment: A few commenters advised that although CMS may no longer 
require hospitals to submit data on topped-out measures, hospitals will 
be required to submit data on measures required by TJC for 
accreditation. The commenters stated that this lack of alignment 
creates a burden for hospitals and does not allow hospitals to plan for 
the future. A commenter encouraged us to work with TJC when proposing 
measures to remove from the Hospital IQR Program because many of these 
measures remain core measure reporting requirements for TJC.
    Response: We wish to reduce burden on hospitals for reporting 
``topped-out'' measures to us, and believe that our proposal 
accomplishes that intent and focuses measurement on quality areas that 
can be improved. We invite the commenter to relay their concerns to TJC 
as to why TJC requires hospitals to report ``topped-out'' measures.
    Comment: A commenter asked that CMS move cautiously with respect to 
removing measures and adopting more clinical outcome measures noting it 
should be done with ample opportunity for public comment to ensure 
these measures are tested and validated prior to adoption. The 
commenter noted that vetting is important, as hospitals need sufficient 
lead in time to implement measures, especially those with information 
technology requirements.
    Response: We thank the commenter for the suggestion and will 
provide the public the necessary time period to comment. We have six 
criteria for determining whether to remove a measure from the Hospital 
IQR Program, including a measure's ``topped-out'' status as described 
above in section IX.A.2.a. of the preamble of this final rule.
    We would like to clarify that the public has many opportunities to 
comment on potential measures through the measure adoption process, 
which includes the public posting of the MUC (Measures Under 
Consideration) list, the NQF measure endorsement process, and comments 
on the annual rulemaking process for the Hospital IQR Program.
    Comment: A commenter requested clarification regarding why CMS is 
proposing to remove all of the suspended/voluntary measures except IMM-
1 and if IMM-1 will continue to be suspended for FY 2017.
    Response: We proposed to remove the suspended voluntary measures 
because of their ``topped-out'' status. IMM-1 was not proposed for 
removal because this measure will be reported in another program and we 
are responding to the need for more harmonized and global clinical 
quality measures. This measure was finalized for reporting in the PQRS 
in the CY 2013 Medicare Physician Fee Schedule final rule with comment 
period (see Table 95 at 77 FR 69215). As we stated above in section 
IXA.2.(a), ``topped-out'' status is only one of the six considerations 
we use in determining whether to remove a clinical quality measure from 
the Hospital IQR Program.
    Comment: One commenter expressed concern that CMS may use a 
subregulatory process to make ``nonsubstantive'' updates to measures 
and that CMS may consider changes to age groups to be 
``nonsubstantive.'' The commenter recommended that any review of 
changes to include individuals under the age of 18 in measures that 
were initially developed for adult populations include a process for 
review by a panel of pediatric experts, opportunity for broad 
stakeholder comment and appropriate testing of the revised measure.
    Response: We thank the commenter for the suggestion. We will 
consider the suggestion to include a pediatric expert review process 
when considering the inclusion of the under 18 population to measures 
exclusively including the adult population.
    After consideration of the public comments we received, we are 
finalizing our policy as proposed with one modification. We are 
finalizing removal of 19 measures for the FY 2017 payment determination 
and subsequent years as noted in the chart above with the exception of 
the SCIP-Inf-4 measure, which we are retaining in the Hospital IQR 
Program measure set in its chart-abstracted form as previously 
finalized.
    We are also finalizing our proposal to retain reporting for 10 of 
these ``topped-out'' measures as electronic clinical quality measures 
as noted in the chart above. We believe this approach provides CMS an 
opportunity to monitor topped-out measures for performance decline. 
This policy simplifies alignment between the Hospital IQR and Medicare 
EHR Incentive Programs for eligible hospitals and provides a more 
straight-forward approach to educate stakeholders on electronic 
reporting options.
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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28220) we did not 
propose 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. In 
the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28220) we did not 
propose 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
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28220 through 
28221), for currently adopted and future condition-specific, claims-
based measures, beginning with the FY 2017 payment determination and 
subsequent years, we proposed to use 3 years of data to calculate 
measures unless otherwise specified. In other words, this reporting 
period would apply to all

[[Page 50209]]

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) 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 welcomed public comments on our proposal to use 3 years of data 
to calculate current and future condition-specific, claims-based 
measures.
    Comment: Several commenters supported CMS' proposal to use 3 years 
of claim-based data for all currently adopted and future condition-
specific, claims-based measures, for the FY 2017 payment determination 
and subsequent years.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposal to use 3 years of data to calculate current and 
future condition-specific, claims-based measures as proposed.
    The following table shows measures previously adopted for the 
Hospital IQR Program, including suspended measures.

   Hospital IQR Program Measures Previously Adopted for the FY 2016 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
       Short name              Measure name            NQF No.              FY 2016 payment determination
----------------------------------------------------------------------------------------------------------------
AMI-1..................  Aspirin at Arrival.....  N/A..............  Data collection suspended.
AMI-3..................  ACEI or ARB for LVSD...  NQF #0137  Data collection suspended.
AMI-5..................  Beta-Blocker Prescribed  NQF #0160  Data collection suspended.
                          at Discharge.
AMI-7a.................  Fibrinolytic Therapy     NQF #0164  Required.
                          Received Within 30
                          Minutes of Hospital
                          Arrival.
AMI-8a.................  Primary PCI Received     NQF #0163  Required.
                          Within 90 Minutes of
                          Hospital Arrival.
HF-2...................  Evaluation of LVS        NQF #0135  Required.
                          Function.
PN-6...................  Initial Antibiotic       NQF #0147  Required.
                          Selection for
                          community-acquired
                          pneumonia (CAP) in
                          Immunocompetent
                          Patients.
SCIP-Inf-1.............  Prophylactic Antibiotic  NQF #0527  Required.
                          Received Within One
                          Hour Prior to Surgical
                          Incision.
SCIP-Inf-2.............  Prophylactic Antibiotic  NQF #0528  Required.
                          Selection for Surgical
                          Patients.
SCIP-Inf-3.............  Prophylactic             NQF #0529  Required.
                          Antibiotics
                          Discontinued Within 24
                          Hours After Surgery
                          End Time--Overall Rate.
SCIP-Inf-4.............  Cardiac Surgery          NQF #0300  Refined measure specifications.
                          Patients with
                          Controlled
                          Postoperative Blood
                          Glucose.
SCIP-Inf-6.............  Surgery Patients with    NQF #0301  Data collection suspended.
                          Appropriate Hair
                          Removal.
SCIP-Inf-9.............  Urinary catheter         NQF #0453  Required.
                          removed on
                          Postoperative Day 1
                          (POD 1) or
                          Postoperative Day 2
                          (POD 2) with day of
                          surgery being day zero.
SCIP-Card-2............  Surgery Patients on      NQF #0284  Required.
                          Beta-Blocker Therapy
                          Prior to Arrival Who
                          Received a Beta-
                          Blocker During the
                          Perioperative Period.
SCIP-VTE-2.............  Surgery Patients Who     NQF #0218  Required.
                          Received Appropriate
                          Venous Thromboembolism
                          Prophylaxis Within 24
                          Hours Prior to Surgery
                          to 24 Hours After
                          Surgery.
CLABSI.................  National Healthcare      NQF #0139  Required.
                          Safety Network (NHSN)
                          Central line-
                          associated Bloodstream
                          Infection (CLABSI)
                          Outcome Measure.
SSI....................  American College of      NQF #0753  Required.
                          Surgeons--Centers for
                          Disease Control and
                          Prevention (ACS-CDC)
                          Harmonized Procedure
                          Specific Surgical Site
                          Infection (SSI)
                          Outcome Measure.
                         Colon procedures.......
                         Hysterectomy procedures
CAUTI..................  National Healthcare      NQF #0138  Required.
                          Safety Network (NHSN)
                          Catheter-associated
                          Urinary Tract
                          Infection (CAUTI)
                          Outcome Measure.

[[Page 50210]]

 
MRSA...................  National Healthcare      NQF #1716  Required.
                          Safety Network (NHSN)
                          Facility-wide
                          Inpatient Hospital-
                          onset Methicillin-
                          resistant
                          Staphylococcus aureus
                          (MRSA) Bacteremia
                          Outcome Measure.
CDI....................  National Healthcare      NQF #1717  Required.
                          Safety Network (NHSN)
                          Facility-wide
                          Inpatient Hospital-
                          onset Clostridium
                          difficile Infection
                          (CDI) Outcome Measure.
HCP....................  Influenza vaccination    NQF #0431  Required.
                          coverage among
                          healthcare personnel
                          (HCP).
ED-1...................  Median time from ED      NQF #0495  Required submission, but voluntary
                          arrival to ED                               electronic clinical quality measure.
                          departure for admitted
                          ED patients.
ED-2...................  Admit Decision Time to   NQF #0497  Required submission, but voluntary
                          ED Departure Time for                       electronic clinical quality measure.
                          Admitted Patients.
Imm-1..................  Pneumoccocal             NQF #1653  Data collection suspended.
                          Immunization.
Imm-2..................  Influenza Immunization.  NQF #1659  Required.
Stroke-1...............  Venous thromboembolism   NQF #0434  Required.
                          (VTE) prophylaxis.
Stroke-2...............  Discharged on            NQF #0435  Required submission, but voluntary
                          antithrombotic therapy.                     electronic clinical quality measure.
Stroke-3...............  Anticoagulation therapy  NQF #0436  Required submission, but voluntary
                          for atrial                                  electronic clinical quality measure.
                          fibrillation/flutter.
Stroke-4...............  Thrombolytic therapy...  NQF #0437  Required submission, but voluntary
                                                                      electronic clinical quality measure.
Stroke-5...............  Antithrombotic therapy   NQF #0438  Required submission, but voluntary
                          by the end of hospital                      electronic clinical quality measure.
                          day two.
Stroke-6...............  Discharged on statin     NQF #0439  Required submission, but voluntary
                          medication.                                 electronic clinical quality measure.
Stroke-8...............  Stroke education.......  N/A..............  Required submission, but voluntary
                                                                      electronic clinical quality measure.
Stroke-10..............  Assessed for             NQF #0441  Required submission, but voluntary
                          rehabilitation.                             electronic clinical quality measure.
VTE-1..................  Venous thromboembolism   NQF #0371  Required submission, but voluntary
                          prophylaxis.                                electronic clinical quality measure.
VTE-2..................  Intensive care unit      NQF #0372  Required submission, but voluntary
                          venous thromboembolism                      electronic clinical quality measure.
                          prophylaxis.
VTE-3..................  Venous thromboembolism   NQF #0373  Required submission, but voluntary
                          patients with                               electronic clinical quality measure.
                          anticoagulation
                          overlap therapy.
VTE-4..................  Patients receiving un-   N/A..............  Required submission, but voluntary
                          fractionated Heparin                        electronic clinical quality measure.
                          with doses/labs
                          monitored by protocol.
VTE-5..................  VTE discharge            N/A..............  Required submission, but voluntary
                          instructions.                               electronic clinical quality measure.
VTE-6..................  Incidence of             N/A..............  Required submission, but voluntary
                          potentially                                 electronic clinical quality measure.
                          preventable VTE.
PC-01..................  Elective delivery        NQF #0469  Required submission, but voluntary
                          (Collected in                               electronic clinical quality measure.
                          aggregate, submitted
                          via Web-based tool or
                          electronic clinical
                          quality measure).
MORT-30-AMI............  Hospital 30-day, all-    NQF #0230  Required.
                          cause, risk-
                          standardized mortality
                          rate (RSMR) following
                          acute myocardial
                          infarction (AMI)
                          hospitalization for
                          patients 18 and older.
MORT-30-HF.............  Hospital 30-day, all-    NQF #0229  Required.
                          cause, risk-
                          standardized mortality
                          rate (RSMR) following
                          heart failure (HF)
                          hospitalization for
                          patients 18 and older.
MORT-30-PN.............  Hospital 30-day, all-    NQF #0468  Required.
                          cause, risk-
                          standardized mortality
                          rate (RSMR) following
                          pneumonia
                          hospitalization.

[[Page 50211]]

 
COPD Mortality.........  Hospital 30-Day, All-    NQF #1893  Required.
                          Cause, Risk-
                          Standardized Mortality
                          Rate (RSMR) following
                          Chronic Obstructive
                          Pulmonary Disease
                          (COPD) Hospitalization.
STK Mortality..........  Stroke 30-day mortality  N/A..............  Required.
                          rate.
READM-30-AMI...........  Hospital 30-day all-     NQF #0505  Required.
                          cause risk-
                          standardized
                          readmission rate
                          (RSRR) following acute
                          myocardial infarction
                          (AMI) hospitalization.
READM-30-HF............  Hospital 30-day, all-    NQF #0330  Required.
                          cause, risk-
                          standardized
                          readmission rate
                          (RSRR) following heart
                          failure
                          hospitalization.
READM-30-PN............  Hospital 30-day, all-    NQF #0506  Required.
                          cause, risk-
                          standardized
                          readmission rate
                          (RSRR) following
                          pneumonia
                          hospitalization.
READM-30-TH/TKA........  Hospital-level 30-day,   NQF #1551  Required.
                          all-cause risk-
                          standardized
                          readmission rate
                          (RSRR) following
                          elective primary total
                          hip arthroplasty (THA)
                          and/or total knee
                          arthroplasty (TKA).
READM-30-HWR...........  Hospital-Wide All-Cause  NQF #1789  Required.
                          Unplanned Readmission
                          (HWR).
COPD READMIT...........  Hospital 30-Day, All-    NQF #1891  Required.
                          Cause, Risk-
                          Standardized
                          Readmission Rate
                          (RSRR) following
                          Chronic Obstructive
                          Pulmonary Disease
                          (COPD) Hospitalization.
STK READMIT............  30-day risk              N/A..............  Required.
                          standardized
                          readmission rate
                          (RSMR) following
                          Stroke hospitalization.
MSPB...................  Payment-Standardized     NQF #2158  Required.
                          Medicare Spending Per
                          Beneficiary (MSPB).
AMI payment............  AMI Payment per Episode  N/A..............  Required.
                          of Care.
Hip/knee complications.  Hospital-level risk-     NQF #1550  Required.
                          standardized
                          complication rate
                          (RSCR) following
                          elective primary total
                          hip arthroplasty (THA)
                          and/or total knee
                          arthroplasty (TKA).
PSI 4 (PSI/NSI)........  Death among surgical     NQF #0351  Required.
                          inpatients with
                          serious, treatable
                          complications.
PSI 90.................  Patient safety for       NQF #0531  Required.
                          selected indicators
                          (composite).
Database for Cardiac     Participation in a       NQF #0113  Required.
 Surgery.                 systematic database
                          for cardiac surgery.
Registry for Nursing     Participation in a       N/A..............  Required.
 Sensitive Care.          Systematic Clinical
                          Database Registry for
                          Nursing Sensitive Care.
Registry for General     Participation in a       N/A..............  Required.
 Surgery.                 Systematic Clinical
                          Database Registry for
                          General Surgery.
Safe Surgery Checklist.  Safe Surgery Checklist   N/A..............  Required.
                          Use.
HCAHPS.................  HCAHPS + CTM-3.........  NQF #0166  Required.
                                                  NQF #0228
----------------------------------------------------------------------------------------------------------------

6. Refinements and Clarification to Existing Measures in the Hospital 
IQR Program
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28223 through 
28226), we proposed 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.
    We received one general comment on our proposed refinements.
    Comment: One commenter supported CMS' continued refinements to the 
readmission measures.
    Response: We thank the commenter for their support.
a. 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) and in response to comments, we 
agreed to continually review the Algorithm and make updates as needed. 
Since its development, we have identified and

[[Page 50212]]

made improvements to the Algorithm. As a result, in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28223 through 28224) we proposed 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 also proposed to use 
Version 3.0 of this algorithm for the CABG readmission measure that we 
proposed to include in the Hospital IQR Program starting in FY 2017, 
proposed in section IX.A.7.a. of the preamble of the 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 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 similarly 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.
    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' 
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 invited 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.
    Comment: One commenter supported the use of the planned readmission 
algorithm for the COPD readmission measure. Several commenters believed 
updates to the COPD readmission rate calculation will increase the 
measures precision.
    Response: We thank the commenters for their support.
    Comment: Several commenters did not support the Cancer Exclusions 
and urged CMS to continue excluding therapeutic radiation and cancer 
chemotherapy from readmissions penalties. Commenters stated that given 
the immunosuppression associated with these conditions and treatments, 
it is in the best interest of the patients to be sent home as soon as 
possible as it reduces their chances of getting hospital acquired 
infections that are often more virulent than community-acquired 
pathogens. One commenter was

[[Page 50213]]

concerned that the proposed exclusion may not be able to fully account 
for the increased readmissions associated with this population that are 
often not preventable. Another commenter also noted that some hospitals 
may treat more patients who receive these treatments compared to other 
hospitals, which would not be accounted for in the measures. Another 
commenter did not believe that CMS presented convincing evidence that 
the cancer codes proposed for exclusion are appropriate to exclude at 
this time. The commenter urged CMS to report its findings to NQF for a 
transparent review prior to implementation.
    Response: We recognize that cancer care readmissions are often not 
preventable. In response to commenters' concerns regarding the cancer 
exclusions and certain hospitals treating more cancer patients than 
other hospitals, we are removing both CCS 211--Therapeutic Radiation 
and CCS 224--Cancer Chemotherapy from the potentially planned procedure 
table of the planned readmission algorithm to improve the accuracy of 
the algorithm. We are removing Therapeutic Radiation because patients 
are not typically admitted for therapeutic radiation, and admissions 
with this treatment in a validation study we conducted of the algorithm 
were generally unplanned. Further, our validation study showed 
admissions for people who receive cancer chemotherapy, but do not have 
a principal diagnosis of maintenance chemotherapy are typically 
unplanned admissions. Therefore, we expect that removal of CCS 211 and 
CCS 224 will improve the algorithm's accuracy and we do not anticipate 
it will have the unintended consequence of discouraging needed cancer 
care.
    We acknowledge that in many cases it is in the best interest of the 
patients to be sent home as soon as possible as it reduces their 
chances of getting hospital acquired infections that are often more 
virulent than community-acquired pathogens.
    As we are removing these cancer exclusions, we believe that we 
would not need to report additional information to NQF, as requested by 
the commenter.
    Comment: Several commenters believed that the readmission algorithm 
is critically important in the appropriate attribution of readmissions. 
One commenter was disappointed that CMS have not sent the planned 
readmissions algorithm back to the NQF and several suggested that CMS 
seek an ad hoc review before proposing changes to the readmission 
measures that are used in the Hospital IQR Program and the Hospital 
Readmissions Reduction Program.
    Response: We would like to reassure the commenters that our 
proposed changes to the readmission algorithm will have minimal effect 
on how it attributes readmissions. We believe the changes should 
undergo NQF review as part of the endorsement maintenance and annual 
update processes for individual measures instead of an ad hoc review 
because the changes to the algorithm have a minimal effect on the 
planned readmission rates for each measure as detailed in the proposed 
rule (Table IV.H.1) (79 FR 28107 through 28108) and improve the 
accuracy of the algorithm. We have submitted changes related to the 
heart failure, pneumonia, and hip/knee, COPD and CABG readmission 
measures with Version 3.0 to NQF, all under annual update review with 
the exception of the CABG readmission measures which are new. For the 
AMI measure, endorsement maintenance occurred in 2013 prior to CMS' 
updating the algorithm to Version 3.0; therefore, we will submit the 
AMI readmission measure with the revised algorithm in the next NQF 
review cycle.
    We acknowledge the commenter's view that the readmission algorithm 
is critically important in the appropriate attribution of readmissions.
    After consideration of the public comments we received, we are 
finalizing our policy 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 as proposed.
b. Refinement of Total Hip Arthroplasty and Total Knee Arthroplasty 
(THA/TKA) 30-Day Complication and Readmission Measures
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28224 through 
28225), for the FY 2015 payment determination and subsequent years, we 
proposed 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, we 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 that we 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 
proposed 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, we 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 proposed 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

[[Page 50214]]

comments previously received 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 
arthroplasty, making their procedure non-elective.
    We invited public comment on these proposed refinements.
    Comment: Many commenters supported these refinements. Specifically, 
commenters supported CMS' proposals to:
     Add POA condition codes to the THA/TKA measures, 
contending that doing so will minimize the misidentification of pre-
existing conditions as complications related to the procedure.
     Exclude from this 30-day readmission measure cohort 
patients with hip fracture who had a non-elective total hip 
anthroplasty.
     Exclude patients who have a hip fracture coded as either a 
principal or secondary diagnosis during the index admission from the 
THA/TKA complication and readmission measures.
     Remove cases where the hip/knee complication was present 
prior to the relevant admission as such complications should accrue to 
the hospitals furnishing the procedure prior to follow-up care.
     Evaluate the performance of the Risk Standardized 
Readmission and Complication Rate (RSRR and RSCR) measures for total 
hip and total knee arthroplasty.
    Response: We thank the commenters for their support.
    Comment: Several commenters appreciated CMS' efforts to make 
measure improvements but explained that they did not support the update 
until measures have completed the NQF measure maintenance process, 
arguing that changes should not be made through the subregulatory 
process.
    Response: To clarify, since we are using the notice and comment 
rulemaking process to make these measure refinements here, we are not 
making these changes using subregulatory methods. We believe these 
refinements are necessary to ensure that the measure accurately 
reflects the care provided to patients. We do not believe that we 
should delay making efforts to improve the measure's accuracy.
    Comment: One commenter did not support the modifications to the THA 
and TKA readmission and complication measures, noting that the need to 
make corrections reinforces the view that there should be sufficient 
comprehensive testing before they are adopted for use.
    Response: We agree with the commenter that the measures should 
undergo extensive testing prior to inclusion in reporting programs. The 
modifications here were identified during field testing of the THA/TKA 
readmission and complication measures and were incorporated prior to 
inclusion of the measures in the Hospital IQR Program. In addition, we 
reevaluate our measures on an annual basis in order to make 
methodological refinements required by: (1) Ongoing changes in clinical 
practice; (2) coding update; and (3) evolving input from stakeholders.
    Comment: One commenter was concerned about the accuracy of 
administrative claims data used for the Hip/Knee Complication measure. 
The commenter suggested that the claims data used for the measure has 
been known to underreport significant comorbidities, particularly 
obesity.
    Response: We believe that the administrative claims data used for 
the Hip/Knee Complication measure are accurate. We have validated the 
AMI, HF, and pneumonia readmission and mortality measures by building 
comparable models using medical record data for risk adjustment for 
heart failure patients (National Heart Failure data), AMI patients 
(Cooperative Cardiovascular Project data), and pneumonia patients 
(National Pneumonia Project dataset). When the medical record-based 
models were applied to the corresponding patient population, the 
hospital risk-standardized rates estimated using the claims-based risk 
adjustment models had a high level of agreement with the results based 
on the medical record model. This supports the use of the claims-based 
models for public reporting.
    Regarding the commenters' concern about under-reporting significant 
co-morbidities, particularly morbid obesity, we have also conducted a 
medical record validation study of the THA/TKA complications measure. 
The goal of that study was to determine the overall agreement between 
arthroplasty patients identified as having a complication (or no 
complication) in the claims-based measure and those who had a 
complication (or no complication) also documented in the medical 
record. Overall measure data agreement was 93 percent (598/644 
patients) before any changes were made to the model specifications. 
After the measure specifications were changed based upon the results of 
this validation study, the measure agreement between claims data and 
the medical record was 99 percent (635/644).
    We also acknowledge the commenters' concern that obesity is 
associated with poorer outcomes after joint replacement; however, 
evidence supports that the potential greatest risk lies in patients who 
are morbidly obese.\57\ Administrative codes for morbid obesity have 
been shown to have greater sensitivity and specificity than obesity 
codes overall, with a specificity of 99 percent,\58\ and morbid obesity 
(ICD-9-CM code 278.01) is currently included in the measure risk model.
---------------------------------------------------------------------------

    \57\ Horan F. Obesity and joint replacement. J Bone Joint Surg 
[Br] 2006;88-B:1269-71.
    \58\ Nicholas S. Golinvaux, Daniel D. Bohl, Bryce A. Basques, 
Michael C. Fu, Elizabeth C. Gardner, Jonathan N. Grauer. Limitations 
of Administrative Databases In Spine Research: A Study in Obesity. 
Spine Journal, In Press, Accepted Manuscript, Available online 26 
April 2014.
---------------------------------------------------------------------------

    Comment: Several commenters requested that the Hip/Knee 
Complication measure be adjusted for socioeconomic status (SES).
    Response: We appreciate the commenters' concerns and note that 
these concerns were addressed in the FY 2014 IPPS/LTCH PPS final rule 
(79 FR 50653 through 50654, 50673 through 50674). As described in prior 
rulemaking, we do not currently risk adjust for SES in the Hospital IQR 
Program. However, we do risk adjust for comorbidities (that is, 
correlated illnesses) and other factors to ensure that hospitals are 
not penalized for serving populations that are sicker or have higher 
incidences of chronic disease.
    We are aware that there are differing opinions regarding this 
approach. We appreciate the commenters' suggestions on the importance 
of addressing SES in the Hospital IQR Program. We have continued to 
consider and evaluate stakeholder concerns regarding the influence of 
patient socioeconomic status on clinical quality measures. We refer 
readers to section IV.H.4. of the preamble of this final rule for a 
discussion of the use of SES in our quality programs.
    After consideration of the public comments we received, we are 
finalizing the refinements to the THA/TKA measure as proposed.
c. Anticipated Effect of 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

[[Page 50215]]

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 50216]]

[GRAPHIC] [TIFF OMITTED] TR22AU14.008


[[Page 50217]]


d. Clarification Regarding Influenza Vaccination for Healthcare 
Personnel
    The Influenza Vaccination Coverage Among Healthcare Personnel (HCP) 
(NQF #0431) measure 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 
with comment period (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.
    (We discussed this clarification in section IX.A.5. of the preamble 
to the proposed rule (79 FR 28221).)
    Comment: Several commenters supported the collection and submission 
of the influenza vaccination measure as a single facility count, which 
the commenters agreed will reduce the burden on providers and lead to 
more meaningful results. One commenter specifically supported the 
healthcare personnel influenza vaccination coverage clarification 
because it accommodates injectable and nasal spray vaccines.
    Response: We thank the commenters for their support.
    Comment: A commenter requested clarification on reporting for the 
inpatient and outpatient settings, stating that it reports to NHSN 
separately for these settings through a Facility Organization 
Identification (Org ID) rather than by CCN. The commenter believed 
that, after all data have been submitted by Org ID, the CDC will roll-
up the data reported by Org ID to the CCN level, in order to report 
data to CMS.
    Response: We agree with the commenter's assessment and clarify that 
hospitals should report by enrolled facility, according to their NHSN 
OrgID, in order to be consistent with CDC NHSN infrastructure. These 
data are to be reported for all patient care units included within the 
enrolled facility's OrgID that also share the same CCN (some patient 
care units within the OrgID may have separate CCNs and those should not 
be included in these counts). Therefore, data will be submitted to NHSN 
by facility Org ID, not CCN. CDC will then aggregate the facility level 
data into a CCN HCP rate and submit aggregate hospital-level measure 
rates at the CCN level to us on behalf of facilities for Hospital 
Compare public reporting purposes.
    After consideration of public comments we received, we are 
clarifying that hospitals should report a single count per enrolled 
facility, and not CCN, for the previously finalized Influenza 
Vaccination Coverage Among Healthcare Personnel (HCP) (NQF 
#0431) measure. We will require facilities to collect and 
submit a single vaccination count for each health care facility 
enrolled in NHSN by facility OrgID. This modifies our statement in the 
proposed rule indicating that facilities should submit data by CCN, and 
better aligns with the FY 2015 OPPS Proposed rule (79 FR 41035) as well 
as NHSN guidance documents.
7. 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28227 through 
28243) we proposed to add a total of 11 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 clinical quality measure); (7) PC-05 
Exclusive Breast Milk Feeding and the subset measure PC-05a Exclusive 
Breast Milk Feeding Considering Mother's Choice (NQF #0480) 
(electronic clinical quality measure); (8) CAC-3 Home Management Plan 
of Care (HMPC) Document Given to Patient/Caregiver (electronic clinical 
quality measure); and, (9) Healthy Term Newborn (NQF #0716) 
(electronic clinical quality measure).
    In addition, to align the Hospital IQR Program with the Medicare 
EHR Incentive Program for Eligible Hospitals and CAHs and allow 
hospitals as many measure options as possible that overlap both 
programs, we proposed 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

[[Page 50218]]

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.
    We received a number of comments applying across proposed measures 
and will address those comments first before individually addressing 
comments related to specific measures.
    Comment: One commenter supported the inclusion of the CABG 
mortality and readmission, heart failure payment, and pneumonia payment 
measures in the Hospital IQR Program. The commenter preferred that the 
measures be NQF-endorsed. Another commenter supported CMS' proposal to 
increase the number of outcome measures.
    Response: We thank the commenters for their support.
    Comment: Several commenters expressed concern that four of the five 
measures proposed for adoption under the Hospital IQR Program were not 
NQF-endorsed and have not been recommended by the MAP. The most 
frequently expressed concerns were in regards to the CABG mortality, 
CABG readmission, heart failure and pneumonia payment measures, 
although there were several comments addressing the other proposed 
measures that are not NQF-endorsed. A commenter noted the NQF process 
is important to the reliability and validity of the measures used in 
the programs and to monitor adverse events.
    Response: As described above, we may adopt non-NQF-endorsed 
measures under the Hospital IQR Program exception authority in section 
1886(b)(3)(B)(IX)(bb) of the Act. This provision provides that, in the 
case of a specified area or medical topic determined appropriate by the 
Secretary for which a feasible and practical measure has not been 
endorsed by the entity with a contract under section 1890(a) of the 
Act, the Secretary may specify a measure that is not so endorsed as 
long as due consideration is given to measures that have been endorsed 
or adopted by a consensus organization identified by the Secretary. 
Although we proposed some measures that are not currently NQF-endorsed, 
they are pending NQF endorsement. We also considered other available 
measures that have been endorsed by the NQF and found no other feasible 
and practical measures. In addition, the MAP has supported or 
conditionally supported several of the measures. We are actively 
seeking NQF endorsement for the claims-based measures. More detailed 
discussions for individual measures are below.
    Comment: A commenter requested that CMS outline its standards for 
conducting an environmental scan of available measures in the absence 
of a non-NQF-endorsed measure.
    Response: We conduct thorough environmental scans of available 
measures using a standardized system set out in A Blueprint for the CMS 
Measures Management System (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/MeasuresManagementSystemBlueprint.html). We follow these core processes 
set out in the Blueprint as we develop, implement, and maintain quality 
measures. Our process for conducting an environmental scan of existing 
or related measures is set out below.
    First we search for similar or related measures (existing or in 
development) that will help achieve the quality goals. We keep the 
search parameters broad to obtain an overall understanding of the 
measures in existence, including measures that closely meet the 
contract requirements and other potential sources of information. We 
then look for measures endorsed and recommended by multi-stakeholder 
organizations whenever applicable and include a search for measures 
developed and/or implemented by the private sector. Then we determine 
what types of measures are needed to promote the quality goals for a 
particular topic/condition or setting and determine what measurement 
gaps exist for the topic area, as well as existing measures that may be 
adopted or adapted for the project. For example, if the objective is 
the development of immunization measures for use in the home health 
setting, it will be necessary to identify and review existing home 
health measures. In addition, it might also be helpful to analyze 
immunization measures used in other settings such as nursing homes and 
hospitals.
    The CMS Measures Management staff assists in identifying measures 
in development to ensure that no duplication occurs or to ensure 
related measures are developed with harmonization in mind. Search 
parameters include: (1) Measures in the same setting, but for a 
different topic; (2) Measures in a different setting, but for the same 
topic; (3) Measures that are constructed in a similar manner; (4) 
Quality indicators; (5) Accreditation standards; and (5) NQF preferred 
practices for the same topic.
    Searching for existing and related measures may involve two steps: 
(1) searching databases, and (2) searching for other sources of 
information, such as performance indicators, accreditation standards, 
or preferred practices. We use a variety of databases and sources to 
search for existing and related measures. Below are links to a few 
readily available sources:
     National Quality Measures Clearinghouse (http://www.qualitymeasures.ahrq.gov/);
     HHS Inventory (http://www.qualitymeasures.ahrq.gov/hhs-measure-inventory/browse.aspx);
     CMS Measures Inventory and Pipeline (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/CMS-Measures-Inventory.html);
     National Quality Forum (http://www.qualityforum.org/Measures_List.aspx);
     AHRQ (http://www.qualityindicators.ahrq.gov/; and,
     American Medical Association-Physician Consortium for 
Performance Improvement (http://www.ama-assn.org/apps/listserv/x-check/qmeasure.cgi?submit=PCPI).
    We also search other HHS agency pipeline measures. We search for 
other sources of information, such as performance indicators, 
accreditation standards, or preferred practices, that may pertain to 
the contract topic.

[[Page 50219]]

Though they may not be as fully developed as a quality measure, quality 
indicators could be further developed to create a quality measure by 
providing detailed and precise specifications. Measures aligned with 
those standards may be easier to implement and be more readily accepted 
by the providers. These standards are linked to specific desired 
outcomes, and quality measures may be partially derived from the 
preferred practices reflected in the standards.
    Comment: Several commenters believed that all measures should be 
risk-adjusted for SES, explaining that failing to risk adjust for SES 
factors will skew our data measurements and produce inaccurate and 
unreliable outcomes. One commenter emphasized the need for adjusting 
for SES factors in all outcomes measures, arguing that such variables 
have an impact on patient outcomes, but are outside of a hospitals 
control. The commenter added that CMS as not provided data that shows 
this point to be untrue. One commenter stated that CMS should analyze 
the differences in performance for safety net providers to other 
hospitals by determining if the means of performance distribution are 
significantly different thus resulting in penalties. If it does, the 
commenter believed that SES risk adjustment would provide incentives 
for hospitals to improve as quality differences for reasons outside of 
a hospital's control would be illuminated.
    Another commenter explained that many studies show reliable 
statistical results that SES is a risk factor for patient outcomes and 
that we have not demonstrated otherwise. As a result, the commenter 
believed that not adjusting for this risk factor obscures quality 
differences. One commenter believed that empirical studies demonstrate 
that patient SES impacts outcomes and failure to account for such 
impact disadvantages hospitals that treat them. Another commenter 
believed that hospitals should not be accountable for outcomes 
attributable to patient risk factors. Instead, the commenter believed 
that risk adjustment should be performed if data-stratified by SES show 
that safety net hospitals are providing poorer care for reasons 
unrelated to quality.
    Another commenter suggested that CMS' argument for not risk 
adjusting for SES factors is that it would hold hospitals serving these 
areas to a different standard than others. The commenter stated that 
CMS' belief that risk adjusting for SES obscures true quality 
differences is based on the assumption that SES is not a risk factor 
beyond the hospital's control. Another commenter listed unintended 
consequences that may result from not risk adjusting for SES which were 
echoed by several commenters. These potential consequences included not 
providing care for disadvantaged patients so as to not be labeled a 
poor performer, shifts in funds to hospitals caring for affluent 
patients, and consumers avoiding providers labeled poor performers when 
they are not. Several commenters were concerned that not risk-adjusting 
for SES could result in safety net providers losing scarce resources 
that are necessary to care for vulnerable patients, which would 
potentially make disparities worse.
    Further, one commenter stated that current CMS measures do not 
improve quality and weaken the social safety net. Another commenter 
believed that the current policy to exclude ``factors related to the 
disparities in care'' from all measures creates a ``one size fits all'' 
approach that ignores fundamentally the challenges that many academic 
health centers face in delivering high-quality care to their entire 
patient population, regardless of race, income, or other socioeconomic 
characteristics. Commenters urged CMS to review important studies 
published about risk adjustment for SES and revise measure methodology 
to account for SES. One commenter suggested that CMS comply with the 
NQF's recommendations related to the use of risk adjustment versus 
stratification for patient SES.
    Response: We have received many comments regards risk-adjusting 
measures for SES in several quality programs. We appreciate the 
commenters' concerns and note that these concerns were addressed in the 
FY 2014 IPPS/LTCH PPS final rule (79 FR 50653 through 50654, 50673 
through 50674). As described in prior rulemaking, we do not currently 
risk adjust for SES in the Hospital IQR Program. However, we do risk 
adjust for comorbidities (that is, correlated illnesses) and other 
factors to ensure that hospitals are not penalized for serving 
populations that are sicker or have higher incidences of chronic 
disease.
    We are aware that there are differing opinions regarding this 
approach. We appreciate the commenters' suggestions on the importance 
of addressing SES in the Hospital IQR Program. We have continued to 
consider and evaluate stakeholder concerns regarding the influence of 
patient socioeconomic status on clinical quality measures. We refer 
readers to section IV.H.4. of the preamble of this final rule for 
further discussion of this issue.
    Comment: One commenter stated that ``a large proportion of low-
income patients sometimes achieve good quality scores even as compared 
the scores for hospitals that have a lower proportion of low-income 
patients. But this is simply an anecdotal observation. It is not a 
statistically acceptable and reliable analysis.''
    Response: We thank the commenter for their feedback, we understand 
this comment to mean a hospital with a high proportion of low SES 
patients can perform high in comparison with hospitals with a 
relatively low proportion of SES patients. We note similar findings in 
our Chartbook that follows the trends of hospital performance on 
readmission, mortality, and complication (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/-Medicare-Hospital-Quality-Chartbook-2013.pdf.) The statement referred to was based on descriptive 
statistics of the measure scores that can be found in our 2013 Medicare 
Hospital Quality Chartbook at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/-Medicare-Hospital-Quality-Chartbook-2013.pdf.
    The risk-adjustment for clinical factors likely captures much of 
the variation due to SES, therefore resulting in an attenuation of the 
impact of SES factors on hospitals' results. We continue to monitor 
related activities at NQF, such as the July 23, 2014 decision by the 
NQF Board to approve a trial period to test the impact of 
sociodemographic factor risk adjustment of performance measures 
(available at: http://www.qualityforum.org/Press_Releases/2014/NQF_Board_Approves_Trial_Risk_Adjustment.aspx), and in Congress. As we 
stated in the past, we are committed to working with the NQF and other 
stakeholder communities to continuously refine our measures and to 
address the concerns associated with SES and risk adjustment. We 
believe that continued collaboration with the stakeholder communities 
will enable us to identify feasible ways to appropriately address any 
unintended consequences for providers serving high proportions of low 
SES patients.
    Comment: A commenter was concerned that CMS proposed several new 
measures for the Hospital IQR Program that the commenter believes lack 
the scientific rigor needed for public reporting. However, the 
commenter did not specify which proposed measures caused concern.

[[Page 50220]]

    Response: We respectfully disagree with the commenter that the 
proposed measures lack the scientific rigor needed for public 
reporting. We believe that these measures, as they are detailed below, 
are scientifically rigorous as they are described.
    Comment: Several commenters did not support the use of the 
pneumonia payment measure in the Hospital IQR Program since it is not 
NQF-endorsed. One commenter believed that, because the measure is not 
NQF endorsed, it is too soon to finalize the measure for the FY 2017 
Hospital IQR Program.
    Response: We received numerous comments that concerned both the 
Hospital-level, risk-standardized 30-day episode-of-care payment 
measure for pneumonia and Hospital-level, risk-standardized 30-day 
episode-of-care payment measure for heart failure payment measures. We 
are addressing those comments here first before addressing the 
individual measures.
a. 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.\59\
---------------------------------------------------------------------------

    \59\ 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.\60\ 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.\61\ 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.\62\ Hence, addressing the causes of readmission will 
improve outcomes for patients.
---------------------------------------------------------------------------

    \60\ 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.
    \61\ 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.
    \62\ 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 readmissions in 
the U.S.\63\ 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).\64\ The annual cost to Medicare for 
potentially preventable CABG readmissions was estimated at $151 
million.
---------------------------------------------------------------------------

    \63\ Medicare Payment Advisory Committee. Report to the 
Congress: Promoting Greater Efficiency in Medicare, 2007.
    \64\ 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 proposed 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 final 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' 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

[[Page 50221]]

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.65 66
---------------------------------------------------------------------------

    \65\ 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.
    \66\ 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 proposed 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 final 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, users should open the Coronary Artery Bypass Graft (CABG) 
Readmission ZIP file, then 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 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.\67\ 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.
---------------------------------------------------------------------------

    \67\ 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. We refer readers to section IV.4.H of the 
reamble of this final rule for further discussion of risk-adjustment 
for socioeconomic factors.
(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

[[Page 50222]]

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 invited public comment on this proposal.
    Comment: Several commenters supported the inclusion of CABG 
readmission into the Hospital IQR Program. One commenter specifically 
believes the CABG measure will lead to increased attention to care 
after discharge.
    Response: We thank the commenters for their support.
    Comment: Several commenters recommended that CMS focus on 
developing an electronically specified measure based on the ICD-10-CM/
PCS coding system for future adoption instead of the current proposed 
measure.
    Response: We thank the commenters and will take this suggestion 
into consideration as we move towards use of electronic clinical 
quality measures for CABG measures.
    Comment: Several commenters did not support inclusion of the CABG 
readmission measure in the Hospital IQR Program because the measure is 
not NQF-endorsed.
    Response: We proposed to include this non-NQF-endorsed measure 
under the Hospital IQR Program exception authority in section 
1886(b)(3)(B)(IX)(bb) of the Act. 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 
similar measures that have been endorsed or adopted by a consensus 
organization, and found no other feasible and practical measures on 
this topic. We refer readers to section IX.A.7. of the preamble of this 
final rule where we discuss other comments on our adoption of non-NQF-
endorsed measures. On February 5, 2014, we submitted the Hospital-Level 
30-Day All-Cause Unplanned Readmission Following Coronary Artery Bypass 
Graft (CABG) Surgery measure to NQF for endorsement.
    Comment: Several commenters oppose the CABG readmission measure 
because it is not risk-adjusted for SES. Another commenter also 
suggested removing other readmission measures from the Hospital IQR 
Program until they are risk-adjusted for SES. Several commenters 
suggest following NQF-endorsed panel recommendations that propose 
evidence be presented in either support for or against the inclusion of 
SES in the measure. A commenter requested we risk-adjust the measure 
for SES and stated that this materially impacts the patient's 
likelihood of being readmitted, and the members on NQF's panel to 
examine adjusting for SES recommended adjusting for SES when 
appropriate. A commenter stated that the lack of risk-adjustment of 
this measure materially impacts the patient's likelihood of being 
readmitted.
    Response: We appreciate the commenters' concerns and note that 
these concerns were addressed in the FY 2014 IPPS/LTCH PPS final rule 
(79 FR 50653 through 50654, 50673 through 50674). As described in prior 
rulemaking, we do not currently risk adjust for SES in the Hospital IQR 
Program. However, we do risk adjust for comorbidities (that is, 
correlated illnesses) and other factors to ensure that hospitals are 
not penalized for serving populations that are sicker or have higher 
incidences of chronic disease.
    We are aware that there are differing opinions regarding this 
approach. We appreciate the commenters' suggestions on the importance 
of addressing SES in the Hospital IQR Program. We have continued to 
consider and evaluate stakeholder concerns regarding the influence of 
patient socioeconomic status on clinical quality measures. We have 
received many comments regards risk-adjusting measures for SES in 
several quality programs. We refer readers to section IV.H.4. of the 
preamble of this final rule for further discussion of this issue.
    Comment: Several commenters noted that there could be unintended 
consequences from adopting this measure. One commenter believed it is 
equally likely to result in hospitals avoiding complex cases in order 
to avoid potential penalty. Another commenter requested that CMS 
carefully monitor CABG utilization in high[hyphen]risk, older patients 
to ensure hospitals are not avoiding performing them for high risk 
patients in order to appear as lower readmission. If evidence is found 
that CABG surgeries are not being offered to high[hyphen]risk patients, 
the commenters suggested that CMS may need to reconsider its risk 
adjustment methodology to mitigate this unintended consequence.
    Response: We note that the measures are risk-adjusted to take into 
account clinically complicated conditions. We appreciate commenters' 
concerns for potential unintended consequences of the measure. We 
believe the measure is adequately risk-adjusted for high-risk patients 
and so will not create a disincentive to treat these patients, but we 
will consider monitoring for any shift in their care (for example, by 
evaluating the risk profile of Medicare patients undergoing surgery 
before and after commencement of public reporting). 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.
    Comment: One commenter opposed the measure construction and risk-
adjustment methodology, citing concerns that the low R-squared meant 
that the measure does not truly differentiate performance between 
hospitals.

[[Page 50223]]

    Response: The commenter refers to the R-squared statistic, but this 
is not a statistic used to evaluate the CABG measures. Therefore, we 
are assuming the commenter's primary concern is with the c-statistic of 
the measure. The c-statistic evaluates the measure's ability to 
discriminate or differentiate among low- versus high-risk patients. For 
measures used to profile hospital performance the goal is not always to 
achieve the highest c-statistic possible. The role of risk-adjustment 
in hospital profiling models is to level the playing field for 
hospitals for measures that assess relative performance--that is, how 
well hospitals fare compared to others with a similar patient case-mix. 
The risk-adjustment variables should be only those that are inherent to 
the patient and present at the time of admission. Some variables that 
might increase predictive power, such as complications of care, would 
not be appropriate for inclusion in an outcome quality measure, even if 
they would lead to a higher c-statistic. The c-statistic of this CABG 
measure is similar to other measures that are NQF-endorsed and in use, 
such as the AMI/HF/PN readmission measures.
    In addition, this measure's risk model has been validated using 
registry data from the Society of Thoracic Surgeons' (STS) Adult 
Cardiac Surgery Database, which produced nearly identical c-statistics 
in a matched set of patients with correlation coefficients between 0.92 
and 0.96, depending upon the statistic used.\68\
---------------------------------------------------------------------------

    \68\ 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.
---------------------------------------------------------------------------

    Comment: One commenter does not support the CABG readmission 
measure, because it holds hospitals responsible for pre-existing 
underlying conditions. The commenter expected that risk adjusting is 
unlikely to be sufficient.
    Response: We believe that the measure should appropriately account 
for patient case mix, including pre-existing conditions. This measure's 
risk model includes a range of medical and surgical comorbidities 
predictive of complications and readmissions following CABG surgery. In 
addition, as noted above, the risk model has been validated against a 
clinical risk model using registry data from the STS' Adult Cardiac 
Surgery Database.\69\
---------------------------------------------------------------------------

    \69\ 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.
---------------------------------------------------------------------------

    Comment: One commenter noted that the CABG readmission measure has 
poor discrimination ability.
    Response: As outlined above, we believe the commenter's primary 
concern is with the c-statistic of the measure. Discrimination refers 
to the ability to distinguish high risk subjects from low risk. The c-
statistic is one of the statistical tools used to assess 
discrimination. We would like to clarify the important difference 
between predictive models intended for patient-level risk-
stratification versus models used to profile hospital performance. In a 
patient-level predictive model, the objective is to best predict 
patient outcomes; the risk-adjustment variables are a means to better 
predict these outcomes. As an example, a patient who has a serious 
complication of care may be at higher risk of mortality and 
readmission; therefore, complications might be useful to include in a 
model used for patient-level prediction.
    By contrast, the role of risk-adjustment in a hospital profiling 
model is to level the playing field for hospitals for measures that 
assess relative performance--that is, how well hospitals are doing 
compared to others with similar patients. The risk-adjustment variables 
should be only those that are inherent to the patient and present at 
admission. Although risk adjusting for complications of care could 
increase the statistical power of a profiling model, it would not make 
sense to risk-adjust for complications here since it could lead 
hospitals with high rates of complications to appear to be performing 
better than hospitals with similar patients even though the quality of 
care is worse.
    In addition, as noted above, this measure's risk model has been 
validated using registry data from the STS' Adult Cardiac Surgery 
Database and produced nearly identical c-statistics in a matched set of 
patients with correlation coefficients between 0.92 and 0.96, depending 
upon the statistic used.\70\
---------------------------------------------------------------------------

    \70\ 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.
---------------------------------------------------------------------------

    Comment: One commenter requested that the measure differentiate 
between readmissions within and outside the control of the bypass 
surgeon.
    Response: We interpret readmissions ``within and outside the 
control of the bypass surgeon'' to mean those that are only related to 
the CABG surgery. We proposed this measure for hospital-specific 
performance measurement, not for measurement of surgeon-level 
performance. The measure defines the outcome as ``all-cause'' unplanned 
readmissions rather than readmissions only related to the CABG surgery 
for several reasons. First, from the patient perspective, readmission 
for any reason is likely to be an undesirable outcome of care.
    Second, there is no reliable way to determine whether a readmission 
is related to the previous hospitalization based on the documented 
cause of readmission. For example, a CABG patient with post-operative 
left ventricular dysfunction inadequately managed by the hospital 
performing the surgery may ultimately be readmitted for heart failure. 
It would be inappropriate to treat this readmission as unrelated to the 
care the patient received for their CABG surgery.
    Third, the range of potentially avoidable readmissions also 
includes those not directly related to the index condition such as 
those resulting from medication reconciliation errors, poor 
communication at discharge, or inadequate follow-up post-discharge. 
Therefore, we believe that creating a comprehensive list of potentially 
avoidable readmissions related to the previous hospitalization's 
condition category would be arbitrary and, ultimately, challenging to 
implement.
    Fourth, all existing CMS readmission measures report all-cause 
readmission, making this approach consistent with existing measures.
    Fifth, research shows that readmission reduction interventions can 
reduce all-cause readmission, not only condition-specific readmission.
    Finally, defining the outcome as all-cause readmissions may 
encourage hospitals to implement broader initiatives aimed at improving 
the overall care within the hospital and transitions from the hospital 
setting instead of limiting the focus to a narrow set of condition-
specific approaches.
    Comment: One commenter cited a study\71\ that concluded that 
readmission rates for the majority of hospitals were unreliable due to 
low case volume over the measurement period.
---------------------------------------------------------------------------

    \71\ Shih and Dimick. Reliability of readmission rates as a 
hospital quality measure in cardiac surgery. Annals of Thoracic 
Surgery. April 2014; 97:1214-1219.
---------------------------------------------------------------------------

    Response: The study cited uses a different approach to calculate 
hospital-specific risk-adjusted readmission rates, including a logistic 
regression model and distinct risk variables, than that used in our 
proposed measure. Our proposed measure uses a hierarchical logistic 
regression model to account for the clustering of patients within

[[Page 50224]]

hospitals while risk-adjusting for differences in patient case-mix. 
Therefore, we do not believe that conclusions drawn from this study are 
generalizable to this measure. Reliability testing of this measure 
score using a split-sample approach, in which each hospitals' patients 
are divided into two completely distinct groups and the measure score 
is calculated for each group and compared, produces an intraclass 
correlation coefficient of 0.33 on a three year data sample (which is 
the equivalent of a year and a half of data for each comparison group).
    One limitation of this split-sample approach is that the 
reliability is estimated under the assumption of only half the number 
of patients per hospital that would normally be used. Using the 
Spearman Brown prophecy formula \72\ to estimate the reliability of the 
measure if the entire three year cohort was used (that is, if the 
number of items in a test increases by a factor of N, then the new 
reliability [rho]' can be estimated from the original reliability. 
Validity for this measure has been documented by both: (1) face 
validity assessment by a Technical Expert Panel (TEP)--79 percent of 
TEP members agreed (71 percent moderately or strongly agreed) that the 
measure will provide an accurate reflection of quality, and (2) in a 
formal validation study against clinical registry data that documented 
correlations in excess of 0.90 between clinical data and claims-based 
risk models.\73\
---------------------------------------------------------------------------

    \72\ Traub, R. (1994).MMSS Reliability for the Social Sciences: 
Theory and Applications (Page 100). Sage Publications. Newbury Park 
CT.
    \73\ Suter L.G., Wang C., Araas M., Joyce E., Vellanky S., 
Potteiger J., Lin Z., Curtis J., Geary L.L., Krumholz H.M., Drye 
E.D. Hospital-level 30-day All-Cause Mortality Following Coronary 
Artery Bypass Graft Surgery: Report prepared for the Centers for 
Medicare & Medicaid Services. 2012.
---------------------------------------------------------------------------

    To assess face validity, we surveyed the Technical Expert Panel and 
asked each member to rate the following statement using a six-point 
scale (1=Strongly Disagree, 2=Moderately Disagree, 3=Somewhat Disagree, 
4=Somewhat Agree, 5=Moderately Agree, and 6=Strongly Agree): ``The 
readmission rates obtained from the readmission measure as specified 
will provide an accurate reflection of quality.'' Fourteen TEP members 
provided the following responses: Moderately Disagreed (2), Somewhat 
Disagreed (2), Somewhat Agreed (4), Moderately Agreed (5), and Strongly 
Agreed (1). Therefore, 71 percent of TEP members agreed (43 percent 
moderately or strongly agreed) that the measure will provide an 
accurate reflection of quality.
    After consideration of the public comments we received, we are 
finalizing the Hospital 30-day, All-cause, Unplanned, Risk-Standardized 
Readmission Rate (RSRR) Following Coronary Artery Bypass Graft (CABG) 
Surgery measure as proposed.
b. Hospital 30-day, All-cause, Risk-Standardized Mortality Rate (RSMR) 
Following Coronary Artery Bypass Graft (CABG) Surgery.\74\
---------------------------------------------------------------------------

    \74\ 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.\75\
---------------------------------------------------------------------------

    \75\ 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 admissions in Massachusetts.\76\ 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.\77\
---------------------------------------------------------------------------

    \76\ 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.
    \77\ 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.\78\ 
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.\79\
---------------------------------------------------------------------------

    \78\ Ibid.
    \79\ 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.\80\
---------------------------------------------------------------------------

    \80\ 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 proposed 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 final rule. Although the proposed 
measure is not currently NQF-endorsed, we considered available measures 
that have been endorsed or adopted by the NQF, and we were unable to 
identify any measures that assess hospital 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.

[[Page 50225]]

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' 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.\81\ Limiting the measure 
cohort to ``isolated'' CABG patients is consistent with published 
reports of CABG outcomes; \82\ 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.
---------------------------------------------------------------------------

    \81\ 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.
    \82\ 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. We refer readers to section IV.H.4 of the preamble of this final 
rule for further discussion of risk-adjustment for socioeconomic 
factors.
(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.

[[Page 50226]]

    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 invited public comment on this proposal.
    Comment: Several commenters supported the inclusion of CABG 
mortality into the Hospital IQR Program.
    Response: We thank the commenters for their support.
    Comment: Several commenters opposed adoption of this measure 
because it is not NQF-endorsed.
    Response: We proposed to include this non-NQF-endorsed measure 
under the Hospital IQR Program exception authority in section 
1886(b)(3)(B)(IX)(bb) of the Act. This provision provides that, in the 
case of a specified area or medical topic determined appropriate by the 
Secretary for which a feasible and practical measure has not been 
endorsed by the entity with a contract under section 1890(a) of the 
Act, the Secretary may specify a measure that is not so endorsed as 
long as due consideration is given to measures that have been endorsed 
or adopted by a consensus organization identified by the Secretary. We 
refer readers to section IX.A.7. of the preamble of this final rule 
where we discuss other commenters concerns regarding our use of non-
NQF-endorsed measures.
    Although the proposed measure is not currently NQF-endorsed, it is 
pending NQF endorsement. We considered available measures that have 
been endorsed or adopted by the NQF. We also are not aware of any other 
similar measures that have been endorsed or adopted by a consensus 
organization, and found no other feasible and practical measures on 
this topic. We refer readers to section IX.A.7. of the preamble of this 
final rule for a general discussion on adoption of non-NQF-endorsed 
measures. This measure was submitted to NQF for endorsement and is 
currently under review.
    Comment: One commenter recommended that CMS focus on developing an 
electronically-specified measure based on ICD-10-CM/PCS for future 
adoption instead of the current proposed measure.
    Response: We will take this suggestion into consideration as we 
move towards use of electronic clinical quality measures for CABG 
measures.
    Comment: One commenter did not support the measure construction and 
risk-adjustment methodology, citing concerns that the low R-squared 
meant that the measure does not truly differentiate performance between 
hospitals.
    Response: We refer readers to our discussion of this issue above in 
response to the same concern regarding our proposed Hospital 30-day, 
All-cause, Unplanned, Risk-Standardized Readmission Rate (RSRR) 
Following Coronary Artery Bypass Graft (CABG) Surgery measure.
    Comment: One commenter expressed concerns about the reliability and 
validity of CMS' mortality measures. Several commenters opposed this 
measure because they believed that a more robust methodology is needed 
to appropriately hold hospitals accountable.
    Response: We refer readers to our discussion of this issue above in 
response to the same concern expressed for reliability, validity, and 
robust methodology regarding our proposed Hospital 30-day, All-cause, 
Unplanned, Risk-Standardized Readmission Rate (RSRR) Following Coronary 
Artery Bypass Graft (CABG) Surgery measure.
    We understand ``robust'' as having good reliability and validity 
and we believe we demonstrated this in the response below which is the 
similar to the response for the CABG readmission measure.
    Comment: Several commenters believed that the CABG mortality 
measure has poor discrimination ability. One commenter expressed 
concern regarding the ability of claims data to adequately adjust for 
mortality risk. The commenter suggested comparing results for this 
measure with results for the STS CABG mortality measure. A commenter 
expressed concern regarding the ability of claims data to adequately 
adjust for mortality risk. The commenter suggested comparing results 
for this measure with results for the Risk-Adjusted Operative Mortality 
for CABG mortality measure.
    Response: We thank the commenters for their feedback. The STS CABG 
measure provides a clinical model based upon registry data and the CMS 
CABG mortality measures uses administrative claims data. These measures 
have similar but not identical mortality outcomes STS NQF 
#0119, includes inpatient deaths beyond 30 days, and NQF 
#2558, excludes inpatient deaths beyond 30 days. For these 
reasons we would not compare the results of these measures. We refer 
readers to our discussion of this issue in response to the same concern 
above regarding our proposed Hospital 30-day, All-cause, Unplanned, 
Risk-Standardized Readmission Rate (RSRR) Following Coronary Artery 
Bypass Graft (CABG) Surgery measure.
    Comment: Several commenters did not support the CABG mortality 
measure as it does not risk adjust for SES. Commenters requested CMS 
risk adjust the measure for SES and stated that this materially impacts 
the patient's likelihood of death and the members on NQF's panel to 
examine adjusting for SES recommended adjusting for SES when 
appropriate.
    Response: We refer readers to our earlier responses in sections 
IX.A.6. and 7. Of the preamble to this final rule under our Hospital 
IQR Program discussion. We also refer readers to our responses in 
section IV.H.4. of the preamble to this final rule for further 
discussion of this issue.
    Comment: One commenter requested that CMS carefully monitor CABG 
utilization in high[hyphen]risk, older patients to ensure hospitals are 
not avoiding performing them for high risk patients in order to appear 
as lower mortality. The commenter noted that if evidence is found that 
CABG surgeries are not being offered to high[hyphen]risk patients, CMS 
may need to reconsider its risk adjustment methodology to mitigate this 
unintended consequence.
    Response: We refer readers to our discussion of this issue in 
response to the same concern regarding our proposed Hospital 30-day, 
All-cause, Unplanned, Risk-Standardized Readmission Rate (RSRR) 
Following Coronary Artery Bypass Graft (CABG) Surgery measure.

[[Page 50227]]

    After consideration of the public comments we received, we are 
finalizing the Hospital 30-day, All-cause, Risk-standardized Mortality 
Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery 
measure as proposed.
c. 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 proposed 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 final 
rule. Although the proposed measure is not currently NQF-endorsed, we 
considered available measures that have been endorsed or adopted by the 
NQF, and we were unable to identify any measures that assess hospital 
risk- standardized payment associated with a 30-day episode-of-care for 
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 Americans 65 and over, 
and pneumonia patients incur roughly $10 billion in aggregate health 
care costs.\83\ 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.
---------------------------------------------------------------------------

    \83\ 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

[[Page 50228]]

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, 9th 
Edition, Clinical Modification (ICD-9-CM). These measures will use data 
from July 2010-June 2013, which does not yet include the period for 
which ICD-10 codes are mandatory. We refer readers to our discussion of 
data collection for this measure during the transition period from ICD-
9-CM codes to ICD-10-CM/PCS codes (79 FR 28232). 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 
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. We refer readers to section IV.H.4 of the 
preamble of this final rule for further discussion of risk-adjustment 
for socioeconomic factors.
(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 effects 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

[[Page 50229]]

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 invited public comment on this proposal.
    Comment: One commenter did not support inclusion of the heart 
failure and pneumonia payment measures in the Hospital IQR Program 
because of concern that much of the variation in 30-day episode 
measures is attributable to factors outside of the hospitals control, 
most notably post-acute care (PAC) services. The commenter felt that 
measures of accountability should hold all entities accountable as 
opposed to focusing only on hospitals.
    Response: We appreciate the commenter's suggestion and note that we 
addressed this question in the FY 2014 IPPS/LTCH PPS final rule. In 
that final rule (78 FR 50804), we stated that ``when considering 
payments to hospitals, we attributed payments for a 30-day episode of 
care to the hospital since the episode is triggered by admission to an 
inpatient hospitalization. Hospitalizations represent a brief period of 
acute illness that requires ongoing management post- discharge and 
hospitals are often directly responsible for scheduling post-discharge 
follow-up. Therefore decisions made at the admitting hospital affect 
not only the hospitalization payments, but payments for care in the 
immediate post-discharge period.''
    Comment: Several commenters generally supported and appreciated 
CMS' proposal to report 30-day risk-standardized episode of care 
payment measures for pneumonia and heart failure, as a way to optimally 
measure care for these patients. A commenter urged CMS to monitor 
measure results with respect to volume of procedures. A commenter 
supported condition-specific or more granular, episode-based payment 
measures over the Medicare Spending Per Beneficiary (MSPB) measure.
    Response: We thank the commenters for their support, We will take 
their recommendations to monitor measure results with respect to volume 
of procedures and the request to add condition-specific or more 
granular, episode-based payment measures into consideration when 
planning future measure development.
    Comment: Several commenters believed payment measures are 
necessary, but do not support payment measures that examine episodes of 
care beyond the inpatient admission due to variations in availability 
of PAC services.
    Response: Because acute care providers make decisions that affect 
PAC spending, including scheduling follow-up care and others, we 
believe it is appropriate to attribute payments arising from the PAC 
setting to the acute care provider.
    Comment: A commenter stated that CMS should adjust episode-based 
payment measures for outcome differences that accrue over clinically 
relevant time horizons.
    Response: We thank the commenter for this suggestion, and will 
consider these comments in the future. We appreciate the commenter's 
feedback. However we believe that the proposed measure does account for 
outcome differences over clinically relevant time horizons as the 
measure captures payments for Medicare patients across all care 
settings, services, and supplies, except Part D.
    Comment: Several commenters did not support the use of the 
Hospital-level, Risk-standardized 30-day Episode-of-Care Payment 
Measure for Pneumonia measure in the Hospital IQR Program because they 
believed that the proposed measure reflected actions of many health 
care entities that are beyond the hospital's control, such as cost 
variation in Medicare spending and notably PAC services. The commenters 
felt measures of accountability should hold all entities accountable as 
opposed to focusing only on hospitals. Commenters noted that hospitals 
are legally unable to direct patient toward high-quality, cost-
efficient providers. Several commenters were concerned that the payment 
measures assume hospitals have more control over costs that occur post 
hospitalization than what is realistic and it reflects actions of many 
health care entities that are beyond the hospital's control. Therefore, 
the commenters stated that the pneumonia and heart failure payment 
measures were not appropriate for evaluating care exclusively in the 
inpatient setting.
    Commenters suggested the measures would be more appropriate for 
physician, LTCH, home health, and PAC reporting programs. Several 
commenters believed measures should hold accountable all entities so 
that incentives are aligned across continuum. A commenter noted that 
legal and regulatory challenges at the State and federal level prevent 
hospitals from coordinating care as fully as possible and episode of 
care measures holding only the hospital accountable create misaligned 
incentives which could lead to unintended consequences.
    Response: We appreciate the commenters' suggestions and note that 
we addressed many of these questions in the FY 2014 IPPS/LTCH PPS final 
rule. In that final rule (78 FR 50804), we stated that, ``when 
considering payments to hospitals, we attributed payments for a 30-day 
episode of care to the hospital since the episode is triggered by 
admission to an inpatient hospitalization. Hospitalizations represent a 
brief period of acute illness that requires ongoing management post- 
discharge and hospitals are often directly responsible for scheduling 
post-discharge follow-up. Therefore decisions made at the admitting 
hospital affect not only the hospitalization payments, but payments for 
care in the immediate post-discharge period.'' Finally, the objective 
of these episode of care payment measures is to encourage efficiencies 
gained by well-coordinated care across a patient's experience of 
illness.
    We understand the commenters concerns about differences among 
hospitals in the availability of post-acute services, such as LTCHs. We 
hope that the differences in episode payments revealed by these 
measures will catalyze hospitals, other providers and communities to 
engage in an examination of local service availability to encourage 
efficient and sufficient services are available to all patients. 
Without the reporting of standardized episode payment measures, the 
knowledge of differences among hospitals payment patterns would not be 
available to provide incentives for such efforts. Although hospitals 
are not responsible for all differences in episode payments alone, they 
are well-positioned to participate in such collaborations.
    Comment: A commenter was disappointed that CMS continue to develop 
and adopt measures that examine episodes of care beyond the inpatient 
admission. The commenter stated that measures of accountability, such 
as the proposed episode measures, should hold accountable all entities 
so that the incentives are aligned across the continuum.
    Another commenter opposed measures that reflect the broad spectrum 
of care inside and outside of the hospital. The commenter did not 
believe that measures that encompass a range of

[[Page 50230]]

services from admission until 30 days post-discharge should be used as 
an indicator of hospital-specific care.
    Response: We respectfully disagree with the commenters. We refer 
readers to our discussion of this issue in response to the same concern 
in the response above. In addition, we believe that these measures 
should reflect the broad spectrum of care inside a hospital as well as 
care transitions, which are important for hospitals' and for the health 
care system's efforts to reduce readmissions and prevent hospitals from 
being financially penalized. We believe measures that look beyond the 
discharge will encourage hospitals to communicate more effectively with 
their patients and their peers thereby, improving care, reducing costs, 
and improving the health of the nation.
    Comment: A commenter did not support inclusion of the pneumonia or 
heart failure payment measures in in the Hospital IQR Program, because 
they do not exclude certain high-cost patients (patients with ESRD, 
cancer, or HIV/AIDS).
    Response: We appreciate the concern about high-cost patients. The 
payment measures are intended to assess differences in payment 
associated with different practice patterns for the broad range of 
patients cared for by a hospital. We note that the episode of care 
measures account for the fact that some hospitals care for more 
patients with needs for high-cost care by risk adjusting for patients' 
conditions, such as cancer, rather than excluding such patients. In the 
course of selecting variables for risk-adjustment, high-cost chronic 
conditions such as cancer, end-stage renal disease, HIV/AIDS, and 
others are considered. Once the variables are considered, we determined 
if the variable should be included in the measure. To be included in 
the measure, each risk variable must be found to be significantly and 
consistently related to the payment outcome in the risk-model selection 
process. We note that the Agency for Healthcare Research and Quality's 
Condition Categories for HIV/AIDS; Metastatic Cancer and Acute 
Leukemia; Lung, Upper Digestive Tract, and Other Severe Cancers; 
Lymphatic, Head And Neck, Brain, and Other Major Cancers; Dialysis 
Status; and Renal Failure are included in the final risk adjustment 
model for pneumonia payment. The Condition Categories for HIV/AIDS; 
Dialysis Status; and Renal Failure were also included the final risk-
adjustment model for HF payment. The HF measures' risk-adjustment was 
discussed at length by the NQF Cost and Resource Steering Committee. In 
its final vote, the NQF Cost and Resource Steering Committee 
recommended endorsement of the episode-of-care payment measure for 
heart failure.
    Comment: A commenter was concerned that the measures unfairly 
disadvantage hospitals that treat sicker patients. For example, 
patients with heart failure who receive a defibrillator are sicker, 
however they are not excluded from the measures, so hospitals that 
perform this service appear less efficient.
    Response: We appreciate the commenter's concern about complex 
patient factors that may contribute to the cost of care. The payment 
measures are risk-adjusted in order to account for differences in case-
mix, or patient complexity, between hospitals. For each patient, the 
claims for the 12-months prior to the measured hospitalization are 
examined to identify additional clinical conditions that patients may 
have which could contribute to costs of care. These conditions are 
included in the risk-model for the measure to ensure that all providers 
are assessed fairly and avoid putting providers at risk of appearing to 
have patient costs that are higher than other hospitals due to the 
clinical complexity of their patients. Although we do not believe that 
the use of defibrillators is likely to substantially change hospitals' 
results, we appreciate this comment and plan to investigate the 
prevalence of defibrillators in the heart failure cohort and its effect 
on the payment outcome.
    Comment: A commenter did not support the inclusion of the PN and HF 
payment measures in the Hospital IQR Program and recommended using a 
single hospital-wide payment measure instead of condition-specific 
payment measures to pool information for all patients to increase 
sample size and improve reliability.
    Response: We believe the condition-specific payment measures are 
useful for several reasons. By focusing on one specific condition, 
payment measures may provide actionable feedback to hospitals and 
incentivize targeted improvements in care. Heart failure and pneumonia 
are both common conditions in the elderly with a substantial range in 
payments due to different practice patterns. Furthermore, because 30-
day all-cause mortality and readmission measures for heart failure and 
pneumonia are already publicly reported, heart failure and pneumonia 
serve as model conditions for examining both payments for an episode-
of-care and the quality of a hospital's care for the same patient 
population.
    Comment: Commenters recommended that CMS pilot the PN and HF 
payment measures prior to implementation.
    Response: We thank the commenter for their recommendation. We will 
consider this as we plan dry runs in the future. A dry run provides the 
opportunity for hospitals to review their measure results and ask 
questions about the measure methodology. The measure results used 
during a dry run are based on data outside of the performance period 
designated for a given fiscal year, and the measure results are made 
available to hospitals on a secure Web site and are not publically 
reported. From our perspective, a dry run is type of pilot in which 
hospitals become familiar with their measure results and the measure 
methodology.
    Comment: A commenter requested that CMS transparently assess the 
reliability of the PN and HF payment measures prior to adoption into 
the Hospital IQR Program.
    Response: We appreciate this feedback. We note that we have been 
transparent in assessing the reliability of the PN and HF payment 
measures, in that the measure methodologies for these measures contain 
the reliability testing results and have been posted at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html in May 2015 
We note that the Intraclass Correlation Coefficient (ICC) is a 
statistical process used to assess the reliability of measures. The ICC 
score can be used to determine the extent to which assessments of a 
hospital using different, but randomly selected subsets of patients 
produces similar measures of hospital performance. To the extent that 
the calculated measures of these two subsets agree, we have evidence 
that the measure assesses an attribute of the hospital, not of the 
patients. The agreement between the two independent assessments of each 
hospital was 0.825 for the PN measure and 0.752 for the HF measure, 
which according to the conventional interpretation, is ``almost 
perfect'' for the PN measure and ``substantial'' for the HF 
measure.\84\
---------------------------------------------------------------------------

    \84\ Landis JR, Koch GG. The measurement of observer agreement 
for categorical data. Biometrics. 1977:159-174.
---------------------------------------------------------------------------

    Comment: A commenter was concerned about CMS measuring overuse, as 
there are patient scenarios that are not addressed by available 
evidence. The commenter stated that proper evaluation of validity and 
reliability is lacking; however, current registry-based measures are 
filling this gap. The commenter recommends halting the development and 
implementation of these measures.

[[Page 50231]]

    Response: These measures are not specifically designed to identify 
overuse. We interpret overuse to mean using more resources than 
expected given how sick the patients are. Rather, the measures are 
designed to evaluate broad patterns of care, both within the inpatient 
environment and in the transition to the outpatient setting, that might 
lead to higher overall payments. As noted in another response above, 
the reliability and validity of these measures has been evaluated by 
both a Technical Expert Panel and the NQF Cost and Resource Use 
Standing Committee. We also analyzed the ICC score for these measures 
to help assess reliability. Although registry data offers some 
advantages, it is much more burdensome for hospitals to collect and is 
not uniformly available.
    Comment: Several commenters requested that CMS adjust the payment 
measures for SES based on the NQFs expert panel recommendations.
    Response: We refer readers to section IV.H.4. of the preamble to 
this final rule for further discussion of this issue.
    After consideration of the public comments we received, we are 
finalizing the Hospital-Level, Risk-Standardized Payment Associated 
with a 30-Day Episode of Care for Pneumonia measure, as proposed.
d. 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 proposed 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 final rule. Although the proposed 
measure is not currently NQF-endorsed, we considered available measures 
that have been endorsed or adopted by the NQF, and we were unable to 
identify any measures that assess hospital risk- standardized payment 
associated with a 30-day episode-of-care for 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: https://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. The HF measure was 
submitted to the 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.85 86 
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.
---------------------------------------------------------------------------

    \85\ Russo CA, Elixhauser, A. Hospitalizations in the Elderly 
Population, 2003. Agency for Healthcare Research and Quality. 2006.
    \86\ 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.

[[Page 50232]]

(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 heart failure 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 final 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-June 2013, which does not yet include 
the period when ICD-10 codes are mandatory. We refer readers to our 
discussion of data collection for this measure during the transition 
period from ICD-9-CM codes to ICD-10-CM/PCS codes (79 FR 28234).
    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 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. We refer readers to section IV.H.4 of the 
preamble of this final rule for further discussion of risk-adjustment 
for socioeconomic factors.
(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

[[Page 50233]]

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 invited public comment on this proposal.
    Comment: Several commenters opposed the payment measures because 
they did not believe it is fair to hold a hospital responsible for 
payments that occur outside of its walls. The commenters recommended 
that these mortality and readmissions measures instead be adopted in 
the PQRS, as well as long-term care, PAC, home health, and other 
entities that participate in the patient's care.
    One commenter cited a study that stated that 80 percent of the 
variability in the payment measures is driven by PAC and noted that 
areas with more LTCHs will likely have higher spending. Several 
commenters believed measures should hold accountable all entities so 
that incentives are aligned across the continuum of care. Another 
commenter noted that legal and regulatory challenges at the State and 
federal levels prevent hospitals from coordinating care as fully as 
possible and episode of care measures holding only the hospital 
accountable create misaligned incentives, which could lead to 
unintended consequences.
    Response: We interpret the commenter's statement that, ``these 
types of measures should instead be adopted in the PQRS, as well as 
long-term care, PAC, home health, and other entities that participate 
in the patient's care,'' to mean the Long-Term Care Quality Reporting 
(LTCHQR) Program, PAC (all care provided after a patient is discharged 
from an index hospitalization), Home Health Quality Reporting Program 
and other CMS quality reporting programs applicable to entities that 
participate in the patient's care. As described above, because heart 
failure is one of the leading causes of hospitalization for Americans 
65 and over, and its associated care costs roughly $34 billion 
annually, we believe it is appropriate to pair a measure of Medicare 
payments for heart failure with the existing quality measures on this 
topic. We intend to closely monitor the measure's effects on hospitals' 
and PAC providers' behavior.
    We developed these measures in accordance with national guidelines 
\87\ and in consultation with clinical and measurement experts, key 
stakeholders, and the public. Furthermore, the AMI/HF measures were 
recommended for endorsement by the NQF Standing Committee for Cost and 
Resource Use, Phase 2. This information can be located in the following 
report: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=76905.
---------------------------------------------------------------------------

    \87\ Krumholz HM, Brindis RG, Brush JE, et al. Standards for 
statistical models used for public reporting of health outcomes: an 
American Heart Association Scientific Statement from the Quality of 
Care and Outcomes Research Interdisciplinary Writing Group: 
cosponsored by the Council on Epidemiology and Prevention and the 
Stroke Council. Endorsed by the American College of Cardiology 
Foundation. Circulation. Jan 24 2006;113(3):456-462) and ``Standards 
for Measures Used for Public Reporting of Efficiency in Health 
Care'' (Krumholz HM, Keenan PS, Brush JE, Jr., et al. Standards for 
measures used for public reporting of efficiency in health care: a 
scientific statement from the American Heart Association 
Interdisciplinary Council on Quality of Care and Outcomes Research 
and the American College of Cardiology Foundation. Circulation. Oct 
28 2008;118(18):1885-1893.
---------------------------------------------------------------------------

    Comment: Several commenters expressed concern that the heart 
failure payment measure did not receive NQF endorsement, and 
specifically, that the Cardiovascular Technical Advisory Panel or the 
Cost and Resource Use Standing Committee did not endorse the measure. 
These commenters noted that the Cost and Resource Use Standing 
Committee felt the risk model did not properly account for differences 
in patient risk and it was not until CMS pressed for a third vote that 
it received endorsement (see http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=76905). Consequently, the 
commenters believed the measure is premature and should not be 
implemented.
    Response: We appreciate this comment. We note the following 
sequence of events regarding the recommendation for endorsement of this 
measure confirms that this measure is not premature in consideration 
for implementation. Earlier this year the measure was assessed by the 
Cost and Resource Use Standing Committee. During this part of the 
endorsement process the Standing Committee did not reach consensus on a 
recommendation for endorsement and the measure was submitted for public 
comment. After review of CMS' responses to the public comments the 
Consensus Standards Approval Committee (CSAC) voted to recommend the 
Hospital-Level, Risk-standardized 30-day Episode-of-Care Payment 
Measure for Heart Failure for endorsement. The NQF Board is expected to 
review this measure in August 2014. We are actively seeking NQF 
endorsement for this measure. A Voting Draft Report of the Cost and 
Resource Use Standing Committee can be found at http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=76905.
    Comment: A commenter suggested the need for innovative solutions 
for providers in addition to outcome measures. This commenter believed 
that hospitals should: consider innovative ways to identify heart 
failure patients early in admission; implement evidence-based clinical 
pathways to assure the patient moves efficiently through their stay 
with optimal outcomes; develop a tight network of post-acute providers; 
and implement an enhanced communication system to identify where the 
patient is at any point in timed during the 30-day window.
    Response: We agree with the commenter's points about the need for 
continued innovation to drive high-quality and efficient care. We 
believe the measures that we have selected will help drive hospitals to 
provide that care.
    Comment: One commenter noted that much of the care expended during 
the first 30 days is aimed at increasing long-term survival and 
requested that CMS consider a measure with a longer outcome window to 
pair with the measure.
    Response: We agree that it is possible that some of the variation 
in hospital payments will be due to patterns of care that are intended 
to improve longer term outcomes. However at this time, we are not aware 
of a publicly reported, or non-NQF endorsed NQF-endorsed quality metric 
that considers a longer-term outcome with which we can harmonize the 
payment measure. As part of ongoing measure reevaluation and 
surveillance, we will evaluate the relationship between payments and 
longer term outcomes to assess if the performance of hospitals differs 
when looking at a longer time frame. Our plan is to eventually compare 
30-day payments with longer outcomes like 1-year mortality to determine 
if high upfront payments have a longer term benefit.
    Comment: One commenter was concerned that the proposed payment

[[Page 50234]]

measure will be used in isolation and not understood by practitioners 
and the public. The commenter recommended that CMS instead create a 
composite measure with both cost and quality.
    Response: We will take into consideration the suggestion to create 
a single composite measure of cost and quality for future measure 
development. In order to ensure practitioners and the public appreciate 
out intent, which is to evaluate payment in the context of quality, we 
plan to report the payment measure alongside the outcomes measures on 
the Hospital Compare Web site.
    Comment: A commenter noted that it will be difficult to determine 
value with the existing heart failure measures since mortality and 
readmission are inversely related and the process measures are almost 
``topped-out.''
    Response: We appreciate this feedback. We intend this episode of 
care measure to be used in conjunction with the other outcome heart 
failure measures of readmission and mortality. We do not intend to use 
the outcome heart failure measures with the heart failure process 
measures as the outcome and process measure results would not provide 
useful and comparable information. Regarding the concern of not being 
able to determine the value of the heart failure episode of care 
measure since the heart failure mortality and readmission are inversely 
related, we believe that there is value in the episode of care measure 
because a hospital's performance on mortality and readmissions measures 
represents different aspects of quality. We also note that there does 
not appear to be a meaningful correlation between hospital risk-
standardized mortality rates and readmission rates. Finally, we believe 
that this measure can determine value as it was specifically developed 
to align with the heart failure mortality and readmissions measure. A 
recent MedPAC report indicates that there may be an inverse correlation 
between readmission and mortality rates, but we note that this inverse 
relationship has been found to be modest (available at http://www.medpac.gov/documents/Jun13_EntireReport.pdf). We recognize the 
commenter's concern and will monitor changes in the strength of these 
inverse correlations over time.
    Comment: Several commenters did not support adopting the heart 
failure payment measures for the Hospital IQR Program due to concerns 
regarding the measures' utility and its attribution specifications, all 
episode-of-care payments to the admitting hospital.
    Response: We view the proposed measure of payments made for heart 
failure as an important component of quality improvement when paired 
with existing quality measures. We believe it is important for 
hospitals to be held accountable for care decisions made during acute 
care episodes, particularly when those decisions include, for example, 
scheduling post-discharge follow-up care. We believe the measure 
appropriately attributes spending during the heart failure episode to 
the admitting hospital, and we will monitor close hospitals' 
performance on the measure, as well as possible unintended consequences 
for patient care. We do not understand the commenter's concern 
regarding ``all episode-of-care payments to the admitting hospital,'' 
but welcome the opportunity to address it upon clarification.
    Comment: A commenter recommended performing multi-level testing to 
determine the appropriate level for use of this measure.
    Response: The episode-of-care payment measures are hospital-level 
measures. They account for risk at the patient-level, but attribute 
payments to the hospital. We interpret ``multi-level testing'' to mean 
the influence of community-level variables, like patient income levels 
or rural or urban setting, on the payment outcomes. Although hospitals 
cannot fully control all payments during the episode of care, they are 
well positioned to influence the outcome or the total episode-of-care 
payment. We will take into consideration the recommendation to test 
multiple levels.
    Comment: A commenter did not support this measure due to concerns 
that the measure's risk adjustment model does not properly account for 
differences in patient case mix and severity, which may lead to the 
misinterpretation of differences in episode cost performance.
    Response: We believe that the measure properly accounts for 
differences in patient case mix and severity. We developed the measure 
in accordance with national guidelines and in consultation with 
clinical and measurement experts, key stakeholders, and the public. The 
measure is consistent with the technical approach to outcomes 
measurement set forth in the NQF guidance for outcomes measures (http://www.qualityforum.org/projects/Patient_Outcome_Measures_Phases1-2.aspx), CMS' Measure Management System (http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessmentInstruments/MMS/index.html?redirect=/MMS/19_MeasuresManagementSystemBlueprint.asp), 
and the guidance articulated in two American Heart Association 
scientific statements.88 89 Furthermore, this measure was 
vetted by the NQF Standing Committee for Cost and Resource Use, Phase 
2. Furthermore, this measure was recommended for endorsement by the NQF 
Standing Committee for Cost and Resource Use, Phase 2 and the Consensus 
Standards Approval Committee in the third quarter of 2014. It is 
anticipated to be reviewed by the NQF Board in August 2014.
---------------------------------------------------------------------------

    \88\ Krumholz HM, Brindis RG, Brush JE, et al. Standards for 
statistical models used for public reporting of health outcomes: an 
American Heart Association Scientific Statement from the Quality of 
Care and Outcomes Research Interdisciplinary Writing Group: 
cosponsored by the Council on Epidemiology and Prevention and the 
Stroke Council. Endorsed by the American College of Cardiology 
Foundation. Circulation. Jan 24 2006;113(3):456-462.
    \89\ Krumholz HM, Keenan PS, Brush JE, Jr., et al. Standards for 
measures used for public reporting of efficiency in health care: a 
scientific statement from the American Heart Association 
Interdisciplinary Council on Quality of Care and Outcomes Research 
and the American College of Cardiology Foundation. Circulation. Oct 
28 2008;118(18):1885-1893.
---------------------------------------------------------------------------

    Comment: One commenter agreed with comments made by the NQF 
Cardiovascular TEP that accountability for heart failure payment 
outcomes should be attributed to primary care providers. The commenter 
believed that there is a wide range of heart failure severity, which 
determines the level of accountability and that patients with heart 
failure are often cared for by a range of providers who vary in level 
and skill.
    Response: Although many providers contribute to the cost of care, 
we attributed payments for a 30-day episode of care to the hospital 
because the episode is triggered by admission to an inpatient 
hospitalization. Inpatient hospitalizations represent a brief period of 
acute illness that require ongoing management post-discharge, and 
hospitals are often directly responsible for scheduling post-discharge 
follow-up. Therefore, decisions made at the admitting hospital affect 
not only the hospitalization payments, but payments for care in the 
immediate post-discharge period. Finally, the objective of this episode 
of care payment measure is to encourage efficiencies gained by well-
coordinated care across a patient's experience of illness.
    Comment: One commenter felt that the measure is counter to CMS' 
implementation of episode groupers since it would capture all costs 
associated with the patient instead of only the costs of medical and 
procedural services related to heart failure. The commenter recommended 
that CMS include episode groupers that

[[Page 50235]]

assign specific services to certain episodes in the heart failure 
payment measure.
    Response: Episode Groupers are designed to capture epsiodes of care 
in the Medicare Population. However, these groupers are used to 
evaluate physicians' resource use while our measure is constructed to 
capture hospitals' resource use.
    Comment: One commenter did not agree with a 30-day outcome 
timeframe because it does not align with heart failure disease 
progression and recommended more focus be placed on the ambulatory care 
environment with a longer time period focused on outpatient care.
    Response: Although heart failure is a chronic condition, patients 
often suffer acute decompensation requiring hospital admission. Acute 
decompensation is acute exacerbation that compromises the patient's 
cardiorespiratory status and requires admission. This measure focuses 
on this acutely decompensated cohort of heart failure patients, not on 
ambulatory patients. Heart failure admissions are associated with a 
substantial 30-day mortality rate as well as variation in costs.\90\ In 
addition, heart failure admissions have high rates of readmission 
prompting heart failure to be targeted in current readmission reduction 
programs. For these reasons, we believe that heart failure is an 
appropriate focus for a hospital-based episode-of-care measure.
---------------------------------------------------------------------------

    \90\ Xiao, X, Li S-X, Normand SL, Kim N, Ott LS, Lagu T, Duan M, 
Kroch EA, Krumholz HM. '' `Phenotyping' Hospital Value of Care for 
Patients with Heart Failure'' Health Services Research Early View, 
Article first published online: 28 Jun 2014.
---------------------------------------------------------------------------

    Comment: Several commenters did not believe transfer patients 
should be attributed to the admitting hospital because the organization 
that initially admits a patient may not have as much control over the 
patient's course of care. Furthermore, the commenters were concerned 
that hospitals would have a stronger incentive to hold onto patients 
longer to avoid being held accountable for the costs of another 
facility.
    Response: While we understand the commenters' concerns, attributing 
the outcome to the first admitting hospital makes the most sense given 
the focus of this particular payment measure, which is hospital risk-
standardized payment associated with a 30-day episode-of-care for heart 
failure]. We define a transfer as any admission that requires acute 
inpatient care at two or more hospitals for the same HF. We attribute 
total episode payments that involve a transfer for acute care of HF to 
the transferring hospital because:
     The episode of care begins at the time of the index 
admission, which thereby, provides a standard measure time frame for 
each hospital.
     The transferring hospital is responsible for initial care 
decisions as well as the decision to transfer the patient, both of 
which can have a cascading effect on subsequent care decisions.
     This method avoids incentivizing hospitals to transfer 
patients who are critically ill and at high risk of being very 
expensive to treat. As a result, we disagree with the commenter that 
hospitals would have a stronger incentive to hold onto patients longer 
to avoid being held accountable for the costs of another facility.
     This method aligns with CMS' publicly reported measure for 
HF risk-standardized mortality.
     The objective of this episode-of-care payment measure is 
to encourage efficiencies gained by well-coordinated care across a 
patient's experience of illness.
    Comment: Several commenters believed the HF payment measure should 
exclude transplant or LVAD patients who underwent the procedure in the 
previous 12 months.
    Response: We interpret this comment to mean that the measure should 
exclude patients with any type of transplant or a left ventricular 
assist device (LVAD) within 12 months of the index admission for heart 
failure. We agree that these patients will likely cost more than other 
HF patients. Accordingly, we plan to evaluate the data to see if either 
a heart transplant or LVAD placement occurred within 12 months prior to 
HF admission and exclude these patients from the measure beginning in 
FY 2016. We will then determine whether or not we should exclude 
patients from the measure with a history of LVAD or transplant.
    Comment: One commenter was concerned that the measure may not 
adequately adjust for older and more frail patients who are at a higher 
risk for readmission.
    Response: We note that the measure specifically adjusts for age and 
multiple indicators of patient frailty such as malnutrition and 
dementia. The measure is risk-adjusted in order to account for 
differences in case-mix, or patient complexity, between hospitals. For 
each patient, the claims for the 12-months prior to the measured 
hospitalization are examined to identify additional clinical conditions 
that patients may have which could contribute to costs of care. These 
conditions are included in the risk model for the measure to ensure 
providers are: 1)compared on their performance; 2) are not penalized 
for caring for sicker patients; and 3) to prevent putting providers at 
risk of being profiled as high cost facilities due to the clinical 
complexity of their patients.
    Comment: Several commenters believed that the measure does not 
adequately adjust for patient risk and cited NQF concerns regarding R-
square values of 0.03-0.05 in the development and validation samples.
    Response: While we appreciate the concern that the measure does not 
adequately adjust for patient risk factors, we disagree for several 
reasons. First, the measure model was evaluated with a number of 
statistical methods in addition to the R-square. The results of these 
other diagnostic tests (over-fitting indices, distribution of 
Standardized Pearson residuals, and predictive ratios) all suggest that 
the model predicts payments well, after adjustment for patient risk 
factors. These results consider the measure from a different 
perspective than the R-square. Second, we feel the focus on the R-
square value for this measure is not appropriate because the 
statistical methods we used do not produce a traditional R-square 
value. To provide conceptually similar number, we produced a quasi-R-
square, the details of which can be found in our technical report 
(available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). 
Third, this quasi-R-square is consistent with other patient-level risk-
adjustment models for health care payment. Lastly, the R-square results 
suggest that factors other than clinical severity may be predictive of 
resource utilization that can increase payments as discussed at length 
during the NQF proceedings.91 92 We note that despite the 
concerns raised about the R-square value during endorsement proceeding, 
in June 2014, the NQF Standing Committee for Cost and Resource Use 
Phase 2 recommended endorsement of the HF episode of care measure.
---------------------------------------------------------------------------

    \91\ Chen SI, Dharmarajan K, Kim N, et al. Procedure intensity 
and the cost of care. Circ Cardiovasc Qual Outcomes 2012;5:308-13.
    \92\ Safavi KC, Dharmarajan K, Kim N, et al. Variation exists in 
rates of admission to intensive care units for heart failure 
patients across hospitals in the United States. Circulation 
2013;127:923-9.
---------------------------------------------------------------------------

    After consideration of the public comments we received, we are 
finalizing the Hospital-Level, Risk-Standardized Payment Associated 
with a 30-Day Episode of Care for Heart Failure measure as proposed.

[[Page 50236]]

e. 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).\93\ More information on this issue is available 
from the Surviving Sepsis Campaign: International Guidelines for 
Management of Severe Sepsis and Septic Shock: 2012.\94\ 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.
---------------------------------------------------------------------------

    \93\ 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.
    \94\ 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 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 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.,\95\ 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 \96\ determined that patients admitted 
through the Emergency Department had a 17 percent lower likelihood of 
dying from sepsis than when directly admitted.
---------------------------------------------------------------------------

    \95\ 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.
    \96\ 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) was supported by the MAP for the Hospital IQR Program, 
contingent on NQF endorsement 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 and that early detection and treatment of sepsis in the 
emergency department and inpatient settings is important (page 125). 
This measure was initially endorsed by the NQF in 2008 for the 
hospital/acute care facility setting, underwent maintenance review and 
update in March 2013, June 2013, and May 2014.
    The MAP conditionally supported this measure as a Meaningful Use 
measure in its Pre-Rulemaking Report: 2014 Recommendations on Measures 
Under Consideration by HHS, 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 stated, ``Not ready for implementation; measure 
concept is promising but requires modification or further 
development.'' In its Additional Findings the MAP stated that it, 
``noted the need for continued development of electronic specifications 
for NQF #0500 Severe Sepsis and Septic Shock: Management 
Bundle. 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 [page 168].'' (In the proposed rule (79 FR 
28236), we attributed all of the MAP's statements to its 2013 Pre-
Rulemaking Report.)
(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[acute]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.

[[Page 50237]]

    Levy et al.\97\ conducted an international, multisite ``Surviving 
Sepsis Campaign'' (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.
---------------------------------------------------------------------------

    \97\ 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.
---------------------------------------------------------------------------

     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.\98\ found the median time to appropriate antibiotics 
was 6 hours after shock. In the first quarter of the Levy et al.\99\ 
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, 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.
---------------------------------------------------------------------------

    \98\ 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.
    \99\ 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.\100\ 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.
---------------------------------------------------------------------------

    \100\ 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 \101\ and multiple studies and meta-analysis have shown a 
significant association with reaching an ScvO2 of 70 percent and 
improved mortality.
---------------------------------------------------------------------------

    \101\ 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.\102\ 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. In addition, 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.\103\ 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.
---------------------------------------------------------------------------

    \102\ 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.
    \103\ Edwards PJ, et al. Maximizing your investment in EHR: 
Utilizing EHRs to inform continuous quality improvement. JHIM 
2008;22(1):32-7.

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[[Page 50238]]

(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 
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 (36 mg/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 invited public comment on this proposal.
    Comment: Several commenters supported adopting this measure. Some 
commenters supported adopting this measure because it is NQF-endorsed. 
One commenter supported the addition of this measure and noted that it 
fills an important measure gap, and should positively impact patient 
care.
    Another commenter strongly supported incorporating the sepsis/
septic shock measure into the Hospital IQR Program beginning in the FY 
2017 payment determination because of the association of sepsis with 
patient deaths, hospital admissions, and length of hospital stays. 
Further, the commenter stated that Medicare is the largest payer for 
sepsis-related hospital stays, accounting for close to 60 percent of 
all patients.
    Response: We proposed adopting this measure because we believe this 
measure improves patient health outcomes.
    Comment: Several commenters noted that there are two other trials 
that examine the risks/benefits of protocolized care of septic patients 
which are yet to be published. As this field is evolving, the commenter 
believed that it is not appropriate to set benchmarks which were not 
confirmed in the most recent, largest randomized controlled trial. 
Specifically, the commenters suggested that specific measure criteria 
should await the results of the Australian Resuscitation In Sepsis 
Evaluation Randomised Controlled Trial (ARISE) and The Protocolised 
Management in Sepsis Trial (ProMISe).
    Response: We thank the commenter for feedback. We acknowledge the 
importance of the results pending from the ARISE and the ProMISe trials 
and will take those results and their potential impact into 
consideration when available. However, we believe that care of patients 
with severe sepsis and septic shock is of paramount importance and 
there is a significant performance gap within the Hospital IQR Program. 
The presence of this gap warrants the adoption of this clinical quality 
metric prior to the finalization of the two pending trials referenced 
above. The severe sepsis/septic shock bundle measure is the only NQF-
endorsed sepsis measure currently available to CMS.
    Comment: Many commenters opposed CMS adopting this measure citing 
the recent Protocolized Care for Early Septic Shock (ProCESS) trial 
published after publication of the proposed rule. The ProCESS trial 
found no additional benefit in including measurement of central venous 
pressure (CVP) and central venous oxygen saturation.
    Response: We thank the commenters for this feedback. We note from 
the measure steward that the Severe Sepsis and Septic Shock: Management 
Bundle (NQF #0500) measure ``has undergone the rigorous NQF 
evaluation process for over 6-7 years based on over 13 years of 
confirmatory studies. These studies provided the framework which 
allowed the measure to navigate the validity and reliability metrics as 
a whole measure including the central venous catheter to measure 
central venous pressure and oxygen saturation 
(SCVO2).'' \104\ We note that these two clinical 
parameters guide the administration of intravenous fluids, 
vasopressors, inotropes, and blood transfusions. Further, both 
parameters provide critical information about cardiac dysfunction, 
which when treated appropriately improves outcome. The steward further 
notes ``As a result CVC placement has been shown to be one of the most 
important bundle elements 34-37 and independently associated 
with a 9 percent reduction in mortality.'' 38 39
---------------------------------------------------------------------------

    \104\ NQF. Patient Safety Measure. Henry Ford Comments. June 
2014. Available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=73701.
---------------------------------------------------------------------------

    Regarding the ProCESS trial, we note that this randomized trial 
focused on a different set of guidelines for septic shock patients and 
did not require patients to have a central venous catheter placed, 
unless peripheral access was insufficient.\105\ The protocol-based 
standard therapy was the result of the ProCESS Investigators reviewing 
the literature, surveying emergency physicians and intensivists 
worldwide with consensus feedback from investigators.\2\ The ProCESS 
trial

[[Page 50239]]

protocol-based standard therapy also included administration of fluids 
and vasoactive agents to reach goals for systolic blood pressure and 
shock index (the ratio of heart rate to systolic blood pressure).\2\ 
The results of this trial were published in March 2014 and NQF reviewed 
the Severe Sepsis and Septic Shock: Management Bundle (NQF 
#0500) measure and narrowly voted to remove the central venous 
catheter portion of the EGDT bundle in June 2014. We note that the 
ProCESS trial was performed in 31 U.S. hospital emergency departments 
known to have a high volume of patients and that over a 5-year period 
randomized 1351 patients with septic shock into the trial, or on 
average 8 patients per site per year. The measure steward noted that a 
meta-analysis of 49 studies found the ProCESS trial population to 
account for 3 percent of the 41,064 patients in the these studies and 
that the 31 centers in the trial are not reflective of community 
settings where the majority of patients are treated in the U.S.,\2\ nor 
are the 31 centers a majority of the 4500 hospitals in the U.S.
---------------------------------------------------------------------------

    \105\ ProCESS Investigators. A Randomized trial of Protocol-
Based Care for early septic shock. NEJM. 2014; 370:1683-1693.
---------------------------------------------------------------------------

    Finally, during the NQF Patient Safety Measure Standing Committee 
meeting, the steward noted that the recommendation to remove the CVC 
portion of the Severe Sepsis and Septic Shock: Management Bundle (NQF 
#0500) measure had not been tested to assess if the measure 
would still be reliable and valid with this change to the measure, and 
that the recommendation was based on a single study's protocol-based 
standard therapy which was noted not to be identical to the EGDT 
treatment used in the Severe Sepsis and Septic Shock: Management Bundle 
(NQF #0500) measure.
    In view of this background of information we believe the most 
logical next step is to gather more information from two other studies 
that will be completed in the near future, as well as to await further 
recommendations from the NQF Patient Safety Measures Project as the 
ProCESS investigators collaborate with the stewards of the Severe 
Sepsis and Septic Shock: Management Bundle (NQF #0500) measure 
to refine the measure. We believe that sepsis and its mortality rate 
are important medical conditions which have also shown wide variation 
in treatment and outcome. We believe severe sepsis and septic shock 
should be monitored for improvements in mortality rates.
    Comment: Commenters noted that the CVP and central venous oxygen 
saturation monitoring and other processes were adopted in the Surviving 
Sepsis Campaign (SSC) after the results of a single center trial 
published in 2001.\106\ Commenters also stated that the Surviving 
Sepsis Campaign (SSC) moderated some of its recommendations based on 
the results of the ProCESS trial citing the SSC's response to the 
ProCESS trial.\107\
---------------------------------------------------------------------------

    \106\ 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.
    \107\ Surviving Sepsis Campaign. Surviving Sepsis Campaign 
Responds to ProCESS Trial. May 19, 2014. Available at: http://www.survivingsepsis.org/SiteCollectionDocuments/SSC-Responds-Process-Trial.pdf.
---------------------------------------------------------------------------

    Response: We thank the commenter for feedback. We note that 
monitoring CVP and central venous oxygen saturation monitoring are 
important components of the sepsis bundle. The SSC recommendations note 
that mortality outcomes increase if CVP or oxygen saturation of 70 
percent or 65 percent respectively, is not achieved with fluid 
resuscitation to the central venous pressure target. We acknowledge 
that the CVP and central venous oxygen saturation monitoring and other 
processes were adopted by the Surviving Sepsis Campaign (SSC) after the 
results of a single center trial published in 2001. However, we would 
like to point out the SSC recommendations have been updated since their 
initial publication and these updated recommendations are based on many 
different international studies. With regard to the comment that SSC 
has moderated some of its recommendations based on the ProCESS trial. 
We note that in their response to the ProCESS trial dated May 19, 2014, 
SSC recognizes that there are alternative ways to obtain these results 
and they will address ways to include this data in future versions of 
their quality improvement database.
    Comment: One commenter stated that support for this measure was not 
lessened by the ProCESS trial questioning the level of support for 
element ``F'' (measurement of central venous pressure and central 
venous oxygen saturation) of this measure. The commenter noted that, 
while the NQF Patient Safety Steering Committee voted in favor of 
removing element ``F,'' final ratification is pending by the NQF Board 
of Directors.
    The commenter noted that the NQF Patient Safety Steering Committee 
did not remove its endorsement of the full measure, and cited the Draft 
Report for Comment \108\ on the ad hoc review that stated that ``usual 
care for severe sepsis and septic shock had changed dramatically in the 
past decade with dramatic improvements in sepsis-related morbidity and 
mortality with several elements of the NQF #0500 measure being 
key to this improvement in outcomes'' (p. 20).
---------------------------------------------------------------------------

    \108\ National Quality Forum. NQF-Endorsed Measures for Patient 
Safety. Draft Report for Comment. May 28, 2014. Available at: 
https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=76698.
---------------------------------------------------------------------------

    Response: We agree that support for this measure has not lessened 
as a result of the ProCESS trial. As part of its ongoing work, the NQF 
Patient Safety Standing Committee conducted an ad hoc review of the 
sepsis measure (NQF #0500) based on results from the ProCESS 
trial. While the NQF Patient Safety Steering Committee voted in favor 
of removing element ``F,'' it recommended retaining endorsement of the 
measure as a whole. At this time final ratification is pending by the 
NQF Board of Directors. We refer readers to the NQF Web site for 
complete information on this measure's review at: http://www.qualityforum.org/News_And_Resources/Press_Releases/2014/Statement_from_NQF_on_Review_of_Sepsis_Measure.aspx. We intend 
to closely monitor and incorporate new information as the evidence base 
improves.
    Comment: A commenter asked CMS to invest additional resources in 
developing a stronger sepsis outcome measure. Another commenter asked 
CMS to consider adding non-NQF-endorsed measures that address early 
detection of sepsis.
    Response: We thank the commenters for these suggestions and will 
take them into consideration in the future.
    Comment: A commenter supported the severe sepsis/septic shock: 
management bundle measure provided the chart-abstracted measures that 
are proposed for removal in this rule are removed. The commenter noted 
that, if all existing chart-abstracted measures are left intact and the 
proposed mandatory electronic submission requirements for CY 2016 are 
added, it will be difficult for the commenter to find the resources to 
add the new measures.
    Response: We are working to lessen the burden by removing several 
chart-abstracted measures.
    Comment: One commenter was concerned that the measure, as defined, 
may have a high rate of false positives.
    Response: We are unaware of any studies indicating the severe 
sepsis/septic shock measure, as defined, has a high rate of false 
positives. We would be interested in seeing any evidence of a high rate 
of false positives.
    Comment: One commenter stated that the science of sepsis treatment 
is evolving and measurements of the incidence of sepsis and sepsis 
outcomes

[[Page 50240]]

are likely inaccurate due to coding variances and payment incentives.
    Response: We acknowledge that the science of sepsis treatment is 
evolving. We note that this is common phenomenon in medicine, and this 
is why all measures undergo routine measure maintenance. We believe 
that the coding of sepsis is accurate because these codes are used for 
payment reimbursement. In addition, our payment reimbursement processes 
allow for review, correction, and appeals. The payment incentive in the 
Hospital IQR Program is for reporting, therefore there is no financial 
incentive associated with actual sepsis/septic shock outcomes.
    Comment: Many commenters suggested that this measure poses a 
possible risk to patients and would be a burden on hospitals to collect 
the data. Specifically, one commenter was concerned about whether 
emergency department staff would be required to complete elements of 
the bundle while they triage patients.
    Response: We believe this measure will benefit consumers seeking 
information regarding the quality of health care outcomes. Sepsis is 
associated with patient deaths, hospital readmissions, and increased 
length of hospital stays. The measure fills an important measure gap, 
and will positively impact patient care. We believe that these benefits 
will outweigh data collection burdens. We also do not believe this 
measure will be more burdensome than other measures for hospitals 
because the measure data may be collected concurrently, 
retrospectively, or a combination of both.
    Regarding the concern of the inability to complete the bundle 
elements in the emergency department during triage, we note that the 
measure allows for completion of elements A-C within 3 hours. 
Timeliness of accurate detection and treatment of sepsis has been 
associated with improved survival in numerous studies, for example. 
109 110
---------------------------------------------------------------------------

    \109\ Castellanos-Ortega A, Suberviola B, Garcia-Astudilllo LA, 
Holanda MS, et al. Impact of the Surviving Sepsis Campaign protocols 
on hospital length of stay and mortality in septic shock patients: 
Results of a three-year follow-up quasi-experimental study. Crit 
Care Med. 2010, 8(4):1036-1043.
    \110\ Ferrer R, Artigas A, Suarez D, Palencia E, et al. 
Effectiveness of Treatments for Severe Sepsis. A Prospective, 
Multicenter, Observational Study. Am J Respir Crit Care Med. 2009, 
180:861-866.
---------------------------------------------------------------------------

    Comment: A commenter suggested that CMS defer the sepsis reporting 
requirements until 2016, when the next version of the Surviving Sepsis 
Guidelines (SSG) is published.
    Response: We believe the measure is important and addresses a 
critical gap in measurement and therefore, should be adopted at this 
time. However, we intend to closely monitor and incorporate new 
information as the evidence base improves.
    Comment: Several commenters requested that CMS consider alternative 
sepsis measures that are NQF-endorsed, reliable, accurate, feasible, 
evidence- based, streamlined, and can be collected consistently and 
reliably, with minimal burden.
    Response: At the time of this publication, we note that here are no 
other NQF-endorsed severe sepsis/septic shock measures available.
    Comment: A commenter asked for clarification as to which patients 
would be excluded from this measure. This commenter also wanted 
clarification on whether we are developing a sampling methodology for 
the sepsis measure. The commenter suggested that we define a minimum 
case threshold for publicly reporting this measure.
    Response: The exclusions for this measure were outlined above, in 
the proposed rule (79 FR 28237), and at: http://www.qualityforum.org/QPS/0500. We intend to develop a sampling strategy for the sepsis 
measure. In addition, regarding a minimum case threshold for public 
reporting, we will follow our existing guidelines. We display a 
footnote on Hospital Compare when the number of cases/patients is too 
few to report, that is fewer than 11 cases.\111\
---------------------------------------------------------------------------

    \111\ http://www.medicare.gov/hospitalcompare/Data/Footnotes.html.
---------------------------------------------------------------------------

    Comment: Many commenters also asked for changes to specific aspects 
of the measure. Components of the sepsis measure commenters would like 
to change include:
     Allowing exclusions to the required fluid resuscitation 
amount of 30 ml/kg to take into account the elderly, frail, and cardiac 
compromised that are not able to handle this amount of fluid, and may 
have fluid overload. For example, one exclusion could be 25 ml/kg for 
cardiac compromise, which the commenter stated the literature also 
supports in sepsis fluid resuscitation.
     Allowing administration of 30 ml/kg crystalloid for 
hypotension or lactate >/=4 mmol/L should be administered within 3 
hours of time of presentation and not 6 hours, according to current 
guidelines.
     Excluding patients from the blood culture before 
antibiotic measure if blood cultures are attempted without success and 
patients that present to the emergency department with an atypical 
sepsis presentation (cardiac arrest prior to arrival).
    Many commenters opposed the inclusion of element F from the 
measure, specifically ``In the event of persistent hypotension despite 
volume resuscitation (septic shock) or initial lactate >=4 mmol/L (36 
mg/dl) measure central venous pressure and central venous oxygen 
saturation,'' per the recommendation of the Patient Safety Measure 
Committee. A commenter cautioned that central lines have many 
complications and this trial showed early goal directed therapy without 
a central line was equivocal to placing a central line for monitoring. 
Commenters also noted that central venous catheters should be used 
sparingly, as they can lead to infections and other complications.
    A commenter stated that the measure specifications of care steps 
within six hours (required only for patients with septic shock) should 
not include steps five through seven because they are no longer 
considered the standard of care or high-quality sepsis resuscitation 
metrics and are outdated.
    Response: We thank the commenters for their feedback. We are 
adopting this measure as developed by the measure steward, Henry Ford 
Hospital, and endorsed by the NQF. We suggest the commenters recommend 
any changes to this measure to the measure developer/steward so that 
those changes would go through the consensus development process.
    Comment: Several commenters sought clarification on aspects of the 
sepsis measure, such as:
     Clarification of the denominator for identification of 
septic shock patients. The commenter asked that we clarify if the 
measure has specific ICD-9-CM diagnosis codes that would limit the 
review. If those are present, the commenter did not object to this 
measure. However, if they are not present, the commenter strongly 
objected to this measure based upon the significant burden of work that 
it imposes.
     Clarification on whether the measure will be collected as 
aggregate data (Web-based) or if we will require the submission of 
patient-level data.
     Clarification as to if the measure specifications will be 
provided in the standard manual format and when those specifications 
will be released. At this time, the commenter noted that there is no 
algorithm, data elements, initial patient population or sampling 
guidelines available to be able to begin programming this measure for 
collection. As this is a very complicated measure, the commenter noted 
that to

[[Page 50241]]

collect this measure as a chart-abstracted measure will be a burden to 
the hospitals.
     Clarification and rationale as to why we wanted to collect 
this as a chart-abstracted measure and not as an electronic clinical 
quality measure. A commenter suggested that the Severe Sepsis and 
Septic Shock measure be introduced as an electronic clinical quality 
measure rather than as a chart-abstracted measure. The inclusion of 
this measure should be timed to occur when electronic measure 
specification is available to support its inclusion. Another commenter 
requested clarification and rationale as to why we want to collect this 
as a chart-abstracted measure and not as an electronic clinical quality 
measure.
    Response: The denominator is the number of patients presenting with 
severe sepsis or septic shock. These types of patients have specific 
ICD-9-CM codes and the codes will be provided with the measure 
specifications. The measure is a composite patient safety measure, 
which will require submission of patient-level data.
    The electronic specifications of the measure are not ready for 
implementation. We will consider adopting the electronic clinical 
quality measure version when it becomes fully electronically-specified.
    Comment: A commenter requested that, pending approval of the Sepsis 
and Septic Shock: Management Bundle Measure (NQF #0500), CMS 
provide the measure specifications six months in advance of the 
abstraction period to provide hospitals with ample time to review and 
evaluate any necessary process changes before the data collection 
period begins. Another commenter requested clarification as to if the 
measure specifications will be provided in the standard manual format 
and when those specifications will be released. At this time, the 
commenter notes that there is no algorithm, data elements, initial 
patient population or sampling guidelines available to be able to begin 
programming this measure for collection. As this is a very complicated 
measure, the commenter notes that to collect this measure as a chart-
abstracted measure will be a burden to the hospitals.
    Response: The measure specifications will be released in the 
standard format, in the Specifications Manual, which will contain the 
data elements and algorithm. Typically, our specifications manuals are 
posted on QualityNet in January for July-December discharges and July 
for January-June discharges. We also provide addendums each year after 
the finalization of the IPPS/LTCH PPS final rule. The release date of 
this addendum is to be determined.
    Comment: One commenter stated that the quality improvement 
opportunities are when missed diagnosis occurs. The commenter asked if 
CMS will include possible diagnosis from an electronic health record 
problem list as a data source.
    Further, the commenter stated that the first three elements for 
severe sepsis have best-practice times of three hours from 
presentation. The commenter asked if that is three hours from arrival 
to the facility, upon transfer between units, from presentation of 
symptoms, or all of the above. The commenter advised that three hours 
could also be very difficult to meet depending on emergency department 
volumes at any given time.
    Response: We note that this is a chart-abstracted measure and 
hospitals can collect data from all available sources of medical 
records including EHRs.
    Regarding the best-practice times for the measure, we refer the 
commenter to the Inclusion and Exclusion Criteria described above for a 
description of the steps to be completed within 3 hours of the 
patient's presentation. According to the measure steward, Henry Ford 
Hospital, the measure's intent is to use three hours following 
presentation/onset from one endpoint to another, be it facility 
transfer/arrival or unit transfer/arrival.
    After consideration of the public comments we received, we are 
finalizing the Severe Sepsis and Septic Shock: Management Bundle 
Measure (NQF #0500) as proposed. We will closely monitor this 
measure as new clinical evidence becomes available, and will update the 
public via future rulemaking and/or operational guidance as necessary.
f. Electronic Health Record-Based Voluntary Measures
(1) Overview of New Electronic Health Record-Based Voluntary Measures
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28238 through 
28239) we proposed 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; (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.
    Many commenters raised similar concerns applicable across the 
proposed electronic clinical quality measures; we summarize and respond 
to these general comments first below before discussing the individual 
electronic clinical quality measures.
    Comment: Many commenters opposed one or more of these voluntary 
electronic clinical quality measures for the following reasons:
     A significant portion of the measures' populations are not 
covered by Medicare.
     The proposed measures would not lead to improved hospital 
quality or offer insight on how to improve electronic clinical quality 
measures.
     CMS did not propose to allow hospitals to submit chart-
abstracted data on these measures in addition to the electronic 
clinical quality measures.
    Response: We are concerned with improving the quality of care 
provided to all patients, not just Medicare patients. All of our non-
claims-based measures include all-payer patients, meaning they include 
non-Medicare patients as well as Medicare beneficiaries.
    We disagree that these measures would not lead to improved hospital 
quality of care. The measures address high-impact conditions not 
adequately addressed in the program measure set. We also disagree that 
these measures will not improve electronic clinical quality measures. 
Reporting clinical quality measures in their electronic form is a 
different mode of data collection that, as with any measure, will 
require refinement over time. We believe that implementing and using 
will drive quality improvement through measuring quality through EHR's, 
and

[[Page 50242]]

provide nationally representative information to inform future 
electronic clinical quality measure refinements.
    Finally, we believe these measures will give hospitals useful 
information that can be used to improve the quality of care for those 
patients in the measure population regardless of the mode of collection 
and submission. We are in the process of moving away from chart-
abstracted measures. Therefore, in part to minimize hospitals data 
collection burden and when electronic specifications are available, we 
intend to adopt those versions. We proposed to adopt these measures as 
voluntary electronic clinical quality measures to align with the 
Medicare EHR Incentive Program to provide hospitals' flexibility in 
reporting. We note that the proposed measures are voluntary and a 
hospital may choose to not report one or more of the proposed measures.
    Comment: One commenter was concerned that the complexity of the 
data currently in chart abstraction for these measures will make it 
difficult to ensure that this information will accurately be translated 
when submitting these measures electronically.
    Response: These measures are already electronically-specified and 
as such, no translation is required. As previously stated in the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50817 through 50818), we do not 
believe that the electronic clinical quality measures are substantively 
different from their chart-abstracted form.
    Comment: Commenters recommended aligning CMS and TJC requirements 
for these measures in an effort to reduce the amount of resources that 
are spent when requirements are different or the timing of changes in 
requirements creates additional challenges.
    Response: We intend to continue working with TJC and other 
stakeholders to reduce hospitals' quality reporting burden.
(2) 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 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.
    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.
    Comment: One commenter supported the hearing screening prior to 
hospital discharge measure.
    Response: We thank the commenter for their support.
    Comment: One commenter opposed the Hearing Screening Prior to 
Hospital Discharge measure, and expressed concern that it will 
encourage physicians to obtain other preventative screenings during the 
hospitalization that are unnecessary or unrelated to the cause of the 
patient's admission.
    Response: This measure relates to hearing screening for newborns 
prior to discharge, not all patients. Newborns, as defined by this 
measure, are not in the same category as other admitted patients as 
they are born to an admitted patient. Early screening allows for early 
intervention in infants with hearing loss. We do not believe newborn 
preventive hearing screenings will encourage physicians to perform 
unneeded preventive screenings.
    After consideration of the public comments we received, we are 
finalizing the adoption of the Hearing Screening Prior to Hospital 
Discharge measure for voluntary electronic reporting as proposed.
(3) 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://

[[Page 50243]]

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.jointcommission.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 invited public comments on this proposal.
    Comment: One commenter strongly supported the adoption of 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). Another commenter urged CMS to make the 
exclusive breast milk feeding measure a mandatory measure no later than 
FY 2017. The commenter believed that exclusive electronic reporting of 
these measures could ultimately reduce the burden of collection and 
increase the potential for timely feedback to all stakeholders on the 
ever important area of maternity care. The commenter indicated that the 
health benefits of breastfeeding for mothers and for babies are well 
established and that the measure has the virtue of being included in 
TJC's core Perinatal Care measure set (PC-05), which hospitals with 
more than 1,100 births annually are now required to collect and report. 
The commenter indicated that the use of standardized measures helps 
avoid confusion among consumers and health professionals and reduces 
duplication of related measure concepts and burden of collection.
    Response: We thank the commenters for their support. We will take 
into consideration their recommendations as we plan Hospital IQR 
Program policies in the future.
    Comment: One commenter stated that it is unclear whether 
noncompliance with the breast feeding measure would be created if the 
mother changed her mind at some point during the stay.
    Response: For PC-05a only, if the mother's initial feeding plan was 
to exclusively feed breast milk and she diverges from that plan to feed 
formula later in the hospitalization, then the case will fail. A case 
is only excluded from the denominator if formula feeding is the initial 
stated feeding plan.
    Comment: One commenter believed there should be exclusions for 
newborns' medical conditions that require supplemental feedings. This 
commenter did not support the measure because it is an electronic 
clinical quality measure only. The commenter would support the measure 
in its chart-abstracted form because it is NQF-endorsed and supported 
by the MAP.
    Response: We suggest that any recommendations for changes to the 
measure be shared with the measure developer/steward, TJC. As is, the 
measure is NQF-endorsed and includes the electronic specification. In 
2012, The MAP declined to support the electronic clinical quality 
measure because of an issue regarding patient choice. However, the 
measure developer has addressed this issue following the 2012 MAP 
recommendation. Patients that choose not to exclusively breast feed are 
excluded from the denominator. In 2013, the MAP supported the measure 
for adoption by the Hospital IQR Program, noting the measure addresses 
an NQS priority not adequately addressed in the program measure set.
    Comment: Several commenters recommended the integration of 
technical assistance provided by TJC and the United States 
Breastfeeding Committee (USBC) to assist with implementation of the 
measure. The commenters pointed out that USBC has published an online 
toolkit \112\ to help hospitals implement the measure and suggested 
that we should inform hospitals of the availability of the toolkit.
---------------------------------------------------------------------------

    \112\ http://www.usbreastfeeding.org/HealthCare/HospitalMaternityCenterPractices/ToolkitImplementingTJCCoreMeasure/tabid/184/Default.aspx).
---------------------------------------------------------------------------

    Response: We thank the commenters for their suggestions and will 
consider them in the future.
    After consideration of the public comments we received, we are 
finalizing are finalizing the 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) measure 
as a voluntary electronic clinical quality measure as proposed.
(4) 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)

[[Page 50244]]

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 invited public comments on this proposal.
    Comment: A commenter supported the CAC-3 HPMC measure and noted 
that this plan of care supports patients' successful transition from 
the hospital to home.
    Response: We thank the commenter for their support.
    Comment: Some commenters opposed the measure's adoption as a 
voluntary electronic clinical quality measure because the NQF has 
removed its endorsement and the MAP has not recommended this measure. 
Another commenter requested that CMS provide additional information 
beyond what was stated in the proposed rule regarding our rationale for 
inclusion of the CAC-3 Home Management Plan of Care Document Given to 
Patient/Caregiver. The commenter noted that this measure's loss of NQF 
endorsement is cause for concern, but more importantly, the commenter 
did not feel this documentation measure appropriately contributes to 
evaluating the state of perinatal care in the U.S.
    Response: This is a pediatric measure addressing children aged 2-
17, not a perinatal care measure. Since it is a pediatric measure, CAC-
3 fills a gap in the Hospital IQR Program measure set. We are moving 
away from chart-abstracted measures and when electronic specifications 
are available, we intend to adopt the electronic clinical quality 
measure version of a new measure. We acknowledge that the MAP did not 
support the adoption of this measure because the NQF withdrew their 
endorsement. According to the NQF report, the reason for this was 
because the measure did not pass the criteria for the category 
``Importance to Measure and Report.'' \113\ NQF stated that the 
evidence is not as strong for care plan as for use of ICS. The 
Committee noted the recent publication in JAMA by Morse in October 5, 
2011 that found ``Among children admitted to pediatric hospitals for 
asthma, there was high hospital-level compliance with CAC-1 and CAC-2 
quality measures and moderate compliance with the CAC-3 measure but no 
association between CAC-3 compliance and subsequent ED visits and 
asthma-related readmissions'' (http://jama.ama-assn.org/content/306/13/1454.abstract). The NQF also cited concerns over the lack of 
standardization of a quality care plan, how language is constructed, 
and health literacy issues. Despite these findings, however, the NQF 
still agreed that ``patient education is clearly an essential component 
in successful asthma management.'' Our purpose for adopting this 
voluntary electronic clinical quality measure is to align with the 
Medicare EHR Incentive Program and to provide hospitals with 
flexibility in their quality reporting. We reiterate that the proposed 
measure is voluntary and a hospital may choose to not report this 
measure.
---------------------------------------------------------------------------

    \113\ https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=73041.
---------------------------------------------------------------------------

    Furthermore, we proposed to include this non-NQF endorsed measure 
under the Hospital IQR Program exception authority as discussed in 
section IX.A.7. of the preamble of this final rule.
    After consideration of the public comments we received, we are 
finalizing the Home Management Plan of Care (HMPC) Document Given to 
Patient/Caregiver measure as a voluntary electronic clinical quality 
measure as proposed.
(5) 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.\114\
---------------------------------------------------------------------------

    \114\ 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 invited public comments on this proposal.
    Comment: Some commenters supported the adoption of this measure. 
One commenter noted the measure has recently been refined and renamed 
as ``Unexpected Newborn Complications'' and expressed the hope that CMS 
will adopt the updated version.
    Further, one commenter recommended that CMS make the measure 
mandatory no later than FY 2017. The commenter believed that the 
exclusive electronic reporting of this measure could ultimately reduce 
the burden of collection and increase the potential for timely feedback 
to all stakeholders on the ever important area of maternity care.
    Response: We will monitor the progress of the refined measure and 
consider adopting it after the measure completes the NQF-endorsement 
process. We will take into consideration the commenters' 
recommendations as we plan Hospital IQR Program policies in the future.
    After consideration of the public comments we received, we are 
finalizing the Healthy Term Newborn (NQF #0716) measure as a 
voluntary electronic clinical quality measure as proposed.
g. Readoption of Measures As Voluntarily Reported Electronic Clinical 
Quality Measures
    In order to align with the Medicare EHR Incentive Program for 
eligible hospitals (EHs) and critical access hospitals (CAHs), in the 
FY 2015 IPPS/

[[Page 50245]]

LTCH PPS proposed rule (79 FR 28239 through 28242) we proposed 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). In the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28239) we proposed 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 final rule. We 
believe we should continue aligning the Hospital IQR Program and the 
Medicare 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, we believe that 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.
(1) Readoption of AMI-2 Aspirin Prescribed at Discharge (NQF 
#0142)
    The AMI-2 Aspirin Prescribed at Discharge (NQF #0142) 
assesses the 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 Medicare 
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 than18 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.
(2) 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 Medicare 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 to electronically 
report topped-out measures on a voluntary basis 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 invited public comments on our proposal to readopt these two 
measures as electronic clinical quality measures.
    Comment: Some commenters supported the inclusion of voluntary 
reporting for certain electronic clinical quality measures for the 
Hospital IQR Program, and noted that voluntary reporting allows 
hospitals to be better prepared for submitting new quality measures 
from EHRs and to correct any operational issues that arise. Several 
commenters supported adopting AMI-2 and AMI-10 as electronic clinical 
quality measures, because aligning the Hospital IQR Program with the 
Medicare EHR Incentive Program could reduce reporting burdens. The 
commenter hoped that CMS will continue to expand efforts to allow for 
electronic reporting to include registries, which are commonly used for 
data collection and reporting, in addition to EHRs.
    Response: We thank these commenters for their support. We would 
like to clarify that at this time we do not allow registry reporting 
for these measures.
    Comment: One commenter did not support CMS' proposal to readopt two 
topped-out measures for purposes of electronic reporting, arguing that 
topped-out measures, by definition, are removed because they are no 
longer an accurate measure of hospital performance. The commenter was 
concerned that these measures would not advance hospital quality or 
improve electronic reporting.
    Other commenters opposed AMI-2 and AMI-10 as electronic clinical 
quality measures because they were topped-out and retired as chart-
abstracted measures and they believed retaining them would not advance 
hospitals' understanding of how to

[[Page 50246]]

submit electronic clinical quality measures or improve the quality of 
hospital care.
    Response: As we explained in section IX.A.2.g.(2) of the preamble 
of this final rule in response to a similar comment, even though these 
measures are topped-out, we would still like to retain the 
electronically specified versions for the following reasons: (1) to 
align the Hospital IQR Program and the Medicare EHR Incentive Program, 
(2) to allow us to monitor the effectiveness of measure reporting by 
EHR's, and (3) to familiarize hospitals with reporting electronically 
specified measures. Topped-out status is also only one of many factors 
which we consider before determining whether a measure should be 
removed.
    While these measures may be topped-out, they are still an accurate 
measure of performance. Continuing to report on these measures is a way 
to monitor for continued high performance. Electronic measure data will 
help us evaluate variations in data capture modes (chart-abstracted 
versus electronic clinical quality measures) in order to determine 
whether and what adjustments are necessary for the two different modes 
of collection. In addition, we believe that by allowing hospitals to 
voluntarily report these measures via electronic submission, we will 
provide hospitals needed flexibility in electronic clinical quality 
measure reporting, as requested by hospitals in their comments to the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50813 through 50814). As stated 
in the proposed rule (79 FR 208243), we intend to propose to require 
electronic clinical quality measure reporting in future rulemaking. We 
are providing this voluntary option to provide hospitals time to 
prepare for required electronic clinical quality measure reporting.
    After consideration of the public comments we received, we are 
finalizing the readoption of both AMI-2: Aspirin Prescribed at 
Discharge (NQF #0142) and AMI-10: Statin Prescribed at 
Discharge (NQF #0639) as voluntary electronic clinical quality 
measures as proposed.
    In summary, for FY 2017 payment determination and subsequent years, 
we are finalizing: (1) the adoption of 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) the removal of 19 
measures (4 of which were previously suspended), ten of which are being 
retained as voluntary electronic clinical quality measures. We are not 
finalizing the removal of one of the required chart-abstracted measures 
(SCIP-Inf-4). This gives a total of 63 measures (47 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 newly finalized quality measures for the FY 2017 payment 
determination and subsequent years. Please note that this table does 
not include suspended measures.

Previously Adopted Hospital IQR Program Measures and Measures Newly Finalized in This Final Rule for the FY 2017
                                   Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
                                                                           Submission methods    New for FY 2017
          Short name                 Measure name           NQF No.       for FY 2017 payment        payment
                                                                             determination        determination
----------------------------------------------------------------------------------------------------------------
AMI-7a........................  Fibrinolytic Therapy   NQF 0164.           quality measure or
                                 Minutes of Hospital                      chart-abstracted
                                 Arrival.                                 REQUIRED.
SCIP-Inf-4....................  Cardiac Surgery        NQF 0300.           REQUIRED.
                                 Controlled 6 A.M.
                                 Postoperative Blood
                                 Glucose.
Sepsis........................  Severe sepsis and      NQF 0500.           REQUIRED.
                                 management bundle.
Imm-2.........................  Influenza              NQF 1659.           REQUIRED.
Stroke-1......................  Venous                 NQF 0434.           REQUIRED.
                                 (VTE) prophylaxis.
ED-1..........................  Median time from ED    NQF 0495.           quality measure or
                                 departure for                            chart-abstracted
                                 admitted ED patients.                    REQUIRED.
ED-2..........................  Admit Decision Time    NQF 0497.           quality measure or
                                 for Admitted                             chart-abstracted
                                 Patients.                                REQUIRED.
Stroke-4......................  Thrombolytic therapy.  NQF 0437.           quality measure or
                                                                          chart-abstracted
                                                                          REQUIRED.
Stroke-6......................  Discharged on statin   NQF 0439.           quality measure or
                                                                          chart-abstracted
                                                                          REQUIRED.
Stroke-8......................  Stroke education.....  N/A.............  Electronic clinical    ................
                                                                          quality measure or
                                                                          chart-abstracted
                                                                          REQUIRED.
VTE-1.........................  Venous                 NQF 0371.           quality measure or
                                 prophylaxis.                             chart-abstracted
                                                                          REQUIRED.
VTE-2.........................  Intensive care unit    NQF 0372.           quality measure or
                                 thromboembolism                          chart-abstracted
                                 prophylaxis.                             REQUIRED.
VTE-5.........................  VTE discharge          N/A.............  Electronic clinical    ................
                                 instructions.                            quality measure or
                                                                          chart-abstracted
                                                                          REQUIRED.
VTE-6.........................  Incidence of           N/A.............  Electronic clinical    ................
                                 potentially                              quality measure or
                                 preventable VTE.                         chart-abstracted
                                                                          REQUIRED.
PC-01.........................  Elective delivery      NQF 0469.           quality measure or
                                 aggregate, submitted                     chart-abstracted
                                 via Web-based tool                       REQUIRED.
                                 or electronic
                                 clinical quality
                                 measure).
CLABSI........................  National Healthcare    NQF 0139.
                                 (NHSN) Central line-
                                 associated
                                 Bloodstream
                                 Infection (CLABSI)
                                 Outcome Measure.

[[Page 50247]]

 
SSI...........................  American College of    NQF 0753.
                                 for Disease Control
                                 and Prevention (ACS-
                                 CDC) Harmonized
                                 Procedure Specific
                                 Surgical Site
                                 Infection (SSI)
                                 Outcome Measure.
                                Colon procedures
                                Hysterectomy
                                 procedures
CAUTI.........................  National Healthcare    NQF 0138.
                                 (NHSN) Catheter-
                                 associated Urinary
                                 Tract Infection
                                 (CAUTI) Outcome
                                 Measure.
MRSA..........................  National Healthcare    NQF 1716.
                                 (NHSN) Facility-wide
                                 Inpatient Hospital-
                                 onset Methicillin-
                                 resistant
                                 Staphylococcus
                                 aureus (MRSA)
                                 Bacteremia Outcome
                                 Measure.
CDI...........................  National Healthcare    NQF 1717.
                                 (NHSN) Facility-wide
                                 Inpatient Hospital-
                                 onset Clostridium
                                 difficile Infection
                                 (CDI) Outcome
                                 Measure.
HCP...........................  Influenza vaccination  NQF 0431.
                                 healthcare personnel
                                 (HCP).
MORT-30-AMI...................  Hospital 30-day, all-  NQF 0230.
                                 standardized
                                 mortality rate
                                 (RSMR) following
                                 acute myocardial
                                 infarction (AMI)
                                 hospitalization for
                                 patients 18 and
                                 older.
MORT-30-HF....................  Hospital 30-day, all-  NQF 0229.
                                 standardized
                                 mortality rate
                                 (RSMR) following
                                 heart failure (HF)
                                 hospitalization for
                                 patients 18 and
                                 older.
MORT-30-PN....................  Hospital 30-day, all-  NQF 0468.
                                 standardized
                                 mortality rate
                                 (RSMR) following
                                 pneumonia
                                 hospitalization.
COPD Mortality................  Hospital 30-Day, All-  NQF 1893.
                                 Standardized
                                 Mortality Rate
                                 (RSMR) following
                                 Chronic Obstructive
                                 Pulmonary Disease
                                 (COPD)
                                 Hospitalization.
STK Mortality.................  Stroke 30-day          N/A.............  Claims REQUIRED......  ................
                                 mortality rate.
CABG mortality................  Hospital 30-day, all-  N/A.............  Claims REQUIRED......  New for FY 2017.
                                 cause, risk-
                                 standardized
                                 mortality rate
                                 (RSMR) following
                                 coronary artery
                                 bypass graft (CABG)
                                 surgery.
READM-30-AMI..................  Hospital 30-day all-   NQF 0505.
                                 standardized
                                 readmission rate
                                 (RSRR) following
                                 acute myocardial
                                 infarction (AMI)
                                 hospitalization.
READM-30-HF...................  Hospital 30-day, all-  NQF 0330.
                                 standardized
                                 readmission rate
                                 (RSRR) following
                                 heart failure
                                 hospitalization.
READM-30-PN...................  Hospital 30-day, all-  NQF 0506.
                                 standardized
                                 readmission rate
                                 (RSRR) following
                                 pneumonia
                                 hospitalization.
READM-30-TH/TKA...............  Hospital-level 30-     NQF 1551.
                                 standardized
                                 readmission rate
                                 (RSRR) following
                                 elective primary
                                 total hip
                                 arthroplasty (THA)
                                 and/or total knee
                                 arthroplasty (TKA).
READM-30-HWR..................  Hospital-Wide All-     NQF 1789.
                                 Readmission (HWR).
COPD READMIT..................  Hospital 30-Day, All-  NQF 1891.
                                 Standardized
                                 Readmission Rate
                                 (RSRR) following
                                 Chronic Obstructive
                                 Pulmonary Disease
                                 (COPD)
                                 Hospitalization.

[[Page 50248]]

 
STK READMIT...................  30-day risk            N/A.............  Claims REQUIRED......  ................
                                 standardized
                                 readmission rate
                                 (RSMR) following
                                 Stroke
                                 hospitalization.
CABG READMIT..................  Hospital 30-day, all-  N/A.............  Claims REQUIRED......  New for FY 2017.
                                 cause, unplanned,
                                 risk-standardized
                                 readmission rate
                                 (RSRR) following
                                 coronary artery
                                 bypass graft (CABG)
                                 surgery.
PSI 4 (PSI/NSI)...............  Death among surgical   NQF 0351.
                                 serious, treatable
                                 complications.
PSI 90........................  Patient safety for     NQF 0531.
                                 (composite).
MSPB..........................  Payment-Standardized   NQF 2158.
                                 Per Beneficiary
                                 (MSPB).
AMI payment...................  AMI Payment per        N/A.............  Claims REQUIRED......  ................
                                 Episode of Care.
HF Payment....................  Hospital-level, risk-  N/A.............  Claims REQUIRED......  New for FY 2017.
                                 standardized 30-day
                                 episode-of-care
                                 payment measure for
                                 heart failure.
PN payment....................  Hospital-level, risk-  N/A.............  Claims REQUIRED......  New for FY 2017.
                                 standardized 30-day
                                 episode-of-care
                                 payment measure for
                                 pneumonia.
Hip/knee complications........  Hospital-level risk-   NQF 1550.
                                 complication rate
                                 (RSCR) following
                                 elective primary
                                 total hip
                                 arthroplasty (THA)
                                 and/or total knee
                                 arthroplasty (TKA).
Registry Nursing Sensitive      Participation in a     N/A.............  Web-based REQUIRED...  ................
 Care.                           Systematic Clinical
                                 Database Registry
                                 for Nursing
                                 Sensitive Care.
Registry for General Surgery..  Participation in a     N/A.............  Web-based REQUIRED...  ................
                                 Systematic Clinical
                                 Database Registry
                                 for General Surgery.
Safe Surgery Checklist........  Safe Surgery           N/A.............  Web-based REQUIRED...  ................
                                 Checklist Use.
HCAHPS........................  HCAHPS + CTM-3.......  NQF 0166.           REQUIRED.
                                                       NQF 0228.
AMI-2.........................  Aspirin Prescribed at  NQF 0142.           quality measure.       electronic
                                                                                                 clinical
                                                                                                 quality
                                                                                                 measure.
AMI-8a........................  Primary PCI Received   NQF 0163.           quality measure.       electronic
                                 Hospital Arrival.                                               clinical
                                                                                                 quality
                                                                                                 measure.
AMI-10........................  Statin Prescribed at   NQF 0639.           quality measure.       electronic
                                                                                                 clinical
                                                                                                 quality
                                                                                                 measure.
SCIP-Inf-1a...................  Prophylactic           NQF 0527.           quality measure.       electronic
                                 Within One Hour                                                 clinical
                                 Prior to Surgical                                               quality
                                 Incision.                                                       measure.
SCIP-Inf-2a...................  Prophylactic           NQF 0528.           quality measure.       electronic
                                 for Surgical                                                    clinical
                                 Patients.                                                       quality
                                                                                                 measure.
SCIP-Inf-9....................  Urinary catheter       NQF 0453.           quality measure.       electronic
                                 Postoperative Day 1                                             clinical
                                 (POD 1) or                                                      quality
                                 Postoperative Day 2                                             measure.
                                 (POD 2) with day of
                                 surgery being day
                                 zero.
Stroke-2......................  Discharged on          NQF 0435.           quality measure.       electronic
                                 therapy.                                                        clinical
                                                                                                 quality
                                                                                                 measure.
Stroke-3......................  Anticoagulation        NQF 0436.           quality measure.       electronic
                                 fibrillation/flutter.                                           clinical
                                                                                                 quality
                                                                                                 measure.
Stroke-5......................  Antithrombotic         NQF 0438.           quality measure.       electronic
                                 of hospital day two.                                            clinical
                                                                                                 quality
                                                                                                 measure.
Stroke-10.....................  Assessed for           NQF 0441.           quality measure.       electronic
                                                                                                 clinical
                                                                                                 quality
                                                                                                 measure.
VTE-3.........................  Venous                 NQF 0373.           quality measure.       electronic
                                 patients with                                                   clinical
                                 anticoagulation                                                 quality
                                 overlap therapy.                                                measure.

[[Page 50249]]

 
VTE-4.........................  Patients receiving un- N/A.............  Electronic clinical    Voluntary
                                 fractionated Heparin                     quality measure.       electronic
                                 with doses/labs                                                 clinical
                                 monitored by                                                    quality
                                 protocol.                                                       measure.
PC-05.........................  Exclusive Breast Milk  NQF 0480.           quality measure.       electronic
                                 subset measure PC-                                              clinical
                                 05a Exclusive Breast                                            quality
                                 Milk Feeding                                                    measure.
                                 Considering
                                 Mother[acute]s
                                 Choice.
EHDI-1a.......................  Hearing Screening      NQF 1354.           quality measure.       electronic
                                 Discharge.                                                      clinical
                                                                                                 quality
                                                                                                 measure.
CAC-3.........................  Home Management Plan   N/A.............  Electronic clinical    Voluntary
                                 of Care (HMPC).                          quality measure.       electronic
                                Document Given to                                                clinical
                                 Patient/Caregiver.                                              quality
                                                                                                 measure.
HTN...........................  Healthy Term Newborn.  NQF 0716.           quality measure.       electronic
                                                                                                 clinical
                                                                                                 quality
                                                                                                 measure.
----------------------------------------------------------------------------------------------------------------

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 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).
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28242 through 
28243) for the FY 2017 payment determination, we proposed 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 quality 
measure. We expect eligible hospitals to select measures that best 
apply to their patient mix.
    For the FY 2017 payment determination, we also proposed 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 proposed 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 final 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
------------------------------------------------------------------------
                                                            Proposed
        CY 2015 quarter            Reporting period        submission
                                        (2015)              deadlines
------------------------------------------------------------------------
1.............................  January 1-March 31....  May 30, 2015.
2.............................  April 1-June 30.......  Aug 30, 2015.
3.............................  July 1-September 30...  Nov 30, 2015.
4.............................  October 1-December 31.  Feb 28, 2016.
------------------------------------------------------------------------

    As an incentive for hospitals to voluntarily submit electronically-
specified clinical quality measures, we proposed 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

[[Page 50250]]

submitting chart-abstracted data to validate the accuracy of the 
measure data submitted electronically.
    By proposing these changes, we believe 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.
    We welcomed public comments on these proposals.
    Commenters' opinions on these proposals focused on timing, 
substantive and nonsubstantive quality measure updates, our 
collaboration with hospitals and EHR vendors, certification 
requirements, and general concerns about electronic clinical quality 
measure reporting.
    Comment: Some commenters were concerned that we were not allowing 
hospitals and EHR vendors enough time to transition to the new data 
submission deadlines. Some commenters supported the long-term goal of 
transitioning to EHR-enabled measurement and the general progression 
toward electronic clinical quality measures, noting that it will 
improve communication and documentation while reducing hospital 
resources now used for chart-abstracted measures. A commenter strongly 
supported CMS using electronic clinical quality measures and strongly 
objected to the implementation of chart-abstracted measures. The 
commenter stated that the current methodology of manual chart 
abstraction is resource intensive and inefficient for hospitals. By 
focusing on electronic clinical quality measures, hospitals can focus 
on performance improvement and target resources to implementing EHRs 
and processes to improve patient care.
    Response: We thank commenters for their support. We plan to move 
away from chart-abstracted measures and move towards electronic 
clinical quality measures, as appropriate.
    This voluntary option also simplifies alignment with the Medicare 
EHR Incentive Program and allows hospitals to partially satisfy 
requirements in both programs using a common set of measures. Since 
hospitals have a choice whether to submit voluntary electronic clinical 
quality measure data or chart-abstracted data, we recommend hospitals 
that are not yet prepared to submit electronically instead submit via 
chart-abstraction. We encourage hospitals to submit test data when they 
are ready.
    We are actively working to reduce hospitals' reporting burden by 
offering the option to submit electronic clinical quality measures.
    We received a number of comments regarding the timing of this 
proposal in relation to hospitals' readiness to submit electronic 
clinical quality measures.
    Comment: Some commenters stated that healthcare providers and 
electronic health records systems are not yet ready to adopt electronic 
clinical quality measures, expressing concern about vendor problems 
related to meaningful use, including problems associated with 
submitting data to CMS, and about the accuracy and feasibility of 
electronically specified measures.
    Other commenters suggested that CMS not specify a date for 
mandatory electronic reporting until significant levels of CEHRT 
adoption are achieved, and a validation process for electronic clinical 
quality measures is operational and yields evidence of measure 
reliability.
    Response: We recently published a proposed rule (79 FR 29732 
through 29738) proposing changes to the meaningful use stage timeline 
and changes to the requirements for the reporting of clinical quality 
measures for 2014. The comment period closed July 21, 2014. We hope the 
commenter was able to share their concerns regarding vendor problems 
related to meaningful use by responding to the proposed rule. We would 
like to clarify that this rule provides flexibility to hospitals and 
CAHs needing to update their EHR systems only for the most recent 
version of the CQMs, which is not a criteria for 2014 CEHRT. No changes 
to 2014 CEHRT criteria or timelines are being finalized in this rule. 
As we have previously mentioned, we are finalizing voluntary electronic 
clinical quality measure submission in order to give hospitals 
flexibility. Hospitals that are not yet ready to submit electronically 
can satisfy requirements for applicable measures as previously 
finalized and finalized in this rule at section IX.A.2.g.(2) of the 
preamble of this final rule, that is submit via chart-abstraction. We 
encourage hospitals to work with vendors and encourage vendors to work 
with the various EHR-related and electronic clinical quality measure 
HHS working groups to become more informed about policies and 
standards. As participants in these groups, the hospitals and vendors 
can share their concerns with CMS, ONC, and other measure stakeholders 
and help to improve processes. In addition, we suggest hospitals 
participate in our pilot electronic validation test to get free 
feedback on the accuracy of their data and have an opportunity to 
provide direct input regarding concerns. We refer readers to section 
IX.A.11.e. of the preamble of this final rule where this policy is 
discussed.
    Comment: A commenter opposed the creation of voluntary electronic 
reported clinical quality measures.
    Response: We respectfully disagree with the commenter that did not 
support voluntary electronic clinical quality measure reporting. This 
voluntary reporting provides hospitals the opportunity to test their 
submissions to prepare before electronic clinical quality measure 
reporting is required for this program.
    Comment: Commenters urged CMS to begin a more robust dialogue with 
hospitals, EHR vendors, and other stakeholders regarding submitting 
electronic clinical quality measures so that there is a shared 
understanding of the opportunities and challenges that lay ahead--both 
from the hospital operational perspective as well as from our 
perspective.
    Response: We have begun our education and outreach efforts with 
hospitals and vendors by holding educational webinars/sessions, 
uploading a number of resources to QualityNet,\115\ and creating a 
listserv for updates and announcements. Further, we have past recorded 
sessions discussing electronic clinical quality measures issues on our 
Web site at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=12287738
52046. We also note that hospitals may submit test files or practice 
submissions at any time and encourage hospitals and vendors to begin 
submitting test files as soon as feasible.
---------------------------------------------------------------------------

    \115\ https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=12287
73849716.
---------------------------------------------------------------------------

    Comment: One commenter recommended that CMS consider that certain 
measures currently improve quality of care for patients, but may not 
immediately lend themselves to e-specification.
    Response: We will take the comment into consideration for future 
measures, and note that we have expanded our measures under 
consideration process in order to find measures from a greater number 
of sources.
    Comment: Some commenters requested that CMS allow more time for 
implementing certification requirements and adopting measure 
specification

[[Page 50251]]

updates. A commenter specifically suggested that CMS allow 18 months 
between the time of an updated specification adoption and the federal 
fiscal year to which the specification updates should apply. Another 
commenter recommended that CMS refrain from requiring certification of 
the revised measures and provide flexibility on the date by which the 
revisions must be fully implemented on provider sites. The commenter 
expressed concern that the current time frame of just prior to the 
October 1, 2014 start of the measure reporting year is inadequate to 
accommodate the development, testing, certification of the software by 
health IT vendors and subsequent delivery and implementation of 
software for every customer site. This time constraint could lead 
providers to continue to attest to their electronic clinical quality 
measures in FY 2015, rather than submit their electronic clinical 
quality measures as CMS would prefer.
    One commenter noted that there is insufficient time for vendors and 
certification test labs to obtain certification and subsequently 
deliver the certified product in time for hospitals to submit 
electronic clinical quality measures electronically in CY 2015. The 
commenter therefore anticipated that hospitals will continue to attest 
their clinical quality measure data in FY 2015. The commenter suggested 
that CMS allow hospitals who elect to attest their clinical quality 
measure for the Medicare EHR Incentive Program in CY 2015 to submit 
data electronically for the Hospital IQR Program during CY 2015.
    Response: We believe when discussing the ``revised measures,'' the 
commenter is referring to the annual April updates to the electronic 
clinical quality measures. For submission of CY 2015 data, we will only 
accept data consistent with the April 2014 measure specifications. 
Electronic clinical quality measure specifications are available in the 
CMS eCQM Library at: http://cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/eCQM_Library.html. The October 1, 
2014 date is the beginning of the reporting period for the Medicare EHR 
Incentive Program only. However, we proposed, that in order to align 
the two programs' electronic clinical quality measure reporting and 
submission periods, both programs' reporting periods and submission 
deadlines would begin with Q1 CY 2015 discharges (79 FR 28245 through 
28246).
    However, after consideration of these comments regarding timing and 
hospitals' readiness, we are modifying our proposal so that hospitals 
that wish to participate in the voluntary reporting need only submit 
one CY 2015 quarter (Q1, Q2, or Q3) of electronic clinical quality 
measure data with a submission deadline of November 30, 2015. We hope 
that this modification will encourage more hospitals to submit 
electronic clinical quality measures rather than attest. The commenter 
is reminded that attesting is a Medicare EHR Incentive Program option 
only and would not apply to Hospital IQR Program requirements. In 
addition, if a hospital chooses not to voluntarily submit one quarter 
of electronic clinical quality measure data for the Hospital IQR 
Program, it must submit all four quarters of chart-abstracted data in 
CY 2015.
    We believe that by modifying our proposal and reducing the data 
requirement to one quarter's worth of data and by adopting the November 
30th submission deadline, hospitals will have adequate time to update 
their EHR's ability to capture and report data.
    In addition, measure certification falls under the ONC. ONC 
published a proposed rule February 26, 2014 describing voluntary 2015 
Edition Electronic Health Record (EHR) Certification Criteria; 
Interoperability Updates and Regulatory Improvements (79 FR 10880 
through 10946). The proposed rule offered a potential ``gap 
certification'' solution which may help the commenter with their 
concerns about the current timelines for development, testing, 
certification of the software by health IT vendors. The final rule is 
expected to be published in the summer of 2014. With respect to CEHRT 
requirements, though 2014 CEHRT is required, eligible hospitals are not 
required to ensure that their CEHRT products are recertified to the 
most recent version of the electronic specifications for the clinical 
quality measures.
    A hospital may submit electronic clinical quality measures for the 
Hospital IQR Program during CY 2015 even if they attest their aggregate 
measure numerators and denominators through the Medicare EHR Incentive 
Program. The hospital could submit as test data or production data. 
Test data submissions are submissions that do not count as submissions; 
they are practice submissions. Production data submissions are 
considered final submissions meant to fulfill Program submission 
requirements. With respect to CEHRT requirements, although 2014 CEHRT 
is required, eligible hospitals are not required to ensure that their 
CEHRT products are recertified to the most recent version of the 
electronic specifications for the clinical quality measures.
    Comment: One commenter noted that the proposed subregulatory 
process for annual updates is to incorporate ``nonsubstantive'' changes 
to measure specifications. However, the commenter believed that the 
annual updates include substantive changes. The commenter looks forward 
to working with CMS to further refine the definition of nonsubstantive 
changes and recommended that the annual updates be limited to changes 
that do not have a significant impact on clinicians, software, or 
recertification.
    Response: We interpret the commenter's use of the term ``annual 
updates'' to be in reference to our publication of the measure 
specifications in the electronic clinical quality measure Library at: 
http://cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/eCQM_Library.html. We will work with stakeholders 
to help define substantive and nonsubstantive changes related 
specifically to electronic measure specifications, and will take 
suggestions regarding any recommended changes into consideration for 
future rulemaking.
    Comment: A commenter explained that there is confusion as to 
whether vendors need to certify to the updated measures and whether 
hospitals must start their measure reporting year with the annual 
updates and request clear and consistent guidance. The commenter also 
noted that the Cypress tool is not yet available for testing of the new 
measures, and no information has been provided as to when Cypress may 
be available.
    Response: Although 2014 CEHRT is required, eligible hospitals are 
not required to ensure that their CEHRT products are recertified to the 
most recent version of the electronic specifications for the clinical 
quality measures. Hospitals that choose to voluntarily submit 
electronic clinical quality measures in Q1, Q2, or Q3 of CY 2015 for FY 
2017 payment determination must use the 2014 version of the measure 
specifications.
    Cypress version 2.5 is expected to be available with the eligible 
hospital and eligible provider measure packages in September 2014. 
Cypress version 2.51 is expected to align with the CMS Implementation 
Guide released for publication in July 2014.
    Comment: A commenter expressed concerns about electronic clinical 
quality measure specifications in regards to the ``Medication, Order 
not done: Medical Reason'' related to the

[[Page 50252]]

STK, VTE, and future AMI, PN, and SCIP measures. The commenter pointed 
out that the Hospital IQR Program requires providers to document a 
medical reason for not prescribing a medication/device and the MU/
electronic clinical quality measure requires providers to document 
``what medication of choice would you have prescribed if not for a 
medical reason.'' The commenter disagreed with the requirement to 
answer these questions and suggested that providers may view the 
questions as inefficient ``administrative only questions'' and may 
avoid them entirely. The commenter also suggested that the questions 
may force the institution to intentionally fail a measure due to lack 
of a contraindication and that it is improper to use data related to 
medication orders for public reporting of quality of care and financial 
incentives because not all medication orders that count for the 
Hospital IQR Program also count for electronic clinical quality 
measures since they are not all included in the qualifying RxNorm 
document.
    Response: We acknowledge that this is a known issue that is being 
addressed through HL7 and expected to be implemented in FY 2015. ONC 
has consolidated several JIRA comments into one issue. The commenter 
can follow the progress of the issue at http://jira.oncprojectracking.org/browse/CQM-970. We note that to date there 
are no consequences for measure failure and encourage the commenter to 
review our zero denominator clarification in section IX.D.5. of the 
preamble of this final rule.
    Comment: A commenter expressed concern with the increasing number 
of measures for electronic clinical quality measure submission. The 
commenter advised that since electronic health records allow 
documentation to be placed in multiple places, chart review is 
required. The commenter stated that current medical record technology 
has not matured to restrict documentation input into only the field or 
fields designated for electronic data retrieval. Potential 
technological solutions contribute to alert fatigue. Further, the 
commenter believed that because there is not a common electronic 
medical record system for all staff to use regardless of the care 
setting, multiple inefficient documentation systems are created and 
customized to suit the needs of the individual hospital and facility. 
The commenter stated that resolving these problems will require a 
significant financial investment while reimbursement for services 
declines.
    Response: We recognize that many hospitals struggle with proper 
data capture in the EHR. We encourage these hospitals to work with 
their vendors to reduce burden and human intervention through chart 
abstraction. The electronically-specified clinical quality measures 
remain voluntary at this time to provide an opportunity for hospitals 
to improve upon accurate data capture.
    Comment: A commenter specifically disagrees with CMS' statement 
that electronic clinical quality measures are more easily reported than 
chart-abstracted measures.
    Response: We disagree that electronic clinical quality measures are 
not more easily reported than chart-abstracted measures; once capture 
is possible within EHR, the time and resources compared to manual 
abstraction should be significantly less. As data becomes more 
standardized, it is expected that reporting burden will decrease over 
time. For example, electronic clinical quality measure collection does 
not require hospital staff time to find and pull paper medical records, 
and manually review medical records to abstract data elements used in 
measure calculation. We acknowledge there are costs, but also benefits 
to moving to electronic data capture. EHR user training is a cost that 
will ultimately result in consistency coming from a common 
understanding and capture of common data definitions.
    Comment: A commenter recommended that CMS develop and share a five-
year roadmap for the future regarding the transition of all clinical 
quality measurement programs to electronic reporting so hospitals can 
strategically plan for workflows that support electronic reporting. The 
commenter further recommended that this guidance, as well as all 
electronic quality reporting sub regulatory guidance and eMeasure 
specifications should be located on a central Web site.
    Response: We are working on a roadmap for both the Hospital IQR and 
Hospital VBP Programs, as well as a consolidated location for 
electronic clinical quality measure resources.
    After consideration of the public comments we received, we are 
modifying our proposal to finalize that hospitals that choose to 
voluntarily report electronic measures should submit one quarter of 
electronic clinical quality measure data from Q1, Q2, or Q3 of CY 2015 
for FY 2017 payment determination. Hospitals that choose to voluntarily 
submit electronic clinical quality measures must use the 2014 version 
of the measure specifications and submit 16 measures covering three NQS 
domains from the 28 available electronically specified measures. 
However, hospitals may voluntarily submit more than one quarter of 
data. We will not accept Q4 2015 data for CY 2015 as this would likely 
delay EHR Incentive Program payments. Policies for CY 2016/FY 2018 
payment determination electronic clinical quality measure reporting and 
submission will be made in future rulemaking.
    Because we are modifying our proposal to now only require 1 
quarter's worth of data from hospitals that wish to voluntarily submit 
electronically specified measures. We are subsequently also modifying 
the submission deadline to November 30, 2015 regardless of which 
quarter of data is submitted. We also refer readers to section X.2.h.1 
for further discussion of submission of electronically specified 
measures.
    The chart below provides a summary of the finalized reporting 
periods and electronic submission deadlines for the FY 2017 Hospital 
IQR Program:

FY 2017 Hospital IQR Program Electronic Reporting Periods and Submission
                    Deadlines for Eligible Hospitals
------------------------------------------------------------------------
                                  Discharge reporting      Submission
        CY 2015 Quarter                 periods             deadlines
------------------------------------------------------------------------
Q1............................  January 1, 2015-March   November 30,
                                 31, 2015.               2015.
Q2............................  April 1, 2015-June 30,  November 30,
                                 2015.                   2015.
Q3............................  July 1, 2015-September  November 30,
                                 30, 2015.               2015.
Q4............................  October 1, 2015-        Not Applicable.
                                 December 31, 2015.
------------------------------------------------------------------------


[[Page 50253]]

(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, in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28243) we proposed 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 proposed to add a 
footnote next to that publically reported data indicating that it is a 
result of electronically-specified measures.
    We welcomed public comments on these proposals.
    Comment: Commenters suggested that when reporting electronic 
clinical quality measure data, hospitals should be provided a preview 
period for the FY 2016 payment determination. One commenter believed 
that public display of electronic measures for the FY 2016 payment 
determination should not occur because accuracy of data has not been 
validated, there would be inconsistencies in reporting time periods and 
that display of the data may not provide accurate or valuable data to 
the public for decision making.
    Commenters noted that display of the data may not provide accurate 
or valuable data to the public for decision making, and specifically 
stated that there are no validity and reliability studies demonstrating 
the capture of equivalent data between chart-abstracted measures and 
electronically captured measures and urging us to develop a data 
validation strategy before publicly posting this information. 
Commenters stated that measures submitted as electronic clinical 
quality measures should not be publicly reported until validation of 
electronic clinical quality measures demonstrates that they are 
comparable to values reached through chart-abstraction. A commenter 
expressed concern that opportunity for a preview period before posting 
electronic clinical quality data on Hospital Compare will not offset 
the risks associated with reporting clinical quality measures 
electronically. One commenter asked that CMS wait until more research 
is conducted and there is an understanding of the limitations and 
opportunities of the electronic clinical quality measures. The 
commenter also asked that CMS wait until the preponderance of hospitals 
can do so and a data validation system for electronic measures is 
established.
    However, other commenters stated that not reporting electronic 
clinical quality measures on Hospital Compare fails to provide the 
public with reliable data and requested that CMS communicate the 
criteria it will use to determine if the electronic clinical quality 
measure data are accurate enough to be publicly displayed.
    Response: Regarding public reporting for electronically reported 
data submitted for the FY 2016 payment determination, we note that this 
policy is not subject to change in this rulemaking as it was previously 
finalized. However, consistent with our finalized policy, we will not 
post data that we determine are not deemed to be accurate. We intend to 
use the results of our validation pilot to assist in determining 
criteria for identifying electronic clinical quality measure data 
accuracy. These criteria will be proposed in future rulemaking.
    With respect to inconsistencies in reporting periods, historically 
we publicly reports data on Hospital Compare as it becomes available. 
Therefore, it is not unusual for there to be inconsistencies in 
reporting periods. The current data collection periods for each measure 
are posted on Hospital Compare.
    We appreciate the commenter's concerns about validation. As 
finalized in section IX.A.11.e. of the preamble of this final rule, we 
intend to conduct a validation strategy pilot test in FY 2015. We also 
intend to develop mandatory requirements for validation in the FY 2016 
IPPS/LTCH PPS proposed rule, which will make assessment of validity 
possible prior to posting of data collected for the FY 2018 payment 
determination.
    However, based on public comments received opposing public 
reporting for FY 2017, we are modifying our proposal to finalize that 
we will only publish the names of hospitals who successfully submit CY 
Q1, Q2, or Q3 electronic clinical quality measure data by November 30, 
2015. We will not: (1) report actual data or performance rates for 
measures submitted as electronic clinical quality measures on Hospital 
Compare, (2) include a preview period, or (3) provide hospitals an 
option to suppress their participation.
    Comment: One commenter encouraged CMS to use a strategy similar to 
the Star Ratings program with ``topped-out'' measures. The commenter 
suggested we allow voluntary submission of ``topped-out'' measures 
through all reporting mechanisms and publically report on Hospital 
Compare as ``display measures.'' This would allow for continued 
monitoring of performance and increase alignment with the Medicare 
Advantage and Part D plans. This concept of display measures could be 
used for introducing and testing new measures by first introducing the 
new measures on the display page.
    Response: We thank the commenter for the suggestion and will 
consider the idea in the future.
    After consideration of the public comments we received and as a 
logical outgrowth of our existing public reporting policy, we are 
finalizing our policy that we will only publicly report the names of 
those hospitals who successfully submit CY 1, CY 2, or CY 3 electronic 
clinical quality measure data by the November 30, 2015 submission 
deadline. Hospitals will not have a preview period nor will we allow 
hospitals to opt out of this public reporting. We will indicate these 
hospitals with a symbol on Hospital Compare to recognize their advanced 
ability to submit data electronically. We will not publicly report 
actual data or performance rates of electronic clinical quality 
measures at this time.
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 that are currently part of the Hospital IQR Program or 
that have been proposed for adoption into the Program. As stated above, 
we intend for the future direction of electronic quality measure 
reporting to reduce significantly 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 us with the 
ability to test systems in CY 2015 for future quality program

[[Page 50254]]

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 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 
requested comments on this intention here.
    Comment: A commenter asked for clarification on the proposal to 
electronically report all clinical process of care and HAI measures 
beginning in CY 2016, which are currently part of the Hospital IQR 
Program or which have been proposed for adoption for the FY 2018 
payment determination and subsequent years. The commenter believed that 
CMS is moving away from the critical work of the Infection 
Preventionist and into a realm that is without professional judgment 
for identifying an HAI.
    Response: We clarify that we did not propose electronic reporting 
of all clinical process of care and HAI measures in CY 2016. We do not 
intend to take away the professional judgment of the Infection 
Preventionist professionals.
    Comment: One commenter was very concerned about the amount of 
resources that would be needed to analyze, validate, and ensure 
compliance with the electronically specified clinical quality measure 
specifications as well as the actual submission process. The commenter 
asked that CMS require the use of electronic submissions gradually 
instead of for all Hospital IQR Program measures in CY 2016. The 
commenter recommended a proposal that encourages voluntary submission 
of one or two measures that are not ``topped-out'' for CY 2016 with 
future gradual expansion of required electronic measures over a period 
of several years. The commenter stated that this would allow hospitals 
to become proficient in reporting measures electronically while 
curtailing the administrative burden that hospitals experience when 
implementing new electronic measures.
    The commenter also urged CMS to allow hospitals to have flexibility 
in how measures are transmitted until all measure developers confirm 
that the measures can be e-specified within the timeframe. A commenter 
noted that any decisions to add electronic clinical quality measures 
should be dependent on the final decisions for Stage 2 and Stage 3 of 
meaningful use, given the current difficulties providers and vendors 
are experiencing with Stage 2 EHR implementation. In addition, the 
commenter recommended that CMS consider that certain measures currently 
improve quality of care for patients, but may not immediately lend 
themselves to e-specification.
    Response: We believe we are providing a gradual approach to 
electronic clinical quality measure adoption and submission. This will 
be the second year that the Hospital IQR Program has provided a 
voluntary electronic reporting option. With respect to the commenter's 
request that we allow flexibility in how measures are submitted, we 
will strive to include a variety of measures in the Hospital IQR 
Program, such as claims-based, chart-abstracted, electronically 
specified, and structural aggregate measures. We recognize that many 
hospitals struggle with proper data capture in the EHR and we encourage 
these hospitals to work with their vendors to reduce burden associated 
with human intervention through chart abstraction. The electronic 
clinical quality measures remain voluntary at this time to provide an 
opportunity to improve upon accurate data capture. We continue to work 
with the Medicare EHR Incentive Program team to ensure measure 
alignment moving forward.
    We agree that not all measures are appropriate for electronic 
specification.
    Comment: A commenter stated that while ONC and others are working 
to ensure common data standards, it is unwise to dismiss inclusion of a 
measure that is currently not electronically specified, but which may 
improve the quality of care for patients.
    Response: We will not remove a measure merely because it lacks an 
electronic specification. In the FY 2011 IPPS/LTCH PPS final rule (75 
FR 50185), we outlined seven criteria for removing measures from the 
Hospital IQR Program. In section IX.A.2.a. of the preamble of this 
final rule, we are also finalizing updated criteria for determining 
``topped-out'' status. Conversely, we will consider adopting a measure 
that does not have electronic specifications if the measure meets a 
critical need and measurement gap.
    Comment: A commenter urged CMS to reconsider the proposal to begin 
requiring electronic clinical quality measures in CY 2016. The 
commenter stated that there is a lack of clear e-specifications and 
certification requirements, and that mandatory reporting should only 
begin when EHR systems are able to reliably generate this data.
    Response: We will consider these suggestions as we develop policies 
on electronic reporting. Please note that we did not propose to require 
electronic clinical quality measures in CY 2016, but rather, we 
signaled an intent. We thank the commenters for providing this 
feedback, and will take it into account in the future.
b. Possible Future Electronic Clinical Quality Measures
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28244) we stated 
that 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 stated our intent 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 Medicare EHR Incentive Program Stage 3 
collection:

[[Page 50255]]

 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 we 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 requested comments on these possible future measures.
    Comment: One commenter strongly supported the proposed measure 
Adverse Drug Events--Hypoglycemia.
    Response: We thank the commenter for their support.
    Comment: One commenter strongly supported adding Adverse Drug 
Events--Hyperglycemia. Another commenter advised that measurement of 
Adverse Drug Events--Hyperglycemia via chart abstraction requires 
searching for discrete, out-of-range blood glucose lab values, which is 
resource intensive. The commenter stated that collection of this 
measure as an electronic clinical quality measure is the most efficient 
data collection mechanism and supports Meaningful Use of an electronic 
health record. The commenter believed that glucose testing results can 
be captured at the point-of-care or from the laboratory system and 
stored in the EHR as discrete data fields.
    Response: We thank the commenters for their support and will 
address this measure in future policy making.
    Comment: A commenter noted that that electronically submitted data 
on Adverse Drug Events-Hyperglycemia would be highly unreliable. 
Further, that commenter stated that recommendations regarding levels of 
glucose control are variable among patient populations and there is 
limited information within CMS' proposal regarding what patient 
populations would be included in the sample.
    Response: Adverse Drug Events--Hyperglycemia is conditionally 
supported by the MAP. The MAP expressed concerns over the feasibility 
of using this measure in the Hospital IQR Program as it has been tested 
using data from the EHR. 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. The data 
elements are still under development.
    Comment: Several commenters supported the adoption of the Hepatitis 
B Vaccine measure. A commenter recommended that further attention is 
given to high volume conditions and/or procedures, the goals of the 
three-part aim, and alignment between the Hospital IQR Program and 
other HHS programs.
    Response: We thank the commenters for their support.

[[Page 50256]]

    Comment: Several commenters supported the adoption of the Cesarean 
Section measure. One commenter believed that exclusive electronic 
reporting of this measure could ultimately reduce the burden of 
collection and increase the potential for timely feedback to all 
stakeholders on the ever important area of maternity care. Commenters 
also noted that the two leading obstetric professional societies, 
American College of Obstetricians and Gynecologists and Society for 
Maternal-Fetal Medicine, recently released a detailed set of consensus 
recommendations for safely reducing the rate of initial or primary 
cesarean sections, stating that this procedure is overused and that 
there are many safe ways to reduce the rate.
    Response: We thank the commenters for their support.
    We note that we received many public comments regarding other 
suggested future measures and policies addressing different operational 
aspects of the Hospital IQR Program such as public reporting and 
working with other stakeholders. We thank the commenters for their 
comments. Because we believe these comments are not within the scope of 
this current rulemaking, we are not addressing them in this final rule. 
However, we intend to consider all of these views for future rulemaking 
and Hospital IQR Program development.
9. Form, Manner, and Timing of Quality Data Submission
a. Background
    Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act state that the 
applicable percentage increase for FY 2007 and each subsequent fiscal 
year shall be reduced by 2.0 percentage points (or beginning with FY 
2015, by one-quarter of such applicable percentage increase (determined 
without regard to sections 1886(b)(3)(B)(ix), (xi), or (xii) of the 
Act)) for any subsection (d) hospital that does not submit, to the 
Secretary in accordance with this clause and in a form and manner, and 
at a time, specified by the Secretary, data required to be submitted on 
measures selected under this clause with respect to such a fiscal year. 
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. There are safeguards in place in accordance with 
the HIPAA Security Rule to protect patient information submitted 
through this Web site.
    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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28245) we did not 
propose any changes to data submission requirements for chart-
abstracted measures.
d. Alignment of the Medicare 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 Medicare EHR Incentive Program 
have different reporting and submission periods for electronic clinical 
quality measures, with hospitals reporting data to the Hospital IQR 
Program based on calendar year deadlines while the Medicare 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 Medicare 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28245 
through 28246) we proposed to align incrementally 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 proposed to shift incrementally 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.D.2. of the preamble of this 
final rule for a detailed discussion of this proposal in the Medicare 
EHR Incentive Program. Specifically, for the CYs 2015 and 2016, we 
proposed in the Medicare 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 Medicare EHR incentive 
payments.
    We note that for the Hospital IQR Program, for the FY 2017 payment 
determination, we proposed 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

[[Page 50257]]

IX.A.7.h.(1) of the preamble of this final rule where this proposal is 
discussed. We also proposed 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 final rule where this proposal is 
discussed. In summary, we proposed 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 Medicare EHR Incentive Program With Proposed Hospital IQR Program
                                               Submission Periods
----------------------------------------------------------------------------------------------------------------
                                                    Medicare 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
                                                 2015.                 2015.                 submitted by May
                                                                                             30, 2015.
                                   Q2.........  April 1-June 30,      April 1-June 30,      Data must be
                                                 2015.                 2015.                 submitted by August
                                                                                             30, 2015.
                                   Q3.........  July 1-September 30,  July 1-September 30,  Data must be
                                                 2015.                 2015.                 submitted by
                                                                                             November 30, 2015.
                                   Q4.........  N/A for Medicare 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
                                                                                             30, 2016.
                                   Q2.........  April 1-June 30,      April 1-June 30,      Data must be
                                                 2016.                 2016.                 submitted by August
                                                                                             30, 2016.
                                   Q3.........  July 1-September 30,  July 1-September 30,  Data must be
                                                 2016.                 2016.                 submitted by
                                                                                             November 30, 2016.
                                   Q4.........  N/A for Medicare 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 Medicare 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.

    We invited public comments on these proposals.
    Comment: Many commenters supported CMS' proposal to align the 
Hospital IQR Program and the Medicare EHR Incentive Program. One 
commenter supported efforts aligning the Hospital IQR Program and the 
EHR Incentive Program and supported using the Hospital IQR Program as 
the foundation of the alignment.
    Response: We thank these commenters for their support.
    Comment: One commenter recommended that additional steps be taken 
to fully align the Hospital IQR and Medicare EHR Incentive Programs, 
and stated that it is currently not possible for a hospital to satisfy 
the meaningful use requirements with mandatory Hospital IQR Program 
measures only. This commenter observed that the Stage 2 list of 
electronic clinical measures includes some that have not been adopted 
for the Hospital IQR Program, and also some Hospital IQR Program 
measures that have been found to be ``topped-out.'' Two measures that 
previously were removed from the Hospital IQR Program remain as 
electronic clinical quality measures for demonstrating meaningful use 
of EHRs. The commenter recommended that CMS work to ensure hospitals 
could meet the meaningful use requirements by electronically reporting 
some mandatory Hospital IQR Program measures, without having to report 
additional measures that have not been determined to have value for 
public reporting or quality improvement purposes under the Hospital IQR 
Program.
    Response: We are actively taking steps to align the list of 
available measures between the Hospital IQR and Medicare EHR Incentive 
Programs by proposing to adopt six new and retain 10 topped-out 
measures as electronic clinical quality measures (79 FR 28220 through 
28242) so that 28 of the 29 Stage 2 measures are adopted by the 
Hospital IQR Program. As previously noted, ED-3--Median time from ED 
arrival to ED departure for discharged ED patients, is an outpatient 
quality measure. While 12 of the Stage 2 measures are required Hospital 
IQR Program measures, we believe that allowing hospitals the 
flexibility to select other measures that best fit their patient 
population is a benefit to the hospitals. This flexibility was 
requested by commenters in response to our restriction to 16 specific 
measures in CY 2014 (78 FR 50814-50815). As proposed and as finalized 
in this rule, hospitals can meet some meaningful use requirements by 
electronically reporting some mandatory Hospital IQR Program measures. 
We intend to continue working with hospitals to ensure that they are 
able to meet meaningful use requirements by reporting Hospital IQR 
Program measures electronically. We respectfully disagree with the 
commenter's implication that only the mandatory Hospital IQR Program 
measures have value. We believe that allowing hospitals the flexibility 
to choose which additional measures to report is a benefit to the 
hospital and their patient population. We refer readers to our response 
in section IX.A.2.a. of the preamble of this final rule regarding why 
we are retaining ``topped-out'' measures.
    Comment: Some commenters opposed or expressed concerns with CMS' 
alignment proposal. One commenter stated that it is premature to 
require quarterly reporting of electronic clinical quality measures 
because of the implementation delays with 2014 CEHRT for meaningful use 
and the anticipated changes in the attestation requirements for 
meaningful use in 2014.
    Response: We understand the commenters' concerns. We are not 
finalizing quarterly reporting of electronic clinical quality measures 
at this time. We refer readers to section IX.A.2.h.(1) of the preamble 
of this final rule where this is discussed in more detail.

[[Page 50258]]

    Comment: One commenter appreciated CMS' goal to align the Hospital 
IQR Program and the Medicare EHR Incentive Program, but noted several 
concerns. Specifically, the commenter is concerned about the validity 
of the electronic clinical quality measures, noting that hospitals that 
are performing well under the chart-abstracted versions of measures are 
not the same hospitals that achieve high performance levels under the 
electronic clinical quality measure versions. Because of this concern, 
the commenter urged CMS to develop a methodology for validation and 
argues that chart-abstracted versions of measures should never be 
compared to electronic clinical quality measure versions.
    Response: We are unaware of data showing that hospitals that are 
performing well under the chart-abstracted versions of measures are not 
the same hospitals that achieve high performance levels under the 
electronic clinical quality measure versions. To date, we have only 
heard anecdotal comments about actual performance level differences 
between the two modes of collection. We do not have sufficient data to 
be able to confirm these comments. We are conducting a small validation 
pilot and have proposed to conduct a larger pilot in CY 2015. More 
discussion of the electronic clinical quality measure validation pilot 
can be found in section IX.A.11.e. of the preamble of this final rule.
    Comment: One commenter is concerned that CMS' data systems may not 
be prepared to routinely accept EHR-based measures.
    Response: We would like to reassure the commenter that our data 
systems are prepared to accept EHR-based measures. The CMS database has 
been open to accept electronic clinical quality measure submissions 
since January 2, 2014.
    Comment: One commenter was concerned that different deadlines (that 
is, for chart-abstracted measures versus electronic clinical quality 
measures) may lead to confusion and requested that CMS undertake a 
strong educational initiative using current educational resources for 
both programs and ensure that technical assistance is available for 
hospitals opting to submit data for both programs electronically.
    Response: We routinely provide educational sessions and resources 
on the QualityNet Web site. After publication of the final rule, we 
will update the resources and offer additional educational sessions to 
assist reporting hospitals. We urge the commenter to sign up for our 
electronic mail distribution list available for pertinent updates and 
announcements of upcoming educational sessions. Further, we have 
recorded sessions available on electronic clinical quality measures on 
our Web site at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=12287738
52046. We also refer readers to our response in section IX.A.2.h.(1) of 
the preamble of this final rule regarding education and outreach to 
hospitals and vendors.
    Comment: Another commenter expressed concern that the methods to 
encourage participation in the voluntary electronic reporting option 
and to align critical quality measure reporting in the Hospital IQR 
Program and the Medicare EHR Incentive Program undermine the goals of 
the Hospital IQR Program--namely, continuous hospital quality 
improvement. Rather than consider exceptions to Hospital IQR Program 
requirements, the commenters suggested that CMS leverage the data from 
the Medicare EHR Incentive Program for insight and development of a 
report on lessons learned to date from hospitals' experience with 
certified electronic health record technology (CEHRT), and their use 
for electronic clinical quality measures.
    Response: We respectfully disagree with the commenter that our 
efforts to align reporting of electronic clinical quality measures 
between the Hospital IQR and Medicare EHR Incentive Programs undermine 
the goals of the Hospital IQR Program. We believe that clinical quality 
measure reporting, regardless of the mode of submission, will lead to 
continuous quality improvement.
    We interpret the commenter's statement ``consider exceptions to 
Hospital IQR Program requirements'' and ``CMS leverage the data from 
the Medicare EHR Incentive Program'' to request that we not introduce 
an electronic voluntary reporting option for Hospital IQR. By allowing 
one submission to partially fulfill requirements for two programs, we 
believe we are alleviating the burden of reporting data to two 
programs. We disagree that leveraging data from the Medicare EHR 
Incentive Program would promote continuous quality improvement, since 
many hospitals have elected to attest results of their electronic 
clinical quality measures.
    Comment: One commenter cautioned that its EHR vendor prioritizes 
complying with federal government requirements over fixing critical 
errors in its system that could affect patient safety.
    Response: Patient safety is the top priority and we urge hospitals 
to work closely with their vendors to ensure patient safety as the 
highest priority.
    Comment: One commenter encouraged CMS to more clearly state that 
references to submission timelines in its proposal to align the 
Hospital IQR Program and the Medicare EHR Incentive Program do not 
impact chart-abstracted measures. Another commenter asked CMS to 
clarify whether the submission deadline for the first quarter of CY 
2015 is May 30 or May 31.
    Response: Our proposal to align the Hospital IQR Program and the 
Medicare EHR Incentive Program does not affect chart-abstracted 
measures' submission deadlines. The alignment applies to electronic 
clinical quality measures only.
    In addition, as stated in section IX.A.2.h.(1) of the preamble of 
this final rule above, we are finalizing a modified version of our 
proposal. We will not require quarterly reporting at this time for the 
electronic clinical quality measures. As a result, we also modified the 
submission deadline for electronic clinical quality measures, which 
instead will be November 30, 2015. Policies for electronic clinical 
quality measure reporting in CY 2016/FY 2018 payment determination and 
subsequent years will be made in future rulemaking.
    Comment: One commenter recommended that CMS finalize the zero 
denominator and case threshold changes as proposed.
    Response: We refer readers to sections IX.D.5. and IX.D.6. of the 
preamble of this final rule for the discussion of zero dominators and 
the case threshold exemption in the EHR Incentive Program. We note that 
while this policy was clarified in the EHR Incentive Program, it also 
applies to electronic reporting for the Hospital IQR Program.
    After consideration of the public comments we received, we are 
finalizing our proposal to align the EHR Incentive Program with the 
Hospital IQR Program, with modifications. We proposed to align the 
reporting period and submission deadlines of the Medicare EHR Incentive 
Program clinical quality measures with that of the Hospital IQR Program 
for CY 2015. While we are finalizing our proposal to align the 
reporting period and submission deadline of the Medicare EHR Incentive 
Program with those of the Hospital IQR Program on the calendar year for 
clinical quality measures that are reported electronically, we are not 
finalizing our proposal to require quarterly submission

[[Page 50259]]

of clinical quality measure data in CY 2015.
    Since we are also modifying our proposal in the Hospital IQR 
Program to finalize that hospitals can voluntarily submit one calendar 
year (CY) quarter's data for CY Q1 (January 1-March 31, 2015), CY 2 
(April 1-June 30, 2015), or CY 3 (July 1-September 30) by November 30, 
2015, we are also applying these modifications to the alignment with 
the Medicare EHR Incentive Program. As a result, we are not 
incrementally shifting the Medicare EHR Incentive Program reporting 
period and submission deadlines for clinical quality measures as 
proposed. We plan to continue to align reporting periods and submission 
deadlines in CY 2016 and subsequent years in future policy years. We 
refer readers to section IX.E.2. of the preamble of this final rule for 
a detailed discussion of the final policy in the Medicare EHR Incentive 
Program.
    ED-1, ED-2, Stroke-4, Stroke-6, Stroke-8, VTE-1, VTE-2, VTE-3, VTE-
5, VTE-6, AMI-7a, and PC-01 are measures required under the Hospital 
IQR Program and may be submitted as chart-abstracted or as electronic 
clinical quality measures. If a hospital chooses to submit one calendar 
quarter (CY 2015 Q1, Q2, or Q3) as an electronic clinical quality 
measure by November 30, 2015, a hospital does not need to also submit 
chart-abstracted data for that measure.
    The chart below provides a summary of the finalized reporting 
periods and electronic submission deadlines for the FY 2017 Hospital 
IQR Program:

FY 2017 Hospital IQR Program Electronic Reporting Periods and Submission
                    Deadlines for Eligible Hospitals
------------------------------------------------------------------------
        Discharge reporting periods              Submission deadline
------------------------------------------------------------------------
January 1, 2015-March 31, 2015............  November 30, 2015.
April 1, 2015-June 30, 2015...............  November 30, 2015.
July 1, 2015-September 30, 2015...........  November 30, 2015.
October 1, 2015-December 31, 2015.........  Not Applicable.
------------------------------------------------------------------------

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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28246) we did not 
propose 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28246) we did not 
propose any changes to HCAHPS requirements.
    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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28246) we did not 
propose any changes to data submission requirements for structural 
measures.
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/.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28246) we did not 
propose 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28246 through 
28247) for the FY 2016 payment determination and subsequent years, for 
the Hospital IQR Program, we clarified 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).
    We further clarified 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. We routinely use submitted quality 
measure

[[Page 50260]]

data for these types of program administration, monitoring and 
evaluation activities.
    In addition, we proposed 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 proposed 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 proposed to use these data as appropriate for program 
evaluation.
    We invited public comment on this proposal.
    Comment: Several commenters strongly supported the proposal for CMS 
to access NHSN patient-, system-, and aggregate-level data. Commenters 
stated that this access is necessary to evaluate the impact of the 
Hospital VBP and Hospital IQR Programs as required by the Affordable 
Care Act, as well as the HAC Reduction Program. Commenters stated that 
this information is also critical to inform quality improvement efforts 
and to ensure accurate data collection and will also increase the 
sampling power of the Hospital IQR Program validation process. A 
commenter also noted its trust that CMS will ensure data privacy and 
abide by all security and privacy requirements, as CMS has historically 
been an excellent steward to ensure data privacy and security in its 
quality programs.
    Response: We thank the commenters for the support.
    Comment: Many commenters opposed the proposed NHSN data access 
policy for validation purposes. Many of these commenters expressed the 
opinion that access to patient-level data was not needed for validation 
because CMS already has a validation process.
    Response: We would like to clarify why we need access to these NHSN 
data for validation. Although commenters correctly point out that we 
already have an HAI validation process, the current validation process 
is inefficient, does not provide timely information for the validation-
related appeals process, and does not give hospitals all the 
information that would be useful to them.
    One example of how validation could improve in efficiency is by 
providing the CMS' clinical data abstraction center (CDAC) contractor 
with access to data regarding which symptoms a patient experienced in 
order to meet the requirements for reporting a particular type of HAI 
event. In validating a single quarter of 2013 HAI data, CDAC 
encountered more than 30 episodes-of-care in which the hospital 
reported an event to NHSN and for which CDAC did not find a reportable 
infection during its medical record review. In these situations, CDAC 
employs quality controls to ensure that its staff have not overlooked 
or misinterpreted important documentation. However, HAI records 
selected for validation are on average more than 1,000 pages in length, 
with maximum page length above 60,000 pages. Having information about 
which symptoms CDAC should be looking for and on what dates catheters 
were inserted would greatly assist the CDAC in ensuring that a properly 
documented and reported HAI was not overlooked, and that the hospital 
was credited appropriately. Without this data access, we rely on 
hospitals to request an educational review or appeal cases to identify 
any potential CDAC errors, thereby increasing inefficiencies and burden 
for hospitals.
    Another reason we need direct access to patient-level NHSN data for 
Hospital IQR Program administration is to support the processing of 
validation-related appeals. A hospital may request from CMS at any time 
an educational review to better understand whether or not CDAC reached 
a correct conclusion during validation. However, a hospital which fails 
to meet Hospital IQR Program validation requirements has 30 days to 
appeal after this determination. Hospitals that fail to meet any 
Hospital IQR Program requirement, including validation, are ineligible 
for the Hospital VBP Program, and therefore, would not contribute to 
Hospital VBP Program performance standards. Because of the tight 
timeframe between the Hospital IQR Program payment determination and 
when Hospital VBP Program benchmarks must be posted, we must process 
Hospital IQR Program appeals very quickly, sometimes in 48 hours or 
less. Taking time at precisely this juncture to verify with CDC what 
was submitted to NHSN as the basis for the appeal is inefficient, and 
threatens timely payment determinations.
    Lastly, under our current validation process, we are unable to 
provide patient-level data element information of hospital reported HAI 
data for mismatched validation cases. We believe that our proposal is 
in part responsive to the commenters in previous rules; those comments 
indicated that we needed to provide hospitals with more detailed HAI 
validation educational feedback (78 FR 50826 through 50827). We believe 
that this patient-level information is necessary to provide specific 
and actionable feedback to hospitals to report more accurate HAI data 
for CMS programs. For example, if CDAC can explain to a hospital that a 
patient did have the infection symptoms that the hospital reported to 
NHSN, but that the symptoms (and therefore, the infection) first 
occurred too long after a catheter was removed, the hospital would have 
a clearer explanation of why an infection was reported incorrectly. 
Moreover, by accessing NHSN data at the patient-level for every 
required reporting element, CDAC can review the accuracy of data 
reporting to NHSN at the data-element level and provide all of this 
feedback to hospitals. When CDAC validates clinical process-of-care 
measures, CDAC reviews and provides feedback to hospitals for every 
data element submitted to the Hospital IQR Program. CDAC is unable to 
provide a comparable level of feedback to hospitals for HAI measures, 
because it does not have access to patient-level data at the element-
level.
    Comment: Many commenters stated that the proposal to access patient 
name and race submitted on a voluntary basis as particularly 
objectionable. Some commenters questioned why patient name and race 
were needed for validation. A few commenters noted that this patient 
identifiable information would not be particularly useful because it is 
not available for every patient. A few commenters wanted to know why 
CMS needed data on non-Medicare beneficiaries. A few commenters stated 
that CMS should observe whether the new requirement to link data using 
Medicare Beneficiary ID for validation is helpful before instituting 
new policies. One commenter asked how frequently CMS failed to match 
validation cases on Medicare Beneficiary ID number.
    Response: Our past validation experience indicates that accessing 
patient race and name data for validation will allow CDAC to match 
validation cases that lack Medicare beneficiary numbers with a higher 
level of confidence. If we cannot access these data, a hospital might 
have to request an educational review or appeal to determine that we 
made an inappropriate mismatch. We believe that this approach is much 
less efficient and more burdensome to hospitals than using the patient 
name and race data

[[Page 50261]]

from NHSN where available to confirm the match. The policy requiring 
hospitals to report Medicare beneficiary identification numbers to NHSN 
is first effective for HAIs occurring in patients discharged in quarter 
3, 2014 (78 FR 50822). We do not agree with commenters who indicated 
that we should wait until we implement this policy because of the 
number of patients with HAIs who are not receiving Medicare who will be 
impacted. We anticipate that there will be many cases that lack 
Medicare beneficiary identification numbers, because a large percentage 
of the 5 HAIs reportable to NHSN as part of the Hospital IQR Program 
occur among patients under 65 years of age. For infections reported in 
2013, the percentage of events reported for patients under 65 years of 
age ranged from a low of 44 percent for laboratory-identified 
Clostridium difficile (CDI) events to a high of 64 percent for surgical 
site infections (SSI). In these instances without Medicare beneficiary 
numbers, it would be helpful to have other data, such as name and race 
where available, in order to more effectively match validation cases.
    We agree that patient race and name data is not available for every 
patient. We believe that this information would be more useful if it 
were required and not voluntary. We will discuss this with CDC and take 
the suggestion under consideration for future rulemaking, considering 
both the burden of added requirements as well as the potential 
benefits. For the present, we believe that the available patient race 
and name data will greatly assist in identification of medical records 
required for CMS validation submission, and CMS' matching of validation 
medical records to NHSN reported infection events. Regarding data for 
non-Medicare beneficiaries, we remind commenters that the Hospital IQR 
Program requires quality data that encompasses all-payer patients (both 
Medicare beneficiaries and those not participating in Medicare). 
Therefore, data from all patients must be validated.
    Comment: Some commenters asked CMS to clarify: (1) how it intends 
to use patient-level data for program evaluation, and (2) why 
aggregate-level data cannot be used for this purpose. Some commenters 
stated that CMS should only use aggregate-level data for program 
evaluation. Several commenters observed that patient name and race 
would have limited usefulness because these data are submitted 
voluntarily and are not available for all submitted cases. One 
commenter wanted to know what CMS meant by the phrase ``as appropriate 
for program evaluation.''
    Response: We are collecting data from NHSN using our authority to 
collect these data for validation purposes. For purposes of Hospital 
IQR Program data program administration, including validation and 
appeals, like all data we collect for that purpose, we intend to use 
that data more broadly to meet goals of the Hospital IQR and VBP 
Programs including measure and program evaluation. Measure and program 
evaluation are two key components of administering a public reporting 
program. We intend to use patient-level data for program evaluation to 
assess the impact of quality measures used in the Hospital IQR and 
Hospital VBP Programs and determine whether either program may have 
unintended consequences as we already do with other non-NHSN measures 
data.
    Aggregate-level data have limited effectiveness for program 
evaluation, because they do not have a strong predictive power nor 
allow for multivariate statistical modeling. On the other hand, 
patient-level data provides us with much greater predictive power and 
the capability to perform multivariate statistical modeling through 
matching this data across all quality measures, including HAI measures. 
Such analyses provide additional information about the validity and 
impact of individual measures included in the Hospital IQR Program. For 
example, information from the same group of patients must be matched at 
the individual patient-level for the SCIP process-of-care antibiotic 
administration, PSI-90 component claims, and HAI measures to assess 
correlation among measure results. Such analyses provide additional 
information about the validity of individual measures included in the 
Hospital IQR Program, and also assist with assessing the relative 
impact of different types of measures on the distribution of Hospital 
VBP Program performance scores. These types of analyses provide 
actionable data to determine whether either program may have unintended 
consequences, including disproportionately penalizing hospitals serving 
the poor and vulnerable.
    Patient level data on race and Hispanic ethnicity are particularly 
important for evaluating any potential unintended consequences related 
to poor and vulnerable populations. Aggregate level analyses have 
limited predictive power and lack the level of detail needed to 
evaluate whether program initiatives have had unintended consequences 
in contributing to disparities both within and across hospitals as well 
as disparities associated with specific populations. We intend to use 
patient-level information, as well as race and Hispanic origin 
information where available, to improve the accuracy of categorizing 
safety net hospitals in our impact analysis. However, we agree with the 
concerns of some of the commenters that the patient race and ethnicity 
data may be of limited usefulness because it may be reported by too few 
hospitals. This is why we described the use of these voluntarily 
reported data ``as appropriate''. In the routine course of analysis, we 
intend to evaluate the level of completeness of the voluntarily 
submitted patient race and Hispanic ethnicity data, and its 
appropriateness for the specific analyses designed to evaluate the 
impact of the HVBP Program on safety net hospitals.
    Comment: Several commenters expressed concern about specific uses 
for patient-level access to NHSN data. A few indicated that CMS should 
not access patient-level NHSN data to produce standardized infection 
ratios (SIRs) to post on Hospital Compare. CDC currently performs this 
role and these commenters believe that CDC should continue to do so. 
One commenter expressed concern that CMS would misuse or misinterpret 
data to reduce hospital payment rates.
    Response: We agree with commenters that CDC effectively produces 
SIRs and should continue to provide these data to us to post on the 
Hospital Compare Web site, and that it would be duplicative for us to 
perform this work. We do not intend to perform these analyses and will 
not use the data in ways that reduce an individual hospital's payment 
rates.
    Comment: Several commenters viewed CDC as housing the only 
``credible'' experts on NHSN data collection and analysis, such that if 
CMS used these data to produce trends, evaluate and update NHSN measure 
specifications, or conduct data mining activities, the results might be 
incorrect, misleading, or not scientifically valid.
    Response: We recognize that CDC is the measure steward for NHSN 
data, and uniquely understands the intricacies of NHSN data collection. 
We do not intend to independently update NHSN measure specifications 
and would only make changes in response to CDC updates. Such changes 
would be subject to our substantive and nonsubstantive changes policy 
(see 77 FR 53504). We also would not conduct data mining activities. 
The measure steward, CDC, is responsible for updating measure 
specifications. We would invite CDC to provide feedback on any NHSN 
quality trend data we

[[Page 50262]]

produce for Hospital IQR or Hospital VBP Program evaluation purposes.
    Comment: Several commenters viewed any analyses that CMS might 
conduct as potentially duplicative with CDC efforts and therefore, 
wasteful of resources. One commenter asserted that CDC should conduct 
validation instead of CMS.
    Response: Our intention to access and use NHSN data does not 
constitute redundant or duplicative efforts with the CDC. CDC produces 
national and hospital level HAI SIRs for NHSN, and also provides CMS 
with hospital-specific data for reporting on Hospital Compare. We 
intend to continue using CDC reported HAI SIRs.
    Further, the CDC does not validate these measures for purposes of 
the Hospital IQR Program. CMS has both the authority and the 
responsibility to conduct validation activities under section 
1886(b)(3)(B)(viii)(XI) of the Act. We are statutorily responsible with 
auditing a number of hospitals to ensure the validity of the reporting 
program. Our validation process provides hospitals with a single 
standardized national process and provides hospitals in the validation 
sample with actionable and specific patient-level, confidential 
feedback on mismatched patient-level validation results in order to 
improve accuracy.
    We might consider contracting with CDC to conduct such validation 
in future years if we determine that CDC is interested in conducting 
validation for the Hospital IQR Program and could do so more 
efficiently than CMS. However, any validation process that CMS would 
undertake would have to be standardized nationally and employ quality 
assurance standards such as assessing inter-abstractor reliability. 
CDC's current validation strategy, which involves providing technical 
assistance to states conducting validation, is not nationally 
standardized.\116\ It therefore does not meet CMS' needs to ensure 
accuracy of HAI measure data using a standardized and nationwide 
process.
---------------------------------------------------------------------------

    \116\ National Healthcare Safety Network (NHSN) Validation 
Guidance and Toolkit 2012. Validation for Central Line-Associated 
Bloodstream Infection (CLABSI) in ICUS. http://www.cdc.gov/nhsn/toolkit/validation-clabsi/, last accessed 7/29/2014.
---------------------------------------------------------------------------

    Comment: Many commenters questioned whether CMS had rights to the 
data, and stated that CMS access would violate the confidentiality 
agreement between hospitals and NHSN, or indicated that the data being 
required and accessed exceeded those needed to measure performance as 
posted on Hospital Compare. Several commenters indicated that CMS 
should justify its need for specific data elements, arguing that CMS 
should require and access the minimum data needed to meet its goals.
    Response: We believe that our responsibility encompasses more than 
merely measuring quality performance. As described above in this 
section, we have both the authority and the responsibility to conduct 
validation of the data for the Hospital IQR Program. Furthermore, we 
wish to clarify that this policy does not constitute an expansion of 
reporting requirements, because we would access data that hospitals are 
already required to submit to meet Hospital IQR Program requirements.
    In addition, our policy to access data required by the Hospital IQR 
Program also does not violate the confidentiality agreement between 
facilities and the CDC. The confidentiality agreement signed by 
facilities specifically indicates that one purpose for the data 
submitted to NHSN is to ``enable healthcare facilities to report HAI 
and prevention practice adherence data via NHSN to the U.S. Centers for 
Medicare and Medicaid Services (CMS) in fulfillment of CMS's quality 
measurement reporting requirements for those data.'' We would only be 
accessing data reported to fulfill Hospital IQR Program requirements, 
and therefore, would not violate the confidentiality agreement.
    We agree with commenters that data collection requirements should 
be kept to the minimum necessary to meet quality measurement goals, and 
that each data element collected should be justified.
    Using our authority and responsibility to access data needed to 
administer the Hospital IQR Program including by performing validation 
and appeals, we intend to access and store only the minimum data for 
any of the particular analysis of the types described above. However, 
given the varied analytical requirements for validation and appeals, 
and the frequency with which CDC makes small changes are made to NHSN 
specifications, we believe it would be impractical to provide a data 
element by data element rationale in a regulation.
    Comment: Many commenters expressed concerns about security for this 
highly sensitive and confidential data. Many commenters wanted to know 
whether CMS or its contractors would access the data, and how CMS would 
prevent inadvertent disclosures or privacy breaches. One commenter 
specifically wanted to know how the data would be transferred and how 
long it would be stored.
    Response: It is our intention that our staff as well as contractors 
would request access to data submitted via the NHSN for the purposes of 
administering the Hospital IQR Program. In accessing data submitted via 
the NHSN, we would uphold the same privacy and security standards we 
use for other quality measures data submitted directly to us. For 
example, we would comply with all applicable requirements of the Health 
Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy 
and Security Rules to safeguard and limit the use and disclosure of the 
information we access and obtain through the NHSN, as well as require 
through HIPAA business associate agreements that our contractors do the 
same.
    We have several options for securely transferring data. For 
example, the Secure Transfer Protocol on QualityNet has secure transfer 
capabilities that ensure encryption of both the data and the 
transmission process. We will collaborate closely with CDC to ensure 
that we minimize the number of requests made for data. We will store 
data according to the CMS Center for Clinical Standards and Quality 
standard operating procedure for retention of records, which calls for 
retention of data for 10 years.
    Comment: A few of the commenters opposing CMS' proposed data access 
policy urged CMS to work with CDC to support activities that increase 
accuracy through education, validation, and widespread adoption of 
electronic health records with ``infection decision and support 
software.''
    Response: As described above and further below, we conduct data 
validation and would like to do more to educate hospitals about data 
accuracy. This would require better access to NHSN data as proposed in 
this policy. We will consider the recommendation regarding infection 
decision and support software for future policy development in concert 
with our other efforts and incentives to promote EHR adoption.
    After considering public comments we received, we are finalizing 
the policy to access NHSN data as proposed.
11. 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

[[Page 50263]]

payment determinations in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50822 through 50835). In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28219) for the FY 2017 payment determination and subsequent years, we 
proposed 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 proposed 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 
proposed 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 proposed 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 invited public comment on this proposal.
    Comment: Several commenters supported CMS' proposal to change the 
definition of validation-eligible hospitals because it allows more 
flexibility in the timing to draw the sample, allows alignment of the 
HAI and chart-abstracted validation timeframes, and provides hospitals 
with more time to submit HAI validation templates.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing this policy as proposed.
b. Number of Charts To Be Submitted per Hospital for Validation
(1) Background
    In the sections that follow, we discuss our proposals 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 proposed 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).
(2) 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). In the FY 2015 IPPS/LTCH 
PPS proposed rule (79 FR 28248) for the FY 2017 payment determination 
and subsequent years, we proposed 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,

[[Page 50264]]

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.
    Comment: Many commenters supported the decrease in the number of 
charts required for validation.
    Response: We thank the commenters for their support.
    Comment: Several commenters opposed CMS' proposed changes to the 
chart-abstracted data validation process. The commenters were concerned 
that hospitals were more likely to fail as a consequence of the policy. 
One commenter suggested a two-stage process, under which the initial 
sample size for clinical process of care charts would be small, but a 
hospital failing validation would be invited to submit additional 
charts. The validation score for the combined larger pool of charts 
then would be used for determining whether the hospital has failed 
validation. Since only a small number of hospitals fail validation, 
this would be an efficient strategy. Some commenters also said that 
hospitals needed more feedback on these chart-abstracted measures.
    Response: We disagree that the proposed policy to decrease sample 
size will increase the likelihood that one or more individual hospitals 
will fail validation. As explained in the proposal above, a hospital 
fails validation when the upper bound for its two-tailed 90 percent 
confidence interval is less than 75 percent. For any hospital that 
submits data at a given level of reliability, the only two factors that 
would affect how likely the upper bound of the confidence interval is 
to be less than that reliability standard are (1) the level of 
reliability selected for the standard, and (2) the confidence level. We 
did not propose to change either the standard level of reliability 
(currently 75 percent) or the confidence level of the upper bound 
(currently 90 percent) (77 FR 53551). Therefore, the likelihood that 
hospitals fail validation will not increase by decreasing sample size.
    Currently, a high percentage of hospitals pass, and we anticipate 
that the same percentages of hospitals would continue to pass, but 
acknowledge that the width of the confidence interval would increase 
due to decreased sample size. As stated in our proposal, we anticipate 
that additional hospitals would be eligible for targeted selection for 
validation in the following year. This targeting process is quite 
similar to the recommendation made by the commenter. We will take into 
consideration for future rulemaking the remainder of the commenter's 
recommendations to combine scores across the first and second samples 
to produce a final passing or failing score.
    We also appreciate that the commenters would like more data on 
these chart-abstracted, clinical process-of-care cases. However, our 
proposal reflects our best efforts to balance the cost and burden 
against the desire for more detailed feedback. Moreover, some of the 
measures that have been in the program for a long time are reported 
very accurately. For these measures, only minimal feedback is needed. 
We intend to summarize national validation results and provide 
educational training for hospitals to incorporate the lessons learned 
to address the most frequently occurring validation mismatches. We 
believe it would be wasteful to increase resources simply to verify the 
accuracy of the measures that are already being reported well.
    After consideration of the public comments we received, we are 
finalizing our proposal to require hospitals selected for Hospital IQR 
Program validation to submit 18 patient charts per quarter for a total 
of 72 charts per year as proposed.
(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). In the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28248) for the FY 2017 payment determination and subsequent 
years, we proposed 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 proposed 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 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 we spend about 4 times as much money per 
chart to validate HAIs as clinical process-of-care measures. Moreover, 
the clinical process-of-care measures are still a critical part of the 
Hospital IQR Program.
    Therefore, we 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 invited public comment on these proposals.
    Comment: Many commenters supported this proposal. Most commenters 
supported the proposed mix of HAI and clinical process of care cases.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal that of the 18 charts proposed to be submitted 
per quarter, 10 charts would be submitted to validate HAI measures and 
8 charts would be submitted to validate clinical process-of-care 
measures as proposed.
(3) HAI Validation: Measures and Measure-Specific Sample Sizes
    In the FY 2014 IPPS/LTCH PPS 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.

[[Page 50265]]

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. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28248) we 
did not propose to change the process for validating individual 
measures.
    However, as described above in this section, we proposed 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 proposed 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
----------------------------------------------------------------------------------------------------------------
                                                                                      Charts/        Number of
                  HAI                      Number of hospitals       Number of       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
    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
----------------------------------------------------------------------------------------------------------------
                                                                                      Charts/        Number of
                  HAI                      Number of hospitals       Number of       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 invited public comment on this proposal.
    Comment: Many commenters expressed general support for validation 
provisions.
    Response: We thank commenters for their support.
    Comment: One commenter asked CMS to provide a rationale as to why 
CDAC assesses over-reporting of CLABSI and CAUTI events to NHSN. The 
commenter further wanted to know whether the purpose of validation is 
``to determine if the hospital knows how to read and understand the 
measure specifications and report accordingly or to assist the 
hospitals in identifying processes and procedures needed to reduce the 
rates and improve quality of care.''
    Response: We have both the authority and the responsibility to 
conduct validation activities under section 1886(b)(3)(B)(viii)(XI) of 
the Act. We are statutorily responsible with auditing a number of 
hospitals to ensure the accuracy of the reported data. This includes 
verifying the accuracy of data reported to NHSN. We look to confirm 
that all events that should have been reported were reported and all 
events that should not have been reported were not.
    An important factor for increasing accuracy is ensuring that 
hospitals know how to read and understand measure specifications and 
report them accordingly. Because hospitals have a financial 
disincentive to erroneously report more infections than actually 
occurred in their hospitals, education and feedback about these types 
of errors can benefit hospitals.
    After consideration of the public comments we received, we are 
finalizing our proposal to increase measure-specific sample size 
targets by 1 chart per quarter for the FY 2017 payment determination 
and subsequent years as proposed.
(4) Clinical Process of Care Measures: Topic Areas and Sample Design
    As discussed above in this section, we proposed 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 (than immunization) Hospital 
IQR Program clinical process-of-care topic areas overlap with measures 
proposed for inclusion in the FY 2017 Hospital VBP Program. Regardless, 
in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28249 through 28250) 
we did not propose to target those topic areas for the following 
reasons. One of these

[[Page 50266]]

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 Discharge 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 
proposed 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 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 
Hospital IQR Program-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.\117\
---------------------------------------------------------------------------

    \117\ 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 invited public comment on these proposals.
    Because of the close relationship between this proposal and the one 
immediately below, we provide one consolidated set of comments and 
final policy for the two sections together at the end of the next 
proposal.
(5) Immunization Measure Validation
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28250) we 
proposed 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.
    Comment: Many commenters supported the proposed policies to drop 
the measures that are topped-out from the validation process, and to 
divide the quarterly clinical process-of-care sample of 8 charts per 
hospital into a systematic random sample of 5 charts of all required 
topic areas other than immunization and perinatal care and a second 
sample of 3 immunization charts because of the importance of 
immunization to the Hospital VBP Program.
    Response: We thank these commenters for their support.
    Comment: A few commenters opposed the proposed policy to have 3 
charts dedicated to immunization each quarter. These commenters 
observed that the IMM-2 measure only has meaning in the months of 
October through March, when hospitals are

[[Page 50267]]

expected to immunize patients. Therefore, in 2 of the 4 quarters, the 
only data element available to validate would be the patient's 
discharge date. Because discharge date is not a measure of care 
quality, validating this element alone would not yield meaningful 
results. These commenters requested further clarification on the 
proposed methodology. For example, the commenters asked if ED 
Throughput (EDT) would be validated on those charts instead. A 
commenter asked if CMS will validate EDT on every IMM chart, since 
hospitals use the same population to sample cases for both measures.
    Response: We had not considered the seasonal nature of this measure 
when we proposed this policy, and that very limited data would be 
available for 2 of the 4 quarters included in validation for this 
measure. We agree that it would be wasteful to validate 6 cases per 
year (or 3 cases per quarter for 2 quarters) per hospital during a time 
period which we know will not contain any meaningful data.
    We will address this concern by finalizing a modified version of 
our proposal as follows. We will not sample any records for the IMM 
topic area in the quarters when the IMM-2 measure does not yield 
meaningful data and increase the number of IMM records sampled in the 
quarters during which this measure does yield meaningful data. In other 
words, for quarters 4 and 1 for each hospital included in validation, 
we will draw a quarterly random sample of 5 charts for validation for 
the IMM topic area and a quarterly systematic random sample of 3 charts 
in the ``other'' category. In quarters 2 and 3, when the IMM-2 measure 
does not apply, we will draw a systematic random sample of 8 charts 
from the ``other'' category. As established in the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50822 through 50825), the quarters to be included 
in validation for the FY 2017 payment determination are quarters 3 and 
4, 2014 and quarters 1 and 2, 2015. In quarters 3 and 4, 2014, the 
topic areas that will be in the ``other'' stratum are: AMI, ED, HF, PN, 
SCIP, STK, and VTE. In quarters 1 and 2, 2015, the topic areas that 
will be in the ``other'' category are: AMI, ED, SCIP, STK, VTE, and 
sepsis.
    We did not propose to validate the same cases for EDT and IMM, 
because EDT measures are not also finalized for the Hospital VBP 
Program. We disagree that making a one-for-one substitution of EDT for 
IMM cases would be an appropriate substitution, because unlike the IMM 
measure set, which contains a measure finalized in the Hospital VBP 
Program, the EDT topic area is not inherently more important than any 
other required topic area in the Hospital IQR Program.
    Comment: A few commenters expressed concern that CMS intended to 
drop some required measure sets from validation in its ``other'' 
systematic random sample, and/or suggested that CMS continue validating 
chart-abstracted data for all measures sets that are part of the 
Hospital IQR and Hospital VBP Programs. In addition, several commenters 
noted that the ``other'' sample would include the ED, STK, VTE, and 
sepsis measures in validation.
    Response: We agree that all required measure sets should be 
included in validation to the extent that this is operationally 
feasible. In our weighting proposal below in this section, we 
identified the topic areas containing required measures other than 
Immunization and Perinatal Care only for quarters 1 and 2, in CY 2015 
and inadvertently omitted HF, PN, and SCIP. However, we explicitly 
proposed to include a generic category so that we would not be required 
to revise our validation strategy every time a new topic area was added 
or deleted from the Hospital IQR Program measure set. Further, we 
included all CY 2014 Hospital IQR Program measures, including HF, PN, 
and SCIP, in our table above in this section, ``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 
discharge periods.'' We thank the commenter for the opportunity to 
clarify this ambiguity that we had no intention of dropping these 
measures from validation, and that in fact, as reflected in the Table 
above in quarters 3 and 4, 2014, these topic areas would meet the 
definition of the ``other'' category because they contain Hospital IQR 
Program required measures other than immunization and perinatal care.
    We appreciate the commenter's concern and wish to reiterate that we 
proposed to draw a systematic random sample of records from ``topic 
areas containing required measures aside from those in the immunization 
and perinatal care topic areas.'' For example, the HF, PN, and SCIP 
topic areas include measures that are required for the Hospital IQR 
Program in quarters 3 and 4, 2014, which are part of validation for the 
FY 2017 payment determination. Therefore, the HF, PN, and SCIP measure 
sets would fall into the ``other'' category in these quarters. However, 
these topics are not included in the Hospital IQR Program in 2015 
because they met ``topped-out'' criteria and therefore, they would not 
fall into the ``other'' category in quarters 1 and 2, 2015.
    Comment: A few other commenters opposed validation of the VTE, STK, 
or sepsis measures. These commenters opposed validation of the VTE or 
STK measures because they believed that the measure specifications were 
of poor quality. These commenters wanted to know how CMS would ensure 
the clarity of TJC-developed specifications. Those commenters opposing 
validation of the sepsis measure observed that because it was new, 
hospitals were inexperienced with reporting it.
    Response: Although we appreciate that the measure specifications 
could be clearer for the VTE and STK measures and that the sepsis 
measure is new, all of these measures are NQF-endorsed and are 
finalized in the Hospital IQR Program. Any lack of clarity regarding 
the meaning of VTE and STK measure specifications and the inexperience 
of hospitals with the sepsis measures appear to be good reasons to 
provide hospitals with education and feedback on the data quality of 
these measures.
    We believe that the potential adverse impact to any individual 
hospital of validating measures in the VTE, STK, and Sepsis topic areas 
to be very small. In contrast, we believe that combining the validation 
data in these topic areas across all hospitals will provide the 
Hospital IQR Program and hospitals with rich information about the 
quality of data and needs for education and improved specifications.
    After consideration of public comments we received, we are 
modifying both our proposals 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 containing required measures aside from 
those in the immunization and perinatal care topic areas, and our 
proposal that 3 of the 8 total patient charts each quarter are to be 
targeted from the Immunization topic area. The modification takes into 
consideration the seasonal nature of the IMM measure set and is 
otherwise consistent with our proposals to sample 8 clinical process of 
care charts per quarter and to validate the IMM topic area separately 
from other topic areas because of its importance to the Hospital VBP 
Program.
    We are finalizing a modified policy as follows. In quarters 4 and 
1, for each hospital included in validation, we will draw a quarterly 
random sample of 5 charts for validation of the IMM topic area and a 
quarterly systematic random sample of 3 charts in the ``other''

[[Page 50268]]

category. In quarters 2 and 3, for each hospital included in 
validation, we will draw a quarterly systematic random sample of 8 
charts from all topic areas containing required measures other than 
immunization and perinatal care.
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. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28250) we 
did not propose any changes to those established policies.
    However, for the FY 2017 payment determination and subsequent 
years, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28250 through 
28251) we proposed 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 final 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 final rule (the 
Hospital VBP Program and the HAC Reduction Program, respectively), we 
discuss our proposals 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 discuss our proposal 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. In the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28250 through 28251) for the FY 2017 payment 
determination and subsequent years, we proposed 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 proposed 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 proposed 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 proposed 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 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
------------------------------------------------------------------------
Healthcare-associated infection (HAI).................              66.7
Immunization (IMM)....................................              22.2
Other (all clinical process of care topic areas                     11.1
 containing required measures other than IMM and
 Perinatal Care)......................................
                                                       -----------------
    Total.............................................               100
------------------------------------------------------------------------

    Previously, the clinical process-of-care measures accounted for 20 
percent of the Hospital VBP Program score, whereas the HAI measures, 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 have 
proposed 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

[[Page 50269]]

patient charts were sampled and data were abstracted.
    We invited public comment on these proposals.
    Comment: Many commenters supported the proposals to increase the 
weight of HAI measures, to decrease the weight of process of care 
measures, and to weight the immunization measure more heavily than 
other clinical process of care measures when computing a hospital's 
validation score.
    Response: We thank the commenters for their support.
    Comment: A few commenters opposed the proposal to weight the IMM 
measure more heavily than other clinical process-of-care measures 
because of the seasonal nature of the measure. These commenters 
suggested that weighting the EDT measure more heavily might be 
appropriate.
    Response: We have addressed the commenters' concern by finalizing a 
policy to validate IMM data only in-season (we refer readers to section 
IX.A.11.b.(5) of the preamble of this final rule, above). Having made 
this policy adjustment above in this section, we believe that weighting 
IMM more heavily than other clinical process of care measures because 
of its importance to the Hospital VBP Program is still appropriate. The 
EDT measure is not included in the Hospital VBP Program; so it should 
not count more than any other process-of-care measures.
    After consideration of the public comments we received, we are 
finalizing our policy to weight the ``IMM'' clinical topic area twice 
as heavily and all other topic areas combined of the clinical process-
of-care score as proposed with final weights of 66.7% for HAI, 22.2% 
for IMM, and 11.1% for all topic areas containing required clinical 
process of care measures other than IMM and perinatal care.
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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28251) we 
proposed 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 proposed 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 invited public comment on this proposal.
    Comment: A few commenters strongly supported the proposal to expand 
the transmission options for patient medical records, specifically the 
option to submit pdfs via the QualityNet Web site. The commenters 
believed this action will streamline the validation process and reduce 
the burden on hospitals.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our policy to allow hospitals to submit digital images 
(PDFs) of patient charts using a Secure File Transfer Portal on the 
QualityNet Web site as proposed.
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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28251 through 
28253) we did not propose any requirements for validation of electronic 
clinical quality measures for the FY 2017 payment determination. 
However, we stated that 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. Hospitals that volunteer to participate must meet the 
Medicare EHR Incentive Program Stage 2 criteria (77 FR 53968 through 
54162) 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 (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

[[Page 50270]]

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, we will, with our contractors:
     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 final rule. We posted on QualityNet a detailed draft 
of the operational procedures that volunteer hospitals will be expected 
to follow during the public comment period at https://www.qualitynet.org under ``Data Validation Resources.'' 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.
 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.
------------------------------------------------------------------------


[[Page 50271]]

    We invited public comment on this voluntary pilot test for 
validation.
    Because of the close relationship of comments for this policy and 
the request for information that follows, we respond to comments for 
both after the next paragraph.
    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 invited 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 we 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 invited comments any other 
types of applications that would be useful for self-validation.
    Comment: Many commenters expressed concern that there is no 
proposed validation process for the electronic clinical quality 
measures, or that the validation strategy that CMS proposed is still in 
its initial stages. These commenters opposed CMS' use of electronic 
clinical quality measure data that has not been validated and proven to 
be reliable for public reporting or pay-for-performance. Some 
commenters are pleased that CMS has taken steps to validate electronic 
clinical quality measures data, but believed that all measures used in 
public reporting and pay-for-performance programs should be subject to 
data validation, and noted that failure to do so will eliminate any 
benefit of electronic clinical quality measures.
    Response: We understand commenters' concerns regarding use of 
electronic clinical quality measure data that is not validated and 
proven reliable for public reporting or pay-for-performance. We note 
that although we have signaled target dates for requiring hospitals to 
report electronic clinical quality measure validation requirements in 
the Hospital IQR Program, we have not proposed, nor are we finalizing 
any formal requirements to report electronically specified measures at 
this time. We recognize that validation is a major concern for many 
stakeholders interested in electronic clinical quality measure 
reporting and will take these comments into consideration for future 
rulemaking.
    Comment: Many commenters expressed general support for CMS' efforts 
towards a voluntary pilot test for EHR validation. Some commenters 
encouraged CMS to complete this process quickly. Several of these 
commenters encouraged CMS to publicly report the results of the pilot 
to allow hospitals and vendors to implement processes to support 
electronic clinical quality measure validation.
    Response: We intend to complete pilot activities in CY 2015. We 
also intend to publicly report aggregated results from the pilot, while 
protecting the confidentiality of individual providers and patients.
    Comment: Many commenters advocated for greater collaboration in the 
electronic clinical quality measure validation process. Several 
commenters suggested that CMS work with other federal agencies and 
private sector experts to develop the protocols and testing 
environments needed to begin validation of electronic clinical quality 
measures. Other commenters emphasized the important role of the vendor 
in the validation pilot. A few commenters specifically observed that 
the validation plan does not ``reflect the significant role of EHR 
vendors in this effort,'' and/or that vendors need to be engaged so 
that hospitals are prepared to participate in the pilot, including 
being prepared to produce QRDA-1 files on demand in real-time. One 
commenter specifically recommended that the pilot should only include 
functional requirements that are required in Stage 2, 2014 Edition 
certification.
    Response: We recognize the importance of engaging vendors, federal 
partners, and other private sector experts in the validation process, 
and we intend to do so going forward. We intend to reach out to vendors 
prior to implementation of the pilot to compare current product 
capabilities relative to pilot requirements. As described in our 
proposed policy, the only requirements for participation are that 
hospitals must meet the Medicare EHR Incentive Program Stage 2 criteria 
(77 FR 53968 through 54162) and be able to produce QRDA Category 1 
Release 2 extracted data (individual patient data) for at least 6 of 
the 16 measures in the STK, VTE, ED, and PC topic areas. We realize 
that this may limit participation of hospitals who qualify for 
meaningful use based on reporting of other measures. Our proposed 
policy does not require that hospitals are able to produce QRDA-1 files 
in real time, only that hospitals are able to produce these files.
    We have instructed the CDAC contractor to be very flexible so that 
if a hospital cannot produce QRDA-1 files or the measures of interest 
in real-time, but can provide them later, our contractor will accept 
them later during the pilot project data collection period. Similarly, 
we have directed CDAC to work out a flexible process if some hospitals 
are not able to generate patient lists for the ED, STK, VTE, or PC 
measure sets in real time. We intend to revise our pilot data 
collection materials to reflect that flexibility. We are not aware of 
any other specific functional requirements in the pilot materials 
proposed that are not part of stage 2, 2014 edition certification. We 
believe that we can complete outreach and collaborative activities 
before and after the validation pilot within the framework of the 
policy we have proposed.
    During the pilot itself, we will allow CDAC to engage with the 
vendor with the hospital's permission, and can do so within the 
confines of the policy as proposed. However, we will not reimburse 
vendors. As we describe in the burden section XIII.B.6. of the preamble 
of this final rule, we will limit reimbursement to hospitals for the 
costs associated with one staff person participating for up to 16 hours 
and costs associated with providing medical records. We believe this is 
reasonable as it is in the business interests of vendors to support 
hospitals that need QRDA Category-1 files.
    Comment: Most commenters believe that the validation pilot should 
accommodate a comparison of chart-abstracted and electronic clinical 
quality measure outcomes for the same measures, and/or that CMS should 
clarify whether it will evaluate whether the intent of the chart-
abstracted and electronic clinical quality measures are the same.
    In contrast, several commenters specifically noted that one should 
not expect the same result from a manual process (which allows for 
differences in documentation practices, judgment, and error and 
accommodates data from multiple sources) as from an electronic process 
which extracts data from a ``defined specific data element location,'' 
or that the processes for electronic clinical quality measure 
validation should be ``independent'' from validation of chart-
abstracted measures. One of these commenters also advised that CMS 
acknowledge the role of customization in creating variability

[[Page 50272]]

in records and that data can be unstructured in the EHR and that 
provider documentation can vary and still support the intent of the 
measure.
    Response: We understand that although the purpose of validation for 
chart-abstracted and electronic clinical quality measures are the same, 
the outcomes of validation may be different for many reasons, including 
what was described by the commenter above. We agree with commenters 
that our validation process should also include a comparison of chart-
abstracted and electronic clinical quality measure outcomes for the 
same measures and will add this to our electronic clinical quality 
measures validation pilot as finalized below.
    We also are aware that hospitals may customize software in ways 
that create reporting errors and that individual providers may create 
errors by using the software in a manner other than that intended by 
the manufacturer. We understand, from a scoring perspective, that we 
can only hold vendors and hospitals accountable for achieving an 
outcome that should be generated based on existing standards and 
specifications. In addition to problems that may arise because of 
misalignment or errors in standards or specifications, we also are 
aware that hospitals may customize software in ways that create errors 
and that individual providers may create errors by using the software 
in a manner other than intended. We did not include a proposal for 
scoring individual hospitals, because we are aware that vendors have no 
choice but to code to existing specifications and standards. We intend 
to partner with stakeholders to assist in interpreting results and help 
develop a validation strategy that addresses these issues.
    We also understand that provider documentation may vary, be located 
in unstructured fields, and still support the measure. We intend that 
our validation pilot will be able to distinguish among these many 
different threats to accuracy as well as identify times when 
variability in documentation does not threaten accuracy. We further 
believe that the pilot will be a rich source of information about all 
of these scenarios.
    Comment: A few commenters raised issues related to the questions 
included in the detailed participation pilot materials posted on 
QualityNet describing the EHR walkthrough process. One commenter 
recommended that CMS include vendors as a source of information for 
many of the questions in the interview document that CMS posted on the 
QualityNet Web site to document the methodology we proposed to use for 
the validation pilot as noted in CMS' proposal. This commenter also 
requested additional guidance on the purpose of these questions and 
their relation to the outcome of the pilot and encouraged us to develop 
a final process that minimized burden to providers and the health 
system. One commenter recommended that the electronic clinical quality 
measure data validation pilot exclude assessment of EHR features, 
focusing instead on the health data of the EHR.
    Response: We assume that when the first commenter was requesting 
guidance on the Electronically Specified Clinical Quality Measures 
Program Walk-through and Interview Document, the commenter was 
referring to questions related to ``acceptability of remote technology 
for validation'' as the other questions have a very clear relationship 
to the range of technical issues that this commenter raised in relation 
to electronic clinical quality measure validation generally. This 
section on ``acceptability of remote technology for validation'' 
includes the questions assessing EHR features that one commenter 
suggested we remove. We agree that vendors may be a better source of 
information for these questions, and therefore, intend to remove 
questions 9-12 based on the comments received. The purpose of the 
remaining questions in this section is to gauge the general level of 
acceptability of the approach that we are piloting, and to judge how 
many hours of staff time hospitals would be willing and capable of 
dedicating to validation activities to support to ensure reliable 
electronic clinical quality measure data. We intend to retain questions 
6-8 and 13-15, because we would value hospitals' opinions about these 
ideas.
    Comment: Several commenters urged CMS to implement the 
recommendations of a March 2014 GAO report to ``develop a comprehensive 
strategy for ensuring that data collected and reported using certified 
EHR technology are reliable, including testing for and mitigation of 
reliability issues arising from variance in certified EHR systems 
tested to different CQM specifications.'' \118\
---------------------------------------------------------------------------

    \118\ Electronic Health Record Programs: Participation Has 
Increased, but Action Needed to Achieve Goals, Including Improved 
Quality of Care: Report to Congressional Committees. (GAO 
Publication No. GAO-14-207). Retrieved from U.S. Government 
Accountability Office: http://www.gao.gov/assets/670/661399.pdf.
---------------------------------------------------------------------------

    Response: We agree that reliability of data collected and reported 
using certified EHR technology is critical. As proposed, our validation 
pilot is intended to develop a methodology that achieves that goal. We 
intend to address problems arising from the fact that certified EHR 
systems may have been tested to specifications issued in different 
years, by only including in the pilot only those data certified to 2014 
specifications. We will take the recommendations of the GAO report as a 
whole into consideration in future policy-making.
    Comment: One commenter specifically wanted to know how the 
validation pilot would align with Meaningful Use specifications when 
the QRDA does not take into account any information from scanned 
documents, text, and documentation added at a later time.
    Response: We understand that Meaningful Use specifications require 
that QRDA files extract data only from structured fields and therefore, 
the QRDA does not take into account data from scanned documents, text, 
and documentation added at a later time. Our proposed validation 
strategy was developed to acknowledge that because the QRDA does not 
take into account data from scanned documents, text, and documentation 
added at a later time, even the perfect EHR system could produce 
clinically meaningless validation results in contrast to chart-
abstracted validation. In addition, as described above in this section, 
many commenters have observed errors in standards and specifications. 
By employing CDAC to look at the entire content of the record during 
our validation process, as we have described in our proposal, we hope 
to be able to identify those situations in which the calculated measure 
does not produce results consistent with the intent of the measure. We 
recognize that our validation pilot test may uncover problems that are 
not the fault of the provider, hospital, or developer, which is one of 
the goals of this pilot. We note that we have not proposed a process 
for scoring hospitals based on validation findings.
    Comment: One commenter requested further details regarding what 
controls will be put into place to allow CDAC to remotely view records 
in real-time.
    Response: The process that we intend to use to access medical 
records remotely contains several important controls to prevent 
unauthorized access to hospital systems. We clarify that access would 
be pursuant to a request by CDAC for the minimum necessary access to 
such records that includes an assertion of CDAC's legal authority 
(including the applicable basis(-es) under HIPAA) for such access. The 
Bomgar software that we intend to use is installed on a secure CMS-
owned

[[Page 50273]]

system that has safeguards in place in accordance with the HIPAA 
Security Rule to protect sensitive patient data. The Bomgar software is 
configured to transmit all information exchanged during the medical 
record review through CMS-owned hardware at a secure facility. All 
information needed to access hospital systems remotely is guarded by 
strong HTTPS secure socket layer (SSL) encryption, which protects the 
information as it is transmitted from the hospital to the CDAC. This 
hardware and software, which CDAC will use to access medical records 
remotely, will not store any information about the medical records 
themselves. Only a limited number of CDAC personnel, authorized by CMS, 
will have access to the Bomgar device. For more information, see: video 
http://www.bomgar.com/products/security.
    In addition, CDAC contractors employ security controls to protect 
medical record information as follows: (1) all screen captures saved 
and QRDA files received by CDAC contractors are controlled and 
monitored according to security standards established by the National 
Institute of Standards and Technology (NIST); \119\ (2) all Protected 
Health Information (PHI) is encrypted on all CDAC servers; and (3) 
firewalls and servers are monitored by CMS security contractors. Only a 
limited number of CDAC personnel have been granted access to view any 
PHI. These CDAC personnel undergo background checks and undergo privacy 
and security training prior to being issued passwords to view records 
containing PHI. All of these security controls are audited in 
compliance with CMS Security Standards.\120\
---------------------------------------------------------------------------

    \119\ http://csrc.nist.gov/, last accessed 7/17/2014.
    \120\ https://www.cms.gov/Research-Statistics-Data-and-Systems/CMS-Information-Technology/InformationSecurity/index.html?redirect=/informationsecurity, last accessed 7/17/2014.
---------------------------------------------------------------------------

    Comment: One commenter who supported CMS' validation plan for 
electronic clinical quality measures also agreed ``that the development 
or identification of existing computerized applications that can assist 
hospitals in self-validation and functionalities will be useful in 
self-validation of eCQMs.'' The commenter believed this process could 
take the place of the current internal inter-rater reliability (IRR) 
efforts (on abstracted data) and ensure accurate data capture 
practices.
    Response: We will consider this suggestion to develop tools to 
replace more labor-intensive quality control efforts such as inter-
rater reliability efforts (that is, comparing chart-abstracted results 
from two different abstractors) in development of future policies.
    We thank the commenters for their comments. We will consider them 
as we develop plans to validate electronic clinical quality measure 
data.
    After consideration of public comments on our proposal to conduct a 
validation pilot test for electronically specified measures in FY 2015, 
we are finalizing the policy as proposed with a few minor 
modifications.
    We will compare results generated from QRDA-1 files with data from 
up to 10 sources identified through chart-abstraction as proposed. In 
addition, we will compare measure outcomes abstracted from electronic 
clinical quality measure specifications to those abstracted according 
to chart-abstracted specifications. Also, we plan to remove the 
questions related to ``acceptability of remote technology for 
validation'' and to EHR functionality from the ``Electronically 
Specified Clinical Quality Measures Program Walk-through and 
Interview'' document and reflect our intended flexible approach to 
accommodate hospitals that cannot produce patient lists or QRDA-1 files 
in real time as long as submissions can occur during the data 
collection period for the pilot project. We also intend to reach out to 
stakeholders to collaborate in preparing for the pilot and interpreting 
results after the pilot.
f. 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 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).
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28242 through 
28243) for the FY 2017 payment determination, we proposed 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.

----------------------------------------------------------------------------------------------------------------
                                                                                              Available data
       Short name              Measure name         NQF number       NQS domain \121\        submission modes
----------------------------------------------------------------------------------------------------------------
ED-1....................  Median time from ED        NQF 0495   Engagement.             quality measure or
                           departure for                                                   chart-abstracted.
                           admitted ED patients.
ED-2....................  Admit Decision Time to     NQF 0497   Engagement.             quality measure or
                           Admitted Patients.                                              chart-abstracted.

[[Page 50274]]

 
PC-01...................  Elective delivery          NQF 0469   Effectiveness.          quality measure or
                           aggregate, submitted                                            chart-abstracted
                           via Web-based tool or                                           aggregated with Web-
                           electronic clinical                                             based submission.
                           quality measure).
Stroke-2................  Discharged on              NQF 0435   Effectiveness.          clinical quality
                           therapy.                                                        measure.
Stroke-3................  Anticoagulation            NQF 0436   Effectiveness.          clinical quality
                           fibrillation/flutter.                                           measure.
Stroke-4................  Thrombolytic therapy..     NQF 0437   Effectiveness.          quality measure or
                                                                                           chart-abstracted.
Stroke-5................  Antithrombotic therapy     NQF 0438   Effectiveness.          clinical quality
                           hospital day two.                                               measure.
Stroke-6................  Discharged on statin       NQF 0439   Effectiveness.          quality measure or
                                                                                           chart-abstracted.
Stroke-8................  Stroke education......             N/A  Patient and Family      Electronic clinical
                                                                   Engagement.             quality measure or
                                                                                           chart-abstracted.
Stroke-10...............  Assessed for               NQF 0441                           clinical quality
                                                                                           measure.
VTE-1...................  Venous thromboembolism     NQF 0371                           quality measure or
                                                                                           chart-abstracted.
VTE-2...................  Intensive care unit        NQF 0372                           quality measure or
                           thromboembolism                                                 chart-abstracted.
                           prophylaxis.
VTE-3...................  Venous thromboembolism     NQF 0373   Effectiveness.          quality measure or
                           anticoagulation                                                 chart-abstracted.
                           overlap therapy.
VTE-4...................  Patients receiving un-             N/A  Clinical Process/       Voluntary electronic
                           fractionated Heparin                    Effectiveness.          clinical quality
                           with doses/labs                                                 measure.
                           monitored by protocol.
VTE-5...................  VTE discharge                      N/A  Patient and Family      Electronic clinical
                           instructions.                           Engagement.             quality measure or
                                                                                           chart-abstracted.
VTE-6...................  Incidence of                       N/A  Patient Safety........  Electronic clinical
                           potentially                                                     quality measure or
                           preventable VTE.                                                chart-abstracted.
AMI-2...................  Aspirin Prescribed at      NQF 0142   Effectiveness.          clinical quality
                                                                                           measure.
AMI-7a..................  Fibrinolytic Therapy       NQF 0164   Effectiveness.          quality measure or
                           minutes of Hospital                                             chart-abstracted.
                           Arrival.
AMI-8a..................  Primary PCI Received       NQF 0163   Effectiveness.          clinical quality
                           Hospital Arrival.                                               measure.
AMI-10..................  Statin Prescribed at       NQF 0639   Effectiveness.          clinical quality
                                                                                           measure.
PN-6....................  Initial Antibiotic         NQF 0147   Healthcare Resources.   clinical quality
                           community-acquired                                              measure.
                           pneumonia (CAP) in
                           Immunocompetent
                           Patients.
SCIP-Inf-1a.............  Prophylactic               NQF 0527                           clinical quality
                           Within One Hour Prior                                           measure.
                           to Surgical Incision.
SCIP-Inf-2a.............  Prophylactic               NQF 0528   Healthcare Resources.   clinical quality
                           for Surgical Patients.                                          measure.
SCIP-Inf-9..............  Urinary catheter           NQF 0453                           clinical quality
                           Postoperative Day 1                                             measure.
                           (POD 1) or
                           Postoperative Day 2
                           (POD 2) with day of
                           surgery being day
                           zero.
PC-05...................  Exclusive Breast Milk      NQF 0480   Effectiveness.          clinical quality
                           subset measure PC-05a                                           measure.
                           Exclusive Breast Milk
                           Feeding Considering
                           Mother[acute]s Choice.
EHDI-1a.................  Hearing Screening          NQF 1354   Effectiveness.          clinical quality
                           Discharge.                                                      measure.
CAC-3...................  Home Management Plan               N/A  Patient and Family      Voluntary electronic
                           of Care (HMPC)                          Engagement.             clinical quality
                           Document Given to                                               measure.
                           Patient/Caregiver.
HTN.....................  Healthy Term Newborn..     NQF 0716                           clinical quality
                                                                                           measure.
----------------------------------------------------------------------------------------------------------------
\121\ Medicare EHR Incentive Program Stage 2 final rule (77 FR 54083 through 54087).

    Comment: A commenter requested clarification regarding whether 
hospitals are required to report on the ED-1 and ED-2 measures for FY 
2015. If hospitals are required to report on these measures, the 
commenter would like clarification regarding whether the data must be 
submitted electronically as opposed to chart-abstracted.
    Response: ED-1 and ED-2 are shown as voluntary electronic clinical 
quality measures in the table on 79 FR 28242, but are not identified as 
voluntary measures in the table on 79 FR 28241. We would like to 
clarify that both ED-1 and ED-2 are required measures that can be 
submitted either as chart-abstracted measures or as electronic clinical 
quality measures under the voluntary reporting option.
    For the FY 2017 payment determination, we also proposed 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 proposed to

[[Page 50275]]

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 final 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
----------------------------------------------------------------------------------------------------------------
        CY 2015 quarter                Reporting period (2015)               Proposed submission deadline
----------------------------------------------------------------------------------------------------------------
1.............................  January 1-March 31..................  May 30, 2015.
2.............................  April 1-June 30.....................  Aug 30, 2015.
3.............................  July 1-September 30.................  Nov 30, 2015.
4.............................  October 1-December 31...............  Feb 28, 2016.
----------------------------------------------------------------------------------------------------------------

    As an incentive for hospitals to voluntarily submit electronic 
clinical quality measures, we proposed that for the FY 2017 payment 
determination, hospitals successfully submitting electronic clinical 
quality measures according to our procedures will not have to validate 
those measures by submitting chart-abstracted data.
    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.
    We invited public comment on this proposal.
    Comment: One commenter requested that CMS allow hospitals to 
electronically report data for one calendar quarter instead of an 
entire CY.
    Response: We refer readers to section IX.A.2.h.(1) of the preamble 
of this final rule where we are finalizing a modification of our 
proposal, which will only require one CY quarter of electronic clinical 
quality measure data for those hospitals that elect to participate in 
the voluntary electronic clinical quality measures reporting option.
    Comment: A commenter supported the inclusion of voluntary reporting 
for certain electronic clinical quality measures for the Hospital IQR 
Program, and noted that voluntary reporting allows hospitals to be 
better prepared for submitting new quality measures from EHRs and to 
correct any operational issues that arise. Another commenter supported 
the long-term goal of using EHRs to streamline and reduce the burden of 
quality reporting while increasing access to real-time information to 
improve care and patient outcomes. One commenter supported the proposal 
that hospitals electronically report a full year of data on the 12 
Hospital IQR Program measures that overlap with the 2014 Medicare EHR 
Incentive Program measures.
    Response: We thank the commenters for their support and, as noted 
in the response above, we have modified in our finalized policy the 
number of quarters of data to be reported by those hospitals that elect 
to participate in the voluntary electronic clinical quality measures 
reporting option.
    Comment: One commenter requested clarification on whether the 
deadlines for submitting chart-abstracted measures remain the same 
given the proposal for requiring data submission within 60 days after 
the calendar year quarter ends for electronic clinical quality 
measures. Commenters also stated that the shortened time frame for 
reporting measure data poses a burden on facilities and increases the 
possibility of errors, which could affect measure scores and, 
therefore, payment.
    Response: We would like to clarify that we did not propose any 
changes to the submission requirements for chart-abstracted measures 
(79 FR 28245). We retained the 4\1/2\ months quarterly submission 
deadline (78 FR 50811). In addition, we are not finalizing the 60 day 
quarterly submission deadline for electronic clinical quality measures. 
We refer readers to section IX.A.2.h.(1) of the preamble of this final 
rule where this is discussed in more detail.
    Comment: Some commenters supported the alignment of measures and 
reporting requirements and timelines across quality reporting and 
incentive programs, specifically noting that this alignment would 
reduce hospital's administrative burden and confusion, uses the later 
Hospital IQR Program deadlines, reduce the number of quarters required 
until the transition is complete, and does not delay incentive 
payments. Some commenters argued that CMS' timeline for alignment is 
aggressive and requested CMS give hospitals time to comply with this 
requirement. Commenters noted that EHRs are not ready for year two of 
Stage 1 meaningful use criteria or Stage 2 meaningful use criteria.
    Other commenters opposed CMS' proposal to require Q4 2014 and Q1 
2015 data submission by May 15, 2015, stating that it does not provide 
enough time for data submission, particularly for hospitals that 
conduct manual chart abstraction.
    Response: We thank the commenters for supporting our proposal to 
align reporting between the Hospital IQR Program and the Medicare EHR 
Incentive Program. We proposed to begin aligning the reporting periods 
between the two programs beginning with the CY 2015 reporting period. 
We believe some commenters may have confused the proposed electronic 
clinical quality measure requirements of the Medicare EHR Incentive 
Program with the proposed electronic clinical quality measure 
submission requirements for the Hospital IQR Program.
    We proposed for the Hospital IQR Program, that hospitals choosing 
to submit electronic clinical quality measures would need to submit all 
four quarters of CY 2015, whereas the Medicare EHR Incentive Program 
proposed to require only the first three quarters of CY 2015 (79 FR 
28245 through 28246). However, we are not finalizing our proposal for 
hospitals to submit electronic clinical quality measures for all four 
quarters for the Hospital IQR Program and are instead finalizing a 
modified policy. We refer readers to section IX.A.2.h.(1) of the 
preamble of this final rule where this is discussed in more detail. We 
recognize that many hospitals have faced challenges moving to the 
latest CQM versions, which is why electronic clinical quality measure 
reporting remains voluntary at this time.
    Comment: One commenter noted that they appreciated the opportunity 
to gain experience with voluntary electronic

[[Page 50276]]

reporting for the Hospital IQR Program before such reporting is made 
mandatory. The commenter also asked that CMS provide further 
explanation on the set of voluntary electronic clinical quality 
measures within the Hospital IQR Program.
    Response: We refer the commenter to the table above listing the 28 
possible electronic clinical quality measures. If a hospital chooses to 
submit electronic clinical quality measures, the hospital must submit 
16 of the 28 possible measures covering three NQS domains. Please note 
that 12 of the 28 measures are measures required in the Hospital IQR 
Program. These 12 measures do cover three NQS domains. We would like to 
clarify that if a hospital chooses to submit electronic clinical 
quality measures, chart-abstraction of those submitted measures is not 
necessary.
    Comment: One commenter urged CMS to be mindful of safety net 
hospitals' limited resources when proposing new requirements for 
reporting measure data electronically. The commenter advised that 
electronic reporting of quality data requires significant work to 
obtain, validate, and report and that it also requires information 
technology and quality management resources. The commenter stated that 
many hospitals are struggling to meet the current electronic data 
reporting requirements and that additional requirements will increase 
hospital expenses for labor, data analysis, and validation.
    Response: We note that reporting electronic clinical quality 
measure data remains voluntary for CY 2015 reporting/FY 2017 payment 
determination. We believe that our electronic clinical quality measure 
reporting voluntary reporting option is not unduly burdensome to 
hospitals, and will allow hospital an opportunity to prepare for 
electronic reporting of quality measure data. As data becomes more 
standardized, it is expected that provider burden will decrease over 
time. In addition, we have modified our proposal for CY 2015 so that 
for those hospitals choosing to submit electronic clinical quality 
measures, only one quarter of data submission is necessary to meet the 
Hospital IQR Program requirement. We want to clarify that we have not 
made proposals for CY 2016 electronic clinical quality measure 
reporting/FY 2018 payment determination. These will be addressed in 
future rulemaking.
    Comment: One commenter raised concern that participation in the 
voluntary electronic clinical quality measure program under the 
Hospital IQR Program would be low and would therefore, not provide the 
data to inform future policy direction. In order to make the voluntary 
electronic clinical quality measure program more attractive to 
hospitals, the commenter recommended that CMS work with payers and 
quality assurance organizations to further align measure sets, provide 
electronic clinical quality measure specifications at least nine months 
before each relevant reporting period, allow providers to post or omit 
electronically-generated electronic clinical quality measure data to 
Hospital Compare, and either require only one-quarter of electronic 
clinical quality measure data in order to fulfill EHR MU and Hospital 
IQR Program requirements, or incorporate a robust logic model to 
monitor and evaluate the burdens and benefits associated with more 
frequent reporting.
    Response: We are actively working with measure developers/stewards 
to align measure sets and revise measure specifications, as needed. 
Issues identified by measure stakeholders should be reported to ONC's 
JIRA tool at: http://jira.oncprojectracking.org/browse/CQM where all 
stakeholders can comment and follow the progress of the issue. 
Electronic clinical quality measure specifications are published/
updated annually at: http://cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/eCQM_Library.html. Also, we are 
modifying our proposal so that for those hospitals choosing to submit 
electronic clinical quality measures, only one quarter of data 
submission is necessary to meet the Hospital IQR Program requirements. 
We refer readers to section IX.A.2.h.(1) of the preamble of this final 
rule where this is discussed in more detail.
    After consideration of the public comments we received, we are 
finalizing our proposals with some modifications. We are finalizing our 
policy for hospitals that chose to participate in the voluntary 
electronic reporting option in CY 2015 must report any 16 of the 28 
measures across 3 NQS domains as proposed. We are also finalizing that 
we will only accept the April 2014 version of the measure 
specifications for CY 2015 reporting/FY 2017 payment determination. 
Policies for electronic clinical quality measure reporting in CY 2016 
and subsequent years will be made in future rulemaking. We are 
finalizing a modified version of our proposal to expand the reporting 
requirement of electronic clinical quality measures to require a full 
year's data collection to only requiring one quarter's worth of data. 
In addition, we are finalizing a modified version of our proposal to 
require data submission within approximately 60 days after the end of a 
calendar year quarter to require submission of CY Q1, Q2, or Q3 data by 
November 30, 2015. We refer readers to section IX.A.2.h.(1) of the 
preamble of this final rule for a more detailed discussion.
    We note that hospitals choosing to report at least one quarter of 
quality measure data electronically are not required, but are 
encouraged, to also submit the same data via chart-abstraction. We 
understand that many hospitals may be submitting chart-abstracted 
quality measure data to TJC so the reporting burden would not be 
increased. Hospitals will gain experience in understanding the 
differences in the submission methods.
    Hospitals voluntarily submitting electronically specified clinical 
quality measures will utilize their existing QualityNet account to 
submit electronic quality measure data.
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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28253) we did not 
propose any changes to DACA form requirements.
    We did not invite public comment regarding DACA requirements, but 
received one comment that we are addressing below.
    Comment: One commenter expressed concerns that the Data Accuracy 
and Completeness Acknowledgement statement for hospitals does not 
provide a means for hospitals to indicate to CMS any errors they have 
discovered in their quality reporting throughout the year. The 
commenter observed that a hospital may discover in the fourth quarter 
an error in the data that was submitted in the first quarter of the 
year, but the DACA only permits a `Yes' or `No' response regarding 
whether all of the data was complete and accurate to the best of their 
knowledge at the time of submission, which does not provide a means for 
fixing any errors. The commenter observed that there also should be a 
process for fixing such errors from prior years.
    Response: We currently provide a review and correction process for 
Hospital IQR Program process of care, HAI, and HCAHPS data during the 
submission period. Hospitals can review their measure rate before the 
submission deadline, and can review patient-level data to correct any 
identified errors on

[[Page 50277]]

previously submitted data. We strongly encourage hospitals to closely 
review their Hospital IQR Program measure and patient feedback reports 
to detect these errors before the submission deadline. We do not allow 
patient-level data correction after the submission deadline or for 
previous years. We must set a deadline to ensure timely computation of 
measure rates, Hospital VBP performance scores and payment adjustment 
factors.
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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28253) we did not 
propose any changes to public display requirements.
14. Reconsideration and Appeal Procedures for the FY 2017 Payment 
Determination and Subsequent Years
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51650 through 51651), the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50836), and at 42 CFR 412.140(e) for details on reconsideration and 
appeal procedures for the FY 2017 payment determination and subsequent 
years.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28253) we did not 
propose any changes to the reconsideration and appeals procedures.
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. In the 
FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28253) we did not propose 
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 proposed 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 that 
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 proposed to revise this language to state that 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.
    We did not receive any public comments on this proposal and we are 
finalizing this policy as proposed.

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) of the Act 
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'' or ``PCHs''). 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 
health care quality measurement and reporting through its consensus 
development processes. We have generally adopted NQF-endorsed measures 
in our reporting programs.
    However, section 1866(k)(3)(B) of the Act provides an exception. 
Specifically, it provides that, in the case of a specified area or 
medical topic determined appropriate by the Secretary for which a 
feasible and practical measure has not been endorsed by the entity with 
a contract under section 1890(a) of the Act, the Secretary may specify 
a measure that is not so endorsed as long as due consideration is given 
to measures that have been endorsed or adopted by a consensus 
organization identified by the Secretary.
    Under section 1866(k)(3)(C) of the Act, the Secretary was required 
to publish the measures select 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 had 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 measures of 
processes, structural measures, measures of outcomes, patients' 
perspective on care, efficiency, and costs of care that relate to 
services furnished by PCHs on the CMS Web site.
2. Covered Entities
    Section 1886(d)(1)(B)(v) of the Act excludes particular cancer 
hospitals from payment under the IPPS. This final rule covers only 
those PPS-excluded cancer hospitals meeting eligibility criteria 
specified in 42 CFR 412.23(f).
3. Previously Finalized 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-

[[Page 50278]]

specific process of care measures: (1) Adjuvant chemotherapy is 
considered or administered within 4 months (120 days) of diagnosis 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).
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28254), we did 
not propose to remove or replace any of the previously finalized 
measures from the PCHQR Program for the FY 2017 program and subsequent 
years.
4. Update to the Clinical Process/Oncology Care Measures Beginning With 
the FY 2016 Program
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28254), beginning 
with the FY 2016 program, we proposed 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 increase transparency in 
the health care system and align with State and Federal 
initiatives.\122\ Our proposal to require PCHs to collect all-patient 
data provides us with the data necessary to inform the public 
accurately about 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.
---------------------------------------------------------------------------

    \122\ All-Payer Claims Database (APCD) Fact Sheet; available at: 
http://www.apcdcouncil.org/issue-briefs-and-fact-sheets.
---------------------------------------------------------------------------

    We welcomed public comments on this proposal for the clinical 
process/oncology care measures for the FY 2016 program and subsequent 
years.
    Comment: One commenter supported the proposal to require PCHs to 
report all-patient data for the five clinical process/oncology care 
measures, noting that it is consistent with reporting requirements in 
other CMS quality reporting programs.
    Response: We thank the commenter for its support.
    After consideration of the public comments we received, we are 
finalizing our proposal requiring PCHs to submit all-patient data for 
the five clinical process/oncology care measures beginning with the FY 
2016 program.
5. 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 to reduce 
the burden on participating PCHs 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. New Quality Measure Beginning With the FY 2017 Program
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28254 through 
28456), we proposed to adopt one new clinical effectiveness measure for 
the FY 2017 program and subsequent years: 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 may 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.

[[Page 50279]]

    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 bone 
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.\123\ EBRT can provide significant pain relief in 50 to 80 
percent of patients with painful bone metastases.\124\
---------------------------------------------------------------------------

    \123\ Coleman RE. Metastatic bone disease: clinical features, 
pathophysiology and treatment strategies. Cancer Treat Rev. 
2001;27:165-176.
    \124\ 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 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 unirradiated 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.\125\ Despite the recommendations, the actual 
doses applied for EBRT continue to include dosing schedules as high as 
25 fractions.\126\ 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.\127\
---------------------------------------------------------------------------

    \125\ Ibid.
    \126\ Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=70374.
    \127\ Ibid.
---------------------------------------------------------------------------

    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.\128\ 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.
---------------------------------------------------------------------------

    \128\ 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.
---------------------------------------------------------------------------

    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 
may be found at: http://www.Fqualityforum.Forg/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=70374.
    In summary, in addition to the 18 measures that we have previously 
finalized for the PCHQR Program, we proposed 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. We welcomed public comment on 
this proposal.
    Comment: Several commenters supported the proposed EBRT for bone 
metastases measure, noting that it aims to address the variation in 
practice patterns for using radiation therapy for palliative care and 
promotes improved quality of inpatient care provided to Medicare 
beneficiaries. However, the commenters encouraged CMS to conduct a 
performance gap analysis of radiation therapy practice that is specific 
to the PCH setting.
    Response: We thank the commenters for their support. Radiation 
therapy is a common treatment modality for some cancers, and the ASTRO 
Task Force (2009) found that the literature demonstrates widespread 
variation in palliative radiation dose fractionation schedules. Because 
of this variation, we believe it is important to protect patient safety 
in the PCH setting by addressing potentially unnecessary and harmful 
radiation doses. We understand that PCHs, specifically, provide EBRT 
services, and we believe that the ASTRO Task Force findings demonstrate 
that the EBRT for bone metastases measure is relevant and appropriate 
for the PCH setting.
    We agree with the commenters' suggestions that we conduct a 
``performance gap analysis'' to assess the appropriateness of the EBRT 
measure in the PCH setting. We intend to conduct that analysis when we 
have collected data beginning with the FY 2017 PCHQR Program.
    Comment: One commenter supported the adoption of the EBRT for bone 
metastases measure but recommended that CMS revise the measure to 
include a broader population of patients receiving radiation therapy.
    Response: We appreciate the commenter's feedback. The measure is 
NQF-endorsed for the population described in the specifications. We 
will continue to work closely with ASTRO to assess the current clinical 
evidence base for the broader PCH population. We will consider 
incorporating any future measure updates supported by clinical 
evidence.
    After consideration of the public comments we received, we are 
finalizing the EBRT for bone metastases measure for the FY 2017 program 
and subsequent years.
    The table below lists all previously adopted measures as well as 
the finalized measure for the PCHQR Program for the FY 2017 program and 
subsequent years.

[[Page 50280]]



   PCHQR Program Measures for the FY 2017 Program and Subsequent Years
            [Including measure finalized in this final rule]
------------------------------------------------------------------------
                                  Topic
-------------------------------------------------------------------------
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 Diagnosis to Patients
     Under the Age of 80 with AJCC III (lymph node positive) Colon
     Cancer \*\
     (NQF #0559) Combination Chemotherapy is Considered
     or Administered Within 4 Months (120 days) of Diagnosis for Women
     Under 70 with AJCC T1c, or Stage II or III Hormone Receptor
     Negative Breast Cancer \*\
     (NQF #0220) Adjuvant Hormonal Therapy \*\
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.
** Finalized for the FY 2017 program and subsequent years in this final
  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 
we intend to consider 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 welcomed public comments 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.
    Comment: Several commenters supported the types of measures that 
CMS stated its intent to adopt for the PCHQR Program, specifically 
measures that take into account the use of novel treatments and 
diagnostic tests, noting that CMS' approach will ensure that cancer 
patients have appropriate access to new treatments.
    Response: We thank the commenters for their support and will 
consider this feedback for future rulemaking.
    Comment: Several commenters suggested measure topics that CMS 
should consider for future years. They recommended that CMS: (1) 
develop and adopt measures on topics including benign and malignant 
hematology; (2) consider measures that address non-small cell lung 
cancer (NSCLC) treatment; (3) develop measures of risk-adjusted, stage-
specific survival rates for various types of cancer; (4) adopt 
validated outcomes measures over process-based measures; (5) emphasize 
the importance of the HCAHPS survey; and (6) consider palliative care 
measures.
    Response: We appreciate the commenters' suggestions and will 
consider this feedback for future rulemaking. We note that, in the FY 
2014 IPPS/LTCH PPS final rule, we adopted the HCAHPS survey for use in 
the PCHQR Program measure set beginning with the FY 2016 program (78 FR 
50844 through 50845).
    Comment: One commenter supported the measure topics proposed for 
consideration for the PCHQR Program in future years. Several commenters 
also described the importance of ensuring that measures adopted for the 
PCHQR Program be supported by the MAP, tested for their applicability, 
and assessed for potential unintended consequences that may result from 
their use in specific patient populations. Another commenter 
recommended that CMS continue to align measures

[[Page 50281]]

adopted for the PCHQR Program with those in other IPPS quality 
reporting programs.
    Response: We thank the commenters for their support and comments. 
We will consider this feedback in future rulemaking.
    Comment: One commenter commended CMS for focusing attention on 
addressing high priority measure gaps such as outcomes, quality of life 
measures, safety, and overuse of care to be considered for future use 
in the PCHQR Program. The commenter encouraged CMS to coordinate with 
partners in addressing the following challenges: measures that require 
multiple data sources; research that demonstrates gaps in care; and the 
need to develop a ``core'' set of measures for a population with varied 
diagnoses.
    Response: We thank the commenter for its support and will strive 
continually to collaborate with external stakeholders.
    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 also welcomed public comments on the criteria for removal or 
replacement of measures from the PCHQR Program.
    Comment: Several commenters noted that, in the FY 2015 IPPS/LTCH 
PPS proposed rule, CMS proposed to remove nearly all of the SCIP 
measures from the Hospital IQR Program and recommended that CMS 
consider removing the six SCIP measures from the PCHQR Program. 
Commenters also recommended that CMS adopt criteria for determining 
``topped out'' measures and measure removal in future years.
    Response: At this time, we do not have sufficient data to determine 
whether these SCIP measures are ``topped-out'' in the PCH setting. We 
recognize that the PCHQR patient population is exclusively comprised of 
cancer patients, unlike the patient population at acute care hospitals 
that are included in the Hospital IQR Program.
    As a result, we will retain the PCH SCIP measures until we have 
adopted ``topped out'' policy and until we have sufficient data to 
conduct ``topped-out'' analyses in future years and we will continue to 
monitor and evaluate the PCHQR SCIP measures. As noted above, we will 
consider adopting ``topped out'' and other measure removal criteria 
similar to those adopted by other quality reporting programs, including 
the Hospital IQR Program, in future rulemaking.
    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 
are 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 welcomed public comments on the development of electronic 
clinical quality measure reporting criteria for future years.
    Comment: Several commenters supported CMS' proposal to develop 
electronic clinical quality measure reporting criteria for future years 
and recommended that CMS consider the content validity and clinical 
appropriateness of any measures adopted for the PCHQR Program.
    Response: We thank the commenters for their support and will 
consider this feedback in future rulemaking.
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 may 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 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 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. We believe that nonsubstantive 
changes may include updates to measures based upon changes to 
guidelines on 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 are 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 
display publicly PCHQR Program data on the Hospital Compare Web site 
(http://www.hospitalcompare.hhs.gov/) and

[[Page 50282]]

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 diagnosis 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).
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28257), we 
proposed to display publicly in 2015 and subsequent years the data for 
the Adjuvant Hormonal Therapy measure (NQF #0220).
    We also proposed to display publicly 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 occur no later than 2017.
    We invited public comment on these proposals.
    Comment: Commenters recommended that CMS revise the CLABSI, CAUTI, 
and SSI measures to account for cancer-specific risks and consider the 
variation in the cancer patient population case-mix, especially 
regarding the percentage of patients discharged to palliative or 
hospice care, when assessing performance on these measures for public 
display, and recommended that CMS display publicly ICU versus non-ICU 
rates for the CLABSI and CAUTI data.
    Response: We appreciate the commenters' feedback and will consider 
it for future years. We note that the CDC is the measure steward and is 
responsible for maintaining the measure specifications for the CLABSI, 
CAUTI, and SSI measures. CDC works closely with external partners and 
subject-matter experts to develop and maintain NHSN definitions and 
criteria that are both standardized and clinically relevant. A 
concerted effort is made to take into account the heterogeneous patient 
populations that are monitored and tracked using NHSN, cancer patients 
being one of many such populations. However, CDC recognizes that the 
HAI definitions may not account for all heterogeneity and variation 
among the patient populations and will continue to work with subject-
matter experts to gain input and insight on additional criteria that 
are needed to better represent specific populations where possible. In 
addition, now that we have received data specifically from PCHs, those 
data can be reviewed, along with all other NHSN data, when the SIRs are 
to be recalculated to determine baselines based on the FY 2014 program 
year. If strong variations are found, we will consider revising the 
calculation for PCHs.
    Comment: One commenter supported CMS' proposal to delay the display 
of both NHSN CAUTI and CLABSI until no later than 2017 in order to 
ensure that reliable expected rates can be calculated, and recommended 
that CMS evaluate the NHSN SSI data under the same standard.
    Response: We thank the commenter for its support. The main purposes 
of the PCHQR Program are to report publicly quality of care information 
that consumers can use to make decisions about their health care and to 
encourage PCHs to improve their quality of care. Accordingly, we will 
delay public reporting of CLABSI and CAUTI data until no later than 
2017 so that reliable baseline estimates and expected rates can be 
determined. We believe this delay is necessary in order to provide 
meaningful and reliable data available for consumers to make informed 
health care decisions. After considering the comment, we agree that 
this same standard should apply to the SSI measure.
    After consideration of the public comments we received, we are 
finalizing the proposal to display publicly beginning in 2015 the data 
for the Adjuvant Hormonal Therapy measure (NQF #0220), and to 
display publicly the CLABSI and CAUTI data no later than 2017.
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. Reporting Requirements for the New Measure: External Beam 
Radiotherapy for Bone Metastases (NQF #1822) Beginning With the 
FY 2017 Program
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28257 through 
28258), we proposed that PCHs report the External Beam Radiotherapy for 
Bone Metastases (NQF #1822) measure beginning with January 1, 
2015 discharges and for subsequent years. We proposed that PCHs would 
report this measure to us via a CMS Web-based Measures Tool on an 
annual basis (July 1 through 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 PCHs' costs and burden. We believe that these proposed 
dates will provide enough advance notice for PCHs to prepare to report 
the measure.
    We proposed 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 aggregate 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 proposed that PCHs submit aggregate-level 
data through the CMS Web-based Measures

[[Page 50283]]

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 Measures tool.
    We welcomed 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.
    Comment: One commenter requested that CMS provide clarification on 
whether a sampling methodology (including population and sampling 
guidelines) will be permitted for the EBRT for bone metastases measure 
because this approach will lessen the burden on PCHs.
    Response: We agree that an all-patient EBRT sampling methodology 
would provide the public with quality measure data that represents the 
entire patient population of PCHs. We believe that this approach would 
facilitate PCH education through a consistent sampling methodology 
across PCHQR measures. Accordingly, we are finalizing a sampling 
methodology for the EBRT measure in this final rule that is consistent 
with the sampling methodology standards finalized for the clinical 
process/oncology care and SCIP measures. We will incorporate this EBRT 
sampling methodology in the next feasible regularly scheduled PCHQR 
specifications manual semiannual update.
    Comment: One commenter recommended that CMS adopt the same 
reporting requirements proposed for the clinical process/oncology care, 
clinical process/cancer specific treatment, and SCIP measures for the 
new EBRT for bone metastases measure.
    Response: The EBRT for bone metastases reporting proposals (79 FR 
28257) are consistent with the clinical process/oncology care proposals 
(79 FR 28258). These proposals allow two data submission options to 
submit aggregate data: via a CMS Web-based Measures Tool or an 
aggregate data file.
    After consideration of the public comments we received, we are 
finalizing the sampling methodology by allowing PCHs to use the same 
sampling approach that we are finalizing for the clinical process/
oncology care measures (we refer readers to the sampling table found in 
section IX.B.9.d. of the preamble of this final rule (New Sampling 
Methodology for the Clinical Process/Oncology Care Measures Beginning 
with the FY 2016 Program)) for the EBRT measure sampling purposes. In 
addition, we are finalizing our proposed reporting requirements for the 
EBRT measure, beginning with the FY 2017 PCHQR Program. The table below 
outlines the finalized reporting periods and submission timeframes for 
FY 2017, FY 2018, and subsequent years for the EBRT for bone metastases 
measure.

   Finalized 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..................  July 1, 2016-August 15, 2016.
                                (January 1, 2015-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..................  July 1, 2017-August 15, 2017.
                                (January 1, 2016-March 31, 2016)....
                                Q2 2016 discharges..................
                                (April 1, 2016-June 30, 2016).......
                                Q3 2016 discharges..................
                                (July 1, 2016-September 30, 2016)...
                                Q4 2016 discharges..................
                                (October 1, 2016-December 31, 2016).
Subsequent Years..............  Q1 discharges.......................  July 1-August 15 of each year before the
                                (January 1-March 31 of each year 2     program year.
                                 years before the 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. 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
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28258 through 
28259), we proposed to modify the data submission requirements for the 
three clinical process/cancer specific treatment measures 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 PPS 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 proposed 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 was newly proposed for the SCIP and clinical process/
oncology care measure sets, PCHs or their authorized vendors may

[[Page 50284]]

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 was newly proposed for the clinical process/
cancer specific treatment, SCIP, and clinical process/oncology care 
measures, PCHs or their authorized vendors may submit an aggregate data 
file through a CMS secure QualityNet file exchange process. We proposed 
these options in order to decrease the reporting burden for PCHs.
    We believe that the newly proposed submission option, which is 
described further 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.
    In addition, we proposed a second option, allowing PCHs to submit 
an annual aggregate data file stratified by four quarters for each of 
the SCIP measures. We stated that we believed this additional option 
would provide the public with sufficiently reliable quality measure 
information while reducing PCH burden through providing two data 
collection options. We also stated that we would provide detailed 
technical file format specifications on the public QualityNet Web site 
(www.qualitynet.org) following publication of this final rule. We 
outlined the new submission deadlines for the SCIP measures in the 
table below.
    We stated that these 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).
    We invited 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.
    Comment: One commenter supported the proposal to allow two 
reporting options for the clinical process/cancer specific treatment, 
clinical process/oncology care, and SCIP measures. One commenter 
supported the proposal to update the reporting periods and submission 
timelines for the six SCIP measures, noting that the proposal 
simplifies the PCHQR Program's data reporting process.
    Response: We appreciate the commenters' support of this proposal. 
Our intent is to reduce burden and effort and align CMS infrastructure 
where appropriate by offering alternative options for PCHs to submit 
measure data. We are finalizing the two reporting options for the 
clinical process/cancer specific treatment and clinical process/
oncology care measures as proposed. However, the six PCHQR SCIP 
measures, we are only finalizing the second proposed option, under 
which PCHs or their vendors may submit an annual aggregate data file 
stratified by four quarters data via the CMS QualityNet portal.
    We are not finalizing the first proposed option that would have 
allowed PCHs to submit aggregate numerator and denominator data into a 
CMS Web-Based Measures Tool for the SCIP measures because we were 
recently informed by our IT developers that the proposed CMS Web page 
would not be modified to collect aggregate SCIP data by the previously 
finalized January 2015 initial discharge date. As a result, we are 
retaining as a second option for these measures the data submission 
that is currently in place, under which PCHs may submit patient-level 
data to CMS through the QualityNet infrastructure.
    Comment: One commenter expressed concern that the proposed 
submission options for the clinical process/cancer specific treatment 
measures, which allow for a data submission other than through the CMS 
contractor (77 FR 53564) which uses the Commission on Cancer Rapid 
Quality Reporting System (RQRS), could result in declining patient 
outcomes and less PCH accountability.
    Response: We appreciate the commenter's feedback. We strongly 
believe that the vendor submission approach, allowing for vendors to 
submit aggregate data files is consistent across all PCHQR measures and 
other CMS quality reporting programs to submit data on behalf of the 
respective hospital facilities. In addition, we believe this approach 
will greatly reduce reporting burden, minimize duplication of effort, 
and increase efficiency because vendors commonly submit more than one 
measure set at the same time (for example, annually or quarterly) on 
behalf of the facilities.
    Comment: One commenter recommended that CMS update NQF 
#0383 (Oncology: Plan of Care for Pain) to include a minimum 
threshold for pain in the denominator and to provide a more specific 
definition for ``visit'' that includes oncology visits (for example, 
for palliative care). The commenter also recommended all changes to the 
measure specifications of the clinical process/oncology care measures 
be communicated to NQF and PCHs.
    Response: We appreciate the commenter's feedback and will consider 
it in future rulemaking.
    Comment: Several commenters asked CMS to consider whether the SCIP 
measures have been adequately tested in the PCH patient population, 
noting that the measures may inadvertently encourage care that is not 
applicable to the PCH setting. For example, one commenter noted that 
SCIP-Inf-3 requires that prophylactic antibiotics be discontinued 
within 24 hours after surgery end time, but that this approach may not 
be well-suited for oncologic patient populations.
    Response: We note that we have considered the appropriateness of 
these measures for the PCH settings, as the inclusion and exclusion 
criteria for the SCIP measures adopted for the PCHQR Program exclude 
patients from the measure denominator when the care does not apply. For 
example, the SCIP-Inf-3 measure specifications include an exclusion 
criterion for patients with a Reason to Extend Antibiotics. We believe 
it is important to note that the SCIP measures include all cancer 
surgeries (and not limited to orthopedic surgeries) performed by both 
PCHs and many acute care hospitals. We will continue to collaborate 
with PCHs that have questions about the SCIP measures, and to 
incorporate nonsubstantive updates into the PCHQR specifications 
manual.
    After consideration of the public comments we received, we are 
finalizing the proposed reporting requirements for the clinical 
process/cancer specific treatment and clinical process/oncology care 
measures beginning with the FY 2015 and FY 2016 program years 
respectively with one modification. We are not finalizing the CMS Web-
Based Measures Tool (aggregate-level data) for the SCIP measures 
because we are able to leverage the existing patient-level CMS SCIP IT 
collection infrastructure. PCHs may submit the SCIP measures using two 
options: (1) Authorized vendor submission of an aggregate data file 
into the secure CMS QualityNet portal to CMS; or (2) submission of data 
via the secure CMS QualityNet portal. This finalized policy aligns our 
existing reporting infrastructure across the PCHQR Program and other 
CMS quality improvement programs and provides an additional vendor 
option to report SCIP data to CMS.
    The reporting periods and submission timeframes for the clinical 
process/cancer specific treatment and clinical process/oncology care 
measures are

[[Page 50285]]

outlined in the FY 2013 and FY 2014 IPPS/LTCH PPS final rules (77 FR 
53564 and 78 FR 50851, respectively). The table below outlines the 
finalized aggregate data file reporting periods and submission 
timeframes for FY 2016, FY 2017, and subsequent years for the SCIP 
measures. Patient-level SCIP reporting period and data submission 
timeframes are available on the QualityNet Web site (https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=12287737
16091).

   Finalized Six SCIP Measures-Aggregate Data File 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..................  July 1, 2015-August 15, 2015.
                                (January 1, 2015-March 31, 2015)....
2017..........................  Q2 2015 discharges..................  July 1, 2016-August 15, 2016.
                                (April 1, 2015-June 30, 2015).......
                                Q3 2015 discharges..................
                                (July 1, 2015-September 30, 2015)...
                                Q4 2015 discharges..................
                                (October 1, 2015-December 31, 2015).
Subsequent Years..............  Q1 discharges.......................  July 1-August 15 of each year before the
                                (January 1-March 31 of each year 2     program year.
                                 years before the 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).
----------------------------------------------------------------------------------------------------------------

    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28259), we did 
not propose 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. 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. In the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 28259), we proposed 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 proposed 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.\129\ The 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.
---------------------------------------------------------------------------

    \129\ 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 also proposed 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 proposed 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 determine accurately 
their aggregate population and appropriate sample size data in order 
for us to assess PCHs' data reporting accuracy and completeness for 
their total population of cases, including both Medicare and non-
Medicare patients.
    We welcomed public comments on the proposed sampling guidelines and 
proposed population and sample size reporting requirements for the 
clinical process/oncology care measures for the FY 2016 program and 
subsequent years.
    Comment: Several commenters supported the proposal to replace the 
PQRS physician-level sampling methodology with the proposed new 
sampling methodology. However, one commenter requested clarification on 
whether the proposal to collect all-patient data for the clinical 
process/oncology care measures conflicts with the proposed sampling 
methodology and also on whether the sampling methodology is based on 
the number of patients applicable for each measure, or on bed size 
(that is, hospital-level sample size determination).
    Response: We thank the commenters for their support. The term 
``all-patient data'' refers to data regarding both Medicare and non-
Medicare patients. Consistent with the sampling methodology standards 
that we adopted for these measures under the Hospital IQR Program, when 
PCHs identify the

[[Page 50286]]

initial patient population, they will use ``all-patient data'' to 
determine the population of patients meeting the measure criteria prior 
to individual measure denominator exclusions. Thus, the sample will 
include both patients included and excluded from the measure 
denominator. We believe that this sampling methodology reduces 
potential bias in measure rates from sampling all patients included in 
the measure's initial patient population. This initial patient 
population is usually defined by groups of ICD-9-CM principal procedure 
or diagnosis codes, which may be readily identified by PCHs by using 
computer billing records common to Medicare and non-Medicare health 
insurance payers. The PCHs will subsequently identify the sample size 
based on the patient population (``all-patient data''). This sampling 
process is applicable for each clinical process/oncology care measure.
    Comment: One commenter requested that CMS provide the 
specifications for the clinical process/oncology care measures and 
their new sampling method.
    Response: We appreciate the commenter's feedback. We have partnered 
closely with all 11 PCHs and will provide training and education 
materials on all measures, including the clinical process/oncology care 
measures and the applicable proposed sampling methodology. These 
materials will be available on our QualityNet Web site (http://
www.qualitynet.org).
    Comment: One commenter recommended that CMS revise the proposed 
reporting requirements for the clinical process/oncology care measures 
in order to require that reporting of population and sample size counts 
be based on electronically available data only.
    Response: We appreciate the commenter's feedback. We interpret the 
comment to recommend that data be submitted via the CMS Web-based 
Measures Tool only. However, we believe it is most appropriate and 
feasible at this time to provide PCHs with data submission options. We 
also understand from past discussions with PCHs that the 11 PCHs vary 
in their implementation of EHRs. We will consider future available data 
collection options for PCHs, including electronic Clinical Quality 
Measures (eCQMs). We also believe that requiring population and sample 
size count reporting based on electronic data might adversely burden 
PCHs that do not yet have the means to collect electronic data.
    Comment: One commenter recommended that benchmarks for the clinical 
process/oncology care measures be based on statistically significant 
aggregate calculations only.
    Response: We thank the commenter for its feedback. Currently, we do 
not have a policy to develop benchmarks. In our effort to monitor and 
evaluate program growth and sustainability, we will be observing the 
clinical process/oncology care measures baselines and expected rates.
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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28259), we did 
not propose 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 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 avoid 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 the National 
Quality Forum (NQF). Additional information regarding the 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--

[[Page 50287]]

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 Measures Application 
Partnership (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 final 
rule are measures CMS included under the List of Measures under 
Consideration (MUC List) for December 1, 2013,\130\ 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 proposed in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28263 through 28268) 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 final 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., 
Quality Measure: National Healthcare Safety Network (NHSN) Ventilator-
Associated Event (VAE) Outcome Measure.
---------------------------------------------------------------------------

    \130\ 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28259 
through 28278) we proposed measures that are either 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 support, in some cases we proposed measures 
for which the MAP expressed conditional support and that meet the 
exception criteria in section 1886(m)(5)(D)(ii) of the Act. Further 
discussion of why each 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28260), we did 
not propose 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 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28260 through 
28261), we did not propose 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-

[[Page 50288]]

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

    While we did not propose any changes in the FY 2015 IPPS/LTCH PPS 
proposed rule to measure specifications for NQF #0678, Percent 
of Residents or Patients with Pressure Ulcers That Are New or Worsened 
(Short-Stay), we received input from several commenters on this 
measure.
    Comment: A few commenters suggested CMS consider adding a ``present 
on admission'' (POA) indicator in the LTCH Continuity Assessment Record 
and Evaluation (CARE) Data Set. These commenters noted that a POA 
indicator is critical to aid in the determination of whether a pressure 
ulcer was developed as a result of care provided by an LTCH.
    Response: We recognize the importance of determining pressure 
ulcers that are ``present on admission'' and taking this into account 
when assessing new or worsened pressure ulcers in the LTCH setting. The 
quality measure Percent of Residents or Patients with Pressure Ulcers 
That Are New or Worsened (Short-Stay) (NQF #0678), is designed 
to identify pressure ulcers that are present on admission. Items 
M0800A, M0800B, and M0800C on the LTCH CARE Data Set discharge 
assessment capture patient-specific data to identify Stage 2, Stage 3, 
and Stage 4 pressure ulcers that are ``new'' or ``worsened'' since the 
time of admission assessment, thus identifying only those Stage 2, 
Stage 3 and Stage 4 pressure ulcers that were not present on the 
admission assessment and/or only those Stage 2, Stage 3 and Stage 4 
pressure ulcers that were present at a lower stage on the admission 
assessment. We refer readers to the measure specifications for the 
Pressure Ulcer measure, which are available for download at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/ and at www.qualityforum.org/QPS/0678.
    Comment: A commenter recommended that ``behavioral patients'' be 
excluded from the Pressure Ulcer measure. The commenter noted that the 
inclusion of all inpatients regardless of age and any other criteria 
has a significant impact on the reporting burden for LTCHs and that the 
exclusion of behavioral patients would lessen burden on LTCHs because 
these patients do not significantly contributing to the Pressure Ulcer 
measure.
    Response: We appreciate the commenter's input on this previously 
finalized measure. Pressure ulcers are serious medical conditions that 
can lead to serious life threatening infections, can substantially 
increase the cost of care, and are an important measure of quality. As 
a result, we believe that all patients, regardless of their cognitive 
or behavioral health status, should be assessed for pressure ulcer 
risk, and appropriate pressure ulcer monitoring, prevention, and 
management should be implemented for all patients in an LTCH. We refer 
the commenter to the current measure specifications for NQF 
#0678, including patient exclusions and inclusions, available 
at www.qualityforum.org/QPS/0678.
    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
------------------------------------------------------------------------
                                                            Payment
         NQF Measure ID              Measure title       determination
------------------------------------------------------------------------
NQF #1716...............  National            FY 2017 and
                                   Healthcare Safety   Subsequent Years
                                   Network (NHSN)
                                   Facility-Wide
                                   Inpatient
                                   Hospital-Onset
                                   Methicillin-
                                   Resistant
                                   Staphylococcus
                                   aureus (MRSA)
                                   Bacteremia
                                   Outcome Measure.

[[Page 50289]]

 
NQF #1717...............  National            FY 2017 and
                                   Healthcare Safety   Subsequent Years
                                   Network (NHSN)
                                   Facility-Wide
                                   Inpatient
                                   Hospital-Onset
                                   Clostridium
                                   difficile
                                   Infection (CDI)
                                   Outcome Measure.
NQF #2512 (Under Review   All-Cause           FY 2017 and
 at NQF*).                         Unplanned           Subsequent Years
                                   Readmission
                                   Measure for 30
                                   Days
                                   Post[dash]Dischar
                                   ge from Long-Term
                                   Care Hospitals.
Application of NQF #0674  Percent of          FY 2018 and
                                   Residents           Subsequent Years
                                   Experiencing One
                                   or More Falls
                                   with Major Injury
                                   (Long-Stay).
------------------------------------------------------------------------
* Not NQF endorsed, currently under review at NQF, please see: http://www.qualityforum.org/All-Cause_Admissions_and_Readmissions_Measures.aspx

    While we did not propose any changes in the FY 2015 IPPS/LTCH PPS 
proposed rule to measures previously adopted for the FY 2017 payment 
determination and subsequent years, we received input from a few 
commenters regarding three previously finalized measures: NHSN 
Facility-Wide Inpatient Hospital-Onset Methicillin-Resistant 
Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF 
#1716), NHSN Facility-Wide Inpatient Hospital-Onset Clostridium 
difficile Infection (CDI) Outcome Measure (NQF #1717), and All-
Cause Unplanned Readmission Measure for 30 Days Post-Discharge from 
Long-Term Care Hospitals (NQF #2512, under review at NQF). 
While we greatly appreciate the commenters' views on these previously 
finalized measures, we did not make any proposals relating to them in 
the FY 2015 IPPS/LTCH PPS proposed rule. Therefore, we will not 
summarize and address all of these comments in detail in this final 
rule. However, we will consider all of these comments in future 
rulemaking and program development.
    Comment: A commenter supported the inclusion of the MRSA and CDI 
measures in the LTCHQR Program noting that the LTCH patients arrive 
after receiving several weeks of therapy for infections that are 
difficult to treat and therefore have high levels of exposure to 
antibiotics. Another commenter also supported these two measures and 
indicated support for the readmission measure. This commenter urged CMS 
to adopt outcome measures more quickly and suggested that the three 
aforementioned measures finalized for FY 2017 be implemented for FY 
2016.
    Response: We appreciate the commenter's recommendation to adopt the 
measures more quickly than the previously finalized timeline. However, 
in order to ensure adequate time to support successful measure 
implementation across the LTCHs, we believe the previously finalized 
data collection period and submission deadlines are appropriate. We 
refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50880 
through 50882) for more information.
    Comment: A commenter urged CMS to share, on a monthly basis, claims 
data with LTCHs for any patients readmitted within 30 days of the LTCH 
discharge. The commenter noted that providing these data would (1) 
notify LTCHs of readmissions that will affect their quality reporting 
data, and (2) enable LTCHs to identify potential systemic problems and 
implement corrective action plans focused on improving quality of care 
and reducing preventable readmissions.
    Response: We appreciate the commenter's support for this previously 
finalized quality measure. This commenter recommended a quality 
improvement process that is separate from the purpose of the 
readmissions measure. The readmissions measure is intended to report 
statistically robust estimates of standardized readmission rates over a 
particular time, while the commenter recommends an intensive quality 
control process with real time data on specific patients. We will 
consider these quality improvement process recommendations as we move 
forward with the LTCHQR Program and future measure development and 
reporting efforts. To facilitate reduction in readmissions, we 
encourage all LTCHs to conduct appropriate discharge planning and 
follow up with their patients to monitor and ensure high-quality care 
and improved outcomes.
6. Revisions to Data Collection Period and Submission Deadlines for 
Previously Adopted Quality Measures
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28262 through 
28263) we proposed, for the FY 2016 payment determination and 
subsequent years, to revise data collection period 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 also proposed, for the FY 2018 payment determination 
only, revised data collection period 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 the FY 2019 payment determination and subsequent years, data 
collection for this measure would begin on January 1 and continue 
through December 31.
a. Revisions to Data Collection Period 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 sought to better align the data collection period 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 period and submission 
deadlines of the Percent of Residents or Patients with

[[Page 50290]]

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 CARE Data Set. Therefore, for 
the FY 2016 payment determination and subsequent years, in the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28262), we proposed to revise the 
data collection period 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 proposed that the first data collection period 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 period would take place during the first 
quarter of the subsequent CY (for example, January 2015 through March 
2015 for the FY 2016 payment determination), with data submission by 
May 15, 2015.
    The changes are illustrated below for the FY 2016 and FY 2017 
payment determinations only, but similar collection period and 
submission deadlines would also apply to subsequent years. By taking 
into account the influenza vaccination season, these changes would 
align data collection and submission for this measure (NQF 
#0680) with the rest of the LTCH CARE Data Set.

   Data Collection Period 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 period               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 noted that these 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 invited public comments on our proposal to revise the data 
collection period and submission deadlines for this patient influenza 
vaccination measure (NQF #0680) for the FY 2016 payment 
determination and subsequent years. We refer readers to section IX.9.c. 
of the preamble of this final rule for our responses to comments on 
this proposal, as well as our final policy on this proposal.
b. Revisions to Data Collection Period 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 the Application of Percent of Residents Experiencing 
One or More Falls with Major Injury (Long-Stay) (NQF #0674) 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 
FR 28262 through 28263), we noted that 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 proposed that for the FY 2018 payment determination, 
data collection for this measure would begin on April 1, 2016. For all 
subsequent years, data collection for this measure would begin on 
January 1 and continue through December 31. The changes are illustrated 
below for the FY 2018 and FY 2019 payment determinations.

   Data Collection Period 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 period               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...........
----------------------------------------------------------------------------------------------------------------


[[Page 50291]]

    We noted 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 invited public comments on these proposals. We refer readers to 
section IX.9.f. of the preamble of this final rule for our responses to 
comments on these proposals, as well as our final policy on this 
proposal.
7. New LTCHQR Program Quality Measures for the FY 2018 Payment 
Determination and Subsequent Years
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28263 through 
28268), we proposed 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. 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,\131\ 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.''
---------------------------------------------------------------------------

    \131\ 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 
Tool,\132\ which was designed to standardize assessment of patients' 
status across acute and post-acute settings, including LTCHs, inpatient 
rehabilitation facilities (IRFs), skilled nursing facilities (SNFs), 
and home health agencies (HHAs). The functional status items on the 
CARE Tool 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.
---------------------------------------------------------------------------

    \132\ In the FY 2015 IPPS/LTCH PPS proposed rule, we used the 
terms ``CARE Item Set'' and ``CARE Tool'' interchangeably. For the 
purpose of consistency and standardization of terminology, we have 
revised the language to ``CARE Tool'' throughout this FY 2015 IPPS/
LTCH PPS final rule. However, we have retained the term ``CARE Item 
Set'' when citing existing reports.
---------------------------------------------------------------------------

    The development of the CARE Tool 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.'' \133\ 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'' \134\ 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.'' \135\ These 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.
---------------------------------------------------------------------------

    \133\ 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).
    \134\ Ibid.
    \135\ Ibid.
---------------------------------------------------------------------------

    (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
    The first functional status quality measure we proposed 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 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 number of available response 
options for coding the cognition, communication, and bladder items 
ranges from 2 to 7. 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.136 137 138 139 140 141

[[Page 50292]]

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

    \136\ J. Adler and D. Malone, ``Early mobilization in the 
intensive care unit: A systematic review,'' Cardiopulm Phys Ther J 
23, no. 1 (2012).
    \137\ J. P. Kress, ``Clinical trials of early mobilization of 
critically ill patients,'' Crit Care Med 37, no. 10 Suppl (2009).
    \138\ W. D. Schweickert and J. P. Kress, ``Implementing early 
mobilization interventions in mechanically ventilated patients in 
the ICU,'' Chest 140, no. 6 (2011).
    \139\ 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).
    \140\ J. M. Zanni et al., ``Rehabilitation therapy and outcomes 
in acute respiratory failure: an observational pilot project,'' J 
Crit Care 25, no. 2 (2010).
    \141\ 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.\142\ 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,143 144 145 146 muscle atrophy,\147\ connective-
tissue shortening,\148\ loss of bone mass,\149\ increased risk for 
blood clots,\150\ increased risk for pressure ulcers,\151\ 
deconditioning,152 153 deficits in self-care and 
ambulation,\154\ and functional impairment,\155\ fatigue,\156\ as well 
as cognitive impairment, including profound and persistent deficits in 
memory, attention/concentration, and executive 
function,157 158 159 and the inability to return to work one 
year after hospital discharge.160 161 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.\162\ 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,163 164 165 with recovery of function 
being described as both desirable and possible.\166\ The lack of early 
mobility initiation in ICU settings has also been described as a strong 
predictor of patient outcomes.\167\
---------------------------------------------------------------------------

    \142\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \143\ Ibid.
    \144\ S. L. Dang, ``ABCDEs of ICU: Early mobility,'' Crit Care 
Nurs Q 36, no. 2 (2013).
    \145\ 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).
    \146\ 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.
    \147\ Zanni et al., ``Rehabilitation therapy and outcomes in 
acute respiratory failure: an observational pilot project.''
    \148\ Ibid.
    \149\ Dang, ``ABCDEs of ICU: Early mobility.''
    \150\ Ibid.
    \151\ Ibid.
    \152\ Schweickert and Kress, ``Implementing early mobilization 
interventions in mechanically ventilated patients in the ICU.''
    \153\ Zanni et al., ``Rehabilitation therapy and outcomes in 
acute respiratory failure: an observational pilot project.''
    \154\ Adler and Malone, ``Early mobilization in the intensive 
care unit: a systematic review.''
    \155\ Skinner et al., ``Development of a physical function 
outcome measure (PFIT) and a pilot exercise training protocol for 
use in intensive care.''
    \156\ Centre for Clinical Practice at NICE (UK), 
``Rehabilitation after critical illness [Internet].''
    \157\ Ibid.
    \158\ 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).
    \159\ 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).
    \160\ Dang, ``ABCDEs of ICU: Early mobility.''
    \161\ 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).
    \162\ Wilcox et al., ``Cognitive dysfunction in ICU patients: 
Risk factors, predictors, and rehabilitation interventions.''
    \163\ Drolet et al., ``Move to improve: The feasibility of using 
an early mobility protocol to increase ambulation in the intensive 
and intermediate care settings.''
    \164\ Dang, ``ABCDEs of ICU: Early mobility.''
    \165\ Z. Li et al., ``Active mobilization for mechanically 
ventilated patients: A systematic review,'' Arch Phys Med Rehabil 
94, no. 3 (2013).
    \166\ C. L. Rochester, ``Rehabilitation in the intensive care 
unit,'' Semin Respir Crit Care Med 30, no. 6 (2009).
    \167\ Dang, ``ABCDEs of ICU: Early mobility.''
---------------------------------------------------------------------------

    The clinical practice guideline Rehabilitation after Critical 
Illness \168\ 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.
---------------------------------------------------------------------------

    \168\ 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 \169\ 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. \170\ This high utilization of therapy services supports the 
need for standardized functional assessment at admission to document 
functional status, identify the need for therapy, set functional status 
goals and assist with discharge planning and care coordination.
---------------------------------------------------------------------------

    \169\ D. J. Scheinhorn et al., ``Post-ICU mechanical ventilation 
at 23 long-term care hospitals: a multicenter outcomes study,'' 
Chest 131, no. 1 (2007).
    \170\ Ibid.
---------------------------------------------------------------------------

    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 \171\ 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.
---------------------------------------------------------------------------

    \171\ Ibid.
---------------------------------------------------------------------------

    Reported benefits of early mobility and rehabilitation include: (1) 
Improved strength 172 173 174 and functional status; 
175 176 177 (2) earlier achievement

[[Page 50293]]

of mobilization milestones, such as out-of-bed mobilization; 
178 179 (3) improvement in mobility and self-care function 
scores from admission to discharge; 180 181 (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; \182\ 
(5) enhanced recovery of functional exercise capacity; \183\ (6) 
improved self-perceived functional status; \184\ and (7) reduced 
physiological and cognitive complications \185\ and improved cognitive 
function.\186\ Early mobility and rehabilitation have also been 
associated with reduced ICU and hospital length of stay; 
187 188 189 190 191 192 reduced incidence of delirium and 
improved patient awareness; 193 194 increased ventilator-
free days and improved weaning outcomes; 195 196 197 greater 
incidence of discharge home directly after hospitalization compared 
with patients not receiving early mobilization; 198 199 and 
reduced hospital readmission or death in the year following 
hospitalization.200 201
---------------------------------------------------------------------------

    \172\ Schweickert and Kress, ``Implementing early mobilization 
interventions in mechanically ventilated patients in the ICU.''
    \173\ Dang, ``ABCDEs of ICU: Early mobility.''
    \174\ Li et al., ``Active mobilization for mechanically 
ventilated patients: A systematic review.''
    \175\ Adler and Malone, ``Early mobilization in the intensive 
care unit: A systematic review.''
    \176\ Schweickert et al., ``Early physical and occupational 
therapy in mechanically ventilated, critically ill patients: A 
randomised controlled trial.''
    \177\ Li et al., ``Active mobilization for mechanically 
ventilated patients: a systematic review.''
    \178\ Adler and Malone, ``Early mobilization in the intensive 
care unit: A systematic review.''
    \179\ P. E. Morris, ``Moving our critically ill patients: 
Mobility barriers and benefits,'' Crit Care Clin 23, no. 1 (2007).
    \180\ Li et al., ``Active mobilization for mechanically 
ventilated patients: A systematic review.''
    \181\ Scheinhorn et al., ``Post-ICU mechanical ventilation at 23 
long-term care hospitals: A multicenter outcomes study.''
    \182\ Adler and Malone, ``Early mobilization in the intensive 
care unit: A systematic review.''
    \183\ Dang, ``ABCDEs of ICU: Early mobility.''
    \184\ Ibid.
    \185\ Ibid.
    \186\ Li et al., ``Active mobilization for mechanically 
ventilated patients: A systematic review.''
    \187\ Adler and Malone, ``Early mobilization in the intensive 
care unit: A systematic review.''
    \188\ Kress, ``Clinical trials of early mobilization of 
critically ill patients.''
    \189\ Schweickert et al., ``Early physical and occupational 
therapy in mechanically ventilated, critically ill patients: A 
randomised controlled trial.''
    \190\ Dang, ``ABCDEs of ICU: Early mobility.''
    \191\ Engel et al., ``ICU early mobilization: From 
recommendation to implementation at three medical centers.''
    \192\ Li et al., ``Active mobilization for mechanically 
ventilated patients: A systematic review.''
    \193\ Adler and Malone, ``Early mobilization in the intensive 
care unit: A systematic review.''
    \194\ Schweickert et al., ``Early physical and occupational 
therapy in mechanically ventilated, critically ill patients: A 
randomised controlled trial.''
    \195\ Adler and Malone, ``Early mobilization in the intensive 
care unit: A systematic review.''
    \196\ Dang, ``ABCDEs of ICU: Early mobility.''
    \197\ Li et al., ``Active mobilization for mechanically 
ventilated patients: A systematic review.''
    \198\ Schweickert et al., ``Early physical and occupational 
therapy in mechanically ventilated, critically ill patients: A 
randomised controlled trial.''
    \199\ Engel et al., ``ICU early mobilization: From 
recommendation to implementation at three medical centers.''
    \200\ Adler and Malone, ``Early mobilization in the intensive 
care unit: A systematic review.''
    \201\ 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.202 203 204 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.\205\ A longer 
duration of delirium has been associated with worse short- and long-
term cognition and executive function.206 207 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.208 209 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.\210\
---------------------------------------------------------------------------

    \202\ Wilcox et al., ``Cognitive dysfunction in ICU patients: 
Risk factors, predictors, and rehabilitation interventions.''
    \203\ 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.''
    \204\ 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).
    \205\ Wilcox et al., ``Cognitive dysfunction in ICU patients: 
Risk factors, predictors, and rehabilitation interventions.''
    \206\ Ibid.
    \207\ Pandharipande, Girard, and Ely, ``Long-term cognitive 
impairment after critical illness.''
    \208\ 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.''
    \209\ 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).
    \210\ 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.''
---------------------------------------------------------------------------

    A technical expert panel (TEP) 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. 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, 2014, 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 proposed 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 conditionally supported 
this 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 functional status quality measures, and requested public 
comment between February 21, 2014 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 
final 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

[[Page 50294]]

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 proposed 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 proposed that data for the 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 
noted our intention to revise the LTCH CARE Data Set to include new 
items that assess functional status, should this 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 Tool. The items have 
been carefully developed and tested for reliability and validity.
    We invited 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 final rule for more information on the data collection period 
and submission deadline for this quality measure. Our responses to 
public comments on these quality measures are discussed below in this 
section of the final rule.
    Comment: Several commenters expressed support for 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 because functional improvement is an important 
patient-centered outcome. A few commenters noted that such improvements 
reduce the likelihood of infection, morbidity, mortality, and cost and 
significantly improve quality of life in this vulnerable population. A 
commenter emphasized the importance of improved functional status and 
improved, earlier mobility for patients who are ventilated. Commenters 
agreed that functional status is an important measurement gap for LTCHs 
and support CMS for proposing measures that address this measurement 
gap area. A commenter noted support for the use of the CARE Tool to 
streamline reporting across acute and post-acute care settings.
    Response: We appreciate the support for functional status quality 
measures in the LTCH setting and the support for the use of cross-
setting standardized assessment items.
    Comment: A commenter supported a measure of function in patient 
care, but suggested that an outcome measure examining progress toward a 
functional goal would be preferable to a process measure. The commenter 
also suggested that CMS consider having a process measure that would 
address having a plan in place that addresses functional deficits at 
discharge.
    Response: We thank the commenter for their support. We interpret 
the commenter's comment to suggest that we should include an outcome 
measure pertaining to the attainment of functional goals. We believe 
that patient attainment of functional goals is important and appreciate 
the commenter's suggested inclusion of such an outcome measure. We will 
consider this measurement concept as we further develop the LTCHQR 
Program. We further interpret the commenter's comment to suggest that 
we consider adopting a process measure related to functional deficits 
at discharge so as to ensure care coordination. We agree that such a 
measure concept is important in that the domain of ``care 
coordination'' is a priority to CMS. Therefore, we will consider this 
concept in future measure development for the LTCHQR Program.
    Comment: Many commenters expressed concern that the measure is not 
NQF-endorsed. Commenters underscored the importance of the NQF review 
process, emphasizing that NQF endorsement provides assurance that the 
measure has been tested, can reliably and accurately collect data, is 
feasible to implement and is usable. For these reasons, commenters 
encouraged CMS to refrain from adopting measures into the LTCHQR 
Program until they have been endorsed by NQF for use in the LTCH 
setting.
    Response: We agree that the NQF-endorsement process is an important 
part of measure development, and we have generally adopted NQF-endorsed 
measures whenever feasible. However, as discussed above, where such 
measures do not exist for the LTCH setting, we may adopt measures that 
are not NQF-endorsed under the Secretary's exception authority set out 
in section 1886(m)(5)(D)(ii) of the Act.
    Comment: A commenter indicated that the quality measure uses the 
FIM[supreg] rating scale.
    Response: We interpret this commenter to assert that we are using 
the FIM[supreg] rating scale. We would like to clarify that we are not 
using the FIM[supreg] rating scale, rather we are using a 6-level 
rating scale developed and tested as part of the Post-Acute Care 
Payment Reform Demonstration (PAC-PRD).
    We reviewed the NQF's consensus endorsed measures and were unable 
to identify any NQF-endorsed quality measures that 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 proposed to adopt this functional assessment 
measure for use in the LTCHQR Program under the Secretary's authority 
to select non-NQF-endorsed measures. Further, CMS and its measure 
development contractor are planning to submit this measure for NQF 
review in the fall of 2014.
    Comment: Several commenters agreed with the MAP's recommendation to 
adopt functional status measures as part of the LTCHQR Program. While 
most commenters agreed this was an important measure area for the LTCH 
population and some commenters noted that it addresses a measure area 
gap identified by the MAP, many commenters expressed concern that the 
measure is not yet fully developed and received only conditional 
support from the MAP. The commenters noted the

[[Page 50295]]

MAP's conclusions that while the measure concept is promising, the 
measure is not ready for implementation and requires further 
modification and development. Commenters encouraged CMS to refrain from 
adopting any measures not fully supported by the MAP.
    Response: We note that this quality measure has been under 
development for more than 3 years. The steps we undertook as part of 
the measure development process have included an environmental scan, 
technical expert panel review, and posting of specifications to solicit 
public input. As part of the environmental scan, we reviewed the NQF's 
consensus-endorsed measures and were unable to identify any NQF-
endorsed quality measures that focused on assessment of function for 
patients in the LTCH setting. A TEP focused on functional status 
quality measures was convened by our measure development contractor and 
met in person and by phone in the fall of 2013. A report summarizing 
these TEP meetings titled ``Summary of Feedback from TEP on the 
Development of Cross-Setting Functional Status Quality Measures'' is 
available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/.
    Since the MAP meeting, we have continued further development of 
this measure, including posting of the TEP report. As discussed above, 
we also released draft specifications for the functional status quality 
measures and solicited public comment between February 21, 2014, and 
March 14, 2014. We received 22 responses from stakeholders with 
comments and suggestions during this public comment period and, based 
on these comments and suggestions, updated the quality measure 
specifications, which are available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html?redirect=/LTCH-Quality-Reporting/.
    Comment: A commenter was concerned that CMS did not convene a TEP 
for any of the new proposed quality measures and noted that TEPs, 
``which evaluate . . . quality measures for importance, scientific 
soundness, usability, and feasibility,'' are integral to developing 
health care setting-appropriate quality measures.
    Response: Our measure contractor convened a cross-setting 
functional status quality measures TEP after a public call for TEP 
nominations. The TEP met in person on September 9, 2013, and then met 
via Webinar on October 21, 2013, October 28, 2013, and November 6. 
2013. TEP members included experts from LTCHs, as well as IRFs and 
SNFs. A report summarizing recent TEP meetings focused on functional 
status quality measures titled ``Summary of Feedback from TEP on the 
Development of Cross-Setting Functional Status Quality Measures'' is 
available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/. The functional status 
quality measure development built on work conducted as part of a 
project funded by the Assistant Secretary for Planning and Evaluation, 
and that project also included a cross-setting function quality measure 
TEP, which was held on August 15, 2012. A report summarizing that 
meeting is available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/Downloads/ASPE-Report-Analysis-of-Crosscutting-Medicare-Functional-Status-Quality-Metrics-Using-the-Continuity-and-Assessment-Record-and-Evaluation-CARE-Item-Set-Final-Report.pdf.
    Comment: Some commenters indicated that the measure was 
inappropriate for the LTCH patient population. These commenters noted 
that many or most LTCH patients are not mobile or functional on 
admission, a significant percent are not mobile for the duration of 
their stay, and the majority of the functional status assessment items 
such as walking, picking up items and car transfers, would not be 
applicable to these patients. The commenters also noted that for many 
LTCH patients, a transfer from the bed to a chair is not possible.
    Response: The development of this quality measure included a review 
of published literature, a review of the findings from the PAC-PRD, 
discussions with an LTCH expert panel and an opportunity for a public 
comment period. As evidenced in the literature review, the PAC-PRD 
findings, and through the technical expert panel input we obtained 
during the measure development process, we concluded that this measure 
is important and appropriate for the LTCH setting, and items selected 
during the measure's development were considered applicable.
    With respect to comments about the items selected, during their use 
in the PAC-PRD, the LTCH staff stated that these items and their 
associated response scale are able to capture small changes in patient 
improvement, such as the progression from total dependence for task 
completion to completing a task with much assistance (that is, more 
than half the task was completed by the helper). The ability to capture 
this level of change was found to be significant, particularly as it 
pertains to the most impaired populations. Further, we made refinements 
to the items selected based on input from the expert panels convened by 
our measure development contractor and the public comment process, 
including those activities, for example, walking, picking up items and 
car transfers, which the commenter suggested were not applicable to 
this setting.
    Comment: Several commenters conveyed their concern regarding the 
use of the CARE Tool as the data source for the functional status 
quality measures due to limited testing in LTCHs and reliability 
testing results. These commenters noted that several self-care and 
mobility items have Kappa statistics categorizing inter-rater 
reliability as ``fair'' or ``moderate,'' and were based on a small 
sample of 46 LTCH patients. These commenters stated that ``fair'' or 
``moderate'' reliability, while acceptable for exploratory studies or 
internal quality improvement efforts, is insufficient for national use 
in the LTCHQR Program. Commenters recommended CMS explain the low Kappa 
statistics and/or re-test these items in significantly more LTCHs to 
address reliability issues. These commenters noted that measure testing 
should be oriented towards the intended setting of use of the measure 
and suggested additional testing in the LTCH setting be conducted.
    Response: The reliability results mentioned by these commenters 
were only one of several reliability analyses conducted to support the 
development of this measure as part of the PAC-PRD. In addition to the 
inter-rater reliability study mentioned by these commenters, we also 
examined: (1) Inter-rater reliability of the CARE items using 
videotaped case studies, which included 114 LTCH assessments from 3 
LTCHs; (2) internal consistency of the function data, which included 
more than 7,700 assessments from 28 LTCHs; and (3) Rasch analyses of 
the function data, which included more than 7,700 assessments from 28 
LTCHs. The report describing these additional analyses and an 
interpretation of the Kappa statistics results is available at: http://
www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-
Instruments/Post-Acute-Care-Quality-Initiatives/Downloads/The-
Development-and-Testing-of-the-Continuity-Assessment-Record-and-
Evaluation-CARE-Item-Set-Final-Report-on-Reliability-Testing-Volume-2-
of-

[[Page 50296]]

3.pdf. Therefore, given the totality of the reliability analysis 
involved, we believe that the development of this measure included a 
sufficient level of analysis, and at a scientifically acceptable level, 
such that a quality measure could be derived from these items.
    We note that as part of the LTCHQR Program we intend to evaluate 
the national-level data for this quality measure submitted by LTCHs to 
CMS. These data will inform ongoing measure development and maintenance 
efforts, including further analysis of reliability and validity of the 
data elements and the quality measure.
    Comment: Several commenters expressed concern related to undue 
burden associated with data documentation for the functional status 
quality measure. Some commenters suggested that several of the 
functional status assessment items had low or non-response rates when 
used as part of PAC-PRD. These commenters requested that CMS provide 
additional information on how the measure has been updated to address 
these low response rates. Further, in the event no updates have been 
made, the commenters encouraged CMS to further investigate its use of 
items having low or high non-response rates and reconsider if all of 
these items remain necessary and appropriate for LTCHs.
    Response: We appreciate the concerns related to any undue burden, 
including documentation, and take such concerns under consideration 
when selecting measures for the LTCHQR Program. In the specifications 
for the measure, we have included several gateway questions that allow 
the clinician to skip questions that are not pertinent, which we 
believe helps to reduce undue burden. For example, one item asks if the 
patient is or is not walking. If the patient is not walking, then the 
items ``Walk 10 feet,'' ``Walk 50 feet with two turns'' and ``Walk 150 
feet'' do not require responses and are therefore skipped.
    With respect to the comments that some items had low response 
rates, we interpreted these comments to refer to the coding responses 
for when a patient does not or cannot attempt a daily activity, hence 
the activity did not occur, and the assessor reports a code indicating 
the reason that the activity was not attempted (for example, ``Medical 
Condition'' or ``Patient Refusal''). We interpret the comments 
pertaining to non-response as referring to missing data.
    In the development of this measure, despite the low or high non-
response rates, inclusion of these items was the result of public input 
and expert opinion. However, we agree with the commenters that some of 
the self-care and mobility items may not be activities that many LTCH 
patients perform, particularly at the time of admission. An analysis of 
the PAC-PRD data showed that LTCHs had the highest percentage of codes 
for these items indicating the ``Activity Did Not Occur'' as compared 
to IRFs, SNFs and HHAs. We also agree that car transfers and picking up 
an object are challenging activities for LTCH patients. Due to prior 
public input we received via public posting and technical expert 
panels, we had included these particular items because these items were 
intended to aid in the further development of this measure utilizing 
national data. However, if these items are removed, the use of the 
measure can be retained without impacting the measure outcome in any 
significant manner.
    Because commenters expressed concern regarding burden and because 
commenters expressed concerns about ``Activity Did Not Occur'' for data 
elements that pertain to specific physical activities or functions that 
would be assessed and addressed by a care plan, we believe that we 
should consider removing assessment items where possible from this 
measure's specifications, particularly when the items are duplicative 
to items already included, or would often be coded as ``Activity Did 
Not Occur'' (that is, when due to medical condition) and would not 
specifically be meaningful in a care plan. We have therefore reviewed 
our measure and the assessment items needed for addressing all the key 
domains of function we proposed (for example, self-care, mobility, 
cognition, communication and bladder function). We believe there are 
items that could be removed from the self-care and mobility domains 
because they potentially overlap with items that we would retain and 
also because these items had high ``Activity Did Not Occur'' rates. 
Further, these items can be removed from the quality measure without 
affecting the measure substantively.
    We followed specific rationale in our consideration for the removal 
of these items: (1) That these particular items had high ``Activity Did 
Not Occur'' or high non-response rates; and/or (2) that the data 
elements to be removed were duplicative of the remaining data elements 
in the quality measure for the LTCH population. We determined this, for 
each item, based on data analysis and public comment, our review of the 
item definitions, as well our review of the distribution of scores of 
LTCH patients from the PAC-PRD. Lastly, we evaluated our ability to 
finalize a modified measure, and we reviewed the modifications to the 
measure, through the removal of these items, to ensure that the 
modification was not substantive in nature.
    The data elements specifically analyzed for removal were: 
``Dressing upper body,'' ``Dressing lower body,'' ``Putting on/taking 
off footwear,'' ``Shower/bathe self,'' ``Car transfer,'' ``1 step,'' 
``4 steps,'' ``12 steps,'' ``Walk 10 feet on uneven surfaces'' and 
``Pick up object,'' all of which we would remove from the measure 
specifications for Percent of Long-Term Care Hospital Patients with an 
Admission and Discharge Functional Assessment and a Care Plan That 
Addresses Function. Following our analysis, the following items have 
been finalized for removal, with the associated rationale:
     The item ``Dressing Upper Body'' had high ``Activity Did 
Not Occur'' response rates and overlaps with the item ``Wash Upper 
Body,'' which we are retaining, in that both items pertain to upper 
body movement and the data captured for ``Wash Upper Body'' would 
represent the activity. The item ``Dressing Lower Body'' had high 
``Activity Did Not Occur'' response rates and overlaps with ``Toileting 
Hygiene,'' which we are retaining, in that both items include managing 
lower body clothing.
     The item ``Putting on/taking off footwear'' had high 
``Activity Did Not Occur'' response rates and also overlaps with 
``Toileting Hygiene,'' an item which we are retaining, although we are 
aware that it had moderately high ``Activity Did Not Occur'' response 
rates. We note that, although we are aware that the item ``Toileting 
Hygiene'' is associated with moderate ``Activity Did Not Occur'' 
response rates, we have decided to retain the item ``Toileting 
Hygiene'' based on feedback from technical expert panels convened by 
the measure contractor, the public comments from stakeholders, and the 
relevance of the item for every patient.
     The item ``Shower/bathe self'' had high ``Activity Did Not 
Occur'' response rates and overlaps with the tasks involved with the 
item ``Wash Upper Body,'' which we are retaining.
     The mobility items we are removing, ``Walking 10 Feet on 
Uneven Surfaces,'' ``Car transfer,'' ``1 step,'' ``4 steps,'' ``12 
steps'' and ``Pick up object,'' had high non-response rates and overlap 
with items ``Walk 150 Feet'' and ``Walk 50 feet with 2 turns,'' which 
we are retaining.
    As stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28263) 
and the December 1, 2013, MUC List (pp. 39-40, 194-95), this measure 
provides

[[Page 50297]]

the percentage of all LTCH patients that receive a functional 
assessment on admission and discharge and a care plan that addresses 
function. We believe that this measure, as modified in response to 
public comment, is consistent with the description of the measure 
reviewed by the MAP, which did not specify the various functions 
assessed or addressed by a care plan. Moreover, we believe that 
modification of the quality measure through the removal of duplicative 
assessment items with low or high non-response rates does not 
substantively alter this measure's application or its calculation. We 
have previously explained that substantive measure changes would 
include ``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)'' or ``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 the LTCH setting.'' (77 FR 53258, 
53615 through 53616).
    We believe that in this case, the standard of performance assessed 
by this measure would become less, not more, stringent due to the 
modifications, and the measure is not being extended to a new patient 
setting. Moreover, we believe that the modifications to the measure are 
not ``so significant that the measure [would no longer be] the same 
measure,'' as the measure numerator, denominator, and exclusions are 
unchanged. Therefore, we believe that the modified version of Percent 
of Long-Term Care Hospital Patients with an Admission and Discharge 
Functional Assessment and a Care Plan That Addresses Function would not 
be inconsistent with the descriptions of the measure reviewed by the 
MAP and that the modifications to the measure are not substantive in 
nature.
    Thus, in response to public comments, we are modifying the proposed 
quality measure, Percent of Long-Term Care Hospital Patients with an 
Admission and Discharge Functional Assessment and a Care Plan That 
Addresses Function, through removal of the data items noted above. 
Specifically, the data elements we are removing for the reasons 
discussed above are the following: ``Dressing upper body,'' ``Dressing 
lower body,'' ``Putting on/taking off footwear,'' ``Shower/bathe 
self,'' ``Car transfer,'' ``1 step,'' ``4 steps,'' ``12 steps,'' ``Walk 
10 feet on uneven surfaces,'' and ``Pick up object.''
    Comment: Several commenters expressed concerns about the need for 
standardized training to ensure inter-rater reliability for the CARE 
Tool function items, and noted that this training would add additional 
burden to facilities. Several commenters also suggested CMS identify 
the types of LTCH personnel who would collect and report measure data.
    Response: We have addressed similar concerns in the past with 
public outreach including training sessions, training manuals, 
Webinars, open door forums, help desk support and a Web site that hosts 
training information http://www.youtube.com/user/CMSHHSgov), and we 
conduct such activities for the new items. All training materials are 
available on the Web site free of charge. Procedures for data 
collection, including who may complete functional assessments, are to 
follow facility policies, and patient assessments are to be completed 
in compliance with facility and applicable State and Federal 
requirements. We do not provide guidance on which disciplines may 
complete patient assessments.
    Comment: Several commenters suggested that patients with program 
interruptions (that is, periods of time during which the patient is 
transferred from the LTCH to another care setting and subsequently 
returned to the same LTCH; see the LTCHQR Program Manual 2.0 for 
current definition--Chapter 3-A https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/) be 
excluded from the quality measure, because it would be burdensome to 
collect data when the patient was transferred and then returned to the 
LTCH. A commenter explained that an interrupted stay patient is 
``discharged'' from the LTCH and then ``readmitted'' to the LTCH within 
a certain fixed period under the 3-day or less interrupted stay policy 
and the greater than 3-day interrupted stay policy. Thus, the commenter 
felt it would be unnecessary to assess the patient's functional status 
at both points of admission and discharge since doing so may result in 
an inaccurate assessment of the patient's condition. The commenter also 
suggested that if interrupted stay patients are not excluded, then only 
the initial admission and the last discharge should be assessed for 
measure data collection purposes.
    Response: For LTCH patients who experience one or more program 
interruptions (3 calendar days or less), completion of the function 
items would not be required during the program interruption, that is, 
at the time of the transfer to the acute care setting and the return. 
Patients with program interruptions are included in the quality 
measure, but, as the commenter suggested, assessments would be only be 
required for the initial admission assessment and at the time of the 
discharge from the LTCH stay.
    Comment: A commenter expressed general concern about the difficulty 
of assessing cognitive function in the LTCH patient population, 
including circumstances such as when any mind-altering medication was 
given to the patient. The commenter stated that cognitive assessment 
items have no provisions for accounting for such circumstances, nor 
could they, since any such mandate would interfere with clinical 
practice. Due to such considerations, the commenter questioned whether 
it was possible to accurately capture cognitive status via 
observational assessment, within two days of admission. The commenter 
noted that timely completion of the cognitive assessment items 
necessitates a clinician who is familiar with the patient, which in 
turn affects whether these items get completed on the admission 
assessment.
    Another commenter stated that the cognitive function assessment 
tool does not adequately measure baseline cognition because of the 
variation in LTCH patients' clinical conditions and mental status. LTCH 
patients are extremely fragile, and their cognition is affected by 
small changes, such as the time of day and the clinical condition of 
the patient. The commenter also expressed the opinion that the 
cognitive function assessment tool provides a snapshot of a patient at 
a given time on a given day, and is not a true reflection of the 
patient's cognitive functioning. The commenter added that the expertise 
of a clinical psychologist would be required to complete this tool.
    Thus, these two commenters felt assessing the patient to collect 
data to complete each of the data elements for the measure would 
require LTCHs to expend significant time and resources reporting data 
whose value in measuring quality of care in the LTCH setting is 
questionable.
    Response: We acknowledge the complexity of the LTCH patient 
population, and potential challenges that can limit certain 
assessments, for example, the inability to perform a cognitive 
assessment with a ventilator-dependent patient on sedation. We 
interpret the commenter to indicate that under such circumstances, it 
will not be

[[Page 50298]]

feasible to accurately assess a patient's cognition at the beginning of 
the LTCH stay and that it would be an interruption in clinical care to 
perform such an assessment. We also interpret the commenter to indicate 
that in the assessment there would be no capacity to reflect recent 
administration of medications that impact cognitive status, although 
assessment of cognition is required for this measure. We agree that at 
the time of assessment there is information that cannot be obtained 
from certain patients, such as patients who are ventilator-dependent 
and on sedation, or in the event the patient is comatose. We agree that 
there are circumstances that an assessment cannot be performed, and it 
would be inappropriate to do so, and hence, the assessment should allow 
for LTCHs to indicate these circumstances when the data could not be 
collected.
    We will address these circumstances by providing instructions on 
when select items can be skipped due to patient conditions and gateway 
questions in the LTCH CARE Data Set Version 3.00. In the specifications 
for the measure, we have included several gateway questions that allow 
the clinician to skip questions that are not pertinent. For example, 
one item asks if the patient is or is not walking. If the patient is 
not walking, then the items ``Walk 10 feet,'' ``Walk 50 feet with two 
turns'' and ``Walk 150 feet'' do not require responses and are 
therefore skipped. We agree with the commenter that a clinician 
familiar with the patient would provide the most accurate assessment of 
the patients' status.
    Consistent with the clinical standard of practice, timely admission 
assessments are conducted on all patient admissions by a clinician, 
typically by a registered nurse who obtains assessment information to 
inform care planning so that the care team can become familiar with the 
patient and develop and implement sound clinical care and 
interventions. Thus, from the time of admission to an LTCH, we believe 
that clinical staff should collect health assessment information about 
the patient to inform their care. Further, we believe that such 
assessment data would be captured by a clinician familiar with the LTCH 
patient.
    We interpret the second commenter to indicate that the variability 
in the LTCH patient cognitive status would make it difficult to obtain 
a baseline for use in this measure. We also interpret the commenter's 
concern to be related to the importance of capturing causation in 
mental status change. Causative factors in cognitive change do not 
impact the calculation of the quality measure. The measure requires the 
collection of the Confusion Assessment Method (CAM[supreg]) in order to 
capture fluctuations of cognitive function. We selected the CAM[supreg] 
Instrument after TEP review, and following receipt of several comments 
from our initial public comment opportunity in March 2014.
    We disagree with the commenter's statement that the expertise of a 
clinical psychologist would be needed to collect the cognitive status 
assessment, because the CAM[supreg] was collected during the PAC-PRD by 
varying levels of staff, with strong inter-rater reliability without it 
being performed by a clinical psychologist, and there was no evidence 
found during this demonstration to support this concern. Furthermore, 
the CAM[supreg] was tested for use by bedside staff for use in the 
Minimum Data Set Version 3.0 and was implemented on October 1, 2010.
    Both commenters suggest that capturing the assessment data would 
necessitate LTCHs to expend significant time and resources to collect 
this measure, which they further suggest may not be valuable for this 
setting. We disagree with these commenters in that the data collected 
for use in these measures is consistent with general clinical care and 
the CAM[supreg] itself is a specific assessment that is already 
utilized in the healthcare setting.
    Comment: Commenters suggested that CMS take into consideration the 
addition of a POA indicator in selected portions of the LTCH CARE Data 
Set. These commenters noted that a POA indicator would be important for 
performing any risk adjustment of functional status measures to allow 
for the distinction between complications associated with care at the 
LTCH and a patient's preexisting conditions.
    Response: The admission functional assessment data collected for 
this quality measure would be based on the patient's functional status 
at the time of admission, and we would consider the initial assessment 
to be ``present on admission.''
    In addition to soliciting comments about our proposal to adopt the 
functional status measure for the LTCHQR Program, we also invited 
public comment on our proposal to use the LTCH CARE Data Set and QIES 
ASAP systems for data collection and submission of the functional 
status measure. We received no public comments on this proposal.
    After consideration of the public comments we received, we are 
finalizing the adoption of the measure entitled Percent of Long-Term 
Care Hospital Patients with an Admission and Discharge Functional 
Assessment and a Care Plan That Addresses Function for use in the 
LTCHQR Program, with the modifications noted in our responses to public 
comments above.
(2) 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 proposed was 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.\211\
---------------------------------------------------------------------------

    \211\ 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. 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.\212\ A separate study 
of 103 patients with respiratory

[[Page 50299]]

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.\213\
---------------------------------------------------------------------------

    \212\ 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).
    \213\ 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,\214\ 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 weaning programs, which is important in the restoration 
of function.\215\ 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.\216\
---------------------------------------------------------------------------

    \214\ Scheinhorn et al., ``Post-ICU mechanical ventilation at 23 
long-term care hospitals: A multicenter outcomes study.''
    \215\ Ibid.
    \216\ Ibid.
---------------------------------------------------------------------------

    A TEP 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 proposed 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 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 Tool. The items have been carefully 
developed and tested for reliability and validity.
    Based on the evidence discussed above, we proposed 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 final 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 proposed 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 invited 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 final rule for more information on 
the proposed data collection and submission timeline for this proposed 
quality measure.
    Comment: Several commenters expressed support for the quality 
measure ``Functional Outcome Measure: Change in Mobility Among Long-
Term Care Hospital Patients Requiring Ventilator Support,'' because 
functional improvement is an important patient-centered outcome. A few 
commenters noted that such improvements reduce the likelihood of 
infection, morbidity, mortality, and cost and significantly improve 
quality of life in this vulnerable population. A commenter emphasized 
the importance of improved functional status and improved, earlier 
mobility by those patients who are ventilated. Several commenters 
agreed with the MAP's recommendation to adopt functional status 
measures as part of the

[[Page 50300]]

LTCHQR Program. Commenters agreed that functional status is an 
important measurement gap for LTCHs and supported CMS for proposing 
measures that address this measurement gap area. A commenter noted 
support for the use of common functional status items across acute and 
post-acute care settings. A commenter noted that this quality measure 
is required by public law.
    Response: We appreciate the support for the quality measure 
entitled Functional Outcome Measure: Change in Mobility among Long-Term 
Care Hospital Patients Requiring Ventilator Support in the LTCH 
setting, and for the support of use of standardized functional status 
items across acute and post-acute care settings.
    Comment: Many commenters expressed concern that the measure is not 
yet fully developed and is not NQF-endorsed. Several commenters noted a 
number of issues that CMS should consider in the development of these 
functional status quality measures.
    Response: We agree that the NQF endorsement process is an important 
part of measure development and we have generally adopted NQF-endorsed 
measures whenever feasible. However, where such measures do not exist 
for the LTCH setting, as stated in our proposal and noted above, we may 
adopt measures that are not NQF-endorsed for the LTCHQR Program under 
the Secretary's exception authority set out in section 
1886(m)(5)(D)(ii) of the Act.
    We reviewed the NQF's consensus endorsed measures and were unable 
to identify any NQF-endorsed quality measures that 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 proposed 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. We plan to submit an application for 
NQF endorsement in the fall of 2014.
    Comment: While most commenters agreed that functional improvement 
was an important measure area for the LTCH population and some 
commenters noted that it addresses a measure area gap identified by the 
MAP, many commenters expressed concern that the measure is not yet 
fully developed and had only conditional support from MAP. They noted 
the MAP's conclusions that while the measure concept is promising, the 
measure is not ready for implementation and requires further 
modification and development. Commenters encouraged CMS to refrain from 
adopting any measures not fully supported by the MAP.
    Response: We note that this function quality measure has been under 
development for more than 3 years. The steps we undertook as part of 
the measure development process have included an environmental scan, 
technical expert panel review, and public posting of specifications 
with public input. A report summarizing the TEP meetings titled 
``Summary of Feedback from TEP on the Development of Cross-Setting 
Functional Status Quality Measures'' is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/.
    Since the time of the MAP meeting, we have continued further 
development of the measure, and we posted draft specifications for the 
functional status quality measures for public comment between February 
21, 2014, and March 14, 2014. As discussed above, we received 22 
responses from stakeholders with comments and suggestions during the 
public comment period and, based on these comments and suggestions, 
have updated the quality measures specifications, which are available 
at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html?redirect=/LTCH-Quality-
Reporting/.
    Comment: A commenter expressed concern that CMS did not convene a 
TEP for any of the new proposed quality measures, and noted that TEPs, 
``which evaluate . . . quality measures for importance, scientific 
soundness, usability, and feasibility,'' are integral to developing 
healthcare setting appropriate quality measures.
    Response: Our measure contractor convened a cross-setting function 
quality measures TEP after a public call for TEP nominations. The TEP 
met in person on September 9, 2013, and then by Webinar on October 21, 
2013, October 28, 2013, and November 6. 2013. TEP members included 
experts from LTCHs as well as IRFs and SNFs. A report summarizing 
recent TEP meetings focused on functional status quality measures 
titled ``Summary of Feedback from TEP on the Development of Cross-
Setting Functional Status Quality Measures'' is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/.
    The functional status quality measure development builds upon work 
conducted as part of a project funded by the Assistant Secretary for 
Planning and Evaluation, and that project also included a cross-setting 
function TEP, which was held on August 15, 2012. A report summarizing 
that meeting is available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/Downloads/ASPE-Report-Analysis-of-Crosscutting-Medicare-Functional-Status-Quality-Metrics-Using-the-Continuity-and-Assessment-Record-and-Evaluation-CARE-Item-Set-Final-Report.pdf.
    Comment: Several commenters conveyed concerns related to undue 
burden associated with data documentation for the functional status 
quality measure.
    Response: In the measure specifications, we included several 
gateway questions that allow the clinician to skip questions that are 
not pertinent, which we believe helps to reduce undue burden. For 
example, one item asks if the patient is or is not walking. If the 
patient is not walking, then the items ``Walk 10 feet,'' ``Walk 50 feet 
with two turns'' and ``Walk 150 feet'' do not require responses and are 
therefore skipped.
    Comment: A commenter questioned the value of this measure in the 
LTCH setting, given that many ventilator patients have no mobility at 
the time of admission. Another commenter noted that for some patients, 
the proposed measure may not be meaningful. The commenter added that in 
such cases, it may be appropriate to apply certain exclusions. Another 
commenter suggested the use of a process measure due to limited 
improvement in mobility for ventilator patients.
    Response: Our analyses of the PAC-PRD data found that many patients 
admitted to LTCHs on a ventilator have very limited mobility skills on 
admission, but that many did show some improvement in mobility skills 
during the LTCH stay, including bed mobility skills. LTCH clinicians in 
the PAC-PRD appreciated that the items used in this measure could 
capture even small improvement. We also list exclusion criteria in the 
draft measure specifications document, including patients with 
tetraplegia complete and locked-in state as well as patients with 
incomplete LTCH stays. We appreciate the commenter's suggestion on the 
use of a process measure, and we note that we are finalizing such as 
process measure that includes this population.
    Comment: A commenter stated that in the testing of the CARE Tool, 
no analysis was reported of differences in functional scores at 
admission and

[[Page 50301]]

discharge, thus calling into question whether there is adequate 
variability in change in function scores to result in a meaningful 
measure. This commenter stated that the Rasch analysis for assessing 
validity was not applied to the sensitivity of the measure for 
chronically and critically ill patients. The commenter concluded that 
if little difference in functional scores at admission and discharge is 
expected, then the meaningfulness of the measure is called into 
question.
    Response: The change in self-care and mobility function for LTCH 
patients was reported in the Post-Acute Care Payment Reform 
Demonstration Final Report--Volume 4 available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/Downloads/PAC-PRD_FinalRpt_Vol4of4.pdf. Specifically, on page 
57 of this Report, it is noted that the mean self-care change for all 
patients in the post-acute care setting was an improvement of 12.4 
units of self-care function. Among patients with nervous system 
conditions, LTCH patients and SNF patients achieved very similar 
unadjusted change in self-care scores (10.4 and 10.1 units of self-care 
functional improvement, respectively). The mean mobility change for all 
post-acute care patients was 14.6 units of functional improvement. LTCH 
patients improved 11.2 units from admission to discharge, which is 
slightly more than the change in mobility observed among home health 
patients, which was 10.4 units of change. These results demonstrate 
that functional improvement was observed among LTCH patients using the 
function items from the CARE Tool. Our measure development analyses 
also showed improvement in mobility skills for patients requiring 
ventilator support.
    Comment: In order to more fully evaluate the proposed functional 
outcome measure, a few commenters requested that CMS provide further 
details regarding the proposed methodology and expected utilization 
approach for the measure. Specifically, a commenter was interested in 
learning more about the risk adjustment procedures. A commenter 
expressed concern about the lack of a validated model to assess change 
in mobility among LTCH inpatients requiring ventilator support. 
Commenters suggested that any such tool would also need to include 
components for stratification based on comorbidities impacting a 
patient's ability to demonstrate functional improvement.
    Response: The risk adjustment methodology is described in the draft 
quality measures specification document titled ``Draft Specifications 
for the Proposed Functional Status Quality Measures for Long-Term Care 
Hospitals'' available at the LTCHQR Program Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting. The risk adjustment analyses are 
being conducted by the measure contractor and the regression 
coefficients (that is, weights) will be available as part of the NQF 
application. Risk adjustment for this measure includes variables that 
adjust for several comorbidities, including chronic kidney disease or 
dialysis; septicemia or other severe infections; metastatic lung, 
colorectal, bladder or other severe cancers; diabetes; paraplegia; and 
hemiplegia. We received several suggestions for risk adjustors as part 
of the March 2014 public comment process and have tested all suggested 
variables.
    After consideration of the public comments we received, we are 
finalizing the adoption of the quality measure entitled Functional 
Outcome Measure: Change in Mobility among Long-Term Care Hospital 
Patients Requiring Ventilator Support for use in the LTCHQR Program, as 
proposed.
b. Quality Measure: National Healthcare Safety Network (NHSN) 
Ventilator-Associated Event (VAE) Outcome Measure
    The third quality measure that we proposed was 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.\217\ The NHSN 
VAE Outcome measure provides increased measure sensitivity, more 
objective definitions for ventilator-associated conditions, and the 
potential for automated outcome detection.\218\ 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.\219\
---------------------------------------------------------------------------

    \217\ Klompas, M., Y. Khan, et al. (2011). ``Multicenter 
Evaluation of a Novel Surveillance Paradigm for Complications of 
Mechanical Ventilation.'' PLoS ONE 6(3): e18062.
    \218\ 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.
    \219\ 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.'' \220\ 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.221 222 223 These 
complications can lead to longer stays in the ICU and hospital, 
increased health care costs and increased risk of disability (or 
death).\224\ The estimated mortality rate in patients aged 85 years and 
older with acute lung injury on mechanical ventilation is 60 
percent.\225\
---------------------------------------------------------------------------

    \220\ Centers for Disease Control and Prevention (CDC). 
Ventilator-Associated Event (VAE). January 2014. http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf.
    \221\ 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.
    \222\ Klompas, M., Y. Khan, et al. (2011). ``Multicenter 
Evaluation of a Novel Surveillance Paradigm for Complications of 
Mechanical Ventilation.'' PLoS ONE 6(3): e18062.
    \223\ Rubenfeld, G. D., E. Caldwell, et al. (2005). ``Incidence 
and outcomes of acute lung injury.'' N Engl J Med 353(16): 1685-
1693.
    \224\ Centers for Disease Control and Prevention (CDC). 
Ventilator-Associated Event (VAE). January 2014. http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf,.
    \225\ Rubenfeld GD, 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.\226\ 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,\227\ 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,

[[Page 50302]]

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.\228\
---------------------------------------------------------------------------

    \226\ MedPAC ``Report to Congress: Medicare Payment Policy'' 
Chapter 11 ``Long-term care hospital services.'' March 2014. http://www.medpac.gov/chapters/Mar14_Ch11.pdf.
    \227\ Ibid.
    \228\ 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.\229\ Adherence 
to clinical practice guidelines for the prevention of VAP has been 
associated with decreased VAC rates in ICUs.\230\ 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.
---------------------------------------------------------------------------

    \229\ 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.
    \230\ 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.'' \231\
---------------------------------------------------------------------------

    \231\ National Quality Forum. Measure Applications Partnership 
Pre-Rulemaking Report: Public Comment Draft: January 2014. 
Available: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

    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 setting). Therefore, we proposed 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 under section 
1886(m)(5)(D)(ii) of the Act.
    We proposed to use the CDC's NHSN reporting and submission 
infrastructure for reporting of the 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 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 final rule for more information on 
the data collection and submission timeline for this quality measure.
    We invited 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 invited public comments on our proposal to 
use the CDC's NHSN for data collection and submission for this measure.
    Comment: Many commenters agreed that the NHSN VAE Outcome measure 
is an appropriate quality measurement area for the general LTCH patient 
population. Several commenters agreed with the NQF MAP's recommendation 
to adopt HAI measures as part of the LTCHQR Program. Commenters agreed 
that HAI measures represent an important measurement gap for LTCHs and 
supported CMS' proposal of a measure that addresses this measurement 
gap area. A commenter noted that the NHSN VAE Outcome measure is well 
aligned with the newly identified chronically critically ill (CCI) 
category of patients.
    Response: We thank these commenters' for their support of our 
effort to implement HAI measures that address important measurement gap 
areas identified by the NQF MAP and other stakeholder groups.
    Comment: Some commenters fully supported CMS' proposal to implement 
the NHSN VAE Outcome measure for the FY 2018 payment year. These 
commenters agreed with CMS' rationale that VAEs represent a high-
priority complication in the LTCH setting and appreciated CMS' 
consideration for the utility of this measure given that it can be used 
across multiple settings.
    Some commenters specifically noted that the measure offers a 
mechanism for LTCHs of long-term mechanical ventilation to objectively 
measure the impact of care improvement initiatives. Furthermore, these 
commenters stated that reporting the NHSN VAE Outcome measure would 
raise awareness to the medical detriment of extended time on mechanical 
ventilation and would encourage facilities to implement strategies to 
reduce time on mechanical ventilation. Further, these commenters noted 
that the foundational elements for VAE definition (positive-end 
expiratory pressure (PEEP), fraction of inspired oxygen (FiO2), 
temperature, and white blood cell count (WBC)) are readily available, 
objective, rational, and reportable. The commenters stated that 
measuring and reporting VAE along with tracking care improvement 
initiatives could help to quantify the extent to which VAEs are 
preventable.
    Response: We appreciate these commenters' support of our proposal 
and rationale to implement the NHSN VAE Outcome measure.
    Comment: Many commenters expressed concern that the measure is not 
NQF-endorsed, though several commenters noted that the measure is 
supported by the MAP. Commenters underscored the importance of the NQF 
review processes, emphasizing that NQF-endorsement provides assurance 
that the measure has been tested, can reliably and accurately collect 
data, is feasible to implement, and is usable. For these reasons, 
commenters encouraged CMS to refrain from adopting measures into the 
LTCHQR Program until they have been endorsed by the NQF for use in the 
LTCH setting. Commenters also emphasized the importance of review by 
the NQF via the full consensus development process, stating that time-
limited endorsement from the NQF is insufficient to consider a measure 
for adoption in the LTCHQR Program. In addition to securing NQF-
endorsement, commenters encouraged CMS to refrain from adopting any 
measures not supported by the NQF MAP and a TEP.

[[Page 50303]]

    Response: We agree that the NQF-endorsement process is an important 
part of measure development and we have generally adopted NQF-endorsed 
measures whenever feasible. However, where such measures do not exist 
for the LTCH setting, as stated in our proposal, we may adopt measures 
that are not NQF-endorsed under the Secretary's exception authority set 
out in section 1886(m)(5)(D)(ii) of the Act. As also stated in our 
proposal, we reviewed the NQF's consensus endorsed measures for VAEs 
and were unable to identify an NQF-endorsed measure for the LTCH 
setting. We note that the CDC has conveyed to us that they received 
preliminary positive feedback from the NQF on the NHSN VAE Outcome 
measure and plans to submit the measure for NQF endorsement in 2015.
    In addition, the NQF MAP supported the use of this measure in the 
LTCHQR Program and concluded 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.'' \232\ Because the NHSN VAE Outcome measure 
was developed for use in multiple inpatient settings, including LTCHs, 
and because several stakeholder groups have agreed that the measure 
provides useful information that can prevent ventilator-associated 
events and impact patient outcomes, we believe the measure is 
appropriate for implementation in the LTCHQR Program.
---------------------------------------------------------------------------

    \232\ National Quality Forum. Measure Applications Partnership 
Pre-Rulemaking Report: Final Report January 2014. Available: http://www.qualityforum.org/map/ (page 31).
---------------------------------------------------------------------------

    Comment: A commenter questioned the appropriateness of the NHSN VAE 
Outcome measure for the LTCH patient population since the primary focus 
of care for the LTCH patient may include aggressive ventilator weaning. 
This commenter expressed concern that the definitions for VAE 
surveillance used in the NHSN VAE Outcome measure are different from 
the patient outcomes and clinical indicators of VAEs, such as the VAP, 
used in LTCHs. Further, this commenter noted that the surveillance 
monitoring approach used by the NHSN VAE Outcome measure does not align 
with LTCH patient goals (which often include aggressive ventilator 
weaning). Since LTCHs typically use identification of a symptomatic 
patient and laboratory culture results to identify VAEs, the commenter 
stated that implementing surveillance monitoring (in particular, 
ongoing monitoring of positive-end expiratory pressure and fraction of 
inspired oxygen) to adhere to the NHSN algorithm would be difficult and 
taxing in the LTCH setting and would divert resources away from other, 
more valuable monitoring and prevention efforts in the LTCH setting.
    Response: Although we recognize that the implementation of this 
measure adds burden for LTCHs, the NHSN VAE measure was developed to be 
more sensitive to VAEs than other VAE identification measures and is 
also more objective than other measures.\233\ The VAE algorithm avoids 
the use of chest radiograph and the reliance on specific clinical signs 
and symptoms to identify VAP due to their subjectivity and the fact 
that they may be poorly or inconsistently documented in the medical 
record.\234\ The VAE surveillance definition algorithm used in the NHSN 
VAE Outcome measure was developed by a workgroup based on objective, 
streamlined, and potentially automatable criteria that will 
intentionally identify a broad range of conditions and complications 
occurring in mechanically-ventilated adult patients.\235\ The measure 
was designed for use across several different healthcare settings, 
including LTCHs, and in 2013, 105 LTCHs successfully submitted VAE data 
to CDC's NHSN,\236\ indicating that LTCHs were able to implement and 
operationalize this measure in their facilities. The NHSN VAE Outcome 
measure was also developed to facilitate potential automated outcome 
detection, which will contribute to increased objectivity and decreased 
burden on LTCHs.
---------------------------------------------------------------------------

    \233\ 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.
    \234\ Centers for Disease Control and Prevention (CDC). 
Ventilator-Associated Event (VAE). January 2014. http://www.cdc.gov/
nhsn/pdfs/pscManual/10-VAE--FINAL.pdf.
    \235\ Centers for Disease Control and Prevention (CDC). 
Ventilator-Associated Event (VAE). January 2014. http://www.cdc.gov/
nhsn/pdfs/pscManual/10-VAE--FINAL.pdf.
    \236\ Data from CMS-CDC correspondence on February 10, 2014.
---------------------------------------------------------------------------

    Comment: A commenter expressed concern about the validity of 
certain aspects of NHSN VAE Outcome measure. The commenter noted the 
NHSN VAE Outcome measure is used as a way to capture ventilator-
associated pneumonia; however, the VAP portion of this measure is no 
longer valid or effective.
    Response: The NHSN VAE algorithm was developed and carefully tested 
to be more sensitive to VAEs (including VAPs) than other VAE measures 
and to be more objective than other measures.\237\ The algorithm was 
developed based on objective, streamlined, and potentially automatable 
criteria \238\ and was developed and tested for a range of healthcare 
settings, including LTCHs.
---------------------------------------------------------------------------

    \237\ Magill, S. S., M. Klompas, et al. (2013). ``Developing a 
new, national approach to surveillance for ventilator-associated 
events*.'' Critical Care Medicine 41(11): 2467-2475.
    \238\ Centers for Disease Control and Prevention (CDC). 
Ventilator-Associated Event (VAE). January 2014. http://www.cdc.gov/
nhsn/pdfs/pscManual/10-VAE--FINAL.pdf.
---------------------------------------------------------------------------

    Research indicates the VAE algorithm detects clinical conditions 
such as pneumonia, ARDS, atelectasis and pulmonary edema, clinical 
conditions that may be preventable. In terms of what is most 
appropriate for making comparisons, benchmarking, etc., the overall VAE 
rate, which represents all events that met at least the VAC definition, 
and the ``IVAC-plus'' rate, which represents all events that met at 
least the IVAC definition, would be suitable for these purposes, and 
all facilities should be able to detect VACs and IVACs. Rates of 
individual events (for example, ``VAC only,'' ``IVAC only,'' and 
``especially possible and probable VAP'') could be used by LTCHs as 
``internal quality improvement'' measures. ``Possible and probable 
VAP'' definitions were developed for internal quality improvement 
purposes rather than inter-facility comparisons because practices 
within and among facilities with regard to diagnostic testing of 
respiratory tract samples vary widely and so are not ideal for 
inclusion in surveillance definitions that could potentially be used to 
make such comparisons in the future. Using the third tier of VAE 
(``possible or probable VAP'') for public reporting and/or for 
benchmarking or comparison purposes would therefore not be recommended.
    Comment: Several commenters expressed concerns regarding recent 
changes in the NHSN VAE Outcome measure algorithm and definitions, 
which were updated in January 2013 and July 2013, with additional 
modifications made in January 2014. A commenter noted that the updated 
algorithm has been in place for a relatively short period of time 
(implemented in the NHSN in 2013); thus, the commenter questioned 
whether data submitted under the new algorithm has been analyzed and 
validated, particularly in the LTCH setting. The commenter encouraged 
CMS to exercise caution in adopting the NHSN VAE Outcome measure as 
part of the LTCHQR Program since the measure was created and tested in 
the acute care

[[Page 50304]]

hospital setting and the updated algorithm is still fairly new.
    Another commenter expressed similar concerns, noting that the NHSN 
continues to modify the data collection algorithm based on assessment 
and user feedback. This commenter mentioned that the NHSN has not yet 
provided comparative data to enable facilities to set adequate 
benchmarks for targets. Another commenter noted that further experience 
is necessary with VAE surveillance in the LTCH setting before moving 
forward with the adoption of this as a quality measure. This commenter 
provided an example requiring clarification is whether the epidemiology 
of VAE differs in a LTCH setting where tracheostomies are largely 
predominant.
    Another commenter stated the recent change in the NHSN algorithm no 
longer uses the Ventilator-Associated Pneumonia bundle. The commenter 
also stated that the previously used VAP bundle, referenced in the 
proposed rule, was applicable to Intensive Care Units, is outdated, and 
is not an appropriate measure for LTCHs.
    Response: We agree that comprehensive measure testing is an 
important part of measure development. The CDC algorithm was developed 
for several healthcare settings and initial testing was conducted in 
acute care facilities prior to implementation. As one commenter pointed 
out, the CDC continues to test the algorithm and to modify it based on 
assessment and end-user feedback. CDC has implemented an ongoing 
process to continually improve this measure and ensure it is up to date 
and reflects the most recently available testing and user feedback 
results. Although more testing and validation is helpful to inform the 
use of a measure, based on evidence cited, measure testing conducted to 
date, and the fact that 105 LTCHs collected and reported data to the 
CDC's NHSN in CY 2013,\239\ we believe the impact this measure could 
have on the quality of care and patient outcomes supports our proposal 
to implement this measure starting January 1, 2016.
---------------------------------------------------------------------------

    \239\ Data from CMS-CDC correspondence on February 10, 2014.
---------------------------------------------------------------------------

    We will continue to work closely with CDC to review measure testing 
results and feedback on an ongoing basis and continue to assess the 
validity of this measure and its impact on the quality of care in 
LTCHs. Further, CMS and CDC will develop and provide guidance to LTCHs 
to support the implementation of this measure, including clarification 
on measure specifications. This guidance will be informed by the 
current and ongoing CDC NHSN experience with VAE surveillance in the 
LTCH setting.
    Finally, we agree with the commenter who states that the former VAP 
bundle is out of date; hence, we have not adopted this bundle for 
implementation in the LTCHQR Program.
    Comment: Commenters requested clarification regarding how CMS 
intends to define VAEs in the LTCH setting. These commenters encouraged 
CMS to report only the two standardized infection ratios (SIRs) listed 
in the NHSN specifications for the measure: VACs and IVACs. The 
commenters referred to the proposed rule, which states that VAE 
``incorporates a range of ventilator-associated events, including 
ventilator-associated pneumonia (VAP), pulmonary edema, acute 
respiratory distress syndrome, sepsis, and atelectasis'' (79 FR 28267). 
The commenters clarified that according to the current specifications, 
VAE is defined not by the five aforementioned clinical conditions, but 
instead by quantitative changes in specific pathophysiologic 
parameters, including a decline in a patient's oxygenation level after 
a period of stability or improvement on the ventilator, evidence of 
infection or inflammation (for example, elevated body temperature), and 
laboratory evidence of respiratory infection. Commenters noted that the 
pathophysiologic changes which define VACs and IVACs could be due to a 
variety of clinical conditions including, but not limited to, those 
mentioned in the proposed rule. These commenters underscored that, as 
suggested by the current specifications, the use of quantitative 
parameters is appropriate at this time because available definitions of 
specific conditions leading to VAEs are fairly subjective, which could 
lead to unreliable or invalid data collection and reporting. Commenters 
noted that, as specified by the NHSN, the NHSN VAE Outcome measure 
reports two SIRs, VAC and IVAC, which are not intended to be a ``roll-
up'' of the five clinical conditions listed in the proposed rule. The 
commenters encouraged CMS to report the measure in a manner consistent 
with those specifications.
    Response: Our intent for the NHSN VAE Outcome measure as part of 
the LTCHQR Program is to collect and report data in alignment with NHSN 
measure specifications. Specifically, we will collect and report data 
on the two SIRs (VAC and IVAC) in alignment with the NHSN 
specifications. The measure would not be reported via a ``roll-up,'' or 
combined prevalence or incidence count of the five clinical conditions 
mentioned in the comment (ventilator-associated pneumonia (VAP), 
pulmonary edema, acute respiratory distress syndrome (ARDS), sepsis, 
and atelectasis). In the event that the measure specifications are 
revised through ongoing measure development by the CDC, the measure 
steward, we will align the data collection and reporting for the 
measure with revised measure specifications.
    Comment: A commenter expressed concerns about the NHSN VAE Outcome 
measure based on recent publications (Klouwenberg et al., 2014 \240\ 
and Lilly et al., 2014 \241\) and noted that these studies demonstrate 
that the new definition of VAE has poor sensitivity for detecting 
clinically verified VAP. The commenter expressed concern about the 
appropriateness of developing a quality measure based upon a clinical 
definition that research has shown to have poor sensitivity. The 
commenter encouraged CMS to work with stakeholders to improve the VAE 
definition before implementing the NHSN VAE Outcome measure.
---------------------------------------------------------------------------

    \240\ Klein Klouwenberg PM, van Mourik MS, Ong DS, Horn J, 
Schultz MJ, Cremer OL, Bonten MJ; MARS Consortium. Electronic 
Implementation of a Novel Surveillance Paradigm for Ventilator-
associated Events. Feasibility and Validation. Am J Respir Crit Care 
Med. 2014 Apr 15;189(8):947-55
    \241\ Lilly CM, Landry KE, Sood RN, Dunnington CH, Ellison RT 
3rd, Bagley PH, Baker SP, Cody S, Irwin RS; for the UMass Memorial 
Critical Care Operations Group. Prevalence and Test Characteristics 
of National Health Safety Network Ventilator-Associated Events. Crit 
Care Med. 2014 May 7. [Epub ahead of print].
---------------------------------------------------------------------------

    Response: We appreciate the commenter's concern regarding the 
sensitivity of the measure for detecting clinically verified VAP. 
Ultimately, it is a clinical diagnosis that is made by taking into 
account several pieces of information at the bedside. There is not a 
universally accepted standard approach that all LTCHs can agree on. 
With this in mind, the intent of VAE surveillance is not to provide a 
new surveillance VAP definition but instead to provide an objective 
measure--based on information that should be available for any patient 
on mechanical ventilation in any facility--that captures a broad range 
of conditions and complications in patients on mechanical ventilation 
understanding that infections are not the only potentially preventable 
complications of mechanical ventilation. Research indicates the VAE 
algorithm detects clinical conditions that may be preventable, 
including, but not limited to, pneumonia, ARDS, atelectasis, and 
pulmonary edema.
    Comment: Several commenters recommended that CMS delay the January 
1, 2016, implementation start

[[Page 50305]]

date for this measure. A commenter recommended CMS delay implementation 
until data submitted under the new VAE algorithm is reviewed for 
reliability and in order to allow time to support adequate training and 
resources for VAE data collection. Several commenters expressed a need 
for the NHSN VAE Outcome measure to be further tested and refined for 
the LTCH setting before it is adopted for use in the LTCHQR Program.
    A few commenters expressed a concern that the NHSN VAE Outcome 
measure was developed and tested in the acute care setting and 
recommended that CMS exercise caution in implementing the measure in 
the LTCH setting. A commenter stated there is need for better data on 
VAEs and responsiveness to quality improvement programs before the 
measure is considered suitable for inter-facility comparisons or pay-
for-performance programs. This commenter asked that the implementation 
of NHSN VAE Outcome measure be delayed until the measure can be 
validated in the LTCH setting, more is known about what portion of VAE 
is preventable, and until risk adjustment strategies for the measure 
have been developed. Another commenter expressed similar concerns about 
lack of LTCH-specific data currently available under the new VAE 
algorithm and stated that implementation of the measure in the LTCHQR 
Program would be premature until further data is available and 
standards of care are developed for preventing VAEs.
    Response: The CDC algorithm was developed for several health care 
settings, including LTCHs. While initial testing was conducted in acute 
care setting, the CDC continues to test the algorithm and to modify it 
based on assessment and end-user feedback. Further, LTCHs are acute 
care facilities and hence, while setting-specific testing is important, 
based on extensive evidence cited in our proposal, we believe that the 
impact this measure could have on the quality of care and patient 
outcomes in the LTCH setting justifies the need to implement this 
measure beginning January 1, 2016. CMS will continue to work closely 
with the CDC to review measure testing results and feedback on an 
ongoing basis and continue to assess the validity and reliability of 
this measure and its impact on the quality of care in LTCHs.
    Comment: A few commenters expressed concern about the resource-
intensive nature for data collection for this measure. A commenter 
expressed concern about the limitations of existing resources in LTCHs 
and noted that implementation of the measure will divert resources to 
NHSN VAE Outcome measure data collection and reporting activities and 
away from other valuable prevention activities. A commenter noted that 
some LTCHs do not have EHRs to facilitate data collection for this 
measure. Another commenter noted the complexity of the measure 
algorithm and the variety of patient scenarios that could be implicated 
and stated that these represent additional burden in collecting data 
for the NHSN VAE Outcome measure.
    Response: Based on evidence cited in our proposal, we believe the 
impact this measure could have on quality of care and patient outcomes 
justifies additional resources needed for measure data collection. We 
recognize that the implementation of this measure adds data collection 
and reporting burdens for facilities; however, we believe the initial 
burden to implement the measure and train staff is necessary to improve 
the quality of care for patients in the LTCHs. In addition, in 2013, 
approximately 25 percent (n=105) of all currently Medicare-certified 
LTCHs reported data on this measure to CDC's NHSN; this is evidence in 
support the feasibility of implementation of this measure in the LTCH 
setting.\242\ In addition, this measure was developed to facilitate 
potential automated outcome detection, which could eventually lead to 
decreased burden for LTCH.
---------------------------------------------------------------------------

    \242\ Data from CMS-CDC correspondence on February 10, 2014.
---------------------------------------------------------------------------

    Further, CMS and CDC will undertake training and stakeholder 
communication and outreach efforts in CY 2015 and CY 2016 to support 
the implementation of this measure in the LTCHQR Program, similar to 
our ongoing efforts since 2012 to support the implementation of 
previously adopted measures, including the CLABSI, CAUTI, and 
Healthcare Professional Influenza Vaccination measures.
    In addition to soliciting comments on our proposal to adopt the 
NHSN VAE Outcome measure for the LTCHQR Program, we also invited 
comments on our proposal to use the CDC's NHSN system for data 
collection and submission for this measure.
    We received no comments on the use of the NHSN system for data 
collection and submission of the VAE Outcome measure. Therefore we are 
finalizing the National Healthcare Safety Network (NHSN) Ventilator-
Associated Event (VAE) Outcome Measure, as proposed, for FY 2018 
payment update determination and subsequent years.
8. LTCHQR Program Quality Measures and Concepts Under Consideration for 
Future Years
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28268 through 
28269), we stated that 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 invited public 
comments on these measures and measure topics. We specifically invited 
public comments regarding the clinical importance of these measures and 
measure topics in the 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 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.

[[Page 50306]]

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

    Comment: Commenters supported the addition of patient experience of 
care measures for use in the LTCHQR Program. Specifically, a commenter 
supported an application of the HCAHPS survey for use in the LTCHQR 
Program. The commenter supported the collection of patient and 
caregiver experience through surveys that provide feedback that only a 
patient or their caregiver can provide. The commenter urged CMS to 
undertake the necessary testing to modify the HCAHPS survey to be 
appropriate for use within the LTCHQR Program. The commenter suggested 
some modifications to the HCAHPS that would be necessary prior to 
implementation. These include testing the HCAHPS questions in LTCHs and 
the addition of new questions about key topics relevant to the LTCH 
patient population. The commenter added that for many patients proxy 
respondents would be necessary to achieve a reliable response rate.
    Response: We appreciate the commenters' support of the HCAHPS 
survey in the LTCHQR Program, and we will take their recommendations 
into consideration in our measure development and testing efforts, as 
well as in our ongoing efforts to identify and propose appropriate 
measures for the LTCHQR Program in the future.
    Comment: Commenters noted the ``Severe Sepsis and Septic Shock: 
Management Bundle'' was not ready for use in the LTCHQR Program. A 
commenter noted that the bundle was endorsed for the acute care 
hospital setting and would need refinement and testing for use in the 
LTCH setting. Another commenter recommended additional review of 
``Severe Sepsis and Septic Shock: Management Bundle'' before proposing 
the bundle as a formal measure. The commenter noted that although 
sepsis is one of the leading causes of hospitalization and readmissions 
and results in significant morbidity, mortality, and increased cost in 
health care, the current bundle definition, including central line 
placement and central hemodynamic monitoring, may have other unintended 
consequences. The commenter underscored the NQF Patient Safety Standing 
Committee's recent recommendation that the item requiring measurement 
of central venous pressure be removed from this bundle. The commenter 
added that this recommendation is based on recent literature published 
on sepsis protocols, which found no significant benefit of the mandated 
use of central venous catheterization and central hemodynamic 
monitoring in all patients.
    Response: We appreciate the commenters' acknowledgement of the 
significant burden sepsis can cause on health care outcomes and costs. 
We will take their comments regarding this measure into consideration 
in our measure development efforts, as well as in our ongoing efforts 
to identify and propose appropriate measures for the LTCHQR Program in 
the future.
    Comment: A commenter did not support the inclusion of the 
``Institute for Healthcare Improvement Ventilator Bundle,'' as several 
components of the bundle (daily sedation reduction and daily weaning of 
ventilator settings) may not be applicable to patients who are on a 
long-term ventilator and may never be weaned. Another commenter 
supported the development of palliative care measures for the LTCHQR 
Program. Another commenter recommended CMS consider development and 
pilot testing of measure(s) related to antimicrobial stewardship, 
citing this measurement area as an important one given the fact that 
LTCHs are often at the epicenter of clusters and outbreaks of 
multidrug-resistant organisms. Another commenter recommended CMS 
consider including The Joint Commission tobacco performance measure set 
in the LTCHQR Program since identifying and treating tobacco use is a 
cost-effective and medically effective clinical intervention 
demonstrated to improve health and reduce costs. Another commenter 
supported the addition of care coordination measures in the LTCHQR 
Program and noted that since patients in the LTCH setting often receive 
services from multiple providers, a care coordination measure would 
represent an important opportunity to ensure holistic, high-quality 
care for the LTCH population. Finally, a commenter indicated support 
and a recommendation to include new quality measures, after the 
measures have been fully developed, tested, and endorsed by a multi-
stakeholder consensus organization. The commenter supported quality of 
life, functional

[[Page 50307]]

status, and other patient-reported outcomes performance measures.
    Response: We appreciate the commenters' recommendations, and we 
will take the commenters' suggestions into consideration in our measure 
development efforts, as well as in our ongoing efforts to identify and 
propose appropriate measures for the LTCHQR Program in the future.
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 period 
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. Revision to the Previously Adopted Data Collection Period 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 period 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 
the proposed rule (79 FR 28262), we proposed 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 the proposed rule, for the FY 2016 
payment determination, we proposed submission deadlines of February 15, 
2015, and May 15, 2015, 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 changes applicable to this measure (NQF 
#0680) are illustrated below for the FY 2016 payment 
determination. Please refer to section IX.C.6 of the preamble of this 
final rule for further information regarding this revision.

    Data Collection Period 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
      Data collection period (CY):          the LTCHQR program FY 2016
                                              payment determination
------------------------------------------------------------------------
Q4 (October 1--December 31, 2014)......  February 15, 2015.
Q1 (January 1--March 31, 2015).........  May 15, 2015.
------------------------------------------------------------------------

    Further, as discussed in section IX.C.6.a. of the preamble of the 
proposed rule (79 FR 28262), we proposed similar deadlines for the FY 
2017 payment determination and subsequent years for the LTCHQR Program. 
The changes applicable to this measure (NQF #0680) are 
illustrated below.

    Data Collection Period 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
      Data collection period (CY):          the 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 1--December 31, 2015    (for example, February 15,
 for the FY 2017 payment determination).  2016 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
 example, January 1--March 31, 2016 for   (for example, May 15, 2016 for
 the FY 2017 payment determination).      the FY 2017 payment
                                          determination).
------------------------------------------------------------------------

    We invited public comment on our proposal to revise the data 
collection timeline for Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-
Stay) (NQF

[[Page 50308]]

#0680) for the FY 2016 payment determination and subsequent 
years.
    Comment: A few commenters supported CMS' proposal to revise the 
data collection period 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. A commenter also noted 
this alignment reflects the influenza season and will reduce data entry 
time for LTCH staff.
    Response: We greatly appreciate commenters' support of our proposal 
to revise the data collection period and submission deadlines for NQF 
#0680 to better align with the influenza vaccination season.
    Comment: A commenter recommended that the NQF #0680 measure 
not apply to patients transferred from acute care hospitals since this 
would represent a duplicative compliance requirement between the two 
care settings.
    Response: We did not propose any changes to measure specifications 
for NQF #0680. As we stated in the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50860), the specifications for NQF #0680 are 
written to ensure that ``LTCHs follow current clinical guidelines to 
assess whether a patient should receive an influenza vaccine and to 
ensure that, when clinically indicated, each patient only receives one 
influenza vaccine.'' For patients who did not receive the influenza 
vaccine in the LTCH, item O0250 on the LTCH CARE Data Set allows the 
LTCH to indicate why the vaccine was not received in the facility, 
including selecting an option indicating that the patient received the 
vaccine outside of the facility.
    In addition, because this measure reports on patients who received 
the influenza vaccine either inside or outside the facility/hospital, 
for a patient who received the vaccine at another facility prior to 
arriving at the LTCH, there is no incentive for the LTCH to over-
vaccinate or provide duplicative vaccination. Facilities will need to 
adhere to the principles of proper care coordination and documentation 
to avoid over-immunization as well as under-immunization. However, the 
measure specifications are designed to encourage facilities to 
vaccinate only when the patient has not already received the 
vaccination in another setting and only when clinically indicated. We 
refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50860) for 
more information on this topic.
    After consideration of the public comments we received, we are 
finalizing the revision to the data collection period and submission 
timeline 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.
d. Data Submission Mechanisms for the FY 2018 Payment Determination and 
Subsequent Years for New LTCHQR Program Quality Measures and for 
Revisions to Previously Adopted Quality Measures
    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) measure, in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28270), we proposed that all LTCHs would be 
required to collect data using the LTCH CARE Data Set.\243\ 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.
---------------------------------------------------------------------------

    \243\ 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 CMS 
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 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).
---------------------------------------------------------------------------

    For the NHSN VAE Outcome measure, we proposed 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 NHSN VAE 
Outcome Measure can be found at: http://www.cdc.gov/nhsn/PDFs/pscManual/10-VAE_FINAL.pdf.
    We invited public comments on these proposals.
    Comment: A commenter supported the use of the LTCH CARE Data Set 
for the two functional status measures. The commenter appreciated CMS' 
use of the LTCH CARE Data Set to streamline reporting across acute and 
post-acute settings.
    Response: We appreciate the commenter's feedback and support of the 
use of the LTCH CARE Data Set for collection of the functional status 
measures.
    We received no comments on our proposed data submission mechanisms 
for the NHSN VAE Outcome measure.
    After consideration of the public comments we received, we are 
finalizing that all LTCHs would use the LTCH CARE Data Set (Version 
3.00) to collect data for the application of Percent of Residents 
Experiencing One or More Falls with Major Injury (Long-Stay) (NQF 
#0674) and the two functional status measures. We are also 
finalizing that the QIES ASAP system will remain the data submission 
mechanism for the LTCH CARE Data Set. Further, we are finalizing that 
for the NHSN VAE Outcome measure, LTCHs would use the CDC's NHSN 
reporting and submission infrastructure for the LTCHQR Program.
e. Data Collection Period 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 final rule, we 
discuss our proposal, for the FY 2016 payment determination and 
subsequent years, to revise the data collection period 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 period 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 period and submission deadlines 
for the remaining quality measures applicable to the FY 2018 payment 
determination as listed in the following tables.

[[Page 50309]]



Timeframes for Data Collection of LTCHQR Program Quality Data for the FY
                       2018 Payment Determination
------------------------------------------------------------------------
             NQF measure ID                   Data collection period
------------------------------------------------------------------------
NQF #0138......................  January 1, 2016-December 31,
                                          2016.
NQF #0139......................  January 1, 2016-December 31,
                                          2016.
NQF #0678......................  January 1, 2016-December 31,
                                          2016.
NQF #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
      Data collection period: CY 2016         for the 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
         Data collection period             the 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 proposed to adopt for the FY 2018 
payment determination and subsequent years, we proposed the following 
data collection period and submission deadlines.

 Data Collection Period 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 period
------------------------------------------------------------------------
National Healthcare Safety Network       January 1, 2016-December 31,
 (NHSN) Ventilator-Associated Event       2016.
 (VAE) Outcome Measure.
Functional Outcome Measure: Change in    April 1, 2016-December 31,
 Mobility among Long-Term Care Hospital   2016.
 Patients Requiring Ventilator Support.
Percent of Long-Term Care Hospital       April 1, 2016-December 31,
 Patients with an Admission and           2016.
 Discharge Functional Assessment and a
 Care Plan That Addresses Function.
------------------------------------------------------------------------


   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
         Data collection period             the 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 50310]]


   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
          Data collection period              for the 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.
------------------------------------------------------------------------
* Note that data collection implementation begins Q2.

    We invited public comments on these data collection timelines and 
submission deadlines for the three new quality measures for FY 2018 
payment determination.
    We received no comments on these proposals. Therefore, we are 
finalizing the data collection period and submission deadlines for the 
three measures (the two functional measures and the NHSN VAE Outcome 
measure), as proposed.

    f. 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). In the 
FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28272), we proposed, 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 will continue through December 31, 2016, as previously 
finalized for the FY 2018 payment determination. This change in the 
data collection start date will 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 will begin on January 1 and continue through December 31. We 
note that these proposed changes will 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 final rule for further information and rationale.

  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
      Data collection period: CY 2016         for the 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.
------------------------------------------------------------------------
* Note that data collection implementation begins Q2.

    We invited 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.
    Comment: Commenters supported CMS' proposal to delay the start of 
data collection for the NQF #0674 measure until April 1, 2016, 
for the FY 2018 payment determination.
    Response: We appreciate commenters' support of our proposal to 
revise the data collection period and quarterly submission deadlines 
for the application of NQF #0674 and are finalizing the 
proposed revision to the data collection period and quarterly 
submission deadlines for this measure for the FY 2018 payment 
determination. We reiterate that this change in data collection of this 
measure would only apply to the FY 2018 payment determination year 
only; for all subsequent years, data collection for this measure would 
begin on January 1 and continue through December 31.
    After consideration of the public comments we received, we are 
finalizing the data collection period 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, as proposed. For all subsequent years, 
data collection for this measure would begin on January 1 and continue 
through December 31.
g. 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 proposed in 
section IX.C.7. of the preamble of the proposed rule, we proposed the 
following data collection timelines and submission deadlines.

    Data Collection Period and Submission Deadlines of LTCHQR Program
           Quality Data for the FY 2019 Payment Determination
------------------------------------------------------------------------
  NQF neasure ID or measure name (when
     NQF measure ID not available)            Data collection period
------------------------------------------------------------------------
National Healthcare Safety Network       January 1, 2017-December 31,
 (NHSN) Catheter-Associated Urinary       2017.
 Tract Infection (CAUTI) Outcome
 Measure (NQF #0138).
National Healthcare Safety Network       January 1, 2017-December 31,
 (NHSN) Central Line-Associated           2017.
 Bloodstream Infection (CLABSI) Outcome
 Measure (NQF #0139).
Percent of Residents or Patients with    January 1, 2017-December 31,
 Pressure Ulcers That Are New or          2017.
 Worsened (Short-Stay) (NQF 0678).

[[Page 50311]]

 
Percent of Residents or Patients Who     October 1, 2017-March 31, 2018.
 Were Assessed and Appropriately Given
 the Seasonal Influenza Vaccine (Short-
 Stay) (NQF #0680).
Influenza Vaccination Coverage among     October 1, 2017-March 31, 2018.
 Healthcare Personnel (NQF 0431).
National Healthcare Safety Network       January 1, 2017-December 31,
 (NHSN) Facility-Wide Inpatient           2017.
 Hospital-Onset Methicillin-resistant
 Staphylococcus areus (MRSA) Bacteremia
 Outcome Measure (NQF #1716).
National Healthcare Safety Network       January 1, 2017-December 31,
 (NHSN) Facility-Wide Inpatient           2017.
 Hospital-Onset Clostridium difficile
 Infection (CDI) Outcome Measure (NQF
 #1717).
Application of Percent of Residents      January 1, 2017-December 31,
 Experiencing One or More Falls with      2017.
 Major Injury (Long-Stay) (NQF 0674).
National Healthcare Safety Network       January 1, 2017-December 31,
 (NHSN) Ventilator-Associated Event       2017.
 (VAE) Outcome Measure.
Functional Outcome Measure: Change in    January 1, 2017-December 31,
 Mobility among Patients Requiring        2017.
 Ventilator Support.
Percent of LTCH Patients with an         January 1, 2017-December 31,
 Admission and Discharge Functional       2017.
 Assessment and a Care Plan That
 Addresses Function.
------------------------------------------------------------------------


    Data Collection Period 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
    Data collection period: CY 2017         the 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.
------------------------------------------------------------------------


    Data Collection Period 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
         Data collection period             the LTCHQR Program FY 2019
                                              payment determination
------------------------------------------------------------------------
October 1, 2017-December 31, 2017......  February 15, 2018.
January 1, 2018-March 31, 2018.........  May 15, 2018.
------------------------------------------------------------------------


  Collection Period 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
         Data collection period             the LTCHQR Program FY 2019
                                              payment determination
------------------------------------------------------------------------
October 1, 2017-March 31, 2018.........  May 15, 2018.
------------------------------------------------------------------------

    We invited public comment on these proposals. We received no 
comments on these proposals. Therefore, we are finalizing the data 
collection period and submission deadlines for the FY 2019 payment 
determination and subsequent years, as proposed.
10. 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

[[Page 50312]]

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, in the FY 
2015 IPPS/LTCH PPS proposed rule (79 FR 28273 through 28275), we 
proposed 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 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, for 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 proposed 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 proposed 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 proposed 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 proposed 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 135 day post-quarterly deadline LTCHs were 
previously required to meet. We feel that this is an additional 
challenge that LTCHs may face. We invited comment on other obstacles 
LTCHs may face in meeting a higher level of compliance with regard to 
submission of quality data using the LCDS.
    Comment: A few commenters noted that individual LTCHs may have a 
higher than average percentage of incomplete data due to emergent 
discharges, as well as patients with fecal management systems. 
Commenters stated that emergent discharges do not allow for the 
collection of complete data, and that CMS guides LTCHs to enter a dash 
(-) for item H0400 (Bowel Continence) for those patients that have 
fecal management systems in place, rendering any associated admission 
assessment incomplete. These commenters suggested that 10 percent to 15 
percent of any LTCH's patients may fall under one of the two above 
categories, making it difficult to comply with proposed data completion 
thresholds. Finally, the commenters suggested that completeness in the 
LTCH CARE Data Set Planned Discharge assessments may be a better metric 
of a facility's compliance with quality reporting completion 
thresholds.
    Response: The proposed data completion threshold for data submitted 
using the LTCH CARE Data set is 80 percent. We have considered emergent 
discharges as one reason that LTCHs may not meet data completion 
thresholds approaching 100 percent. While we understand that LTCHs may 
not have the opportunity to complete data item H0400 (Bowel Continence) 
for those patients with fecal management systems in place, we believe 
that LTCHs should be able to meet our currently proposed threshold of 
80 percent and can confirm that the majority of LTCHs are meeting this 
threshold presently. With respect to the future expansion of our data 
completion threshold policy, we will monitor LTCH performance on each 
required item and take steps to account for any such low response rate. 
If we find that the majority of LTCHs are failing to consistently 
respond to any one of our required items, we will either take action to 
modify that item on the LTCH CARE Data Set, or we will address the 
problem as it relates to data completion threshold compliance in future 
rulemaking.
    With regard to the commenters' suggestion that we base completion 
thresholds on only planned discharge assessment, we respectfully 
disagree. We believe that the LTCH CARE Data Set admission assessment 
is an important factor in collecting data with regard to risk 
adjustment items. However, we will consider the effect of the inclusion 
of unplanned discharge data elements in our compliance determinations 
based on data completion thresholds, as we monitor this program.
b. 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. In the 
FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28274), we proposed 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 proposed 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 rule, ``completed'' is 
defined as having provided actual patient data, as opposed to a non-

[[Page 50313]]

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 invited public comment 
on circumstances that might prevent LTCHs from meeting this level of 
compliance. All items that we proposed 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 also proposed 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 proposed 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.
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 the 
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 final rule.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28275), we 
proposed 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 
proposed 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 proposed to apply this same threshold.
d. Application of the 2 Percentage Point Reduction for LTCHs That Fail 
To Meet the Data Completion Thresholds
    As we discussed 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. In the FY 2015 IPPS/LTCH PPS proposed rule (79 
FR 28275), we proposed that these data completion thresholds must be 
met in addition to the data validation threshold of 75 percent we 
discuss below, in order to avoid a 2 percentage point reduction to 
their applicable FY annual payment update. While we proposed 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 invited public comment on these proposals.
    Comment: A few commenters supported CMS' proposal to establish data 
completion thresholds, noting that it is a fundamental step to ensure 
the accuracy of the LTCH quality reporting data. A few commenters 
stated that CMS' proposed policy will facilitate more accurate public 
reporting in the future and agreed with our proposed numeric standards.
    Response: We thank the commenters for their support.
    Comment: Commenters recommended that CMS apply the data completion 
standards no earlier than the FY 2017 payment determination, instead of 
FY 2016. These commenters further stated that a significant amount of 
data for FY 2016 has already been collected and submitted and that it 
would be inappropriate and unfair to apply the data completion 
standards to data submitted before the standards were

[[Page 50314]]

even proposed and therefore known to LTCHs.
    Response: Currently, the compliance standard applicable to each 
LTCH is to timely submit all required quality data, and LTCHs should 
already be ensuring that the data that they submit is complete and 
accurate. Thus, applying the data completion standards to CY 2014 data 
merely ensures that LTCHs are complying with applicable standards and 
that payments made to LTCHs are based on complete and accurate quality 
data.
    Comment: A commenter suggests that LTCHs should not be penalized by 
a 2 percentage point reduction to the annual payment update based on 
completion thresholds, citing that emergency discharges make it 
difficult to complete assessments.
    Response: We believe that the number of unplanned discharges in 
LTCHs is not so substantial that it will prevent LTCHs from meeting or 
exceeding the proposed data completion threshold of 80 percent for data 
submitting using the LTCH CARE Data Set. We will continue to monitor 
submission patterns and completion thresholds for all data items and 
appropriately investigate and address any submission patterns that lead 
us to believe that a systematic issue is preventing LTCHs from 
complying with our data completion thresholds.
    After consideration of the public comments we received, we are 
finalizing the LTCHQR Program data completion threshold for the FY 2016 
payment determination and subsequent years, as proposed.
11. Data Validation Process for the FY 2016 Payment Determination and 
Subsequent Years
a. 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. In the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28275 through 28276) we proposed, 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 proposed 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 
proposed 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 proposed 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 proposed 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 proposed 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 
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 proposed 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

[[Page 50315]]

proposed 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.
    Comment: Several commenters believed that the proposed validation 
is a fundamental step to ensure the accuracy of the LTCH quality 
reporting data.
    Response: We thank the commenters for their support for this 
proposal.
    Comment: Several commenters suggested that CMS begin the validation 
standards no earlier than FY 2017. Although the commenters believed 
that validation is an important step to ensuring that hospitals are 
collecting measure data appropriately, they believed it would be 
inappropriate to validate data submitted for FY 2016 payment 
determination, as much of those data will be submitted prior to the 
effective date of CMS' finalized data accuracy validation policy on 
October 1, 2014.
    Response: We agree that validation is important not only to ensure 
hospitals are collecting data appropriately, but also in providing 
feedback to LTCHs regarding possible differences in the findings of our 
validation effort. We believe the feedback a facility will receive, 
even if they are well above the validation minimum, could be valuable 
to both the LTCHs and to CMS. We are confident that most LTCHs have 
been submitting data accurately. Although much of the data for FY 2016 
has been submitted, the FY 2013 IPPS/LTCH PPS final rule (77 FR 53620) 
states that LTCHs are required to submit the subset of data elements 
necessary to enable CMS to validate that the pressure ulcer measure 
data elements were accurately reported. We believe that we are 
operating within our authority to validate quality data. Currently, the 
compliance standard applicable to each LTCH is to timely submit all 
required quality data, and LTCHs should already be ensuring that the 
data that they submit is complete and accurate. Thus, validating CY 
2014 data ensures that LTCHs are complying with applicable standards 
and that payments made to LTCHs are based on complete and accurate 
quality data.
    Comment: Several commenters recommended that the CMS make the 
validation process as transparent as possible, particularly since it is 
new to the LTCHQR Program.
    Response: We will use the requested charts to validate the 
following data elements: Functional mobility: ``Lying to Sitting on 
Side of Bed;'' ``Bowel continence;'' ``Active Diagnosis;'' ``PVD;'' 
``Active Diagnosis;'' ``Diabetes Mellitus;'' ``Height;'' ``Weight;'' 
``Worsening stage 2 Pressure Ulcer;'' ``Worsening stage 3 Pressure 
Ulcer;'' and, ``Worsening stage 4 Pressure Ulcer.'' We intend to share 
our data accuracy validation findings with the randomly selected LTCHs, 
so that they may gain an understanding of any discrepancies between the 
medical record and the LTCH CARE Data Assessment to which the medical 
record is being compared. We will also incorporate examples of our 
findings into LTCH training, special open door forums, and LTCH 
manuals, ensuring that the greater LTCH community benefits from this 
validation effort as well.
b. Application of the 2 Percentage Point Reduction for LTCHs That Fail 
To Meet the Data Accuracy Threshold
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28276) we 
proposed 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 proposed 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 proposed 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 invited public comment on these proposals and suggestions to 
improve the utility of the approach or to reduce the burden on LTCHs.
    Comment: A commenter noted that 260 LTCHs would represent 
approximately 60 percent of the entire industry, which they believed 
was excessive.
    Response: We thank the commenter for voicing this concern and will 
take the proportion into consideration in future rulemaking.
    Comment: A commenter asked whether ``IPPS comparable'' cases will 
be required to meet LTCHQR Program requirements or those that fall 
under ACH reporting requirements.
    Response: We presume that the commenter is referring to current 
short stay outlier policy, but they could be referencing future 
regulation under the SGR Reform Act, where the IPPS comparable amount 
is one of the payment options for a ``site neutral'' case. Regardless, 
the facility/unit would be subject to the LTCHQR Program, as it is 
still an LTCH when it is paid an IPPS comparable amount, and the 
payment is a form of LTCH PPS payment.
    Comment: A commenter recommended that CMS annually announce which 
LTCHs will be subject to validation and disseminate information about 
when these LTCHs should expect to begin receiving requests for medical 
records.
    Response: We recognize the need to communicate with LTCHs whether 
or not they will be selected for validation. We will use the LTCHQR 
Program Web site, as well as direct communication with LTCHs selected 
for validation, to communicate time frames and deadlines regarding the 
data accuracy validation effort. In addition, we will use the LTCHQR 
Program Web site to announce, and offer access to, a new listserv 
specifically for the LTCHQR Program, which we will use to communicate 
with the provider community in the near future.
    Comment: Commenters expressed concern that the threshold compliance 
of 75 percent agreement was too high for this first attempt to validate 
the Pressure Ulcer data. Commenters suggested that there would be a 
great deal of variability in the reporting of the Pressure Ulcer 
measure and that this should be an opportunity for CMS to educate LTCHs 
on appropriate documentation and reporting to improve the process. 
Commenters suggested that a 60 percent compliance threshold would be 
more appropriate validation.
    Response: We note that the 75 percent agreement is the single point 
estimate of the proportion in agreement; we proposed that the upper 
bound of a 95 percent confidence interval be the value that must exceed 
the 75 percent compliance threshold. We believe this takes into account 
the inherent variability to be found in the pressure ulcer data. In 
addition, the 75 percent proportion agreement is consistent with the 
other data quality programs currently underway, for example, the 
Hospital IQR Program, 42 CFR 412.140(d)(2), and the Hospital OQR 
Program, 42 CFR 419.46(e)(2). We feel it is important to promulgate 
consistent

[[Page 50316]]

standards when we deal with the various quality data we are collecting.
    Comment: A commenter requested CMS promulgate regulations for the 
validation process and provide the credentials, inter-rater reliability 
and detail the training provided to the contractor performing the 
validation.
    Response: We will make any future data accuracy validation 
regulations known to the LTCH community through future notice-and-
comment rulemaking. All chart reviews will be performed by a licensed 
registered nurse trained in medical record review and comparison, 
utilizing the quality measure data specifications in the LTCH Quality 
Reporting Program Manual. Specified training will be provided before 
the actual reviews, which will include ensuring that there is inter-
rater reliability among the reviewers prior to implementation of the 
data validation process.
    Comment: A few commenters suggested that CMS adopt a two-level data 
validation process similar to the process used by the MACs for the IRF 
Compliance Percentage Threshold. An initial small sample of charts 
would be requested from the facilities randomly selected for 
validation. If the facility did not meet the initial threshold for 
compliance, a larger, second sample of charts would be requested. The 
commenters believed that 5 charts is too small of a sample size and 
that if two of the five charts selected for review are perceived to 
contain errors the facility would not meet the 75 percent validation 
score. Lastly, the commenters suggested that CMS select the LTCHs for 
validation from all LTCHs participating in the Medicare program.
    Response: We will consider this approach for future years. We 
understand the concern regarding a relatively low sample of charts, but 
wish to explain that the overall validation score will be determined 
based on the aggregate percentage of reported elements (out of all 
reportable elements) in all of the sampled charts, not on the 
percentage of reported elements in each individual chart. Each chart 
will be evaluated on the 9 required data elements. Finally, we would 
like to confirm that the sample of randomly selected LTCHs will be 
drawn from the universe of all Medicare-certified LTCHs, as suggested 
by the commenter.
    After consideration of the public comments we received, we have 
decided to further explore suggestions from commenters before 
finalizing the LTCH data validation process that we proposed. 
Therefore, we are not finalizing our LTCH data validation proposal at 
this time.
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 welcomed public comment on what we should consider when 
developing future proposals related to public reporting of quality 
measures for the LTCHQR Program.
    Comment: Several commenters encouraged CMS to work with LTCHs to 
ensure an opportunity to review potential displays of quality data and 
to provide feedback prior to public reporting.
    Response: We thank the commenters for taking the time to express 
these views and suggestions regarding public reporting and will take it 
into consideration for future public reporting development.
    Comment: A commenter noted CMS should develop reports in the CASPER 
Reporting Application to indicate patients included in the Pressure 
Ulcer measure.
    Response: We plan to begin designing and making CASPER reports 
accessible for LTCHs in the near future.
    We thank the commenters for the responses, and we will consider 
them as we develop future proposals related to public reporting of 
quality measures for the LTCHQR Program.
13. 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 proposed to instead use the phrase ``exception and 
extension'' requirements for purposes of clarity. For the FY 2017 
payment determination and subsequent years, in the FY 2015 IPPS/LTCH 
PPS proposed rule (79 FR 28276 through 28277), we proposed 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 proposed 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

[[Page 50317]]

extension to an LTCH, the LTCH will still remain responsible for 
submitting quality data collected during the time frame 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 
proposed 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 problems will 
happen often, we do not anticipate granting a waiver or extension on 
this proposed basis frequently. We proposed 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 invited public comment on these proposals.
    Comment: A few commenters supported the proposed Exception/
Exemption proposal.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing the LTCHQR Program submission exception and extension 
requirements for the FY 2017 payment determination and subsequent 
years, as proposed.
14. 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. LTCHQR Program Reconsideration and Appeals Procedures for the FY 
2016 Payment Determination and Subsequent Years
    For the FY 2016 payment determination and subsequent years, in the 
FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28277 through 28278), we 
proposed 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 
proposed 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 proposed that an LTCH 
may withdraw its request at any time and may file an updated request 
within the proposed 30-day deadline. We also proposed 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 proposed 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 proposed 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

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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 proposed to require an LTCH that believes it was incorrectly 
identified as being subject to the 2-percentage point reduction to its 
annual 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 Provider Reimbursement Review Board (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 invited public comment on the proposed procedures for 
reconsideration and appeals.
    Comment: Several commenters supported the proposal to continue the 
reconsideration process for FY 2016.
    Response: We thank the commenters for their support.
    Comment: A commenter supported the reconsideration process, but 
believed that it should be expanded to include data validation.
    Response: We believe the current reconsideration process could be 
utilized for reconsideration of the validation findings, as long as all 
of the documentation used for the request for reconsideration was 
submitted at the time of validation. As noted above, we are finalizing 
our data completeness proposal, but we are not finalizing our data 
validation proposal at this time.
    Comment: A commenter stated that CMS should set the reconsideration 
process in regulation as has been done in other administrative appeals 
processes. In addition, the commenter did not believe that CMS has 
demonstrated the ability to manage this level of additional 
administrative complexity in a prompt manner. The commenter believed 
that CMS should allow LTCHs to appeal to the PRRB without having to go 
through CMS first.
    Response: We plan to propose regulations for reconsideration in 
future rulemaking. We note that while some CMS programs have codified 
their reconsideration processes in regulations, not all CMS 
reconsideration processes have been codified. We disagree that we have 
not demonstrated the ability to manage this level of additional 
administrative complexity. The LTCHQR Program completed all 
reconsiderations and notified all LTCHs of those reviews within 60 days 
in FY 2013. We believe that requiring LTCHs to first submit to the CMS 
reconsideration process prior to requesting a hearing at the PRRB will 
allow us the opportunity to overturn an erroneous decision when we have 
a systematic process and resources in place to do so, and ultimately 
decrease any unnecessary burden on the PRRB process.
    After consideration of the public comments we received, we are 
finalizing the LTCHQR Program reconsideration and appeals procedures 
for the FY 2016 payment determination and subsequent years, as 
proposed.
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, in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28278) we solicited feedback and input 
from LTCHs and the public on EHR adoption and HIE usage. We noted that 
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 stated 
that 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.
    Comment: Commenters expressed support of the adoption and use of 
EHRs, HIEs and electronic prescribing in the LTCH setting. The 
commenters suggested that it is a critical step to achieving 
efficiencies and improving the quality of care provided by LTCHs, and 
that it is important to allow LTCHs to exchange information with other 
types of providers to improve care coordination and to participate in 
Accountable Care Organizations and other reform efforts.
    Response: We thank the commenters for their support.
    Comment: Some commenters urged CMS to consider a funding incentive 
program for the adoption of EHR technology by LTCHs that includes the 
same opportunities afforded to eligible physicians, CAHs, and acute 
care hospitals under the HITECH provisions of Public Law 111-5, the 
American Recovery and Reinvestment Act of 2009. The commenters noted 
that the lack of funding is a significant challenge to EHR adoption in 
the LTCH setting and calls into question the feasibility of requiring 
EHR use. Another commenter suggested that it is premature to consider 
the further development of electronic clinical quality measures for the 
LTCH setting until compensation is offered for implementing EHRs.
    Response: We believe that these recommendations and concerns are 
important considerations related to EHR adoption and HIE usage in the 
LTCH setting and help to inform our understanding of these issues.
    Comment: Several commenters indicated that their LTCHs have adopted 
EHR technology and indicated challenges they have been facing. First, 
the amount of information generated by the EHRs can be overwhelming, 
and there is a significant challenge associated with utilizing the 
information in a timely and meaningful way. Second, the lack of 
interoperability between acute care hospitals' and LTCH EHRs make 
information exchange difficult. Third, the information currently being 
collected by HIEs are rudimentary and does not necessarily meet the 
information needs to LTCHs.
    A commenter indicated that not all proposed and new LTCH quality 
measures utilize EHR information and, therefore, suggested that LTCHs 
face the burden of manually reviewing each patient's entire medical 
record regardless of whether EHR technology has been adopted.
    Response: We thank the commenters for their observations. We 
believe that these concerns are important

[[Page 50319]]

considerations related to EHR adoption and HIE usage in the LTCH 
setting and help to inform our understanding of these issues.

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 
Medicare 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 
Medicare 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 Medicare 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 Medicare 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28278 through 28279) we proposed 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 Medicare 
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 proposed to incrementally shift the Medicare EHR Incentive 
Program reporting periods for CQMs. Specifically, for 2015 and 2016, we 
proposed 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 noted that this proposal would only apply for eligible hospitals 
and CAHs submitting CQMs electronically for 2015 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, 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 proposed 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, in the FY 2015 IPPS/LTCH PPS proposed rule (79 
FR 28242 through 28243) the Hospital IQR Program proposed to change its 
submission period for electronic CQMs from annual to quarterly 
submission. We refer readers to the Hospital IQR Program discussion in 
section IX.A.7.h. of the preamble of that proposed rule for more 
information about this proposal. Therefore, for the CY 2015 and 2016 
reporting periods, we also proposed 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.

[[Page 50320]]



      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 Medicare 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.........................  Q1       January 1-March 31,    January 1-March 31,    Data must be submitted by
Reporting Period.............            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 invited public comment on these proposals.
    Comment: Many commenters supported CMS' proposed alignment between 
the Medicare EHR Incentive Program and Hospital IQR Program. Commenters 
appreciated CMS' efforts to align these programs and felt alignment 
would reduce overall quality reporting burden. Several commenters 
specifically expressed their support of the proposal to align the 
reporting and submission timelines of CQMs for the Medicare EHR 
Incentive Program with reporting and submission timelines for the 
Hospital IQR Program stating that this alignment would reduce confusion 
among the programs and reduce reporting burden. A few commenters noted 
that the proposal did not address the reporting and submission timeline 
for reporting CQMs via attestation, or the reporting and submission 
timelines of the meaningful use objectives. Some of these commenters 
requested that CMS clarify whether those timelines would also be 
affected by this proposal.
    Response: We appreciate the comments in support of our alignment 
efforts with the Hospital IQR Program, and agree that our proposal to 
align timelines for the programs would reduce confusion and reporting 
burden. For this reason, we are finalizing our proposal, with the 
modifications discussed below, to align the reporting and submission 
timelines for CQMs that are reported electronically for the Medicare 
EHR Incentive Program with the reporting and submission timelines of 
the Hospital IQR Program on the calendar year for 2015. Although it is 
still our general goal to continue this alignment on a calendar year 
basis for 2016, we are not finalizing the proposals for 2016 at this 
time and will address the policy for 2016 in future rulemaking. We will 
continue to evaluate our policies for 2016, and maintain our goal of 
alignment with the Hospital IQR Program.
    We note that we did not propose to 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, and thus, the policy will remain 
the same. We also note that we will consider these comments and 
possible alignment of CQMs reported by attestation in future rule 
making.
    Comment: Many commenters expressed their views regarding CMS' 
proposal to require quarterly submission of CQMs reported 
electronically for the Medicare EHR Incentive Program. In general, 
commenters felt it was premature to require quarterly submission of 
CQMs in 2015 for the Medicare EHR Incentive Program given the delays 
with certification of EHR technology in 2014 and anticipated

[[Page 50321]]

changes in attestation requirements. Commenters also expressed concerns 
over whether EHRs would be ready for quarterly reporting by the first 
quarter of 2015, and suggested that CMS consider a pilot program for 
quarterly reporting instead of requiring it for 2015.
    Response: We refer readers to the Hospital IQR Program discussion 
in section IX.A.9.d. of the preamble of this final rule for further 
discussion of the comments related to quarterly reporting.
    We appreciate and understand the commenters' concerns regarding 
quarterly reporting, and understand the feedback we have received from 
stakeholders concerning delays in certification of EHR technology. We 
additionally acknowledge that our requirement to report the most recent 
version of the CQMs as finalized below poses a challenge to eligible 
hospitals and CAHs in implementing quarterly reporting as EHR vendors 
can be certified to 2014 CEHRT without updating to the most recent 
version of CQMs. We note that at this time, we do not plan to offer 
quarterly reporting on a pilot basis in 2015.
    Based on commenters' concerns, and the additional challenges posed 
by requiring the most recent version of the CQMs for 2015 reporting, we 
have decided not to finalize our proposal to require quarterly 
submission of electronically reported CQMs for the Medicare EHR 
Incentive Program in 2015, and instead maintain in 2015 our policy of 
one annual submission period to align with the submission period for 
CQMs reported electronically under the Hospital IQR Program. This 
annual submission period begins on January 2 and ends on November 30 
(for example, for the reporting periods in 2015, the submission period 
is January 2, 2015 through November 30, 2015).
    In addition, and to align with the Hospital IQR Program in 2015, we 
are not finalizing our proposal to require three quarters of CQM data 
for calendar year 2015. Instead, for CQM data submitted electronically, 
we will require one calendar quarter of data for 2015 from either Q1 
(January 1, 2015-March 31, 2015), Q2 (April 1, 2015-June 30, 2015), or 
Q3 (July 1, 2015-September 30, 2015). As noted above, at this time, we 
are not finalizing any proposals related to our reporting and 
submission requirements for 2016. We refer readers to the Hospital IQR 
Program discussion in section IX.A.9.d. of the preamble of this final 
rule for further discussion of the comments related to quarterly 
reporting.
    We also note that this policy only applies for eligible hospitals 
and CAHs submitting CQMs electronically for 2015. Therefore, as 
finalized in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50903 through 
50905), hospitals demonstrating meaningful use for the first time in 
2015 are still required to report CQMs by attestation for a continuous 
90-day period in FY 2015, or to report CQMs electronically, by July 1 
of the given year to avoid the Medicare penalty in the subsequent year. 
Medicaid-only providers will continue to report according to State 
requirements. In addition, as stated above, this policy does 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.
    In summary, after consideration of the public comments we received, 
we are finalizing our proposal, with the modifications described above, 
to align the reporting and submission timelines of the Medicare EHR 
Incentive Program with those of the Hospital IQR Program on the 
calendar year for CQMs that are reported electronically in 2015.
    We are not finalizing our proposal to require quarterly submission 
of CQM data for 2015; instead, we will maintain one annual submission 
period. We are also not finalizing our proposal to require three 
calendar quarters of CQM data for 2015, but instead, for data submitted 
electronically, we will require one calendar quarter of data from Q1, 
Q2, or Q3 of 2015. We are not finalizing our proposals for 2016 in this 
final rule, and will address the policy for 2016 in future rule making.
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 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28279 through 
28280), we stated that 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 noted 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, 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 
noted 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 recommended 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

[[Page 50322]]

hospitals. We note again that reporting via attestation would not count 
towards the reporting requirements for the Hospital IQR Program.
    Comment: Several commenters expressed views related to CMS' 
proposal not to accept aggregate-level data using QRDA-III for 
reporting in 2015. Most commenters were disappointed to learn that it 
was not feasible for CMS' systems to accept QRDA-III files in 2015 and 
urged CMS to continue to improve systems such that we would be able to 
accept QRDA-III data in the future. Some commenters requested further 
discussion of CMS' plan to accept QRDA-III data in the future.
    Response: We understand the concerns raised by commenters, and we 
expect to continue to review and improve our systems for future years 
to be able to accept aggregate level QRDA-III files. We note that our 
plans regarding the acceptance of QRDA-III files will be addressed in 
future rule making.
    Comment: A few commenters suggested that CMS and ONC remove the 
requirement for EHR technology designed for the inpatient setting to be 
certified to produce QRDA-III formatted files if CMS would not be able 
to receive QRDA-III data in the future in order to prevent unnecessary 
work related to the development of these files.
    Response: We appreciate the commenters' concerns and suggestion. As 
we continue to review and improve our systems, we will continue to 
evaluate whether QRDA-III is a feasible option for future years and 
whether changes to existing policies would be appropriate.
    Comment: A few commenters requested additional information about 
the storage and maintenance of QRDA-I files.
    Response: We note that the storage and maintenance of QRDA-I files 
is outside the scope of this final rule.
    After consideration of the public comments we received, and for the 
reasons set forth above, we are finalizing the policy as proposed. For 
the Medicare EHR Incentive Program, eligible hospitals and CAHs may 
report their CQMs electronically using QRDA- I (patient-level data) or 
via attestation (aggregate-level data). We note again that reporting 
via attestation would not count towards the reporting requirements for 
the Hospital IQR Program.
4. 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 54087 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). In the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28280) we proposed 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 invited public comment on these proposals. We have addressed 
several of the public comments received in this section of this final 
rule, and we also refer readers to the Hospital IQR Program discussion 
in section IX.A.9.d. of the preamble of this final rule for further 
discussion of the comments related to CQM versions.
    Comment: Commenters expressed concern and requested clarification 
regarding the timeframe between publication of the revised 
specifications and the quarter in which hospitals must being using the 
new version. Commenters stated that the timeline was too short for 
adequate development and implementation of the new specifications.
    Response: CQMs are updated routinely to account for changes 
including, but not limited to, changes in billing and diagnosis codes 
and changes in medical practices. In order for CQMs to remain current 
and clinically valid, the specifications must be updated on a regular 
basis. We note that specifications are posted at least 6 months prior 
to the reporting period, and as we align the reporting and submission 
timelines of the Medicare EHR Incentive Program with those of the 
Hospital IQR Program, we provide an even greater window of time between 
the posting of the specifications and the start of the reporting 
period.
    Comment: Commenters specifically requested clarification regarding 
the timing and reporting of the updated specifications with respect to 
CMS' proposal to require quarterly reporting of electronically reported 
CQMs. Commenters stated that the two proposals would require hospitals 
to use an EHR that is certified to one set of specifications and then 
re-certified to a different set of specifications within a given 
reporting year in order to satisfy the quarterly reporting requirement.
    Response: As we discussed above, and in section IX.D.2. of the 
preamble of this final rule, we are not finalizing our proposal to 
require quarterly submission of electronically reported CQMs for 2015. 
For electronic reporting of CQM data for 2015, we will require one 
calendar quarter of data from Q1, Q2 or Q3 of 2015 submitted during the 
period January 2, 2015-November 30, 2015. We believe this revised 
policy will allow additional time for eligible hospitals and CAHs to 
implement the updates required to submit the most recent version of the 
CQMs in 2015.
    Comment: One commenter suggested that CMS accept multiple versions 
of CQMs during the reporting year to account for the period of 
transition between CQM versions.
    Response: We appreciate the commenter's suggestion, but 
unfortunately, as noted above, for 2015, it is not technically feasible 
for us 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 
note that eligible hospitals and CAHs that do not wish to report CQMs 
electronically using the most recent version of the electronic 
specifications would be allowed to

[[Page 50323]]

report CQM data by attestation for the Medicare EHR Incentive Program.
    Comment: One commenter supported the proposal to require that 
eligible hospitals and CAHs ensure that their CEHRT products are tested 
and certified to the most recent version of the electronic 
specifications for the CQMs, and many others opposed the 
recertification requirement siting the additional burden and cost 
recertification would impose.
    Response: We have received feedback from stakeholders regarding the 
difficulty and expense of having to test and recertify CEHRT products 
to the most recent version of the electronic specifications for the 
CQMs. While we still believe eligible hospitals and CAHs should test 
and certify their products to the most recent version of the electronic 
specifications for the CQMs when feasible, we understand the burdens 
associated with this requirement. Therefore, to avoid this added 
burden, we are not finalizing our proposal to require eligible 
hospitals and CAHs to ensure that their CEHRT products are recertified 
to the most recent version of the electronic specifications for the 
CQMs. Please note that, although we are not requiring recertification, 
eligible hospitals and CAHs must still report the most recent version 
of the electronic specifications for the CQMs.
    After consideration of the public comments we received, and for the 
reasons set forth above, we are finalizing the policy 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, however, we will not require 
eligible hospitals and CAHs to ensure that their CEHRT products are 
recertified to the most recent version of the electronic specifications 
for the CQMs.
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, 
in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28280) we clarified 
our policy as set forth below regarding the reporting of a zero 
denominator for the purposes of the Medicare 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 Medicare 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 Medicare 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.
    Comment: Commenters supported and appreciated the clarification 
regarding zero denominators. Some commenters requested clarification as 
to whether the above stated zero denominator policy would be effective 
in CY 2015 or upon publication of this final rule.
    Response: The clarification set forth in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28280) and stated above represents our current 
policy. The additional information and examples provided in the 
proposed rule were intended for clarification only and do not represent 
a change to our existing policy.
    Comment: One commenter requested clarification as to whether this 
policy extends to issues resulting from the maintenance of value sets 
specifically related to medications codified in RxNorm required by the 
CQM specifications. The commenter stated that these issues often result 
in a zero denominator being produced by the Medicare EHR, and went on 
to suggest that these issues may be resolved by modifying CQM 
specifications to be more in line with how medications are evaluated in 
the Hospital IQR Program chart-abstracted measures.
    Response: While we cannot explore all the possible explanations and 
reasons why an EHR would produce a zero denominator in this final rule, 
we hope that the above clarification regarding zero denominators will 
provide guidance in these instances.
6. Case Threshold Exemption Policy; Clarification for 2014 and 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 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

[[Page 50324]]

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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28280 through 
28281), beginning with the reporting periods in 2015, we proposed 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 
Medicare EHR Incentive Program and Hospital IQR Program.
    We invited public comment on this proposal.
    Comment: Several comments supported the proposed change to CMS' 
case threshold exemption policy. Commenters felt that this change in 
policy acknowledged that an eligible hospital or CAH should receive 
credit for meeting the CQM even though the eligible hospital or CAH may 
not meet the case threshold of discharges for that particular CQM.
    Response: We appreciate the comments in support of our proposal.
    After consideration of the public comments we received, we are 
finalizing the policy as proposed. We note that for CQM data reported 
by attestation, this policy applies to eligible hospitals or CAHs that 
have 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. For CQM data submitted 
electronically in 2015, this policy applies to eligible hospitals or 
CAHs that have 5 or fewer discharges during their chosen reporting 
period of one calendar quarter, as defined by the CQM's denominator 
population. We note that because there is no option for a full year 
reporting period for data submitted electronically in 2015, the 
exemption based on 20 or fewer discharges for a full year EHR reporting 
period would not apply.

X. 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. 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. Risk adjustment data refers to data 
submitted in two formats: comprehensive data equivalent to Medicare 
fee-for-service claims data (often referred to as encounter data); and 
data in abbreviated formats (often referred to as RAPS data). Section 
422.310(f) currently specifies CMS' uses of the risk adjustment data.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 27978), we 
proposed to revise the existing regulation at Sec.  422.310(f) to 
broaden the specified uses and disclosures 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 received approximately 28 pieces of correspondence from MA 
organizations and trade associations, beneficiary advocacy 
organizations, hospital systems and trade associations, a government 
agency, a research firm, and individuals. Summaries of and our 
responses to the public comments on the uses and bases for disclosure 
of risk adjustment data (Sec.  422.310(f)(1)) are presented in section 
X.B.1 of the preamble of this final rule. Summaries of and responses to 
the public comments on the conditions for release of risk adjustment 
data outside of CMS

[[Page 50325]]

(Sec.  422.310(f)(2)) are presented in section X.B.2. of the preamble 
of this final rule.

B. Proposed and Finalized Regulatory Changes

1. Expansion of Uses and Reasons for Disclosure of Risk Adjustment Data
    In the FY 2015 IPPS/LTCHG PPS proposed rule, we first proposed to 
revise a reference in existing Sec.  422.310(f) from ``data obtained 
under this section'' to ``data described in paragraphs (a) through (d) 
of this section'' in both paragraphs (f)(1) and (f)(2); this new text 
would indicate that the data used or released under proposed paragraph 
(f) 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 stated that we did not intend for the 
proposed Sec.  422.310(f) to authorize any additional use or release of 
the data described in paragraph (e). We proposed that 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 noted that paragraph (d)(1) also 
authorizes the collection of abbreviated data and that the proposed 
regulation would apply to both the abbreviated data as well as more 
detailed (encounter-level) data collected from MA organizations 
pursuant to Sec.  422.310(a) through (d).
    Comment: A few commenters stated that, without a specific 
exclusion, the data that CMS proposed to release would seem to include 
audit data and additional data collected as part of these audits, which 
could include price and charge information. These commenters urged CMS 
to restrict the inclusion of additional data collected as part of 
audits from the data eligible for release.
    Response: We did propose a specific exclusion: That medical records 
and other data that MA organizations submit to CMS as part of a Risk 
Adjustment Data Validation (RADV) audit at Sec.  422.311 are excluded 
from the data release provisions of this rulemaking, through the 
references at Sec.  422.310(f) to the data described in Sec.  
422.310(a) through (d) as the data that would be available under this 
rule. This text excludes data collected pursuant to Sec.  422.310(e) 
for RADV.
    We did not receive any public comments challenging our proposed 
exclusion of audit data under paragraph (e) of Sec.  422.310, nor did 
we receive any public comments on the application of this rule to 
abbreviated data under paragraph (d)(1) of Sec.  422.310. Comments 
about additional or fewer protections for encounter data under the 
final rule are addressed below. Therefore, we are finalizing the use of 
this language limiting the scope of paragraph (f) to data described in 
paragraphs (a) through (d) as proposed.
    The existing regulation at Sec.  422.310(f) specifies five purposes 
for which CMS may use risk adjustment data obtained from MA 
organizations. In the proposed rule, we clarified 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. We proposed to restructure paragraph (f) 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 proposed to revise paragraph (f) to add four purposes, as 
paragraphs (f)(1)(vi) through (ix), 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. We stated our expectation that, in general, 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 stated that 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. 
This general term encompasses audits, investigations, efforts to combat 
waste, fraud, and abuse, and any other actions designed to ensure that 
the program operates within its authority including audits, 
evaluations, and investigations by the Office of the Inspector General 
(OIG) as well as CMS' own efforts. In addition, we stated that 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 proposed 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 
proposed 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. In the proposed rule, we 
acknowledged our expectation that other HHS agencies and other Federal 
executive branch agencies may request these data for the same purposes 
CMS proposed to use the data and that we 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, 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 the proposal. We stated that 
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.

[[Page 50326]]

    Regarding the use of risk adjustment data for purposes permitted by 
other laws, we noted that, to the extent that a requestor has separate 
statutory authority for requiring CMS disclosure of data, our proposed 
provisions would 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 will not 
limit that authority.
    Finally, in the proposed rule, we stated that we are 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. We also noted a goal of the 
proposal to increase transparency in the administration of the Medicare 
program. We sought public comments on the proposed uses and release of 
data and how else to achieve the necessary balance. In particular, we 
solicited 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. The topic of 
commercial purposes is discussed later in section X.B.2. of the 
preamble of this final rule as a condition of data release.
    Comment: Several commenters supported CMS' proposal for expanding 
the use and distribution of MA risk adjustment data to support and 
strengthen the Medicare program, as well as supporting public health 
initiatives and health care-related research. Commenters stated that 
risk adjustment data are valuable to researchers for analyzing health 
care trends, public health research initiatives, and improving 
management of the Medicare program. These commenters expressed support 
of CMS' efforts to move toward greater transparency through the release 
of risk adjustment data. One commenter believed that greater data 
transparency would not only further public health research but also 
might serve to further educate consumer organizations, patient 
advocates, and ultimately beneficiaries about the Medicare program. 
Generally, commenters supporting the proposals in the proposed rule 
simultaneously recognized the importance of balancing these goals with 
the importance of protecting the confidentiality of beneficiary 
information, and one commenter agreed with CMS' proposal to aggregate 
data on negotiated rates paid to providers.
    Response: We appreciate the commenters' support.
    Comment: A number of commenters generally addressed the proposed 
uses of risk adjustment data, characterizing the listed purposes as too 
broad and asking CMS to more specifically and narrowly define them. One 
commenter stated that the purposes, as stated in the proposed rule, are 
so broad as to justify release of these sensitive data for almost any 
research activity. Several commenters were concerned that having 
permitted uses of risk adjustment data for such broad-based purposes 
leaves a large gap in the protection of potentially proprietary 
information, especially given the concern about usage of these data by 
agencies with limited knowledge or understanding of the data and how to 
make accurate interpretations.
    Response: Section 1853 of the Act does not limit the uses of risk 
adjustment data, and section 1106 of the Act authorizes the adoption of 
regulations governing how CMS will disclose data obtained in the course 
of CMS' duties. We have reviewed the proposed uses of risk adjustment 
data (which are for analytical purposes), and we do not believe that 
they are too broad. We reiterate that the list of permissible bases 
under this regulation for use and disclosure is exhaustive and that 
uses of the risk adjustment data that are outside of the scope of these 
nine categories will not be authorized. Accordingly, we see no 
compelling reason to further limit uses of this data by eliminating or 
narrowing any of the proposed purposes.
    Comment: Several commenters expressed concern about CMS' use of 
risk adjustment data, under the purpose stated under Sec.  
422.310(f)(1)(vii), ``for activities to support the administration of 
the Medicare program.'' In particular, commenters requested 
clarification and specificity regarding how these data would be used in 
the example provided in the preamble, which was to validate the MA 
organizations' bid and Medical Loss Ratio (MLR) data. They argued that 
the risk adjustment data could not be used to inform bid review or MLR 
analyses: The data MA organizations submit to CMS cannot provide a 
complete picture of MA organizations' costs because many organizations 
have payment arrangements with providers that are not fee-for-service 
based, for example, capitation arrangements, bundled pricing, incentive 
payments, and multi-year contracting.
    Response: In the preamble of the proposed rule, we identified two 
examples of using risk adjustment data in support of Medicare 
administrative activities: Review of the validity of bid and MLR data 
submitted by MA organizations. We anticipate that there will be other 
uses in support of Medicare administrative activities, such as the 
development of quality measures. Regarding the two examples we provided 
in the proposed rule, while we recognize that many MA organizations 
have alternative arrangements other than fee-for-service payments, we 
believe that encounter data will be useful for understanding patterns 
of beneficiary utilization and aspects of MA organizations' 
expenditures, as reported in bid and MLR submissions.
    Comment: One commenter asked how CMS could use risk adjustment 
data, under Sec.  422.310(f)(1)(viii), ``for activities conducted to 
support program integrity,'' particularly when the data are incomplete 
due to payment arrangements with providers that are not fee-for-service 
based.
    Response: We believe that risk adjustment data are valuable for 
program integrity purposes. For example, encounter data could be used 
to compare MA and FFS billing to identify aberrant patterns, which may 
inform efforts to combat fraud, waste, and abuse.
    Comment: Several commenters expressed concern about CMS' use of 
risk adjustment data, under Sec.  422.310(f)(1)(ix), ``for purposes 
permitted by other laws.'' Commenters requested CMS to further clarify 
this purpose in regulation, for example, to distinguish Federal laws 
from State laws and to specify that this provision only applies to 
health care laws. Another commenter asked how CMS intends to evaluate 
the other laws that permit use or release of these data; for example, 
would CMS allow risk adjustment data to be used to evaluate risk 
adjustments for insurance exchanges created under the Affordable Care 
Act, and, if so, the commenter expressed concern that the data would 
not provide a valid or

[[Page 50327]]

accurate comparison, given the unique patient population.
    Response: As we noted in the preamble of the proposed rule, we 
believe it is important to acknowledge that this regulation is not 
intended to supersede other laws that permit other uses of risk 
adjustment data. For example, this regulation cannot override separate 
statutory authorities that require CMS disclosure of data to other 
Federal agencies. We refer readers, for example, to 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).
    Regarding the commenters' request that we further specify in 
regulation text the types of laws to which paragraph (f)(1)(ix) applies 
(such as Federal laws versus State laws), we do not believe that 
detailed specification of laws is necessary because we believe it is 
clear that only laws that apply to CMS or to data held by CMS are 
within the scope of the provision. However, in response to these 
comments, we are finalizing the regulation text at Sec.  
422.310(f)(1)(ix) to state ``for purposes authorized by other 
applicable laws'' to emphasize that the provisions in other laws must 
be applicable to CMS and to MA risk adjustment data.
    Finally, we are not sure what the commenter means by evaluating 
other laws other than as a request for clarification that this 
provision encompasses laws that are applicable to CMS or to data held 
by CMS. If the question is about how we would determine the 
appropriateness of a research topic and study design that involves both 
Medicare and another program enacted under other laws, we do not 
believe we can comment on the appropriateness of specific designs in 
this preamble. The approval of any research study requesting use of MA 
risk adjustment data would be handled through the existing process CMS 
uses for data sharing, as described elsewhere in this preamble in the 
discussion of paragraph (f)(2)(ii) of Sec.  422.310.
    Comment: One commenter stated that it is not appropriate for 
external entities to receive the data for uses that are exclusively 
within CMS' authority--specifically, that CMS should not release data 
to entities outside of CMS for the determination of risk adjustment 
factors, updating risk adjustment models, the calculation of Medicare 
DHS percentages, or Medicare coverage purposes (Sec.  422.310(f)(1)(i) 
and (f)(1)(ii) or (f)(1)(v)). Another commenter asked CMS to expressly 
limit, in regulatory text, the bases upon which nongovernmental 
external entities receive the data to one purpose: Support of public 
health initiatives and other health care-related research. Furthermore, 
one commenter stated that neither States nor external entities should 
receive the data to conduct quality review and improvement activities, 
for activities to support the administration of the Medicare program, 
or for activities conducted to support program integrity (Sec.  
422.310(f)(1)(iv), (f)(1)(vii), or (f)(1)(viii)) because these are 
purposes exclusive to the Federal Medicare program. Another commenter 
stated that is it is unclear what uses States would have for these 
data, given the Federal administration of the MA program and the 
difference in populations enrolled in MA plans and commercial health 
insurance coverage, for which States may be administering risk 
adjustment or other programs, or Medicaid coverage, for which a State 
Medicaid agency would administer benefits, concluding that States 
should not receive the MA risk adjustment data.
    Response: We have reviewed our proposed purposes and believe that 
there may be cases in which researchers, whether external entities or 
other governmental agencies, might have well-designed research projects 
that meet CMS' stringent requirements, under our longstanding data 
sharing procedures, thus warranting use of the data for an approved 
project. For example, other Federal governmental agencies may want to 
use the data to conduct research on new developments in risk adjustment 
models or an external entity may want to propose research on the design 
of quality measures that could apply to beneficiaries in both the MA 
and FFS programs. Both of these examples illustrate the point that 
greater data transparency could improve administration of the Medicare 
program and improve public health. As noted in the preamble of the 
proposed rule, we also believe that risk adjustment data can support 
program integrity activities in the Medicare program and in other 
Federal health care and related programs funded in whole or in part by 
Federal funds.
    Furthermore, we believe that our approach to determining whether to 
disclose risk adjustment data, which incorporates the Medicare Part A/B 
and Part D minimum necessary data policy, with additional restrictions 
to protect beneficiary privacy and commercially sensitive information 
of MA organizations, strikes an appropriate balance between the 
significant benefits of furthering knowledge through health care 
research and concerns regarding the release of risk adjustment data. 
Finally, we believe this process has sufficient protections to ensure 
compliance with the applicable laws and guard against the potential 
misuse of data. External entities requesting access to risk adjustment 
data will have to enter into a Data Use Agreement with us that includes 
provisions protecting the data from improper release.
    Comment: One commenter asked CMS to further define what CMS means 
by external entities in paragraphs (f)(1) and (f)(2) of Sec.  422.310.
    Response: An external entity may be an individual, group, or 
organization that is not a Federal executive -branch agency or a State.
    After consideration of the public comments we received, we are 
finalizing, as proposed, the four additional permitted uses of risk 
adjustment data at Sec.  422.310(f)(1)(vi) through (f)(1)(ix), with the 
exception that we are changing the language for the purpose under 
paragraph (f)(1)(ix) to read: ``For purposes authorized by other 
applicable laws.''
2. 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. In the FY 2015 IPPS/LTCH PPS proposed rule, we 
proposed 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 was limited to 
the risk adjustment data described in Sec.  422.310(a) through (d) and 
did not include the medical records and other data collected separately 
under paragraph (e) for the purpose of risk adjustment data validation 
(RADV) audits. We stated that we did 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 proposed 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, our proposal 
provided that CMS could 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 proposed that CMS may release data under this authority 
to other HHS agencies, other Federal executive branch agencies, States, 
and external entities, only for purposes identified in paragraph (f)(1) 
(discussed above) and subject to a number of

[[Page 50328]]

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 were included at proposed paragraphs (f)(2)(i) 
through (f)(2)(iv), respectively, of Sec.  422.310. We solicited 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. We also solicited public comments 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.
    Under the provisions at proposed Sec.  422.310(f)(2)(iv), we would 
aggregate payment data to protect commercially sensitive information. 
We stated our belief 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 did not propose to release payment data at the 
level of the encounter record without taking steps to protect the 
commercially sensitive information. In the interest of providing as 
much transparency as possible, while at the same time protecting 
proprietary information related to the payments made by MA 
organizations to health care providers, we proposed 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 sought 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 sought 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 requested public comment on what strategies might be 
used under which payment data could be released while protecting 
commercially sensitive information.
    Comment: A number of commenters argued that no risk adjustment data 
should be released to protect the proprietary nature of encounter data, 
including data on payments, diagnoses, National Provider Identifiers 
(NPIs), among other data fields. A few commenters used ``payment data'' 
when referring to terms such as ``service categories'' and 
``diagnoses.''
    Response: In reviewing the comments, we observed that several 
commenters distinguished payment data from other elements of encounter 
data, while other commenters did not make this distinction and instead 
used the term ``risk adjustment data'' or ``encounter data'' when 
arguing that all data should be aggregated. Therefore, our response 
here is intended make clearer the distinction between payment data and 
other data elements.
    In the proposed rule, we stated at Sec.  422.310(f)(2)(iii) that 
beneficiary identifier elements would not be disclosed to protect 
beneficiary confidentiality, and we stated at Sec.  422.310(f)(2)(iv) 
that payment data would be aggregated as necessary to protect 
commercially sensitive data. Our proposed rule thus implied that data 
outside of these two protected categories would be released without 
redaction or aggregation. In light of some comments we received, we are 
concerned that the regulation text should be more detailed in 
describing the risk adjustment data that does not fall into the two 
protected categories at Sec.  422.310 (f)(2)(iii) and (f)(2)(iv). 
Therefore, we are finalizing this rule with two changes to the 
regulation text. First, to clarify that the term ``payment data'' means 
the dollar amounts reported on an associated encounter data record, we 
are finalizing Sec.  422.310(f)(2)(iv) to use the more specific phrase 
``dollar amounts reported for the associated encounter'' instead of 
``payment data.'' Therefore, in this final rule, we have revised Sec.  
422.310(f)(2)(iv) to specify risk adjustment data subject to the 
aggregation of dollar amounts reported for the associated encounter to 
protect commercially sensitive data. (We note that dollar amounts are 
only reported in encounter data records and not in the other type of 
risk adjustment data referred to as abbreviated (RAPS) data.)
    This rule does not address the release of data that relates to how 
much CMS pays MA organizations. In the final rule, CMS-4144-F, 
published in the Federal Register on April 15, 2011 (76 FR 21432), we 
adopted regulations on that topic.
    Second, we are clarifying that risk adjustment data elements that 
do not fall into either of the two protected categories (beneficiary 
identifiers and dollar amounts) are subject to release without 
redaction or aggregation, respectively. Specifically, we are adding 
paragraph (f)(2)(v) to clarify that risk adjustment data other than 
data described in paragraphs (f)(2)(iii) and (f)(2)(iv) of the section 
will be released without the redaction or aggregation described in 
paragraphs (f)(2)(iii) and (f)(2)(iv), respectively. (We note that we 
use the term ``redaction'' to include deletion, encryption, and 
obscuring or changing the form of something for legal or security 
purposes.) We discuss in more detail below our analysis of this new 
language.
    Comment: A number of commenters responded to the request for public 
comments on the release of payment data and possible ways they could be 
aggregated in order to protect commercially sensitive information. Many 
commenters thanked CMS for the opportunity to comment on this issue and 
expressed gratitude for CMS' concern to protect proprietary information 
on prices negotiated between MA organizations and health care 
providers.
    Response: We appreciate the commenters' support.
    Comment: A number of commenters addressed the aggregation of risk 
adjustment payment data for release under this rule. Several commenters 
asked that CMS only release payment data that have been aggregated to 
the national or regional level. Some commenters were concerned that the 
release of such data, even in an aggregated form, has the potential to 
provide detailed insight about aspects of MA plan experience under the 
MA program (for example, utilization and cost experience) that are 
fundamental to bidding and benefit design decisions and, as a result, 
release of these data would undermine the integrity of the bidding 
process and the competitive structure of the MA marketplace, both in 
terms of plan competition for enrollees and competitive negotiations 
with providers regarding payments rates. One commenter stated that 
public transparency of negotiated rates could

[[Page 50329]]

actually inflate prices by discouraging private negotiations that can 
result in lower prices for some buyers. One commenter who requested 
regional aggregation expressed concern that if CMS discloses payment 
data at a lower level of aggregation, it may be easy for competitors to 
identify sensitive business information on smaller plans and on plans 
serving targeted populations or providing specific services, such as 
SNP plans, which would undermine their market position. Another 
commenter requested that CMS not release payment data at all (at the 
encounter level or aggregated). Several other commenters asked that 
aggregated payment data only be released to government agencies and not 
to external entities. One commenter made the general request that CMS 
aggregate the data in a manner and at a level that protect the 
confidentiality of information and that take into account that an 
organization in some instances may be the principal MA plan in a 
particular geographic region. Some commenters argued that using 
encounter data fields such as contract, plan, and provider identifiers 
as categories by which to aggregate payment data could still lead to 
exposure of sensitive business strategies (including details about 
exclusive contracts, pricing, incentive programs, and other information 
that would disadvantage identifiable plans).
    A number of commenters provided suggestions for approaches to 
aggregation of payment data. One commenter suggested releasing national 
per member per month averages, which would protect negotiated rates 
while still allowing comparison with other areas of Medicare spending. 
Another commenter suggested aggregating risk adjustment payment data at 
a county level in areas where there are three or more MA plans, but in 
areas with two or less MA plans aggregation should be done across 
counties. In addition, this commenter suggested that CMS identify when 
area-specific aggregation approaches are needed, such as where a single 
MA plan dominates a market and could be identifiable even where there 
are multiple plans within one or across several counties. Several 
commenters suggested releasing only aggregated data at either service 
level categories in the MA bid or at the level of HCCs in the Part C 
risk adjustment model. Finally, one commenter suggested that CMS make 
available average pricing per relative value unit (RVU) for given 
geographies or patient demographic categories, which could provide 
helpful information regarding payment levels without exposing 
commercially sensitive negotiated rates.
    Response: We appreciate all the responses to our request for 
comment on ways to aggregate risk adjustment payment data, and we will 
take these ideas and concerns into consideration when determining the 
appropriate level of aggregation of the dollar amounts associated with 
each encounter. We understand the commenters' concerns about the 
proprietary nature of the payment data and believe that this rule, as 
finalized, provides the flexibility to protect commercially sensitive 
data as necessary. It is important to note that, in some instances, the 
payment data may not require aggregation to protect commercial 
sensitivity; for example, a request could be made for data that are 
over 15 years old that is not relevant to current payment amounts. In 
this case, we would need to assess the unique circumstance of the 
request and determine if the data were or were not commercially 
sensitive, and we may decide after consideration to release the data at 
the encounter level because the need to protect commercially sensitive 
data is not implicated.
    We note that we do not agree that only payment data aggregated at 
the national level should ever be disclosed for any approved research 
project because such a narrow approach would eliminate too many 
research questions appropriate to the permitted uses of the data under 
Sec.  422.310(f)(1) and would not account for situations where less 
than a national level of aggregation is sufficient to protect the 
commercial interests of the applicable MA organization(s). In addition, 
we are not convinced that the release of aggregated payment data would 
have the negative impact on competition and the integrity of the MA 
bidding process that is described by a number of commenters. CMS 
expects to aggregate the dollar amounts on encounter data records as 
necessary to prevent researchers from determining payment amounts to 
individual providers, and in this way we would protect competition. As 
we noted in the April 15, 2011 final rule, CMS-4144-F (76 FR 21516), 
the MA program is not competitive in the way that term is normally 
understood. Although MA organizations do compete for members, primarily 
through the plan benefits offered and the cost (member cost sharing and 
premium) of those benefits, they do not directly compete for the 
payments that CMS makes. Rather, we approve all sustainable bids that 
are otherwise qualified without preference for the lowest bidder. The 
fact that MA-eligible Medicare beneficiaries can, generally, select 
from a number of plans offered in their county of residence is evidence 
that competition is robust.
    Comment: Several commenters were concerned with the release and use 
of the payment data included in risk adjustment data, especially to 
external entities, even if the data are aggregated for release. These 
commenters argued that the MA encounter data are incomplete due to the 
nature of MA organizations' financial arrangements with providers and 
it is inappropriate to use this data to draw conclusions that may 
inform policy or program management. Specifically, these commenters 
noted that encounter data cannot provide a complete picture of MA 
organizations' costs because many MA organizations have payment 
arrangements with providers that are not fee-for-service based and are 
instead based on capitation arrangements (for which $0 is reported on 
an encounter record), bundled pricing, incentive payments, and multi-
year contracting. One commenter noted that, for some MA plans, most 
outpatient services are capitated, except for some referrals and 
emergency services, and nonbenefit costs are not reflected in encounter 
data, rendering financial analysis and comparisons for these plans 
inappropriate and impractical. Another commenter also recommended that 
information about the limitations of the data should accompany any 
release of risk adjustment data, to reduce misinterpretations of the 
data by the end users and to prevent policy development based on 
inaccurate analyses of risk adjustment data.
    Response: We understand the commenters' concerns that risk 
adjustment data may not provide a complete picture of the costs 
associated with care of MA plan enrollees due to the alternative 
payment arrangements. However, we believe that broader release of risk 
adjustment data to external entities can increase the positive 
contributions researchers make to the evaluation and function of the MA 
program and improve the efficiency of the program and the clinical care 
of its beneficiaries, which is in the interest of public health. 
Specifically, it is in the interest of the public health to share this 
information with entities outside of CMS, as the work of these entities 
will assist CMS in evaluating the MA program and assessing related 
policies to improve the clinical care of beneficiaries. In addition, 
broader release of the data also has the potential to assist in 
addressing public health issues of the population in general beyond 
just Medicare beneficiaries. Regarding the suggestion to provide

[[Page 50330]]

approved requestors with information on the limitations of encounter 
data, we believe this is a good suggestion and will consider what 
disclaimers are appropriate to accomplish this.
    Comment: A number of commenters also expressed concern about the 
proprietary nature of other data elements in the encounter record in 
addition to payment data, stating that releasing plan-specific and 
provider-specific data such as diagnoses, service categories, Current 
Procedural Terminology codes (CPTs), and NPIs has the potential to 
provide detailed insight about aspects of MA plan experience under the 
MA program that are fundamental to bidding and benefit design decisions 
and could undermine the competitive structure of the health care market 
in many areas. In contrast, one commenter agreed that proprietary 
payment data should be aggregated to protect proprietary information on 
negotiated prices, but further emphasized that all other encounter 
claims data should be widely available to commercial entities--
including providers, medical societies, ERISA plans and insurers--for 
the purposes of improving the value of health care to the consumer 
(subject to privacy protections under HIPAA and other statutes).
    Response: In the proposed rule, we only raised the issue of 
commercial sensitivity with regard to payment data. As noted in an 
earlier response, we are clarifying that the term ``payment data'' 
means the dollar amounts reported on an associated encounter data 
record, and that risk adjustment data elements that do not fall into 
either of the two protected categories of beneficiary identifiers and 
dollar amounts are subject to release without redaction or aggregation, 
respectively. We are not persuaded by the argument that data elements 
aside from beneficiary identifiers and dollar amounts require 
protection because they are relevant to competition that MA 
organizations face. We are mirroring the effort within CMS to increase 
transparency through broadened release of Parts A and B data. We 
routinely make Medicare FFS claim data available to interested parties 
for research, and these data include information on procedure codes and 
diagnosis codes. Furthermore, on April 9, 2014, CMS released detailed 
service use data on nearly 1 million physicians and health care 
providers. Thus, as clarified in Sec.  422.310(f)(2)(v), CMS will 
release risk adjustment data--other than beneficiary identifier data 
described in Sec.  422.310(f)(2)(iii) and dollar amounts reported for 
associated encounter described in Sec.  422.310(f)(2)(iv)--without the 
redaction or aggregation described in paragraphs (f)(2)(iii) and 
(f)(2)(iv), respectively.
    Comment: One commenter was concerned that encounter data from 
Medicare-Medicaid Plan (MMP) demonstrations would be used for analyses, 
such as OIG studies and validation of bids and medical loss ratios, and 
believed this would be a mistake because these are new plans and there 
remain many operational questions about submission of this encounter 
data, including coordinating with States and processing and submitting 
claims in a manner seamless to both the member and provider.
    Response: Our policy on the use and release of risk adjustment data 
in this final rule will apply the same way to the Medicare risk 
adjustment data of MMP demonstrations as it does to the risk adjustment 
data of MA organizations. We appreciate the comment on the important 
distinctions in the encounter data collection process for MMP data 
compared to MA data, and we will consider the unique aspects of MMP 
data in their ultimate application.
    Comment: Several commenters asked CMS to provide a definition of 
commercially sensitive.
    Response: There is extensive case law under the Trade Secrets Act 
(18 U.S.C. 1905) and FOIA Exemption 4 (5 U.S.C. 552(b)(4)) that 
addresses the concept of commercially sensitive, and we do not believe 
this is an appropriate venue for summarizing the case law. We also 
discuss the relationship of this regulation to the Trade Secrets Act 
and FOIA below.
    We add that two commenters appeared to blur the concepts of 
commercially sensitive and commercial purpose; therefore, we are 
clarifying here that these are unrelated concepts for the purpose of 
this rulemaking. Issues around releasing data for a commercial purpose 
pertain to CMS' data sharing procedures and are discussed in a separate 
comment and response below.
    Comment: Several commenters asserted that even risk adjustment data 
aggregated up to the level of contract or parent organization (for 
example, service category and diagnosis data) could be considered to 
meet the elements required for application of the exemption under FOIA 
Exemption 4 (5 U.S.C. 552(b)(4)). The commenters stated that risk 
adjustment data submitted by an MA organization are protected by 45 CFR 
5.65(b)(1) because: (1) It is supplied by someone outside the 
government having a financial interest in the information, namely the 
MA organization providing the data; (2) it is ``confidential commercial 
or financial information'' and proprietary and confidential; and (3) 
disclosure of each MA organization's service category and/or diagnosis 
data could result in competitive harm for the MA organization.
    Response: In response to comments arguing that the Trade Secrets 
Act (18 U.S.C. 1905) or FOIA exemptions prohibit release of this 
information on the basis that the information is the confidential 
commercial information of the MA organization, we do not believe that 
the release of the risk adjustment data under our final rule will 
violate either the Trade Secrets Act or FOIA. With respect to the risk 
adjustment data described in paragraph Sec.  422.310(f)(2)(iv), the 
regulation explicitly provides for aggregation at the level necessary 
to protect commercially sensitive data. Under this regulation, when CMS 
aggregates, as necessary, the dollar amounts associated with the risk 
adjustment data--whether at a regional, contract or other level--any 
detailed (encounter-level) data protected by the Trade Secret Act or 
FOIA Exemption 4 will be withheld from disclosure. With respect to the 
risk adjustment data described at Sec.  422.310(f)(2)(v), we are not 
persuaded that data elements aside from beneficiary identifiers and 
dollar amounts require protection and, therefore, are adopting a 
regulation that directs disclosure of such information (assuming all 
other conditions in this rule are met to obtain such a release) without 
redaction or aggregation. Section 1106(a) of the Act (42 U.S.C. 
1306(a)) provides authority to enact regulations that would enable the 
agency to release information filed with this agency. (See Parkridge 
Hospital, Inc. v. Califano, 625 F.2d 719, 724-25 (6th Cir. 1980).) We 
have engaged in notice-and-comment rulemaking to promulgate regulations 
to enable the disclosure of the data described at Sec.  
422.310(f)(2)(v). The Trade Secrets Act permits government officials to 
release otherwise confidential information when authorized by law. A 
substantive regulation issued following notice-and-comment rulemaking, 
such as this one, provides the authorization of law required by the 
Trade Secrets Act. Because the Trade Secrets Act would allow 
disclosure, Exemption 4 (5 U.S.C. 552(b)(4)), which is as coextensive 
with the Trade Secrets Act, would also not preclude disclosure with 
respect to the information that would be released under this final 
rule. We recognize that this conclusion would not apply to the dollar 
amounts data described in paragraph Sec.  422.310(f)(2)(iv).
    Comment: Several commenters stated that releasing payment data may 
trigger

[[Page 50331]]

antitrust concerns within both the health plan and provider 
communities, and cited the August 1996 ``Statements of Antitrust 
Enforcement Policy'' (http://www.ftc.gov/sites/default/files/documents/reports/revised-federal-trade-commission-justice-department-policy-statements-health-care-antritrust/hlth3s.pdf), where the Federal Trade 
Commission and the Department of Justice laid out several conditions 
for an antitrust safety zone (pages 44 and 45) related to the 
collective release of negotiated provider payment rates, noting that 
there would be instances where negotiated rates possibly could be 
discerned, such as areas with a dominant private payer.
    Response: We are not clear what the ``collective release of 
negotiated provider payment rates'' has to do with this rulemaking. We 
understand the term ``collective'' in this context to mean more than 
one actor releasing its own specific rates. When CMS approves a release 
of aggregated payment data under this rule, that release is performed 
by one actor and not a collective of some sort. Further, our proposed 
policy of aggregating payment data as necessary will protect the 
proprietary nature of the payment data. In cases where there is a 
dominant private payer in a certain geographic area, we will take this 
into account when determining the appropriate level of aggregation. We 
understand the Federal Trade Commission and the Department of Justice 
guidance to address when health care providers act in concert to share 
or release their payment terms and what circumstances those enforcement 
agencies believe would ameliorate any collusive intent in such actions. 
However, this rulemaking pertains to a single actor (CMS), not to a 
collective action; specifically, CMS may release risk adjustment data 
for approved research projects, and these are data that were submitted 
to CMS by MA organizations on the basis of requirements in statute and 
regulation regarding risk adjustment data collection in the MA program. 
The underlying negotiation of the payment terms, such as whether the 
health care providers collectively negotiated them and the respective 
negotiating position of the MA organizations and the parties, are not 
part of the information submitted to CMS or disclosed by CMS under 
Sec.  422.310.
    Comment: A few commenters stated that payment data should not be 
collected by CMS as part of encounter data and should not be used by 
CMS or released outside of CMS because such data are not relevant to 
risk adjustment.
    Response: We believe that payment data are useful for all of the 
purposes set forth in this regulation, including, but not limited to, 
the purpose of risk-adjusting payments to MA organizations. Therefore, 
we are finalizing in this rule the release of aggregated payment data 
as necessary to protect commercially sensitive data, subject to all the 
conditions established in this rule.
    Comment: A number of commenters raised issues about the timing for 
release of risk adjustment data under the rule. Some commenters 
supported release of risk adjustment data to improve transparency; one 
commenter stated that there is an urgent need for more reliable 
consumer comparison shopping tools due to extreme provider price 
variations in local healthcare markets, and Medicare data could be 
valuable for this purpose. A few commenters requested that CMS delay 
release of encounter data to any governmental agency outside of CMS 
and/or delay release to external entities.
    A number of other commenters presented requests for two different 
types of delay in release of encounter data: (1) A routine delay for 
all data releases; and (2) a delay applicable only to the first few 
years of encounter data collected by CMS. First, commenters requested 
that CMS implement a routine lag in release of encounter data. Some 
commenters argued that, before release of the data for any given year, 
CMS should ensure that the data are complete and accurate, for example 
by validating and identifying any limitations in the data. Other 
commenters suggested timeframes of between 4 and 6 years for such 
routine lags, arguing that CMS should allow an established number of 
years pass before release because utilization, pricing, and similar 
data elements remain sensitive for a number of years (and could be used 
for trending competitor's patterns), and many MA organizations have 
multi-year contracts with their providers (5 or more years), making 
data even a few years old still commercially sensitive in a 
marketplace.
    Second, a few commenters requested that CMS never release encounter 
data that was submitted in the initial years of required submission (in 
particular, that data for 2012 dates of service--the first year of 
submission--never be released). Alternatively, other commenters 
suggested that CMS lag release of data from the initial years of 
submission because: (1) Implementation of encounter data collection via 
CMS' encounter Data System (EDS) has required frequent and ongoing 
systems development and modifications on the part of the agency and MA 
organizations since the initiative began in January 2012, which has 
resulted in challenges in submission and acceptance of encounter data; 
and (2) the ICD-10 code set transition likely will result in some 
instances in which encounter data are incomplete or inaccurate for the 
2015 data year, as providers adjust to the coding differences.
    Response: Regarding commenters' requests that CMS implement both 
routine multi-year lags in release of encounter data and targeted 
delays in the release of encounter data from the initial years of 
submission, we believe that such delays in release to any agencies and 
entities described in this rule would defeat the goals of improving 
transparency in the Medicare program and allowing researchers to use 
data in a timely manner to improve the administration of and advance 
policy research on the Medicare program. Also, we refer readers to our 
response elsewhere in this preamble regarding the impact of such 
releases on MA bidding.
    However, CMS recognizes that there are circumstances unique to the 
process for collecting risk adjustment data that should be addressed in 
the timing of releases of such data. CMS allows 13 months after the end 
of a risk adjustment data collection year for MA organizations to 
update the risk adjustment data submitted under Sec.  422.310; this 
period provides MA organizations an opportunity to identify and correct 
errors in data they have submitted for that data collection year, and 
ensures that the risk adjustment data is complete and accurate. We do 
not plan to regularly release risk adjustment data for a data 
collection year prior to the completion of this period because of the 
possibility that the data may contain errors or be incomplete for the 
applicable year. Therefore, to clarify our processes for the purposes 
of this rule, we have added paragraph (f)(3) to Sec.  422.310, which 
states that risk adjustment data will not be available for release 
under paragraph (f) unless:
     The risk adjustment reconciliation for the applicable 
payment year has been completed;
     CMS determines that the data release is necessary under 
paragraph (f)(1)(vi) for emergency preparedness purposes before 
reconciliation; or
     CMS determines that extraordinary circumstances exist to 
release the data before reconciliation.
    An example of an extraordinary circumstance would be a request by 
the Department of Justice for data for a qui tam case under the False 
Claims Act.

[[Page 50332]]

We believe these restrictions on the timing of data releases will 
address some of the commenters' concerns.
    Comment: A few commenters suggested that CMS not release encounter 
data until CMS uses it for risk-adjusted payment purposes in place of 
RAPS data. One commenter stated that no data should be released until 
MA organizations are provided with the MAO-004 encounter data reports 
because these reports will allow the MA organizations to validate that 
encounter data are complete for risk adjustment purposes.
    Response: First, we do not agree with the commenters that CMS' 
transition from the use of RAPS data to encounter data for risk-
adjusted payment should be a prerequisite for releasing encounter data 
for the purposes under this final rule. The data are valuable for other 
purposes besides calibration of the risk adjustment model, as listed in 
paragraph (f)(1) of Sec.  422.310, and the release of the data is 
important for transparency. Second, the MAO-004 report, also known as a 
filtering report, will contain detailed information on which diagnoses 
are eligible for risk adjustment purposes and will be part of the 
process that CMS will undertake for risk score calculation. The intent 
of this report is to assist MA organizations and other encounter data 
submitters to understand risk score calculation; it is not intended to 
support validation by MA organizations of the encounters that they have 
submitted to CMS. Therefore, we do not believe that these filtering 
reports should be a prerequisite to releasing encounter data associated 
with any payment year.
    Comment: A number of commenters responded to our request for public 
comment on releasing risk adjustment data for commercial purposes. Many 
commenters asked CMS not to release data to external entities for 
commercial purposes. Commenters also noted that CMS does not currently 
release Part A, Part B, or Part D data for commercial purposes, and 
argued that CMS should have a consistent policy for release of data for 
commercial purposes across all Medicare programs, including the Part C 
Medicare Advantage program; these commenters cited CMS' discussion 
about such a consistent policy in a final rule, CMS-4159-F, published 
on May 23, 2014 (79 FR 29844).
    In contrast, one commenter supported the use of risk adjustment 
data by commercial entities to conduct research when the research is 
focused on legislative, regulatory, or policy development aimed at 
improving the Medicare program, including projects focused on patterns 
of care of MA enrollees. This commenter suggested that if CMS moves to 
define commercial purpose, it should do so narrowly so that, for 
example, firms requesting data releases under the rule for research on 
regulatory or policy issues for their clients would not have this type 
of work construed as commercial. Another commenter stated that 
encounter data should be widely available to commercial entities, 
including providers, medical societies, ERISA plans, and insurers, for 
purposes of improving the value of health care to the consumer. This 
commenter encouraged CMS to put providers and insurers on an equal 
footing with each other, with respect to sharing of public data on 
safety, quality, volume, and intensity of care. Finally, a number of 
commenters requested that CMS define the term ``commercial purposes.''
    Response: We appreciate all of the responses to our request for 
public comments on releasing risk adjustment data for commercial 
purposes. We recognize that some commenters would like risk adjustment 
data to be available for commercial purposes, while others are 
concerned about external entities having risk adjustment data releases 
approved for projects that have commercial purposes and/or for 
researchers employed by commercial entities. We consider the issue of 
whether or not a request for data has a commercial purpose to be an 
issue that would be addressed under CMS' data sharing policies, which 
are referenced in Sec.  422.310(f)(2)(ii) of this rule. Regarding 
commercial purpose, we refer commenters to page 30674 of the preamble 
of the final rule, CMS-4119-F, published on May 28, 2008 (73 FR 30664), 
where, for example, there is discussion of research whose primary 
purpose is to contribute to general knowledge in the public domain.
    We agree with commenters that it is appropriate to have consistent 
policies for the release of data across the original Medicare (Parts A 
and B) program, the Part D prescription drug program, and the Part C 
Medicare Advantage program. Although we are not changing CMS' existing 
policy against releasing data for commercial purposes at this time, we 
note that, in the event the policy regarding the release of Parts A, B, 
and D data for commercial purposes were to change, we also would revise 
our Part C risk adjustment data sharing policies to be consistent with 
that change. Therefore, if a request for the data under the current 
policy is for one of the purposes outlined in paragraph (f)(1)(i) 
through (ix) and also for a commercial purpose, we would consider the 
commercial purpose as a barrier to the release in the same way here as 
in the other Medicare programs.
    Comment: A few commenters expressed concern about how CMS will 
evaluate requests for risk adjustment data release. One commenter asked 
CMS to keep in mind that broad disclosures of data could lead to 
creation of non-Federal databases, which could negatively affect the 
privacy and security of beneficiary-specific data. Another commenter 
cautioned that, in determining what is a minimum dataset necessary for 
a particular data request, CMS must not approve release of a subset of 
data or variables that omits critical data, resulting in an analysis 
with false assumptions about MA encounters. In addition, other 
commenters were particularly concerned about requests by external 
entities. One commenter stated that, in evaluating requests from 
commercial entities, CMS should consider relationships between the 
corporate and research arms of the commercial entity, and CMS should 
not assume that data released for research purposes will not be made 
available to related commercial entities unless specific prohibitions 
are put in place, or that published research findings will not be used 
for commercial purposes. Another commenter also expressed concern that 
external entities may use data released to them for a CMS-approved 
research project for purposes that go beyond the initial intent of the 
request.
    Response: We will release only the minimum data necessary for a 
particular study design that CMS has determined meets a use (analytical 
purpose) finalized in this final rule and if the research project also 
complies with all other conditions established in this final rule. We 
believe that CMS' longstanding data sharing procedures (a condition for 
data release referenced at Sec.  422.310(f)(2)(ii)) will allow CMS to 
determine the appropriateness of a requested data set and will limit 
inappropriate use of encounter data. CMS considers all data requests to 
ensure that the use of the data will not exploit or negatively impact 
Medicare beneficiaries.
    In order for a researcher to gain access to CMS data, the 
researcher must complete an application process, including submission 
of a research protocol. The researcher must receive approval of the 
protocol from CMS. In addition, all requestors are required to sign a 
Data Use Agreement with the agency that limits the use of the data to 
only the approved purposes. The Data Use Agreements that CMS uses have 
and will continue to have enforcement mechanisms. For example, one of 
CMS'

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Data Use Agreement forms states: ``The User acknowledges that penalties 
under Sec.  1106(a) of the Social Security Act [42 U.S.C. 1306(a)], 
including possible imprisonment, may apply with respect to any 
disclosure of information in the files(s) that is inconsistent with the 
terms of the Agreement. The User further acknowledges that criminal 
penalties under the Privacy Act [5 U.S.C. 552a(i)(3)] apply if it is 
determined that the User, or any individual employed or affiliated 
therewith, knowingly and willfully obtained the file(s) under false 
pretenses. The User also acknowledges that criminal penalties may be 
imposed under 18 U.S.C. 641.''
    We believe these restrictions are necessary in order to ensure that 
data are only requested in compliance with the requirements of the 
regulations and CMS data sharing procedures, and that data shared by 
CMS are appropriately protected and are not reused or redisclosed 
without the necessary approval. Under our data sharing policies, we 
generally require the requester not to disclose the data to third 
parties without specific written authorization from us. CMS expects 
that researchers who receive a CMS-approved release of risk adjustment 
data will abide by the law, policies, and procedures surrounding use of 
that data, particularly where the regulation conditions release of the 
data on CMS data procedures being followed.
    Comment: A few commenters requested that, when CMS is making a 
determination about whether to release risk adjustment data to a 
requestor, CMS reach out to MA organizations to consult on whether to 
approve the request. One commenter stated that plans would appreciate 
the opportunity to advise the agency of any specific concerns they have 
with respect to release of data for certain purposes and to certain 
entities, while another commenter asked CMS to allow plans to deny 
certain requests for data. Finally, a few commenters stated that 
whenever a stakeholder's data is part of an approved release, that 
stakeholder should have access to the entire data release for purposes 
of verification, equity, and accuracy.
    Response: Under this rulemaking, we will use CMS existing data 
sharing procedures (in accordance with Sec.  422.310(f)(2)(ii)) for 
responding to requests for risk adjustment data. It is not part of CMS' 
data sharing procedures to contact a submitter of data (for example, a 
FFS provider, supplier, a Part D sponsor, or an MA organization) 
whenever a researcher requests or receives approval for access to a 
data set for a study that includes some of that particular submitter's 
data (unless the request is made under FOIA). Nor, is it part of the 
CMS' data sharing procedures to allow an MA organization or another 
entity to have approval rights in regards to the release of data. In 
addition, this rule itself sets the standards under which data will be 
released. Therefore, CMS will not be notifying MA organizations or 
their contracted providers when data requests that may include their 
risk adjustment data are received or approved.
    Finally, CMS could not simply release a risk adjustment data set to 
a stakeholder that had not received approval through CMS data sharing 
procedures simply on the grounds that the stakeholder's risk adjustment 
data submissions to CMS comprise one part of a data file released to a 
researcher for an approved study.
    One of the best ways MA organizations can address their concerns 
about the accuracy of risk adjustment data available for release is to 
continue working with CMS to improve the quality of risk adjustment 
data they submit to CMS.
    Comment: One commenter opposed the release of beneficiary 
identifying information to external entities, including other HHS 
agencies, other Federal Executive Branch agencies, Congressional 
support agencies, and States. Another commenter encouraged CMS to 
establish and impose appropriate penalties for any breach of privacy 
related to beneficiary identifiable information by external entities.
    Response: We understand the need to protect beneficiary identifying 
information. As finalized in Sec.  422.310(f)(2)(iii) of the 
regulation, CMS release of risk adjustment data is subject to the 
protection of beneficiary identifier elements and beneficiary 
confidentiality, including--
     A prohibition against public disclosure of beneficiary 
identifying information;
     Release of beneficiary identifying information to other 
HHS agencies, other Federal executive branch agencies, and States only 
when such information is needed; and
     Release of beneficiary identifying information to external 
entities only to the extent needed to link datasets.
    Any release of beneficiary-identifiable data must follow the 
policies in CMS' data sharing procedures. We intend to protect the 
beneficiary data through, for example, encryption, or removal of the 
confidential fields when risk adjustment data is released. As we 
discussed above and in the final rule, CMS-4159-F, published on May 23, 
2014 (79 FR 29844), all users accessing beneficiary identifiable data 
are required to sign CMS' Data Use Agreement, which addresses privacy 
and security for the data CMS discloses. The Data Use Agreement also 
contains provisions regarding access to and storage of CMS data to 
ensure that beneficiary identifiable information is stored in a secure 
system and handled according to CMS' security policies. CMS has an 
established process to evaluate requests for data to ensure that there 
are appropriate safeguards in place to protect beneficiary privacy. We 
believe this process contains the necessary checks to ensure that the 
risks of the disclosure are minimal.
    Comment: One commenter requested CMS to release risk adjustment 
data by creating an MA encounter data Standard Analytic File (SAF) in 
limited data set form (LDS) to extend research that can currently be 
done by users of LDS SAFs across sites using fee-for-service Medicare 
claims data. A few other commenters argued that these data should be 
routinely available through public use files, not just through the 
project-specific process set forth in this rule.
    Response: We appreciate the suggestions and will take them into 
consideration for future additional guidance. With regard to the issue 
of Public Use Files, we believe that the nature of data--see the 
discussion above--make it appropriate to include the protections 
imposed by this rule, including the limits on the purpose of the 
disclosure, release of only the minimum necessary data, the 
incorporation of CMS data sharing policies and procedures, and 
additional protections for certain data elements.
    After consideration of the public comments we received, we are 
finalizing, as proposed, the policies regarding CMS release of data in 
Sec.  422.310(f)(2), with the exception of five changes to the 
regulation text. First, we clarify that the paragraph (f)(1)(ix) 
purpose permitted by other laws is for ``purposes authorized by other 
applicable laws.'' Second, we have deleted the term ``congressional 
support agencies'' from paragraph (f)(2)(B) in order to be consistent 
with the introductory language at paragraph (f)(2) of this regulation. 
Third, to clarify that data aggregation will be of the dollar amounts 
reported on an associated encounter data record, we are finalizing 
paragraph (f)(2)(iv) to state that subject to the aggregation of dollar 
amounts reported for the associated encounter to protect commercially 
sensitive data. Fourth, in order to explicitly address the

[[Page 50334]]

risk adjustment data elements that do not fall into either of the two 
protected categories (beneficiary identifiers and dollar amounts) and 
to clarify that such data are subject to release without redaction or 
aggregation, we are finalizing an additional paragraph (f)(2)(v) to 
state that risk adjustment data other than data described in paragraphs 
(f)(2)(iii) and (f)(2)(iv) of the section will be released without the 
redaction or aggregation described in paragraphs (f)(2)(iii) and 
(f)(2)(iv) of the section, respectively. Finally, we are adding 
paragraph (f)(3) to Sec.  422.310 to clarify when risk adjustment data 
will be available for release, to state that risk adjustment data will 
not be available for release under paragraph (f) unless--
     The risk adjustment reconciliation for the applicable 
payment year has been completed;
     CMS determines that the data release is necessary under 
paragraph (f)(1)(vi) of the section for emergency preparedness purposes 
before reconciliation; or
     CMS determines that extraordinary circumstances exist to 
release the data before reconciliation.
3. Technical Change
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 27978), we 
proposed 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.
    We did not receive any public comments on this technical change, 
and we are finalizing without modification our proposed amendment to 
Sec.  422.300, 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. 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 Re-approval 
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 enumerate, 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 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 Proposed and Final Policies

    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 27977), we 
proposed 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. 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.
    Most of the requests that we have approved based on mitigating 
factors have been for transplant centers that were out of compliance 
with CMS outcomes requirements, but were then able to (a) effect 
substantial program improvements and (b) based on meaningful post-
transplant survival data, demonstrate recent and 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

[[Page 50335]]

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 program 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 current compliance with outcome requirements. 
Another 33 requests (25.6 percent) were eventually approved on the 
basis of each transplant program's successful SIA completion and much 
improved outcome data for the affected program. A total of 24 requests 
(18.6 percent) involved transplant programs that were approved (and the 
transplant centers were permitted to continue Medicare participation) 
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, based on a new SRTR report that because 
available during the 210-day mitigating factors review period. Requests 
from another 2 programs (1.6 percent) were approved in which the 
programs had not enter into an SIA but had made extensive use of 
innovative practices involving key factors that were not included in 
the SRTR risk-adjustment methodology. An additional 2 requests (1.6 
percent) were approved because natural disasters temporarily impacted 
the transplant centers. Finally, 20 requests (15.5 percent) were denied 
approval based on mitigating factors because the programs failed to 
meet the outcome or clinical experience requirements and were not able 
to demonstrate improvements and recent outcomes or experience that 
would warrant approval based on mitigating factors. These 20 programs 
voluntarily withdrew their participation from the Medicare program.
    Comment: Commenters supported CMS' efforts to add clarity and 
increase transparency, and most commenters conveyed specific 
suggestions for further clarity or revision.
    Response: We appreciate the thoughtful nature of all comments we 
received and the specificity of the suggestions that were made. We 
address those specific suggestions below in the context of each 
relevant section of our proposed language.
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) have been 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. At its June 2014 
meeting, the OPTN determined to adopt the new methodology and begin 
using the new methodology in CY 2015. HRSA and the SRTR will continue 
to provide the information needed by CMS, and we will work together to 
track how transplant programs are rated under the ``Bayesian'' 
methodology and the CMS outcomes standards. At the present time, 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, in the 
FY 2015 IPPS/LTCH PPS proposed rule, we did not propose any changes in 
our CoPs regarding this new methodology. However, we wish to continue 
to coordinate with the OPTN's efforts. Therefore, we proposed 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.
    Comment: One commenter stated that an important lesson learned over 
the past several years is the need to further coordinate and reconcile 
differences between the requirements and processes used by CMS and the 
OPTN in regulating the quality of services provided by transplant 
centers throughout the country.
    Response: We concur with the value of coordinating requirements and 
processes to the extent permitted by the different roles played by the 
OPTN and CMS. Our desire to coordinate with HRSA and OPTN gave rise to 
many of the proposals discussed here. Further, staff from the United 
Network for Organ Sharing (UNOS, that is under contract with HRSA) and 
CMS developed a cross-walk of the OPTN and CMS requirements, updated 
the cross-walk in July 2014, and published it online at: http://www.optn.transplant.hrsa.gov/content/policiesAndBylaws/evaluation_plan.asp. While CMS and OPTN have many mutually-reinforcing 
requirements, the two organizations largely cover different aspects of 
the transplant universe. The OPTN, for example, excels at the data 
reporting and management that CMS does not address, but CMS reinforces 
OPTN through a CMS requirement that transplant centers timely and 
adequately report data in accordance

[[Page 50336]]

with OPTN requirements. Similarly, there are other areas not covered by 
OPTN that CMS addresses (such as the CMS requirement that every 
transplant program have an effectively functioning, internal quality 
assessment and performance improvement (QAPI) system). CMS, HRSA, and 
the OPTN observed both CMS' and OPTN's onsite surveys in the past year, 
with the intent to identify areas to reduce the burden on transplant 
programs, as well as improve the efficiency of the survey process. 
Although the surveys are conducted very differently based on the 
distinct roles of the two agencies, the OPTN has now combined the 
living donor survey with its regular survey to eliminate the need for 
an additional survey. HRSA and CMS also maintain monthly meetings and, 
as the need arises, more frequent meetings of workgroups. Another 
recent development was the CMS final rule (``Medicare and Medicaid 
Programs; Regulatory Provisions to Promote Program Efficiency, 
Transparency, and Burden Reduction; Part II; Final Rule'') published in 
the Federal Register on May 12, 2014 (79 FR 27106) designed to reduce 
regulatory burden and increase efficiency. Among other features, the 
rule permits CMS to vary the frequency of onsite transplant center 
surveys compared to the earlier and standard CMS 3-year cycle that 
applied to all transplant programs. CMS maintains continuous review of 
transplant outcomes, responds to complaints at any time, and is 
notified by transplant centers when there is a major change in a 
center. With these continuous activities, and the added flexibility of 
the May 12, 2014 final rule, we expect to extend the average onsite 
survey frequency to a range of approximately 3 to 5 years. We expect 
some centers will be surveyed more frequently than the average and 
other centers less frequently, depending on CMS' assessment of the need 
for a survey of a particular program. We expect that this change will 
help reduce the extent to which any particular transplant program will 
have two different surveys (OPTN and CMS) that occur within a proximate 
time of each other. We look forward to continuing to work with HRSA, 
UNOS, OPTN, and the transplant community on these and other 
coordination issues.

C. Provisions of the Proposed and Final Regulations

    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 27978), we 
proposed to revise the regulations at Sec.  488.61 to include specific 
additional provisions describing and expanding the mitigating factors 
that CMS may consider when evaluating requests and explain the 
conditions under which each factor would apply.
    Comment: One commenter recommended that CMS modify Sec.  482.82 of 
the regulations to state that a transplant center that does not meet 
the data submission, clinical experience, or outcomes requirements 
would be considered to be out of compliance at the Condition level only 
if CMS determines that a mitigating factors request would not be 
approved. In other words, a mitigating factors request would be 
processed before citing a center for a deficiency at a Condition level.
    Response: We are not adopting this recommendation for a number of 
important reasons. First, the mitigating factors provision is intended 
to enable CMS to recognize special situations so that we may calibrate 
enforcement actions appropriately. The provision is not intended to 
remove the possibility of enforcement or the likelihood of enforcement 
if appropriate corrections are not made.
    Second, we believe the mitigating factors and SIA processes have 
been quite successful in promoting improved patient outcomes as a 
direct result of the full hospital alignment in support of each 
involved transplant center. Based on the past 7 years of experience 
with programs that have had substandard outcomes, we believe that 
strong whole-institution support has been generated directly in 
response to the deficiency citation and accompanied by clear potential 
for enforcement action against a program that has had substandard 
performance.
    We note that most transplant programs maintain excellent outcomes 
continuously and are not cited for noncompliance with CMS outcome 
expectations. Another group of transplant programs temporarily exceed 
the outcomes thresholds based on a single SRTR report, but soon 
manifest outcomes within the acceptable tolerance limits in the next 
report. Such programs may be cited by CMS at a Standard level, rather 
than the Condition level, because the results are evident in only a 
single SRTR report. A Standard level citation requires corrective 
action but does not require mitigating factors approval because a 
Standard level citation by itself does not put the program on a 
schedule for termination of Medicare participation. A smaller third 
group of transplant programs experience long-term problems and may be 
cited by CMS at the Condition level, but engage with the OPTN and soon 
recover. These programs may apply for approval based on mitigating 
factors, but are more likely than other applicants to be approved 
without greater involvement with CMS. An even smaller group of programs 
are cited by CMS at the Condition level and are eventually approved 
based on mitigating factors, but only after an extended period of time 
and a more involved regimen of quality improvement through an SIA. CMS' 
policy has been to cite at the Condition level only if the tolerance 
limits are exceeded in the most recent SRTR report and in at least one 
other SRTR report within the past five SRTR reports. Although the 
number and percentages vary depending on the particular SRTR reports 
involved, we generally find that approximately 9 to 11 percent of the 
programs do not meet the CMS outcome thresholds in any one particular 
SRTR report. However, only approximately 3 to 4 percent of the programs 
tend to fail to meet the outcomes requirement in the most recent SRTR 
report and in at least one other report of the most recent 5 reports. 
This number is further reduced during the 210-day period that we permit 
for consideration of a mitigating factors request by CMS. The 210-day 
period allows sufficient time for a sixth SRTR report to appear and 
perhaps show evidence of outcomes that would remove the deficiency and 
remove the need for mitigating factors approval.
    As a result of the way we implemented the citation and mitigating 
factors processes, those programs cited by CMS at the Condition level 
tend to be programs that generally have more extensive issues for which 
full hospital alignment and support are most needed, or programs that, 
for a variety of reasons, have been immune to prior efforts to improve 
outcomes. We believe we have structured CMS enforcement actions in a 
manner that permits considerable time for a transplant program to take 
action on its own, and allows many programs to engage successfully with 
the OPTN for timely resolution. However, for the residual, smaller 
number of programs that have not been so successful, our experience 
indicates that it is questionable whether the hospital alignment and 
other actions needed to achieve substantial and sustainable improvement 
would have occurred without the clear prospect that Medicare 
participation might soon end. The fact that many of the transplant 
programs cited at the Condition level had already been engaged with the 
OPTN in a peer review process without timely improvement in outcomes, 
lends credence to the belief that the clear, and potentially imminent, 
ending of

[[Page 50337]]

Medicare participation has been the stimulant that eventually brought 
the various departments of the hospital together to finally achieve the 
results that had eluded the many dedicated individuals who had 
previously labored to achieve better outcomes.
    Third, only two situations involved mitigating factors where 
approval was based on natural disasters, two situations involved 
extensive use of innovative practices, and a small number of situations 
involved clinical experience. The remainder, constituting the vast 
preponderance of mitigating factors requests we have received, involved 
transplant programs whose patient or graft survival outcomes exceeded 
the tolerance limits in the CMS regulation for programmatic reasons. 
When such cases have been approved, the approval has been based on 
recovery and improvement in outcomes during the extended time period 
(210 days) that CMS permits for mitigating factors consideration or the 
even longer time period that CMS permits under an SIA. We believe that 
eventual approval of a mitigating factors request should not be 
construed to imply that the substandard outcomes never occurred, or to 
obscure the history or facts that led to the recovery efforts. We 
regard such history as important matters of public record.
    Transplant programs that may be approved based on mitigating 
factors due to confirmed innovative practice may be an area for which 
the commenter's suggestion has merit, and we will give further 
consideration to this area for potential future action. Unlike 
mitigating factors approval that is made pursuant to recovery from a 
period of substandard outcomes or even natural disaster, approval of 
mitigating factors due to innovative practice may indicate the absence 
of a deficiency in the first place.
    We will be pleased to continue a dialogue with the transplant 
community regarding these issues and to consider other approaches to 
ensure that a strenuous improvement effort, such as that which is 
required in an SIA, is not misinterpreted.
1. Expansion of Mitigating Factors List, Content, and Timeframe
    In the FY 2015 IPPS/LTCH PPS proposed rule, we noted that the 
regulations at 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. In 
the FY 2015 IPPS/LTCH PPS proposed rule, we proposed 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 proposed to 
move existing paragraphs (a)(4)(iv) and (c)(4)(iv) to the proposed new 
paragraph (g)(2). We also proposed to provide clarification of the 
existing three mitigating factors and the conditions under which they 
would apply. Finally, we proposed to revise the preexisting paragraphs 
(a)(4) and (c)(4) of Sec.  488.61 to include cross-references to the 
new proposed paragraphs (f), (g), and (h).
    We note that an administrative rule we published as a final rule in 
the Federal Register on May 12, 2014 (79 FR 27106) within days of 
publication of the FY 2015 IPPS/LTCH PPS proposed rule renumbered the 
elements of Sec.  488.61(c) and added Sec.  488.61(c)(3)(v) and made 
other amendments to this section. Specifically, the May 12, 2014 
administrative rule removed Sec.  488.61(a)(7), revised the 
introductory text of paragraphs (c) and (c)(1), and revised paragraph 
(c)(1)(ii). In addition, the final administrative rule removed 
paragraph (c)(2) and redesignated paragraphs (c)(3), (c)(4), and (c)(5) 
as paragraphs (c)(2), (c)(3), and (c)(4), respectively. Finally, the 
final administrative rule revised the text of newly designated 
paragraphs (c)(2), (c)(3)(i), and (c)(3)(ii), added a new paragraph 
(c)(3)(v), and revised paragraph (e). As a result of these changes, in 
this final rule, we are replacing the renumbered paragraphs of Sec.  
488.61(c)(3)(i) through (c)(3)(iii) of the administrative final rule as 
Sec.  488.61(f)(1)(i), (f)(1)(ii), and (f)(1)(iii), respectively. The 
renumbered paragraph Sec.  488.61(c)(3)(iv) is moved to the new Sec.  
488.61(g)(2). We also are incorporating the new paragraph that was 
added in the final administrative rule (Sec.  488.61(c)(3)(v)) as the 
new paragraph Sec.  488.61(f)(1)(iv).
    We note that in all subsequent references involving Sec.  
488.61(c), we use the regulatory citations as revised by the May 12, 
2014 final rule (79 FR 217060) and described above. Under proposed new 
paragraph Sec.  488.61(f)(1), we proposed to move and relist the three 
mitigating factors currently under both paragraphs (a)(4)(i) through 
(a)(4)(iii) and paragraphs (c)(3)(i) through (c)(3)(iii). We further 
proposed to expand the mitigating factors that CMS may consider by 
adding more description to those factors, as well as by adding new 
factors that may be reviewed. We also proposed 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 proposed to 
specify the mitigating factors, except for situations of immediate 
jeopardy, as described below.
     The extent to which outcome measures are not met or 
exceeded (existing paragraphs (a)(4)(i) and (c)(3)(i); proposed 
paragraph (f)(1)(i)).
     Availability of Medicare-approved transplant centers in 
the area (existing paragraphs (a)(4)(ii) and (c)(3)(ii); 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)(3)(iii); 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)).

[[Page 50338]]

    Under proposed new paragraph (f)(2), we proposed to include details 
for the content of the request for consideration of mitigating factors, 
based on examples that have proven to be most useful in considering 
successful mitigating factors requests. Specifically, we proposed 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 proposed 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 proposed 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 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.
    Comment: One commenter stated that mitigating factors consideration 
should not be available for either initial applications or for 
deficiencies that involve process requirements (as opposed to clinical 
experience or outcomes). Examples of process requirements include the 
requirement to match donor and recipient blood types, ensure informed 
consent, or engage in multi-disciplinary planning. The commenter 
suggested that if the mitigating factors provision applied to process 
CoPs, CMS should clarify the circumstances under which a program ought 
to apply for mitigating factors rather than submit a plan of 
correction. The commenter suggested that process CoPs be handled 
through plans of correction rather than through mitigating factors.
    Response: We agree that all process CoPs should be handled through 
the plan of correction process and that only a deficiency involving 
data submission, clinical experience, or outcomes should involve both 
the required plan of correction and an optional mitigating factors 
request. A transplant program cited for a process CoP deficiency (or 
any deficiency) would not risk termination of its Medicare 
participation without a prior opportunity to submit a plan of 
correction and demonstrate that the deficiency has been removed in a 
timely manner. Since the time the CMS transplant regulation became 
effective in 2007, every instance in which a program was cited for a 
process CoP has been successfully remedied by timely action on the part 
of the transplant program. As a result, no transplant program has had 
its Medicare participation terminated as a result of failure to comply 
with a process CoP. We agree that the use of mitigating factors in the 
case of process deficiencies is not only unnecessary, but is also 
confusing to transplant centers and may interfere with the prompt 
remediation of those process deficiencies. In the final regulation, at 
Sec.  488.(61)(f)(1) and elsewhere, we therefore limit the mitigating 
factors provision to deficiencies cited for noncompliance with the data 
submission, clinical experience, or outcomes requirements specified at 
Sec.  488.80 and Sec.  488.82.
    We also agree with the commenter that, in the case of an initial 
application for Medicare certification, every transplant program should 
be in full compliance with all process CoPs without needing to rely on 
mitigating factors consideration. However, we are retaining the ability 
of an initial applicant to request mitigating factors consideration 
with respect to the data submission, clinical experience, or outcomes 
requirements. We retain such ability because there may be situations 
where a transplant program has gone inactive beyond the time period 
allowed by CMS and is seeking Medicare reinstatement, or has withdrawn 
or lost Medicare participation due to substandard outcomes or lack of 
sufficient clinical experience, and is seeking reinstatement. In such 
situations, the latest available SRTR report may still show the program 
to have substandard outcomes or insufficient clinical experience for 
the 2.5 year retrospective period covered in the report, despite the 
fact that subsequent program improvements may have enabled greater 
clinical experience, or much better patient and graft survival with 
more recent data that meets the criteria for CMS approval based on 
mitigating factors. With the refinements discussed previously (wherein 
the mitigating factors provision will not apply to process CoPs), we 
believe that the retention of the mitigating factors provision for 
initial applicants is warranted.
    Comment: With regard to the expanded list of factors at Sec.  
488.61(f)(1) that CMS may consider, one commenter

[[Page 50339]]

suggested that not every request should necessarily be required to 
cover all of the factors listed. Instead, the factors covered should be 
tailored to the particular circumstances in question.
    Response: We agree with the commenter. The intent of Sec.  
488.61(f)(1) was not to require every application to address every 
possible factor, but to recognize CMS' obligation to consider all of 
the listed factors, as applicable. We acknowledge the potential for 
confusion on this matter, and therefore, at Sec.  488.61(f)(1) in this 
final rule, we have clarified that CMS will consider such mitigating 
factors as may be appropriate in light of the nature of the deficiency 
and circumstances involved. We would not necessarily expect a program 
that requests consideration on the basis of innovative practice, for 
example, to detail all the improvements that have been implemented. We 
would instead expect such a program to explain its innovative practice, 
the extent of such practice, the evidentiary basis that established it 
as an innovative practice, the particular cases in the applicable SRTR 
report that involved innovative practices, and similar factors 
applicable to the use and outcomes of innovative approaches.
    Comment: One commenter noted that a final rule published in the 
Federal Register on May 12, 2014 (79 FR 21706) made changes to Sec.  
488.61(c)(4), renumbering it as Sec.  488.61(c)(3) and adding a factor 
at Sec.  488.61(c)(3)(v), and specifying that CMS would consider 
program improvements that address root causes of patient deaths or 
graft failures if the improvements are supported by recent outcomes 
data that permit CMS to conclude that the program is in compliance with 
CMS outcomes expectations. In other words, in the May 12, 2014 final 
rule, CMS sought to clarify that both program improvements and recent 
data showing acceptable outcomes, together, comprise a single critical 
factor in our determination as to whether mitigating factors approval 
should be granted. CMS also sought to make clear that CMS will examine 
data that are more recent than the data in the latest available SRTR 
report that covers a retrospective 2.5 year period. The commenter 
observed that the subsequent regulation proposed in the FY 2015 IPPS/
LTCH PPS proposed rule would move this provision to the new Sec.  
488.61(f)(1)(iv) and (f)(1)(v) as two separate considerations, making 
it unclear whether both improved data and substantial improvements are 
needed. The commenter asked that CMS clarify whether a program must 
demonstrate both substantial improvements and recent improved outcomes 
data, or whether program improvements without better outcomes data 
would suffice. The commenter expressed the opinion that it should be 
sufficient for a program to demonstrate that it had implemented 
substantial program improvements on a sustainable basis, without having 
to provide recent outcomes data that allow CMS to conclude that the 
improvements have resulted in recent observed deaths or graft failures 
that are less than 150 percent of the risk-adjusted expected number 1 
year after transplant. Several other commenters simply stated that 
these parts of the proposed regulation were not entirely clear and 
should be clarified.
    Response: We believe that program improvements and data showing 
improved outcomes subsequent to the program improvements are both 
needed and should be considered as a single two-sided but integrated 
consideration. We do not agree that mitigating factors should be 
approved without recent data that demonstrate actual improvements in 
outcomes in the manner described above. In our considerable experience 
with more than 129 mitigating factor applications, we have encountered 
many situations where program improvements were implemented on a 
sustainable basis, but outcomes either did not improve or did not 
improve sufficiently to bring the program into compliance within a 
reasonable period of time. Often the problem was that the improvements 
were well-warranted, but insufficient. Often the improvements did not 
address root causes, and the root causes did not become apparent until 
a multidisciplinary peer review team (organized under an SIA) conducted 
an onsite review and, together with the transplant program staff, 
gained new insights into systemic factors that contributed to 
substandard outcomes. In other cases, the program implemented 
improvements that were within the transplant program's purview, but the 
hospital did not alter other aspects of hospital operations that were 
instrumental in affecting patient or graft survival. The transplant 
programs often were aware of other hospital-wide factors that were 
important, but were unable to effect change in those hospital-wide 
factors until the hospital agreed to enter into an SIA with CMS. 
Examples of hospital-wide factors include, but are not limited to, the 
working relationships between the transplant center and the intensive 
care unit (ICU), availability of transplant-trained specialty 
physicians (such as in cardiology, hepatology, anesthesiology, or 
nephrology), adequacy of staffing levels, and information technology 
support, among others.
    With regard to the requested clarification for the new section 
Sec.  488.61(f)(1)(iv) of the regulations, we note that the SRTR data, 
upon which the CMS outcomes expectations rely, cover a retrospective 
2.5 year period. The data are further dependent on a 1-year post-
transplant period during which patient and graft survival are tracked. 
We appreciate that a transplant program may implement improvements and 
it will take time for the results of the improvements to become 
manifest in the SRTR data. This new section is intended to make clear 
that CMS will examine data that are more recent than the data in the 
latest available SRTR report. We will make a judgment as to the 
usability of those data depending on the number of transplants and the 
amount of post-transplant survival time available to be analyzed after 
major program improvements have been implemented. For example, a kidney 
transplant center may conduct 80 transplants per year, but have only 35 
transplants that both occurred after the major program improvements 
were implemented and also have a sufficient post-transplant survival 
period (1-year post-transplant survival period) to constitute data that 
are reasonable to use in evaluating outcomes. It is not likely that the 
35 transplant cases would be included in the latest available SRTR 
report. Nonetheless, this number of cases with such a post-transplant 
tracking period may be sufficient and would be considered by CMS. We 
acknowledge that, by looking at a time period shorter than the 2.5 year 
period of the SRTR reports and looking only at the observed/expected 
ratio, we may approve programs that seem to have improved outcomes d by 
chance. However, if there is a combined demonstration of implemented 
program changes and an improved survival ratio based on adequate 
numbers, we believe the risk is warranted. We also do not mean to imply 
that 35 cases is a magic number, but is illustrative for purposes of 
clarifying CMS' intention.
    Therefore, we are finalizing these provisions at Sec.  
488.61(f)(1)(iv) as a combined factor (program improvements plus 
improved outcomes data). The final paragraph is consistent with the 
final regulation published as Sec.  488.61(c)(3)(v) on May 12, 2014 (79 
FR 27106), but now is moved to the new Sec.  488.61(f)(1)(iv). 
Paragraph (f)(1)(iv) of Sec.  488.61 in this new final rule now 
combines the two factors that were proposed in the FY 2015 IPPS/LTCH 
PPS proposed rule as Sec.  488.61(f)(1)(iv) and (f)(1)(v).

[[Page 50340]]

    Comment: With regard to the content of mitigating factors requests 
described in proposed Sec.  488.61(f)(2), one commenter suggested that 
instructions related to specific information that must be included as 
part of a mitigating factors request should not be included in 
regulations but, instead, in CMS instructions that can be more easily 
modified as transplant centers and CMS gain additional experience with 
the types of information that may be useful. The commenter also 
expressed concern that it appeared that all the information was 
required of every request even if certain items were not relevant.
    Response: We appreciate the commenter's concern. On the basis of 7 
years of experience and review of 129 mitigating factors requests, we 
are confident that there are certain items of information that are 
almost always important in a mitigating factors request. We agree that 
not every item is needed in every request. Therefore, in this final 
rule, we reorganized into various categories the informational items 
for a mitigating factors request that were originally proposed in the 
new Sec.  488.61(f)(2). In this final rule, the first category is 
comprised of items required for all requests (new paragraphs (f)(2)(i) 
through (f)(2)(iv)). Additional information required for requests 
pertaining to data submission, clinical experience, or outcomes is then 
described in new paragraph (f)(2)(v), versus additional material 
required of requests pertaining to innovative practice (new paragraph 
(f)(2)(vi)), versus requests based on natural disasters or emergencies 
(new paragraph (f)(2)(vii)). We believe that this reorganization makes 
it clear that information not pertinent to the request is not needed, 
while continuing to provide additional transparency and continuing to 
communicate (in advance of a request) the type of information that a 
transplant center should be prepared to provide if it wishes to request 
consideration of mitigating factors.
    Comment: With regard to the proposed content at Sec.  488.61(f)(2), 
one commenter stated that it did not believe CMS has the authority to 
require a root cause analysis of patient deaths or graft failures that 
is specified by the program as a patient safety work product (PWSP) and 
submitted to (or received from) a Patient Safety Organization (PSO). 
Further, the commenter stated that to require such disclosure may place 
a transplant center in a situation in which it must choose between 
foregoing a mitigating factors review, which could keep the center 
open, or face fines under the Patient Safety and Quality Improvement 
Act of 2005 (PSQIA).
    Response: By way of background, the PSQIA amended Title IX of the 
Public Health Service Act (PHSA) (42 U.S.C 299 et seq.). Section 
921(7)(A) of the PSQIA defines ``patient safety work product'' (PSWP) 
as including ``any data, reports, records, memoranda, analyses (such as 
root cause analyses) . . . which are assembled or developed by a 
provider for reporting to a patient safety organization and are 
reported to a patient safety organization.'' Section 921(7)(B) of the 
PSQIA clarifies that PSWP does not include certain information, such as 
a patient's medical record (section 921(7)(B)(i) of the PSQIA) or 
``information that is collected, maintained, or developed separately, 
or exists separately, from a patient safety evaluation system . . .'' 
(section 921(7)(B)(ii) of the PSQIA). Section 921(7)(B)(iii) of the 
PSQIA further specifies that ``nothing in this part shall be construed 
to limit . . . the reporting of information to a Federal, State, or 
local governmental agency for public health surveillance, 
investigation, or other public health purposes or health oversight 
purposes.'' In addition, section 922(c)(1)(C) of the PSQIA provides for 
an exception to the privilege and confidentiality restrictions for 
``disclosure of identifiable patient safety work product if authorized 
by each provider identified in such work product.''
    We appreciate the commenter's concerns. However, after 7 years and 
129 mitigating factors reviews, we have not experienced this problem in 
relation to organ transplant centers. This may be because adequate root 
cause analyses of peri- and post-transplant deaths or graft failures 
require such specialized expertise that the more generalized patient 
safety expertise of PSOs is less likely than in other areas to be the 
resource to which transplant centers turn.
    We also note that, in certain other types of providers where the 
PSQIA has arisen as an issue, the providers have often taken advantage 
of the exceptions in the PSQIA noted previously (such as the exceptions 
at section 921(7)(B)(ii) or section 921(7)(B)(iii)) of the PSQIA).
    CMS does not require submission of a PSWP, and hospitals have 
choices with regard to what to place in a patient safety evaluation 
system as a PSWP, to what extent the hospital will use any of the 
exceptions provided in the PSQIA as noted above, and to what extent the 
hospital will seek to demonstrate compliance with the CoPs through the 
provision of other information. With regard to root cause analyses, 
rather than being a cause of Medicare termination, we have found root 
cause analyses to have been among the most important considerations in 
CMS decisions to grant mitigating factors approval that allowed 
continued Medicare participation for most of the requests we have 
received. In many cases, the analyses demonstrated the program's 
definite capability to identify root causes. In other cases, the 
analyses demonstrated the program's clear inability to conduct adequate 
root cause analyses, but CMS review of the analyses (by clinical and 
quality improvement personnel, both in-house and contracted) allowed us 
to gain sufficient insights, particularly with respect to areas that 
might be further investigated, that we determined an SIA and more time 
would be warranted for the transplant program to make improvements. 
Rather than constituting an expectation that leads to closure of a 
transplant program, our experience of the root cause analyses has been 
that they prevented many programs from termination of Medicare 
participation and from experiencing risk that such termination might 
have led to closure.
    Finally, the regulations at Sec.  482.21 and Sec.  482.96 oblige 
each hospital and transplant program to maintain an effectively 
functioning quality assessment and performance improvement system. A 
key expectation is that every adverse event be identified and 
investigated and the results of the investigation used to prevent 
recurrence. In the case of patient deaths and graft survival, this 
means root cause analyses to identify systemic factors that may have 
caused or contributed to the adverse events. The ability of a 
transplant program to demonstrate that it has adequately conducted such 
analyses, used the results to prevent recurrence, and has the 
capability to continue to do so is fundamental to the program's 
demonstration of compliance required by CMS regulations.
    Therefore, we are retaining in this final regulation the language 
we originally proposed.
    Comment: One commenter objected to the provision at proposed Sec.  
488.61(f)(2)(iv)(L) that each program must describe whether it 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. The commenter believed that this provision would 
unnecessarily mandate disclosure of the institution's involvement with 
the peer review function of the OPTN under 42 CFR 121.10(b). The 
commenter stated that assurances of confidentiality and protection from 
disclosure are the foundations of effective medical peer

[[Page 50341]]

review processes. The commenter suggested that the proposed paragraph 
be modified to specify only submission of the steps taken by the 
program to address program outcomes. Another commenter suggested that 
the proposed language at Sec.  488.61(f)(1) be expanded to include 
consideration of whether the Membership and Professional Standards 
Committee (MPSC) of the OPTN has reviewed the program's performance and 
found it acceptable.
    Response: We appreciate the tremendous value of the OPTN peer 
review process and its statutory responsibilities under the National 
Organ Transplant Act (Pub. L. 98-507). We believe that the MPSC process 
of the OPTN may often result in improved outcomes, thereby rendering a 
CMS Condition-level deficiency citation unnecessary, or at least 
setting the stage for approval of a mitigating factors request during 
the extended period of time CMS allows for consideration of such 
requests. While we had proposed the regulatory language in order to 
further strengthen CMS coordination with the OPTN, we also appreciate 
the nature of the peer review process itself, as described by the 
commenter. Therefore, in this final rule, we have removed reference to 
the OPTN peer review process that was originally proposed at Sec.  
488.61(f)(2)(iv)(L). We note that programs may still voluntarily 
disclose any engagement with the MPSC of the OPTN. If the program is 
entering into an SIA with CMS, the program may also wish to disclose 
whether the OPTN has already conducted a recent onsite peer review of 
the program so that CMS may consider if an adjustment to the SIA peer 
review is warranted, or it may choose to describe any recent onsite 
peer review without reference to whether the onsite review was 
conducted under OPTN auspices or not.
    Comment: With regard to the timelines for submitting information 
that we proposed at Sec.  488.61(f)(3), several commenters suggested 
that more than the proposed 10 days be permitted for a program to 
notify CMS of an intent to apply for mitigating factors consideration, 
and 30 days to submit written documentation when the pertinent 
deficiencies do not involve citation for clinical experience or 
outcomes. These commenters suggested that 20 days and 45 days, 
respectively, should be permitted.
    Response: With respect to mitigating factors, the 10-day timeline 
only obliges programs to notify CMS of the program's intent to request 
such consideration, and no information is required beyond a simple 
statement of intent. We regard the 10-day timeframe for submission of a 
simple notice of intent to be a reasonable expectation. With the 
modification in this final discussed above (in which the mitigating 
factors provision is limited to deficiencies of data submission, 
clinical experience, or outcomes), the 30-day time period is no longer 
necessary. We already proposed to permit a longer period of time (120 
days) for submission of the application when the deficiency is for data 
submission, clinical experience, and outcomes. Therefore, we are 
finalizing the rule with the proposed 10-day and 120-day timelines. We 
have removed the reference to the 30-day time period. In response to 
comments that suggested more time might be needed in some cases, we 
also added a provision in this final rule that permits CMS to extend 
the timelines for good cause. An example of a good cause would be a 
natural disaster, such as the 2013 Hurricane Sandy event, that may 
intervene in the middle of the applicable period.
    After consideration of the public comments we received, we are 
retaining the 10-day timeframe to notify CMS of an intent to apply for 
mitigating factors, reorganizing Sec.  488.61(f)(1) and making it clear 
that not all factors pertain to every application, retaining the 
proposed Sec.  488.61(f)(1)(iv) as a combined factor (program 
improvements plus improved outcomes data, consistent with the May 12, 
2014 final regulation (79 FR 27106)) but with the paragraph moved to 
the new and clarified Sec.  488.61(f)(1)(iv), and retaining the 
reorganized content of Sec.  488.61(f)(2) except for the removal of 
references to a transplant program's engagement with the OPTN.
2. Results of Mitigating Factors Review
    Under proposed new Sec.  488.61(g), we proposed to clarify and 
expand on the description of the mitigating factors review process and 
results. 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, in temporarily extending 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 proposed 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. Under the proposed new paragraph (g)(1)(iii), we 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 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 proposed to move 
this to the proposed new paragraph Sec.  488.61(g)(2).
    We did not receive any public comments on this proposal and, 
therefore, are finalizing it as proposed.
3. System Improvement Agreements (SIAs)
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 27977), we 
proposed to add proposed new paragraph (h) to Sec.  488.61 to set forth 
the purpose, intent, and contents of an SIA

[[Page 50342]]

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 
the proposed regulation, we clarified and specified 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 it 
may have, either administratively or judicially, if CMS ultimately 
terminates Medicare participation or denies initial approval of the 
transplant center. We proposed 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 on a 3 to 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 if the reasons for past approval 
still prevail and, in such a case, CMS may consider mitigating factors 
concomitantly with the recertification survey.
    We did not receive any public comments in this policy and, 
therefore, finalizing it as proposed.
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, or 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.\244\
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    \244\ 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.

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[[Page 50343]]

    In proposed new Sec.  488.61(h), we proposed to explicitly 
incorporate and specify elements that have been important to the 
successful use of the SIA structure. We proposed 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 
proposed 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 is 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 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, and 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)).
    Comment: One commenter suggested that less detail be provided with 
regard to the content of an SIA in favor of more flexibility for CMS 
and transplant centers. Another commenter observed that the SIA content 
was robust and could conceivably constitute a best practice for 
transplant centers. The commenter also noted that, despite the high 
specificity of the required activities, proposed language at Sec.  
488.61(h)(1)(x) allowing CMS to specify alternate requirements, 
provides the flexibility needed if there are elements a transplant 
program cannot meet due to circumstances beyond its control.
    Response: We agree that the requirements are reasonably robust and 
specific. The SIA content was developed after early experiences in 
2007-2010 with lesser requirements that failed to generate the results 
needed for a number of programs to generate and sustain improvement 
outcomes. We then entered into a number of SIAs that had additional 
requirements which we did not include here, either because they proved 
unnecessary in many cases or caused excessive risk avoidance on the 
part of some transplant centers. The remaining requirements we proposed 
have now been well-tested in 35 SIAs so far, with exceptional success. 
We agree with the commenter who observed that the language proposed at 
Sec.  488.61 (h)(1)(x) allows CMS with advisable flexibility to tailor 
alternate requirements when necessary. In response to the concern of 
the first commenter, however, in this final rule, we expanded Sec.  
488.61(h)(1)(x) to allow CMS the ability to waive certain enumerated 
elements of the SIA (rather than requiring alternates) if the agency 
finds that the program has already adequately fulfilled the task.
    Comment: Several commenters stated that transplant programs should 
not be obliged to waive their appeal rights in order to engage in an 
SIA with CMS.
    Response: We do not agree. Prior to any SIA, each transplant 
program will already have had full opportunity to appeal a 
prospectively scheduled termination of Medicare participation. Further, 
while a prospective termination deriving from all other CoP 
deficiencies must be resolved within 90 days, in the case of clinical 
experience or outcomes, CMS sets the prospective Medicare termination 
at 210 days and allows for consideration of mitigating factors. We 
provide for an SIA for certain programs when a program is making 
substantial progress but is not able to demonstrate compliance or 
qualify for outright approval of its mitigating factors request within 
the 210-day period. Under an SIA, CMS agrees to extend the 
prospectively scheduled Medicare termination date for up to another 12 
months. Given these considerations, we do not agree that a program 
should be able to reach the end of an SIA, fail to demonstrate the 
improved outcomes necessary, and then appeal. We believe such an 
arrangement would only serve

[[Page 50344]]

to prolong the termination date and reduce incentives to correct 
deficiencies and achieve compliance promptly. Further, in our 
experience to date, only one transplant program has chosen to appeal a 
Medicare termination for any reason. The affected hospital involved 
expended considerable legal effort, over the course of a year, and did 
not prevail. In the succeeding year, the program applied for 
reinstatement and was eventually recertified for Medicare participation 
after making further improvements and demonstrating compliance with the 
CMS clinical experience and outcomes requirements. In short, in the 
case of an SIA, we provide for an exceptional extension of time and 
believe it is preferable for the available resources of all parties to 
be invested in the process of improving patient care rather than in a 
legal contest. If a program wishes to appeal, we suggest the appeal be 
made within the 60-day post-notification period permitted by regulation 
rather than pursue an SIA (because the SIA would require waiver of 
appeal rights).
    After consideration of the public comments we received, we are 
making a minor change at Sec.  488.61(h)(1)(x) to allow some added 
flexibility to the SIA content, and are otherwise finalizing Sec.  
488.61(h)(1)(i) through (h)(1)(ix) as proposed.
c. Effective Period for an SIA
    Under proposed new Sec.  488.61(h)(2), we proposed 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' discretion, CMS may extend an SIA for up 
to one additional 6-month period.
    Comment: A number of commenters supported these time periods.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing Sec.  488.61(h)(2) as proposed.

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 
policies set forth in this final rule. MedPAC recommendations for the 
IPPS for FY 2015 are addressed in Appendix B to this final rule.
    For further information relating specifically to the MedPAC reports 
or to obtain a copy of the reports, contact MedPAC at (202) 653-7226, 
or visit MedPAC's Web site at: http://www.medpac.gov.

XIII. Other Required Information

A. Requests for Data From the Public

    In order to respond promptly to public requests for data related to 
the prospective payment system, we have established a process under 
which commenters can gain access to raw data on an expedited basis. 
Generally, the data are now available on compact disc (CD) format. 
However, many of the files are available on the Internet at: http://
www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html. We listed the data files and the cost for 
each file, if applicable, in the FY 2015 IPPS/LTCH PPS proposed rule 
(79 FR 28288 through 28289).
    Commenters interested in discussing any data used in constructing 
the proposed rule and this final rule should contact Nisha Bhat at 
(410) 786-5320.

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments
    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28289 through 
28294), we solicited public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs). We discuss and respond to any public comments we 
received in the relevant sections.
2. ICRs for Add-On Payments for New Services and Technologies
    Section II.I.1. of the preamble of the proposed rule and of this 
final rule discuss 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 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.
    We did not receive any public comments regarding this information 
collection.
3. ICRs for the Occupational Mix Adjustment to the FY 2015 Index 
(Hospital Wage Index Occupational Mix Survey)
    Section III.F. of the preamble of the proposed rule (79 FR 28066 
through 28067) and this final rule discusses the occupational mix 
adjustment to the proposed and final FY 2015 wage index, respectively. 
While the preamble of these rules does not contain any new ICRs, we 
note that there is an OMB approved information collection request 
associated with the hospital wage index.
    Section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E) 
of the Act to require CMS to collect data at least once every 3 years 
on the occupational mix of employees for each short-term, acute care 
hospital participating in the Medicare program in order to construct an 
occupational mix adjustment to the wage index. We collect the data via 
the occupational mix survey.
    The burden associated with this information collection requirement 
is

[[Page 50345]]

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.
    We did not receive any public comments regarding this information 
collection.
4. Hospital Applications for Geographic Reclassifications by the MGCRB
    Section III.H.2. of the preambles of the proposed rule (79 FR 28070 
through 28075) and of this final rule discuss proposed and final 
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.
    We did not receive any public comments regarding this information 
collection.
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 the preamble of this final rule, 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 four claims-based measures and 
one chart-abstracted measure that we are finalizing in this final rule 
as proposed. The claims-based measures are: (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. The chart-abstracted measure we are 
finalizing in this final rule is: Severe sepsis and septic shock: 
management bundle (NQF #0500).
    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 finalized claims based measures. However, we 
believe that the chart-abstracted measure will cause some additional 
burden.
    In addition, we believe there will be a reduction in the burden as 
a result of removing 19 total measures in this rule.\245\ We note that 
we are not removing SCIP-Inf-4 Cardiac Surgery Patients with Controlled 
6 a.m. Postoperative Blood Glucose as proposed. The measures we are 
removing are: (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-6 Appropriate hair removal; 
(10) SCIP-Inf-9 Postoperative urinary catheter removal on post-
operative day 1 or 2 with day of surgery being day zero; (11) SCIP-VTE-
2: Surgery patients who received appropriate VTE prophylaxis within 24 
hours pre/post-surgery; (12) SCIP Cardiovascular-2: Surgery Patients on 
a Beta Blocker prior to arrival who received a Beta Blocker during the 
perioperative period; (13) PN-6 Appropriate initial antibiotic 
selection; (14) STK-2 Antithrombotic therapy for ischemic stroke; (15) 
STK-3 Anticoagulation therapy for Afib/flutter; (16) STK-5 
Antithrombotic therapy by the end of hospital day 2; (17) STK-10 
Assessed for rehab; and (18) VTE-4 Patients receiving un-fractionated 
Heparin with doses/labs monitored by protocol, and (19) one structural 
measure: Participation in a systematic database for cardiac surgery.
---------------------------------------------------------------------------

    \245\ We note that some of these measures are being removed as 
chart-abstracted measures, but are being retained as electronic 
clinical quality measures. We refer readers to section IX.A.2.b. of 
the preamble of this final rule for further discussion.
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    The numbers included in our finalized policy more accurately 
reflect the burden associated with the Hospital IQR Program than the 
estimates provided in our proposal. In the FY 2014 IPPS/LTCH PPS final 
rule, we estimated that the burden for the FY 2016 payment 
determination was 1,775 hours annually per hospital and 5.86 million 
hours across approximately 3,300 hospitals participating in the 
Hospital IQR Program (78 FR 50956). These estimates (at 78 FR 50956 for 
chart-abstracted measures) were based on the projected numbers of 
records to be abstracted for VTE and stroke. Using actual data from the 
Hospital IQR Program's clinical data warehouse, we

[[Page 50346]]

have since revised these estimates downward to 1,309 hours per hospital 
and 4.3 million hours across all hospitals.
    We believe that there will be a reduction in burden for hospitals 
due to 14 of the 19 chart-abstracted measures that we are removing: (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-9 Postoperative urinary catheter removal on postoperative 
day 1 or 2 with day of surgery being day zero; (7) SCIP-VTE-2: Surgery 
patients who received appropriate VTE prophylaxis within 24 hours pre/
postsurgery; (8) SCIP Cardiovascular-2: Surgery Patients on a Beta 
Blocker prior to arrival who received a Beta Blocker during the 
perioperative period; (9) PN-6 Appropriate initial antibiotic 
selection; (10) STK-2 Antithrombotic therapy for ischemic stroke; (11) 
STK-3 Anticoagulation therapy for Afib/flutter; (12) STK-5 
Antithrombotic therapy by the end of hospital day 2; (13) STK-10 
Assessed for rehab; and (14) VTE-4 Patients receiving un-fractionated 
Heparin with doses/labs monitored by protocol.
    The remaining four chart-abstracted measures that we are removing 
have been previously suspended from the program; therefore, their 
removal will not impact the reporting burden. The structural measure we 
are removing, Participation in a Systematic Database for Cardiac 
Surgery (NQF #0113), has an estimated burden of nearly zero 
hours; therefore, its removal will not result in a significant burden 
reduction.
    Therefore, for the FY 2017 payment determination, we estimate a net 
reduction in burden accounting for both the addition of one chart-
abstracted measure, severe sepsis and septic shock: Management bundle 
(NQF #0500), as well as our removal of 19 measures (both chart-
abstracted and structural) to be 160 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 0.5 million hours (please note the stated 
number appears to be off by 0.1 due to rounding).
    In addition, 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 burden of 16 hours 
for each participating hospital. 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.\246\
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    \246\ 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.
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     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 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 final 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 reducing 
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. However, this 
change for the FY 2017 payment determination was previously finalized 
(78 FR 50822 through 50825).
    Using the estimates above, we estimate an overall reduction in 
burden from the FY 2016 estimate. We anticipate the reduction in total 
burden for hospitals to be 160 hours per hospital or 0.5 million hours 
for the FY 2017 payment determination, as compared to FY 2016, for 
reporting chart-abstracted and structural measures, completing forms, 
reviewing reports, and submitting validation templates across all 
hospitals. This burden estimate includes new, readopted, and previously 
finalized measures. The estimate 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.
    The table below describes the hospital burden associated with the 
previously finalized Hospital IQR Program requirements, and shows how 
they changed based upon the policies finalized for the FY 2017 payment 
determination. The numbers included in our finalized policy more 
accurately reflect the burden associated with the Hospital IQR Program 
over the estimates provided in our proposal. The burden estimates in 
this final rule are the estimates for which we are requesting OMB 
approval.

[[Page 50347]]



                                                   Burden Impact of Hospital IQR Program Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Burden per hospital for all
                                                                      Burden per hospital for       requirements  finalized in     Net change in burden
Hospital IQR program requirement   Number of hospitals impacted        previously finalized          this rule  (continuing,          per  hospital
                                                                           requirements                  removed, added)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Chart-abstracted and structural   3,300.........................  1,291 hours...................  1,131 hours..................  -160 hours
 measures, forms.
Review reports for claims-based   3,300.........................  4 hours.......................  4 hours......................  0
 measures.
Reporting of voluntary            Unknown *.....................  -385 hours....................  -425 hours...................  -40 hours
 electronic clinical quality
 measures in place of chart-
 abstracted measures.
Validation templates............  Up to 600 **..................  72 hours......................  72 hours.....................  0
Electronic clinical quality       Up to 100 **..................  0.............................  16 hours.....................  16 hours
 measure validation test.
Validation charts photocopying..  Up to 600.....................  $8,640........................  $8,496.......................  -$144
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This number is unknown at the time this table was prepared because final submission deadlines have not passed. Because the burden associated with
  participation is negative, we conservatively assumed the number of participating hospitals to be 0 in summary calculations included in the narrative.
** Maximum numbers were used in summary calculations included in the narrative.

7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program
    As discussed in section IX.B. of the preamble of the proposed rule 
and this final rule, section 1866(k)(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 final rule, we are finalizing our proposal to adopt one new 
clinical effectiveness measure (External Beam Radiotherapy for Bone 
Metastases) for the FY 2017 program and subsequent years, which will 
increase the total number of measures for the FY 2017 PCHQR measure set 
to 19 measures.
    We also are finalizing an update to 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 
adopting a new sampling methodology that PCHs can use to report these 
measures, as well as the External Beam Radiotherapy measure.
    We believe that requiring PCHs to report the new External Beam 
Radiotherapy for Bone Metastases measure, as well as to use the 
sampling methodology, will not be 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 adopting 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. We are providing a revised 
burden estimate for FY 2016 and a burden estimate for FY 2017 that take 
into account our finalized sampling methodologies for all applicable 
measures. 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, 
and 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 37,596 cancer cases annually beginning with FY 2016 and 
FY 2017.\247\ 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.
---------------------------------------------------------------------------

    \247\ 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 final 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 50 hours because PCHs will 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 18,808 hours per PCH. This FY 
2017 estimate, which includes an additional finalized measure, 
represents a decrease of 33,122 hours \248\ per PCH from the FY 2016 
burden estimate of 51,930 hours that we published in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50957 through 50959), or an overall decrease 
of 64 percent in the number of hours for each PCH. Coupled with our 
estimated salary costs,\249\ this revised estimate results in a net 
reduction in estimated cost of $472,362 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 our 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.
---------------------------------------------------------------------------

    \248\ This figure 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 (18,808 hours).
    \249\ 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 on PCHs for reporting all-patient data in 
future years.
    Comment: One commenter supported CMS' efforts to reduce the 
reporting burden of the PCHQR Program but raised concern about the 
variation in estimated burden between the Hospital IQR Program and 
PCHQR Program, and the possibility that the large variation in PCH 
patient volume may leave some PCHs with a greater burden than is 
estimated on average. The commenter

[[Page 50348]]

also noted that the burden estimates provided in the FY 2015 IPPS/LTCH 
PPPS proposed rule do not consider the need for PCHs to build a 
reporting infrastructure, report non-Medicare data, or make efforts to 
ensure consistent application of measure specifications across PCHs.
    Response: We thank the commenter for their support and will 
consider this feedback for future years. We incorporated a sampling 
approach for non-Medicare patients, abstraction, training, computer 
edits, and labor hours in our burden estimates. We also note that we 
will revise our estimates to account for the burden associated with 
reporting patient level data for the six SCIP measures in future years, 
once we have data on which submission option PCHs select for SCIP data 
submission. Finally, in response to the commenter's concern that our 
burden estimates do not account for ensuring consistent application of 
measure specifications across PCHs, we note that it is our role to 
ensure that PCHs report each measure consistent with the measure 
specifications and, therefore, this task does not affect PCH burden.
    We will submit a revision of the information collection request 
currently approved under OMB 0938-1175 to account for the 
aforementioned changes to the PCHQR Program.
8. ICRs for the Hospital Value-Based Purchasing (VBP) Program
    In section IV.I. of the preamble of the proposed rule and of this 
final rule, we discuss requirements for the Hospital VBP Program. 
Specifically, in this final rule, we are adopting three new measures 
for the FY 2017 Hospital VBP Program: (1) Methicillin-Resistant 
Staphylococcus aureus (MRSA) Bacteremia; (2) Clostridium difficile; and 
(3) PC-01: Elective Delivery Prior to 39 Completed Weeks Gestation. The 
first two measures are measures of healthcare-associated infections 
reported via the CDC's National Healthcare Safety Network, while the 
last measure is a chart-abstracted measure.
    We also are adopting 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 
the proposed rule and of this final 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 the proposed 
rule and this final rule, we are finalizing 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 finalized measures will 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 finalized measures 
will 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 finalizing in section IX.C.7.a. of the preamble of this final 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

[[Page 50349]]

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 is contained in this updated information 
collection request section.
    Assuring data accuracy is vital to public reporting programs. 
However, as discussed in section IX.C.11. of the preamble of this final 
rule, we are not finalizing our proposal, for the FY 2016 payment 
determination and subsequent years, to validate data submitted to CMS 
on the LTCH CARE Data Set at this time.
    We discuss and respond to public comments we received on these 
information collection requirements in the section IX.C. of the 
preamble of this final rule.
10. Electronic Health Record (EHR) Incentive Program and Meaningful Use 
(MU)
    In section IX.D. of the preamble of the proposed rule and of this 
final rule, we discuss our proposal 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 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 changes we are finalizing regarding the use 
and release of MA risk adjustment data under section X. of the preamble 
of this final rule do not change the requirements on MA organizations 
for submission of information to CMS, which have been in place for 
several years. Therefore, these finalized changes do 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.

C. Waiver of 60-Day Delay in the Effective Date

    We ordinarily provide a 60-day delay in the effective date of the 
provisions of a rule in accordance with the Administrative Procedure 
Act (APA) (5 U.S.C. 553(d), which requires a 30-day delayed effective 
date, and the Congressional Review Act (5 U.S.C. 801(a)(3), which 
requires a 60-day delayed effective date for major rules. However, we 
can waive the delay in the effective date if the Secretary finds, for 
good cause, that the delay is impracticable, unnecessary, or contrary 
to the public interest, and incorporates a statement of the finding and 
the reasons in the rule issued. 5 U.S.C. 553(d)(3); 5 U.S.C. 808(2).
    The Hospital Inpatient Prospective Payment Systems for Acute Care 
Hospitals and the Long Term Care Hospital Prospective Payment System 
are fiscal year payment systems, and we typically issue the final rule 
by August 1 of each year to both comply with the requirement to 
annually review and update these payment systems and ensure that the 
payment policies for these systems are effective, following the 
required 60-day delay in the effective date, on October 1, the first 
day of the fiscal year to which the policies are intended to apply. If 
the agency finds, for good cause, that a 60-day delay is impracticable, 
unnecessary, or contrary to the public interest, and the agency 
incorporates a statement of the findings and its reasons in the rule 
issued, the agency may specify an earlier effective date. The 
timeframes for developing annual rules are extremely compressed and 
processing issues complicated this year's rule. We believe it would be 
contrary to the public interest to delay the effective date of the 
payment system portions of this rule. We therefore specify that those 
portions of the rule will be effective October 1.

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 final rule, the 
Centers for Medicare & Medicaid Services is confirming, as final, 
interim rules published on October 3, 2013 (78 FR 61191) and March 18, 
2014 (79 FR 15022) and is further amending 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 continues to read as follows:

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


0
2. Section 405.1811 is amended by--
0
a. Revising paragraphs (a) introductory text and (a)(3).
0
b. Revising paragraph (b) introductory text.
0
c. Redesignating paragraph (c) as paragraph (e).
0
d. Adding new paragraphs (c) and (d).
0
e. Revising newly redesignated paragraph (e).
    The revisions and additions read as follows:


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

    (a) Right to hearing on final contractor determination. A provider 
(but no other

[[Page 50350]]

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 covered by a final contractor or Secretary determination if--
* * * * *
    (3) 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 no later than 180 days after the date of receipt by 
the provider of the final contractor or Secretary determination.
    (b) Contents of request for a contractor hearing on final 
contractor determination. The provider's request for a contractor 
hearing under paragraph (a) of this section 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.
* * * * *
    (c) Right to hearing based on untimely contractor determination. 
Notwithstanding the provisions of paragraph (a) of this section, a 
provider (but no other individual, entity, or party) has a right to a 
contractor hearing, as a single provider appeal, for a cost reporting 
period if--
    (1) A final contractor determination for the provider's cost 
reporting period is not issued (through no fault of the provider) 
within 12 months after 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). 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'' 
on such cost report unless it is shown by a preponderance of the 
evidence that the contractor received the cost report on an earlier 
date.
    (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 no later than 180 days after the expiration of the 
12 month period for issuance of the final contractor determination (as 
determined in accordance with paragraph (c)(1) of this section); and
    (3) The amount in controversy (as determined in accordance with 
Sec.  405.1839) is at least $1,000 but less than $10,000.
    (d) Contents of request for a contractor hearing based on untimely 
contractor determination. The provider's request for a contractor 
hearing under paragraph (c) of this section must be submitted in 
writing to the contractor, and the request must include the elements 
described in paragraphs (d)(1) through (d)(3) of this section. If the 
provider submits a hearing request that does not meet the requirements 
of paragraph (d)(1), (d)(2), or (d)(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 (c) of this section.
    (2) An explanation (for each specific item at issue) 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 does not have 
access to underlying information concerning the calculation of Medicare 
payment).
    (ii) How and why the provider believes Medicare payment must be 
determined differently for each disputed item.
    (iii) If the provider self-disallows a specific item, a description 
of the nature and amount of each self-disallowed item and the 
reimbursement or payment sought for the item.
    (3) A copy of any documentary evidence the provider considers 
necessary to satisfy the hearing request requirements of paragraphs 
(d)(1) and (d)(2) of this section.
    (e) Adding issues to the hearing request. After filing a hearing 
request in accordance with paragraphs (a) and (b), or paragraphs (c) 
and (d), of this section, a provider may add specific Medicare payment 
issues to the original hearing request by submitting a written request 
to the contractor hearing officer, only if--
    (1) The request to add issues complies with the requirements of 
paragraphs (a) and (b), or paragraphs (c) and (d), of this section as 
to each new issue.
    (2) The specific matters at issue raised in the initial hearing 
request and the matters identified in subsequent requests to add 
issues, when combined, satisfy the amount in controversy requirements 
of paragraph (a)(2) or paragraph (c)(3) of this section.
    (3) The contractor hearing officer receives the provider's request 
to add issues no later than 60 days after the expiration of the 
applicable 180-day period prescribed in paragraph (a)(3) or paragraph 
(c)(2) of this section.

0
3. Section 405.1835 is amended by--
0
a. Revising paragraphs (a) introductory text and (a)(3).
0
b. Revising paragraph (b) introductory text.
0
c. Redesignating paragraph (c) as paragraph (e).
0
d. Adding new paragraphs (c) and (d).
0
e. Revising newly redesignated paragraph (e).
    The revisions and additions 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 for a 
cost reporting period covered by a final contractor or Secretary 
determination if--
* * * * *
    (3) 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 no later than 180 days after the date of receipt by 
the provider of the final contractor or Secretary determination.
    (b) Contents of request for a Board hearing on final contractor 
determination. The provider's request for a Board hearing under 
paragraph (a) of this section must be submitted in writing to the 
Board, and the request must include the elements described in 
paragraphs (b)(1) through (b)(4) 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 Board may 
dismiss with prejudice the appeal or take any other remedial action it 
considers appropriate.
* * * * *
    (c) Right to hearing based on untimely contractor determination. 
Notwithstanding the provisions of paragraph (a) of this section, 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 
for a cost reporting period if--
    (1) A final contractor determination for the provider's cost 
reporting period is not issued (through no fault of the provider) 
within 12 months after 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). The date of receipt by the 
contractor of the

[[Page 50351]]

provider's perfected cost report or amended cost report is presumed to 
be the date the contractor stamped ``Received'' on such cost report 
unless it is shown by a preponderance of the evidence that the 
contractor received the cost report on an earlier date.
    (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 no later than 180 days after the expiration of the 
12 month period for issuance of the final contractor determination (as 
determined in accordance with paragraph (c)(1) of this section); and
    (3) The amount in controversy (as determined in accordance with 
Sec.  405.1839) is $10,000 or more.
    (d) Contents of request for a Board hearing based on untimely 
contractor determination. The provider's request for a Board hearing 
under paragraph (c) of this section must be submitted in writing to the 
Board, and the request must include the elements described in 
paragraphs (d)(1) through (d)(4) of this section. If the provider 
submits a hearing request that does not meet the requirements of 
paragraph (d)(1), (d)(2), or (d)(3) of this section, the Board may 
dismiss with prejudice the appeal or take any other remedial action it 
considers appropriate.
    (1) A demonstration that the provider satisfies the requirements 
for a Board hearing as specified in paragraph (c) of this section.
    (2) An explanation (for each specific item at issue) 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 does not have 
access to underlying information concerning the calculation of Medicare 
payment).
    (ii) How and why the provider believes Medicare payment must be 
determined differently for each disputed item.
    (iii) If the provider self-disallows a specific item, a description 
of the nature and amount of each self-disallowed item and the 
reimbursement or payment sought for the item.
    (3) A copy of any documentary evidence the provider considers 
necessary to satisfy the hearing request requirements of paragraphs 
(d)(1) and (d)(2) of this section.
    (4) With respect to a provider under common ownership or control, 
the name and address of its parent corporation, and a statement that 
meets all of the requirements of paragraphs (b)(4)(i) and (b)(4)(ii) of 
this section.
    (e) Adding issues to the hearing request. After filing a hearing 
request in accordance with paragraphs (a) and (b), or paragraphs (c) 
and (d), of this section, a provider may add specific Medicare payment 
issues to the original hearing request by submitting a written request 
to the Board only if--
    (1) The request to add issues complies with the requirements of 
paragraphs (a) and (b), or paragraphs (c) and (d), of this section as 
to each new issue.
    (2) The specific matters at issue raised in the initial hearing 
request and the matters identified in subsequent requests to add 
issues, when combined, satisfy the amount in controversy requirements 
of paragraph (a)(2) or paragraph (c)(3) of this section.
    (3) The Board receives the provider's request to add issues no 
later than 60 days after the expiration of the applicable 180-day 
period prescribed in paragraph (a)(3) or paragraph (c)(2), of this 
section.

Nomenclature Changes

Subpart R [Amended]

0
4. Amend Subpart R by removing the term or phrase in the first column 
and replace it with the term or phrase in the second column:

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

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

0
5. 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
6. 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
7. 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 Pub. L. 106-113 (113 Stat. 
1501A-332), sec. 1206 of Pub. L. 113-67, and sec. 112 of Pub. L. 
113-93.


0
8. 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 prior to April 1, 2014, as applicable:
* * * * *
    (B) * * *
    (2)(i) Has expended prior to December 29, 2007, at least 10 percent 
(or, if less, $2.5 million) of the estimated cost of the

[[Page 50352]]

project specified in paragraph (e)(6)(ii)(B)(1) of his section; or
    (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 a long-term care hospital satellite facility that meets the 
requirements of Sec.  412.22(h) that 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 care hospital or an 
existing long-term care hospital satellite facility must not be 
increased beyond the number of Medicare-certified beds prior to April 
1, 2014.
* * * * *

0
9. 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) introductory text 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
10. 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.
* * * * *

[[Page 50353]]

    (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
11. Section 412.102 is revised to read as follows:


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
12. 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
13. 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 coincides with or follows 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 coincides with or 
follows 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 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, 
the redesignated urban hospital may retain any existing increases to 
its FTE resident cap that it had received prior to when the 
redesignation became effective. Effective 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, the redesignated 
urban hospital

[[Page 50354]]

may receive an increase to its FTE resident cap for a new program, in 
accordance with paragraph (e) of this section, if it received a letter 
of accreditation for the new program and/or started training residents 
in the new program prior to the redesignation becoming effective.
    (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 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 paragraph (f)(1)(v)(B) of this 
section 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 
coincides with or follows 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 coincides with or follows 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. Beginning with the 
applicable hospital's cost reporting period that coincides with or 
follows 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 
beginning with the applicable hospital's cost reporting period that 
coincides with or follows 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 rules in 
paragraph (f)(1)(v)(B) of this section.
    (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 paragraph (f)(1)(v)(B) of this section 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
14. 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
15. 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
16. 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
17. 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.
* * * * *


Sec.  412.154  [Amended]

0
18. Section 412.154 is amended by removing and reserving paragraph (d).

0
19. 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

[[Page 50355]]

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 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
20. 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
21. Section 412.172 is amended by removing and reserving paragraph (c).

0
22. 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
23. 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
24. 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
25. 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
26. 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 2.2 percent, 
and further adjusted, as appropriate, as described in paragraph (d) of 
this section.
* * * * *

[[Page 50356]]

Sec.  412.525  [Amended]

0
27. Section 412.525 is amended by removing and reserving paragraph 
(d)(3).

0
28. 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 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.
    (5) Adjustments for extraordinary circumstances--(i) General rules. 
(A) CMS may adjust the ceiling determined under paragraph (c)(1) of 
this section for one or more cost reporting periods when unusual 
inpatient operating costs have resulted in the hospital exceeding its 
ceiling imposed under this section due to extraordinary circumstances 
beyond the hospital's control. These circumstances include, but are not 
limited to, strikes, fire, earthquakes, floods, or similar unusual 
occurrences with substantial cost effects.
    (B) When the hospital requests an adjustment, CMS makes an 
adjustment only to the extent that the hospital's operating costs are 
reasonable, attributable to the circumstances specified separately, 
identified by the hospital, and verified by the Medicare administrative 
contractor.
    (ii) Process for adjustment requests. The provisions of Sec. Sec.  
413.40(e)(1) through (e)(5) of this subchapter are applicable to 
extraordinary circumstances adjustment requests under this section.


Sec.  412.532  [Removed]

0
29. Section 412.532 is removed.
0
30. Section 412.534 is amended by--
0
a. Revising paragraphs (c)(1) introductory text and (c)(1)(i).
0
b. Removing the year ``2013'' and adding in its place the year ``2016'' 
in paragraph (c)(1) 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) paragraph heading, (d)(1)(i), and (d)(2) paragraph 
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) paragraph heading, (e)(1)(i), and (e)(2) paragraph 
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 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 
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

[[Page 50357]]

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
31. 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
32. 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
33. Amend Part 413 by removing 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
34. Section 413.75(b)(5) is amended by revising the definition of 
``Rural track FTE limitation'' to read as follows:


Sec.  413.75  Direct GME payments: General requirements.

* * * * *
    (b) * * *
    (5) * * *
    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
35. 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
36. 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 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, the redesignated urban 
hospital may retain any existing increases to its FTE resident cap that 
it had received prior to when the redesignation became effective. 
Effective 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, the redesignated urban hospital may receive an increase 
to its FTE resident cap for a new program, in accordance with paragraph 
(e) of this section, if it received a letter of accreditation for the 
new program and/or started training residents in the new program prior 
to the redesignation becoming effective.
    (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), 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 
coincides with or follows the start of the sixth program year of the 
first new

[[Page 50358]]

program started, for hospitals for which the FTE 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 coincides with or 
follows 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). Beginning with the applicable 
hospital's cost reporting period that coincides with or follows 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 beginning with the applicable hospital's cost 
reporting period that coincides with or follows 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), 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 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 October 1, 2014, if an urban hospital 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) of this section for the rural 
track programs started prior to the adoption of such new OMB standards 
for delineating statistical areas.
    (iii) Effective October 1, 2014, if an urban hospital started 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 
started 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 started 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 period that begins 
when the most recent OMB standards for delineating statistical areas 
are adopted by CMS and continues through the end of the second 
residency training year following the date the most recent OMB 
delineations 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 
participate in 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
37. 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 Pub. L. 106-113 (113 Stat. 
1501A-332).


0
38. 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
39. 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
40. Section 422.300 is revised to read as follows:


Sec.  422.300  Basis and scope.

    This subpart is based on sections 1106, 1128J(d), 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
41. 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:

[[Page 50359]]

    (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;
    (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 authorized by other applicable 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, 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 dollar amounts reported for the 
associated encounter to protect commercially sensitive data.
    (v) Risk adjustment data other than data described in paragraphs 
(f)(2)(iii) and (f)(2)(iv) of this section will be released without the 
redaction or aggregation described in paragraphs (f)(2)(iii) and 
(f)(2)(iv) of this section, respectively.
    (3) Risk adjustment data will not become available for release 
under this paragraph (f) unless--
    (i) The risk adjustment reconciliation for the applicable payment 
year has been completed;
    (ii) CMS determines that data release is necessary under paragraph 
(f)(1)(vi) of this section for emergency preparedness purposes before 
reconciliation; or
    (iii) CMS determines that extraordinary circumstances exist to 
release the data before reconciliation.
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
42. 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
43. 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
44. 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. 
All certification requirements 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
45. 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
46. 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
47. The authority citation for Part 488 continues to read as follows:

    Authority:  Secs. 1102, 1128I, and 1871 of the Social Security 
Act (42 U.S.C. 1302, 1320a-7j, and 1395(hh)); Pub. L. 110-149, 121 
Stat. 1819.


0
48. Section 488.61 is amended by--
0
a. Revising paragraphs (a)(4) and (c)(3).
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) * * *
    (3) 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 or 
deficiencies other than failure to meet requirements of Sec.  488.80 or 
Sec.  488.82, CMS will consider such mitigating factors as may be 
appropriate in light of the nature of the deficiency and circumstances, 
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:
    (i) The extent to which outcome measures are not met or exceeded;
    (ii) Availability of Medicare-approved transplant centers in the 
area;

[[Page 50360]]

    (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, that have been implemented and 
institutionalized on a sustainable basis, and that are supported by 
outcomes more recent than the latest available SRTR report, for which 
there is a sufficient post-transplant patient and graft survival period 
and a sufficient number of transplants such that CMS finds that the 
program demonstrates present-day compliance with the requirements at 
Sec.  482.80(c)(2)(ii)(C) or Sec.  482.82(c)(2)(ii)(C) of this chapter;
    (v) 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
    (vi) Whether 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.
    (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 program's organizational chart with full-time equivalent 
levels, roles, and structure for reporting to hospital leadership;
    (v) For applications involving substandard patient or graft 
survival, the rationale and supporting evidence for CMS' review 
includes, 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 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) Waitlist management protocols and practices relevant to 
outcomes;
    (E) Pre-operative management protocols and practices;
    (F) Immunosuppression/infection prophylaxis protocols;
    (G) Post-transplant monitoring and management protocols and 
practices;
    (H) Quality Assessment and Performance Improvement (QAPI) Program 
meeting minutes from the most recent four meetings and attendance 
rosters from the most recent 12 months;
    (I) Quality dashboard and other performance indicators; and
    (J) The most recent data regarding transplants that have been made 
and for outcomes in terms of both patient survival and graft survival;
    (vi) For mitigating factors requests based on innovative practice:
    (A) A description of the innovations that have been implemented and 
identification of the specific cases for which the innovative practices 
are relevant so as to enable the patient and graft survival data for 
such cases to be compared with all other transplants for at least the 
period covered by the latest available SRTR report.
    (B) The literature, research, or other evidentiary basis that 
supports consideration of the practice(s) as innovative.
    (vii) For requests based on natural disasters or public health 
emergency:
    (A) A description of the disaster or emergency, the specific impact 
on the program, the time periods of the event(s) and of its immediate 
recovery aftermath;
    (B) Identification of the transplants that occurred during the 
period for which the request is being made; and
    (C) The approximate date when the program believes it substantially 
recovered from the event(s), or believes it will recover if substantial 
recovery has not been accomplished at the time of the request.
    (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 120 days of the CMS written notification 
for a deficiency due to data submission, clinical experience or 
outcomes at Sec.  482.80 or Sec.  482.82 of this chapter. Failure to 
meet these timeframes may be the basis for denial of mitigating 
factors. However, CMS may permit an extension of the timeline for good 
cause, such as a declared public health emergency.
    (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

[[Page 50361]]

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 the program. The peer review must include--
    (A) Review of policies, staffing, operations, relationship to 
hospital services, and factors that contribute to program outcomes;
    (B) Suggestions for quality improvements the hospital should 
consider;
    (C) Both verbal and written feedback provided directly to the 
hospital;
    (D) Verbal debriefing provided directly to CMS; neither the 
hospital nor the peer review team is required to provide a written 
report to CMS; and
    (E) Onsite review by a multidisciplinary team that includes 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;
    (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 and Sec.  482.21 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. CMS may 
waive the content elements at paragraphs (h)(1)(v), (h)(1)(vi), 
(h)(1)(vii), or (h)(1)(viii) of this section if it finds that the 
program has already adequately conducted the activity, the program is 
already proficient in the function, or the activity is clearly 
inapplicable to the deficiencies that led to the Agreement.
    (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.

    Dated: July 24, 2014.
 Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 29, 2014.
 Sylvia M. Burwell,
Secretary, Department of Health and Human Services.

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

Addendum--Schedule of Standardized Amounts, Update Factors, 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 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 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 final rule, we are establishing the rate-
of-increase percentages for updating the target amounts for certain 
hospitals excluded from the IPPS that are effective for cost reporting 
periods beginning on or after October 1, 2014.
    In addition, we are setting forth a description of the methods and 
data we used to determine the standard Federal rate that will be 
applicable to Medicare LTCHs for FY 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 of this final rule,

[[Page 50362]]

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 
final rule, section 1106 of Public Law 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 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 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 making 
changes in the determination of the prospective payment rates for 
Medicare inpatient operating costs for acute care hospitals for FY 
2015. In section III. of this Addendum, we discuss our policy changes 
for determining the prospective payment rates for Medicare inpatient 
capital-related costs for FY 2015. In section IV. of this Addendum, we 
are setting forth our changes for determining the rate-of-increase 
limits for certain hospitals excluded from the IPPS for FY 2015. In 
section V. of this Addendum, we discuss policy changes for determining 
the standard Federal rate for LTCHs paid under the LTCH PPS for FY 
2015. The tables to which we refer in the preamble of this final rule 
are listed in section VI. of this Addendum and are available via the 
Internet on the CMS Web site.

II. 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 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 readers to 
section IV.B. of the preamble of this final rule for a complete 
discussion on the FY 2015 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[dash]of[dash]Increase........             2.9           2.9             2.9             2.9
Adjustment for Failure to Submit Quality Data                0.0           0.0            -0.725          -0.725
 under Section 1886(b)(3)(B)(viii) of the Act...
Adjustment for Failure to be a Meaningful EHR                0.0          -0.725           0.0            -0.725
 User under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment under Section 1886(b)(3)(B)(xi)              -0.5          -0.5            -0.5            -0.5
 of the Act.....................................
Statutory Adjustment under Section                          -0.2          -0.2            -0.2            -0.2
 1886(b)(3)(B)(xii) of the Act..................
Applicable Percentage Increase Applied to                    2.2           1.475           1.475           0.75
 Standardized Amount............................
----------------------------------------------------------------------------------------------------------------

     An update of 2.2 percent to the Puerto Rico-specific 
standardized amount (that is, the FY 2015 estimate of the market basket 
rate-of-increase of 2.9 percent less an adjustment of 0.5 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

[[Page 50363]]

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 final rule, an adjustment to offset the cost of the transitional 
wage index provisions provided by CMS as a result of the 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 final rule, a recoupment to meet the requirements of section 631 
of ATRA to adjust the standardized amount to offset the estimated 
amount of the increase in aggregate payments as a result of not 
completing the prospective adjustment authorized under section 
7(b)(1)(A) of Public Law 110-90 until FY 2013.
    Beginning in FY 2008, we applied the budget neutrality adjustment 
for the rural floor to the hospital wage indexes rather than the 
standardized amount. As we did for FY 2014, for FY 2015, consistent 
with current law, we are continuing 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 to the wage index, we are applying a 
uniform, national budget neutrality adjustment to the FY 2015 wage 
index for the rural floor. We note that, in section III.G.2.b. of the 
preamble to this final rule, we are extending the imputed floor policy 
(both the original methodology and alternative methodology) for another 
year, through September 30, 2015.
    Therefore, for FY 2015, in this final rule, we are continuing to 
include the imputed floor (calculated under the original and 
alternative methodologies) in calculating the uniform, national rural 
floor budget neutrality adjustment, which will be reflected in the FY 
2015 wage index.

A. Calculation of the Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts
    In general, the national standardized amount is based on per 
discharge averages of adjusted hospital costs from a base period 
(section 1886(d)(2)(A) of the Act), updated and otherwise adjusted in 
accordance with the provisions of section 1886(d) of the Act. For 
Puerto Rico hospitals, the Puerto Rico-specific standardized amount is 
based on per discharge averages of adjusted target amounts from a base 
period (section 1886(d)(9)(B)(i) of the Act), updated and otherwise 
adjusted in accordance with the provisions of section 1886(d)(9) of the 
Act. The September 1, 1983 interim final rule (48 FR 39763) contained a 
detailed explanation of how base-year cost data (from cost reporting 
periods ending during FY 1981) were established for urban and rural 
hospitals in the initial development of standardized amounts for the 
IPPS. The September 1, 1987 final rule (52 FR 33043 and 33066) contains 
a detailed explanation of how the target amounts were determined and 
how they are used in computing the Puerto Rico rates.
    Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act require us to 
update base-year per discharge costs for FY 1984 and then standardize 
the cost data in order to remove the effects of certain sources of cost 
variations among hospitals. These effects include case-mix, differences 
in area wage levels, cost-of-living adjustments for Alaska and Hawaii, 
IME costs, and costs to hospitals serving a disproportionate share of 
low-income patients.
    In accordance with section 1886(d)(3)(E) of the Act, the Secretary 
estimates, from time-to-time, the proportion of hospitals' costs that 
are attributable to wages and wage-related costs. In general, the 
standardized amount is divided into labor-related and nonlabor-related 
amounts; only the proportion considered to be the labor-related amount 
is adjusted by the wage index. Section 1886(d)(3)(E) of the Act 
requires that 62 percent of the standardized amount be adjusted by the 
wage index, unless doing so would result in lower payments to a 
hospital than would otherwise be made. (Section 1886(d)(9)(C)(iv)(II) 
of the Act extends this provision to the labor-related share for 
hospitals located in Puerto Rico.)
    For FY 2015, we are using 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 final rule, 
we are continuing to use 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 applying 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 indexes are greater than 1.0000, we are applying 
the wage index to a labor-related share of 69.6 percent of the national 
standardized amount.
    For FY 2015, all Puerto Rico hospitals have a wage index value that 
is less than 1.0000 because the average hourly rate of every hospital 
in Puerto Rico divided by the national average hourly rate (the sum of 
all salaries and hours for all hospitals in the 50 United States and 
Puerto Rico) results in a wage index that is below 1.0000. However, 
when we divide the average hourly rate of every hospital located in 
Puerto Rico by the 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 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 applying a labor-related share of 63.2 
percent if its Puerto Rico-specific wage index is greater than 1.0000. 
For hospitals located in Puerto Rico whose Puerto Rico-specific wage 
index values are less than or equal to 1.0000, we are applying a labor 
share of 62 percent.

[[Page 50364]]

    The standardized amounts for operating costs appear in Tables 1A, 
1B, and 1C that are listed and published in section VI. of the Addendum 
to this final rule and are available via the Internet on the CMS Web 
site.
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 calculating 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 final 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 final rule, in accordance with section 
1886(b)(3)(B) of the Act, as amended by section 3401(a) of the 
Affordable Care Act, we are reducing the FY 2015 applicable percentage 
increase (which is based on IHS Global Insight, Inc.'s (IGI's) second 
quarter 2014 forecast of the FY 2010-based IPPS market basket) by the 
MFP adjustment (the 10-year moving average of MFP for the period ending 
FY 2015) of 0.5 percentage point, which is calculated based on IGI's 
second 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 further updating 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 the 
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 second quarter forecast of the hospital market 
basket increase (as discussed in Appendix B of this final rule), the 
most recent forecast of the hospital market basket increase for FY 2015 
is 2.9 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 final rule for a complete discussion on the FY 2015 inpatient 
hospital update to the standardized amount. We also refer readers to 
the table above for the four possible applicable percentage increases 
that would be applied to update the national standardized amount. The 
standardized amounts shown in Tables 1A through 1C that are published 
in section VI. of this Addendum and that are available via the Internet 
on the CMS Web site reflect these differential amounts.
    Section 401(c) of Public Law 108-173 amended section 
1886(d)(9)(C)(i) of the Act and states that, for discharges occurring 
in a fiscal year (beginning with FY 2004), the Secretary shall compute 
an average standardized amount for hospitals located in any area of 
Puerto Rico that is equal to the average standardized amount computed 
under subclause (I) for FY 2003 for hospitals in a large urban area 
(or, beginning with FY 2005, for all hospitals in the previous fiscal 
year) increased by the applicable percentage increase under subsection 
(b)(3)(B) for the fiscal year involved. Therefore, the update to the 
Puerto Rico-specific operating standardized amount is subject to the 
applicable percentage increase set forth under section 1886(b)(3)(B)(i) 
of the Act, as amended by sections 3401(a) and 10319(a) of the 
Affordable Care Act (that is, the same update factor as for all other 
hospitals subject to the IPPS). Accordingly, we are establishing an 
applicable percentage increase to the Puerto Rico-specific standardized 
amount of 2.2 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 final rule.
4. Other Adjustments to the Average Standardized Amount
    As in the past, we are adjusting the FY 2015 standardized amount to 
remove the effects of the FY 2014 geographic reclassifications and 
outlier payments before applying the FY 2015 updates. We then apply 
budget neutrality offsets for outliers and geographic reclassifications 
to the standardized amount based on 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.
    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

[[Page 50365]]

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.
    In addition, 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).
    Finally, consistent with our methodology established in the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50422 through 50423), we examined the 
MedPAR file and removed pharmacy charges for anti-hemophilic blood 
factor (which are paid separately under the IPPS) with an indicator of 
``3'' for blood clotting with a revenue code of ``0636'' from the 
covered charge field for the budget neutrality adjustments. We also 
removed organ acquisition charges from the covered charge field for the 
budget neutrality adjustments because organ acquisition is a pass-
through payment not paid under the IPPS.
    The Bundled Payments for Care Improvement (BPCI) initiative, 
developed under the authority of section 3021 of the Affordable Care 
Act (codified at section 1115A of the Act), is comprised of four 
broadly defined models of care, which link payments for multiple 
services beneficiaries receive during an episode of care. Under the 
BPCI initiative, organizations enter into payment arrangements that 
include financial and performance accountability for episodes of care. 
On January 31, 2013, CMS announced the health care organizations 
selected to participate in the BPCI initiative. For additional 
information on the BPCI initiative, we refer readers to the CMS Center 
for Medicare and Medicaid Innovation's Web site at: http://innovation.cms.gov/initiatives/Bundled-Payments/index.html.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through 
53343), for FY 2013 and subsequent fiscal years, we finalized a 
methodology to treat hospitals that participate in the BPCI initiative 
the same as prior fiscal years for the IPPS payment modeling and 
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 final rule, as we proposed, we are continuing to include all 
applicable data from subsection (d) hospitals participating in BPCI 
Models 1, 2, and 4 in our IPPS payment modeling and ratesetting 
calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 
for a complete discussion on our final policy for the treatment of 
hospitals in the BPCI initiative in our ratesetting process.
    The Affordable Care Act established the Hospital Readmissions 
Reduction Program and the Hospital VBP Program which adjust payments to 
certain IPPS hospitals beginning with discharges on or after October 1, 
2012. Because the adjustments made under these programs affect the 
estimation of aggregate IPPS payments, in this final rule, consistent 
with our methodology established in the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53687 through 53688), we believe 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 final rule for 
full details of our implementation of and 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 final rule for full details 
regarding the Hospital VBP Program.
    Both the hospital readmissions payment adjustment (reduction) and 
the hospital VBP payment adjustment (redistribution) are applied on a 
claim-by-claim basis by adjusting, as applicable, the base-operating 
DRG payment amount for individual subsection (d) hospitals, which 
affects the overall sum of aggregate payments on each side of the 
comparison within the budget neutrality calculations. For example, when 
we calculate the budget neutrality factor for MS-DRG reclassification 
and recalibration of the relative weights, we compare aggregate 
payments estimated using the prior year's GROUPER and relative weights 
to estimated payments using the new GROUPER and relative weights. (We 
refer readers to section II.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 continuing to apply the hospital readmissions payment 
adjustment and the hospital VBP payment adjustment on each side of the 
comparison, consistent with the methodology that

[[Page 50366]]

we adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53687 through 
53688). That is, we are applying the readmissions payment adjustment 
factor and the hospital VBP payment adjustment factor on both sides of 
our comparison of aggregate payments when determining all budget 
neutrality factors described in section II.A.4. of this Addendum.
    For the purpose of calculating the FY 2015 readmissions payment 
adjustment factors, we are using excess readmission ratios and 
aggregate payments for excess readmissions based on admissions from the 
prior fiscal year's applicable period because hospitals have had the 
opportunity to review and correct these data before the data were made 
public under the policy we adopted regarding the reporting of hospital-
specific readmission rates, consistent with section 1886(q)(6) of the 
Act. For FY 2015, in this final rule, we are calculating the 
readmissions payment adjustment factors using excess readmission ratios 
and aggregate payments for excess readmissions based on admissions from 
the finalized applicable period for FY 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 final rule. (For additional 
information on our general policy for the reporting of hospital-
specific readmission rates, consistent with section 1886(q)(6) of the 
Act, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53399 through 53400).)
    In addition, for FY 2015, in this final rule, for the purpose of 
modeling aggregate payments when determining all budget neutrality 
factors, we are using proxy hospital VBP payment adjustment factors for 
FY 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 FY 2014, 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 including estimated empirically justified Medicare DSH 
payments that will be paid in accordance with section 1886(r)(1) of the 
Act and 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 considering 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 is greater. As 
discussed in section IV.F. of the preamble to this final 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 final rule, when computing payments under the Federal national 
rate plus 75 percent of the difference between the payments under the 
Federal national rate and the payments under 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, as of the time of development of this final 
rule, 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 not including 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 users in September 2014. Hospitals identified on this list will be 
paid based on the applicable standardized amount in Tables 1A and 1B 
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 was necessary to identify the

[[Page 50367]]

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 the FY 2015 IPPS/LTCH PPS proposed 
rule. As discussed in section III. of the preamble of this final rule, 
as we proposed, we are adopting 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 policy 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 using wage 
indexes based on the new OMB delineations in the determination of all 
of the budget neutrality factors discussed below (with the exception of 
the transitional budget neutrality factor and 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 does 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. Recalibration of MS-DRG Relative Weights and Updated Wage Index--
Budget Neutrality Adjustment
    Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning in 
FY 1991, the annual DRG reclassification and recalibration of the 
relative weights must be made in a manner that ensures that aggregate 
payments to hospitals are not affected. As discussed in section II.H. 
of the preamble of this final rule, we normalized the recalibrated MS-
DRG relative weights by an adjustment factor so that the average case 
relative weight after recalibration is equal to the average case 
relative weight prior to recalibration. However, equating the average 
case relative weight after recalibration to the average case relative 
weight before recalibration does not necessarily achieve budget 
neutrality with respect to aggregate payments to hospitals because 
payments to hospitals are affected by factors other than average case 
relative weight. Therefore, as we have done in past years, we are 
making a budget neutrality adjustment to ensure that the requirement of 
section 1886(d)(4)(C)(iii) of the Act is met.
    Section 1886(d)(3)(E)(i) of the Act requires us to update the 
hospital wage index on an annual basis beginning October 1, 1993. This 
provision also requires us to make any updates or adjustments to the 
wage index in a manner that ensures that aggregate payments to 
hospitals are not affected by the change in the wage index. Section 
1886(d)(3)(E)(i) of the Act requires that we implement the wage index 
adjustment in a budget neutral manner. However, section 
1886(d)(3)(E)(ii) of the Act sets the labor-related share at 62 percent 
for hospitals with a wage index less than or equal to 1.0000, 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 indexes less than or equal to 1.0000 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 adjusting 100 percent of the wage index factor for occupational 
mix. We describe the occupational mix adjustment in section III.F. of 
the preamble of this final rule.
    For FY 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 FY 2014 labor-related share 
percentages, the new OMB labor market area delineations for FY 2015, 
the FY 2014 relative weights, and the FY 2014 pre-reclassified wage 
data, and applied the FY 2015 hospital readmissions payment adjustments 
and estimated FY 2015 hospital VBP payment adjustments; and
     Aggregate payments using the FY 2014 labor-related share 
percentages, the new OMB labor market area delineations for FY 2015, 
the 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 budget neutrality 
adjustment factor equal to 0.997543. As discussed in section IV. of 
this Addendum, we also are applying the MS-DRG reclassification and 
recalibration budget neutrality factor of 0.997543 to the hospital-
specific rates that are effective for cost reporting periods beginning 
on or after October 1, 2014.
    Comment: Several commenters stated that CMS miscalculated the MS-
DRG reclassification and recalibration budget neutrality adjustment 
factor presented in the proposed rule. The commenters noted that the 
budget neutrality adjustment factor of 0.992938 presented in the 
proposed rule was much lower than historical levels. The commenters 
also noted that, for the last 5 years, the budget neutrality adjustment 
factor has been between 0.996731 (FY 2011) and 0.998431 (FY 2013). In 
addition, the commenters informed CMS that they attempted to replicate 
the calculation of this budget neutrality adjustment factor, but were 
unable to do so. The commenters added that in May of 2014, CMS posted a 
revised set of MS-DRG relative weights on the CMS Web site via the 
Internet because a number of postacute care transfer-adjusted cases for 
certain MS-DRGs presented in the FY 2015 IPPS/LTCH PPS proposed rule 
were inadvertently miscalculated. However, the commenters stated that 
they were still not able to verify the budget neutrality adjustment 
factor using the updated MS-DRG relative weights. The commenters stated 
that, by using the revised MS-DRGs, they calculated a revised budget 
neutrality adjustment factor of 1.000301. The commenters recommended 
that CMS examine the calculation of the budget neutrality adjustment 
factor and, if necessary, revise the budget neutrality adjustment 
factor for the FY 2015 IPPS/LTCH PPS final rule.
    One commenter recommended that CMS perform an analysis to confirm 
whether the proposed MS-DRG reclassification and recalibration budget 
neutrality adjustment factor is accurate and correct. The commenter 
also recommended that CMS discuss the results of its analysis in the 
final rule and afford interested parties a further opportunity to 
review and comment on the final budget neutrality adjustment factor 
before it becomes effective on October 1, 2014.
    Response: We appreciate the commenters' input. As the commenters 
requested, we examined the calculation of the budget neutrality 
adjustment

[[Page 50368]]

factor presented in the proposed rule. We agree with the commenters 
that the MS-DRG reclassification and recalibration budget neutrality 
adjustment factor was calculated incorrectly during the development of 
the proposed rule due to the inadvertent miscalculation of a number of 
postacute care transfer-adjusted cases for certain MS-DRGs. Using the 
updated MS-DRG relative weights, we calculated a revised proposed 
budget neutrality adjustment factor similar to the factor calculated by 
the commenters. For FY 2015, in this final rule, using accurate 
postacute care transfer-adjusted cases for these MS-DRGs, we have 
calculated a MS-DRG reclassification and recalibration budget 
neutrality factor of 0.997543, which is consistent with historical 
levels.
    In response to the commenters' concerns regarding verifying the 
accuracy of the budget neutrality adjustment factor, we announced 
through information posted via the Internet on the CMS Web site at 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2015-IPPS-Proposed-Rule-Home-Page-Items/FY2015-IPPS-Proposed-Rule-Data-Files.html that there was an inadvertent 
miscalculation of a number of postacute care transfer-adjusted cases 
for certain MS-DRGs. Therefore, after the publication of the FY 2015 
IPPS/LTCH PPS proposed rule, we also posted via the Internet on the CMS 
Web site a revised table of the proposed MS-DRG relative weights for FY 
2015. It is our goal to strive for accuracy in regard to our adjustment 
factor calculations, and we appreciate the commenters' recognition of 
the mistake and for pointing out the effects of the miscalculation 
during the comment period. However, we believe that the 60-day comment 
period affords the public an appropriate opportunity to review and 
comment on all of the proposals presented throughout the entire FY 2015 
IPPS/LTCH PPS proposed rule. We are not changing our proposed policy in 
calculating this budget neutrality adjustment, but rather are using 
corrected information. Therefore, we do not believe that an additional 
opportunity for comment necessary.
    Comment: The commenter also noted that CMS did not explicitly state 
which labor-related share percentages were used in the calculation of 
the MS-DRG reclassification and recalibration budget neutrality 
adjustment factor. In addition, the commenter did not believe that it 
was appropriate to use the new OMB delineations in the calculation of 
the MS-DRG reclassification and recalibration budget neutrality 
adjustment factor. The commenter requested that CMS address why it is 
appropriate to apply the new OMB delineations in the MS-DRG 
reclassification and recalibration budget neutrality adjustment factor 
and how and whether the new OMB delineations impact the calculation of 
the final budget neutrality adjustment factor. The commenter also 
requested that CMS identify which labor-related share percentages were 
in each component of the payment simulation model used to calculate the 
final budget neutrality adjustment factor.
    Response: As discussed in section III.B.(2)(e)(6) of the preamble 
of this final rule and consistent with past practice (69 FR 49034), we 
are not adopting the new OMB delineations, in and of themselves, in a 
budget neutral manner. However, we are adopting the transitional 
policies we have effectuated in a budget neutral manner as we describe 
below. 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. Therefore, the new OMB delineations did not impact the 
calculation of the final budget neutrality adjustment factor. Also, as 
stated in the FY 2015 IPPS/LTCH PPS proposed rule and above, consistent 
with our policy to adopt the new OMB delineations, in order to properly 
determine aggregate payments on each side of the comparison for our 
budget neutrality adjustment factor calculations, we are using wage 
indexes based on the new OMB delineations in the determination of all 
of the budget neutrality adjustment factors discussed below (with the 
exception of the transitional budget neutrality factor and outlier 
fixed-loss threshold as explained below).
    We also did not include the labor-related share percentages used in 
the calculation of the proposed MS-DRG reclassification and 
recalibration budget neutrality adjustment factor presented in the 
proposed rule. For FY 2015, in this final rule, as requested by the 
commenters, we present the labor-related share percentages used in the 
calculation of the budget neutrality adjustment factor in response to 
public comments we received in the discussion above, which are the same 
labor-related share percentages used for the proposed rule.
    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 adjustment factor, 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 an MS- 
DRG reclassification and recalibration budget neutrality adjustment 
factor of 0.997543 (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 budget neutrality 
adjustment factor for wage index and labor-related share percentage 
changes we used FY 2013 discharge data to simulate payments and 
compared the following:
     Aggregate payments using the new OMB labor market area 
delineations for FY 2015, FY 2015 relative weights and the FY 2014 pre-
reclassified wage indexes, 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 1.0000), and applied the FY 2015 hospital 
readmissions payment adjustment and the FY 2015 estimated hospital VBP 
payment adjustment; and
     Aggregate payments using the new OMB labor market area 
delineations for FY 2015, FY 2015 relative weights and the FY 2015 pre-
reclassified wage indexes, applied the 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 1.0000), and applied the same FY 2015 
hospital readmissions payment adjustments and estimated FY 2015 
hospital VBP payment adjustments applied above.
    In addition, we applied the MS-DRG reclassification and 
recalibration budget neutrality adjustment 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 budget neutrality adjustment factor 
of 1.001443 for changes to the wage index. Finally, we multiplied the 
MS-DRG reclassification and recalibration budget neutrality adjustment 
factor of 0.997543 (derived in the first step) by the budget neutrality 
adjustment factor of 1.001443 for changes to the wage index (derived in 
the second step) to determine the MS-DRG reclassification and 
recalibration and updated wage index budget neutrality adjustment 
factor of 0.998982.

[[Page 50369]]

b. Reclassified Hospitals--Budget Neutrality Adjustment
    Section 1886(d)(8)(B) of the Act provides that certain rural 
hospitals are deemed urban. In addition, section 1886(d)(10) of the Act 
provides for the reclassification of hospitals based on determinations 
by the MGCRB. Under section 1886(d)(10) of the Act, a hospital may be 
reclassified for purposes of the wage index.
    Under section 1886(d)(8)(D) of the Act, the Secretary is required 
to adjust the standardized amount to ensure that aggregate payments 
under the IPPS after implementation of the provisions of sections 
1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the 
aggregate prospective payments that would have been made absent these 
provisions. We note that the wage index adjustments provided for under 
section 1886(d)(13) of the Act are not budget neutral. Section 
1886(d)(13)(H) of the Act provides that any increase in a wage index 
under section 1886(d)(13) shall not be taken into account in ``applying 
any budget neutrality adjustment with respect to such index'' under 
section 1886(d)(8)(D) of the Act. To calculate the budget neutrality 
adjustment factor for FY 2015, we used FY 2013 discharge data to 
simulate payments and compared the following:
     Aggregate payments using the FY 2014 labor-related share 
percentages, the new OMB labor market area delineations for FY 2015, FY 
2015 relative weights, and 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 FY 2015 hospital readmissions payment 
adjustments and the estimated FY 2015 hospital VBP payment adjustments; 
and
     Aggregate payments using the FY 2014 labor-related share 
percentages, the new OMB labor market area delineations for FY 2015, FY 
2015 relative weights, and FY 2015 wage data after such 
reclassifications, and applied the same 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 for FY 
2015, and apply the policies explained in section III. of the preamble 
to this final rule. Based on these simulations, we calculated a budget 
neutrality adjustment factor of 0.990406 to ensure that the effects of 
these provisions are budget neutral, consistent with the statute.
    The FY 2015 budget neutrality adjustment factor was applied to the 
standardized amount after removing the effects of the FY 2014 budget 
neutrality adjustment factor. We note that the FY 2015 budget 
neutrality adjustment reflects FY 2015 wage index reclassifications 
approved by the MGCRB or the Administrator.
c. 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 final 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 final rule, in the FY 2012 IPPS/LTCH PPS final rule, 
we extended the imputed floor calculated under the original methodology 
through FY 2013 (76 FR 51594). In the FY 2013 IPPS/LTCH PPS final rule, 
we established an alternative 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 final rule, we 
are extending the imputed floor using the higher of the value 
determined under the original methodology or the alternative 
methodology for FY 2015. Therefore, in order to ensure that aggregate 
payments to hospitals are not affected, similar to prior years, we will 
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 implementing 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 will 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 will 
become an all-urban state. Therefore, for FY 2015, the imputed floor 
will be applied to the wage index for hospitals located in 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 national rural Puerto Rico 
wage index (used to adjust the labor-related share of the national 
standardized amount for hospitals located in Puerto Rico which receive 
75 percent of the national standardized amount) and a rural Puerto 
Rico-specific wage index (which is used to adjust the labor-related 
share of the Puerto Rico-specific standardized amount for hospitals 
located in Puerto Rico that receive 25 percent of the Puerto Rico-
specific standardized amount). Because 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 indexes 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 (CBSA 41980).

[[Page 50370]]

    To calculate the national rural floor and imputed floor budget 
neutrality adjustment factors and the Puerto Rico-specific rural floor 
budget neutrality adjustment factor, we used FY 2013 discharge data to 
simulate payments, the FY 2015 new OMB labor market area delineations, 
and post-reclassified national and Puerto Rico-specific wage indexes 
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 national rural budget 
neutrality adjustment factor of 0.989507 and the Puerto Rico-specific 
budget neutrality adjustment factor of 0.991291. The national 
adjustment was applied to the national wage indexes to produce a 
national rural floor budget neutral wage index and the Puerto Rico-
specific adjustment was applied to the Puerto Rico-specific wage 
indexes to produce a Puerto Rico-specific rural floor budget neutral 
wage index.
    Comment: Many commenters opposed the continued application of a 
nationwide rural floor budget neutrality adjustment. Some commenters 
noted that under the current rural floor policy, all hospitals located 
in Massachusetts are eligible for the rural floor wage index as a 
result of one rural hospital, which resulted in an approximate 4.9 
percent increase in payments for hospitals located in Massachusetts and 
creates a disparity when considering the wage index of other hospitals 
around the country. The commenters also noted that under the rural 
floor policy, hospitals located in California will also receive an 
increase in payments of approximately $196 million as a result of the 
application of the rural floor policy. The commenters stated that the 
adverse consequences of applying a nationwide rural floor budget 
neutrality adjustment have been recognized by CMS, MedPAC, and many 
others over the past several years. The commenters believed that the 
Medicare wage index system cannot accomplish its objective of ensuring 
that payments for the wage component of labor accurately reflect actual 
wage costs until this policy is corrected. Other commenters recommended 
that CMS consider applying the rural floor budget neutrality adjustment 
through a State-specific budget neutrality adjustment factor, as CMS 
has previously applied.
    Response: We appreciate the commenters' input and for informing us 
of their concerns. Section 3141 of Public Law 111-148 requires that a 
national budget neutrality adjustment be applied in implementing the 
rural floor policy. Therefore, absent a legislative change enacted by 
Congress, we are unable to change the rural floor budget neutrality 
adjustment from a national to a State-specific adjustment.
    Comment: Some commenters recommended that CMS consider implementing 
a policy under the IPPS and the OPPS that would result in only 
hospitals located in rural areas being included in the statewide rural 
floor wage index used for urban hospitals located in areas with wage 
indexes that are lower than the statewide rural wage index. The 
commenters believed that such a policy would prevent urban hospitals 
from reclassifying to rural status simply to improve the rural wage 
index, which might be used as a floor for urban hospitals located in 
areas of a State that have lower wage index values. The commenters 
added that they believed that CMS has the regulatory authority to make 
such a policy change without the enactment of Congressional 
legislation.
    Another commenter recommended that, for FY 2015, CMS require States 
to have at least 5 percent of their PPS hospitals physically located in 
rural areas as a prerequisite for establishing a rural floor wage index 
for each State. The commenter believed that this would ensure the 
original intent of the rural floor policy, which is to serve as an 
equalizer, and would protect the policy from being used as a 
manipulation tool that allows a handful of hospitals in one isolated 
area of the State to dictate the wage index for a major Metropolitan 
area.
    In addition, the same commenter urged CMS to create a national 
hospital wage index floor of 0.91. The commenter explained that this 
would reduce current disparities between hospitals. The commenter also 
stated that the purpose of the hospital area wage index is to fairly 
account for labor costs incurred by providers, and not to reward 
``winners'' or punish ``losers'' as a result of reclassifications and a 
proliferation of other modifications. The commenter further noted that 
it recognized that there is growing interest from MedPAC and others 
regarding revising the hospital area wage index system, but 
acknowledged that such revisions take time. Therefore, the commenter 
believed that a hospital rural floor wage index is appropriate until 
CMS creates a system that better reflects the realities of today's 
healthcare system and levels the playing field for all Medicare 
providers.
    Response: We appreciate the commenters' input. We did not make any 
proposals to change the rural floor wage index policy. Any changes to 
this policy would first need to be proposed through rulemaking. 
Consequently, we are not making any changes to address the commenters' 
concerns at this time. With respect to the commenter who recommended 
that CMS establish a national hospital wage index floor of 0.91, we do 
not believe that there is any statistical basis to support this 
calculation. In addition, we are unclear how such a wage index floor 
policy could be implemented nor do we believe that this suggestion 
meets the requirement of the statute. With respect to the other 
commenters' suggestions, we first need to determine if the revised 
policy that the commenters suggested would be inconsistent with any 
longstanding policy or statutory requirement. We will consider the 
commenters' suggestions in future rulemaking.
    Comment: One commenter requested that CMS provide an updated, 
detailed, State-specific analysis of the effect of a nationwide rural 
floor budget neutrality adjustment. The commenter specifically noted 
the estimated ``windfall'' expected to be received by hospitals located 
in Massachusetts as a result of the rural floor policy, and requested 
that CMS provide data and additional analysis of the impacts of a 
national rural floor budget neutrality adjustment. In addition, 
commenters questioned whether the addition of one rural hospital 
located in Franklin County, Massachusetts reduced the impact of the 
Massachusetts rural floor wage index from FY 2014 to FY 2015.
    Response: We have provided an updated State-specific analysis of 
the effect of the rural floor budget neutrality adjustment in Appendix 
A of the Addendum to this final rule. We also discuss in Appendix A to 
this final rule the increase in payments the hospitals in Massachusetts 
are expected to receive as a result of the rural floor wage index 
policy.
    We discuss below the reduced impact of the rural floor wage index 
policy for hospitals located in Massachusetts from FY 2014 to FY 2015. 
In FY 2014, CMS calculated that 60 hospitals would benefit from the 
Massachusetts rural floor wage index, resulting in an estimated $167.6 
million being received by hospitals located in Massachusetts as a 
result of the national rural floor budget neutrality adjustment. In FY 
2015, fewer hospitals located in Massachusetts (51) have been 
identified as benefitting from

[[Page 50371]]

the rural floor wage index, and the fiscal impact of rural floor budget 
neutrality adjustment has been reduced. Below we explain why nine 
providers (60 minus 51) received the Massachusetts rural floor wage 
index in FY 2014, but not in FY 2015.
    The commenters are correct that the addition of one rural hospital 
located in Franklin County, Massachusetts reduced the impact of the 
rural floor wage index in FY 2015, as compared to the impact of the 
rural floor wage index in FY 2014. To further clarify, in FY 2014, 
there was only one geographically located rural hospital in 
Massachusetts (located in Nantucket County). Therefore, the 
Massachusetts pre- and post- reclassified rural wage index in the 
calculation of the reclassification budget neutrality adjustment, and 
the application of the rural floor budget neutrality adjustment, was 
established based on wage data from that one hospital located in 
Nantucket County, Massachusetts. For FY 2015, another hospital, which 
is defined as ``urban'' under the current delineations, is now 
considered to be ``rural'' under the new OMB delineations. 
Specifically, this hospital is located in Franklin County, 
Massachusetts, which is no longer considered to be part of CBSA 44140 
(Springfield, MA) under the new OMB delineations, and is now considered 
to be geographically located in a rural area. However, under the new 
OMB delineations, Franklin County meets the requirements under section 
1886(d)(8)(B) of the Act for reclassification. Therefore, in FY 2015, 
any hospital located within Franklin County is deemed an ``urban'' 
labor market (that is, the hospitals are considered ``Lugar'' 
hospitals). The calculation of the FY 2015 Massachusetts pre-
reclassified rural wage index, which is used in the calculation of 
reclassification budget neutrality adjustment, is calculated based on 
the two geographically located rural hospitals (one from Franklin 
County and one from Nantucket County). The average hourly wage of the 
Franklin County hospital is lower than the average hourly wage of the 
Nantucket County hospital, lowering the pre-reclassified rural wage 
index for FY 2015 relative to FY 2014.
    With respect to budget neutrality, as described earlier in this 
Addendum, we first calculate and apply the MS-DRG and wage index budget 
neutrality adjustment, then the reclassification budget neutrality 
adjustment, and then the rural floor budget neutrality adjustment. This 
analysis focuses on the reclassification and rural floor budget 
neutrality adjustments and applies the requirement of section 
1886(d)(8)(C)(iii) of the Act, which specifies that an area's post-
reclassified wage index (without application of the rural floor budget 
neutrality adjustment) may not be reduced below the State's post-
reclassified rural wage index value (without application of the rural 
floor budget neutrality adjustment), as a result of reclassification. 
As stated in the FY 1992 IPPS final rule (56 FR 43220 through 43221), 
if reclassification (either to or from an area) would lower an area's 
post-reclassified wage index (without application of the rural floor 
budget neutrality adjustment) below the State's post-reclassified rural 
wage index (without application of the rural floor budget neutrality 
adjustment), CMS assigns those areas the post-reclassified rural wage 
index value for that State (without application of the rural floor 
budget neutrality adjustment). For this to occur, the area's pre-
reclassified wage index value must be greater than or equal to the 
State's pre-reclassified rural wage index value prior to calculating 
the effects of the reclassification budget neutrality adjustment.
    As discussed above in section II.A.4.b. of this Addendum regarding 
the reclassification budget neutrality adjustment, to ensure that the 
effects of applying sections 1886(d)(8)(B) and (C) and 1886(d)(10) of 
the Act are budget neutral, we compare FY 2015 wage data prior to any 
reclassifications under sections 1886(d)(8)(B) and (C) and 1886(d)(10) 
of the Act (that is, pre-reclassified wage data) to FY 2015 wage data 
after such reclassifications (that is, the post-reclassified wage 
data). Specifically, we compared the Massachusetts pre-reclassified 
rural wage index (Column C in the table below) to the pre-reclassified 
area wage index (Column B in the table below). (We note that the 
Massachusetts pre-reclassified rural wage index is comprised from the 
wage data of two rural hospitals, one located in Franklin County, 
Massachusetts and one located in Nantucket County, Massachusetts.) If a 
hospital's pre-reclassified area wage index (Column B in the table 
below) is greater than or equal to the Massachusetts pre-reclassified 
rural wage index (Column C in the table below), then we compare the 
Massachusetts post-reclassified rural wage index (Column F in the table 
below, which is based only on the wage data from one rural hospital in 
Nantucket County, and does not include the hospital located in Franklin 
County because it has been reclassified as an urban Lugar hospital) to 
the post-reclassified area wage index (Column E in the table below). 
For hospitals that receive reclassification in FY 2015, if the 
hospital's post-reclassified area wage index (Column E in the table 
below) is less than the Massachusetts post-reclassified rural wage 
index (Column F in the table below, which is based on the wage data 
from one rural hospital located in Nantucket County), then we assign 
the hospital the Massachusetts post-reclassified rural wage index 
(Column F in the table below) prior to application of the rural floor 
budget neutrality adjustment. The nine hospitals were reclassified for 
FY 2015, and their post-reclassified area wage index (Column E in the 
table below) is less than the Massachusetts post-reclassified rural 
wage index (Column F in the table below). Therefore, although there are 
other hospitals located in Massachusetts that also have been 
reclassified, only the nine hospitals meet both conditions and are 
being assigned the Massachusetts post-reclassified rural wage index 
(without application of the rural floor budget neutrality adjustment).
    Specifically, when we compared the Massachusetts pre-reclassified 
wage index to Massachusetts post-reclassified wage index in the 
calculation of the reclassification budget neutrality adjustment, the 
area's pre-reclassified wage index value for the nine hospitals is 
greater than or equal to the Massachusetts pre-reclassified rural wage 
index value of 1.1447 (which is calculated based on the wage data from 
the two rural hospitals). After application of the reclassifications, 
the area's post-reclassified wage index value for these nine hospitals 
is lower than the Massachusetts post-reclassified rural wage index 
value of 1.3477 (which only includes wage data from one rural hospital 
located in Nantucket County, Massachusetts). Therefore, in accordance 
with our reclassification hold-harmless methodology, these nine 
hospitals are assigned the Massachusetts post-reclassified rural wage 
index value of 1.3477 within the calculation of the reclassification 
budget neutrality adjustment, prior to the calculation and application 
of the rural floor budget neutrality adjustment. The impact of this 
increase in payments (Column B compared to Column F for the nine 
hospitals) is factored into the reclassification budget neutrality 
adjustment factor, which is applied to standardized amount. The table 
below illustrates the various wage indexes in each step of the process 
described above and why these nine hospitals were assigned the 
Massachusetts post-

[[Page 50372]]

reclassified rural wage index prior to the application of the rural 
floor budget neutrality adjustment.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               (F)
                                                  (A) Pre-        (B) Area pre-          (C)            (D) Post-      (E) Area post-     Massachusetts
                  Provider                      reclassified      reclassified      Massachusetts     reclassified      reclassified          post-
                                                    CBSA           wage index     pre-reclassified        CBSA           wage index       reclassified
                                                                                  rural wage index                                      rural wage index
--------------------------------------------------------------------------------------------------------------------------------------------------------
220001......................................             49340            1.1728            1.1447             14454            1.2318            1.3477
220016......................................                22            1.1447            1.1447             44140            1.0379            1.3477
220019......................................             49340            1.1728            1.1447             14454            1.2318            1.3477
220058......................................             49340            1.1728            1.1447             14454            1.2318            1.3477
220062......................................             49340            1.1728            1.1447             14454            1.2318            1.3477
220090......................................             49340            1.1728            1.1447             14454            1.2318            1.3477
220095......................................             49340            1.1728            1.1447             14454            1.2318            1.3477
220163......................................             49340            1.1728            1.1447             14454            1.2318            1.3477
220176......................................             49340            1.1728            1.1447             14454            1.2318            1.3477
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: All wage indexes in this table do not include application of the rural floor budget neutrality adjustment.

    The next step in the sequence of our calculation of the budget 
neutrality adjustment factor is to calculate the rural floor budget 
neutrality adjustment, which is applied to the wage index. For the 51 
hospitals located in Massachusetts, their post-reclassified area wage 
index is compared to the Massachusetts rural floor wage index 
(consisting of the one rural hospital located in Nantucket County). 
Because their post-reclassified area wage index value is lower than the 
Massachusetts rural floor wage index value, the hospitals are assigned 
the Massachusetts rural floor wage index value of 1.3477. Therefore, a 
rural floor budget neutrality adjustment factor is applied to the wage 
indexes of the 51 hospitals to account for the increase in payments as 
a result of the application of the rural floor wage index policy. 
However, with regard to the nine reclassified hospitals, they have 
already been assigned a post-reclassified wage index value of 1.3477, 
which is equal to the Massachusetts rural wage index. Accordingly, 
there is no need to make any further adjustments to ensure budget 
neutrality. As a result, the nine hospitals are excluded from and have 
no effect on the rural floor budget neutrality adjustment for FY 2015, 
and the impact of the FY 2015 rural floor budget neutrality adjustment 
for Massachusetts is lower than that of the FY 2014 rural floor budget 
neutrality adjustment. While the overall impact of the rural floor 
budget neutrality adjustment has decreased for hospitals located in 
Massachusetts in FY 2015, this explains why the same number of 
hospitals (60) will still receive the Massachusetts rural wage index in 
FY 2015 (determined by using the wage data from one rural hospital 
located in Nantucket County, Massachusetts) based on two different 
policies.
d. Wage Index Transition Budget Neutrality
    As discussed in section III. of the preamble of this final 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 
transition to using the new OMB delineations will have the largest 
impact on hospitals that are currently located in an urban county that 
became 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 are finalizing, as we proposed, a policy to generally 
assign these counties the urban wage index value of the CBSA to which 
they are physically located in for FY 2014 for FYs 2015, 2016, and 
2017.
    In addition to the 3-year transition period for hospitals being 
transitioned from urban to rural status as discussed above, we are 
finalizing, as we proposed, a 1-year blended wage index transitional 
policy for all hospitals that will experience any decrease in their 
wage index value (that is, a hospital's actual wage index value used 
for payment, which accounts for all applicable effects of 
reclassification and redesignation) exclusively as a result of the 
implementation of the new OMB delineations. Similar to the policy 
adopted in the FY 2005 IPPS final rule (69 FR 49033), a post-
reclassified wage index with the rural and imputed floor applied is 
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 will be computed based 
on the hospital's new FY 2015 CBSA (that is, the FY 2015 constituent 
county/ies). We compared these two wage indexes. If the FY 2015 wage 
index using the FY 2015 CBSAs is lower than the FY 2015 wage index 
using the FY 2014 CBSAs, we are computing a blended wage index 
consisting of 50 percent of each of the two wage indexes added 
together. This blended wage index is the hospital's wage index for FY 
2015. Hospitals that benefit from the adoption of the new OMB 
delineations are assigned their new wage index based on the new OMB 
delineations. We refer readers to section III. of the preamble of this 
final rule for a complete discussion on the transitional wage index 
policy.
    In the past, CMS has budget neutralized transitional wage indexes. 
Because we are establishing a policy that allows for the application of 
a transitional wage index only when it benefits 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 proposed 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, will equal what payments would have been if we had fully 
adopted the new OMB delineations without any transitional provisions. 
We did not receive any public comments on this proposal and are 
finalizing our proposal to make this adjustment under section 
1886(d)(5)(I)(i) of the Act.
    Also, because we did not receive any public comments on this 
proposal we are finalizing our proposal to use the same methodology 
presented in the proposed rule in this final rule to calculate the 
transitional wage index

[[Page 50373]]

budget neutrality adjustment factor. We discuss the calculation of this 
adjustment factor below.
    As stated above, the 50/50 blended wage indexes use post-
reclassified wage index data with the rural and imputed floor applied 
computed based on FY 2014 CBSAs. Because the 50/50 blended methodology 
uses data based on FY 2014 CBSAs, in order to properly calculate the 
transitional budget neutrality factor, it was first necessary to 
calculate the following budget neutrality factors based on the FY 2014 
CBSAs: An MS-DRG and 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 FY 2015 CBSAs on both sides of 
the comparison.
    After calculating all of the budget neutrality factors using FY 
2014 and FY 2015 CBSAs, to calculate the 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 for FY 2015, 
the FY 2015 relative weights, 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 rural floor 
budget neutrality adjustment factor to the wage index (using the new 
OMB delineations), and applied the FY 2015 hospital readmissions 
payment adjustments and the estimated FY 2015 hospital VBP payment 
adjustments; and
     Aggregate payments using FY 2015 relative weights, FY 2015 
wage data after applying the transitional wage indexes, and applied the 
same hospital readmissions payment adjustments and the estimated 
hospital VBP payment adjustments applied above. We note that hospitals 
that did not receive the transitional 50/50 blended wage index were 
assigned the post-reclassified wage index values with the rural floor 
budget neutrality adjustment based on the FY 2015 new OMB delineations.
    Based on these simulations, we calculated a budget neutrality 
adjustment factor of 0.998859. Therefore, for FY 2015, we are applying 
a transitional wage index budget neutrality adjustment factor of 
0.998859 to the national average and Puerto Rico-specific standardized 
amounts to ensure that the effects of these transitional wage indexes 
are budget neutral.
    We note that the 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 applying 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 will 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, this 
adjustment will not be applied cumulatively). Because we are 
establishing a 3-year transitional wage index policy for urban 
hospitals that became rural as a result of the adoption of the new OMB 
delineations, we intend to establish 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 policy for FY 2015, we 
intend to propose that the FYs 2016 and 2017 adjustments would be 
applied as ``one-time'' adjustments and not cumulative adjustments 
applied each fiscal year.
e. Case-Mix Budget Neutrality Adjustment
(1) Background
    Below we summarize the recoupment adjustment to the 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 final rule for a complete discussion regarding our policies for FY 
2015 in this final rule and previously finalized policies (including 
our historical adjustments to the payment rates) relating to the effect 
of changes in documentation and coding that do not reflect real changes 
in case-mix.
(2) 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 final rule, as we proposed, we are 
applying 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.
f. Rural Community Hospital Demonstration Program Adjustment
    As discussed in section IV.L. of the preamble of this final rule, 
section 410A of Public Law 108-173 originally required the Secretary to 
establish a demonstration program that modifies reimbursement for 
inpatient services for up to 15 small rural hospitals. Section 
410A(c)(2) of Public Law 108-173 requires that ``[i]n conducting the 
demonstration program under this section, the Secretary shall ensure 
that the aggregate payments made by the Secretary do not exceed the 
amount which the Secretary would have paid if the demonstration program 
under this section was not implemented.''
    Sections 3123 and 10313 of the Affordable Care Act extended the 
demonstration program for an additional 5-year period, and allowed up 
to 30 hospitals to participate in 20 States with low population 
densities determined by the Secretary. (In determining which States to 
include in the expansion, the Secretary is required to use the same 
criteria and data that the Secretary used to determine the States for 
purposes of the initial 5-year period.) In the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53449 through 53453), in

[[Page 50374]]

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 adjusting 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 final 
rule, to account for the estimated additional costs of the 
demonstration program for FY 2015. For FY 2015, in this final rule, the 
estimated amount of this budget neutrality adjustment factor applied to 
the national IPPS payment rates for FY 2015 is $54,177,144. In 
addition, similar to previous years, we are including 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 final 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. For FY 2015, in this final rule, we are establishing a budget 
neutrality offset amount of $10,389,771 for FY 2008.
    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, 2011, and 2012). These data were 
unavailable for this final rule. However, depending on our progress in 
obtaining these cost reports, we may include in the FY 2016 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 applying to the FY 2015 IPPS payment rates is $64,566,915. 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 otherwise be paid to the 
participating hospitals in FY 2014 without the demonstration 
($54,177,144); and (2) the amount by which the actual costs of the 
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 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 factor of 0.99931 for the rural community hospital 
demonstration program budget neutrality adjustment that will be applied 
to the IPPS standard Federal payment rate.
g. Outlier Payments
    Section 1886(d)(5)(A) of the Act provides for payments in addition 
to the basic prospective payments for ``outlier'' cases involving 
extraordinarily high costs. To qualify for outlier payments, a case 
must have costs greater than the sum of the prospective payment rate 
for the DRG, any IME and DSH payments, any new technology add-on 
payments, and the ``outlier threshold'' or ``fixed-loss'' amount (a 
dollar amount by which the costs of a case must exceed payments in 
order to qualify for an outlier payment). We refer to the sum of the 
prospective payment rate for the DRG, any IME and DSH payments, any new 
technology add-on payments, and the outlier threshold as the outlier 
``fixed-loss cost threshold.'' To determine whether the costs of a case 
exceed the fixed-loss cost threshold, a hospital's CCR is applied to 
the total covered charges for the case to convert the charges to 
estimated costs. Payments for eligible cases are then made based on a 
marginal cost factor, which is a percentage of the estimated costs 
above the fixed-loss cost threshold. The marginal cost factor for FY 
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.htm.
(1) 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 PPS 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.
    For FY 2015, we proposed to continue to use the same methodology 
that we 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

[[Page 50375]]

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 proposed 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.
    Comment: Commenters were concerned that they were unable to 
replicate the calculation of the charge inflation factor that CMS used 
in the proposed rule. The commenters stated that the first quarter of 
the FY 2014 MedPAR claims were not released to the public. The 
commenters requested that CMS release the claims data used to calculate 
the charge inflation factor used in the proposed rule. One commenter, a 
provider, requested that CMS reevaluate the calculation of the 
inflation factor because it far exceeds the inflation factors used in 
labor markets that the provider operates within.
    Response: In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed 
to adopt a new methodology to compare periods of 1-year of the most 
recent charge data in order to inflate charges. Commenters supported 
this proposal and it was adopted for FY 2014 and future years in the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50978). We note that we did not 
provide additional data for the first quarter of FY 2013, which was 
used to inflate charges in the FY 2014 IPPS/LTCH PPS proposed rule, nor 
was it requested during the comment period for the FY 2014 IPPS/LTCH 
PPS proposed rule. We further note that our charge inflation policy 
from FY 2005 through FY 2013 also compared the most recent period of 
charge data using a 6-month comparison instead of a 1 year comparison. 
Similar to above, we did no provide additional data for the first 
quarter of the applicable fiscal year, nor was it requested during the 
comment period for those years.
    Consistent with this policy, for FY 2015, we proposed to compare 
the most recent charge data from 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).
    In response to the commenters who requested a restructuring of the 
limited data set files for the FY 2015 IPPS/LTCH PPS proposed and final 
rule to provide an additional quarter of MedPAR claims data, we did not 
have sufficient time to restructure the files as the commenters 
requested prior to the publication of the proposed and this final rule. 
Consistent with our longstanding policy since FY 2005, we continue to 
believe that it is optimal to use the most recent period of charge data 
available to measure charge inflation. We will consider how best to 
provide additional information on the charge inflation factor for 
future years.
    With respect to the commenter requesting that CMS reevaluate the 
calculation of the inflation factor, we believe that our measure of 
charge inflation accurately reflects the national charge inflation. Our 
charge inflation factor represents the average percentage increase in 
charge inflation for all hospitals. We recognize that charge inflation 
may vary geographically, and we do not believe that it is appropriate 
to base the charge inflation factor on selective labor markets because 
we apply this charge inflation factor to all claims for all hospitals.
    As we have done in the past, in the FY 2015 IPPS/LTCH PPS proposed 
rule we proposed to establish the 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 the proposed 
rule. We also proposed that if more recent data became available would 
we use that data to calculate the final FY 2015 outlier threshold. For 
FY 2015, we also proposed to continue to apply an adjustment factor to 
the CCRs to account for cost and charge inflation (as explained below).
    In the FY 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 proposed 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 in the proposed rule 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 because 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, for the proposed rule 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 used the same methodology proposed above to adjust the capital 
CCRs. Specifically, for the proposed rule we calculated a December 2012 
capital national average case-weighted CCR of 0.025079 and a December 
2013 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 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 used 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.

[[Page 50376]]

    Comment: One commenter matched the CCRs used for the proposed rule 
impact file to the December 2013 PSF and found that 126 providers' CCRs 
did not match. The commenter noted that although an extremely high 
percentage of providers' CCRs matched the data in the December 2013 
update, the average percent difference for those CCRs that did not 
match is much higher than any other comparison from prior years. The 
commenter stated that this difference could lead to differences in the 
calculated fixed-loss threshold. The commenter further stated that the 
data demonstrated that CMS used significantly outdated CCRs to make 
projections for the FY 2015 fixed-loss threshold. The commenter 
recommended that this error be rectified in the final rule, which would 
result in a substantially reduced threshold. In addition, the commenter 
recommended that CMS use the most recently updated PSF file for the 
final rule.
    Response: With regard to the commenter's finding of 126 providers 
with CCRs from the proposed rule impact file that did not match the 
data in the December 2013 PSF, as stated in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50979), we apply the following edits to providers' 
CCRs in the PSF. We believe these edits are appropriate in order to 
accurately model the outlier threshold. We first search for Indian 
Health Service providers and those providers assigned the statewide 
average CCR from the current fiscal year. We then replace these CCRs 
with the statewide average CCR for the upcoming fiscal year. We also 
assign the statewide average CCR (for the upcoming fiscal year) to 
those providers that have no value in the CCR field in the PSF. We 
believe that the edits above are the reason why the commenter found 
that 126 providers had CCRs in the impact file that did not match the 
CCRs in the December 2013 PSF, and contributed to the average 
percentage difference for those CCRs that did not match. We also 
believe that we have accurately calculated and applied these statewide 
average CCRs and will continue to monitor any large variances in the 
future. With regard to using the most recently updated PSF file for the 
final rule, we responded to a similar comment below.
    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 outlier threshold.
    As discussed above, for FY 2015, we are applying transitional wage 
indexes because of the 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 final rule, in accordance with 
section 10324(a) of the Affordable Care Act, beginning in FY 2011, we 
created a wage index floor of 1.0000 for all hospitals located in 
States determined to be frontier States. We noted that the frontier 
State floor adjustments will be calculated and applied after rural and 
imputed floor budget neutrality adjustments are calculated for all 
labor market areas, in order to ensure that no hospital in a frontier 
State will receive a wage index less than 1.0000 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 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 proposed not 
to make any adjustments for the possibility that hospitals' CCRs and 
outlier payments may be reconciled upon cost report settlement. We 
stated that we continue to believe that, due to the policy implemented 
in the June 9, 2003 Outlier final rule (68 FR 34494), CCRs will no 
longer fluctuate significantly and, therefore, few hospitals will 
actually have these ratios reconciled upon cost report settlement. In 
addition, it is difficult to predict the specific hospitals that will 
have CCRs and outlier payments reconciled in any given year. We also 
note that, in accordance with our reconciliation criteria, 
reconciliation occurs in instances where a hospital's actual CCR for 
the cost reporting period fluctuates plus or minus 10 percentage points 
compared to the interim CCR used to calculate outlier payments when a 
bill is processed. Our simulations assume that CCRs accurately measure 
hospital costs based on information available to us at the time we set 
the outlier threshold. For these reasons, we proposed not to make any 
assumptions regarding the effects of reconciliation on the outlier 
threshold calculation.
    Comment: One commenter expressed concern that CMS did not consider 
outlier reconciliation in the development of the outlier threshold. The 
commenter stated that CMS did not provide any objective data concerning 
the number of hospitals that have been subject to outlier 
reconciliation and the amounts recovered. The commenter further stated 
that, in February 2003, the Secretary signed what the commenter 
described as an emergency interim final rule that would have corrected 
the outlier threshold and included outlier reconciliation payments (in 
the calculation of the outlier threshold), but that rule was not issued 
because of objections from the Office of Management and Budget. The 
commenter asserted that if it was possible to account for outlier 
reconciliation payments at the initial implementation of the outlier 
reconciliation policy in the calculation of the threshold, it should be 
possible to do so 10 years later. The commenter also searched cost 
reports from the HCRIS database for the years 2003 through 2010 (Form 
CMS-2552-96 and CMS-2552-10) and, based on these data, provided its 
estimate that the annual amounts recovered by CMS through 
reconciliation totaled $108,934,425. The commenter believed that these 
data can be used to provide a baseline and trend information to assess 
whether outlier reconciliation is a significant factor to be considered 
in the development of the outlier threshold. The commenter noted that 
it was unable to extract outlier reconciliation payment information 
from cost reports filed under Form CMS-2552-10. The commenter was 
unsure why this data was not being captured. Therefore, the commenter 
requested that CMS disclose in the final rule and future rulemaking the 
amount CMS has recovered through reconciliation by year.
    Another commenter cited a report issued by the Office of Inspector 
General (OIG) on June 28, 2012, entitled ``The Centers for Medicare & 
Medicaid Services Did Not Reconcile Medicare Outlier Payments in 
Accordance With Federal Regulations and Guidance'' (A-07-10-02764), 
which reviewed the reconciliation process for outlier payments under 
the IPPS. The commenter stated that the 2012 OIG Report identified 
approximately $664 million in unreconciled outlier payments, which is a 
material amount

[[Page 50377]]

in relation to total outlier payments. Moreover, the commenter further 
stated that CMS now has approximately 10 full fiscal years of 
experience with reconciliation from which to project the impact of its 
reconciliation in the upcoming fiscal year. As such, the commenter 
asserted that CMS' policy of refusing to account for the impact of 
reconciliation in setting the FY 2015 outlier fixed-loss cost threshold 
is neither reasonable nor consistent with the outlier provisions of the 
statute.
    The same commenter cited the OIG report issued on November 13, 
2013, entitled ``Medicare Hospital Outlier Payments Warrant Increased 
Scrutiny'' (OEI-06-10-00520). The commenter stated that the proposed 
outlier fixed-loss cost threshold appears improperly inflated and, 
therefore, overstated because CMS does not report, and has not taken 
any actions to report, any steps to account for ``high-outlier'' 
payments identified in the report. The commenter further stated that it 
is neither consistent with the outlier provisions of the statute nor 
reasonable for CMS, in modeling outlier payments for the upcoming 
fiscal year, to include outlier payments that were based on excessively 
high charges for particular MS-DRGs and not based on truly unusually 
high costs. The commenter concluded that such payments will presumably 
be recouped by CMS following audit and reconciliation. However, CMS has 
not disclosed or discussed what, if anything, it has done to address 
this issue in setting the outlier fixed-loss cost threshold for FY 
2015.
    Response: A similar comment was received in response to the 
policies presented in last year's rule. We appreciate the commenter's 
input and for informing us of its concern regarding our policy of not 
including outlier reconciliation within the development of the outlier 
fixed-loss cost threshold. The commenter provided data from HCRIS that 
demonstrated total outlier reconciliation payments from 2003 through 
2010 were $108,934,425, which equates to approximately $13,616,803 
annually. Assuming that the totals provided by the commenter are 
correct, we do not believe that this relatively small annual amount 
would have an impact on the outlier threshold because total outlier 
payments are approximately $4.3 billion. Further, with regard to the 
draft final rule referenced by the commenter, that draft document was 
never finalized or published in the Federal Register (neither on a 
proposed or interim basis), or implemented in any way. We also disagree 
with the commenter's characterization of the draft interim final rule. 
That draft rule would not have adjusted the outlier threshold by 
accounting for payment changes as a result of outlier reconciliation, 
as the commenter suggested. Rather, the draft interim final rule merely 
would have calculated a new fixed-loss threshold to be applied for the 
remainder of Federal fiscal year 2003 using the same data that 
originally had been used for that purpose, but excluding data from 123 
hospitals whose percentage of outlier payments relative to total DRG 
payments increased by at least 5 percentage points between FY 1999 and 
FY 2001, and whose case-mix (the average DRG relative weight value for 
all of a hospital's Medicare cases) adjusted charges increased at a 
rate at or above the 95th percentile rate of charge increase for all 
hospitals (46.63 percent) over the same period. As previously stated, 
this draft rule was never finalized or published in the Federal 
Register. Therefore, that document has little, if any, relevance to the 
current discussion. With respect to the commenter citing the 2012 OIG 
Report which identified approximately $664 million in unreconciled 
outlier payments, we cannot substantiate this amount until all of the 
outlier reconciliations are performed. As the MACs continue to perform 
these outlier reconciliations, they record these amounts on the cost 
report, which are then publicly available through the HCRIS database. 
Also, CMS has requested that the MACs submit to CMS the reconciled 
outlier amounts. We will continue to track these outlier 
reconciliations as stated in our response to the OIG report.
    As stated in prior final rules, we continue to believe that, as a 
result of the policy implemented in the June 9, 2003 outlier final rule 
(68 FR 34494), CCRs will no longer fluctuate significantly and, 
therefore, few hospitals will actually have these ratios reconciled 
upon cost report settlement as demonstrated by the total outlier 
payments provided by the commenter. In addition, it is difficult to 
predict the specific hospitals that will have CCRs and outlier payments 
reconciled in any given year. We also note that, in accordance with our 
outlier reconciliation criteria, reconciliation occurs in instances 
where a hospital's actual CCR for the cost reporting period fluctuates 
plus or minus 10 percentage points compared to the interim CCR 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, as we proposed, we are finalizing our proposal not to make any 
assumptions regarding the effects of reconciliation on the outlier 
threshold calculation.
    Also, outlier reconciliation is a function of the cost report and 
MACs record the outlier reconciliation amount on each provider's cost 
report (and are not required to report these data to CMS outside of the 
cost report settlement process). Therefore, the outlier reconciliation 
data that the commenter requested should be publicly available through 
the cost report. With regard to the commenter not being able to 
retrieve the data for outlier reconciliation payments from cost reports 
filed under Form CMS-2552-10, we received a similar comment in response 
to last year's proposed rule, as summarized in the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50980). We will continue to follow up with our 
information systems team to ensure this information is readily 
available to the public. Since the effective date of Change Request 
7192 on April 1, 2011, we have approved the reconciliation of outlier 
payments for some hospitals. Other hospitals that were flagged for 
outlier reconciliation are still under review for approval. In 
addition, some hospitals flagged for outlier reconciliation may 
experience a delay in reconciling their outlier payments due to 
circumstances that prevent the MACs from finalizing the hospital's cost 
report (such as other payments that may need to be reconciled aside 
from outlier payments).
    We disagree with the commenter that stated that we should not 
include outlier payments that were based on excessively high charges 
for particular MS-DRGs and not based on truly unusually high costs 
because such payments will presumably be recouped by CMS following 
audit and reconciliation. The purpose of the CCR is to measure a 
hospital's costs and charges. We believe that the CCRs will reflect 
these low costs and high charges that the commenter referred to, and 
when applied to the charges on the claim will result in less outlier 
payments for such cases because the costs of the case will be lower 
when compared to the total MS-DRG payments excluding outlier payments. 
Also, the commenter appears to assume that providers with high charges 
will be eligible for outlier reconciliation and CMS will recoup these 
funds at a later time. We disagree with the commenter. If a hospital's 
interim CCR is consistent with its charges on the claim then no matter 
how high or low a hospital's

[[Page 50378]]

charges, the hospital probably will not meet the outlier reconciliation 
criteria.
    As described in sections IV.H. and IV.I., respectively, of the 
preamble of this final rule, sections 1886(q) and 1886(o) of the Act 
establish the Hospital Readmissions Reduction Program and the Hospital 
VBP Program, respectively. We do not believe 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 will continue to be calculated 
based on the unadjusted base DRG payment amount (as opposed to using 
the base-operating DRG payment amount adjusted by the hospital 
readmissions payment adjustment and the hospital VBP payment 
adjustment). Consequently, we proposed to exclude the hospital VBP 
payment adjustments and the hospital readmissions payment adjustments 
from the calculation of the outlier fixed-loss cost threshold.
    We noted that, to the extent section 1886(r) of the Act modifies 
the existing DSH payment methodology under section 1886(d)(5)(F), the 
new uncompensated care payment under section 1886(r)(2), like the 
empirically justified Medicare DSH payment under section 1886(r)(1), 
may be considered an amount payable under section 1886(d)(5)(F) of the 
Act such that it would be reasonable to include the payment in the 
outlier determination under section 1886(d)(5)(A). As we did for FY 
2014, for FY 2015, we stated that 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 stated that 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 stated that 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 stated 
that we are proposing to include estimated FY 2015 uncompensated care 
payments in the computation of the proposed outlier fixed-loss cost 
threshold. Specifically, we stated 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 proposed an outlier fixed-loss cost 
threshold for FY 2015 equal to the prospective payment rate for the MS-
DRG, plus any IME, empirically justified Medicare DSH payments, 
estimated uncompensated care payment, and any add-on payments for new 
technology, plus $25,799.
    In the proposed rule we noted that the proposed FY 2015 fixed-loss 
cost threshold is higher than the FY 2014 final outlier fixed-loss cost 
threshold of $21,748. We stated that 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 was necessary for us to raise the proposed outlier fixed-loss cost 
threshold to decrease the amount of outlier payments expended in order 
to reach the 5.1 percent target.
    Comment: Some commenters were surprised by the magnitude of the 
increase of the outlier threshold in the proposed rule compared to the 
threshold of $21,748 for FY 2014. The commenters explained that, for FY 
2013, CMS currently estimates that outliers are 4.81 percent of total 
MS-DRG payments. The commenters asserted that, given that the threshold 
for FY 2013 of $21,821 was similar to the outlier threshold for FY 
2014, they find little justification for a dramatic increase in the 
threshold for FY 2015.
    The commenters also stated that it is important that CMS is aware 
of the magnitude of inaccuracies when estimating the actual outlier 
payout for prior years or calculating the current outlier threshold. 
The commenters noted that, in prior years, CMS has estimated outlier 
payments for a FY in one year and then the next year revises the 
estimate at a much lower number than the initial estimate. The 
commenters cited the FY 2013 outlier estimate as an example where CMS 
estimated total outlier payments for FY 2013 in the FY 2014 IPPS/LTCH 
PPS proposed rule as 5.17 percent and then revised this number in the 
FY 2015 IPPS/LTCH PPS proposed rule to 4.81 percent.
    The commenters also noted that with each rulemaking the final 
outlier threshold established by CMS is always lower than the threshold 
set forth in the proposed rule. One commenter speculated that this is 
most likely as result of the use of updated CCRs or other data in 
calculating the final outlier threshold. As a result, the commenter 
emphasized the need for CMS to use the most recent data available when 
calculating the outlier threshold. The commenter stated that, with 
regard to the current rulemaking, CMS used data from the December 2013 
PSF in the proposed rule, when the March 2014 PSF was available at the 
time the proposed rule was issued. Using the March 2014 PSF, the 
commenter calculated an outlier threshold of $25,375 (compared to the 
threshold presented in the proposed rule of $25,799, which used the 
December 2013 PSF).
    Response: When we conduct our modeling to determine the outlier 
threshold, we factor in all payments and policies that would affect 
actual payments for the current year in order to estimate that outlier 
payments are 5.1 percent of total MS-DRG payments. While we recognize 
that outlier payments have been below the 5.1 percent target in prior 
fiscal years, we do not believe that these lower payouts are relevant 
to the current fiscal year because they do not lend greater accuracy to 
the estimate of payments that are 5.1 percent of total MS-DRG payments 
for FY 2015. We also note that in response to commenters' concerns, 
last year we modified our outlier threshold calculation by changing the 
way we adjust the CCRs. We also changed the measure of inflation from 
using 6 months of claims data to 1 year of claims data. CMS shares the 
commenters' belief that outlier payments in every fiscal year meet the 
5.1 percent target, and we made these changes to improve our 
methodology for calculating the outlier threshold. As in prior years, 
CMS will continue to consider any suggestions made by the commenters to 
improve the accuracy of the calculation of the outlier threshold.
    CMS' historical policy is to use the best available data when 
setting the

[[Page 50379]]

payment rates and factors in both the proposed and final rules. 
Sometimes there are variables that change between the proposed and 
final rule as result of the availability of more recent data, such as 
the charge inflation factor and the CCR adjustment factors that can 
cause fluctuations in the threshold amount. Other factors such as 
changes to the wage indexes and market basket increase can also cause 
the outlier fixed-loss cost threshold to fluctuate between the proposed 
rule and the final rule each year. We use the latest data that is 
available at the time of the development of the proposed and final 
rules, such as the most recent update of MedPAR claims data and CCRs 
from the most recent update of the PSF. With regard to the commenter 
noting the availability of the March 2014 PSF at the time the proposed 
rule was issued, this file was not available when we calculated the 
proposed outlier fixed-loss cost threshold as part of the development 
of the proposed rule. Therefore, for the proposed rule, we used the 
latest update available, which was the December 2013 PSF. If we were to 
wait for the March 2014 PSF to become available, this would cause 
further delay of publication of the proposed rule, leading to a 
possible further delay of issuance of the final rule in a timely 
fashion.
    Comment: One commenter stated that as a result of the large 
increase in the proposed outlier threshold it suspected that CMS is 
duplicating its charge increases through the use of the charge 
inflation factor. The commenter believed that this duplication is 
compounded by the fact that the CCRs would also reflect high charges. 
The commenter believed that these two issues are artificially inflating 
the threshold while hospitals have lower costs. The commenter offered 
an alternative threshold of $24,340, by measuring the change in outlier 
percentage payments of 5.1 percent for FY 2015 compared to the FY 2014 
outlier estimate of 5.79 percent (5.1 percent minus 5.79 percent = -
0.69 percent divided by 5.79 percent = 11.92 percent). The commenter 
recommended using a forecast correction of 100 plus 11.92 percent based 
on their calculation above.
    Response: We disagree with the commenter. We believe that our 
measure and application of the charge inflation factor is accurate and 
appropriate as explained in the proposed rule. As discussed, we apply a 
2-year charge inflation factor because we use claims from FY 2013 for 
FY 2015. Also, the CCRs we use come directly from the PSF, which comes 
directly from hospitals' cost reports. We believe that these CCRs are 
accurate. We also are unsure what ``high charges'' to which the 
commenter referred. Further, as noted above, section 1886(d)(5)(A)(iv) 
of the Act requires outlier payments to be not less than 5 percent nor 
more than 6 percent of total estimated or projected payments in that 
year. Therefore, we cannot adopt the commenter's suggestion to use a 
forecast correction to compute the outlier threshold. When we calculate 
the threshold, we use the latest data that are available at the time of 
the proposed and final rules in order to estimate that outlier payments 
are 5.1 percent of total payments.
    Comment: One commenter noted that CMS did not indicate if it has 
made any additional changes to its methodology to exclude the charges 
for hemophilia clotting factors from the calculation of the fixed-loss 
outlier threshold. The commenter noted that CMS provides a methodology 
for excluding such charges from MedPAR data for the budget neutrality 
calculation. The commenter wanted to ensure that such efforts also 
resulted in the exclusion of such charges from MedPAR data used for the 
calculation of the fixed-loss threshold as well.
    Response: We appreciate the commenter's input and for seeking 
clarification on the calculation of the fixed-loss outlier threshold. 
Similar to what is done in the budget neutrality calculation, CMS 
excludes the charges for hemophilia clotting factors from the 
calculation of the fixed-loss outlier threshold.
    Comment: One commenter stated that in its public comment submitted 
in response to the FY 2014 IPPS/LTCH PPS proposed rule regarding 
outliers, it explained why uncompensated care payments should be 
included as part of the fixed-loss threshold calculation. The commenter 
noted that it is clear why CMS considered this in the FY 2015 IPPS/LTCH 
PPS proposed rule. The commenter wanted to ensure that updates to the 
uncompensated care payment calculation are also considered in the final 
rule.
    Response: As discussed above, we included updates to the 
uncompensated care payment calculation as part of the fixed-loss 
outlier threshold calculation in this final rule.
    After consideration of the public comments we received, we are not 
making any changes to our methodology in this final rule for FY 2015. 
Therefore, we are using the same methodology we proposed to calculate 
the final outlier threshold.
    As we have done in the past, to calculate the final FY 2015 outlier 
threshold, we simulated payments by applying FY 2015 payment rates and 
policies using cases from the FY 2013 MedPAR file. Therefore, in order 
to determine the final 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 that a 
methodology that is based on 1-year of charge data will provide a more 
stable measure to project the average charge per case. To compute the 
1-year average annualized rate-of-change in charges per case for FY 
2015, we compared the third quarter of FY 2012 through the second 
quarter of FY 2013 (April 1, 2012, through March 31, 2013) to the third 
quarter of FY 2013 through the second quarter of FY 2014 (April 1, 
2013, through March 31, 2014). This rate-of-change is 5.1 percent 
(1.050917) or 10.4 percent (1.104427) over 2 years.
    As we have done in the past, we are establishing the FY 2015 
outlier threshold using hospital CCRs from the March 2014 update to the 
Provider-Specific File (PSF)--the most recent available data at the 
time of development of this final rule. For FY 2015, we also are 
continuing 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 adjusting the 
CCRs from the March 2014 update of the PSF by comparing the percentage 
change in the national average case-weighted operating CCR and capital 
CCR from the March 2013 update of the PSF to the national average case-
weighted operating CCR and capital CCR from the March 2014 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.

[[Page 50380]]

    Using the methodology above, we calculated a March 2013 operating 
national average case-weighted CCR of 0.292377 and a March 2014 
operating national average case-weighted CCR of 0.28714. We then 
calculated the percentage change between the two national operating 
case-weighted CCRs by subtracting the March 2013 operating national 
average case-weighted CCR from the March 2014 operating national 
average case-weighted CCR and then dividing the result by the March 
2013 national operating average case-weighted CCR. This resulted in a 
national operating CCR adjustment factor of 0.982088.
    We also used the same methodology above to adjust the capital CCRs. 
Specifically, we calculated a March 2013 capital national average case-
weighted CCR of 0.025143 and a March 2014 capital national average 
case-weighted CCR of 0.024849. We then calculated the percentage change 
between the two national capital case-weighted CCRs by subtracting the 
March 2013 capital national average case-weighted CCR from the March 
2014 capital national average case-weighted CCR and then dividing the 
result by the March 2013 capital national average case-weighted CCR. 
This resulted in a national capital CCR adjustment factor of 0.988307.
    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 FY 2015 payment rates 
and policies using cases from the FY 2013 MedPAR files in calculating 
the outlier threshold.
    As discussed above, for FY 2015, we are applying transitional wage 
indexes because of the 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 final rule, in accordance with 
section 10324(a) of the Affordable Care Act, beginning in FY 2011, we 
created a wage index floor of 1.0000 for all hospitals located in 
States determined to be frontier States. We note that the frontier 
State floor adjustments are 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 receives a wage index less than 1.0000 due to the rural and 
imputed floor adjustment. In accordance with section 10324(a) of the 
Affordable Care Act, the frontier State adjustment is not subject to 
budget neutrality, and is only extended to hospitals geographically 
located within a frontier State. However, for purposes of estimating 
the outlier threshold for FY 2015, it was necessary to apply the 
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 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), as we proposed and for the reasons discussed above, in our 
projection of FY 2015 outlier payments, we are not making any 
adjustments for the possibility that hospitals' CCRs and outlier 
payments may be reconciled upon cost report settlement.
    As described in sections IV.H. and IV.I., respectively, of the 
preamble of this final rule, sections 1886(q) and 1886(o) of the Act 
establish the Hospital Readmissions Reduction Program and the Hospital 
VBP Program, respectively. We do not believe 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 will 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 excluding the hospital VBP payment 
adjustments and the hospital readmissions payment adjustments from the 
calculation of the outlier fixed-loss cost threshold.
    We note that, to the extent section 1886(r) of the Act modifies the 
existing DSH payment methodology under section 1886(d)(5)(F), the new 
uncompensated care payment under section 1886(r)(2), like the 
empirically justified Medicare DSH payment under section 1886(r)(1), 
may be considered an amount payable under section 1886(d)(5)(F) of the 
Act such that it would be reasonable to include the payment in the 
outlier determination under section 1886(d)(5)(A). As we did for FY 
2014, for FY 2015, for the reasons discussed above, we also are 
allocating 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. Specifically, we are using the estimated per-
discharge uncompensated care payments to hospitals eligible for the 
uncompensated care payment for all cases in the calculation of the 
outlier fixed-loss cost threshold methodology.
    Using this methodology, we calculated a final outlier fixed-loss 
cost threshold for FY 2015 equal to the prospective payment rate for 
the MS-DRG, plus any IME, empirically justified Medicare DSH payments, 
estimated uncompensated care payment, and any add-on payments for new 
technology, plus $24,758.
    We note that the final FY 2015 fixed-loss cost threshold is higher 
than the FY 2014 final outlier fixed-loss cost 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 outlier 
fixed-loss threshold for FY 2015. As charges increase, so do outlier 
payments. As a result, it was 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.
    Also, the final FY 2015 fixed-loss cost threshold is lower than the 
FY 2015 proposed outlier fixed-loss cost threshold of $25,799. As 
discussed above, the proposed MS-DRG reclassification and recalibration 
budget neutrality factor was calculated incorrectly in the proposed 
rule as a result of the inadvertent miscalculation of a number of 
postacute care transfer-adjusted cases for certain MS-DRGs. We believe 
that the corrected factor, which offsets less money from the

[[Page 50381]]

standardized amount, results in less outlier payments. Therefore, it 
was necessary to lower the outlier threshold from the proposed rule in 
the final rule in order to reach the 5.1 percent target.
(2) Other Changes Concerning Outliers
    As stated in the FY 1994 IPPS final rule (58 FR 46348), we 
establish an outlier threshold that is applicable to both hospital 
inpatient operating costs and hospital inpatient capital-related costs. 
When we modeled the combined operating and capital outlier payments, we 
found that using a common threshold resulted in a lower percentage of 
outlier payments for capital-related costs than for operating costs. We 
project that the thresholds for FY 2015 will result in outlier payments 
that will equal 5.1 percent of operating DRG payments and 6.27 percent 
of capital payments based on the Federal rate.
    In accordance with section 1886(d)(3)(B) of the Act, we are 
reducing the FY 2015 standardized amount by the same percentage to 
account for the projected proportion of payments paid as outliers.
    The outlier adjustment factors that will be applied to the 
standardized amount based on the FY 2015 outlier threshold are as 
follows:

------------------------------------------------------------------------
                                                 Operating     Capital
                                               standardized    federal
                                                  amounts        rate
------------------------------------------------------------------------
National.....................................      0.948998     0.937327
Puerto Rico..................................      0.926575     0.915412
------------------------------------------------------------------------

    We are applying the outlier adjustment factors to the 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 1.23 or capital CCRs greater than 
0.172, 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 on the CMS Web 
site) contains the statewide average operating CCRs for urban hospitals 
and for rural hospitals for which the fiscal intermediary or MAC is 
unable to compute a hospital-specific CCR within the above range. 
Effective for discharges occurring on or after October 1, 2014, these 
statewide average ratios will replace the ratios posted on our Web site 
at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY-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 on the CMS Web site) 
contains the comparable statewide average capital CCRs. As previously 
stated, the CCRs in Tables 8A and 8B will 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 
on the CMS Web site) contains the statewide average total CCRs used 
under the LTCH PPS as discussed in section V. of this Addendum.
    We finally note that we published a manual update (Change Request 
3966) to our outlier policy on October 12, 2005, which updated Chapter 
3, Section 20.1.2 of the Medicare Claims Processing Manual. The manual 
update covered an array of topics, including CCRs, reconciliation, and 
the time value of money. We encourage hospitals that are assigned the 
statewide average operating and/or capital CCRs to work with their 
fiscal intermediary or MAC on a possible alternative operating and/or 
capital CCR as explained in Change Request 3966. Use of an alternative 
CCR developed by the hospital in conjunction with the fiscal 
intermediary or MAC can avoid possible overpayments or underpayments at 
cost report settlement, 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 4.86 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 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 March 
2014 update of the PSF, actual outlier payments for FY 2014 will be 
approximately 5.71 percent of actual total MS-DRG payments, 
approximately 0.61 percentage point higher than the 5.1 percent we 
projected when setting the outlier policies for FY 2014. This estimate 
of 5.71 percent is based on simulations using the FY 2013 MedPAR file 
(discharge data for FY 2013 claims).
5. 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 national standardized amounts that we are applying to all 
hospitals, except hospitals located in Puerto Rico, for FY 2015. The 
Puerto Rico-specific amounts are shown in Table 1C listed and published 
in section VI. of this

[[Page 50382]]

Addendum (and available via the Internet on the CMS Web site). The 
amounts shown in Tables 1A and 1B differ only in that the labor-related 
share applied to the standardized amounts in Table 1A is 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 applying a labor-related share of 
62 percent, unless application of that percentage would result in lower 
payments to a hospital than would otherwise be made. In effect, the 
statutory provision means that we will apply a labor-related share of 
62 percent for all hospitals whose wage indexes are less than or equal 
to 1.0000.
    In addition, Tables 1A and 1B include the standardized amounts 
reflecting the 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 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 on the CMS Web site). 
This table also includes the Puerto Rico-specific standardized amounts. 
The labor-related share applied to the Puerto Rico-specific 
standardized amount is the labor-related share of 63.2 percent, or 62 
percent, depending on which provides higher payments to the hospital. 
(Section 1886(d)(9)(C)(iv) of the Act, as amended by section 403(b) of 
Public Law 108-173, provides that the labor-related share for hospitals 
located in Puerto Rico be 62 percent, unless the application of that 
percentage would result in lower payments to the hospital.)
    The following table illustrates the changes from the FY 2014 
national standardized amount. The second through fifth columns display 
the changes from the FY 2014 standardized amounts for each applicable 
FY 2015 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 and 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 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         sata 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 Wage Index is    If Wage Index is    If Wage Index is    If Wage Index is
 removing:                         Greater Than        Greater Than        Greater Than        Greater Than
1. FY 2014 Geographic              1.0000: Labor       1.0000: Labor       1.0000: Labor       1.0000: Labor
 Reclassification Budget           (69.6%):            (69.6%):            (69.6%):            (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)
    3. Cumulative Factor: FY      If Wage Index is    If Wage Index is    If Wage Index is    If Wage Index is
     2008, FY 2009, FY 2012, FY    less Than or        less Than or        less Than or        less Than or
     2013, and FY 2014             Equal to 1.0000:    Equal to 1.0000:    Equal to 1.0000:    Equal to 1.0000:
     Documentation and Coding      Labor (62%):        Labor (62%):        Labor (62%):        Labor (62%):
     Adjustment as Required        $3,768.45.          $3,768.45.          $3,768.45.          $3,768.45.
     under Sections 7(b)(1)(A)     Nonlabor (38%):     Nonlabor (38%):     Nonlabor (38%):     Nonlabor (38%):
     and 7(b)(1)(B) of Pub. L.     $2,309.70.          $2,309.70.          $2,309.70.          $2,309.70.
     110-90 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)
FY 2015 Update Factor...........  1.022.............  1.01475...........  1.01475...........  1.0075.
FY 2015 MS[dash]DRG               0.998982..........  0.998982..........  0.998982..........  0.998982.
 Recalibration and Wage Index
 Budget Neutrality Factor.
FY 2015 Reclassification Budget   0.990406..........  0.990406..........  0.990406..........  0.990406.
 Neutrality Factor.
FY 2015 Rural Community           0.99931...........  0.99931...........  0.99931...........  0.99931.
 Demonstration Program Budget
 Neutrality Factor.
FY 2015 Operating Outlier Factor  0.948998..........  0.948998..........  0.948998..........  0.948998.
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 Pub. L. 110-90
 and Documentation and Coding
 Recoupment Adjustment as
 required under Section 631 of
 the American Taxpayer Relief
 Act of 2012.
FY 2015 New Labor Market          0.998859..........  0.998859..........  0.998859..........  0.998859.
 Delineation Wage Index
 Transition Budget Neutrality
 Factor.

[[Page 50383]]

 
National Standardized Amount for  Labor: $3,780.13.   Labor: $3,753.31.   Labor: $3,753.31.   Labor: $3,726.50.
 FY 2015 if Wage Index is          Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 Greater Than 1.0000; Labor/Non-   $1,651.09.          $1,639.38.          $1,639.38.          $1,627.66.
 Labor Share Percentage (69.6/
 30.4).
National Standardized Amount for  Labor: $3,367.36.   Labor: $3,343.47.   Labor: $3,343.47.   Labor: $3,319.58.
 FY 2015 if Wage Index is less     Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 Than or Equal to 1.0000; Labor/   $2,063.86.          $2,049.22.          $2,049.22.          $2,034.58.
 Non-Labor Share Percentage (62/
 38).
----------------------------------------------------------------------------------------------------------------

    The following table illustrates the changes from the FY 2014 Puerto 
Rico-specific payment rate for hospitals located in Puerto Rico. The 
second column shows the 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 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
                    Puerto Rico-Specific Payment Rate
------------------------------------------------------------------------
                                      Update (2.2         Update (2.2
                                    percent); wage      percent); wage
                                   index is greater   index is less than
                                  than 1.0000; labor/     or equal to
                                    Non-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
 Reclassification Budget
 Neutrality (0.990718).
2. FY 2014 Rural Community
 Hospital Demonstration Program
 Budget Neutrality (0.999415).
3. FY 2014 Puerto Rico Operating  Labor: $1,722.31..  Labor: $1,689.61
 Outlier Offset (0.943455).       Nonlabor:           Nonlabor:
                                   $1,002.86.          $1,035.56
FY 2015 Update Factor...........  1.022.............  1.022
FY 2015 MS[dash]DRG               0.997543..........  0.997543
 Recalibration Budget Neutrality
 Factor.
FY 2015 Reclassification Budget   0.990406..........  0.990406
 Neutrality Factor.
FY 2015 Rural Community Hospital  0.99931...........  0.99931
 Demonstration Program Budget
 Neutrality Factor.
FY 2015 New Labor Market          0.998859..........  0.998859
 Delineation Wage Index
 Transition Budget Neutrality
 Factor.
FY 2015 Puerto Rico Operating     0.926575..........  0.926575
 Outlier Factor.
Puerto Rico[dash]Specific         Labor: $1,608.39..  Labor: $1,577.86
 Payment Rate for FY 2015.        Nonlabor: $936.54.  Nonlabor: $967.07
------------------------------------------------------------------------

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

    Tables 1A through 1C, as published in section VI. of this Addendum 
(and available via the Internet), contain the labor-related and 
nonlabor-related shares that we used to calculate the prospective 
payment rates for hospitals located in the 50 States, the District of 
Columbia, and Puerto Rico for FY 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. Adjustment for Area Wage Levels
    Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require 
that we make an adjustment to the labor-related portion of the national 
and Puerto Rico prospective payment rates, respectively, to account for 
area differences in hospital wage levels. This adjustment is made by 
multiplying the labor-related portion of the adjusted standardized 
amounts by the appropriate wage index for the area in which the 
hospital is located. In section III. of the preamble of this final 
rule, we discuss the data and methodology for the FY 2015 wage index.
2. Adjustment for Cost-of-Living in Alaska and Hawaii
    Section 1886(d)(5)(H) of the Act provides discretionary authority 
to the Secretary to make ``such adjustments . . . as the Secretary 
deems appropriate to take into account the unique circumstances of 
hospitals located in Alaska and Hawaii.'' Higher labor-related costs 
for these two States are taken into account in the adjustment for area 
wages described above. To account for higher nonlabor-related costs for 
these two States, we multiply the nonlabor-related portion of the 
standardized amount for hospitals

[[Page 50384]]

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 using the same COLA 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 COLA factors for FY 2015.

   Final 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) radius by            1.23
   road.....................................................
  City of Fairbanks and 80-kilometer (50-mile) radius by            1.23
   road.....................................................
  City of Juneau and 80-kilometer (50-mile) radius by road..        1.23
  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 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 
final rule, section 1106 of Public Law 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 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 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 final rule, includes 
uncompensated care payments); the updated hospital-specific rate based 
on FY 1982 costs per discharge; the updated hospital-specific rate 
based on FY 1987 costs per discharge; the updated hospital-specific 
rate based on FY 1996 costs per discharge; or the updated hospital-
specific rate based on FY 2006 costs per discharge to determine the 
rate that yields the greatest aggregate payment.
    The prospective payment rate for SCHs for FY 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 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 final rule. The 
base-operating DRG payment amount may be further adjusted by the 
hospital readmissions payment adjustment and the hospital VBP payment 
adjustment as described under sections 1886(q) and 1886(o) of the Act, 
respectively. Finally, we add the uncompensated care payment to the 
total claim payment amount. We note that, as 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 final rule, includes uncompensated care payments); the 
updated hospital-specific rate based on FY 1982 costs per discharge; 
the updated hospital-specific rate based on FY 1987 costs per

[[Page 50385]]

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 final 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 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                                       2.9              2.9                2.9                2.9
 Rate[dash]of[dash]Increase..........
Adjustment for Failure to Submit                    0.0              0.0               -0.725             -0.725
 Quality Data under Section
 1886(b)(3)(B)(viii) of the Act......
Adjustment for Failure to be a                      0.0             -0.725              0.0               -0.725
 Meaningful EHR User under Section
 1886(b)(3)(B)(ix) of the Act........
MFP Adjustment under Section                       -0.5             -0.5               -0.5               -0.5
 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.......
Applicable Percentage Increase                      2.2              1.475              1.475              0.75
 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 final 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 MS-DRG 
reclassification and recalibration budget neutrality factor of 
0.997543, as discussed in section III. of this Addendum. The resulting 
rate is used in determining the payment rate that an SCH will receive 
for its discharges beginning on or after October 1, 2014, and the 
payment rate that an MDH will receive for its discharges beginning on 
or after October 1, 2014, and before April 1, 2015. We note that, in 
this final rule, for FY 2015, we are not making a documentation and 
coding adjustment to the hospital-specific rate. We refer readers to 
section II.D. of the preamble of this final rule for a complete 
discussion regarding our 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.
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 on the CMS Web site).

[[Page 50386]]

    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. 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 
capital Federal rate for FY 2015, which is 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 Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update

    In the discussion that follows, we explain the factors that we used 
to determine the capital Federal rate for FY 2015. In particular, we 
explain why the FY 2015 capital Federal rate increases approximately 
1.2 percent, compared to the FY 2014 capital Federal rate. As discussed 
in the impact analysis in Appendix A to this final rule, we estimate 
that capital payments per discharge will increase approximately 1.5 
percent during that same period. Because capital payments constitute 
about 10 percent of hospital payments, a percent change in the capital 
Federal rate yields only about a 0.1 percent change in actual payments 
to hospitals.
1. Projected Capital Standard Federal Rate Update
a. Description of the Update Framework
    Under Sec.  412.308(c)(1), the capital standard Federal rate is 
updated on the basis of an analytical framework that takes into account 
changes in a capital input price index (CIPI) and several other policy 
adjustment factors. Specifically, we adjust the projected CIPI rate-of-
increase as appropriate each year for case-mix index-related changes, 
for intensity, and for errors in previous CIPI forecasts. The update 
factor for FY 2015 under that framework is 1.5 percent based on the 
best data available at this time. The update factor under that 
framework is based on a projected 1.5 percent increase in the 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 applying 
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

[[Page 50387]]

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 net adjustment for change in case-
mix is the difference between the projected real increase in case-mix 
and the projected total increase in case-mix. Therefore, as we 
proposed, the net adjustment for case-mix change in FY 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, as we proposed, we are making 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 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, as we proposed, we are making 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 final rule, we are continuing to use a Medicare-specific 
intensity measure that is based on a 5-year adjusted average of cost 
per discharge for FY 2015 (we refer readers to the FY 2011 IPPS/LTCH 
PPS final rule (75 FR 50436) for a full description of our Medicare-
specific intensity measure). Specifically, for FY 2015, we are using an 
intensity measure that is based on an average of cost per discharge 
data from the 5-year period beginning with FY 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 continue to apply a zero 
intensity adjustment for FY 2015. Therefore, as we proposed, we are 
making 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 
1.5 percent capital update factor under the capital update framework 
for FY 2015 as shown in the table below.

          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.)

[[Page 50388]]

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 thresholds as set forth 
in section II.A. of this Addendum, we estimate that outlier payments 
for capital-related costs will equal 6.27 percent for inpatient 
capital-related payments based on the capital Federal rate in FY 2015. 
Therefore, we are applying an outlier adjustment factor of 0.9373 in 
determining the 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 FY 2015 outlier adjustment of 
0.9373 is a -0.21 percent change from the FY 2014 outlier adjustment of 
0.9393. Therefore, the net change in the outlier adjustment to the 
capital Federal rate for FY 2015 is 0.9979 (0.9373/0.9393). Thus, the 
outlier adjustment will decrease the FY 2015 capital Federal rate by 
0.21 percent compared to the FY 2014 outlier adjustment.
3. Budget Neutrality Adjustment Factor for Changes in DRG 
Classifications and Weights and the GAF
    Section 412.308(c)(4)(ii) requires that the capital Federal rate be 
adjusted so that aggregate payments for the fiscal year based on the 
capital Federal rate after any changes resulting from the annual DRG 
reclassification and recalibration and changes in the GAF are projected 
to equal aggregate payments that would have been made on the basis of 
the capital Federal rate without such changes. Because we implemented a 
separate GAF for Puerto Rico, we apply separate budget neutrality 
adjustments for the national GAF and the Puerto Rico GAF. We apply the 
same budget neutrality factor for DRG reclassifications and 
recalibration nationally and for Puerto Rico. Separate adjustments were 
unnecessary for FY 1998 and earlier because the GAF for Puerto Rico was 
implemented in FY 1998.
    To determine the factors for FY 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 FY 2015 GAFs. To achieve 
budget neutrality for the changes in the national GAFs, based on 
calculations using updated data, we are applying an incremental budget 
neutrality adjustment factor of 0.9999 for FY 2015 to the previous 
cumulative FY 2014 adjustment factor of 0.9891, yielding an adjustment 
factor of 0.9890 through FY 2015. For the Puerto Rico GAFs, we are 
applying an incremental budget neutrality adjustment factor of 1.0012 
for FY 2015 to the previous cumulative FY 2014 adjustment factor of 
1.0076, yielding a cumulative adjustment factor of 1.0088 through FY 
2015.
    We then compared estimated aggregate capital Federal rate payments 
based on the FY 2014 MS-DRG relative weights and the FY 2015 GAFs to 
estimated aggregate capital Federal rate payments based on the 
cumulative effects of the FY 2015 MS-DRG classifications and relative 
weights and the FY 2015 GAFs. The incremental adjustment factor for DRG 
classifications and changes in relative weights is 0.9987 both 
nationally and for Puerto Rico. The cumulative adjustment factors for 
MS-DRG classifications and changes in relative weights and for changes 
in the GAFs through FY 2015 are 0.9877 nationally and 1.0075 for Puerto 
Rico. (We note that all the values are calculated with unrounded 
numbers.) The GAF/DRG budget neutrality adjustment factors are built 
permanently into the capital rates; that is, they are applied 
cumulatively in determining the capital Federal rate. This follows the 
requirement under Sec.  412.308(c)(4)(ii) that estimated aggregate 
payments each year be no more or less than they would have been in the 
absence of the annual DRG reclassification and recalibration and 
changes in the GAFs.
    The methodology used to determine the recalibration and geographic 
adjustment factor (GAF/DRG) budget neutrality adjustment is similar to 
the methodology used in establishing budget neutrality adjustments 
under the IPPS for operating costs. One difference is that, under the 
operating IPPS, the budget neutrality adjustments for the effect of 
geographic reclassifications are determined separately from the effects 
of other changes in the hospital wage index and the MS-DRG relative 
weights. Under the capital IPPS, there is a single GAF/DRG budget 
neutrality adjustment factor (the national capital rate and the Puerto 
Rico capital rate are determined separately) for changes in the GAF 
(including geographic reclassification) and the MS-DRG relative 
weights. In addition, there is no adjustment for the effects that 
geographic reclassification has on the other payment parameters, such 
as the payments for DSH or IME.
    The cumulative adjustment factor accounts for the MS-DRG 
reclassifications and recalibration and for changes in the GAFs. It 
also incorporates the effects on the GAFs of FY 2015 geographic 
reclassification decisions made by the MGCRB compared to FY 2014 
decisions. However, it does not account for changes in payments due to 
changes in the DSH and IME adjustment factors.
4. Capital Federal Rate for FY 2015
    For FY 2014, we established a capital Federal rate of $429.31 (78 
FR 50990). We are establishing an update of 1.5 percent in determining 
the FY 2015 capital Federal rate for all hospitals. As a result of this 
update and the budget neutrality factors discussed above, we are 
establishing a national capital Federal rate of $434.26 for FY 2015. 
The national capital Federal rate for FY 2015 was calculated as 
follows:
     The FY 2015 update factor is 1.015, that is, the update is 
1.5 percent.
     The FY 2015 budget neutrality adjustment factor that is 
applied to the capital Federal rate for changes in the MS-DRG 
classifications and relative weights and changes in the GAFs is 0.9986.
     The FY 2015 outlier adjustment factor is 0.9373.
    (We note that, as discussed in section VI.C. of the preamble of 
this final rule, we are not making an additional MS-DRG documentation 
and coding adjustment to the capital IPPS Federal rates for FY 2015.)
    Because the 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

[[Page 50389]]

disproportionate share of low-income patients, we are not making 
additional adjustments in the capital Federal rate for these factors, 
other than the budget neutrality factor for changes in the MS-DRG 
classifications and relative weights and for changes in the GAFs.
    We are providing the following chart that shows how each of the 
factors and adjustments for FY 2015 affects the computation of the FY 
2015 national capital Federal rate in comparison to the FY 2014 
national capital Federal rate. The 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 GAF/DRG budget neutrality adjustment 
factor has the effect of decreasing the capital Federal rate by 0.14 
percent. The FY 2015 outlier adjustment factor has the effect of 
decreasing the capital Federal rate by 0.21 percent compared to the FY 
2014 capital Federal rate. The combined effect of all the changes will 
increase the national capital Federal rate by 1.15 percent compared to 
the FY 2014 national capital Federal rate.

      Comparison of Factors and Adjustments: FY 2014 Capital Federal Rate and FY 2015 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
                                               FY 2014           FY 2015           Change        Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\.......................            1.0090            1.0150            1.0150              1.50
GAF/DRG Adjustment Factor \1\...........            0.9987            0.9986            0.9986             -0.14
Outlier Adjustment Factor \2\...........            0.9393            0.9373            0.9979             -0.21
Capital Federal Rate....................            429.31            434.26            1.0115              1.15
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality adjustment factors are built permanently into the
  capital Federal rates. Thus, for example, the incremental change from FY 2014 to FY 2015 resulting from the
  application of the 0.9986 GAF/DRG budget neutrality adjustment factor for FY 2015 is a net change of 0.9986
  (or -0.14 percent).
\2\ The outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is
  not applied cumulatively in determining the capital Federal rate. Thus, for example, the net change resulting
  from the application of the FY 2015 outlier adjustment factor is 0.9373/0.9393, or 0.9979 (or -0.21 percent).

    In this final rule, we also are providing the following chart that 
shows how the final FY 2015 capital Federal rate differs from the 
proposed FY 2015 capital Federal rate as presented in the FY 2015 IPPS/
LTCH PPS proposed rule.

 Comparison of Factors and Adjustments: Proposed FY 2015 Capital Federal Rate and Final FY 2015 Capital Federal
                                                      Rate
----------------------------------------------------------------------------------------------------------------
                                              Proposed            Final            Change        Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor...........................            1.0150            1.0150            1.0000              0.00
GAF/DRG Adjustment Factor...............            0.9957            0.9986            1.0030              0.30
Outlier Adjustment Factor...............            0.9374            0.9373            0.9999             -0.01
Capital Federal Rate....................            433.01            434.26            1.0029              1.29
----------------------------------------------------------------------------------------------------------------

5. Special Capital Rate for Puerto Rico Hospitals
    Section 412.374 provides for the use of a blended payment system 
for payments made to hospitals located in Puerto Rico under the PPS for 
acute care hospital inpatient capital-related costs. Accordingly, under 
the capital PPS, we compute a separate payment rate specific to 
hospitals located in Puerto Rico using the same methodology used to 
compute the national Federal rate for capital-related costs. Under the 
broad authority of section 1886(g) of the Act, beginning with 
discharges occurring on or after October 1, 2004, capital payments made 
to hospitals located in Puerto Rico are based on a blend of 25 percent 
of the Puerto Rico capital rate and 75 percent of the capital Federal 
rate. The Puerto Rico capital rate is derived from the costs of Puerto 
Rico hospitals only, while the capital Federal rate is derived from the 
costs of all acute care hospitals participating in the IPPS (including 
Puerto Rico).
    To adjust hospitals' capital payments for geographic variations in 
capital costs, we apply a GAF to both portions of the blended capital 
rate. The GAF is calculated using the operating IPPS wage index, and 
varies depending on the labor market area or rural area in which the 
hospital is located. We use the Puerto Rico wage index to determine the 
GAF for the Puerto Rico part of the capital-blended rate and the 
national wage index to determine the GAF for the national part of the 
blended capital rate.
    Because we implemented a separate GAF for Puerto Rico in FY 1998, 
we also apply separate budget neutrality adjustment factors for the 
national GAF and for the Puerto Rico GAF. However, we apply the same 
budget neutrality adjustment factor for MS-DRG reclassifications and 
recalibration nationally and for Puerto Rico. The budget neutrality 
adjustment factors for the national GAF and for the Puerto Rico GAF and 
the budget neutrality factor for MS-DRG reclassifications and 
recalibration (which is the same nationally and for Puerto Rico) 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 making 
to the factors used to determine the capital Federal rate, the FY 2015 
special capital rate for hospitals in Puerto Rico is $209.10.
    Comment: One commenter noted that the proposed capital standard 
Federal rate for Puerto Rico is approximately less than half of the 
proposed national capital standard Federal rate. The commenter asserted 
that this

[[Page 50390]]

``disparity'' is ``not consistent with the basic reality of Puerto 
Rico'' because average capital costs in Puerto Rico are not that 
dissimilar from those in the United States.
    Response: We appreciate the commenter's attention to the proposed 
capital Federal rates for Puerto Rico hospitals. While it is not clear 
what the commenter was specifically requesting, we believe the 
commenter may have been suggesting that CMS increase the Puerto Rico 
specific capital Federal rate to reduce the difference between it and 
the national capital Federal rate. The commenter is correct that the 
proposed Puerto Rico capital standard Federal rate is approximately 
half of the proposed national capital standard Federal rate, which has 
consistently been the difference since those rates were established. 
The Puerto Rico capital rate is derived from the costs of Puerto Rico 
hospitals only, while the national capital Federal rate is derived from 
the costs of all acute care hospitals participating in the IPPS, 
including Puerto Rico. The commenter did not provide any empirical data 
to demonstrate that the capital-related costs in Puerto Rico are 
similar to those in the United States, nor that the blended payment 
methodology for capital-related costs to hospitals located in Puerto 
Rico at Sec.  412.374 (that is, 25 percent of the Puerto Rico capital 
rate and 75 percent of the national capital Federal rate) does not 
result in appropriate capital IPPS payments for Puerto Rico hospitals. 
Consequently, we are unable to assess and directly respond to the 
statements included in the comment. Therefore, in this final rule, we 
have determined that the Puerto Rico capital Federal rate for FY 2015 
is consistent with our current policy.

B. Calculation of the 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 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 fixed-loss amount of $24,758.
    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. (second 
quarter of 2014), we are forecasting the FY 2010-based CIPI to increase 
1.5 percent in FY 2015. This reflects a projected 2.0 percent increase 
in vintage-weighted depreciation prices (building and fixed equipment, 
and movable equipment), and a projected 2.7 percent increase in other 
capital expense prices in FY 2015, partially offset by a projected 1.1 
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. 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 the FY 2015 IPPS/LTCH PPS proposed rule, we proposed 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 proposed to 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 
estimated that the FY 2010-based IPPS operating market basket update 
for FY 2015 was 2.7 percent (that is, the estimate of the market basket 
rate-of-increase). However, we proposed that if more recent data become 
available for the final rule, we would use them to calculate the IPPS 
operating market basket update for FY 2015.

[[Page 50391]]

    We did not receive any public comments on our proposals.
    Based on updated data from IHS Global Insight, Inc.'s 2014 second 
quarter forecast, we estimate that the final FY 2010-based IPPS 
operating market basket update for FY 2015 is 2.9 percent (that is, the 
estimate of the market basket rate-of-increase).
    The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We 
refer readers to section VII. of the preamble of this final rule and 
section V. of the Addendum to this final rule for the update changes to 
the Federal payment rates for LTCHs under the LTCH PPS for FY 2015. The 
annual updates for the IRF PPS and the IPF PPS are issued by the agency 
in separate Federal Register documents.

V. Updates to the Payment Rates for the LTCH PPS for FY 2015

A. LTCH PPS Standard Federal Rate for FY 2015

1. Background
    In section VII. of the preamble of this final rule, we discuss our 
updates to the payment rates, factors, and specific policies under the 
LTCH PPS for FY 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 
final rule.
    Section 1886(m)(3)(B) of the Act provides that the application of 
paragraph (3) of section 1886(m) of the Act may result in the annual 
update being less than zero for a rate year, and may result in payment 
rates for a rate year being less than such payment rates for the 
preceding rate year. (As noted in section VII.C.2.a. of the preamble of 
this final rule, the annual update to the LTCH PPS occurs on October 1 
and we have adopted the term ``fiscal year'' (FY) rather than ``rate 
year'' (RY) under the LTCH PPS beginning October 1, 2010. Therefore, 
for purposes of clarity, when discussing the annual update for the LTCH 
PPS, including the provisions of the Affordable Care Act, we use the 
term ``fiscal year'' rather than ``rate year'' for 2011 and subsequent 
years.)
    For FY 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 final rule, consistent with our proposal, we are 
establishing an annual update to the LTCH PPS standard Federal rate 
based on the full estimated increase in the LTCH PPS market basket, 
less the MFP adjustment consistent with section 1886(m)(3)(A)(i) of the 
Act, and less the 0.2 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 final 
rule, beginning in FY 2014, the annual update will 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 final rule, based on the best available data, 
we are establishing an annual update to the standard Federal rate of 
2.2 percent, which is based on the full estimated increase in the LTCH 
PPS market basket of 2.9 percent, less the MFP adjustment of 0.5 
percentage point consistent with section 1886(m)(3)(A)(i) of the Act, 
and less the 0.2 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 final rule, for 
LTCHs that fail to submit the required quality reporting data for FY 
2015 in accordance with the LTCHQR Program, the annual update is 
further reduced by 2.0 percentage points as required by section 
1886(m)(5) of the Act. Accordingly, we are establishing an annual 
update to the LTCH PPS standard Federal rate of 0.2 percent for LTCHs 
that fail to submit the required quality reporting data for FY 2015. 
This 0.2 percent update is calculated based on the full estimated 
increase in the LTCH PPS market basket of 2.9 percent, less a MFP 
adjustment of 0.5 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.
2. Development of the 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

[[Page 50392]]

on the most recent estimate of the increase in the LTCH PPS market 
basket, including any statutory adjustments. Consistent with our 
historical practice and as we proposed, for FY 2015, we are applying 
the annual update to the LTCH PPS standard Federal rate from the 
previous year. Furthermore, in determining the standard Federal rate 
for FY 2015, consistent with our proposal, we also are making certain 
regulatory adjustments. Specifically, we are applying 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 final rule. In addition, in determining the FY 
2015 standard Federal rate, we are applying a budget neutrality 
adjustment factor for the changes related to the area wage adjustment 
(that is, changes to the wage data, including the policy 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 50993and 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 final rule, we are establishing an annual update to the 
LTCH PPS standard Federal rate of 2.2 percent (that is, an update 
factor of 1.022) for FY 2015, based on the full estimated increase in 
the LTCH PPS market basket of 2.9 percent, less the MFP adjustment of 
0.5 percentage point, consistent with section 1886(m)(3)(A)(i) of the 
Act, and less the 0.2 percentage point required by sections 
1886(m)(3)(A)(ii) and (m)(4)(E) of the Act. Therefore, consistent with 
our proposal, under Sec.  412.523(c)(3)(xi), we are applying a factor 
of 1.022 to the FY 2014 standard Federal rate of $40,607.31 to 
determine the FY 2015 standard Federal rate. These factors are based on 
IGI's second quarter 2014 forecast, which are the best available data 
at this time. For LTCHs that fail to submit quality reporting data for 
FY 2015 under the LTCHQR Program, consistent with our proposal, under 
Sec.  412.523(c)(3)(xi) in conjunction with Sec.  412.523(c)(4), we are 
reducing the annual update to the LTCH PPS standard Federal rate by an 
additional 2.0 percentage points consistent with section 1886(m)(5) of 
the Act. Therefore, we are establishing an annual update to the LTCH 
PPS standard Federal rate of 0.2 percent (that is, 2.2 percent minus 
2.0 percentage points, or an update factor of 1.002) for FY 2015 for 
LTCHs that fail to submit the required quality reporting data for FY 
2015 under the LTCHQR Program. We also are establishing that the 
standard Federal rate for FY 2015 will be further adjusted by an 
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 applying an area 
wage level budget neutrality factor of 1.0016703 to the standard 
Federal rate to ensure that any changes to the area wage level 
adjustment (that is, the annual update of the wage index values and 
labor-related share) will not result in any change (increase or 
decrease) in estimated aggregate LTCH PPS payments. Accordingly, we are 
establishing a standard Federal rate of $41,043.71 (calculated as 
$40,607.31 x 1.022 x 0.98734 x 1.0016703) for FY 2015. The standard 
Federal rate of $41,043.71 will 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 establishing 
a standard Federal of $40,240.51 (calculated as $40,607.31 x 1.002 x 
0.98734 x 1.0016703) for FY 2015.

B. 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. 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 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

[[Page 50393]]

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 
final 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 section VII.D. of the preamble of this final rule, 
under the authority of section 123 of the BBRA, as amended by section 
307(b) of the BIPA, we are adopting 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 will 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 policy is consistent with the IPPS policy 
discussed in section III.B. of the preamble of this final rule. For 
additional details on our policy to adopt the new OMB delineations, we 
refer readers to section VII.D. of the preamble of this final rule.
3. 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.
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28335), we 
proposed to establish a labor-related share under the LTCH PPS for FY 
2015 of 62.571 percent based on IGI's first quarter 2014 forecast of 
the FY 2009-based LTCH-specific market basket. Consistent with our 
historical practice, we also proposed that if more recent data became 
available, we would use that data to determine the final FY 2015 labor-
related share under the LTCH PPS. We did not receive any public 
comments on this proposal. Therefore, we are adopting the policy as 
final without modification.
    For FY 2015, in this final rule, we are establishing a labor-
related share under the LTCH PPS of 62.306 percent based on IGI's 
second quarter 2014 forecast of the FY 2009-based LTCH-specific market 
basket. The table below shows the FY 2015 labor-related share relative 
importance using IGI's second quarter 2014 forecast of the FY 2009-
based LTCH-specific market basket. The sum of the 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 58.116 percent. We 
are establishing that the portion of capital-related costs that is 
influenced by the local labor market will continue to be estimated to 
be 46 percent. Because the relative importance for capital-related 
costs will be 9.109 percent of the FY 2009-based LTCH-specific market 
basket in FY 2015, we are taking 46 percent of 9.109 percent to 
determine the labor-related share of capital-related costs for FY 2015, 
which will result in 4.190 percent (0.46 x 9.109). We then added that 
4.190 percent for the capital-related cost amount to the 58.116 percent 
for the operating cost amount to determine the total 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 establishing 
a labor-related share under the LTCH PPS for FY 2015 of 62.306 percent. 
This labor-related share is determined using the same methodology as 
used in calculating all previous fiscal years LTCH labor-related 
shares.

[[Page 50394]]



  FY 2015 Labor-Related Share Relative Importance Based on the FY 2009-
                    Based LTCH-Specific Market Basket
------------------------------------------------------------------------
                                                         FY 2015 labor-
                                                          related share
                                                            relative
                                                           importance
------------------------------------------------------------------------
Wages and Salaries....................................            44.865
Employee Benefits.....................................             8.072
Professional Fees: Labor-Related......................             2.198
Administrative and Business Support Services..........             0.500
All Other: Labor-Related Services.....................             2.481
------------------------------------------------------------------------
    Subtotal..........................................            58.116
Proposed Labor-Related Portion of Capital Costs (46%).             4.190
------------------------------------------------------------------------
        Total Labor-Related Share.....................            62.306
------------------------------------------------------------------------

4. 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, in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28336 through 28337), 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 proposed 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 proposed to use FY 
2011 wage data because these data are the most recent complete data 
available. We also noted that 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 that proposed rule. We 
proposed to compute the FY 2015 LTCH PPS area wage index values 
consistent with the proposed ``urban'' and ``rural'' geographic 
classifications (that is, using the proposed new OMB labor market area 
delineations), and consistent with 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. We also proposed 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, consistent 
with the IPPS policy. Lastly, under our proposed methodology for 
determining the FY 2015 LTCH PPS area wage index values, we proposed to 
continue to use our existing policy for determining area wage index 
values for areas where there are no IPPS wage data. (We refer readers 
to section V.B.4. of the Addendum to the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 28336 through 28337) for additional details regarding our 
proposals pertaining to the development of the LTCH PPS wage index 
values for FY 2015, which we are adopting as final without modification 
in this final rule, as discussed below.)
    Comment: One commenter provided information received from a 
procured contractor that attempted to replicate the proposed FY 2015 
LTCH wage index values using the IPPS wage index data from the FY 2011 
cost report data that CMS made available on its Web site. As part of 
that analysis, the contractor also explored the variance between the FY 
2014 LTCH PPS wage index values and the proposed FY 2015 LTCH PPS wage 
index values for certain LTCHs that were projected to experience a 
relatively significant change in their wage index. In particular, the 
analysis prepared by the commenter's contractor focused on specific 
CBSAs (particularly CBSA 23540 and CBSA 34740) that were projected to 
experience ``a significant decline'' in their wage index values for FY 
2015 when compared to FY 2014, although there has been no change in the 
constituent of hospitals used to compute the wage index values for 
these areas. The commenter requested that CMS reexamine the wage data 
used to calculate the FY 2015 LTCH PPS wage index values for CBSAs that 
would experience a decrease in their wage index values for FY 2015 when 
compared to the FY 2014 LTCH PPS wage index values for these CBSAs, and 
to explain the cause for those decreases.
    Response: As requested by the commenter, we reexamined the IPPS 
wage data used to calculate the FY 2015 LTCH PPS wage index values for 
CBSAs that were projected to experience a decrease in their wage index 
values for FY 2015 when compared to the FY 2014 LTCH PPS wage index 
values for these CBSAs, focusing our attention on the CBSAs referenced 
by the commenter. We found no issues with the IPPS hospital wage data 
from the FY 2011 cost reports, or with the calculation of

[[Page 50395]]

the FY 2015 LTCH PPS wage index values. In exploring the cause for the 
decrease in the wage index values for CBSAs projected to experience ``a 
significant decline'' in their FY 2015 wage index values when compared 
to the FY 2014 LTCH PPS wage index values for these CBSAs, we found 
that many of these CBSAs were comprised of three or less hospitals. A 
labor market area's wage index value is calculated as the ratio of the 
labor market area's average hourly wage to the national average hourly 
wage. Labor market areas (CBSAs) with fewer providers are generally 
subject to less stability in year-to-year wage index values because 
there is less of an averaging effect, wherein even relatively minor 
changes in one provider's wage data can produce a relatively 
``significant'' effect on the wage index value for that area. This is 
because such a change in one provider's wage data has a relatively 
greater effect on the CBSA's average hourly wage (based solely on the 
limited number of hospitals in that area) when compared to the effect 
that such a change has on the national average hourly wage (which is 
based on wage data from all hospitals). We note that there also are 
CBSAs that were projected to experience a ``significant increase'' in 
their wage index values for the same reason. We believe that these wage 
index changes are appropriate because these values are based on the 
most recent data available that reflect the relative hospital wage 
level in a geographic area (CBSA) in comparison to the national average 
hospital wage level.
    After consideration of the public comments we received, in this 
final rule, we are finalizing our proposals pertaining to the 
development of the LTCH PPS wage index values for FY 2015, without 
modification. Therefore, 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 using 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 using FY 2011 wage data because these data are the most recent 
complete data available. These are the same data used to compute the FY 
2015 acute care hospital inpatient wage index values, as discussed in 
section III. of the preamble of this final rule. (For our rationale for 
using IPPS hospital wage data as a proxy for determining the 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).) The FY 
2015 LTCH PPS area wage index values were computed consistent with the 
``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 final rule, and consistent with the pre-
reclassified IPPS wage index policy (that is, our historical policy of 
not taking into account IPPS geographic reclassifications under 
sections 1886(d)(8) and 1886(d)(10) of the Act in determining payments 
under the LTCH PPS). As with the IPPS wage index, we are continuing 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 
final rule. Furthermore, in determining the FY 2015 LTCH PPS area wage 
index values, we are continuing to use our existing policy for 
determining area wage index values for areas where there are no IPPS 
wage data using the methodology we established in the RY 2009 LTCH PPS 
final rule. For more information about this methodology, including an 
explanation of and rationale for our policy for determining LTCH PPS 
wage index values for areas that have no IPPS wage data, we refer 
readers to the RY 2009 LTCH PPS final rule (73 FR 26817 through 26818).
    There are currently no LTCHs located in labor market areas without 
IPPS hospital wage data (or IPPS hospitals). However, as discussed in 
the proposed rule, if an LTCH were to 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 using to determine 
the FY 2015 LTCH PPS area wage index values in this final rule, there 
are no IPPS wage data for the urban area Hinesville, GA (CBSA 25980). 
Consistent with the methodology discussed above, we calculated the 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 12A, 
which is listed in section VI. of the Addendum to this final rule and 
available via the Internet on the CMS Web site). We note that, as IPPS 
wage data are dynamic, it is possible that urban areas without IPPS 
wage data will vary in the future.
    Based on FY 2011 IPPS wage data that we are using to determine the 
FY 2015 LTCH PPS area wage index values in this final rule, there are 
no rural areas without IPPS hospital wage data. Therefore, as discussed 
in the proposed rule, 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 adopting the new OMB delineations under the 
LTCH PPS, as discussed in greater detail in section VII.D. of the 
preamble of this final rule. Under this policy, there will be some 
changes to the current CBSA compositions as a result of the new OMB 
delineations, which will 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 making any changes to the current definitions of ``urban area'' 
and ``rural area'' because our policy to use the new OMB delineations 
under the LTCH PPS is consistent with the definitions in existing Sec.  
412.503.
    As discussed in section VII.D.2.e. of the preamble of this final 
rule, overall we believe that using the new OMB delineations will 
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 policy to adopt the new OMB delineations, some 
LTCHs will experience decreases in area wage index values, while other 
LTCHs will experience increases in area wage index values. Therefore, 
to mitigate any short-term instability in

[[Page 50396]]

LTCH PPS payments that could result from our policy to adopt the new 
OMB delineations, in section VII.D.2.e. of the preamble of this final 
rule, we are finalizing our proposed transitional wage index policy. 
Under our transitional wage index policy, any LTCH that will experience 
a decrease in its area wage index solely as a result of the policy to 
adopt the new OMB delineations under the LTCH PPS will 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 computing 
LTCH PPS area wage index values using the area wage data discussed 
above under both the current (FY 2014) CBSA designations and the new 
OMB delineations. If the area wage index value under the new OMB 
delineations is lower than the area wage index value under the FY 2014 
CBSA designations, the LTCH will be paid based on a blended area wage 
index for FY 2015, which will be computed as the sum of 50 percent of 
each wage index value (referred to as the 50/50 blended wage index), as 
described below.
    Specifically, under the transitional wage index policy that we are 
establishing in this final rule, to determine the applicable area wage 
index value for each LTCH that will be effective for discharges 
occurring on or after October 1, 2014, through September 30, 2015, we 
computed the following two area wage index values: (1) the wage index 
values calculated using the new OMB delineations; and (2) the wage 
index values calculated using the current (FY 2014) CBSA designations. 
The FY 2015 LTCH area wage index values calculated using the new OMB 
delineations are presented in Table 12A (for urban areas) and Table 12B 
(for rural areas) associated with this final rule, which are available 
via the Internet on the CMS Web site. The FY 2015 LTCH area wage index 
values calculated using the current (FY 2014) CBSA designations are 
presented in Table 12C (for urban areas) and Table 12D (for rural 
areas) associated with this final rule, which are available via the 
Internet on the CMS Web site. Where applicable, the wage index values 
in Tables 12C and 12D will be used to calculate a LTCH's 50/50 blended 
wage index value under the transitional wage index policy. Under our 
transitional wage index policy, an LTCH will only receive the 50/50 
blended area wage index value for FY 2015 if the LTCH's area wage index 
value under the new OMB delineations (shown in Table 12A or 12B) is 
lower than the area wage index value under the FY 2014 CBSA 
designations (shown in Tables 12C or 12D). If an LTCH's area wage index 
under the new OMB delineations (shown in Tables 12A or 12B) is higher 
than the wage index under the FY 2014 CBSA designations (shown in 
Tables 12C or 12D), we will pay the LTCH based on 100 percent of the 
area wage index under the new OMB delineations shown in Tables 12A or 
12B (as such the LTCH will not receive the 50/50 blended area wage 
index). Furthermore, as discussed below and in section VII.D.2.e. of 
the preamble of this final rule, we are applying this transitional wage 
index policy in a budget neutral manner. Each LTCH's 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 final rule, which is available via the Internet on the CMS Web 
site.
5. Budget Neutrality Adjustment for Changes to the Area Wage Level 
Adjustment
    Historically, the LTCH PPS wage index and labor-related share are 
updated annually based on the latest available data. Under Sec.  
412.525(c)(2), any changes to the 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).)
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28337 through 
28338), in accordance with Sec.  412.523(d)(4), we proposed to apply an 
area wage level adjustment budget neutrality factor to adjust the 
standard Federal rate to account for the estimated effect of the 
adjustments or updates to the area wage level adjustment under Sec.  
412.525(c)(1) on estimated aggregate LTCH PPS payments using our 
existing methodology. In determining the area wage level adjustment 
budget neutrality factor for FY 2015 under Sec.  412.523(d)(4), we also 
proposed to include the proposed transitional wage index policy under 
the proposed adoption of the new OMB delineations (that is, the 
proposed 50/50 blended area wage index values for LTCHs that would 
experience a decrease in the their wage index solely as a result of the 
proposed adoption of the new OMB delineations under the LTCH PPS) to 
ensure that the proposed changes to the area wage level adjustments 
would be budget neutral. We did not receive any public comments on our 
proposals pertaining to the FY 2015 budget neutrality adjustment for 
changes to the area wage level adjustment. Therefore, in this final 
rule, we are adopting our proposal as final without modification.
    In this final rule, for FY 2015, in accordance with Sec.  
412.523(d)(4), we are applying an area wage level adjustment budget 
neutrality factor to adjust the standard Federal rate to account for 
the estimated effect of the adjustments or updates to the area wage 
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). In addition to the updates for FY 2015 to the area wage 
index data and labor-related share discussed above, as discussed above 
and in section VII.D.2.e. of the preamble of this final rule, we are 
establishing a transitional wage index policy to mitigate the impacts 
of adopting changes to the LTCH PPS labor market areas (CBSAs) based on 
the new OMB delineations. Because our transitional wage index policy 
for LTCHs that will experience a decrease in their area wage index 
solely as a result of the adoption of the new OMB delineations under 
the LTCH PPS will result in an increase in estimated aggregate LTCH PPS 
payments without such changes, we are including the 50/50 blended area 
wage index when determining the area wage level adjustment budget 
neutrality factor that we are applying 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 final rule, using the steps in the methodology described 
in section VII.D.2.e. of this preamble, we determined a FY 2015 area 
wage level

[[Page 50397]]

adjustment budget neutrality factor of 1.0016703. Accordingly, in 
section V.A.2. of the Addendum to this final rule, to determine the FY 
2015 LTCH PPS standard Federal rate, we are applying an area wage level 
adjustment budget neutrality factor of 1.0016703, in accordance with 
Sec.  412.523(d)(4). The FY 2015 LTCH PPS standard Federal rate shown 
in Table 1E of the Addendum to this final rule reflects this adjustment 
factor.

C. LTCH PPS Cost-of-Living Adjustment (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 50997 through 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). Therefore, in the FY 2015 IPPS/LTCH PPS proposed 
rule (79 FR 28338), 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 proposed to continue to use the COLA factors 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 as 
established in the FY 2014 IPPS/LTCH PPS final rule. We did not receive 
any public comments on this proposal. Therefore, in this final rule, we 
are adopting the policy as final without modification.
    Accordingly, in this final 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 continuing 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 establishing that the COLA factors 
shown in the table below will be used to adjust the nonlabor-related 
portion of the standard Federal rate for LTCHs located in Alaska and 
Hawaii under Sec.  412.525(b).

 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)               1.23
     radius by road.....................................
    City of Fairbanks and 80-kilometer (50[dash]mile)               1.23
     radius by road.....................................
    City of Juneau and 80-kilometer (50[dash]mile)                  1.23
     radius by road.....................................
    All other areas of Alaska...........................            1.25
Hawaii:
        City and County of Honolulu.....................            1.25
        County of Hawaii................................            1.19
        County of Kauai.................................            1.25
        County of Maui and County of Kalawao............            1.25
------------------------------------------------------------------------


[[Page 50398]]

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

1. Background
    Under the broad authority conferred upon the Secretary by section 
123 of the BBRA as amended by section 307(b) of the BIPA, in the 
regulations at Sec.  412.525(a), we established an adjustment for 
additional payments for outlier cases that have extraordinarily high 
costs relative to the costs of most discharges. We refer to these cases 
as high cost outliers (HCOs). Providing additional payments for 
outliers strongly improves the accuracy of the LTCH PPS in determining 
resource costs at the patient and hospital level. These additional 
payments reduce the financial losses that would otherwise be incurred 
when treating patients who require more costly care and, therefore, 
reduce the incentives to underserve these patients. We set the outlier 
threshold before the beginning of the applicable rate year so that 
total estimated outlier payments are projected to equal 8 percent of 
total estimated payments under the LTCH PPS.
    Under Sec.  412.525(a) in the regulations (in conjunction with 
Sec.  412.503), we make outlier payments for any discharges if the 
estimated cost of a case exceeds the adjusted LTCH PPS payment for the 
MS-LTC-DRG plus a fixed-loss amount. Specifically, in accordance with 
Sec.  412.525(a)(3) (in conjunction with Sec.  412.503), we make an 
additional payment for an HCO case that is equal to 80 percent of the 
difference between the estimated cost of the patient case and the 
outlier threshold, which is the sum of the adjusted Federal prospective 
payment for the MS-LTC-DRG and the fixed-loss amount. The fixed-loss 
amount is the amount used to limit the loss that a hospital will incur 
under the outlier policy for a case with unusually high costs. This 
results in Medicare and the LTCH sharing financial risk in the 
treatment of extraordinarily costly cases. Under the LTCH 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 final rule, using our established methodology for 
determining the LTCH total CCR ceiling (described above), based on IPPS 
total CCR data from the March 2014 update of the PSF, consistent with 
our proposal, we are establishing a total CCR ceiling of 1.346 under 
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.
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,

[[Page 50399]]

missing or faulty data). (Other sources of 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 final rule, using our established methodology for 
determining the LTCH statewide average CCRs, based on the most recent 
complete IPPS ``total CCR'' data from the March 2014 update of the PSF, 
consistent with our proposal, we are establishing 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 final rule (and available via the Internet).
    Under the 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 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 March 2014. 
Therefore, consistent with our existing methodology, we are using 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 final rule (and available via the Internet).
    In addition, consistent with our existing methodology, in 
determining the urban and rural statewide average total CCRs for 
Maryland LTCHs paid under the LTCH PPS, consistent with our proposal, 
we are continuing to use, as a proxy, the national average total CCR 
for urban IPPS hospitals and the national average total CCR for rural 
IPPS hospitals, respectively. We are using this proxy because we 
believe that the CCR data in the PSF for Maryland hospitals may not be 
entirely accurate (as discussed in greater detail in the FY 2007 IPPS 
final rule (71 FR 48120)).
d. Reconciliation of LTCH HCO and SSO Payments
    We note that under the LTCH PPS HCO policy at Sec.  
412.525(a)(4)(iv)(D) and the LTCH PPS SSO policy at Sec.  
412.529(f)(4)(iv), the payments for HCO and SSO cases, respectively, 
are subject to reconciliation. Specifically, any reconciliation of 
outlier payments is based on the CCR that is calculated based on a 
ratio of cost-to-charge data computed from the relevant cost report 
determined at the time the cost report coinciding with the discharge is 
settled. For additional information, we refer readers to sections 
150.26 through 150.28 of the Medicare Claims Processing Manual (Pub. 
100-4) as added by Change Request 7192 (Transmittal 2111; December 3, 
2010) and the RY 2009 LTCH PPS final rule (73 FR 26820 through 26821).
3. Establishment of the LTCH PPS Fixed-Loss Amount for FY 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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28321), we 
proposed 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, based on the most recent complete 
LTCH data available at that time (that is, LTCH claims data from the 
March 2014 update of the FY 2013 MedPAR file and CCRs from the March 
2014 update of the PSF), we proposed to determine a fixed-loss amount 
for FY 2015 that would result in estimated outlier payments projected 
to be equal to 8 percent of total estimated payments in FY 2015. Under 
the broad authority of section 123(a)(1) of the BBRA and section 
307(b)(1) of the BIPA, we proposed a fixed-loss amount of $15,730 for 
FY 2015, and also proposed 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).
    Comment: One commenter expressed support for the proposed fixed-
loss amount, and stated that the proposed increase for FY 2015 is 
justified. That same commenter also requested that CMS provide its most 
recent estimate of the percentage payout of high-cost outlier payments 
for the current fiscal year. Another commenter expressed concern that 
the proposed increase in the fixed-loss amount would result in 
significant financial losses for hospitals that treat a comparatively 
high volume of outlier cases, and recommended that the increase be 
transitioned in over 2 years to reduce the impact of this increase in 
the fixed-loss amount.
    Response: We appreciate the commenter's support for the proposed 
fixed-loss amount, and agree that the increase is necessary to maintain 
estimated HCO payments at the projected 8 percent of total estimated 
LTCH PPS payments (as explained in

[[Page 50400]]

the proposed rule). In section I.K. of the regulatory impact analysis 
in the Appendix to this final rule, we state that we currently estimate 
that HCO payments will be approximately 7.9 percent of the estimated 
total LTCH PPS payments in FY 2014 based on the most recent data 
available.
    While we understand the commenter's concern regarding the financial 
impact an increase in the fixed-loss amount may have on the outlier 
payments to some LTCH's, we do not believe that the increase should be 
phased-in over 2 years. The intent of the HCO policy is to provide an 
additional payment to LTCH cases that have unusually high costs while 
at the same time balancing an incentive for LTCHs to treat expensive 
patients and provide cost efficient care. (We refer readers to the FY 
2003 LTCH PPS final rule (67 FR 56025) for further details regarding 
the intent of this policy.) Under our historical HCO policy, this 
balance is achieved by making outlier payments that are intended to 
approximate the marginal cost of providing care above the fixed-loss 
threshold. We believe that phasing-in the increase to the fixed-loss 
amount would be inconsistent with the intent of the LTCH PPS HCO policy 
because such a policy would reduce the incentive to provide cost 
efficient care by resulting in estimated outlier payments that are in 
excess of 8 percent of total estimated payments in FY 2015. (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).) Furthermore, any auxiliary adjustment to the fixed-loss 
amount, such as a transition, would result in making outlier payments 
that would not be directly related to the cost of providing care to 
unusually costly cases in FY 2015. When we determine the annual fixed-
loss amount, we include all payments and policies that would affect 
actual payments for the current fiscal year in order to ensure the most 
accurate determination of a fixed-loss amount that would result in 
estimated outlier payments equaling 8 percent of total estimated for 
the fiscal year. Including an auxiliary adjustment, such as a 
transition, that is not relative to the current fiscal year does not 
lend greater accuracy to the determination of a fixed-loss amount that 
would result in estimated outlier payments equaling 8 percent of total 
estimated payments in FY 2015. For these reasons, we continue to 
believe that our policies are consistent with the original intent of 
the HCO policy under the LTCH PPS and, therefore, we are not adopting 
the commenter's suggestion to phase-in the increase to the fixed-loss 
amount for FY 2015.
    In this final rule, after consideration of the public comments we 
received, we are adopting our proposals related to the calculation of 
the fixed-loss amount for FY 2015 as final without modification. For FY 
2015, consistent with our proposal, we are continuing 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 final rule). Specifically, for 
this final rule, we used LTCH claims data from the March 2014 update of 
the FY 2013 MedPAR file and CCRs from the March 2014 update of the PSF 
to determine a fixed-loss amount that will result in estimated outlier 
payments projected to be equal to 8 percent of total estimated payments 
in FY 2015 because these data are the most recent complete LTCH data 
available at this time. Under the broad authority of section 123(a)(1) 
of the BBRA and section 307(b)(1) of BIPA, we are establishing a fixed-
loss amount of $14,972 for FY 2015. Therefore, we are making an 
additional payment for an HCO case that is equal to 80 percent of the 
difference between the estimated cost of the case and the outlier 
threshold (the sum of the adjusted Federal LTCH payment for the MS-LTC-
DRG and the fixed-loss amount of $14,972).
    We note that the fixed-loss amount of $14,792 for FY 2015 is lower 
than the proposed FY 2015 fixed-loss amount of $15,730. This decrease 
is primarily a result of updated data used to calculate the fixed-loss 
amount in this final rule, such as the most recent available LTCH 
claims data in the MedPAR file, CCRs in the PSF, and the estimate of 
the LTCH PPS market basket update factors. We also note that the fixed-
loss amount of $14,972 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 final increase in the 
fixed-loss amount for FY 2015 is necessary to maintain the existing 
requirement that estimated outlier payments equal 8 percent of 
estimated total LTCH PPS payments. 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 raising 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). 
(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).)
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 fixed-loss amount of $14,972 and 
the amount paid under the SSO policy as specified in Sec.  412.529).

E. 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'' includes 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

[[Page 50401]]

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). (We refer 
readers the FY 2012 IPPS/LTCH PPS final rule (76 FR 50766).)
    In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28341 through 
28342), we discussed that, for FY 2015, based on the latest data 
available, 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 equaling 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. Therefore, we proposed that 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 includes 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. We also proposed that, consistent with our 
historical practice of using the most recent data available, if more 
recent data became available for the final rule, we would use that 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.
    As discussed in greater detail in section IV.F.3.d.(2) of the 
preamble of this final rule, based on the most recent data available, 
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) will be adjusted to 76.19 percent of 
that amount to reflect the change in the percentage of individuals that 
are uninsured. The resulting amount will then be used to determine the 
amount of uncompensated care payments that will 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 57.14 
percent (the product of 75 percent and 76.19 percent) and the resulting 
amount will be used to calculate the 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 payments for uncompensated care 
under section 1886(r)(2) of the Act, will result in overall Medicare 
DSH payments of 82.14 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 + 57.14 percent = 82.14 
percent).
    We did not receive any public comments on this proposal and 
therefore we are adopting the policy as final without modification. In 
this final rule, for FY 2015, we are establishing that the calculation 
of the ``IPPS comparable amount'' under Sec.  412.529 and the ``IPPS 
equivalent amount'' under Sec.  412.534 and Sec.  412.536 will include 
an applicable operating Medicare DSH payment amount that will be equal 
to 82.14 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.

F. Computing the 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 (FY 2015 values are shown in Tables 12A through 12D 
listed in section VI. of the Addendum of this final rule and are 
available via the Internet). The standard Federal rate is also adjusted 
to account for the higher costs of LTCHs located in Alaska and Hawaii 
by the applicable COLA factors (the FY 2015 factors are shown in the 
chart in section V.C. of this Addendum) in accordance with Sec.  
412.525(b). In this final rule, we are establishing a standard Federal 
rate for FY 2015 of $41,043.71 (applicable to discharges from LTCHs 
that submit the required quality reporting data for FY

[[Page 50402]]

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 
final rule. We illustrate the methodology to adjust the 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 FY 2015 LTCH PPS wage index value 
for CBSA 16974 is 1.0419 (obtained from Table 12A listed in section VI. 
of the Addendum of this final rule and available via the Internet on 
the CMS Web site). The Medicare patient is classified into MS-LTC-DRG 
189 (Pulmonary Edema & Respiratory Failure), which has a relative 
weight for FY 2015 of 0.9098 (obtained from Table 11 listed in section 
VI. of the Addendum of this final rule and available via the Internet 
on the CMS Web site). The LTCH submitted quality reporting data for FY 
2015 in accordance with the LTCHQR Program under section 1886(m)(5) of 
the Act.
    To calculate the LTCH's total adjusted Federal prospective payment 
for this Medicare patient in FY 2015, we computed the wage-adjusted 
Federal prospective payment amount by multiplying the unadjusted FY 
2015 standard Federal rate ($41,043.71) by the labor-related share 
(62.306 percent) and the wage index value (1.0419). This wage-adjusted 
amount was then added to the nonlabor-related portion of the unadjusted 
standard Federal rate (37.694 percent; adjusted for cost of living, if 
applicable) to determine the adjusted Federal rate, which is then 
multiplied by the MS-LTC-DRG relative weight (0.9098) to calculate the 
total adjusted Federal LTCH PPS prospective payment for FY 2015 ($38, 
316.42). The table below illustrates the components of the calculations 
in this example.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Standard Federal Prospective Payment Rate \*\.........        $41,043.71
Labor-Related Share...................................         x 0.62306
Labor-Related Portion of the Federal Rate.............     = $ 25,572.69
Wage Index (CBSA 16974)...............................          x 1.0419
Wage-Adjusted Labor Share of Federal Rate.............     = $ 26,644.19
Nonlabor-Related Portion of the Federal Rate               + $ 15,471.02
 ($41,043.71 x 0.37694)...............................
Adjusted Federal Rate Amount..........................     = $ 42,115.21
MS-LTC-DRG 189 Relative Weight........................          x 0.9098
Total Adjusted Federal Prospective Payment............    = $ 38, 316.42
------------------------------------------------------------------------
* LTCH PPS standard Federal 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).

VI. Tables Referenced in This Final Rule and Available Only Through the 
Internet on the CMS Web site
    This section lists the tables referred to throughout the preamble 
of this final rule and in this Addendum. In the past, a majority of 
these tables were published in the Federal Register as part of the 
annual proposed and final rules. However, similar to FYs 2012 through 
2014, for the FY 2015 rulemaking cycle, the IPPS and LTCH tables will 
not be published in the Federal Register in the annual IPPS/LTCH PPS 
proposed and final rules 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 sections II.G.11. and 13. of the preamble of this 
final rule, Tables 6A through 6F will not be issued with this FY 2015 
final rule because there are no new, revised, or deleted diagnosis or 
procedure codes for FY 2015. As discussed in section IV.D. of this 
final 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). We 
refer the reader to section IV.D. of the preamble of this final rule 
for complete details on the low-volume hospital payment adjustment. 
Therefore, Table 14 associated with this final rule lists the FY 2015 
low-volume payment adjustments for potentially eligible hospitals that 
also meet the distance criterion for low-volume hospital status. As 
discussed in section IV.H.11. of the preamble of this final rule, we 
are providing proxy FY 2015 readmission payment adjustment factors in 
Table 15A issued with this final rule. After the completion of the 
review and corrections process, we will publish the final FY 2015 
readmissions payment adjustment factors in Table 15B on the CMS IPPS 
Web site. In addition, under the HAC Reduction Program established by 
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. However, as discussed in section IV.J. of the preamble of 
this final rule, we are not providing the hospital-level data (such as 
a proxy list of providers subject to the HAC Reduction Program in FY 
2015 in Table 17) in conjunction with this final rule. Finally, a 
hospital's Factor 3 is the 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 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 final rule are available 
only through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. 
Click on the link on the left side of the screen titled, ``FY 2015 IPPS 
Final 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 3-Year Average of Hospital Average Hourly Wages; Based on 
CBSA Delineations used in FY 2014

[[Page 50403]]

    Table 2-2.--Acute Care Hospitals Case-Mix Indexes for Discharges 
Occurring in Federal Fiscal Year 2012; 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 FY 2015 CBSA Delineations); and 3-Year 
Average of Hospital Average Hourly Wages
    Table 3A-1.--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.--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.--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.--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.--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.--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.--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.--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.--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.--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 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 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.--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.--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.--Out-Migration Adjustment for Acute Care Hospitals--FY 
2015
    Table 5.--List of Medicare Severity Diagnosis-Related Groups (MS-
DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean 
Length of Stay--FY 2015
    Table 6I.--Major CC List--FY 2015
    Table 6J.--Complete CC List--FY 2015
    Table 6K.--Complete List of CC Exclusions--FY 2015
    Table 7A.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2013 MedPAR Update--March 2014 GROUPER V31.0 MS-
DRGs
    Table 7B.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2013 MedPAR Update--March 2014 GROUPER V32.0 MS-
DRGs
    Table 8A.--FY 2015 Statewide Average Operating Cost-to-Charge 
Ratios (CCRs) for Acute Care Hospitals (Urban and Rural)
    Table 8B.--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.--New Technology Add-On Payment Thresholds \1,2\ for 
Applications for FY 2016
    Table 14.--List of Hospitals with Fewer than 1,600 Medicare 
Discharges Based on the March 2014 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 15A.--FY 2015 Proxy Readmissions Adjustment Factors
    Table 16.--Updated Proxy Hospital Inpatient Value-Based Purchasing 
(VBP) Program Adjustment Factors for FY 2015
    Table 18.--FY 2015 Medicare DSH Uncompensated Care Payment Factor 3
    The following LTCH PPS tables for this FY 2015 final rule are 
available only through the Internet on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for Regulation 
Number CMS-1607-F.
    Table 8C.--FY 2015 Statewide Average Total Cost-to-Charge Ratios 
(CCRs) for LTCHs (Urban and Rural)
    Table 11.--MS-LTC-DRGs, Relative Weights, Geometric Average Length 
of Stay, Short-Stay Outlier (SSO) Threshold, and ``IPPS Comparable 
Threshold'' for Discharges Occurring from October 1, 2014 through 
September 30, 2015 under the LTCH PPS
    Table 12A.--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.--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 12C.--LTCH PPS Wage Index for Urban Areas under the Current 
CBSA Designations for Discharges Occurring from October 1, 2014 through 
September 30, 2015
    Table 12D.--LTCH PPS Wage Index for Rural Areas under the Current 
CBSA Designations for Discharges Occurring from October 1, 2014 through 
September 30, 2015
    Table 13A.--Composition of Low-Volume Quintiles for MS-LTC-DRGs--FY 
2015

[[Page 50404]]

    Table 13B.--No-Volume MS-LTC-DRG Crosswalk for FY 2015

    Table 1A--National Adjusted Operating Standardized Amounts, Labor/Nonlabor (69.6 Percent Labor Share/30.4 Percent Nonlabor Share if Wage Index is
                                                                Greater Than 1)--FY 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hospital submitted quality data and is  Hospital did NOT submit quality data   Hospital submitted quality data and  Hospital did NOT submit quality data
  a meaningful EHR user (Update = 2.2   and is a meaningful EHR user (update  is NOT a meaningful EHR user (update    and is NOT a meaningful EHR user
               percent)                           = 1.475 percent)                      = 1.475 percent)                  (update = 0.75  percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
       Labor             Nonlabor             Labor             Nonlabor            Labor             Nonlabor            Labor             Nonlabor
--------------------------------------------------------------------------------------------------------------------------------------------------------
       $3,780.13           $1,651.09          $3,753.31          $1,639.38          $3,753.31          $1,639.38          $3,726.50          $1,627.66
--------------------------------------------------------------------------------------------------------------------------------------------------------


 Table 1B--National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share if Wage Index is Less Than
                                                                 or Equal to 1)--FY 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hospital submitted quality data and is  Hospital did NOT submit quality data   Hospital submitted quality data and  Hospital did NOT submit quality data
  a meaningful EHR user (Update = 2.2   and is a meaningful EHR user (Update  is NOT a meaningful EHR user (Update    and is NOT a meaningful EHR user
               percent)                           = 1.475 percent)                      = 1.475 percent)                  (Update = 0.75  percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
       Labor             Nonlabor             Labor             Nonlabor            Labor             Nonlabor            Labor             Nonlabor
--------------------------------------------------------------------------------------------------------------------------------------------------------
       $3,367.36           $2,063.86          $3,343.47          $2,049.22          $3,343.47          $2,049.22          $3,319.58          $2,034.58
--------------------------------------------------------------------------------------------------------------------------------------------------------


  TABLE 1C--Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor (National: 62 Percent Labor
 Share/38 Percent Nonlabor Share Because Wage Index is Less Than or Equal to 1; Puerto Rico: 63.2 Percent Labor
 Share/36.8 Percent Nonlabor Share if Wage Index is Greater Than 1 or 62 Percent Labor Share/38 Percent Nonlabor
                             Share if Wage Index is Less Than or Equal to 1--FY 2015
----------------------------------------------------------------------------------------------------------------
                                               Rates if wage index is greater than 1       Rates if wage index is
                                         ------------------------------------------------  less than or equal to 1
                                           Standardized                                  --------------------------
                                              Amount           Labor         Nonlabor          Labor      Nonlabor
-------------------------------------------------------------------------------------------------------- ----------
National \1\............................  Not Applicable  Not Applicable       $3,367.36       $2,063.86
Puerto Rico.............................       $1,608.39         $936.54       $1,577.86         $967.07
----------------------------------------------------------------------------------------------------------------
\1\ For FY 2015, there are no CBSAs in Puerto Rico with a national wage index greater than 1.


        Table 1D--Capital Standard Federal Payment Rate--FY 2015
------------------------------------------------------------------------
                                                               Rate
------------------------------------------------------------------------
National................................................         $434.26
Puerto Rico.............................................         $209.10
------------------------------------------------------------------------


    Table 1E--LTCH Standard Federal Prospective Payment Rate--FY 2015
------------------------------------------------------------------------
                                                              Reduced
                                            Full Update    Update* (0.2
                                           (2.2 Percent)     Percent)
------------------------------------------------------------------------
Standard Federal Rate...................      $41,043.71      $40,240.51
------------------------------------------------------------------------
* 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 final rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 
30, 1993), Executive Order 13563 on Improving Regulation and 
Regulatory Review (February 2, 2011), the Regulatory Flexibility Act 
(RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the 
Social Security Act, section 202 of the Unfunded Mandates Reform Act 
of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and the Congressional Review Act (5 
U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects, distributive impacts, and equity). 
Executive Order 13563 emphasizes the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing rules, and of 
promoting flexibility. A regulatory impact analysis (RIA) must be 
prepared for major rules with economically

[[Page 50405]]

significant effects ($100 million or more in any 1 year).
    We have determined that this final rule is a major rule as 
defined in 5 U.S.C. 804(2). We estimate that the changes for FY 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 payment changes in this final 
rule, will result in an estimated $654 million decrease in FY 2015 
operating payments (or -0.6 percent change) and an estimated $132 
million increase in FY 2015 capital payments (or 1.6 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 $62 million in FY 2015 relative to FY 2014.
    Our operating impact estimate includes the -0.8 percent 
documentation and coding adjustment applied to the IPPS standardized 
amount, which represents part of the recoupment required under 
section 631 of the ATRA. In addition, our operating payment impact 
estimate includes the 2.2 percent hospital update to the 
standardized amount (which includes the estimated 2.9 percent market 
basket update less 0.5 percentage point for the multifactor 
productivity adjustment and less 0.2 percentage point required under 
the Affordable Care Act). The estimates of IPPS operating payments 
to acute care hospitals do not reflect any changes in hospital 
admissions or real case-mix intensity, which will also affect 
overall payment changes.
    The analysis in this Appendix, in conjunction with the remainder 
of this document, demonstrates that this final rule is consistent 
with the regulatory philosophy and principles identified in 
Executive Orders 12866 and 13563, the RFA, and section 1102(b) of 
the Act. This final rule will affect payments to a substantial 
number of small rural hospitals, as well as other classes of 
hospitals, and the effects on some hospitals may be significant. 
Finally, in accordance with the provisions of Executive Order 12866, 
the Executive Office of Management and Budget has reviewed this 
final rule.

B. Statement of Need

    This final rule is necessary in order to make payment and policy 
changes under the Medicare IPPS for Medicare acute care hospital 
inpatient services for operating and capital-related costs as well 
as for certain hospitals and hospital units excluded from the IPPS. 
This final rule also is necessary to make payment and policy changes 
for Medicare hospitals under the LTCH PPS payment system.

C. Objectives of the IPPS

    The primary objective of the IPPS is to create incentives for 
hospitals to operate efficiently and minimize unnecessary costs 
while at the same time ensuring that payments are sufficient to 
adequately compensate hospitals for their legitimate costs in 
delivering necessary care to Medicare beneficiaries. In addition, we 
share national goals of preserving the Medicare Hospital Insurance 
Trust Fund.
    We believe that the changes in this final rule will further each 
of these goals while maintaining the financial viability of the 
hospital industry and ensuring access to high quality health care 
for Medicare beneficiaries. We expect that these changes will ensure 
that the outcomes of the prospective payment systems are reasonable 
and equitable while avoiding or minimizing unintended adverse 
consequences.

D. Limitations of Our Analysis

    The following quantitative analysis presents the projected 
effects of our policy changes, as well as statutory changes 
effective for FY 2015, on various hospital groups. We estimate the 
effects of individual policy changes by estimating payments per case 
while holding all other payment policies constant. We use the best 
data available, but, generally, we do not attempt to make 
adjustments for future changes in such variables as admissions, 
lengths of stay, or case-mix.

E. Hospitals Included in and Excluded From the IPPS

    The prospective payment systems for hospital inpatient operating 
and capital-related costs of acute care hospitals encompass most 
general short-term, acute care hospitals that participate in the 
Medicare program. There were 32 Indian Health Service hospitals in 
our database, which we excluded from the analysis due to the special 
characteristics of the prospective payment methodology for these 
hospitals. Among other short-term, acute care hospitals, 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) receive payment for inpatient 
hospital services they furnish on the basis of reasonable costs, 
subject to a rate-of-increase ceiling.
    As of March 2014, there were 3,396 IPPS acute care hospitals 
included in our analysis. This represents approximately 56 percent 
of all Medicare-participating hospitals. The majority of this impact 
analysis focuses on this set of hospitals. There also are 
approximately 1,326 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 
final rule. The impact of the update and 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 98 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, 245 rehabilitation hospitals and 897 
rehabilitation units, and 431 LTCHs, are paid the Federal 
prospective per discharge rate under the IRF PPS and the LTCH PPS, 
respectively, and 490 psychiatric hospitals and 1,136 psychiatric 
units are paid the Federal per diem amount under the IPF PPS. As 
stated above, IRFs and IPFs are not affected by the rate updates 
discussed in this final rule. The impacts of the changes on LTCHs 
are discussed in section I.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 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 using 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 second quarter 2014 forecast of the FY 
2010-based market basket increase, we are estimating that the FY 
2015 update based on the IPPS operating market basket is 2.9 percent 
(that is, the current estimate of the market basket rate-of-
increase). However, the Affordable Care Act requires an adjustment 
for multifactor productivity (currently estimated to be 0.5 
percentage point for FY 2015) and a 0.2 percentage point reduction 
to the market basket update resulting in a 2.2 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 final 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 update is the

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percentage increase in the FY 2015 IPPS operating market basket, 
estimated at 2.9 percent, without the reductions required under the 
Affordable Care Act.
    The impact of the update in the rate-of-increase limit on those 
excluded hospitals depends on the cumulative cost increases 
experienced by each excluded hospital since its applicable base 
period. For excluded hospitals that have maintained their cost 
increases at a level below the rate-of-increase limits since their 
base period, the major effect is on the level of incentive payments 
these excluded hospitals receive. Conversely, for excluded hospitals 
with cost increases above the cumulative update in their rate-of-
increase limits, the major effect is the amount of excess costs that 
will not be paid.
    We note that, under Sec.  413.40(d)(3), an excluded hospital 
that continues to be paid under the TEFRA system and whose costs 
exceed 110 percent of its rate-of-increase limit receives its rate-
of-increase limit plus the lesser of: (1) 50 percent of its 
reasonable costs in excess of 110 percent of the limit, or (2) 10 
percent of its limit. In addition, under the various provisions set 
forth in Sec.  413.40, hospitals can obtain payment adjustments for 
justifiable increases in operating costs that exceed the limit.

G. Quantitative Effects of the Policy Changes Under the IPPS for 
Operating Costs

1. Basis and Methodology of Estimates

    In this final rule, we are announcing policy changes and payment 
rate updates for the IPPS for FY 2015 for operating costs of acute 
care hospitals. The 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 0.6 percent compared to 
FY 2014. In addition to the applicable percentage increase, this 
amount reflects the FY 2015 recoupment adjustment for documentation 
and coding described in section II.D. of the preamble of this final 
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 changes to each 
system. This section deals with the changes to the operating 
inpatient prospective payment system for acute care hospitals. Our 
payment simulation model relies on the most recent available data to 
enable us to estimate the impacts on payments per case of certain 
changes in this final rule. However, there are other changes for 
which we do not have data available that will allow us to estimate 
the payment impacts using this model. For those changes, we have 
attempted to predict the payment impacts based upon our experience 
and other more limited data.
    The data used in developing the quantitative analyses of changes 
in payments per case presented below are taken from the FY 2013 
MedPAR file and the most current Provider-Specific File (PSF) that 
is used for payment purposes. Although the analyses of the changes 
to the operating PPS do not incorporate cost data, data from the 
most recently available hospital cost reports were used to 
categorize hospitals. Our analysis has several qualifications. 
First, in this analysis, we do not make adjustments for future 
changes in such variables as admissions, lengths of stay, or 
underlying growth in real case-mix. Second, due to the 
interdependent nature of the IPPS payment components, it is very 
difficult to precisely quantify the impact associated with each 
change. Third, we use various data sources to categorize hospitals 
in the tables. In some cases, particularly the number of beds, there 
is a fair degree of variation in the data from the different 
sources. We have attempted to construct these variables with the 
best available source overall. However, for individual hospitals, 
some miscategorizations are possible.
    Using cases from the FY 2013 MedPAR file, we simulated payments 
under the operating IPPS given various combinations of payment 
parameters. As described above, Indian Health Service hospitals and 
hospitals in Maryland were excluded from the simulations. The impact 
of payments under the capital IPPS, or the impact of payments for 
costs other than inpatient operating costs, are not analyzed in this 
section. Estimated payment impacts of the capital IPPS for FY 2015 
are discussed in section I.J. of this Appendix.
    We discuss the following changes below:
     The effects of the application of the documentation and 
coding adjustment and the applicable percentage increase (including 
the market basket update, the multifactor productivity adjustment 
and the applicable percentage reduction in accordance with the 
Affordable Care Act) to the standardized amount and hospital-
specific rates.
     The effects of the changes to the relative weights and 
MS-DRG grouper.
     The effects of the 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 adoption of the new OMB delineations to calculate the FY 
2015 wage index.
     The combined effects of the recalibration of the MS-DRG 
relative weights as required by section 1886(d)(4)(C) of the Act and 
the wage index (including the updated wage data and the adoption of 
new OMB labor market area delineations), including the wage and 
recalibration budget neutrality factors.
     The effects of the geographic reclassifications by the 
MGCRB (as of publication of this final rule) and the effects of the 
adoption of new OMB labor market area delineations on these 
reclassifications, that will be effective for FY 2015.
     The effects of the 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 adoption of the new OMB labor market 
area delineations.
     The effects of the adoption of the new labor market 
area delineations announced by OMB in February 2013 on hospital 
redesignations.
     The effects of the 3-year transition for urban 
hospitals becoming rural under the new OMB delineations and the 1-
year transitional blended wage index for hospitals whose FY 2015 
wage indexes decrease solely as a result of adopting the new OMB 
delineations.
     The effects of the frontier State wage index adjustment 
under the statutory provision that requires that hospitals located 
in States that qualify as frontier States to not have a wage index 
less than 1.0. This provision is not budget neutral.
     The effects of the implementation of section 
1886(d)(13) of the Act, as added by section 505 of Public Law 108-
173, which provides for an increase in a hospital's wage index if 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 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 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 total estimated change in payments based on the FY 
2015 policies relative to payments based on FY 2014 policies that 
include the applicable percentage increase of 2.2 percent (or 2.9 
percent market basket update with a reduction of 0.5 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 1, 2014.
    We note that in the FY 2015 IPPS/LTCH PPS proposed rule we 
provided the effects 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. We are finalizing policies related 
to the HAC Reduction Program in this final rule, but as described 
earlier in this final rule, because the HAC scores are currently 
undergoing 30-day review and correction by the hospitals, we are not 
providing hospital-level data or a hospital-level payment impact in 
conjunction with the FY 2015 IPPS Final Rule. We do provide an 
estimate of the overall payment impact in section I.H.8. of this 
Appendix A along with a discussion of the impact of these changes.
    To illustrate the impact of the FY 2015 changes, our analysis 
begins with a FY 2014 baseline simulation model using: the FY

[[Page 50407]]

2015 applicable percentage increase of 2.2 percent and the 
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 definitions; 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 establishing 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 1.475 percent. At the time that this impact was 
prepared, 56 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 56 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 identified as 
not an meaningful EHR 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 establishing that hospitals that are identified as not 
meaningful EHR users and do submit quality information under section 
1886(b)(3)(B)(viii) of the Act will receive an applicable percentage 
increase of 1.475 percent. Hospitals that are identified as not 
meaningful EHR 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 a 
meaningful EHR 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 not including 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 users in September 2014. Hospitals identified on this 
list will be paid based on the applicable standardized amount in 
Table 1A and Table 1B for discharges occurring in FY 2015.
    Each policy change, statutory or otherwise, is then added 
incrementally to this baseline, finally arriving at an FY 2015 model 
incorporating all of the changes. This simulation allows us to 
isolate the effects of each change.
    Our final comparison illustrates the percent change in payments 
per case from FY 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 an applicable percentage increase of 2.2 
percent. This includes our forecasted IPPS operating hospital market 
basket increase of 2.9 percent with a reduction of 0.5 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 an update of 
1.475 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 an 
update of 1.475 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 an 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 and MDHs also are equal to 
the applicable percentage increase, or 2.2 percent if the hospital 
submits quality data and is a meaningful EHR user. In addition, we 
are updating the Puerto Rico-specific amount by an applicable 
percentage increase of 2.2 percent.
    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 5.71 percent of total 
MS-DRG payments. When the FY 2014 IPPS/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 final 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 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 3,396 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 2,549 
hospitals located in urban areas included in our analysis. Among 
these, there are 1,401 hospitals located in large urban areas 
(populations over 1 million), and 1,148 hospitals in other urban 
areas (populations of 1 million or fewer). In addition, there are 
847 hospitals in rural areas. The next two groupings are by bed-size 
categories, shown separately for urban and rural hospitals. The 
final groupings by geographic location are by census divisions, also 
shown separately for urban and rural hospitals.
    The second part of Table I shows hospital groups based on 
hospitals' FY 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 2,563; 
1,413; 1,150; and 833, respectively.
    The next three groupings examine the impacts of the changes on 
hospitals grouped by whether or not they have GME residency programs 
(teaching hospitals that receive an IME adjustment) or receive 
Medicare DSH payments, or some combination of these two adjustments. 
There are 2,357 nonteaching hospitals in our analysis, 795 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 changes on rural 
hospitals by special payment groups (SCHs, RRCs, and MDHs). There 
were 193 RRCs, 325 SCHs, and 162

[[Page 50408]]

MDHs (MDH status is extended through March 31, 2015 only under Pub. 
L. 113-93), 124 hospitals that are both SCHs and RRCs, and 15 
hospitals that are MDHs and RRCs (MDH status is extended 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 policy changes on the 15 cardiac hospitals.
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a. Effects of the Hospital Update and Documentation and Coding 
Adjustment (Column 2)

    As discussed in section II.D. of the preamble of this final 
rule, this column includes the hospital update, including the 2.9 
percent market basket update, the reduction of 0.5 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 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 making a 1.4 percent update to the 
national standardized amount. This column also includes the 2.2 
percent update to the hospital-specific rates which also includes 
the 2.9 percent market basket update, the reduction of 0.5 
percentage point for the multifactor productivity adjustment, and 
the 0.2 percentage point reduction in accordance with the Affordable 
Care Act.
    Overall, hospitals will experience a 1.5 percent increase in 
payments primarily due to the combined effects of the hospital 
update and documentation and coding adjustment on the national 
standardized amount and the hospital update to the hospital-specific 
rate. Hospitals that are paid under the hospital-specific rate, 
namely SCHs, will experience a 2.2 percent increase in payments; 
therefore, hospital categories with SCHs paid under the hospital-
specific rate will experience increases in payments of more than 1.4 
percent.

b. Effects of the Changes to the MS-DRG Reclassifications and Relative 
Cost-Based Weights With Recalibration Budget Neutrality (Column 3)

    Column 3 shows the effects of the changes to the MS-DRGs and 
relative weights with the application of the recalibration budget 
neutrality factor to the standardized amounts. Section 
1886(d)(4)(C)(i) of the Act requires us annually to make appropriate 
classification changes in order to reflect changes in treatment 
patterns, technology, and any other factors that may change the 
relative use of hospital resources. Consistent with section 
1886(d)(4)(C)(iii) of the Act, we calculated a recalibration budget 
neutrality factor to account for the changes in MS-DRGs and relative 
weights to ensure that the overall payment impact is budget neutral.
    As discussed in section II.E. of the preamble of this final 
rule, the FY 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 methodology to calculate the relative weights 
and the reclassification changes to the GROUPER are described in 
more detail in section II.H. of the preamble of this final rule.
    The ``All Hospitals'' line in Column 3 indicates that changes 
due to the MS-DRGs and relative weights will result in a 0.0 percent 
change in payments with the application of the recalibration budget 
neutrality factor of 0.997543 on to the standardized amount. 
Hospital categories that generally treat more surgical cases than 
medical cases will experience increases in their payments due to the 
changes to the relative weight methodology. Rural hospitals will 
experience a 0.3 percent decrease in payments because rural 
hospitals tend to treat fewer surgical cases than medical cases, 
while teaching hospitals with more than 100 residents will 
experience an increase in payments by 0.2 percent as those hospitals 
treat more surgical cases than medical cases.

c. Effects of the Wage Index Changes (Column 4)

    Column 4 shows the impact of updated wage data using FY 2011 
cost report data and the new OMB labor market area delineations, 
with the application of the 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 final rule, we are implementing 
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 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 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 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 FY 2015 pre-
reclassification wage index based on FY 2011 wage data with the 
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 wage budget neutrality to the national standardized amount. In 
FY 2010, we began calculating separate wage budget neutrality and 
recalibration budget neutrality factors, in accordance with section 
1886(d)(3)(E) of the Act, which specifies that budget neutrality to 
account for wage 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 calculated the wage budget neutrality 
factor to ensure that payments under updated wage data and the 
labor-related share of 69.6 percent are budget neutral without 
regard to the lower labor-related share of 62 percent applied to 
hospitals with a wage index less than or equal to 1.0. In other 
words, the wage budget neutrality is calculated under the assumption 
that all hospitals receive the higher labor-related share of the 
standardized amount. The wage budget neutrality factor is 1.001443, 
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 labor-related 
share, combined with the wage budget neutrality adjustment, will 
lead to a 0.0 percent change for all hospitals as shown in Column 4.
    In looking at the wage data itself, the national average hourly 
wage increased 1.02 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 1.02 percent increase in average 
hourly wage. Of the 3,387 hospitals with wage data for both FYs 2014 
and 2015, 1,572 or 46.4 percent will experience an average hourly 
wage increase of 1.02 percent or more.
    The following chart compares the shifts in wage index values for 
hospitals due to changes in the average hourly wage data for FY 2015 
relative to FY 2014. Among urban hospitals, 4 will experience a 
decrease of more than 10 percent, with 2 urban hospital experiencing 
an increase of more than 10 percent. Seventy-six urban hospitals 
will experience an increase or decrease of at least 5 percent or 
more but less than or equal to 10 percent. Among rural hospitals, 
none will

[[Page 50421]]

experience a decrease of more than 5 percent, but 5 rural hospitals 
will experience an increase of greater than 5 percent but less than 
or equal to 10 percent. However, 841 rural hospitals will experience 
increases or decreases of less than or equal to 5 percent, while 
2,220 urban hospitals will experience increases or decreases of less 
than or equal to 5 percent. Two hundred thirty-nine urban and no 
rural hospitals will not experience a change in their wage index. 
These figures reflect changes in the ``pre-reclassified, 
occupational mix-adjusted wage index,'' that is, the wage index 
before the application of geographic reclassification, the rural and 
imputed floors, the out-migration adjustment, and other wage index 
exceptions and adjustments. We note that this analysis was performed 
by applying the new OMB labor market area delineations to the FY 
2015 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 final rule for a 
complete discussion of the exceptions and adjustments to the wage 
index.) We note that the ``post-reclassified wage index'' or 
``payment wage index,'' the wage index that includes all such 
exceptions and adjustments (as reflected in Tables 2, 4A, 4B, 4C, 
and 4F of the Addendum to this final rule, which are available via 
the Internet on the CMS Web site) is used to adjust the labor-
related share of a hospital's standardized amount, either 69.6 
percent or 62 percent, depending upon whether a hospital's wage 
index is greater than 1.0 or less than or equal to 1.0. Therefore, 
the pre-reclassified wage index figures in the chart below may 
illustrate a somewhat larger or smaller change than will occur in a 
hospital's payment wage index and total payment.
    The following chart shows the projected impact of changes in the 
area wage index values for urban and rural hospitals.

------------------------------------------------------------------------
                                                Number of hospitals
  Percentage change in area wage index   -------------------------------
                 values                        Urban           Rural
------------------------------------------------------------------------
Increase more than 10 percent...........               2               0
Increase more than 5 percent and less                 18               5
 than or equal to 10 percent............
Increase or decrease less than or equal            2,220             841
 to 5 percent...........................
Decrease more than 5 percent and less                 58               0
 than or equal to 10 percent............
Decrease more than 10 percent...........               4               0
Unchanged...............................             239               0
------------------------------------------------------------------------

d. Combined Effects of the MS-DRG and Wage Index Changes (Column 5)

    Section 1886(d)(4)(C)(iii) of the Act requires that changes to 
MS-DRG reclassifications and the relative weights cannot increase or 
decrease aggregate payments. In addition, section 1886(d)(3)(E) of 
the Act specifies that any updates or adjustments to the wage index 
are to be budget neutral. We computed a wage budget neutrality 
factor of 1.001443 and a recalibration budget neutrality factor of 
0.997543 (which is applied to the Puerto Rico-specific standardized 
amount and the hospital-specific rates). The product of the two 
budget neutrality factors is the cumulative wage and recalibration 
budget neutrality factor. The cumulative wage and recalibration 
budget neutrality adjustment is 0.998982, or approximately 0.10 
percent, which is applied to the national standardized amounts. 
Because the wage budget neutrality and the recalibration budget 
neutrality are calculated under different methodologies according to 
the statute, when the two budget neutralities are combined and 
applied to the standardized amount, the overall payment impact is 
not necessarily budget neutral. However, in this final rule, we are 
estimating that the changes in the MS-DRG relative weights and 
updated wage data with wage and budget neutrality applied will 
result in a 0.0 percent change in payments.

e. Effects of MGCRB Reclassifications (Column 6)

    Our impact analysis to this point has assumed acute care 
hospitals are paid on the basis of their actual geographic location 
(with the exception of ongoing policies that provide that certain 
hospitals receive payments on other bases than where they are 
geographically located). The changes in Column 6 reflect the per 
case payment impact of moving from this baseline to a simulation 
incorporating the MGCRB decisions for FY 2015 and the effects of the 
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 had 45 days from 
publication of the IPPS proposed rule in the Federal Register to 
decide whether to withdraw or terminate an approved geographic 
reclassification for the following year.
    The overall effect of geographic reclassification is required by 
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, 
for purposes of this impact analysis, we are applying an adjustment 
of 0.990406 to ensure that the effects of the reclassifications 
under section 1886(d)(10) of the Act are budget neutral (section 
II.A. of the Addendum to this final rule). Geographic 
reclassification generally benefits hospitals in rural areas. We 
estimate that the geographic reclassification will increase payments 
to rural hospitals by an average of 1.5 percent. By region, all the 
rural hospital categories will experience increases in payments due 
to MGCRB reclassifications.
    Table 9A listed in section VI. of the Addendum to this final 
rule and available via the Internet on the CMS Web site reflects the 
reclassifications for FY 2015.

f. Effects of the Rural and Imputed Floor, Including Application of 
National Budget Neutrality (Column 7)

    As discussed in section III.B. of the preamble of the FY 2009 
IPPS final rule, the FY 2010 IPPS/RY 2010 LTCH PPS final rule, the 
FYs 2011, 2012, 2013 and 2014 IPPS/LTCH PPS final rules, and this 
final rule, section 4410 of Public Law 105-33 established the rural 
floor by requiring that the wage index for a hospital in any urban 
area cannot be less than the wage index received by rural hospitals 
in the same State. We apply a uniform budget neutrality adjustment 
to the wage index. 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 extending the imputed rural floor 
for one year, as calculated under the original methodology and the 
alternative methodology. As a result, New Jersey, Rhode Island, and 
Delaware are able to receive an imputed floor. In New Jersey, 15 out 
of 64 hospitals will receive the imputed floor, and 4 out of 11 
hospitals in Rhode Island will receive the imputed floor for FY 
2015. In the FY 2015 IPPS/LTCH PPS proposed rule (78 FR 28356), we 
stated that one out of six hospitals in Delaware would benefit from 
the imputed floor. However, in this final rule, no hospitals are 
benefitting from the imputed floor in Delaware because the CBSA wage 
index for each CBSA in Delaware under the new OMB delineations is 
equal to or higher than the imputed rural 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 an FY 2015 
rural floor budget neutrality factor to be applied to the wage index 
of 0.989507, which reduces wage indexes by 1.0 percent.
    Column 7 shows the projected impact of the rural floor and 
imputed floor with the

[[Page 50422]]

national rural floor budget neutrality factor applied to the wage 
index based on the new OMB labor market area delineations. The 
column compares the post-reclassification FY 2015 wage index of 
providers before the rural floor and imputed floor adjustment and 
the post-reclassification FY 2015 wage index of providers with the 
rural floor and imputed floor adjustment based on the new OMB labor 
market area delineations. Only urban hospitals can benefit from the 
rural and imputed floors. Because the provision is budget neutral, 
all other hospitals (that is, all rural hospitals and those urban 
hospitals to which the adjustment is not made) will experience a 
decrease in payments due to the budget neutrality adjustment that is 
applied nationally to their wage index.
    We estimate that 422 hospitals will benefit from the rural and 
imputed floors in FY 2015, while the remaining 2,974 IPPS hospitals 
in our model have their wage index reduced by the rural floor budget 
neutrality adjustment of 0.989507 (or 1.0 percent). We project that, 
in aggregate, rural hospitals will experience a 0.3 percent decrease 
in payments as a result of the application of the rural floor budget 
neutrality because the rural hospitals do not benefit from the rural 
floor, but have their wage indexes downwardly adjusted to ensure 
that the application of the rural floor is budget neutral overall. 
We project hospitals located in urban areas will 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 rural floor budget neutrality factor. Urban 
hospitals in the New England region can expect a 2.8 percent 
increase in payments primarily due to the application of the rural 
floor in Massachusetts. Fifty-one urban providers in Massachusetts 
are expected to receive the rural floor wage index value, including 
the rural floor budget neutrality of 1.3336, increasing payments 
overall to Massachusetts by an estimated $156 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 a hospital that converted from a 
CAH to an IPPS hospital that is geographically located in rural 
Massachusetts. The rural floor in Massachusetts continues to be set 
by the wage index of the hospital in rural Massachusetts that 
converted from CAH to IPPS status. We estimate that Massachusetts 
hospitals will receive approximately a 4.9 percent increase in IPPS 
payments due to the application of the rural floor in FY 2015.
    We wish to make note of a situation that occurred in the rural 
floor impact calculation for Massachusetts. In FY 2014, CMS 
calculated that 60 hospitals would benefit from the Massachusetts 
rural floor, resulting in an estimated $167.6 million being received 
by Massachusetts hospitals via the national rural floor budget 
neutrality adjustment. In FY 2015, fewer Massachusetts hospitals, 51 
hospitals, have been identified as benefitting from the rural floor, 
and the fiscal impact of national budget neutrality has been 
reduced. We have received inquiries from commenters regarding this 
reduction, speculating whether the addition of one rural hospital in 
Franklin County, MA reduced the impact of the Massachusetts rural 
floor. The commenters are correct that the addition of one rural 
hospital in Massachusetts reduced the impact of the rural floor in 
FY 2015 as compared to the impact of the rural floor in FY 2014. We 
refer readers to section II.A.4.(c) of the Addendum to this final 
rule for a complere discussion on this issue.
    Urban Puerto Rico hospitals are expected to experience a 0.0 
percent change in payments as a result of the application of a 
Puerto Rico rural floor with the application of the Puerto Rico 
rural floor budget neutrality adjustment. We are applying a rural 
floor budget neutrality factor to the Puerto Rico-specific wage 
index of 0.991291 or -0.87 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 urban Puerto Rico hospitals that do not benefit from 
the rural floor that have their wage indexes downwardly adjusted by 
the rural floor budget neutrality adjustment. As a result, overall, 
urban Puerto Rico hospitals will experience a 0.0 percent change in 
payments due to the application of the rural floor with rural floor 
budget neutrality.
    There are 15 hospitals out of the 64 hospitals in New Jersey 
that benefit from the extension of the imputed floor and will 
receive the imputed floor wage index value under the new OMB labor 
market area delineations, including the rural floor budget 
neutrality of 1.121 which we estimate will increase payments to 
those imputed floor hospitals by $24 million (overall, the State 
will see an increase in payments of approximately $2.7 million due 
to the other hospitals in the State experiencing decreases in 
payments due to the rural floor budget neutrality adjustment). Four 
Rhode Island hospitals will benefit from the imputed rural floor 
calculated under the alternative methodology and receive an 
additional $3.7 million (overall, the State will receive an 
additional $1.9 million). As mentioned earlier, in the FY 2015 IPPS/
LTCH PPS proposed rule (79 FR 28356), we stated that one hospital in 
Delaware would benefit from the imputed floor. However, in this 
final rule, no hospitals are benefitting from the imputed floor in 
Delaware because the CBSA wage index for each CBSA in Delaware under 
the new OMB delineations is equal to or higher than the imputed 
rural floor.
    In response to a public comment addressed in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51593), we are providing the payment 
impact of the rural floor and imputed floor with budget neutrality 
at the State level. Column 1 of the table below displays the number 
of IPPS hospitals located in each State. Column 2 displays the 
number of hospitals in each State that will receive the rural floor 
or imputed floor wage index for FY 2015 based on the new OMB labor 
market area delineations. Column 3 displays the percentage of total 
payments each State will receive or contribute to fund the rural 
floor and imputed floor with national budget neutrality based on the 
new OMB labor market area delineations. The column compares the 
post-reclassification FY 2015 wage index of providers before the 
rural floor and imputed floor adjustment and the post-
reclassification FY 2015 wage index of providers with the rural 
floor and imputed floor adjustment with the wage indexes calculated 
based on the new OMB labor market area delineations. Column 4 
displays the estimated payment amount that each State will gain or 
lose due to the application of the rural floor and imputed floor 
with national budget neutrality.
    Comment: Some commenters requested that CMS include in the FY 
2015 IPPS/LTCH PPS final rule an updated detailed State-specific 
analysis of the effects of nationwide rural floor budget neutrality. 
In addition, the commenters requested that CMS publish a table 
showing the cumulative State-specific and aggregate inpatient and 
outpatient payment impact of the nationwide rural floor with budget 
neutrality and project the estimated 10-year State-specific effects 
of continuing the current policy.
    Response: We appreciate the commenters' request for additional 
analysis on the impact of the rural floor on inpatient and 
outpatient payments. Commenters may request to view the OPPS impacts 
of the rural floor policy through the public comment period for the 
CY 2015 OPPS/ASC proposed rule that closes on September 2, 2014. In 
addition, we are unable to provide a State-by-State impact with a 
10-year projection of the rural floor because the rural floor is 
based on wage data that are updated annually. Therefore, we believe 
it would be difficult to accurately portray the rural floor in 10-
year projections. We have updated our State-by-State rural floor 
budget neutrality impact analysis for this FY 2015 IPPS/LTCH PPS 
final rule.

[[Page 50423]]



      FY 2015 IPPS Estimated Payments Due to Rural Floor and Imputed Floor With National Budget Neutrality
----------------------------------------------------------------------------------------------------------------
                                                                                Percent change
                                                                               in payments due
                                                                 Number of      to application
                                               Number of      hospitals that    of rural floor   Difference (in
                  State                        hospitals       will  receive     and imputed        millions)
                                                              the rural floor     floor with
                                                             or imputed floor       budget
                                                                                  neutrality
                                                        (1)               (2)              (3)               (4)
----------------------------------------------------------------------------------------------------------------
Alabama..................................                91                 2             -0.5             -$8.4
Alaska...................................                 6                 4              1.5               2.2
Arizona..................................                57                 9             -0.1              -1.9
Arkansas.................................                45                 0             -0.5              -5.3
California...............................               309               200              1.9             188.8
Colorado.................................                47                 6              0.2               2.3
Connecticut..............................                31                 8             -0.4              -6.5
Delaware.................................                 6                 0             -0.6              -2.4
Washington, D.C..........................                 7                 0             -0.6              -2.6
Florida..................................               169                25             -0.3             -18.6
Georgia..................................               106                 0             -0.5             -13.3
Hawaii...................................                12                 0             -0.4              -1.3
Idaho....................................                14                 0             -0.4              -1.2
Illinois.................................               127                 0             -0.6             -28.1
Indiana..................................                91                 0             -0.6             -13.2
Iowa.....................................                34                 0             -0.5              -4.5
Kansas...................................                53                 0             -0.4              -3.8
Kentucky.................................                65                 1             -0.5              -7.9
Louisiana................................               100                 0             -0.5              -7.0
Maine....................................                20                 0             -0.5              -2.5
Massachusetts............................                61                51              4.9             155.6
Michigan.................................                95                 0             -0.5             -22.9
Minnesota................................                51                 0             -0.5             -10.0
Mississippi..............................                64                 0             -0.5              -5.3
Missouri.................................                78                 0             -0.5             -11.2
Montana..................................                12                 4             -0.3              -0.8
Nebraska.................................                23                 0             -0.4              -2.6
Nevada...................................                24                 6              0.7               4.6
New Hampshire............................                13                 9              2.2              10.5
New Jersey...............................                64                15              0.1               2.7
New Mexico...............................                25                 2             -0.2              -0.7
New York.................................               163                 0             -0.6             -47.4
North Carolina...........................                87                 0             -0.5             -15.8
North Dakota.............................                 6                 1             -0.3              -0.9
Ohio.....................................               135                10             -0.4             -16.9
Oklahoma.................................                86                 2             -0.5              -5.7
Oregon...................................                33                 0             -0.5              -4.7
Pennsylvania.............................               154                10             -0.5             -23.3
Puerto Rico..............................                52                11                0              -0.1
Rhode Island.............................                11                 4              0.5               1.9
South Carolina...........................                55                 7             -0.3              -5.0
South Dakota.............................                19                 0             -0.3              -1.1
Tennessee................................                98                16             -0.2              -5.6
Texas....................................               324                 6             -0.5             -30.3
Utah.....................................                33                 2             -0.4              -2.2
Vermont..................................                 6                 0             -0.3              -0.7
Virginia.................................                79                 1             -0.5             -12.0
Washington...............................                49                 8             -0.2              -3.0
West Virginia............................                30                 2             -0.4              -3.1
Wisconsin................................                65                 0             -0.5              -8.6
Wyoming..................................                11                 0             -0.2              -0.3
----------------------------------------------------------------------------------------------------------------

g. Impact of the New OMB Delineations (Column 8)

    Column 8 shows the effects of the adoption of the new OMB labor 
market area delineations. This column compares the payments under 
the rural and imputed floor wage index with rural floor budget 
neutrality calculated under the new OMB delineations and the 
payments under the rural and imputed floor wage index with budget 
neutrality calculated under the current OMB delineations. It does 
not reflect the 3-year transition for hospitals that are currently 
located in urban counties that 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 impact of the new OMB delineations fully 
implemented for FY 2015. Approximately 609 hospitals have their wage 
index impacted due to the new OMB delineations. Urban New England 
and rural Middle Atlantic hospitals will experience the largest 
decreases in payments due to the new OMB delineations being fully 
implemented

[[Page 50424]]

for FY 2015, with payment decreases of 0.5 and 0.2 percent, 
respectively. Urban non-DSH hospitals, nonteaching and non-DSH 
hospitals, and Lugar hospitals will experience the largest increases 
in payments due to the new OMB delineations being fully implemented 
for FY 2015, each with payment increases of 0.2 percent.

h. Application of the CBSA Transition Wage Index With Budget Neutrality 
(Column 9)

    As discussed earlier in this final rule, for FY 2015, we are 
using the most recent labor market area delineations issued by OMB 
but we established a transition period in certain circumstances. 
Specifically, we established a 3-year transition for hospitals that 
are currently located in an urban county that becomes rural under 
the new OMB labor market area delineations under which such 
hospitals will 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 
establishing a 1-year blended wage index for all hospitals that 
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 implementation of the new OMB labor market 
area delineations. We are providing that a post-reclassified wage 
index with the rural and imputed floor applied 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 be computed based on the 
hospital's new FY 2015 CBSA (that is, the FY 2015 constituent 
county/ies). We compared these two wage indexes. If the FY 2015 wage 
index with FY 2015 CBSAs was lower than the FY 2015 wage index with 
FY 2014 CBSAs, we computed a blended wage index, consisting of 50 
percent of each of the two wage indexes added together. This blended 
wage index is the hospital's wage index for FY 2015. This adjustment 
only applies to hospitals that will experience a decrease in their 
actual payment wage index exclusively due to the implementation of 
the new OMB labor market area delineations. Hospitals that benefit 
from the new OMB labor market area delineations 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 final rule 
for a complete discussion on the transition wage indexes. Lastly, we 
are applying both the 3-year transition and 50/50 blended wage index 
adjustments in a budget neutral manner. We are making an adjustment 
to the standardized amount to ensure that the total payments, 
including the effect of the transition provisions, equal what 
payments would have been if we had not provided for these 
transitional wage indexes.
    Column 9 shows the effects of the 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 becomes 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. For FY 2015, we are 
applying both the 3-year transition and 50/50 blended wage index 
adjustments in a budget neutral manner, with a budget neutrality 
factor of 0.998859 (or -0.1 percent) applied to the standardized 
amount to ensure that the total payments, including the effect of 
the transition provisions, equal what payments would have been if we 
had not provided for these transitional wage indexes. This column 
shows the payment impact of the transitional wage index. For columns 
1 through 8, the payment impacts and budget neutrality factors have 
been calculated under the new OMB delineations. Under the 1-year 
transition to the new OMB delineations, hospitals that would have 
experienced a decrease in payments due to the new OMB delineations 
being fully implemented this year now have those decreases 
alleviated due to the transition. Urban New England hospitals and 
Middle Atlantic hospitals will experience a 0.2 percent and 0.3 
percent increase respectively in payments due to the application of 
the transitional wage index with budget neutrality, while urban 
South Atlantic, East North Central, East South Central, West North 
Central, West South Central, Mountain and Pacific hospitals will 
experience a -0.1 percent change in payments due to the transitional 
budget neutrality adjustment of -0.1 percent applied to the standard 
Federal rate.

i. Effects of the Application of the Frontier State Wage Index and Out-
Migration Adjustment (Column 10)

    This column shows the combined effects of the application of 
section 10324(a) of the 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 final 
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 $67 million or approximately 0.1 percent. 
Rural hospitals located in the Mountain region and urban hospitals 
located in the West North Central region will experience an increase 
in payments by 0.6 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 273 providers that will receive the out-migration wage 
adjustment in FY 2015. Rural hospitals generally qualify for the 
adjustment, resulting in a 0.1 percent increase in payments. This 
provision appears to benefit Section 401 hospitals and RRCs in that 
they will experience a 2.0 percent and 0.6 percent increase in 
payments, respectively. This out-migration wage adjustment also is 
not budget neutral, and we estimate the impact of these providers 
receiving the out-migration increase to be approximately $53 
million.

j. Effects of the Reductions Under the Hospital Readmissions Reduction 
Program (Column 11)

    Column 11 shows our estimates of the effects of the policies for 
reductions in payments under the Hospital Readmissions 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 final rule) is the portion of the IPPS payment 
subject to the readmissions payment adjustment (DSH, IME, outliers 
and low-volume add-on payments are not subject to the readmissions 
adjustment). For FY 2015, we have revised the definition of base 
operating DRG payment for MDHs to include the hospital-specific add-
on amount, as discussed earlier in this final rule such that the 
this hospital-specific add-on amount is also subject to the 
readmissions payment

[[Page 50425]]

adjustment. In this final rule, we estimate that 2,638 hospitals 
will have their base operating DRG payments reduced by their 
hospital-specific readmissions adjustment, an increase from FY 2014, 
due to the addition of new readmissions measures in the program. As 
a result, we estimate that the Hospital Readmissions Reduction 
Program will result in a 0.2 percent decrease in payments relative 
to FY 2014. We estimate that the Hospital Readmissions Reduction 
Program will result in a 0.4 percent decrease in payments relative 
to no provision (or a decrease of $424 million).
    Teaching non-DSH hospitals experience a decrease in payments of 
0.3 percent relative to last year, while teaching DSH hospitals 
experience a 0-1 percent decrease in payments relative to last year. 
Puerto Rico hospitals will show a 0.0 percent change in payments 
because they are exempt from the provision.

k. Effects of the Changes to Medicare DSH Payments (Column 12)

    Column 12 shows the effects of the 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, 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 establishing 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 76.19 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). In the FY 2015 IPPS/LTCH 
PPS proposed rule 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 80.36 percent and 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 FY 2015 uncompensated care amount is approximately 14 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 will be reduced 
overall by 1.3 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 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 final payment amount is not tied to a hospital's discharges.
    Rural West South Central and Rural Pacific will experience a 0.3 
percent change in DSH and uncompensated care payments. Hospitals 
with low Medicare utilization (Medicare days are less than 25 
percent of total inpatient days) will experience the largest 
decreases in payments of 3.0 percent.

l. Effects of All FY 2015 Changes (Column 13)

    Column 13 shows our estimate of the changes in payments per 
discharge from FY 2014 and FY 2015, resulting from all changes 
reflected in this final rule for FY 2015. It includes combined 
effects of the previous columns in the table.
    The average decrease in payments under the IPPS for all 
hospitals is approximately 0.6 percent for FY 2015 relative to FY 
2014. As discussed in section II.D. of the preamble of this final 
rule, this column includes the 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 annual hospital update 
of 2.2 percent to the national standardized amount. This annual 
hospital update includes the 2.9 percent market basket update, the 
reduction of 0.5 percentage point for the multifactor productivity 
adjustment, and the 0.2 percentage point reduction under section 
3401 of the Affordable Care Act. Hospitals paid under the hospital-
specific rate will receive a 2.2 percent hospital update described 
above. As described in Column 2, the annual hospital update with the 
documentation and coding recoupment adjustment for hospitals paid 
under the national standardized amount combined with the annual 
hospital update for hospitals paid under the hospital-specific rate 
will result in a 1.5 percent increase in payments in FY 2015 
relative to FY 2014. Column 11 shows the estimated 0.2 percent 
decrease in payments due to the reductions in payments under the 
Hospital Readmissions Reduction Program relative to FY 2014. Column 
12 shows the estimated 1.3 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 and an additional statutory adjustment, to 
each hospital that qualifies for Medicare DSH payments as an 
uncompensated care payment based on the hospital's relative share of 
the total amount of uncompensated care. The impact of moving from 
our estimate of FY 2014 outlier payments, 5.71 percent, to the 
estimate of FY 2015 outlier payments, 5.1 percent, will result in a 
decrease of 0.6 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 13 may not equal 
the sum of the estimated percentage changes described above. (We 
note that in the FY 2015 IPPS/LTCH PPS proposed rule we provided the 
effects 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. We are finalizing policies related to the HAC 
Reduction Program in this final rule, but as described earlier in 
this final rule, because the HAC scores are currently undergoing 30-
day review and correction by the hospitals, we are not providing 
hospital-level data or a hospital-level payment impact in 
conjunction with the FY 2015 IPPS Final Rule. We do provide an 
estimate of the overall payment impact in section I.H.8. of this 
Appendix A along with a discussion of the impact of these changes.)
    Overall payments to hospitals paid under the IPPS are estimated 
to decrease by 0.6 percent for FY 2015. Much of the payment changes 
among the hospital categories is attributed to the 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 will 
experience a 0.6 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 0.7 percent in FY 2015.

3. Impact Analysis of Table II

    Table II presents the projected impact of the 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 estimated 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 changes 
presented in Table I. The estimated percentage changes shown in the 
last column of Table II equal the estimated percentage changes in 
average payments per discharge from Column 13 of Table I.

[[Page 50426]]



    Table II--Impact Analysis of Changes for FY 2015 Acute Care Hospital Operating Prospective Payment System
                                            [Payments per discharge]
----------------------------------------------------------------------------------------------------------------
                                                               Estimated         Estimated
                                             Number of      average FY 2014   average FY 2015     All FY 2015
                                             hospitals        payment per       payment per         changes
                                                               discharge         discharge
                                                      (1)               (2)               (3)              (4)
----------------------------------------------------------------------------------------------------------------
All Hospitals..........................             3,396            11,197            11,129               -0.6
By Geographic Location:
    Urban hospitals....................             2,549            11,566            11,496               -0.6
    Large urban areas..................             1,401            12,296            12,226               -0.6
    Other urban areas..................             1,148            10,677            10,608               -0.6
    Rural hospitals....................               847             8,238             8,184               -0.7
Bed Size (Urban):
    0-99 beds..........................               666             9,085             9,054               -0.3
    100-199 beds.......................               787             9,730             9,661               -0.7
    200-299 beds.......................               455            10,470            10,448               -0.2
    300-499 beds.......................               429            11,892            11,814               -0.7
    500 or more beds...................               212            14,185            14,075               -0.8
Bed Size (Rural):
    0-49 beds..........................               328             6,778             6,695               -1.2
    50-99 beds.........................               305             7,803             7,686               -1.5
    100-149 beds.......................               125             8,112             8,099               -0.2
    150-199 beds.......................                50             8,856             8,808               -0.5
    200 or more beds...................                39             9,979            10,008                0.3
Urban by Region:
    New England........................               120            12,688            12,684                0
    Middle Atlantic....................               324            12,762            12,752               -0.1
    South Atlantic.....................               407            10,423            10,327               -0.9
    East North Central.................               397            10,795            10,733               -0.6
    East South Central.................               153            10,044             9,911               -1.3
    West North Central.................               162            11,316            11,275               -0.4
    West South Central.................               387            10,674            10,492               -1.7
    Mountain...........................               162            11,895            11,793               -0.9
    Pacific............................               385            14,626            14,638                0.1
    Puerto Rico........................                52             8,149             7,543               -7.4
Rural by Region:
    New England........................                22            11,180            11,080               -0.9
    Middle Atlantic....................                57             8,289             8,216               -0.9
    South Atlantic.....................               132             7,834             7,764               -0.9
    East North Central.................               116             8,474             8,484                0.1
    East South Central.................               165             7,513             7,404               -1.4
    West North Central.................               102             8,914             8,925                0.1
    West South Central.................               168             7,108             6,974               -1.9
    Mountain...........................                61             9,454             9,503                0.5
    Pacific............................                24            11,083            11,207                1.1
By Payment Classification:
    Urban hospitals....................             2,563            11,551            11,480               -0.6
    Large urban areas..................             1,413            12,286            12,214               -0.6
    Other urban areas..................             1,150            10,645            10,576               -0.6
    Rural areas........................               833             8,454             8,401               -0.6
Teaching Status:
    Nonteaching........................             2,357             9,343             9,296               -0.5
    Fewer than 100 residents...........               795            10,941            10,879               -0.6
    100 or more residents..............               244            16,321            16,187               -0.8
Urban DSH:
    Non-DSH............................               679             9,801             9,863                0.6
    100 or more beds...................             1,588            11,990            11,893               -0.8
    Less than 100 beds.................               383             8,431             8,366               -0.8
Rural DSH:
    SCH................................               373             7,907             7,858               -0.6
    RRC................................               212             9,190             9,162               -0.3
    100 or more beds...................                24             7,390             7,297               -1.3
    Less than 100 beds.................               137             6,328             6,247               -1.3
Urban teaching and DSH:
    Both teaching and DSH..............               842            13,175            13,063               -0.9
    Teaching and no DSH................               133            11,027            11,125                0.9
    No teaching and DSH................             1,129             9,781             9,709               -0.7
    No teaching and no DSH.............               459             9,223             9,288                0.7
Special Hospital Types:
    RRC................................               193             9,372             9,316               -0.6

[[Page 50427]]

 
    SCH................................               325             9,570             9,636                0.7
    MDH................................               162             7,073             6,700               -5.3
    SCH and RRC........................               124            10,289            10,394                1
    MDH and RRC........................                15             9,195             8,450               -8.1
Type of Ownership:
    Voluntary..........................             1,935            11,319            11,274               -0.4
    Proprietary........................               892             9,986             9,900               -0.9
    Government.........................               542            12,214            12,038               -1.4
Medicare Utilization as a Percent of
 Inpatient Days:
    0-25...............................               501            14,705            14,357               -2.4
    25-50..............................             2,081            11,311            11,261               -0.4
    50-65..............................               601             9,137             9,131               -0.1
    Over 65............................                93             8,406             8,349               -0.7
FY 2015 Reclassifications by the
 Medicare Geographic Classification
 Review Board:
    All Reclassified Hospitals.........               719            10,791            10,771               -0.2
    Non-Reclassified Hospitals.........             2,677            11,327            11,243               -0.7
    Urban Hospitals Reclassified.......               450            11,446            11,429               -0.1
    Urban Nonreclassified Hospitals, FY             2,054            11,618            11,535               -0.7
     2015..............................
    All Rural Hospitals Reclassified FY               269             8,732             8,702               -0.4
     2015..............................
    Rural Nonreclassified Hospitals FY                514             7,665             7,597               -0.9
     2015..............................
    All Section 401 Reclassified                       50            10,130            10,012               -1.2
     Hospitals.........................
    Other Reclassified Hospitals                       64             7,812             7,658               -2
     (Section 1886(d)(8)(B))...........
Specialty Hospitals:
    Cardiac Specialty Hospitals........                15            12,303            12,567                2.1
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Policy Changes

    In addition to those policy changes discussed above that we are 
able to model using our IPPS payment simulation model, we are making 
various other changes in this final rule. Generally, we have limited 
or no specific data available with which to estimate the impacts of 
these changes. Our estimates of the likely impacts associated with 
these other changes are discussed below.

1. Effects of Policy on MS-DRGs for Preventable HACs, Including 
Infections

    In section II.F. of the preamble of this final rule, we discuss 
our implementation of section 1886(d)(4)(D) of the Act, which 
requires the Secretary to identify conditions that are: (1) high 
cost, high volume, or both; (2) result in the assignment of a case 
to an MS-DRG that has a higher payment when present as a secondary 
diagnosis; and (3) could reasonably have been prevented through 
application of evidence-based guidelines. For discharges occurring 
on or after October 1, 2008, hospitals will not receive additional 
payment for cases in which one of the selected conditions was not 
present on admission, unless, based on data and clinical judgment, 
it cannot be determined at the time of admission whether a condition 
is present. That is, the case will be paid as though the secondary 
diagnosis were not present. However, the statute also requires the 
Secretary to continue counting the condition as a secondary 
diagnosis that results in a higher IPPS payment when doing the 
budget neutrality calculations for MS-DRG reclassifications and 
recalibration. Therefore, we will perform our budget neutrality 
calculations as though the payment provision did not apply, but 
Medicare will make a lower payment to the hospital for the specific 
case that includes the secondary diagnosis. Thus, the provision 
results in cost savings to the Medicare program.
    We note that the provision will only apply when one or more of 
the selected conditions are the only secondary diagnosis or 
diagnoses present on the claim that will lead to higher payment. 
Medicare beneficiaries will generally have multiple secondary 
diagnoses during a hospital stay, such that beneficiaries having one 
MCC or CC will frequently have additional conditions that also will 
generate higher payment. Only a small percentage of the cases will 
have only one secondary diagnosis that would lead to a higher 
payment. Therefore, if at least one nonselected secondary diagnosis 
that leads to higher payment is on the claim, the case will continue 
to be assigned to the higher paying MS-DRG and there will be no 
Medicare savings from that case. In addition, as discussed in 
section II.F.3. of the preamble of this final rule, it is possible 
to have two severity levels where the HAC does not affect the MS-DRG 
assignment or for an MS-DRG not to have severity levels. In either 
of these circumstances, the case will continue to be assigned to the 
higher paying MS-DRG and there will be no Medicare savings from that 
case.
    The HAC payment provision went into effect on October 1, 2008. 
Our savings estimates for the next 5 fiscal years are shown below:

------------------------------------------------------------------------
                                                            Savings (in
                          Year                               millions)
------------------------------------------------------------------------
FY 2015.................................................             $27
FY 2016.................................................              29
FY 2017.................................................              31
FY 2018.................................................              34
FY 2019.................................................              36
------------------------------------------------------------------------

    In section IV.J. of the preamble of this final rule, we are 
making 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 changes.

2. Effects of Policy Relating to New Medical Service and Technology 
Add-On Payments

    In section II.I. of the preamble to this final rule, we discuss 
five applications (Dalbavancin, Heli-FXTM EndoAnchor 
System, CardioMEMSTM HF (Heart Failure) Monitoring 
System, MitraClip[supreg] System, and Responsive Neurostimulator 
(RNS[supreg]) System) for add-on payments for new 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. We

[[Page 50428]]

note that one of the applications (for the Watchman[supreg] System) 
discussed in the proposed rule withdrew its application prior to the 
publication of this final rule.
    As explained in the preamble to this final rule, add-on payments 
for new medical services and technologies under section 
1886(d)(5)(K) of the Act are not required to be budget neutral. As 
discussed in section II.I.4. of the preamble of this final rule, we 
are approving three of the five applications 
(CardioMEMSTM HF Monitoring System, MitraClip[supreg] 
System, and RNS[supreg] System) for new technology add-on payments 
for FY 2015. As we proposed, in this final rule, we also are 
continuing to make new technology add-on payments in FY 2015 for 
KcentraTM, Argus[supreg] II Retinal Prosthesis System, 
the Zilver[supreg] PTX[supreg] Drug Eluting Peripheral Stent, 
Voraxaze[supreg], and the Zenith[supreg] F. Graft (because all of 
these technologies are still within the 3-year anniversary of the 
product's entry onto the market). We note that new technology add-on 
payments per case are limited to the lesser of: (1) 50 percent of 
the costs of the new technology; or (2) 50 percent of the amount by 
which the costs of the case exceed the standard MS-DRG payment for 
the case. Because it is difficult to predict the actual new 
technology add-on payment for each case, our estimates below are 
based on the increase in add-on payments for FY 2015 as if every 
claim that would qualify for a new technology add-on payment would 
receive the maximum add-on payment. Based on the applicant's 
estimate from FY 2013, we currently estimate that new technology 
add-on payments for Voraxaze[supreg] will increase overall FY 2015 
payments by $6,300,000. 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 2015 payments 
by $4,085,750. Based on the applicant's estimate for FY 2014, we 
currently estimate that new technology add-on payments for 
KcentraTM will increase overall FY 2015 payments by 
$5,449,888. Based on the applicant's estimate for FY 2014, we 
currently estimate that new technology add-on payments for the 
Argus[supreg] II Retinal Prosthesis System will increase overall FY 
2015 payments by $3,601,437. Based on the applicant's estimate for 
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. Based on the 
applicant's estimate for FY 2015, we currently estimate that new 
technology add-on payments for the CardioMEMSTM HF 
Monitoring System will increase overall FY 2015 payments by 
$11,315,625 (maximum add-on payment of $8,875 * 1,275 patients). 
Based on the applicant's estimate for FY 2015, we currently estimate 
that new technology add-on payments for the MitraClip[supreg] System 
will increase overall FY 2015 payments by $27,000,000 (maximum add-
on payment of $15,000 * 1,800 patients). Based on the applicant's 
estimate for FY 2015, we currently estimate that new technology add-
on payments for the RNS[supreg] System will increase overall FY 2015 
payments by $12,932,500 (maximum add-on payment of $18,475 * 700 
patients).

3. Effects of 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 final rule, we discuss 
changes to the list of MS-DRGs subject to the postacute care 
transfer and DRG special payment policies. As reflected in Table 5 
listed in section VI. of the Addendum to this final rule and 
available via the Internet 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 change to these payment policies in this FY 
2015 final rule. We are changing the status of certain MS-DRGs as a 
result of revisions to the MS-DRGs for FY 2015. We are changing 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 changing 
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 adding them to the list of qualifying MS-DRGs. 
Column 4 of Table I in this Appendix A shows the effects of the 
changes to the MS-DRGs and relative 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 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 Payment Adjustment for Low-Volume Hospitals for FY 
2015

    In section V.D. of the preamble of this final rule, we discuss 
the provisions of the Protecting Access to Medicare Act of 2014 
(Pub. L.113-93) that extend 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 the latest available data, we estimate that 
approximately 593 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, we estimate only approximately five hospitals will 
continue to qualify as a low-volume hospital for FY 2015 discharges 
occurring on or after April 1, 2015. 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 $152 million in FY 2015 as 
compared to the low-volume hospital payments in FY 2014. This 
estimate accounts for our projection of the five 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 Policies 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 final rule, we 
discuss our finalized policy related to IME add-on payments for 
Medicare Part C patients 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 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. 
Accordingly, we are providing 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

[[Page 50429]]

whether the SCH is paid based on the Federal rate or its hospital-
specific rate. In addition, we also are establishing that for 
purposes of the comparison of payments based on the Federal rate and 
payments based on the hospital-specific rate, 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. Because the 
IPPS Federal rate used in the MDH payment methodology is the same 
IPPS Federal rate that is used in the SCH payment methodology, this 
change to the comparison of payments based on the Federal rate and 
payments based on the hospital-specific rate also applies to the 
Federal rate payment amount used to determine payment to MDHs that 
are teaching hospitals (that is, in the determination of the payment 
amount in addition to the Federal rate payment that is equal to 75 
percent of the amount by which the hospital-specific rate payment 
exceeds the Federal rate payment), as discussed in section IV.E.2. 
of the preamble of this final rule.
    We estimate that the policy at section IV.E.2. of the preamble 
of this final rule will result in an increase in payments to 
approximately 45 hospitals that are both SCHs or MDHs and teaching 
hospitals of approximately $5.3 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 final 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 177 MDHs, we project that 166 
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 $70.7 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 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 final 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 March 2014 
update to the FY 2013 MedPAR file.
    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 March 2014 update to the FY 2013 MedPAR 
file. The proxy adjustment factors can be found in Table 16 
associated with this final 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 will receive an increase in 
base operating DRG payment amount is slightly lower than the number 
of hospitals that will receive a decrease. Among urban hospitals, 
those in the New England, South Atlantic, East North Central, West 
North Central, and West South Central regions will 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, West North Central, and West South Central 
regions will 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 will 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        Average
                                             hospitals       (percent)
------------------------------------------------------------------------
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          -0.042
        50-99 beds......................             296          -0.088

[[Page 50430]]

 
        100-149 beds....................             148          -0.074
        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           0.058
        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           0.054
        West South Central..............             248           0.003
        Mountain........................             130          -0.086
        Pacific.........................             303          -0.155
    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          -0.019
        West North Central..............              82          -0.052
        West South Central..............             101          -0.178
        Mountain........................              45          -0.299
        Pacific.........................              28          -0.247
By MCR Percent:
    0-25................................             260          -0.119
    25-50...............................           1,788          -0.034
    50-65...............................             605          -0.016
    Over 65.............................              46           0.003
By DSH Percent:
    0-25................................           1,253           0.013
    25-50...............................           1,220          -0.064
    50-65...............................             141          -0.121
    Over 65.............................             114          -0.222
By Teaching Status:
    Teaching............................             933          -0.041
    Non-Teaching........................           1,795          -0.036
------------------------------------------------------------------------

    Actual FY 2015 Hospital VBP Program TPSs will not be reviewed 
and corrected by hospitals until after this 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 are used for this updated impact analysis.

8. Effects of Changes to the HAC Reduction Program for FY 2015

    In section IV.J. of the preamble of this final rule, we are 
establishing measures, scoring, and a risk adjustment methodology to 
implement the FY 2015 payment reduction under the HAC Reduction 
Program. Section 1886(p) of the Act, as added under section 3008(a) 
of the Affordable Care Act, establishes an adjustment to hospital 
payments for HACs, or a HAC Reduction program, under which payments 
to applicable hospitals are adjusted to provide an incentive to 
reduce HACs, effective for 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 4.5a 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 January 2012 and December 
2013. To analyze the results by hospital characteristic, the FY 2015 
proposed rule impact file were used. Of the 3,352 hospitals included 
in this analysis, 3,310 hospitals were included for geographic 
location, bed size, region, DSH percent, and teaching status; 3,270 
for ownership; and 3,196 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, 40.4 percent of 
hospitals (or 1,338 hospitals) are characterized as large urban; 
33.8 percent of hospitals (or 1,119 hospitals) are characterized as 
other urban; and 25.8 percent of hospitals (or 853 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 356 
hospitals) characterized as large urban will be subject to a payment 
adjustment; 23.0 percent of hospitals (or 257 hospitals) 
characterized as other urban will be subject to a payment 
adjustment; and 13.2

[[Page 50431]]

percent of hospitals (or 113 hospitals) characterized as rural will 
be subject to a payment adjustment.
    With regard to geographic location of urban hospitals by bed 
size, 15.7 percent of hospitals (or 98 hospitals) characterized as 
urban hospitals with bed size of 0-99 beds will be subject to a 
payment adjustment; 20.7 percent of hospitals (or 155 hospitals) 
characterized as urban hospitals with bed size of 100-199 beds will 
be subject to a payment adjustment; 29.7 percent of hospitals (or 
136 hospitals) characterized as urban hospitals with bed size of 
200-299 beds will be subject to a payment adjustment; 27.7 percent 
of hospitals (or 72 hospitals) characterized as urban hospitals with 
bed size of 300-399 beds will be subject to a payment adjustment; 
41.2 percent of hospitals (or 63 hospitals) characterized as urban 
hospitals with bed size of 400-499 beds will be subject to a payment 
adjustment; and 42.0 percent of hospitals (or 89 hospitals) 
characterized as urban hospitals with bed size of 500 or more beds 
will be subject to a payment adjustment.
    With regard to geographical location of rural hospitals by bed 
size, 11.7 percent of hospitals (or 39 hospitals) characterized as 
rural hospitals with bed size of 0-49 beds will be subject to a 
payment adjustment; 12.5 percent of hospitals (or 37 hospitals) 
characterized as rural hospitals with bed size of 50-99 beds will be 
subject to a payment adjustment; 12.6 percent of hospitals (or 17 
hospitals) characterized as rural hospitals with bed size of 100-149 
beds will be subject to a payment adjustment; 18.0 percent of 
hospitals (or 9 hospitals) characterized as rural hospitals with bed 
size of 150-199 beds will be subject to a payment adjustment; and 
29.7 percent of hospitals (or 11 hospitals) characterized as rural 
hospitals with bed size of 200 or more beds will be subject to a 
payment adjustment.
    With regard to region of urban hospitals, 30.3 percent of 
hospitals (or 36 hospitals) characterized as urban in the New 
England region will be subject to a payment adjustment; 30.2 percent 
of hospitals (or 96 hospitals) characterized as urban in the Mid-
Atlantic region will be subject to a payment adjustment; 24.3 
percent of hospitals (or 98 hospitals) characterized as urban in the 
South Atlantic region will be subject to a payment adjustment; 22.5 
percent of hospitals (or 88 hospitals) characterized as urban in the 
East North Central region will be subject to a payment adjustment; 
22.1 percent of hospitals (or 33 hospitals) characterized as urban 
in the West South Central region will be subject to a payment 
adjustment; 26.1 percent of hospitals (or 42 hospitals) 
characterized as urban in the East North Central region will be 
subject to a payment adjustment; 15.9 percent of hospitals (or 60 
hospitals) characterized as urban in the West South Central region 
will be subject to a payment adjustment; 33.3 percent of hospitals 
(or 54 hospitals) characterized as urban in the Mountain region will 
be subject to a payment adjustment; and 28.2 percent of hospitals 
(or 106 hospitals) characterized as urban in the Pacific region will 
be subject to a payment adjustment.
    With regard to region of rural hospitals, 18.2 percent of 
hospitals (or 4 hospitals) characterized as rural in the New England 
region will be subject to a payment adjustment; 12.5 percent of 
hospitals (or 7 hospitals) characterized as rural in the Mid-
Atlantic region will be subject to a payment adjustment; 16.9 
percent of hospitals (or 22 hospitals) characterized as rural in the 
South Atlantic region will be subject to a payment adjustment; 12.2 
percent of hospitals (or 14 hospitals) characterized as rural in the 
East North Central region will be subject to a payment adjustment; 
8.8 percent of hospitals (or 14 hospitals) characterized as rural in 
the West South Central region will be subject to a payment 
adjustment; 15.0 percent of hospitals (or 16 hospitals) in the East 
North Central region will be subject to a payment adjustment; 9.6 
percent of hospitals (or 16 hospitals) in the West South Central 
region will be subject to a payment adjustment; 26.8 percent of 
hospitals (or 19 hospitals) in the Mountain region will be subject 
to a payment adjustment; and 3.8 percent of hospitals (or 1 
hospitals) in the Pacific region will be subject to a payment 
adjustment.
    With regard to the DSH percent characteristic, 19.4 percent of 
hospitals (or 309 hospitals) characterized in the 0-24 DSH percent 
will be subject to a payment adjustment; 22.0 percent of hospitals 
(or 304 hospitals) characterized in the 25-49 DSH percent will be 
subject to a payment adjustment; 38.1 percent of hospitals (or 67 
hospitals) characterized in the 50-64 DSH percent will be subject to 
a payment adjustment; and 28.9 percent of hospitals (or 46 
hospitals) characterized in the 65 and over DSH percent will be 
subject to a payment adjustment.
    With regard to the teaching status characteristic, 17.0 percent 
of hospitals (or 391 hospitals) characterized as nonteaching will be 
subject to a payment adjustment; 25.7 percent of hospitals (or 198 
hospitals) characterized as fewer than 100 residents will be subject 
to a payment adjustment; and 56.4 percent of hospitals (or 137 
hospitals) characterized as 100 or more residents will be subject to 
a payment adjustment.
    With regard to the urban teaching and DSH characteristic, 35.6 
percent of hospitals (or 294 hospitals) characterized as teaching 
and DSH will be subject to a payment adjustment; 25.0 percent of 
hospitals (or 32 hospitals) characterized as teaching and no DSH 
will be subject to a payment adjustment; 19.5 percent of hospitals 
(or 207 hospitals) characterized as no teaching and DSH will be 
subject to a payment adjustment; 18.2 percent of hospitals (or 80 
hospitals) characterized as no teaching and no DSH will be subject 
to a payment adjustment; and 13.2 percent of hospitals (or 113 
hospitals) characterized as nonurban will be subject to a payment 
adjustment.
    With regard to the type of ownership characteristic, 22.7 
percent of hospitals (or 429 hospitals) characterized as voluntary 
will be subject to a payment adjustment; 18.7 percent of hospitals 
(or 160 hospitals) characterized as proprietary will be subject to a 
payment adjustment; and 25.0 percent of hospitals (or 131 hospitals) 
characterized as government will be subject to a payment adjustment.
    With regard to the MCR percent characteristic, 37.4 percent of 
hospitals (or 145 hospitals) characterized in the 0-24 MCR percent 
will be subject to a payment adjustment; 22.6 percent of hospitals 
(or 447 hospitals) characterized in the 25-49 MCR percent will be 
subject to a payment adjustment; 14.4 percent of hospitals (or 101 
hospitals) characterized in the 50-64 MCR percent will be subject to 
a payment adjustment; and 9.4 percent of hospitals (or 12 hospitals) 
characterized in the 65 and over MCR percent will be subject to a 
payment adjustment.

 Proportion of Hospitals in the Worst Performing Quartile (>75th Percentile) of the Total HAC Score by Hospital
                              Characteristic for the FY 2015 HAC Reduction Program
----------------------------------------------------------------------------------------------------------------
                            Hospital characteristics                                  Hospitals in the worst
---------------------------------------------------------------------------------       performing quartile
                                                                                 -------------------------------
                                                     Number of                                    Percent within
                 Characteristic                    hospitals \a\    Percent \b\      Number of    characteristic
                                                                                     hospitals          \c\
----------------------------------------------------------------------------------------------------------------
Total \d\.......................................           3,352           100.0             726            21.7
By geographic location:
    All hospitals:
        Large urban \e\.........................           1,338            40.4             356            26.6
        Other urban.............................           1,119            33.8             257            23.0
        Rural...................................             853            25.8             113            13.2
    Urban hospitals:
        0-99 beds...............................             626            25.5              98            15.7
        100-199 beds............................             748            30.4             155            20.7
        200-299 beds............................             458            18.6             136            29.7

[[Page 50432]]

 
        300-399 beds............................             260            10.6              72            27.7
        400-499.................................             153             6.2              63            41.2
        500 or more beds........................             212             8.6              89            42.0
    Rural hospitals:
        0-49 beds...............................             334            39.2              39            11.7
        50-99 beds..............................             297            34.8              37            12.5
        100-149 beds............................             135            15.8              17            12.6
        150-199 beds............................              50             5.9               9            18.0
        200 or more beds........................              37             4.3              11            29.7
By region:
    Urban by region:
        New England.............................             119             4.8              36            30.3
        Mid-Atlantic............................             318            12.9              96            30.2
        South Atlantic..........................             404            16.4              98            24.3
        East North Central......................             391            15.9              88            22.5
        West South Central......................             149             6.1              33            22.1
        East North Central......................             161             6.6              42            26.1
        West South Central......................             377            15.3              60            15.9
        Mountain................................             162             6.6              54            33.3
        Pacific.................................             376            15.3             106            28.2
    Rural by region:
        New England.............................              22             2.6               4            18.2
        Mid-Atlantic............................              56             6.6               7            12.5
        South Atlantic..........................             130            15.2              22            16.9
        East North Central......................             115            13.5              14            12.2
        West South Central......................             159            18.6              14             8.8
        East North Central......................             107            12.5              16            15.0
        West South Central......................             167            19.6              16             9.6
        Mountain................................              71             8.3              19            26.8
        Pacific.................................              26             3.0               1             3.8
By DSH percent:
    0-24........................................           1,592            48.1             309            19.4
    25-49.......................................           1,383            41.8             304            22.0
    50-64.......................................             176             5.3              67            38.1
    65 and over.................................             159             4.8              46            28.9
By teaching status:
    Non-teaching................................           2,297            69.4             391            17.0
    Fewer than 100 residents....................             770            23.3             198            25.7
    100 or more residents.......................             243             7.3             137            56.4
By urban teaching and DSH: \f\
    Teaching and DSH............................             827            25.0             294            35.6
    Teaching and no DSH.........................             128             3.9              32            25.0
    No teaching and DSH.........................           1,062            32.1             207            19.5
    No teaching and no DSH......................             440            13.3              80            18.2
    Non-urban...................................             853            25.8             113            13.2
By type of ownership:
    Voluntary...................................           1,890            57.8             429            22.7
    Proprietary.................................             857            26.2             160            18.7
    Government..................................             523            16.0             131            25.0
By MCR percent:
    0-24........................................             388            12.1             145            37.4
    25-49.......................................           1,977            61.9             447            22.6
    50-64.......................................             703            22.0             101            14.4
    65 and over.................................             128             4.0              12             9.4
----------------------------------------------------------------------------------------------------------------
Source: FY 2015 HAC Reduction Program Final Rule Results provided by R&A contract. Scores are based on AHRQ PSI
  90 data from July 2011 through June 2013 and CLABSI and CAUTI results from January 2012 to December 2013.
  Hospital Characteristics are based on FY 2015 Proposed Rule Impact File released May 20, 2014.
\a\ The total number of hospitals with hospital characteristic data (3,310 for geographic location, bed size,
  region, DSH percent and teaching status; 3,270 for type of ownership; and 3,196 for MCR) do not add up to the
  total number of hospitals eligible for the HAC Reduction program (3,352) because 42 hospitals are not included
  in the FY 2015 impact file and not all hospitals have data for all characteristics.
\b\ This column is the percent of all hospitals with each characteristic that were eligible for the program and
  included in the FY 15 impact file. Percents may not sum to 100 due to rounding.
\c\ This column is the percent of hospitals within each characteristic that are in the worse performing
  quartile.
\d\ Total excludes the 46 Maryland hospitals.
\e\ Large Urban hospitals are hospitals located in large urban areas (populations over 1 million).
\f\ A hospital is considered a teaching hospital if it has an IME adjustment factor for Operation PPS (TCHOP)
  greater than zero and is considered a DSH hospital if it has a DSH patient percentage greater than zero.


[[Page 50433]]

9. Effects of Policy Changes Relating to Payments for Direct GME and 
IME

    Under section IV.K.2. of the preamble of this final rule, we 
discuss our revisions 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 will be effective simultaneously, 
beginning with the applicable hospital's cost reporting period that 
coincides with or follows the start of the sixth program year of the 
first new program started. We are specifying that this policy 
regarding the effective dates of the FTE residency caps, rolling 
average, and IRB ratio cap for FTE residents in new programs is 
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 policy 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 policy will increase the amount of 
time that the new programs will be exempt from the FTE resident caps 
by several months, depending on the cost reporting period of the new 
teaching hospital. The estimate of possible cost of this policy is 
less than $5 million a year and, therefore, is negligible.
    In section IV.K.3.a. of the preamble of this final rule, we 
discuss our policies 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 the 
implementation 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 caps again 
after their initial 5-year cap-building period. Effective October 1, 
2014, if a rural hospital has received a letter of accreditation for 
a new program and/or started training residents in the new program 
prior to being redesignated as urban, it can continue growing that 
program for the remainder of the cap-building period and receive a 
permanent cap adjustment for that new program. Once the cap-building 
period for the new program 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 final rule, we 
discuss our policy change 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 providing that, effective 
October 1, 2014, if 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 providing that, effective October 1, 2014, 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 a 
transition period that would begin effective with the implementation 
date of the new OMB delineations and last through the end of the 
second residency training year following implementation of the new 
OMB delineations. However, during that transition period, 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, 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 
transition period ends.
    We estimate that these policies discussed under IV.K.3.a. and b. 
of the preamble of this final rule will have a very minimal, if any, 
impact on Medicare expenditures. These policies will only be applied 
to, at the most, very few hospitals (if any at all) and will 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 final rule, 
we are making 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 will be effective for hospital 
closures announced on or after October 1, 2014. We are providing 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. In this final rule, we are interpreting the 
statutory language at section 5506(d) in a manner that will 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 an equivalent 
amount of 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 revised policy 
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 will 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 will 
only be able to receive the permanent cap adjustment once the 
temporary cap adjustment for an equivalent number of FTE residents 
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 
final rule, we are revising the ranking criteria used to award slots 
under section 5506. First, we are no longer allowing hospitals to 
apply for cap relief, which is included under current Ranking 
Criterion Eight. This change means that hospitals will 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 revising 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)(ii)(I) of the Act, and the CMS Central Office was made 
aware of the error prior to the posting of the FY 2015 proposed 
rule. We do not believe there is any cost associated with these 
policies. We will continue assigning all of the closed hospital's 
slots; only the specific hospitals awarded the slots may change.

10. Effects of Implementation of Rural Community Hospital Demonstration 
Program

    In section IV.L. of the preamble of this final rule, we discuss 
our implementation of section 410A of Public Law 108-173, as 
amended, which requires the Secretary to conduct a demonstration 
that would modify reimbursement for inpatient services for up to 30 
rural community hospitals. Section 410A(c)(2) requires that ``[i]n 
conducting the demonstration program under this section, the 
Secretary shall ensure that the aggregate payments made by the 
Secretary do not exceed the amount which the Secretary would have 
paid if the demonstration program under this section was not 
implemented.'' As discussed in section IV.L. of the preamble of this 
final rule, in the IPPS final rules for each of the previous 10 
fiscal years, we have estimated the additional

[[Page 50434]]

payments made by the program for each of the participating hospitals 
as a result of the demonstration. In order to achieve budget 
neutrality, we are adjusting the national IPPS rates by an amount 
sufficient to account for the added costs of this demonstration. In 
other words, we are applying budget neutrality across the payment 
system as a whole rather than across the participants of this 
demonstration. The language of the statutory budget neutrality 
requirement permits the agency to implement the budget neutrality 
provision in this manner. The statutory language requires that 
``aggregate payments made by the Secretary do not exceed the amount 
which the Secretary would have paid if the demonstration . . . was 
not implemented'' but does not identify the range across which 
aggregate payments must be held equal.
    We are adjusting the national IPPS rates according to the 
methodology set forth elsewhere in this final rule. The adjustment 
to the national IPPS rates to account for estimated demonstration 
cost for FY 2014 for the 7 ``pre-expansion'' participating hospitals 
that are currently participating in the demonstration and the 15 
additional hospitals participating as a result of the expansion of 
the demonstration under the Affordable Care Act is $54,177,144. In 
addition, in this final rule, we are adding 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, the resulting total 
($64,566,915) is the amount for which an adjustment to inpatient 
rates for FY 2015 is calculated.

11. Effects of Changes Related to Reclassification as Rural for CAHs

    In section VI.D.2. of the preamble of this final rule, we 
discuss our policies relating to reclassifications of CAHs as a 
result of the 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 implementing the latest OMB labor 
market area delineations in this final rule, we are providing 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 will 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 making to the regulations is not 
specific to a particular timeframe but will also apply to future OMB 
labor market area delineations. We estimate that this policy 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 Revision of the Requirements for Physician Certification 
of CAH Inpatient Services

    In section VI.D.3. of the preamble of this final 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 
additional flexibility in meeting certification requirements, we are 
amending the regulation text at Sec.  424.11(d)(5) to remove the 
phrase ``or critical access hospital inpatient''. In addition, we 
are revising the regulations at Sec.  424.15(b) to read as follows: 
``Certification begins with the order for inpatient admission. All 
certification requirements must be completed, signed, and documented 
in the medical record no later than 1 day before the date on which 
the claim for the inpatient CAH service is submitted.'' We do not 
believe there is any significant impact on Medicare expenditures 
associated with these changes because we are simply providing CAHs 
with additional flexibility in meeting the statutory requirement for 
physician certification of CAH inpatient services. The underlying 
statutory requirement itself is unchanged.

13. Effects of Changes Relating to Technical Correction to 
Administrative Appeals by Providers and Judicial Review

    In section VIII. of the preamble to this final rule, we discuss 
the technical correction to the regulations to eliminate provider 
dissatisfaction as a requirement for PRRB jurisdiction over appeals 
based on untimely contractor determinations as well as the change in 
terminology in Part 405 and Part 413 from ``intermediary'' or 
``fiscal intermediary'' to ``contractor''. There is no impact to the 
provider resulting from these provisions.

I. Effects of 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 final rule, we discuss 
our finalized policy 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 will 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 RCE limit update to 
impact a significant number of small, rural entities; therefore, a 
full impact analysis is not required.

J. Effects of Changes in the Capital IPPS

1. General Considerations

    For the impact analysis presented below, we used data from the 
March 2014 update of the FY 2013 MedPAR file and the March 2014 
update of the Provider-Specific File (PSF) that is used for payment 
purposes. Although the analyses of the changes to the capital 
prospective payment system do not incorporate cost data, we used the 
March 2014 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 
change. In addition, we draw upon various sources for the data used 
to categorize hospitals in the tables. In some cases (for instance, 
the number of beds), there is a fair degree of variation in the data 
from different sources. We have attempted to construct these 
variables with the best available sources overall. However, it is 
possible that some individual hospitals are placed in the wrong 
category.
    Using cases from the March 2014 update of the FY 2013 MedPAR 
file, we simulated payments under the capital IPPS for FY 2014 and 
FY 2015 for a comparison of total payments per case. Any short-term, 
acute care hospitals not paid under the general IPPS (for example, 
Indian Health Service hospitals and hospitals in Maryland) are 
excluded from the simulations.
    The methodology for determining a capital IPPS payment is set 
forth at Sec.  412.312. The basic methodology for calculating 
capital IPPS payments in FY 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

[[Page 50435]]

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 11.6 million in FY 2014 and 11.7 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 final rule, the update is 1.5 percent for FY 
2015.
     In addition to the FY 2015 update factor, the FY 2015 
capital Federal rate was calculated based on a GAF/DRG budget 
neutrality adjustment factor of 0.9986 and an outlier adjustment 
factor of 0.9373. As discussed in section VI.C. of the preamble of 
this final rule, we are not making an additional MS-DRG 
documentation and coding adjustment to the capital IPPS Federal 
rates for FY 2015.

2. Results

    We used the actuarial model described above to estimate the 
potential impact of our changes for FY 2015 on total capital 
payments per case, using a universe of 3,396 hospitals. As described 
above, the individual hospital payment parameters are taken from the 
best available data, including the March 2014 update of the FY 2013 
MedPAR file, the March 2014 update to the PSF, and the most recent 
cost report data from the March 2014 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 
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 1.5 percent update to 
the capital Federal rate and other changes in the adjustments to the 
capital Federal rate. The comparisons are provided by: (1) 
Geographic location; (2) region; and (3) payment classification.
    The simulation results show that, on average, capital payments 
per case in FY 2015 are expected to increase as compared to capital 
payments per case in FY 2014. This expected increase is due 
primarily to the approximately 1.2 percent increase in the capital 
Federal rate for FY 2015 as compared to the FY 2014 capital Federal 
rate. (For a discussion of the determination of the capital Federal 
rate, we refer readers to section III.A. of the Addendum to this 
final rule.) Overall, across all hospitals, the changes to the GAFs 
are expected to have no net effect on capital payments. However, 
regionally, the effects of the changes to the GAFs on capital 
payments are consistent with the projected changes in payments due 
to changes in the wage index (and policies affecting the wage index) 
as shown in Table I in section I.G. of this Appendix.
    Overall, there is an increase in capital payments per case due 
to the effects of 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 for both urban and rural hospitals. Rural areas are 
expected to experience an offset to the projected increase in 
capital payments per case due to the effects of changes to the GAFs.
    The net impact of these changes is an estimated 1.5 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, all 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 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 
1.7 percent, while hospitals in rural areas, on average, are 
expected to experience a 1.0 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 1.4 percent. The 
primary factor contributing to the difference in the projected 
increase in capital IPPS payments per case for urban hospitals as 
compared to rural hospitals is the increase in capital payments to 
urban hospitals due to changes to the MS-DRG relative weights and 
the effect of changes in the GAFs. The increase in capital payments 
due to changes to the MS-DRG relative weights is slightly lower for 
rural hospitals than it is for urban hospitals. In addition, rural 
hospitals are expected to experience a slight decrease in capital 
payments due to the effect of changes in the GAFs, while urban 
hospitals are expected to experience a slight increase in capital 
payments due to the effect of changes in the GAFs.
    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 2.4 percent increase for the Pacific urban region to a 
0.9 percent increase for the West South Central urban region. For 
rural regions, the Pacific rural region is expected to experience 
the largest increase in capital IPPS payments per case of 2.4 
percent, while the Mountain rural region is projected to have the 
smallest increase in capital payments per case of 0.5 percent, 
compared to FY 2014 payments per case. Unlike most other urban and 
rural regions where changes in the GAFs either contribute to a 
projected decrease in capital payments or only a small increase in 
capital payments, the changes in the GAFs are a primary contributor 
to the 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 
change in outliers offsets 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 increase in capital payments for 
voluntary hospitals is estimated at 1.6 percent, and for proprietary 
and government hospitals the increase is estimated to be 1.4 
percent.
    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 final 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 2.1 percent, whereas for urban 
nonreclassified hospitals, the expected increase is 1.4 percent. The 
estimated percentage increase for rural reclassified hospitals is 
1.0 percent, and for rural nonreclassified hospitals, the estimated 
percentage increase is 0.7 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.

                                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...................              3,396                856                869                1.5
        Large urban areas                         1,401                944                960                1.7
         (populations over 1
         million)...................
        Other urban areas                         1,148                824                835                1.4
         (populations of 1 million
         of fewer)..................

[[Page 50436]]

 
        Rural areas.................                847                583                588                1.0
    Urban hospitals.................              2,549                890                903                1.6
        0-99 beds...................                666                733                739                0.9
        100-199 beds................                787                772                783                1.4
        200-299 beds................                455                812                826                1.7
        300-499 beds................                429                908                922                1.6
        500 or more beds............                212              1,066              1,082                1.6
    Rural hospitals.................                847                583                588                1.0
        0-49 beds...................                328                474                479                1.1
        50-99 beds..................                305                542                546                0.7
        100-149 beds................                125                582                588                1.0
        150-199 beds................                 50                636                643                1.0
        200 or more beds............                 39                709                717                1.1
By Region:
    Urban by Region.................              2,549                890                903                1.6
        New England.................                120                984              1,001                1.7
        Middle Atlantic.............                324                958                978                2.0
        South Atlantic..............                407                802                812                1.3
        East North Central..........                397                856                868                1.4
        East South Central..........                153                764                772                1.0
        West North Central..........                162                880                892                1.3
        West South Central..........                387                823                830                0.9
        Mountain....................                162                907                918                1.2
        Pacific.....................                385              1,120              1,148                2.4
        Puerto Rico.................                 52                408                412                1.1
    Rural by Region.................                847                583                588                1.0
        New England.................                 22                812                823                1.4
        Middle Atlantic.............                 57                566                575                1.6
        South Atlantic..............                132                555                559                0.7
        East North Central..........                116                607                613                1.0
        East South Central..........                165                534                538                0.9
        West North Central..........                102                619                624                0.8
        West South Central..........                168                515                518                0.7
        Mountain....................                 61                653                657                0.5
        Pacific.....................                 24                749                767                2.4
        [There are no rural           .................  .................  .................  .................
         hospitals in Puerto Rico]
By Payment Classification:
    All hospitals...................              3,396                856                869                1.5
    Large urban areas (populations                1,413                943                959                1.7
     over 1 million)................
    Other urban areas (populations                1,150                823                835                1.4
     of 1 million of fewer).........
    Rural areas.....................                833                594                599                0.8
    Teaching Status:
        Non-teaching................              2,357                728                738                1.4
        Fewer than 100 Residents....                795                837                850                1.5
        100 or more Residents.......                244              1,210              1,231                1.7
        Urban DSH:
            100 or more beds........              1,588                911                925                1.6
            Less than 100 beds......                383                649                656                1.0
        Rural DSH:
            Sole Community (SCH/                    373                530                535                1.0
             EACH)..................
            Referral Center (RRC/                   212                656                661                0.8
             EACH)..................
            Other Rural:
                100 or more beds....                 24                552                552                0.0
                Less than 100 beds..                137                465                469                0.8
    Urban teaching and DSH:
        Both teaching and DSH.......                842                990              1,005                1.6
        Teaching and no DSH.........                133                891                907                1.8
        No teaching and DSH.........              1,129                762                774                1.6
        No teaching and no DSH......                459                788                799                1.4
    Rural Hospital Types:
        Non special status hospitals              2,575                890                904                1.5
        RRC/EACH....................                193                717                730                1.8
        SCH/EACH....................                325                652                659                1.1
        SCH, RRC and EACH...........                124                711                720                1.3
Hospitals Reclassified by the
 Medicare Geographic Classification
 Review Board:
    FY2015 Reclassifications:
        All Urban Reclassified......                450                886                904                2.1
        All Urban Non-Reclassified..              2,054                893                906                1.4
        All Rural Reclassified......                269                621                628                1.0

[[Page 50437]]

 
        All Rural Non-Reclassified..                514                533                536                0.7
        Other Reclassified Hospitals                 59                581                594                2.2
         (Section 1886(d)(8)(B))....
    Type of Ownership:
        Voluntary...................              1,935                868                882                1.6
        Proprietary.................                892                776                787                1.4
        Government..................                542                895                908                1.4
    Medicare Utilization as a
     Percent of Inpatient Days:
        0-25........................                501              1,023              1,038                1.5
        25-50.......................              2,081                871                884                1.5
        50-65.......................                601                717                728                1.5
        Over 65.....................                 93                648                654                1.0
----------------------------------------------------------------------------------------------------------------

K. Effects of Payment Rate Changes and Policy Changes Under the 
LTCH PPS

1. Introduction and General Considerations

    In section VII. of the preamble of this final rule and section 
V. of the Addendum to this final rule, we set forth the annual 
update to the payment rates for the LTCH PPS for FY 2015. In the 
preamble of this final rule, we specify the statutory authority for 
the provisions that are presented, identify those policies, and 
present rationales for our decisions as well as alternatives that 
were considered. In this section of Appendix A to this final rule, 
we discuss the impact of the changes to the payment rate, factors, 
and other payment rate policies related to the LTCH PPS that are 
presented in the preamble of this final rule in terms of their 
estimated fiscal impact on the Medicare budget and on LTCHs.
    Currently, there are 422 LTCHs included in this impacts 
analysis, which includes data for 80 nonprofit (voluntary ownership 
control) LTCHs, 330 proprietary LTCHs, and 12 LTCHs that are 
government-owned and operated. (We note that, although there are 
currently approximately 430 LTCHs, for purposes of this impact 
analysis, we excluded the data of all inclusive rate providers and 
the LTCHs that are paid in accordance with demonstration projects, 
consistent with the development of the FY 2015 MS-LTC-DRG relative 
weights (discussed in section VII.B.3.c. of the preamble of this 
final rule)). In the impact analysis, we used the payment rate, 
factors, and policies presented in this final rule, including the 
2.2 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 final year of the phase-in of a one-time prospective adjustment 
factor of 0.98734 (approximately -1.3 percent), the update to the 
MS-LTC-DRG classifications and relative weights, the update to the 
wage index values, including the 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 final rule, in 
accordance with section 1886(m)(5)(C) of the Act, for LTCHs that 
fail to submit quality data, the annual update to the LTCH PPS 
standard Federal rate is reduced by 2.0 percentage points 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 establishing a 
standard Federal rate of $41,043.71 (for LTCHs that submit quality 
data in accordance with the requirements of section 1886(m)(5)(C) of 
the Act, which reflects the 2.2 percent annual update to the 
standard Federal rate, and the area wage budget neutrality factor of 
1.0016703 to ensure that the changes in the wage index, including 
the implementation of the new OMB delineations, and labor-related 
share do not influence aggregate payments, and the 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 establishing a 
standard Federal rate of $40,240.51. This reduced standard Federal 
rate reflects the updates described above as well as the required 
2.0 percentage point reduction to the annual update for failure to 
submit data to the LTCHQR Program. We note that the factors 
described above to determine the 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 annual update to the standard Federal 
rate for FY 2015, the update to the MS-LTC-DRG classifications 
relative weights for FY 2015 (discussed in section VII.B. of the 
preamble to this final rule), and the changes to the area wage 
adjustment for FY 2015 (discussed in section V.B. of the Addendum to 
this final rule), in addition to an estimated increase in HCO 
payments will result in an increase in estimated payments from FY 
2014 of approximately $62 million. Based on the 422 LTCHs in our 
database, we estimate that the FY 2015 LTCH PPS payments would be 
approximately $5.614 billion, as compared to estimated FY 2014 LTCH 
PPS payments of approximately $5.552 billion. Because the combined 
distributional effects and estimated changes to the Medicare program 
payments are over approximately $100 million, this final rule is 
considered a major economic rule, as defined in this section. We 
note that the approximate $62 million for the projected increase in 
estimated aggregate 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. In addition, it does not reflect the estimated change in 
aggregate LTCH PPS payments due the projected impact of certain 
other LTCH PPS policy changes, which are discussed below in section 
I.K.3.b. of this Appendix.
    The projected 1.1 percent increase in estimated payments per 
discharge from FY 2014 to FY 2015 is attributable to several 
factors, including the 2.2 percent annual update to the standard 
Federal rate (or 0.2 percent annual update for LTCHs that failed to 
submit data under the requirements of the LTCHQR Program), a one-
time prospective adjustment factor for FY 2015 of 0.98734 
(approximately -1.3 percent), and projected increases in estimated 
HCO payments. Although the net effect of the 2.2 percent annual 
update and the approximate -1.3 percent one-time prospective 
adjustment factor is approximately 0.9 percent (that is, 2.2 
percent-1.3 percent = 0.9 percent), Table IV (column 6) shows the 
estimated change attributable solely to the annual update to the 
standard Federal rate (2.2 percent for LTCHs that submit quality 
data under the requirements of the LTCHQR Program and 0.2 percent 
for LTCHs that failed submit quality data under the requirements of 
the LTCHQR Program), including a 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 0.8 percent in payments per discharge from FY 2014 to FY 2015, on 
average, for all LTCHs. In addition to the 2.2 percent annual update 
for FY 2015, and a -1.3 percent one-time prospective adjustment 
factor for FY 2015, this estimated increase in aggregate LTCH PPS 
payments of 0.8 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 all hospital categories, the 
projected increase in payments based on the standard Federal rate is 
slightly less than the

[[Page 50438]]

net effect of the 2.2 percent annual update and the approximate -1.3 
percent one-time prospective adjustment factor (or 0.9 percent) for 
FY 2015. Because we are applying an area wage level budget 
neutrality factor to the standard Federal rate, the annual update to 
the wage data, including the 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 final rule, 
we are updating the wage index values for FY 2015 based on the most 
recent available data and the adoption of the new OMB labor market 
area delineations. Under our adoption of the new OMB delineations, 
we are establishing and applying a transitional blended wage index 
for FY 2015 for LTCHs that will have a lower wage index value under 
those delineations, as discussed in section VII.D.2. of the preamble 
of this final rule. Therefore, this column reflects the 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 transitional wage index policy. In addition, 
we are slightly lowering the labor-related share from 62.537 percent 
to 62.306 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 applying an area wage 
level budget neutrality factor of 1.0016703, which increases the 
standard Federal rate by approximately 0.17 percent. Therefore, the 
changes to the wage data, including the 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 payment rate and the 
policy changes on LTCH PPS payments for FY 2015 presented in this 
final rule by comparing estimated FY 2014 payments to estimated FY 
2015 payments. The projected increase in payments from FY 2014 to FY 
2015 of 1.1 percent is attributable to the impacts of the change to 
the standard Federal rate (0.9 percent in Column 6) and the effect 
of the estimated slight increase in 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 
increase slightly from FY 2014 to FY 2015 in order to ensure that 
the estimated HCO payments will 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 March 2014 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 below the estimated 8 percent. Specifically, we currently 
estimate that HCO payments will be approximately 7.9 percent of the 
estimated total LTCH PPS payments in FY 2014. We estimate that the 
impact of the slight increase in HCO payments will result in 
approximately a 0.1 percent increase 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 0.3 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 $62 million (1.1 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 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 revocation 
of onsite discharges and readmissions policy; and the payment 
adjustment for ``subclause (II)'' LTCHs) will result in a $116 
million increase in aggregate LTCH PPS payments in FY 2015. The 
individual impact of these policy changes are discussed in greater 
detail below in section I.K.3.b. of this Appendix.
    As we discuss in detail throughout this final rule, based on the 
most recent available data, we believe that the provisions of this 
final rule relating to the LTCH PPS will result in an increase in 
estimated aggregate LTCH PPS payments and that the resulting LTCH 
PPS payment amounts will result in appropriate Medicare payments.

2. Impact on Rural Hospitals

    For purposes of section 1102(b) of the Act, we define a small 
rural hospital as a hospital that is located outside of an urban 
area and has fewer than 100 beds. As shown in Table IV, we are 
projecting a 1.2 percent increase in estimated payments per 
discharge for FY 2015 as compared to FY 2014 for rural LTCHs that 
will result from the changes presented in this final rule, as well 
as the effect of estimated changes to HCO and SSO payments. This 
estimated impact is based on the data for the 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 (1.2 percent) is slightly greater than the 
national average increase (1.1 percent). The estimated increase in 
LTCH PPS payments from FY 2014 to FY 2015 for rural LTCHs is 
primarily due to the increase to the standard Federal rate.

3. Anticipated Effects of LTCH PPS Payment Rate Changes and Policy 
Changes

a. Budgetary Impact

    Section 123(a)(1) of the BBRA requires that the PPS developed 
for LTCHs ``maintain budget neutrality.'' We believe that the 
statute's mandate for budget neutrality applies only to the first 
year of the implementation of the LTCH PPS (that is, FY 2003). 
Therefore, in calculating the FY 2003 standard Federal rate under 
Sec.  412.523(d)(2), we set total estimated payments for FY 2003 
under the LTCH PPS so that estimated aggregate payments under the 
LTCH PPS were estimated to equal the amount that would have been 
paid if the LTCH PPS had not been implemented.
    As discussed above in section I.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 $62 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 LTCH PPS policy 
changes will result in a $116 million increase in aggregate LTCH PPS 
payments in FY 2015.

b. Impact of Certain LTCH PPS Policy Changes

    (1) Reinstatement of the Moratorium on the Full Implementation 
of the ``25-Percent Policy'' Payment Adjustment (Sec.  412.534 and 
Sec.  412.536) and Reinstatement of the Moratorium on the 
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 final rule, we are 
reinstating 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 implementing 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 final rule.
    Our Office of the Actuary projects that the reinstatement of 
``25-percent policy'' adjustment policy will result in

[[Page 50439]]

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 will 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 implementation of both of these statutory provisions 
will result in approximately a $90 million increase in aggregate 
LTCH PPS payments in FY 2015.

(2) Revocation of On-Site Discharges and Readmissions Policy (Sec.  
412.532)

    As discussed in section VII.F. of the preamble of this final 
rule, we are removing 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 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 discontinuation of the ``5-percent payment threshold'' 
policy will result in an increase of approximately $20 million in 
aggregate LTCH PPS payments in FY 2015. (We note, as also discussed 
in section VII.F. of the preamble of this final rule, after 
consideration of public comments, we are not finalizing the proposed 
revision the fixed-day thresholds under the greater than 3-day 
interruption of stay policy under Sec.  412.531.)

(3) Payment Adjustment for ``Subclause (II)'' LTCHs (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 final rule, under new Sec.  
412.526, we are applying a payment adjustment under the LTCH PPS to 
a subclause (II) LTCH beginning in FY 2015 that will 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 the payment adjustment for ``subclause (II)'' LTCHs will 
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 changes to the LTCH PPS payments 
presented in this final 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 
will be made under the LTCH PPS rates and factors, and GROUPER 
(Version 32.0) for FY 2015 (as discussed in section VII. of the 
preamble of this final rule and section V. of the Addendum to this 
final 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 
change in estimated FY 2014 payments to estimated FY 2015 payments 
(on a per discharge basis) for each category of LTCHs. We are 
establishing a standard Federal rate for FY 2015 of $41,043.71 (for 
LTCHs that submit quality data under the requirements of the LTCHQR 
Program), which includes the 2.2 percent annual update, the area 
wage budget neutrality factor of 1.0016703, and a 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 establishing a 
standard Federal rate for FY 2015 of $40,240.51 that includes a 2.0 
percentage point reduction applied to the annual update under the 
requirements of section 1886(m)(5)(C) of the Act in addition to the 
other 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 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 330 proprietary LTCHs, provide 
sufficient representation in the MS-LTC-DRGs containing discharges 
for patients who received LTCH care for the most commonly treated 
LTCH patients' diagnoses.

d. Calculation of Prospective Payments

    For purposes of this impact analysis, to estimate per discharge 
payments under the LTCH PPS, we simulated payments on a case-by-case 
basis using LTCH claims from the FY 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 LTCH PPS payments for FY 2015, we used 
the FY 2015 standard Federal rate of $41,043.71 (for LTCHs that 
submit quality data under the requirements of the LTCHQR Program), 
which includes a 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 FY 2015 
standard Federal rate of $40,240.51, which reflects the 2.0 
percentage points reduction required by section 1886(m)(5)(C) of the 
Act. The FY 2015 standard Federal rates also include the application 
of an area wage level budget neutrality factor of 1.0016703 (as 
discussed in section V.B.5. of the Addendum to this final 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 FY 2015 adjustments for area wage levels and the COLA for LTCHs 
located in Alaska and Hawaii. Specifically, we adjusted for 
differences in area wage levels in determining estimated FY 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 FY 
2015 LTCH PPS labor-related share of 62.306 percent and the FY 2015 
wage index values, including the 50/50 blended wage index, 
determined from the wage index values presented in Tables 12A 
through 12D listed in section VI. of the Addendum to this final rule 
(and available via the Internet). We also applied the FY 2015 COLA 
factors shown in the table in section V.C. of the Addendum to this 
final rule to the FY 2015 nonlabor-related share (37.694 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

[[Page 50440]]

section V.D. of the Addendum to this final rule). In modeling 
payments for SSO and HCO cases in FY 2015, we applied an inflation 
factor of 5.0 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 March 2014 update 
of the PSF. Furthermore, in modeling estimated LTCH PPS payments for 
FY 2015 in this impact analysis, we used the FY 2015 fixed-loss 
amount of $14,972 (as discussed in section V.D. of the Addendum to 
this final rule).
    These impacts reflect the estimated ``losses'' or ``gains'' 
among the various classifications of LTCHs from FY 2014 to FY 2015 
based on the payment rates and policy changes presented in this 
final rule. Table IV illustrates the estimated aggregate impact of 
the LTCH PPS among various classifications of LTCHs.
     The first column, LTCH Classification, identifies the 
type of LTCH.
     The second column lists the number of LTCHs of each 
classification type.
     The third column identifies the number of LTCH cases.
     The fourth column shows the estimated payment per 
discharge for FY 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 
annual update to the standard Federal rate (as discussed in section 
V.A.2. of the Addendum to this final rule, including the 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 changes 
to the area wage level adjustment (that is, the wage indexes, 
including the implementation of the new OMB delineations, and the 
labor-related share), including the application of an area wage 
level budget neutrality factor (as discussed in section V.B. of the 
Addendum to this final rule. This column includes the 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 transitional wage index policy for the 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 changes (and includes the effect of estimated 
changes to HCO and SSO payments).

                                  Table IV--Impact of Payment Rate and Policy Changes to LTCH PPS Payments for FY 2015
                                           [Estimated FY 2014 payments compared to estimated FY 2015 payments]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Percent change
                                                                                                                           in estimated
                                                                                                          Percent change   payments per
                                                                                                           in  estimated  discharge from  Percent change
                                                                            Average FY      Average FY     payments per    FY 2014 to FY    in payments
                                             Number of    Number of LTCH   2014 LTCH PPS   2015 LTCH PPS  discharge from     2015 for      per discharge
           LTCH Classification                 LTCHs         PPS cases      payment per     payment per    FY 2014 to FY  changes to the   from FY 2014
                                                                               case          case \1\      2015 for the      area wage    to FY 2015 for
                                                                                                           annual update       level        all changes
                                                                                                          to the federal    adjustment          \4\
                                                                                                             rate \2\       with budget
                                                                                                                          neutrality \3\
(1)                                                  (2)             (3)             (4)             (5)             (6)             (7)             (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS...........................             422         138,281          40,149          40,600             0.8             0.0             1.1
BY LOCATION:
    RURAL...............................              22           5,695          35,361          35,770             0.8            -0.1             1.2
    URBAN...............................             400         132,586          40,355          40,808             0.8             0.0             1.1
        LARGE...........................             200          76,559          42,561          43,060             0.8             0.1             1.2
        OTHER...........................             200          56,027          37,341          37,730             0.8            -0.1             1.0
BY PARTICIPATION DATE:
    BEFORE OCT. 1983....................              16           5,209          37,151          38,039             0.8             0.9             2.4
    OCT. 1983-SEPT. 1993................              44          16,841          43,306          43,778             0.8            -0.1             1.1
    OCT. 1993-SEPT. 2002................             181          62,870          39,354          39,754             0.8            -0.1             1.0
    OCTOBER 2002 and AFTER..............             181          53,361          40,383          40,845             0.8             0.0             1.1
BY OWNERSHIP TYPE:
    VOLUNTARY...........................              80          18,696          41,099          41,674             0.8             0.2             1.4
    PROPRIETARY.........................             330         117,767          39,916          40,350             0.8             0.0             1.1
    GOVERNMENT..........................              12           1,818          45,491          45,750             0.8            -0.4             0.6
BY REGION:
    NEW ENGLAND.........................              14           6,959          36,468          37,339             0.8             1.0             2.4
    MIDDLE ATLANTIC.....................              29           8,545          42,861          43,626             0.8             0.9             1.8
    SOUTH ATLANTIC......................              61          18,609          42,491          42,848             0.8            -0.2             0.8
    EAST NORTH CENTRAL..................              70          20,160          41,699          42,165             0.8             0.2             1.1
    EAST SOUTH CENTRAL..................              31           8,962          39,380          39,745             0.8            -0.4             0.9
    WEST NORTH CENTRAL..................              26           6,473          39,500          39,986             0.8             0.1             1.2
    WEST SOUTH CENTRAL..................             134          48,290          35,668          35,968             0.8            -0.4             0.8

[[Page 50441]]

 
    MOUNTAIN............................              32           6,809          43,154          43,692             0.8             0.1             1.2
    PACIFIC.............................              25          13,474          50,143          50,825             0.8             0.2             1.4
BY BED SIZE:
    BEDS: 0-24..........................              24           2,591          35,097          35,370             0.9            -0.3             0.8
    BEDS: 25-49.........................             200          47,301          39,156          39,565             0.8            -0.1             1.0
    BEDS: 50-74.........................             117          37,621          40,747          41,258             0.8             0.1             1.3
    BEDS: 75-124........................              45          22,107          41,907          42,416             0.8             0.2             1.2
    BEDS: 125-199.......................              22          15,387          39,065          39,492             0.8            -0.1             1.1
    BEDS: 200 +.........................              14          13,274          41,312          41,708             0.8            -0.2             1.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated FY 2015 LTCH PPS payments based on the payment rate and factor changes presented in the preamble of and the Addendum to this final rule.
\2\ Percent change in estimated payments per discharge from FY 2014 to FY 2015 for the annual update to the standard Federal rate and the one-time
  prospective adjustment factor for FY 2015 as discussed in section V.A.2. of the Addendum to this final rule.
\3\ Percent change in estimated payments per discharge from FY 2014 to FY 2015 for changes to the area wage level adjustment under Sec.   412.525(c) (as
  discussed in section V.B. of the Addendum to this final rule).
\4\ Percent change in estimated payments per discharge from FY 2014 LTCH PPS (shown in Column 4) to FY 2015 LTCH PPS (shown in Column 5), including all
  of the changes to the rates and factors presented in the preamble of and the Addendum to this final rule. Note, this column, which shows the percent
  change in estimated payments per discharge for all changes, does not equal the sum of the percent changes in estimated payments per discharge for the
  annual update to the standard Federal rate (column 6) and the changes to the area wage level adjustment with budget neutrality (Column 7) due to the
  effect of estimated changes in both estimated payments to SSO cases that are paid based on estimated costs and aggregate HCO payments (as discussed in
  this impact analysis), as well as other interactive effects that cannot be isolated.

e. Results

    Based on the most recent available data for 422 LTCHs, we have 
prepared the following summary of the impact (as shown above in 
Table IV) of the LTCH PPS payment rate and policy changes presented 
in this final rule. The impact analysis in Table IV shows that 
estimated payments per discharge are expected to increase 1.1 
percent, on average, for all LTCHs from FY 2014 to FY 2015 as a 
result of the payment rate and policy changes presented in this 
final rule, including an estimated slight increase in HCO payments. 
This estimated 1.1 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 payment rates and factors discussed in this 
final rule) to estimated FY 2014 LTCH PPS payments (as described in 
section I.K.3.d. of this Appendix).
    We are establishing a standard Federal rate of $41,043.71 (or a 
standard Federal rate of $40,240.51 for LTCHs that failed to submit 
data under the requirements of the LTCHQR Program) for FY 2015. 
Specifically, we are updating the standard Federal rate for FY 2015 
by 2.2 percent, which is based on the latest estimate of the LTCH 
PPS market basket increase (2.9 percent), the reduction of 0.5 
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 annual update to the standard Federal rate. In 
addition, we are applying 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 2.2 percent annual update to the standard Federal rate and the 
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 0.8 percent increase in 
estimated payments per discharge for all LTCHs from FY 2014 to FY 
2015.
    In addition, our estimate of the changes in payments due to the 
update to the standard Federal rate also reflects estimated payments 
for SSO cases that are paid using special methodologies that are not 
affected by the update to the standard Federal rate. For these 
reasons, we estimate that payments may increase by less than 0.9 
percent for certain hospital categories due to the annual update to 
the standard Federal rate and the 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 1.1 percent for all changes. 
For rural LTCHs, the percent change for all changes is estimated to 
be a 1.2 percent increase, while for urban LTCHs, we estimate the 
increase will be 1.1 percent. Large urban LTCHs are projected to 
experience an increase of 1.2 percent in estimated payments per 
discharge from FY 2014 to FY 2015, while other urban LTCHs are 
projected to experience an increase of 1.0 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

[[Page 50442]]

between October 1993 and September 2002, and they are projected to 
experience a 1.0 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 (2.4 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 1.1 
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 1.1 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 19 percent of LTCHs are 
identified as voluntary (Table IV). The majority (nearly 78 percent) 
of LTCHs are identified as proprietary while government-owned and 
operated LTCHs represent about 3 percent of LTCHs. Based on 
ownership type, voluntary LTCHs are expected to experience an above 
average increase in payments of 1.4 percent; proprietary LTCHs are 
expected to experience an increase of 1.1 percent in payments, while 
government-owned and operating LTCHs are expected to experience an 
increase in payments that is less than the national average of 0.6 
percent 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 will have the largest positive impact on 
LTCHs in the New England and Middle Atlantic regions (2.4 percent 
and 1.8 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 changes in the area 
wage level adjustment.
    In contrast, LTCHs located in the South Atlantic and West South 
Central regions are projected to experience the smallest increase in 
estimated payments per discharge from FY 2014 to FY 2015. The lower 
than national average estimated increase in payments of 0.8 percent 
is primarily due to estimated decreases in payments associated with 
the changes to the area wage level adjustment.

(5) Bed Size

    LTCHs are grouped into six categories based on bed size: 0-24 
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater 
than 200 beds. Most bed size categories are projected to receive 
either a slightly higher or slightly lower than average increase in 
estimated payments per discharge from FY 2014 to FY 2015. We project 
that small LTCHs (0-24 beds) will experience a 0.8 percent increase 
in payments, which is less than the nation average mostly due to 
decreases in the area wage level adjustment, while large LTCHs (200+ 
beds) will experience a 1.0 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 (1.2 
percent).

4. Effect on the Medicare Program

    As noted previously, we project that the provisions of this 
final rule will result in an increase in estimated aggregate LTCH 
PPS payments in FY 2015 relative to FY 2014 of approximately $62 
million (or approximately 1.1 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 Requirements for the Hospital Inpatient Quality 
Reporting (IQR) Program

    In section IX.A. of the preamble of this final rule, we discuss 
our requirements for hospitals to report quality data under the 
Hospital IQR Program in order to receive the full annual percentage 
increase for the FY 2017 payment determination. We are removing a 
total of 19 measures from the Hospital IQR Program for the FY 2017 
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 
these five measures, the first four are currently suspended. The 
fifth measure was recommended by the MAP for removal because it is 
``topped-out.'' We believe that an additional 14 chart-abstracted 
measures are ``topped out,'' based on the previously adopted 
criteria, and we are removing them from the FY 2017 payment 
determination and subsequent years measure set. However, we are 
retaining 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 final 
rule.
    We also are adding one chart-abstracted measure for the FY 2017 
payment determination and subsequent years in this final rule: 
Severe sepsis and septic shock: management bundle (NQF 
#0500).
    We are incorporating 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 finalizing 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 new 
requirements, we anticipate that over the long run, this number will 
decline as hospitals gain more experience with these requirements.
    In the FY 2014 IPPS/LTCH PPS final rule, we estimated that the 
burden for the FY 2016 payment determination was 1,775 hours 
annually per hospital and 5.86 million hours across all 3,300 
hospitals participating in the Hospital IQR Program (78 FR 50956). 
However, we have re-estimated the total number of hours associated 
with the requirements finalized for the FY 2016 payment 
determination to be 1,309 hours per hospital or a total of 4.3 
million hours for all hospitals using more recent information from 
the clinical data warehouse than was available in August 2013.
    As discussed in section XIII.B.6. of the preamble of this final 
rule, we estimate that our proposals for the adoption and removal of 
measures will result in an overall reduction in the total burden for 
hospitals for the FY 2017 payment determination for reporting chart-
abstracted and structural measures, completing forms, reviewing 
reports, and submitting validation templates of 160 hours per 
hospital or 0.5 million hours across all hospitals compared to the 
total burden for participating hospitals in the Hospital IQR Program 
for the FY 2016 payment determination. The numbers included in our 
finalized policy more accurately reflect the burden associated with 
our program than the estimates provided in our proposal. As a 
result, the total burden for approximately 3,300 hospitals for the 
FY 2017 payment determination will be 1,149 hours per hospital or 
3.8 million hours across all hospitals. This burden estimate 
includes

[[Page 50443]]

both the newly finalized measures and the measures we are 
continuing. The burden estimates in this final rule are the 
estimates for which we are requesting OMB approval.
    The table below describes the hospital burden associated with 
the Hospital IQR Program requirements.

                                             Burden Impact of Hospital IQR Program Requirements for FY 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Burden per hospital for      Burden per hospital for all
Hospital IQR Program Requirement   Number of hospitals impacted        previously finalized         requirements as finalized      Net change in burden
                                                                           requirements            (continuing, removed, added)        per hospital
--------------------------------------------------------------------------------------------------------------------------------------------------------
Chart-abstracted and structural   3,300.........................  1,291 hours...................  1,131 hours..................  -160 hours.
 measures, forms.
Review reports for claims-based   3,300.........................  4 hours.......................  4 hours......................  0.
 measures.
Reporting of voluntary            Unknown*......................  -385 hours....................  -425 hours...................  -40 hours.
 electronic clinical quality
 measures in place of chart-
 abstracted measures.
Validation templates............  Up to 600**...................  72 hours......................  72 hours.....................  0.
Electronic clinical quality       Up to 100**...................  0.............................  16 hours.....................  16 hours.
 measure validation test.
Validation charts photocopying..  Up to 600.....................  $8,640........................  $8,496.......................  $-144.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This number is unknown at the time this table was prepared because final submission deadlines have not passed. Because the burden associated with
  participation is negative, we assumed this number to be 0 in summary calculations included in the narrative.
** Maximum numbers were used in summary calculations included in the narrative.

    We estimate that the total burden associated with the 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). In this 
rule, we finalize a policy allowing hospitals to submit data for a 
maximum of 16 measures that can be used to satisfy partial 
requirements for both programs. We estimate that each hospital that 
participates in the voluntary electronic quality measure reporting 
option could realize a maximum reduction in burden of up to 
approximately 425 hours by submitting data for all 12 required 
chart-abstracted measures that are also electronically specified.

M. Effects of Requirements for the PPS-Exempt Cancer Hospital 
Quality Reporting (PCHQR) Program for FY 2017

    In section IX.B. of the preamble of this final rule, we discuss 
our policies for the quality data reporting program for PPS-exempt 
cancer hospitals (PCHs), which we refer to as the PPS-Exempt Cancer 
Hospital Quality Reporting (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 final rule, we are 
requiring that PCHs submit data on one additional measure beginning 
with the FY 2017 program which will increase the total number of 
measures in the FY 2017 PCHQR measure set to 19 measures. We also 
are updating 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, as 
well as the newly finalized EBRT for bone metastases measure. We 
also are providing PCHs with two reporting options to report the 
clinical process/oncology care, SCIP, and clinical process/cancer 
specific treatment measures.
    The impact of the new 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 requirements uphold 
our goals in improving quality of care and achieving better health 
outcomes, which outweighs 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, healthcare 
associated infection prevention programs, and research and 
development activities, among others.

N. Effects of 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 final 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 final rule, we are retaining seven previously finalized 
measures, revising two previously finalized measures, and are 
finalizing three additional quality measures for inclusion in the 
LTCHQR Program. In section IX.C.7. of the preamble of this final 
rule, we are finalizing 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-Associated Event (VAE) Outcome Measure.
    Six of the previously adopted and newly finalized measures will 
be collected via the NHSN. In section IX.C.7.b. of the preamble of 
this final rule, we are finalizing our proposal to collect the NHSN 
VAE Outcome Measure. Normally, we would only discuss the burden 
associated with those measures that were proposed or finalized 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

[[Page 50444]]

that each LTCH will make 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 will expend 
8.6 hours per month for each LTCH, 103.2 hours annually for each 
LTCH or 45,614.4 hours 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 LTCHs 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 finalized 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 
$33.13 \250\; 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 doubled 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 will be $2,992,384.20. We 
estimate that the total cost for the newly finalized VAE measure 
will be $291.54 per LTCH annually, or $128,860.68 for all LTCHs 
annually.
---------------------------------------------------------------------------

    \250\ 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 are also finalizing our proposal to use the LTCH CARE Data 
Set to report the two additional newly finalized 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 
finalized 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.\251\ However, in order to account 
for overhead and fringe benefits, we have doubled the mean hourly 
wage, making it $66.26 for an RN. The total cost related to the two 
newly finalized functional status measures referenced above is 
estimated at $13,377.89 per LTCH annually, or $5,913,027.38 for all 
LTCHs annually.
---------------------------------------------------------------------------

    \251\ 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.
---------------------------------------------------------------------------

    As discussed in section IX.C.7.a.1 of the preamble of this final 
rule, in response to several public comments concerned that the 
proposed functional status measures are excessively burdensome and 
that some of the included data items used to collect the data for 
the measures had ``low response rates'' during demonstration 
testing, we have decided to reduce the number of LTCH CARE Data Set 
data items required for the measure Percent of Long-Term Care 
Hospital Patients with an Admission and Discharge Functional 
Assessment and a Care Plan That Addresses Function. We have reduced 
the number of data items for this quality measure from the 
originally proposed 45 to 35. We estimate that this reduction 
effectively reduces the annual cost per LTCH from the originally 
estimated $13,377.89 to $10,348.82 annually, and reduces the annual 
cost for all LTCHs from the originally estimated $5,913,027.38 to 
$4,574,178.44. This equates to a reduction of $3,029.07 per LTCH 
annually, and $1,338,851.38 for all LTCHs annually.
    Lastly, as discussed in section IX.C.11. of the preamble of this 
final rule, in response to public comments, we are not finalizing 
our proposal to validate the accuracy of LTCH data at this time.
    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 
finalized measures in this final 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 $10,640.36 per LTCH annually, or 
$4,703,039.12 for all LTCHs annually.
    Comment: Several commenters expressed concern over the burden 
associated with collection the two functional status measures we 
proposed.
    Response: For a full discussion of the public comments, our 
responses, and our associated analysis of the reduction in required 
data items for the measure Patients with an Admission and Discharge 
Functional Assessment and a Care Plan That Addresses Function, we 
refer readers to the comment and response portion of section 
IX.C.7.a.1 of the preamble of this final rule. As we discuss above, 
as a result of our response, we have reduced our estimate of the 
burden for these measures, as we are finalizing them, by 
$1,338,851.38.
    Comment: One commenter expressed concern over the burden with 
which the LTCH program is growing year to year, noting that there 
has been a 300 percent increase in burden each year, and that 
hospitals cannot endure such increases. This commenter further noted 
that the total cost for the

[[Page 50445]]

LTCHQR Program to all LTCHs, with the inclusion of the three 
additional finalized measures in this rule is close to $12 million, 
while the initially estimated cost for the LTCHQR Program in the FY 
2012 IPPS/LTCH PPS final rule was $750,000.
    Response: We believe that the commenter's reference to $750,000 
is a reference to our estimate in section IX.b.6 the FY 2012 IPPS/
LTCH PPS final rule of the costs of submitting the CAUTI and CLABSI 
data to NHSN (76 FR 51780 through 51781). Our estimate of the 
effects of the LTCHQR Program in that final rule (76 FR 51839) was 
$1,128,440. Our original estimate in the FY 2012 IPPS/LTCH PPS final 
rule was based on projected costs for the program, as we had no data 
related to the rate of submission of our proposed measures.
    While the commenter is correct that the estimates in the 
proposed FY 2015 IPPS/LTCH PPS proposed rule, as well as this final 
rule, equal approximately $12 million, we would like to take this 
opportunity to explain the increase. Our original estimate in the FY 
2012 IPPS/LTCH PPS final rule was based on projected costs for the 
program, as we had no data related to the rate of submission of our 
proposed measures.
    In subsequent years, as we added measures to the LTCHQR Program 
and as we have obtained a better understanding of the rate at which 
LTCHs would submit HAI data to the NHSN, we calculated and 
recalculated these costs in order to provide a more accurate 
representation of the program costs. As we have done in past rules, 
based on new information from the CDC, we have again recalculated 
the program costs related to previously finalized quality measures 
and required data submission. The estimates contained within this 
final rule resulted from actual CDC data regarding the rate of 
submission of all quality measures submitted via the CDC's NHSN, as 
well as from OMB-approved burden estimates for each of these 
measures. In addition, we accounted for actual burden, such as the 
Patient Safety Reporting Plan and Denominator for Specialty Care 
Area, which together, added an additional 64.2 hours per year per 
provider or 28,248 hours for all LTCHs. Finally, in the FY 2015 
IPPS/LTCH PPS proposed rule, as well as this final rule, we 
accounted for overhead and fringe benefits, which effectively 
doubled many of our earlier cost estimates. Our inclusion of these 
costs (overhead and fringe), which we have not included in the past, 
is a substantial factor associated with the increase in burden.
    We believe that this cost estimate cannot be compared to the 
cost estimate in the FY 2014 and previous IPPS/LTCH PPS final rules, 
without recognition of the factors discussed above. However, we are 
mindful of the burden of LTCHQR Program requirements and we have 
attempted to balance the need for a robust LTCHQR Program with this 
burden. For example, we have authorized sampling for certain measure 
reporting. In addition, as discussed in section IX.C.7.a.(1) of the 
preamble of this final rule, in response to commenters' specific 
concerns regarding burden, we are not adopting the reporting of 
several proposed new items in the LTCH CARE Tool, which overlap 
other items we are retaining, had high ``Activity Did Not Occur'' 
rates, and can be removed from the quality measure without affecting 
the measure substantively. As noted above, these modifications 
reduce our burden estimate by $1,333,851.38.

O. Effects of Regarding Electronic Health Record (EHR) Incentive 
Program and Hospital IQR Program

    In sections IX.D. of the preamble of this final rule, we discuss 
requirements for the EHR Incentive Program. We are aligning 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. 
However we are not finalizing our proposal to require quarterly 
submission of electronic clinical quality measure data.
    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 
finalizing our proposal to continue, for FY 2015, the policy we 
adopted for FY 2014 for eligible hospitals and CAHs submitting 
electronic clinical quality measures under the Medicare EHR 
Incentive Program. For FY 2015, eligible hospitals and CAHs will 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 electronic clinical quality 
measure 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 newly finalized 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 electronic clinical quality 
measures under the Medicare EHR Incentive Program will have a 
significant impact.

P. Effects of Revision of Regulations Governing Use and Release of 
Medicare Advantage Risk Adjustment Data

    Under section X. of the preamble of this final rule, we are 
revising the existing regulations at Sec.  422.310(f) to broaden the 
specified uses of Medicare Advantage (MA) 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 revising 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 authorized by other applicable 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 adding regulatory language to address CMS' release of such data 
to non-CMS entities.
    We have determined that the regulatory amendments do not impose 
any mandatory costs on entities that may choose, under this newly 
finalized policy, 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 provisions. We also have determined that the regulatory 
amendments will not impose a burden on the entity requesting data 
files.

Q. Effects of Changes to Enforcement Provisions for Organ 
Transplant Centers

    Under section XI. of the preamble of this final rule, we are 
finalizing 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 finalized policies also will 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 finalized policies 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 policies to the Medicare 
and Medicaid programs will 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

[[Page 50446]]

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 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 finalized policies will not have a significant impact on a 
substantial number of small businesses or other small entities. Nor 
will they have a significant impact on small rural hospitals.

II. Alternatives Considered

    This final rule contains a range of policies. It also provides 
descriptions of the statutory provisions that are addressed, 
identifies the finalized policies, and presents rationales for our 
decisions and, where relevant, alternatives that were considered.

III. Overall Conclusion

1. Acute Care Hospitals

    Table I of section I.G. of this Appendix demonstrates the 
estimated distributional impact of the IPPS budget neutrality 
requirements for the MS-DRG and wage index changes, and for the wage 
index reclassifications under the MGCRB. Table I also shows an 
overall decrease of 0.6 percent in operating payments. As discussed 
in section I.G. of this Appendix, we estimate that operating 
payments will decrease by approximately $654 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 final rule, we 
estimate that operating payments will decrease by approximately $457 
million relative to FY 2014. In addition, we estimate a savings of 
$27 million associated with the HACs policies in FY 2015, which is 
an additional $1 million in savings as compared to FY 2014. We 
estimate the implementation of the HAC Reduction Program, under 
section 3008 of the Affordable Care Act, will reduce payments by 
$369 million in FY 2015. 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 $152 million relative to FY 2014. We estimate that the 
new technology add-on payments for FY 2015 will increase spending by 
approximately $91 million. Finally, we estimate that the policies 
related to validation, including submission of and payment for 
secure electronic versions of medical information for validation for 
the FY 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 final rule, will result in no change in payments 
for CMS for FY 2015. These estimates, combined with our estimated 
decrease in FY 2015 operating payment of -$457 million, result in an 
estimated decrease of approximately $888 million for FY 2015. We 
estimate that hospitals will experience a 1.5 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 $132 million increase 
in capital payments in FY 2015 compared to FY 2014. The cumulative 
operating and capital payments would result in a net decrease of 
approximately $756 million to IPPS providers. The discussions 
presented in the previous pages, in combination with the rest of 
this final rule, constitute a regulatory impact analysis.

2. LTCHs

    Overall, LTCHs are projected to experience an increase in 
estimated payments per discharge in FY 2015. In the impact analysis, 
we are using the rates, factors, and policies presented in this 
final rule, including updated wage index values and relative 
weights, and the best available claims and CCR data to estimate the 
change in payments under the LTCH PPS for FY 2015. Accordingly, 
based on the best available data for the 422 LTCHs in our database, 
we estimate that FY 2015 LTCH PPS payments will increase 
approximately $62 million relative to FY 2014 as a result of the 
payment rates and factors presented in this final rule. In addition, 
we estimate that net effect of the projected impact of certain other 
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 final 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 final rule; the revocation of onsite discharges and 
readmissions policy as discussed in section VII.F. of the preamble 
of this final rule; and the payment adjustment for ``subclause 
(II)'' LTCHs as discussed in section VII.H. of the preamble of this 
final rule) is estimated to result in an increase in LTCH PPS 
payments of approximately $116 million. The impact analysis of the 
payment rates and factors presented in this final rule under the 
LTCH PPS, in conjunction with the estimated payment impacts of 
certain other LTCH PPS policy changes, will result in a net increase 
of $178 million to LTCH providers. Additionally, costs to LTCHs 
associated with the completion of the data for the LTCHQR Program 
are increasing by $4.7 million for FY 2015.

IV. Accounting Statements and Tables

A. Acute Care Hospitals

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table V below, we 
have prepared an accounting statement showing the classification of 
the expenditures associated with the provisions of this final rule 
as they relate to acute care hospitals. This table provides our best 
estimate of the change in Medicare payments to providers as a result 
of the changes to the IPPS presented in this final rule. All 
expenditures are classified as transfers to Medicare providers.
    The savings to the Federal Government associated with the 
policies in this final rule are estimated at $756 million.

 Table V--Accounting Statement: Classification of Estimated Expenditures
                 Under the IPPS From FY 2014 to FY 2015
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  -$756 million.
From Whom to Whom......................  Federal Government to IPPS
                                          Medicare Providers.
------------------------------------------------------------------------


[[Page 50447]]

B. LTCHs

    As discussed in section I.L. of this Appendix, the impact 
analysis of the payment rates and factors presented in this final 
rule under the LTCH PPS, As discussed in section I.L. of this 
Appendix, the impact analysis of the payment rates and factors 
presented in this final rule under the LTCH PPS, in conjunction with 
the estimated payment impacts of certain other 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 revocation of onsite discharges and readmissions policy; 
and the 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 $178 
million based on the data for 422 LTCHs in our database that are 
subject to payment under the LTCH PPS. Therefore, as required by OMB 
Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table VI below, we have prepared an accounting 
statement showing the classification of the expenditures associated 
with the provisions of this final rule as they relate to the changes 
to the LTCH PPS. Table VI provides our best estimate of the 
estimated increase in Medicare payments under the LTCH PPS as a 
result of the payment rates and factors and other provisions 
presented in this final rule based on the data for the 422 LTCHs in 
our database. All expenditures are classified as transfers to 
Medicare providers (that is, LTCHs). Lastly, we present the costs to 
LTCHs associated with the completion of the data for the LTCHQR 
Program at $4.7 million than in FY 2014.
    The cost to the Federal Government associated with the policies 
for LTCHs in this final rule is estimated at $178 million.

Table VI--Accounting Statement: Classification of Estimated Expenditures
            From the FY 2014 LTCH PPS to the FY 2015 LTCH PPS
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $178 million.
From Whom to Whom......................  Federal Government to LTCH
                                          Medicare Providers.
------------------------------------------------------------------------
                Category                              Costs
------------------------------------------------------------------------
Annualized Monetized Costs for LTCHs to  $4.7 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 final rule relating to acute 
care hospitals would have a significant impact on small entities as 
explained in this Appendix. Because we lack data on individual 
hospital receipts, we cannot determine the number of small 
proprietary LTCHs. Therefore, we are assuming that all LTCHs are 
considered small entities for the purpose of the analysis in section 
I.L. of this Appendix. MACs are not considered to be small entities. 
Because we acknowledge that many of the affected entities are small 
entities, the analysis discussed throughout the preamble of this 
final rule constitutes our regulatory flexibility analysis. In FY 
2015 IPPS/LTCH PPS proposed rule, we solicited public comments on 
our estimates and analysis of the impact of our proposals on those 
small entities. Any public comments that we received and our 
responses are presented throughout this final rule.

VI. Impact on Small Rural Hospitals

    Section 1102(b) of the Social Security Act requires us to 
prepare a regulatory impact analysis for any proposed or final rule 
that may have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must 
conform to the provisions of section 603 of the RFA. With the 
exception of hospitals located in certain New England counties, for 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of an urban area and 
has fewer than 100 beds. Section 601(g) of the Social Security 
Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain 
New England counties as belonging to the adjacent urban area. Thus, 
for purposes of the IPPS and the LTCH PPS, we continue to classify 
these hospitals as urban hospitals. (We refer readers to Table I in 
section I.G. of this Appendix for the quantitative effects of the 
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 final rule will not mandate any requirements for 
State, local, or tribal governments, nor will it affect private 
sector costs.

VIII. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, the 
Executive Office of Management and Budget reviewed this final rule.

Appendix B: Recommendation of Update Factors for Operating Cost Rates 
of Payment for Inpatient Hospital Services

I. Background

    Section 1886(e)(4)(A) of the Act requires that the Secretary, 
taking into consideration the recommendations of MedPAC, recommend 
update factors for inpatient hospital services for each fiscal year 
that take into account the amounts necessary for the efficient and 
effective delivery of medically appropriate and necessary care of 
high quality. Under section 1886(e)(5) of the Act, we are required 
to publish update factors recommended by the Secretary in the 
proposed and final IPPS rules, respectively. Accordingly, this 
Appendix provides the recommendations for the update factors for the 
IPPS national standardized amount, the Puerto Rico-specific 
standardized amount, the hospital-specific rate for SCHs and 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. FY 2015 Inpatient Hospital Update

    As discussed in section IV.B. of the preamble to this final 
rule, for FY 2015,

[[Page 50448]]

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 
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.
    In the FY 2015 IPPS/LTCH PPS proposed rule, based on the most 
recent data available at that time, in accordance with section 
1886(b)(3)(B) of the Act, we proposed to establish the FY 2015 
market basket update used to determine the applicable percentage 
increase for the IPPS based 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 was estimated to be 2.7 percent. Based on the most recent data 
available for this FY 2015 final rule, in accordance with section 
1886(b)(3)(B) of the Act, we are establishing the FY 2015 market 
basket update used to determine the applicable percentage increase 
for the IPPS based on IHS Global Insight, Inc.'s (IGI's) second 
quarter 2014 forecast of the FY 2010-based IPPS market basket rate-
of-increase, which is estimated to be 2.9 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 the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 
28087), we proposed 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), 
we presented in the proposed rule four possible applicable 
percentage increases that could be applied to the standardized 
amount. Based on the most recent data available for this FY 2015 
IPPS/LTCH PPS final rule, in accordance with section 1886(b)(3)(B) 
of the Act, as amended by section 3401(a) of the Affordable Care 
Act, in section IV.B.1. of the preamble of this final rule, we are 
establishing a MFP adjustment (the 10-year moving average of MFP for 
the period ending FY 2015) of 0.5 percent.
    In accordance with section 1886(b)(3)(B) of the Act, as amended 
by section 3401(a) of the Affordable Care Act, as discussed in 
section IV.B.1. of the preamble of this final rule, we are 
establishing the applicable percentages increases for the FY 2015 
updates based on IGI's second 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 and is a meaningful EHR user under 
section 1886(b)(3)(B)(ix) of the Act, as outlined in the table 
below.

----------------------------------------------------------------------------------------------------------------
                                                     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[dash]of[dash]Increase........             2.9             2.9             2.9             2.9
Adjustment for Failure to Submit Quality Data                0.0             0.0          -0.725          -0.725
 under Section 1886(b)(3)(B)(viii) of the Act...
Adjustment for Failure to be a Meaningful EHR                0.0          -0.725             0.0          -0.725
 User under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment under Section 1886(b)(3)(B)(xi)              -0.5            -0.5            -0.5            -0.5
 of the Act.....................................
Statutory Adjustment under Section                          -0.2            -0.2            -0.2            -0.2
 1886(b)(3)(B)(xii) of the Act..................
Applicable Percentage Increase Applied to                    2.2           1.475           1.475            0.75
 Standardized Amount............................
----------------------------------------------------------------------------------------------------------------

B. 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 final 
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 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 establishing the same four 
applicable percentage increases in the table above for the hospital-
specific rate applicable to SCHs and MDHs.

C. 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

[[Page 50449]]

to the IPPS). Accordingly, we are making an applicable percentage 
increase to the Puerto Rico-specific standardized amount of 2.2 
percent.

D. 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 applying the FY 2015 percentage increase in the IPPS 
operating market basket 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. For this final rule, 
the current estimate of the FY 2015 IPPS operating market basket 
percentage increase is 2.9 percent.

E. 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 final rule, 
we are establishing an update to the LTCH PPS standard Federal rate 
for FY 2015 based on the full LTCH PPS market basket increase 
estimate (for this final rule, estimated to be 2.9 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 reducing 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 0.5 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 second quarter 2014 forecast of the FY 2015 LTCH PPS 
market basket increase, we are establishing an annual update to the 
LTCH PPS standard Federal rate of 2.2 percent (that is, the current 
FY 2015 estimate of the market basket rate-of-increase of 2.9 
percent less an adjustment of 0.5 percentage point for MFP and less 
0.2 percentage point). Accordingly, we are applying an update factor 
of 1.022 in determining the LTCH PPS standard Federal rate for FY 
2015. For LTCHs that fail to submit quality data for FY 2015, we are 
applying an annual update to the LTCH PPS standard Federal rate of 
0.2 percent (that is, the final annual update for FY 2015 of 2.2 
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 1.002 in 
determining the LTCH PPS standard Federal rate for FY 2015. 
Furthermore, we are making 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 0.97834 (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 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 2.2 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 2.9 percent.
    For FY 2015, consistent with policy set forth in section VII. of 
the preamble of this final rule, we are recommending an update of 
2.2 percent (that is, the current FY 2015 estimate of the LTCH PPS 
market basket rate-of-increase of 2.9 percent less an adjustment of 
0.5 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 establishing an applicable percentage increase for 
FY 2015 of 2.2 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 update to the 
capital rate is discussed in section III. of the Addendum to this 
final rule.

[FR Doc. 2014-18545 Filed 8-4-14; 4:15 pm]
BILLING CODE 4120-01-P