[Federal Register Volume 81, Number 81 (Wednesday, April 27, 2016)]
[Proposed Rules]
[Pages 24946-25322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09120]



[[Page 24945]]

Vol. 81

Wednesday,

No. 81

April 27, 2016

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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





Medicare Program; Hospital Inpatient Prospective Payment Systems for 
Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Proposed Policy Changes and Fiscal Year 2017 Rates; 
Quality Reporting Requirements for Specific Providers; Graduate Medical 
Education; Hospital Notification Procedures Applicable to Beneficiaries 
Receiving Observation Services; and Technical Changes Relating to Costs 
to Organizations and Medicare Cost Reports; Proposed Rule

  Federal Register / Vol. 81 , No. 81 / Wednesday, April 27, 2016 / 
Proposed Rules  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 412, 413, and 485

[CMS-1655-P]
RIN 0938-AS77


Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Proposed Policy Changes and Fiscal Year 2017 Rates; 
Quality Reporting Requirements for Specific Providers; Graduate Medical 
Education; Hospital Notification Procedures Applicable to Beneficiaries 
Receiving Observation Services; and Technical Changes Relating to Costs 
to Organizations and Medicare Cost Reports

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

ACTION: Proposed rule.

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SUMMARY: We are proposing to revise the Medicare hospital inpatient 
prospective payment systems (IPPS) for operating and capital-related 
costs of acute care hospitals to implement changes arising from our 
continuing experience with these systems for FY 2017. Some of the 
proposed changes would implement certain statutory provisions contained 
in the Pathway for Sustainable Growth (SGR) Reform Act of 2013, the 
Improving Medicare Post-Acute Care Transformation Act of 2014, the 
Notice of Observation Treatment and Implications for Care Eligibility 
Act of 2015, and other legislation. We also are providing the estimated 
market basket update to apply to the rate-of-increase limits for 
certain hospitals excluded from the IPPS that are paid on a reasonable 
cost basis subject to these limits for FY 2017.
    We are proposing to update the payment policies and the annual 
payment rates for the Medicare prospective payment system (PPS) for 
inpatient hospital services provided by long-term care hospitals 
(LTCHs) for FY 2017.
    In addition, we are proposing to make changes relating to direct 
graduate medical education (GME) and indirect medical education (IME) 
payments to hospitals with rural track training programs. We are 
proposing to establish new requirements or revise requirements for 
quality reporting by specific providers (acute care hospitals, PPS-
exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities) 
that are participating in Medicare, including related provisions for 
eligible hospitals and critical care hospitals (CAHs) participating in 
the Electronic Health Record (EHR) Incentive Program. We are proposing 
to update policies relating to the Hospital Value-Based Purchasing 
(VBP) Program, the Hospital Readmissions Reduction Program, and the 
Hospital-Acquired Condition (HAC) Reduction Program. We also are 
proposing to: Implement statutory provisions that require hospitals and 
CAHs to furnish notification to Medicare beneficiaries, including 
Medicare Advantage enrollees, when the beneficiaries receive outpatient 
observation services for more than 24 hours; announce the 
implementation of the Frontier Community Health Integration Project 
Demonstration; and make technical corrections and changes to 
regulations relating to costs to organizations and Medicare cost 
reports.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided in the ADDRESSES section, no later than 5 p.m. 
EDT on June 17, 2016.

ADDRESSES: In commenting, please refer to file code CMS-1655-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may (and we encourage you to) submit 
electronic comments on this regulation to http://www.regulations.gov. 
Follow the instructions under the ``submit a comment'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1655-P, P.O. Box 8011, 
Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments via 
express or overnight mail to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1655-P, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal Government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call the telephone number (410) 786-7195 in advance to schedule 
your arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, we refer readers to the 
beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Ing Jye Cheng, (410) 786-4548, and 
Donald Thompson, (410) 786-4487, Operating Prospective Payment, MS-
DRGs, Wage Index, New Medical Service and Technology Add-On Payments, 
Hospital Geographic Reclassifications, Graduate Medical Education, 
Capital Prospective Payment, Excluded Hospitals, Medicare 
Disproportionate Share Hospital (DSH) Issues, Medicare-Dependent Small 
Rural Hospital (MDH) Program, and Low-Volume Hospital Payment 
Adjustment Issues.
    Michele Hudson, (410) 786-4487, and Emily Lipkin, (410) 786-3633, 
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG 
Relative Weights Issues.
    Mollie Knight (410) 786-7948, and Bridget Dickensheets, (410) 786-
8670, Rebasing and Revising the LTCH Market Basket Issues.
    Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
    Jason Pteroski, (410) 786-4681, and Siddhartha Mazumdar, (410) 786-
6673, Frontier Community Health Integration Project Demonstration 
Issues.
    Kathryn McCann Smith, (410) 786-7623, Hospital Notification 
Procedures for Beneficiaries Receiving Outpatient Observation Services 
Issues; or

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Stephanie Simons, (206) 615-2420, only for Related Medicare Health 
Plans Issues.
    Lein Han, (617) 879-0129, Hospital Readmissions Reduction Program--
Readmission Measures for Hospitals Issues.
    Delia Houseal, (410) 786-2724, Hospital-Acquired Condition 
Reduction Program and Hospital Readmissions Reduction Program--Program 
Administration Issues.
    Joseph Clift, (410) 786-4165, Hospital-Acquired Condition Reduction 
Program--Measures Issues.
    James Poyer, (410) 786-2261, Hospital Inpatient Quality Reporting 
and Hospital Value-Based Purchasing--Program Administration, 
Validation, and Reconsideration Issues.
    Cindy Tourison, (410) 786-1093, Hospital Inpatient Quality 
Reporting--Measures Issues Except Hospital Consumer Assessment of 
Healthcare Providers and Systems Issues; and Readmission Measures for 
Hospitals Issues.
    Kim Spaulding Bush, (410) 786-3232, Hospital Value-Based Purchasing 
Efficiency Measures Issues.
    Elizabeth Goldstein, (410) 786-6665, Hospital Inpatient Quality 
Reporting--Hospital Consumer Assessment of Healthcare Providers and 
Systems Measures Issues.
    James Poyer, (410) 786-2261, PPS-Exempt Cancer Hospital Quality 
Reporting Issues.
    Mary Pratt, (410) 786-6867, Long-Term Care Hospital Quality Data 
Reporting Issues.
    Jeffrey Buck, (410) 786-0407 and Cindy Tourison (410) 786-1093, 
Inpatient Psychiatric Facilities Quality Data Reporting Issues.
    Deborah Krauss, (410) 786-5264, and Lisa Marie Gomez, (410) 786-
1175, EHR Incentive Program Clinical Quality Measure Related Issues.
    Elizabeth Myers, (410) 786-4751, EHR Incentive Program Nonclinical 
Quality Measure Related Issues.
    Lauren Wu, (202) 690-7151, Certified EHR Technology Related Issues.
    Kellie Shannon, (410) 786-0416, Technical Changes Relating to Costs 
to Organizations and Medicare Cost Reports Issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

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

Electronic Access

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

Tables Available Only Through the Internet on the CMS Web Site

    In the past, a majority of the tables referred to throughout this 
preamble and in the Addendum to the proposed rule and the final rule 
were published in the Federal Register as part of the annual proposed 
and final rules. However, beginning in FY 2012, some of the IPPS tables 
and LTCH PPS tables are no longer published in the Federal Register. 
Instead, these tables generally will be available only through the 
Internet. The IPPS tables for this proposed rule are available 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 2017 IPPS Proposed 
Rule Home Page'' or ``Acute Inpatient--Files for Download''. The LTCHy 
PPS tables for this FY 2017 proposed rule are available through the 
Internyet 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-1655-P. For further details on the 
contents of the tables referenced in this proposed rule, we refer 
readers to section VI. of the Addendum to this proposed rule.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified above should contact 
Michael Treitel at (410) 786-4552.

Acronyms

3M 3M Health Information System
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
ACoS American College of Surgeons
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
AJCC American Joint Committee on Cancer
ALOS Average length of stay-
ALTHA Acute Long-Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AMI Acute myocardial infarction
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
APRN Advanced practice registered nurse
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASCA Administrative Simplification Compliance Act of 2002, Public 
Law 107-105
ASITN American Society of Interventional and Therapeutic 
Neuroradiology
ASPE Assistant Secretary for Planning and Evaluation (DHHS)
ATRA American Taxpayer Relief Act of 2012, Public Law 112-240
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 106-554
BLS Bureau of Labor Statistics
CABG Coronary artery bypass graft [surgery]
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation 
[Instrument]
CART CMS Abstraction & Reporting Tool
CAUTI Catheter-associated urinary tract infection
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCN CMS Certification Number
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CDC Centers for Disease Control and Prevention
CERT Comprehensive error rate testing
CDI Clostridium difficile [C. difficile] infection
CFR Code of Federal Regulations
CLABSI Central line-associated bloodstream infection
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law 
99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
COPD Chronic obstructive pulmonary disease
CPI Consumer price index
CQL Clinical quality language
CQM Clinical quality measure
CY Calendar year
DACA Data Accuracy and Completeness Acknowledgement

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DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
EBRT External beam radiotherapy
ECE Extraordinary circumstances exemption
ECI Employment cost index
eCQM Electronic clinical quality measure
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law 
99-272
EP Eligible professional
FAH Federation of American Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FPL Federal poverty line
FQHC Federally qualified health center
FR Federal Register
FTE Full-time equivalent
FY Fiscal year
GAF Geographic Adjustment Factor
GME Graduate medical education
HAC Hospital-acquired condition
HAI Healthcare-associated infection
HCAHPS Hospital Consumer Assessment of Healthcare Providers and 
Systems
HCFA Health Care Financing Administration
HCO High-cost outlier
HCP Healthcare personnel
HCRIS Hospital Cost Report Information System
HF Heart failure
HHA Home health agency
HHS Department of Health and Human Services
HICAN Health Insurance Claims Account Number
HIPAA Health Insurance Portability and Accountability Act of 1996, 
Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
HwH Hospital-within-hospital
ICD-9-CM International Classification of Diseases, Ninth Revision, 
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision, 
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision, 
Procedure Coding System
ICR Information collection requirement
ICU Intensive care unit
IGI IHS Global Insight, Inc.
IHS Indian Health Service
IME Indirect medical education
IMPACT Act Improving Medicare Post-Acute Care Transformation Act of 
2014, Public Law 113-185
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPFQR Inpatient Psychiatric Facility Quality Reporting [Program]
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
IQR [Hospital] Inpatient Quality Reporting
LAMCs Large area metropolitan counties
LEP Limited English proficiency
LOC Limitation on charges
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
LTCH QRP Long-Term Care Hospital Quality Reporting Program
MA Medicare Advantage
MAC Medicare Administrative Contractor
MACRA Medicare Access and CHIP Reauthorization Act of 2015, Public 
Law 114-10
MAP Measure Application Partnership
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of 
the Tax Relief and Health Care Act of 2006, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMEA Medicare and Medicaid Extenders Act of 2010, Public Law 111-309
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
MOON Medicare Outpatient Observation Notice
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]
MUC Measure under consideration
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
NOTICE Act Notice of Observation Treatment and Implication for Care 
Eligibility Act, Public Law 114-42
NQF National Quality Forum
NQS National Quality Strategy
NTIS National Technical Information Service
NTTAA National Technology Transfer and Advancement Act of 1991, 
Public Law 104-113
NUBC National Uniform Billing Code
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1986, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB [Executive] Office of Management and Budget
ONC Office of the National Coordinator for Health Information 
Technology
OPM [U.S.] Office of Personnel Management
OQR [Hospital] Outpatient Quality Reporting
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PAC Post-acute care
PAMA Protecting Access to Medicare Act of 2014, Public Law 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
PPR Potentially Preventable Readmissions
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
PUF Public use file
QDM Quality data model
QIES ASAP Quality Improvement Evaluation System Assessment 
Submission and Processing
QIG Quality Improvement Group [CMS]
QIO Quality Improvement Organization
QM Quality measure
QRDA Quality Reporting Document Architecture
RFA Regulatory Flexibility Act, Public Law 96-354
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RIM Reference information model
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center

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RSMR Risk-standard mortality rate
RSP Risk-standardized payment
RSSR 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
SCHIP State Child Health Insurance Program
SCIP Surgical Care Improvement Project
SFY State fiscal year
SGR Sustainable Growth Rate
SIC Standard Industrial Classification
SIR Standardized infection ratio
SNF Skilled nursing facility
SNF QRP Skilled Nursing Facility Quality Reporting Program
SNF VBP Skilled Nursing Facility Value-Based Purchasing
SOCs Standard occupational classifications
SOM State Operations Manual
SRR Standardized risk ratio
SSI Surgical site infection
SSI Supplemental Security Income
SSO Short-stay outlier
SUD Substance use disorder
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 
97-248
TEP Technical expert panel
THA/TKA Total hip arthroplasty/total knee arthroplasty
TMA TMA [Transitional Medical Assistance], Abstinence Education, and 
QI [Qualifying Individuals] Programs Extension Act of 2007, Public 
Law 110-90
TPS Total Performance Score
UHDDS Uniform hospital discharge data set
UR Utilization review
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 Proposed to be 
Implemented in this Proposed Rule
    1. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)
    2. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)
    3. Improving Medicare Post-Acute Care Transformation Act of 2014 
(IMPACT Act) (Pub. L. 113-185)
    4. The Medicare Access and CHIP Reauthorization Act (MACRA) of 
2015 (Pub. L. 114-10)
    5. The Consolidated Appropriations Act, 2016 (Pub. L. 114-113)
    6. The Notice of Observation Treatment and Implication for Care 
Eligibility Act (the NOTICE Act) of 2015 (Pub. L. 114-42)
    D. Summary of the Provisions of this Proposed Rule
II. Proposed Changes to Medicare Severity Diagnosis-Related Group 
(MS-DRG) Classifications and Relative Weights
    A. Background
    B. MS-DRG Reclassifications
    C. Adoption of the MS-DRGs in FY 2008
    D. Proposed FY 2017 MS-DRG Documentation and Coding Adjustment
    1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    2. Adjustment to the Average Standardized Amounts Required by 
Public Law 110-90
    a. Prospective Adjustment Required by Section 7(b)(1)(A) of 
Public Law 110-90
    b. Recoupment or Repayment Adjustments in FYs 2010 through 2012 
Required by Section 7(b)(1)(B) of Public Law 110-90
    3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
    4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by 
Section 7(b)(1)(A) of Public Law 110-90
    5. Recoupment or Repayment Adjustment Authorized by Section 
7(b)(1)(B) of Public Law 110-90
    6. Proposed Recoupment or Repayment Adjustment Authorized by 
Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    2. Discussion of Policy for FY 2017
    F. Proposed 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)
    b. Basis for Proposed FY 2017 MS-DRG Updates
    2. Pre-Major Diagnostic Category (Pre-MDC): Total Artificial 
Heart Replacement
    3. MDC 1 (Diseases and Disorders of the Nervous System)
    a. Endovascular Embolization (Coiling) or Occlusion of Head and 
Neck Procedures
    b. Mechanical Complication Codes
    4. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and 
Throat)
    a. Proposed Reassignment of Diagnosis Code R22.2 (Localized 
Swelling, Mass and Lump, Trunk)
    b. Pulmonary Embolism with tPA or Other Thrombolytic Therapy
    5. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Implant of Loop Recorder
    b. Endovascular Thrombectomy of the Lower Limbs
    c. Pacemaker Procedures Code Combinations
    d. Transcatheter Mitral Valve Repair with Implant
    e. MS-DRG 245 (AICD Generator Procedures)
    6. MDC 6 (Diseases and Disorders of the Digestive System): 
Excision of Ileum
    7. MDC 7 (Diseases and Disorders of the Hepatobiliary System and 
Pancreas): Bypass Procedures of the Veins
    8. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue)
    a. Proposed Updates to MS-DRGs 469 and 470 (Major Joint 
Replacement or Reattachment of Lower Extremity with and without MCC, 
respectively)
    (1) Total Ankle Replacement (TAR) Procedures
    (2) Hip Replacements Procedures with Principal Diagnosis of Hip 
Fracture
    b. Revision of Total Ankle Replacement Procedures
    (1) Revision of Total Ankle Replacement Procedures
    (2) Combination Codes for Removal and Replacement of Knee Joints
    c. Decompression Laminectomy
    d. Lordosis
    9. MDC 13 (Diseases and Disorders of the Female Reproductive 
System): Pelvic Evisceration
    10. MDC 19 (Mental Diseases and Disorders): Proposed 
Modification of Title of MS-DRG 884 (Organic Disturbances and Mental 
Retardation)
    11. MDC 23 (Factors Influencing Health Status and Other Contacts 
with Health Services): Logic of MS-DRGs 945 and 946 (Rehabilitation 
with and without CC/MCC, Respectively)
    12. Proposed Medicare Code Editor (MCE) Changes
    a. Age Conflict Edit
    (1) Newborn Diagnosis Category
    (2) Pediatric Diagnosis Category
    b. Sex Conflict Edit
    c. Non-Covered Procedure Edit
    (1) Endovascular Mechanical Thrombectomy
    (2) Radical Prostatectomy
    d. Unacceptable Principal Diagnosis Edit
    (1) Liveborn Infant
    (2) Multiple Gestation
    (3) Supervision of High Risk Pregnancy
    e. Other MCE Issues
    (1) Procedure Inconsistent with Length of Stay Edit
    (2) Maternity Diagnoses
    (3) Manifestation Codes Not Allowed as Principal Diagnosis Edit
    (4) Questionable Admission Edit
    (5) Removal of Edits and Future Enhancement
    13. Proposed Changes to Surgical Hierarchies
    14. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2017
    15. Proposed Complications or Comorbidity (CC) Exclusions List
    a. Background of the CC List and the CC Exclusions List
    b. Proposed CC Exclusions List for FY 2017
    16. 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

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    c. Adding Diagnosis or Procedure Codes to MDCs
    (1) Angioplasty of Extracranial Vessel
    (2) Excision of Abdominal Arteries
    (3) Excision of Retroperitoneal Tissue
    (4) Occlusion of Vessels: Esophageal Varices
    (5) Excision of Vulva
    (6) Lymph Node Biopsy
    (7) Obstetrical Laceration Repair
    17. Proposed Changes to the ICD-10-CM and ICD-10-PCS Coding 
Systems
    a. ICD-10 Coordination and Maintenance Committee
    b. Code Freeze
    18. Replaced Devices Offered without Cost or With a Credit
    a. Background
    b. Proposed Changes for FY 2017
    19. Other Proposed Policy Changes
    a. MS-DRG GROUPER Logic
    (1) Operations on Products of Conception
    (2) Other Heart Revascularization
    (3) Procedures on Vascular Bodies: Chemoreceptors
    (4) Repair of the Intestine
    (5) Insertion of Infusion Pump
    (6) Procedures on the Bursa
    (7) Procedures on the Breast
    (8) Excision of Subcutaneous Tissue and Fascia
    (9) Shoulder Replacement
    (10) Reposition
    (11) Insertion of Infusion Device
    (12) Bladder Neck Repair
    (13) Future Consideration
    b. Issues Relating to MS-DRG 999 (Ungroupable)
    c. Other Operating Room (O.R.) and Non-O.R. Issues
    (1) O.R. Procedures to Non-O.R. Procedures
    (a) Endoscopic/Transorifice Insertion
    (b) Endoscopic/Transorifice Removal
    (c) Tracheostomy Device Removal
    (d) Endoscopic/Percutaneous Insertion
    (e) Percutaneous Removal
    (f) Percutaneous Drainage
    (g) Percutaneous Inspection
    (h) Inspection without Incision
    (i) Dilation of Stomach
    (j) Endoscopic/Percutaneous Occlusion
    (k) Infusion Device
    (2) Non-O.R. Procedures to O.R. Procedures
    (a) Drainage of Pleural Cavity
    (b) Drainage of Cerebral Ventricle
    G. Recalibration of the Proposed FY 2017 MS-DRG Relative Weights
    1. Data Sources for Developing the Proposed Relative Weights
    2. Methodology for Calculation of the Proposed Relative Weights
    3. Development of National Average CCRs
    H. Proposed Add-On Payments for New Services and Technologies
    1. Background
    2. Public Input Before Publication of a Notice of Proposed 
Rulemaking on Add-On Payments
    3. ICD-10-PCS Section ``X'' Codes for Certain New Medical 
Services and Technologies
    4. Proposed FY 2017 Status of Technologies Approved for FY 2016 
Add-On Payments
    a. KcentraTM
    b. Argus[supreg] II Retinal Prosthesis System
    c. CardioMEMSTM HF (Heart Failure) Monitoring System
    d. MitraClip[supreg] System
    e. Responsive Neurostimulator (RNS[supreg]) System
    f. Blinatumomab (BLINCYTOTM Trade Brand)
    g. Lutonix[supreg] Drug Coated Balloon PTA Catheter and 
In.PACTTM AdmiralTM Pacliaxel Coated 
Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter
    5. Proposed FY 2017 Applications for New Technology Add-On 
Payments
    a. MAGEC[supreg] Spinal Bracing and Distraction System 
(MAGEC[supreg] Spine)
    b. MIRODERM Biologic Wound Matrix (MIRODERM)
    c. Idarucizumab
    d. Titan Spine (Titan Spine Endoskeleton[supreg] 
nanoLOCKTM Interbody Device)
    e. Andexanet Alfa
    f. Defitelio[supreg] (Defibrotide)
    g. EDWARDS INTUITY EliteTM Valve System
    h. GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis 
(IBE)
    i. VistogardTM (Uridine Triacetate)
III. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    A. Background
    1. Legislative Authority
    2. Core-Based Statistical Areas (CBSAs) Revisions for the 
Proposed FY 2017 Hospital Wage Index
    B. Worksheet S-3 Wage Data for the Proposed FY 2017 Wage Index
    1. Included Categories of Costs
    2. Excluded Categories of Costs
    3. Use of Wage Index Data by Providers Other Than Acute Care 
Hospitals under the IPPS
    C. Verification of Worksheet S-3 Wage Data
    D. Method for Computing the Proposed FY 2017 Unadjusted Wage 
Index
    E. Proposed Occupational Mix Adjustment to the FY 2017 Wage 
Index
    1. Use of 2013 Occupational Mix Survey for the Proposed FY 2017 
Wage Index
    2. Development of the 2016 Medicare Wage Index Occupational Mix 
Survey for the FY 2019 Wage Index
    3. Calculation of the Proposed Occupational Mix Adjustment for 
FY 2017
    F. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2017 Occupational Mix Adjusted Wage 
Index
    G. Transitional Wage Indexes
    1. Background
    2. Transition for Hospitals in Urban Areas That Became Rural
    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
    4. Budget Neutrality
    H. Proposed Application of the Proposed Rural, Imputed, and 
Frontier Floors
    1. Proposed Rural Floor
    2. Proposed Imputed Floor for FY 2017
    3. Proposed State Frontier Floor for FY 2017
    I. Proposed FY 2017 Wage Index Tables
    J. Proposed Revisions to the Wage Index Based on Hospital 
Redesignations and Reclassifications
    1. General Policies and Effects of Reclassification and 
Redesignation
    2. MGCRB Reclassification and Redesignation Issues for FY 2017
    a. FY 2017 Reclassification Requirements and Approvals
    b. Requirements for FY 2018 Applications and Proposed Revisions 
Regarding Paper Application Requirements
    c. Other Policy Regarding Reclassifications for Terminated 
Hospitals
    3. Redesignation of Hospitals Under Section 1886(d)(8)(B) of the 
Act
    4. Waiving Lugar Redesignation for the Out-Migration Adjustment
    K. Proposed Out-Migration Adjustment Based on Commuting Patterns 
of Hospital Employees for FY 2017
    L. Notification Regarding Proposed CMS ``Lock-In'' Date for 
Urban to Rural Reclassifications Under Sec.  412.103
    M. Process for Requests for Wage Index Data Corrections
    N. Proposed Labor Market Share for the Proposed FY 2017 Wage 
Index
    O. Solicitation of Comments on Treatment of Overhead and Home 
Office Costs in the Wage Index Calculation
IV. Other Decisions and Proposed Changes to the IPPS for Operating 
Costs and Graduate Medical Education (GME) Costs
    A. Changes to Operating Payments for Subsection (d) Puerto Rico 
Hospitals as a Result of Section 601 of Public Law 114-113
    B. Proposed Changes in the Inpatient Hospital Updates for FY 
2017 (Sec. Sec.  412.64(d) and 412.211(c))
    1. Proposed FY 2017 Inpatient Hospital Update
    2. Proposed FY 2017 Puerto Rico Hospital Update
    3. Electronic Health Records (EHR) Adjustment to IPPS Market 
Basket
    C. Rural Referral Centers (RRCs): Proposed Annual Updates to 
Case-Mix Index (CMI) and Discharge Criteria (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    D. Proposed Payment Adjustment for Low-Volume Hospitals (Sec.  
412.101)
    E. Indirect Medical Education (IME) Payment Adjustment (Sec.  
412.105)
    1. IME Adjustment Factor for FY 2017
    2. Other Proposed Policy Changes Affecting IME
    F. Proposed Payment Adjustment for Medicare Disproportionate 
Share Hospitals (DSHs) for FY 2017 and Subsequent Years (Sec.  
412.106)
    1. General Discussion
    2. Eligibility for Empirically Justified Medicare DSH Payments 
and Uncompensated Care Payments
    3. Empirically Justified Medicare DSH Payments
    4. Uncompensated Care Payments
    a. Calculation of Proposed Factor 1 for FY 2017
    b. Calculation of Proposed Factor 2 for FY 2017
    c. Calculation of Proposed Factor 3 for FY 2017

[[Page 24951]]

    d. Proposed Calculation of Factor 3 for FY 2018 and Subsequent 
Fiscal Years
    (1) Background
    (2) Proposed Data Source and Time Period for FY 2018 and 
Subsequent Years, Including Methodology for Incorporating Worksheet 
S-10 Data
    (3) Proposed Definition of Uncompensated Care for FY 2018 and 
Subsequent Fiscal Years
    (4) Other Methodological Considerations for FY 2018 and 
Subsequent Fiscal Years
    G. Hospital Readmissions Reduction Program: Proposed Updates and 
Changes (Sec. Sec.  412.150 through 412.154)
    1. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Regulatory Background
    3. Proposed Policies for the FY 2017 Hospital Readmissions 
Reduction Program
    4. Maintenance of Technical Specifications for Quality Measures
    5. Proposed Applicable Period for FY 2017
    6. Proposed Calculation of Aggregate Payments for Excess 
Readmissions for FY 2017
    7. Extraordinary Circumstance Exception Policy
    8. Timeline for Public Reporting of Excess Readmission Ratios on 
Hospital Compare for the FY 2017 Payment Determination
    H. Hospital Value-Based Purchasing (VBP) Program: Proposed 
Policy Changes for the FY 2018 Program Year and Subsequent Years
    1. Background
    a. Statutory Background and Overview of Past Program Years
    b. FY 2017 Program Year Payment Details
    2. PSI 90 Measure in the FY 2018 and Future Program Years
    a. Proposed PSI 90 Measure Performance Period Change for the FY 
2018 Program Year
    b. Intent To Propose in Future Rulemaking To Adopt the Modified 
PSI 90 Measure
    3. Retention Policy, Domain Name Proposal, and Updating of 
Quality Measures for the FY 2019 Program Year
    a. Retention of Previously Adopted Hospital VBP Program Measures
    b. Proposed Domain Name Change
    c. Proposed Inclusion of Selected Ward Non-Intensive Care Unit 
(ICU) Locations in Certain NHSN Measures Beginning With the FY 2019 
Program Year
    d. Summary of Previously Adopted Measures and Newly Proposed 
Measure Refinements for the FY 2019 Program Year
    4. Newly Proposed Measures and Measure Refinements for the FY 
2021 Program Year and Subsequent Years
    a. Condition-Specific Hospital Level, Risk-Standardized Payment 
Measures
    b. Proposed Update to an Existing Measure for the FY 2021 
Program Year: Hospital 30-Day, All-Cause, Risk-Standardized 
Mortality Rate (RSMR) Following Pneumonia (PN) Hospitalization (NQF 
#0468) (Updated Cohort)
    5. Proposed New Measure for the FY 2022 Program Year: Hospital 
30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following 
Coronary Artery Bypass Graft (CABG) Surgery (NQF #2558)
    6. Previously Adopted and Newly Proposed Baseline and 
Performance Periods
    a. Background
    b. Patient- and Caregiver-Centered Experience of Care/Care 
Coordination Domain (Proposed Person and Community Engagement 
Domain)
    c. Efficiency and Cost Reduction Domain
    d. Safety Domain
    e. Clinical Care Domain
    f. Summary of Previously Adopted and Newly Proposed Baseline and 
Performance Periods for the FY 2018, FY 2019, FY 2020, FY 2021, and 
FY 2022 Program Years
    7. Proposed Immediate Jeopardy Policy Changes
    a. Background
    b. Proposed Increase of Immediate Jeopardy Citations From Two to 
Three Surveys
    c. EMTALA-Related Immediate Jeopardy Citations
    8. Proposed Performance Standards for the Hospital VBP Program
    a. Background
    b. Previously Adopted and Proposed Performance Standards for the 
FY 2019 Program Year
    c. Previously Adopted Performance Standards for Certain Measures 
for the FY 2020 Program Year
    d. Previously Adopted and Newly Proposed Performance Standards 
for Certain Measures for the FY 2021 Program Year
    e. Proposed Performance Standards for Certain Measures for the 
FY 2022 Program Year
    9. FY 2019 Program Year Scoring Methodology
    a. Domain Weighting for the FY 2019 Program Year for Hospitals 
That Receive a Score on All Domains
    b. Domain Weighting for the FY 2019 Program Year for Hospitals 
Receiving Scores on Fewer Than Four Domains
    I. Proposed Changes to the Hospital-Acquired Condition (HAC) 
Reduction Program
    1. Background
    2. Statutory Basis for the HAC Reduction Program
    3. Overview of Previous HAC Reduction Program Rulemaking
    4. Implementation of the HAC Reduction Program for FY 2017
    a. Clarification of Complete Data Requirements for Domain 1
    b. Clarification of NHSN CDC HAI Data Submission Requirements 
for Newly Opened Hospitals
    5. Implementation of the HAC Reduction Program for FY 2018
    a. Proposed Adoption of PSI 90: Patient Safety and Adverse 
Events Composite (NQF # 0531)
    b. Applicable Time Periods for the FY 2018 HAC Reduction Program 
and the FY 2019 HAC Reduction Program
    c. Proposed Changes to the HAC Reduction Program Scoring 
Methodology
    6. Request for Comments on Additional Measures for Potential 
Future Adoption
    7. Maintenance of Technical Specifications for Quality Measures
    8. Extraordinary Circumstance Exception Policy for the HAC 
Reduction Program Beginning in FY 2016 and for Subsequent Years
    J. Payment for Graduate Medical Education (GME) and Indirect 
Medical Education (IME) Costs (Sec. Sec.  412.105, 413.75 through 
413.83)
    1. Background
    2. Change in New Program Growth From 3 Years to 5 Years
    a. Urban and Rural Hospitals
    b. Proposed Policy Changes Relating to Rural Training Tracks at 
Urban Hospitals
    c. Proposed Effective Date
    K. Rural Community Hospital Demonstration Program
    1. Background
    2. Budget Neutrality Offset Adjustments: Fiscal Years 2005 
Through 2016
    a. Fiscal Years 2005 Through 2013
    b. Fiscal Years 2014 and 2015
    c. Fiscal Year 2016
    3. Proposed Budget Neutrality Methodology for FY 2017
    L. Proposed Hospital and CAH Notification Procedures for 
Outpatients Receiving Observation Services
    1. Background
    a. Statutory Authority
    b. Proposed Effective Date
    2. Proposed Implementation of the NOTICE Act Provisions
    a. Proposed Notice Process
    b. Proposed Notification Recipients
    c. Proposed Timing of Notice Delivery
    d. Proposed Requirements for Written Notice
    e. Outpatient Observation Services and Beneficiary Financial 
Liability
    f. Delivering the Medicare Outpatient Observation Notice
    g. Proposed Oral Notice
    h. Proposed Signature Requirements
    i. No Appeal Rights Under the NOTICE Act
    M. Proposed Technical Changes and Correction of Typographical 
Errors in Certain Regulations Under 42 CFR part 413 Relating to 
Costs to Related Organizations and Medicare Cost Reports
    1. General Background
    2. Proposed Technical Change to Regulations at 42 CFR 
413.17(d)(1) on Cost to Related Organizations
    3. Proposed Changes to 42 CFR 413.24(f)(4)(i) Relating to 
Electronic Submission of Cost Reports
    4. Proposed Technical Changes to 42 CFR 413.24(f)(4)(ii) 
Relating to Electronic Submission of Cost Reports and Due Dates
    5. Proposed Technical Changes to 42 CFR 413.24(f)(4)(iv) 
Relating to Reporting Entities, Cost Report Certification Statement, 
Electronic Submission and Cost Reports Due Dates
    6. Proposed Technical Correction to 42 CFR 413.200(c)(1)(i) 
Relating to Medicare Cost Report Due Dates for Organ Procurement 
Organizations and Histocompatibility Laboratories
    N. Clarification Regarding the Medicare Utilization Requirement 
for Medicare-

[[Page 24952]]

Dependent, Small Rural Hospitals (MDHs) (Sec.  412.108)
    1. Background
    2. Clarification of Medicare Utilization Criterion for MDH 
Classification
    O. Adjustment to IPPS Rates Resulting From 2-Midnight Policy
V. Proposed Changes to the IPPS for Capital-Related Costs
    A. Overview
    B. Additional Provisions
    1. Exception Payments
    2. New Hospitals
    3. Proposed Changes in Payments for Hospitals Located in Puerto 
Rico
    C. Proposed Annual Update for FY 2017
VI. Proposed Changes for Hospitals Excluded From the IPPS
    A. Proposed Rate-of-Increase in Payments to Excluded Hospitals 
for FY 2017
    B. Critical Care Hospitals (CAHs)
    1. Background
    2. Frontier Community Health Integration Project (FCHIP) 
Demonstration
VII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2015
    A. Background of the LTCH PPS
    1. Legislative and Regulatory Authority
    2. Criteria for Classification as a LTCH
    a. Classification as a LTCH
    b. Hospitals Excluded From the LTCH PPS
    3. Limitation on Charges to Beneficiaries
    4. Administrative Simplification Compliance Act (ASCA) and 
Health Insurance Portability and Accountability Act (HIPAA) 
Compliance
    B. Proposed Modifications to the Application of the Site Neutral 
Payment Rate (Sec.  412.522)
    1. Background
    2. Technical Correction of Definition of ``Subsection (d) 
Hospital'' for the Site Neutral Payment Rate (Sec.  412.503)
    C. Proposed Medicare Severity Long-Term Care Diagnosis-Related 
Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2017
    1. Background
    2. Patient Classifications Into MS-LTC-DRGs
    a. Background
    b. Proposed Changes to the MS-LTC-DRGs for FY 2017
    3. Development of the Proposed FY 2017 MS-LTC-DRG Relative 
Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Development of the Proposed MS-LTC-DRG Relative Weights for 
FY 2017
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Treatment of Severity Levels in Developing the MS-LTC-DRG 
Relative Weights
    f. Proposed Low-Volume MS-LTC-DRGs
    g. Steps for Determining the Proposed FY 2017 MS-LTC-DRG 
Relative Weights
    D. Proposed Rebasing of the LTCH Market Basket
    1. Background
    2. Overview of the Proposed 2013-Based LTCH Market Basket
    3. Development of the Proposed 2013-Based LTCH Market Basket 
Cost Categories and Weights
    a. Use of Medicare Cost Report Data
    (1) Wages and Salaries Costs
    (2) Employee Benefit Costs
    (3) Contract Labor Costs
    (4) Pharmaceutical Costs
    (5) Professional Liability Insurance Costs
    (6) Capital Costs
    b. Final Major Cost Category Computation
    c. Derivation of the Detailed Operating Cost Weights
    d. Derivation of the Detailed Capital Cost Weights
    e. Proposed 2013-Based LTCH Market Basket Cost Categories and 
Weights
    4. Selection of Proposed Price Proxies
    a. Price Proxies for the Operating Portion of the Proposed 2013-
Based LTCH Market Basket
    (1) Wages and Salaries
    (2) Employee Benefits
    (3) Electricity
    (4) Fuel, Oil, and Gasoline
    (5) Water and Sewage
    (6) Professional Liability Insurance
    (7) Pharmaceuticals
    (8) Food: Direct Purchases
    (9) Food: Contract Services
    (10) Chemicals
    (11) Medical Instruments
    (12) Rubber and Plastics
    (13) Paper and Printing Products
    (14) Miscellaneous Products
    (15) Professional Fees: Labor-Related
    (16) Administrative and Facilities Support Services
    (17) Installation, Maintenance, and Repair Services
    (18) All Other: Labor-Related Services
    (19) Professional Fees: Nonlabor-Related
    (20) Financial Services
    (21) Telephone Services
    (22) All Other: Nonlabor-Related Services
    b. Price Proxies for the Capital Portion of the Proposed 2013-
Based LTCH Market Basket
    (1) Capital Price Proxies Prior to Vintage Weighting
    (2) Vintage Weights for Price Proxies
    c. Summary of Price Proxies of the Proposed 2013-Based LTCH 
Market Basket
    d. Proposed FY 2017 Market Basket Update for LTCHs
    e. Proposed FY 2017 Labor-Related Share
    E. Proposed Changes to the LTCH PPS Payment Rates and Other 
Proposed Changes to the LTCH PPS for FY 2017
    1. Overview of Development of the LTCH PPS Standard Federal 
Payment Rates
    2. Proposed FY 2017 LTCH PPS Standard Federal Payment Rate 
Annual Market Basket Update
    a. Overview
    b. Proposed Market Basket Under the LTCH PPS for FY 2017
    c. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    d. Proposed Adjustment to the LTCH PPS Standard Federal Payment 
Rate Under the Long-Term Care Hospital Quality Reporting Program 
(LTCH QRP)
    e. Proposed Annual Market Basket Update Under the LTCH PPS for 
FY 2017
    3. Proposed Update Under the Payment Adjustment for ``Subclause 
(II)'' LTCHs
    F. Proposed Modifications to the ``25-Percent Threshold Policy'' 
Payment Adjustments (Sec. Sec.  412.534 and 412.536)
    G. Proposed Refinement to the Payment Adjustment for ``Subclause 
II'' LTCHs
VIII. 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. Process for Retaining Previously Adopted Hospital IQR Program 
Measures for Subsequent Payment Determinations
    3. Removal and Suspension of Hospital IQR Program Measures
    a. Considerations in Removing Quality Measures From the Hospital 
IQR Program
    b. Proposed Removal of Hospital IQR Program Measures for the FY 
2019 Payment Determination and Subsequent Years
    4. Previously Adopted Hospital IQR Program Measures for the FY 
2018 and FY 2019 Payment Determination and Subsequent Years
    5. Expansion and Updating of Quality Measures
    6. Proposed Refinements to Existing Measures in the Hospital IQR 
Program
    a. Proposed Expansion of the Cohort for the PN Payment Measure: 
Hospital-Level, Risk-Standardized Payment Associated With a 30-Day 
Episode-of-Care for Pneumonia (NQF # 2579)
    b. Proposed Adoption of Modified PSI 90: Patient Safety and 
Adverse Events Composite Measure (NQF #0531)
    7. Proposed Additional Hospital IQR Program Measures for the FY 
2019 Payment Determinations and Subsequent Years
    a. Proposed Adoption of Three Clinical Episode-Based Payment 
Measures
    b. Proposed Adoption of Excess Days in Acute Care After 
Hospitalization for Pneumonia (PN Excess Days) Measure
    c. Summary of Previously Adopted and Newly Proposed Hospital IQR 
Program Measures for the FY 2019 Payment Determination and 
Subsequent Years
    8. Proposed Changes to Policies on Reporting of eCQMs
    a. Proposed Requirement That Hospitals Report on All eCQMs in 
the Hospital IQR Program Measure Set for the CY 2017 Reporting 
Period/FY 2019 Payment Determination and Subsequent Years
    b. Proposed Requirement That Hospitals Report a Full Year of 
eCQM Data
    c. Clarification Regarding Data Submission for ED-1, ED-2, PC-
01, STK-4, VTE-5, and VTE-6
    9. Possible New Quality Measures and Measure Topics for Future 
Years
    a. Potential Inclusion of the National Institutes of Health 
(NIH) Stroke Scale for the Hospital 30-Day Mortality Following Acute 
Ischemic Stroke Hospitalization Measure Beginning as Early as the FY 
2022 Payment Determination

[[Page 24953]]

    b. Potential Inclusion of National Healthcare Safety Network 
(NHSN) Antimicrobial Use Measure (NQF #2720)
    c. Potential Measures for Behavioral Health in the Hospital IQR 
Program
    d. Potential Public Reporting of Quality Measures Data 
Stratified by Race, Ethnicity, Sex, and Disability and Future 
Hospital Quality Measures That Incorporate Health Equity
    10. Form, Manner, and Timing of Quality Data Submission
    a. Background
    b. Procedural Requirements for the FY 2019 Payment Determination 
and Subsequent Years
    c. Data Submission Requirements for Chart-Abstracted Measures
    d. Proposed Alignment of the Hospital IQR Program With the 
Medicare and Medicaid EHR Incentive Programs for Eligible Hospitals 
and CAHs
    e. Sampling and Case Thresholds for the FY 2019 Payment 
Determination and Subsequent Years
    f. HCAHPS Requirements for the FY 2019 Payment Determination and 
Subsequent Years
    g. Data Submission Requirements for Structural Measures for the 
FY 2019 Payment Determination and Subsequent Years
    h. Data Submission and Reporting Requirements for HAI Measures 
Reported via NHSN
    11. Proposed Modifications to the Existing Processes for 
Validation of Hospital IQR Program Data
    a. Background
    b. Proposed Modifications to the Existing Processes for 
Validation of Hospital IQR Program Data
    12. Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements for the FY 2019 Payment Determination and Subsequent 
Years
    13. Public Display Requirements for the FY 2019 Payment 
Determination and Subsequent Years
    14. Reconsideration and Appeal Procedures for the FY 2019 
Payment Determination and Subsequent Years
    15. Proposed Changes to the Hospital IQR Program Extraordinary 
Circumstances Extensions or Exemptions (ECE) Policy
    a. Proposal To Extend the General ECE Request Deadline for Non-
eCQM Circumstances
    b. Proposal To Establish a Separate Submission Deadline for ECE 
Requests Related to eCQMs
    B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
    1. Background
    2. Proposed Criteria for Removal and Retention of PCHQR Program 
Measures
    3. Retention and Proposed Update to Previously Finalized Quality 
Measures for PCHs Beginning With the FY 2019 Program Year
    a. Background
    b. Proposed Update of Oncology: Radiation Dose Limits to Normal 
Tissues (NQF #0382) Measure for FY 2019 Program Year and Subsequent 
Years
    4. Proposed New Quality Measure Beginning With the FY 2019 
Program Year
    a. Considerations in the Selection of Quality Measures
    b. Admissions and Emergency Department (ED) Visits for Patients 
Receiving Outpatient Chemotherapy
    5. Possible New Quality Measure Topics for Future Years
    6. Maintenance of Technical Specifications for Quality Measures
    7. Public Display Requirements
    a. Background
    b. Proposed Additional Public Display Requirements
    c. Proposed Public Display of Additional PCHQR Measure
    d. Proposed Public Display of Updated Measure
    e. Proposed Postponement of Public Display of Two Measures
    8. Form, Manner, and Timing of Data Submission
    9. Exceptions From PCHQR Program Requirements
    C. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
    1. Background and Statutory Authority
    2. General Considerations Used for Selection of Quality, 
Resource Use, and Other Measures for the LTCH QRP
    3. Policy for Retention of LTCH QRP Measures Adopted for 
Previous Payment Determinations
    4. Policy for Adopting Changes to LTCH QRP Measures
    5. Quality Measures Previously Finalized for and Currently Used 
in the LTCH QRP
    6. LTCH QRP Quality, Resource Use and Other Measures Proposed 
for the FY 2018 Payment Determination and Subsequent Years
    a. Proposal To Address the IMPACT Act Domain of Resource Use and 
Other Measures: Total Estimated MSPB--PAC LTCH QRP
    b. Proposal To Address the IMPACT Act Domain of Resource Use and 
Other Measures: Discharge to Community-Post-Acute Care (PAC) Long-
Term Care Hospital Quality Reporting Program
    c. Proposal To Address the IMPACT Act Domain of Resource Use and 
Other Measures: Potentially Preventable 30-Day Post-Discharge 
Readmission Measure for the Long-Term Care Hospital Quality 
Reporting Program
    7. LTCH QRP Quality Measure Proposed for the FY 2020 Payment 
Determination and Subsequent Years
    a. Background
    b. Quality Measure Addressing the IMPACT Act Domain of 
Medication Reconciliation: Drug Regimen Review Conducted With 
Follow-Up for Identified Issues-Post-Acute Care LTCH QRP
    8. LTCH QRP Quality Measures and Measure Concepts Under 
Consideration for Future Years
    9. Proposed Form, Manner, and Timing of Quality Data Submission 
for the FY 2018 Payment Determination and Subsequent Years
    a. Background
    b. Timeline for Data Submission Under the LTCH QRP for the FY 
2018 and Subsequent Years Payment Determinations
    c. Proposed Timeline and Data Submission Mechanisms for the FY 
2018 Payment Determination and Subsequent Years for New LTCH QRP 
Resource Use and Other Measures--Claims-Based Measures
    d. Proposal To Revise 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 2019 Payment 
Determination and Subsequent Years
    e. Proposed Timeline and Data Submission Mechanisms for the 
Proposed LTCH QRP Quality Measure for the FY 2020 Payment 
Determination and Subsequent Years
    10. LTCH QRP Data Completion Thresholds for the FY 2016 Payment 
Determination and Subsequent Years
    11. LTCH QRP Data Validation Process for the FY 2016 Payment 
Determination and Subsequent Years
    12. Proposed Change to Previously Codified LTCH QRP Submission 
Exception and Extension Policies
    13. Previously Finalized LTCH QRP Reconsideration and Appeals 
Procedures
    14. Proposals and Policies Regarding Public Display of Measure 
Data for the LTCH QRP and Procedures for the Opportunity To Review 
and Correct Data and Information
    a. Public Display of Measures
    b. Procedures for the Opportunity To Review and Correct Data and 
Information
    15. Proposed Mechanism for Providing Feedback Reports to LTCHs
    D. Inpatient Psychiatric Facility Quality Reporting (IPFQR) 
Program
    1. Background
    a. Statutory Authority
    b. Covered Entities
    c. Considerations in Selecting Quality Measures
    2. Retention of IPFQR Program Measures Adopted in Previous 
Payment Determinations
    3. Proposed Update to Previously Finalized Measure: Screening 
for Metabolic Disorders
    4. Proposed New Quality Measures for the FY 2019 Payment 
Determination and Subsequent Years
    a. SUB-3--Alcohol and Other Drug Use Disorder Treatment Provided 
or Offered at Discharge and the Subset Measure SUB-3a--Alcohol and 
Other Drug Use Disorder Treatment at Discharge (NQF #1664)
    b. Thirty-Day All-Cause Unplanned Readmission Following 
Psychiatric Hospitalization in an IPF
    5. Summary of Proposed Measures for the FY 2019 Payment 
Determination and Subsequent Years
    6. Possible IPFQR Program Measures and Topics for Future 
Consideration
    7. Public Display and Review Requirements

[[Page 24954]]

    8. Form, Manner, and Timing of Quality Data Submission
    a. Procedural and Submission Requirements
    b. Proposed Change to the Reporting Periods and Submission 
Timeframes
    c. Population and Sampling
    d. Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements
    9. Reconsideration and Appeals Procedures
    10. Exceptions to Quality Reporting Requirements
    E. Clinical Quality Measurement for Eligible Hospitals and 
Critical Access Hospitals (CAHs) Participating in the EHR Incentive 
Programs in 2017
    1. Background
    2. CQM Reporting for the Medicare and Medicaid EHR Incentive 
Programs in 2017
    a. Background
    b. CQM Reporting Period for the Medicare and Medicaid EHR 
Incentive Programs in CY 2017
    c. CQM Reporting Form and Method for the Medicare EHR Incentive 
Program in 2017
IX. MedPAC Recommendations
X. Other Required Information
    A. Requests for Data From the Public
    B. Collection of Information Requirements
    1. Statutory Requirement for Solicitation of Comments
    2. ICRs for Add-On Payments for New Services and Technologies
    3. ICRs for the Occupational Mix Adjustment to the Proposed FY 
2017 Wage Index (Hospital Wage Index Occupational Mix Survey)
    4. Hospital Applications for Geographic Reclassifications by the 
MGCRB
    5. ICRs for the Notice of Observation Treatment by Hospitals and 
CAHs
    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 
Program (LTCH QRP)
    10. ICRs for the Inpatient Psychiatric Facility Quality 
Reporting (IPFQR) Program
    11. ICRs for the Electronic Health Record (EHR) Incentive 
Program and Meaningful Use
    C. Response to Public Comments
Regulation Text
Addendum--Proposed Schedule of Standardized Amounts, Update Factors, 
and Rate-of-Increase Percentages Effective With Cost Reporting 
Periods Beginning on or After October 1, 2016 and Payment Rates for 
LTCHs Effective With Discharges Occurring on or After October 1, 
2016
I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2017
    A. Calculation of the Adjusted Standardized Amount
    B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
    C. Calculation of the Prospective Payment Rates
III. Proposed Changes to Payment Rates for Acute Care Hospital 
Inpatient Capital-Related Costs for FY 2017
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Proposed Inpatient Capital-Related 
Prospective Payments for FY 2017
    C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Excluded Hospitals: Rate-
of-Increase Percentages for FY 2017
V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 
2017
    A. Proposed LTCH PPS Standard Federal Payment Rate for FY 2017
    B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS 
for FY 2017
    1. Background
    2. Proposed Geographic Classifications (Labor Market Areas) for 
the LTCH PPS Standard Federal Payment Rate
    3. Proposed Labor-Related Share for the LTCH PPS Standard 
Federal Payment Rate
    4. Proposed Wage Index for FY 2017 for the LTCH PPS Standard 
Federal Payment Rate
    5. Proposed Budget Neutrality Adjustment for Changes to the LTCH 
PPS Standard Federal Payment Rate Area Wage Level Adjustment
    C. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs 
Located in Alaska and Hawaii
    D. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) 
Cases
    E. Proposed Update to the IPPS Comparable/Equivalent Amounts to 
Reflect the Statutory Changes to the IPPS DSH Payment Adjustment 
Methodology
    F. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2017
VI. Tables Referenced in This Proposed Rulemaking and Available 
Through the Internet on the CMS Web site
Appendix A--Economic Analyses
I. Regulatory Impact Analysis
    A. Introduction
    B. Need
    C. Objectives of the IPPS
    D. Limitations of Our Analysis
    E. Hospitals Included in and Excluded From the IPPS
    F. Effects on Hospitals and Hospital Units Excluded From the 
IPPS
    G. Quantitative Effects of the Proposed Policy Changes Under the 
IPPS for Operating Costs
    1. Basis and Methodology of Estimates
    2. Analysis of Table I
    3. Impact Analysis of Table II
    H. Effects of Other Proposed Policy Changes
    1. Effects of Proposed Policy Relating to New Medical Service 
and Technology Add-On Payments
    2. Effect of Proposed Changes Relating to Payment Adjustment for 
Medicare Disproportionate Share Hospitals
    3. Effects of Proposed Reduction Under the Hospital Readmissions 
Reduction Program
    4. Effects of Proposed Changes Under the FY 2017 Hospital Value-
Based Purchasing (VBP) Program
    5. Effects of the Proposed Changes to the HAC Reduction Program 
for FY 2017
    6. Effects of Proposed Policy Changes Relating to Direct GME and 
IME Payments for Rural Training Tracks at Urban Hospitals
    7. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    8. Effects of Proposed Implementation of the Notice of 
Observation Treatment and Implications for Care Eligibility Act 
(NOTICE Act)
    9. Effects of Proposed Technical Changes and Correction of 
Typographical Errors in Certain Regulations Under 42 CFR part 413 
Relating to Costs to Related Organizations and Medicare Cost Reports
    10. Effects of Proposed Implementation of the Frontier Community 
Health Integration Project (FCHIP) Demonstration
    I. Effects of Proposed Changes in the Capital IPPS
    1. General Considerations
    2. Results
    J. Effects of Proposed Payment Rate Changes and Policy Changes 
Under the LTCH PPS
    1. Introduction and General Considerations
    2. Impact on Rural Hospitals
    3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes 
and Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    K. Effects of Proposed Requirements for Hospital Inpatient 
Quality Reporting (IQR) Program
    L. Effects of Proposed Requirements for the PPS-Exempt Cancer 
Hospital Quality Reporting (PCHQR) Program
    M. Effects of Proposed Requirements for the Long-Term Care 
Hospital Quality Reporting Program (LTCH QRP) for the FY 2018 
Payment Determination and Subsequent Years
    N. Effects of Proposed Updates to the Inpatient Psychiatric 
Facility Quality Reporting (IPFQR) Program
    O. Effects of Proposed Requirements Regarding Electronic Health 
Record (EHR) Meaningful Use Program
    P. Alternatives Considered
    Q. Overall Conclusion
    1. Acute Care Hospitals
    2. LTCHs
II. Accounting Statements and Tables
    A. Acute Care Hospitals
    B. LTCHs
III. Regulatory Flexibility Act (RFA) Analysis
IV. Impact on Small Rural Hospitals
V. Unfunded Mandate Reform Act (UMRA) Analysis
VI. 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 2017
    A. Proposed FY 2017 Inpatient Hospital Update
    B. Proposed Update for SCHs and MDHs for FY 2017

[[Page 24955]]

    C. Proposed FY 2017 Puerto Rico Hospital Update
    D. Proposed Update for Hospitals Excluded From the IPPS
    E. Proposed Update for LTCHs for FY 2017
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and 
Updating Payments in Traditional Medicare

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
    This proposed rule would make payment and policy changes under the 
Medicare inpatient prospective payment systems (IPPS) for operating and 
capital-related costs of acute care hospitals as well as for certain 
hospitals and hospital units excluded from the IPPS. In addition, it 
would make payment and policy changes for inpatient hospital services 
provided by long-term care hospitals (LTCHs) under the long-term care 
hospital prospective payment system (LTCH PPS). It also would make 
policy changes to programs associated with Medicare IPPS hospitals, 
IPPS-excluded hospitals, and LTCHs.
    We are proposing to establish new requirements or revise 
requirements for quality reporting by specific providers (acute care 
hospitals, PPS-exempt cancer hospitals, LTCHs, and inpatient 
psychiatric facilities) that are participating in Medicare, including 
related provisions for eligible hospitals and critical assess hospitals 
(CAHs) participating in the Electronic Health Record (EHR) Incentive 
Program. We are proposing to update policies relating to the Hospital 
Value-Based Purchasing (VBP) Program, the Hospital Readmissions 
Reduction Program, and the Hospital-Acquired Condition (HAC) Reduction 
Program. We also are proposing to: Implement statutory provisions that 
require hospitals and CAHs to furnish notification to Medicare 
beneficiaries, including Medicare Advantage enrollees, when the 
beneficiaries receive outpatient observation services for more than 24 
hours; announce the implementation of the Frontier Community Health 
Integration Project Demonstration; make technical corrections and 
changes to regulations relating to costs to organizations and Medicare 
cost reports.
    Under various statutory authorities, we are proposing to make 
changes to the Medicare IPPS, to the LTCH PPS, and to other related 
payment methodologies and programs for FY 2017 and subsequent fiscal 
years. These statutory authorities include, but are not limited to, the 
following:
     Section 1886(d) of the Social Security Act (the Act), 
which sets forth a system of payment for the operating costs of acute 
care hospital inpatient stays under Medicare Part A (Hospital 
Insurance) based on prospectively set rates. Section 1886(g) of the Act 
requires that, instead of paying for capital-related costs of inpatient 
hospital services on a reasonable cost basis, the Secretary use a 
prospective payment system (PPS).
     Section 1886(d)(1)(B) of the Act, which specifies that 
certain hospitals and hospital units are excluded from the IPPS. These 
hospitals and units are: Rehabilitation hospitals and units; LTCHs; 
psychiatric hospitals and units; children's hospitals; and cancer 
hospitals. Religious nonmedical health care institutions (RNHCIs) are 
also excluded from the IPPS.
     Sections 123(a) and (c) of Public Law 106-113 and section 
307(b)(1) of Public Law 106-554 (as codified under section 1886(m)(1) 
of the Act), which provide for the development and implementation of a 
prospective payment system for payment for inpatient hospital services 
of long-term care hospitals (LTCHs) described in section 
1886(d)(1)(B)(iv) of the Act.
     Sections 1814(l), 1820, and 1834(g) of the Act, which 
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(a)(4) of the Act, which specifies that costs 
of approved educational activities are excluded from the operating 
costs of inpatient hospital services. Hospitals with approved graduate 
medical education (GME) programs are paid for the direct costs of GME 
in accordance with section 1886(h) of the Act.
     Section 1886(b)(3)(B)(viii) of the Act, which requires the 
Secretary to reduce the applicable percentage 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 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 (DSH) 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 requires 
that, for fiscal year 2014 and each subsequent fiscal year, subsection 
(d) hospitals that would otherwise receive a DSH payment made under 
section 1886(d)(5)(F) of the Act will receive two separate payments: 
(1) 25 percent of the amount they previously would have received under 
section 1886(d)(5)(F) of the Act 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 section 1886(d)(5)(F) of the Act; (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 (Pub. L. 113-67), 
which provided for the establishment of site neutral payment rate 
criteria under the LTCH PPS with implementation beginning in FY 2016.
     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 of a functional status quality measure under the LTCH 
QRP for change in

[[Page 24956]]

mobility among inpatients requiring ventilator support.
     Section 1899B of the Act, as added by the Improving 
Medicare Post-Acute Care Transformation Act of 2014 (the IMPACT Act), 
which imposes data reporting requirements for certain post-acute care 
providers, including LTCHs.
     Section 1886(d)(12) of the Act, as amended by section 204 
of the Medicare Access and CHIP Reauthorization Act of 2015, which 
extended, through FY 2017, changes to the inpatient hospital payment 
adjustment for certain low-volume hospitals; and section 1886(d)(5)(G) 
of the Act, as amended by section 205 of the Medicare Access and CHIP 
Reauthorization Act of 2015, which extended, through FY 2017, the 
Medicare-dependent, small rural hospital (MDH) program.
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 one year, 
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, FY 2015, and FY 2016. For FY 2017, 
we are proposing to make an additional -1.5 percent recoupment 
adjustment to the standardized amount.
b. Adjustment to IPPS Rates Resulting From 2-Midnight Policy
    In this proposed rule, we are proposing a permanent adjustment of 
(1/0.998) to the standardized amount, the hospital-specific payment 
rates, and the national capital Federal rate using our authority under 
sections 1886(d)(5)(I)(i) and 1886(g) of the Act to prospectively 
remove the 0.2 percent reduction to the rate put in place in FY 2014 to 
offset the estimated increase in IPPS expenditures as a result of the 
2-midnight policy. In addition, we are proposing a temporary one-time 
prospective increase to the FY 2017 standardized amount, the hospital-
specific payment rates, and the national capital Federal rate of 0.6 
percent by including a temporary one-time factor of 1.006 in the 
calculation of the standardized amount, the hospital-specific payment 
rates, and the national capital Federal rate using our authority under 
sections 1886(d)(5)(I)(i) and 1886(g) of the Act, to address the 
effects of the 0.2 percent reduction to the rate for the 2-midnight 
policy in effect for FYs 2014, 2015, and 2016.
c. Reduction of Hospital Payments for Excess Readmissions
    We are proposing to make changes to policies for 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, as amended by section 10309 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 FY 2017 and 
subsequent years, the reduction is based on a hospital's risk-adjusted 
readmission rate during a 3-year period for acute myocardial infarction 
(AMI), heart failure (HF), pneumonia, chronic obstructive pulmonary 
disease (COPD), total hip arthroplasty/total knee arthroplasty (THA/
TKA), and coronary artery bypass graft (CABG). In this proposed rule, 
to align with other quality reporting programs and allow us to post 
data as soon as possible, we are clarifying our public reporting policy 
so that excess readmission rates will be posted to the Hospital Compare 
Web site as soon as feasible following the preview period, and we are 
proposing the methodology to include the addition of the CABG 
applicable condition in the calculation of the readmissions payment 
adjustment for FY 2017.
d. Hospital Value-Based Purchasing (VBP) Program
    Section 1886(o) of the Act requires the Secretary to establish a 
Hospital VBP Program under which value-based incentive payments are 
made in a fiscal year to hospitals based on their performance on 
measures established for a performance period for such fiscal year.
    In this proposed rule, we are proposing to refine two previously 
adopted measures beginning with the FY 2019 program year, to update one 
previously adopted measure beginning with the FY 2021 program year, to 
adopt two new measures beginning with the FY 2021 program year, and to 
adopt one new measure beginning with the FY 2022 program year. We also 
are proposing to change the performance period for one previously 
adopted measure for the FY 2018 program year and to change the name of 
the Patient- and Caregiver-Centered Experience of Care/Care 
Coordination domain to the Person and Community Engagement domain 
beginning with the FY 2019 program year. In addition, we are proposing 
changes to the immediate jeopardy citation policy.
e. Hospital-Acquired Condition (HAC) Reduction Program
    Section 1886(p) of the Act, as added under section 3008(a) of the 
Affordable Care Act, establishes an incentive to hospitals to reduce 
the incidence of hospital-acquired conditions by requiring the 
Secretary to make an adjustment to payments to applicable hospitals 
effective for discharges beginning on October 1, 2014. 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. 
In this proposed rule, we are proposing the following HAC Reduction 
Program policies: (1) Establishing NHSN CDC HAI data submission 
requirements for newly opened hospitals; (2) a clarification of data 
requirements for Domain 1 scoring; (3) establishing performance periods 
for the FY 2018 and FY 2019 HAC Reduction Programs, including revising 
our regulations to accommodate variable timeframes; (4) adopting the 
refined PSI 90: Patient Safety and Adverse Events Composite (NQF 
#0531); and (5) changing the program scoring methodology from the 
current decile-based scoring to a continuous scoring methodology.
f. 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

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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 will 
receive an additional payment based on its share of the total amount of 
uncompensated care for all Medicare DSHs for a given time period.
    In this proposed rule, we are proposing to update our estimates of 
the three factors used to determine uncompensated care payments for FY 
2017 and proposing to continue our methodology of using a hospital's 
share of insured low-income days for purposes of determining Factor 3. 
For Puerto Rico hospitals, we are proposing to use 14 percent of 
Medicaid days as a proxy for SSI days in the calculation of Factor 3. 
We are proposing to continue to use the methodology we established in 
FY 2015 to calculate the uncompensated care payment amounts for merged 
hospitals such that we combine uncompensated care data for the 
hospitals that have undergone a merger in order to calculate their 
relative share of uncompensated care. We are proposing to expand the 
time period of the data used to calculate the uncompensated care 
payment amounts to be distributed, from one cost reporting period to 
three cost reporting periods. We also are proposing a future transition 
to using Worksheet S-10 data to determine the amounts and distribution 
of uncompensated care payments. Specifically, we are proposing a 3-year 
transition beginning in FY 2018 where we use a combination of Worksheet 
S-10 and proxy data until FY 2020 when all data used in computing the 
uncompensated care payment amounts to be distributed would come from 
Worksheet S-10.
g. Payments for Capital-Related Costs for Hospitals Located in Puerto 
Rico
    Capital IPPS payments to hospitals located in Puerto Rico are 
currently computed based on a blend of 25 percent of the capital IPPS 
Puerto Rico rate and 75 percent of the capital IPPS Federal rate. 
Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-
113) increased the applicable Federal percentage of the operating IPPS 
payment for hospitals located in Puerto Rico from 75 percent to 100 
percent and decreased the applicable Puerto Rico percentage of the 
operating IPPS payments for hospitals located in Puerto Rico from 25 
percent to zero percent, applicable to discharges occurring on or after 
January 1, 2016. In this proposed rule, we are proposing to revise the 
calculation of capital IPPS payments to hospitals located in Puerto 
Rico to parallel the change in the statutory calculation of operating 
IPPS payments to hospitals located in Puerto Rico, beginning in FY 
2017.
h. Proposed Changes to the LTCH PPS
    In this proposed rule, we are proposing to revise and rebase the 
market basket used under the LTCH PPS (currently the 2009-based LTCH-
specific market basket) to reflect a 2013 base year. In addition, in 
this proposed rule, we are proposing to change our 25-percent threshold 
policy by proposing to sunset our existing regulations at 42 CFR 
412.534 and 412.536 and replace them with a single consolidated 25-
percent threshold policy at proposed Sec.  412.538. We also are 
proposing to change our existing regulations limiting allowable charges 
to beneficiaries for Subclause (II) LTCHs and proposing to make 
technical corrections to Sec.  412.503.
i. 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 payments. In past years, we have established measures for 
reporting data and the process for submittal and validation of the 
data.
    In this proposed rule, we are making several proposals. First, we 
are proposing to remove 15 measures for the FY 2019 payment 
determination and subsequent years. Thirteen of these measures are 
electronic clinical quality measures (eCQMs), two of which we are 
proposing also to remove in their chart-abstracted form, because they 
are ``topped-out,'' and two others are structural measures.
    Second, we are proposing to refine two previously adopted measures 
beginning with the FY 2018 payment determination: (1) The Hospital-
level, Risk-standardized Payment Associated with a 30-day Episode-of-
Care for Pneumonia (NQF #2579); and (2) the Patient Safety and Adverse 
Events Composite (NQF #0531).
    Third, we are proposing to add four new claims-based measures: (1) 
Aortic Aneurysm Procedure Clinical Episode-Based Payment Measure; (2) 
Cholecystectomy and Common Duct Exploration Clinical Episode-Based 
Payment Measure; (3) Spinal Fusion Clinical Episode-Based Payment 
Measure; and (4) Excess Days in Acute Care after Hospitalization for 
Pneumonia for the FY 2019 payment determination and subsequent years.
    Fourth, we are inviting public comment on potential new quality 
measures under consideration for future inclusion in the Hospital IQR 
Program: (1) A refined version of the NIH Stroke Scale for the Hospital 
30-Day Mortality Following Acute Ischemic Stroke Hospitalization 
Measure beginning as early as the FY 2022 payment determination; (2) 
the National Healthcare Safety Network (NHSN) Antimicrobial Use Measure 
(NQF #2720); and (3) one or more measures of behavioral health for the 
inpatient hospital setting, including measures previously adopted for 
the IPFQR Program (80 FR 46417). Also, we are seeking public comment on 
the possibility of future stratification of Hospital IQR Program data 
by race, ethnicity, sex, and disability on Hospital Compare, as well as 
on potential future hospital quality measures that incorporate health 
equity.
    Fifth, we are proposing to require hospitals to submit all 
available eCQMs included in the Hospital IQR Program measure set for 
four quarters of data, on an annual basis, beginning with the CY 2017 
reporting period/FY 2019 payment determination, in order to align the 
Hospital IQR Program with the Medicare and Medicaid EHR Incentive 
Programs. Also, we are proposing related eCQM submission requirements 
beginning with the FY 2019 payment determination.
    Sixth, we are proposing to modify the existing validation process 
for Hospital IQR Program data to include validation of eCQMs beginning 
with the FY 2020 payment determination.
    Seventh, we are proposing to update our Extraordinary Circumstances 
Extensions or Exemptions (ECE) policy by: (1) Extending the ECE request 
deadline for non-eCQM circumstances from 30 to 90 calendar days 
following an extraordinary circumstance, beginning in FY 2017 as 
related to extraordinary circumstance events that occur on or after 
October 1, 2016; and (2) establishing a separate submission deadline of 
April 1 following the end of the reporting calendar year for ECEs 
related to eCQMs beginning with an April 1, 2017 deadline and applying 
for subsequent eCQM reporting years.

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j. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
    Section 3004(a) of the Affordable Care Act amended section 
1886(m)(5) of the Act to require the Secretary to establish the Long-
Term Care Hospital Quality Reporting Program (LTCH QRP). This program 
applies to all hospitals certified by Medicare as LTCHs. Beginning with 
the FY 2014 payment determination and subsequent years, the Secretary 
is required to reduce any annual update to the LTCH PPS standard 
Federal rate for discharges occurring during such fiscal year by 2 
percentage points for any LTCH that does not comply with the 
requirements established by the Secretary.
    The Improving Medicare Post-Acute Care Transformation Act of 2014 
(IMPACT Act) amended the Act in ways that affect the LTCH QRP. 
Specifically, section 2(a) of the IMPACT Act amended title XVIII of the 
Act by adding section 1899B, titled Standardized Post-Acute Care (PAC) 
Assessment Data for Quality, Payment, and Discharge Planning. The Act 
requires that each LTCH submit, for FYs beginning on or after the 
specified application date (as defined in section 1899B(a)(2)(E) of the 
Act), data on quality measures specified under section 1899B(c)(1) of 
the Act and data on resource use and other measures specified under 
section 1899B(d)(1) of the Act in a manner and within the timeframes 
specified by the Secretary. In addition, each LTCH is required to 
submit standardized patient assessment data required under section 
1899B(b)(1) of the Act in a manner and within the timeframes specified 
by the Secretary. Sections 1899B(c)(1) and 1899B(d)(1) of the Act 
require the Secretary to specify quality measures and resource use and 
other measures with respect to certain domains no later than the 
specified application date in section 1899B(a)(2)(E) of the Act that 
applies to each measure domain and PAC provider setting.
    In this proposed rule, we are proposing three new measures for the 
FY 2018 payment determination and subsequent years to meet the 
requirements as set forth by the IMPACT Act. These proposed measures 
are: (1) MSPB-PAC LTCH QRP; (2) Discharge to Community-PAC LTCH QRP; 
and (3) Potentially Preventable 30-Day Post-Discharge Readmission 
Measure for the PAC LTCH QRP. We also are proposing one new quality 
measure to meet the requirements of the IMPACT Act for the FY 2020 
determination and subsequent years. The proposed measure, Drug Regimen 
Review Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, 
addresses the IMPACT Act domain of Medication Reconciliation.
    In addition, we will publicly report LTCH quality data beginning in 
fall 2016, on a CMS Web site, such as Hospital Compare. We will 
initially publicly report quality data on four quality measures. In 
this proposed rule, we are proposing to publicly report data in 2017 on 
four additional measures. We are proposing additional details regarding 
procedures that would allow individual LTCHs to review and correct 
their data and information on measures that are to be made public 
before those measure data are made public. We also are proposing to 
provide confidential feedback reports to LTCHs on their performance on 
the specified measures, beginning 1 year after the specified 
application date that applies to such measures and LTCHs.
    Finally, we are proposing to change the timing for submission of 
exception and extension requests from 30 days to 90 days from the date 
of the qualifying event which is preventing an LTCH from submitting 
their quality data for the LTCH QRP.
k. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program
    Section 1886(s)(4) of the Act, as added and amended by sections 
3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary 
to implement a quality reporting program for inpatient psychiatric 
hospitals and psychiatric units. Section 1886(s)(4)(C) of the Act 
requires that, for FY 2014 (October 1, 2013 through September 30, 2014) 
and each subsequent year, each psychiatric hospital and psychiatric 
unit must submit to the Secretary data on quality measures as specified 
by the Secretary. The data must be submitted in a form and manner and 
at a time specified by the Secretary. In this proposed rule, for the 
IPFQR Program, we are making several proposals. We are proposing two 
new measures beginning with the FY 2019 payment determination:
     SUB-3 Alcohol & Other Drug Use Disorder Treatment Provided 
or Offered at Discharge and SUB-3a Alcohol and Other Drug Use Disorder 
Treatment at Discharge (NQF #1664); and
     Thirty-day all-cause unplanned readmission following 
psychiatric hospitalization in an IPF.
    We also are proposing a technical update to the previously 
finalized measure, ``Screening for Metabolic Disorder.'' In addition, 
we are proposing to no longer specify in rulemaking the date of the 
public display of the program's data or that the preview period will be 
approximately 12 weeks before the public display date.
3. Summary of Costs and Benefits
     Adjustment for MS-DRG Documentation and Coding Changes. We 
are proposing to make a -1.5 percent recoupment adjustment to the 
standardized amount for FY 2017 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. Taking into account the cumulative effects of 
this proposed adjustment and the adjustments made in FYs 2014, 2015, 
and 2016, we estimate that we would recover the full $11 billion 
required under section 631 of the ATRA by the end of FY 2017. We note 
that section 414 of the MACRA (Pub. L. 114-10), enacted on April 16, 
2015, requires us to not make the single positive adjustment we 
intended to make in FY 2018, but instead make a 0.5 percent positive 
adjustment for each of FYs 2018 through 2023. The provision under 
section 414 of the MACRA does not impact our proposed FY 2017 
recoupment adjustment, and we will address this MACRA provision in 
future rulemaking.
     Proposed Adjustment to IPPS Payment Rates as a Result of 
the 2-Midnight Policy. The proposed adjustment to IPPS rates resulting 
from the 2-midnight policy would increase IPPS payment rates by (1/
0.998) * 1.006 for FY 2017. The 1.006 is a one-time factor that would 
be applied to the standardized amount, the hospital-specific rates, and 
the national capital Federal rate for FY 2017 only. Therefore, for FY 
2018, we would apply a one-time factor of (1/1.006) in the calculation 
of the rates to remove this one-time prospective increase.
     Proposed Changes to the Hospital Readmissions Reduction 
Program. For FY 2017 and subsequent years, the

[[Page 24959]]

reduction is based on a hospital's risk-adjusted readmission rate 
during a 3-year period for acute myocardial infarction (AMI), heart 
failure (HF), pneumonia, chronic obstructive pulmonary disease (COPD), 
total hip arthroplasty/total knee arthroplasty (THA/TKA), and coronary 
artery bypass graft (CABG). Overall, in this proposed rule, we estimate 
that 2,603 hospitals will have their base operating DRG payments 
reduced by their proposed proxy FY 2017 hospital-specific readmission 
adjustment. As a result, we estimate that the Hospital Readmissions 
Reduction Program will save approximately $532 million in FY 2017, an 
increase of approximately $100 million over the estimated FY 2016 
savings. This increase in the estimated savings for the Hospital 
Readmissions Reduction Program in FY 2017 as compared to FY 2016 is 
primarily due to the inclusion of the refinement of the pneumonia 
readmissions measure, which expanded the measure cohort, along with the 
addition of the CABG readmission measure, in the calculation of the 
payment adjustment.
     Value-Based Incentive Payments under the Hospital VBP 
Program. We estimate that there will be no net financial impact to the 
Hospital VBP Program for the FY 2017 program year in the aggregate 
because, by law, the amount available for value-based incentive 
payments under the program in a given year must be equal to the total 
amount of base operating MS-DRG payment amount reductions for that 
year, as estimated by the Secretary. The estimated amount of base 
operating MS-DRG payment amount reductions for the FY 2017 program year 
and, therefore, the estimated amount available for value-based 
incentive payments for FY 2017 discharges is approximately $1.7 
billion.
     Proposed Changes to the HAC Reduction Program. In regard 
to the five proposed changes to existing HAC Reduction Program policies 
described earlier, because a hospital's Total HAC score and its ranking 
in comparison to other hospitals in any given year depends on several 
different factors, any significant impact due to the HAC Reduction 
Program proposed changes for FY 2017, including which hospitals receive 
the adjustment, would depend on actual experience.
     Medicare DSH Payment Adjustment and Additional Payment for 
Uncompensated Care. Under section 1886(r) of the Act (as added by 
section 3133 of the Affordable Care Act), DSH payments to hospitals 
under section 1886(d)(5)(F) of the Act are reduced and an additional 
payment for uncompensated care is made to eligible hospitals beginning 
in FY 2014. Hospitals that receive Medicare DSH payments will receive 
25 percent of the amount they previously would have received under the 
current statutory formula for Medicare DSH payments in section 
1886(d)(5)(F) of the Act. The remainder, equal to an estimate of 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 for uncompensated care 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 2017, we are providing that the 75 percent of what otherwise 
would have been paid for Medicare DSH is adjusted to approximately 
56.74 percent of the amount to reflect changes in the percentage of 
individuals that are uninsured and additional statutory adjustments. In 
other words, approximately 42.56 percent (the product of 75 percent and 
56.74 percent) of our estimate of Medicare DSH payments, prior to the 
application of section 3133 of the Affordable Care Act, is available to 
make additional payments to hospitals for their relative share of the 
total amount of uncompensated care. We project that estimated Medicare 
DSH payments, and additional payments for uncompensated care made for 
FY 2017, would reduce payments overall by approximately 0.3 percent as 
compared to the estimate of Medicare DSH payments and uncompensated 
care payments that will be distributed in FY 2016. 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 proposed payment amount is not directly tied to a hospital's number 
of discharges.
     Proposed Update to the LTCH PPS Payment Rates and Other 
Payment Factors. Based on the best available data for the 419 LTCHs in 
our data base, we estimate that the proposed changes to the payment 
rates and factors that we are presenting in the preamble and Addendum 
of this proposed rule, which includes the second year under the 
transition of the statutory application of the new site neutral payment 
rate required by section 1886(m)(6)(A) of the Act, the proposed update 
to the LTCH PPS standard Federal payment rate for FY 2017, the proposed 
update to the LTCH PPS adjustment for differences in area wage levels 
(which includes the proposed update to the labor-related share based on 
the proposed revised and rebased LTCH PPS market basket) and estimated 
changes to the site neutral payment rate and short-stay outlier (SSO) 
and high-cost outlier (HCO) payments would result in an estimated 
decrease in payments from FY 2016 of approximately $355 million.
     Hospital Inpatient Quality Reporting (IQR) Program. In 
this proposed rule, we are proposing to remove 15 measures for the FY 
2019 payment determination and subsequent years. We are proposing to 
add four new claims-based measures to the Hospital IQR Program for the 
FY 2019 payment determination and subsequent years. We also are 
proposing to require hospitals to report on all Hospital IQR Program 
electronic clinical quality measures that align with the Medicare EHR 
Incentive Program for four quarters of data on an annual basis for the 
FY 2019 payment determination and subsequent years. In addition, we are 
proposing to modify the existing validation process for the Hospital 
IQR Program data to include a random sample of up to 200 hospitals for 
validation of eCQMs. We estimate that our policies for the adoption and 
removal of measures will result in total hospital costs of $30 million 
across 3,300 IPPS hospitals.
     Proposed Changes Related to the LTCH QRP. In this proposed 
rule, we are proposing four quality measures for the LTCH QRP. We 
estimate that the total cost related to one of these proposed measures, 
the Drug Regimen Review Conducted with Follow-up for Identified Issues-
PAC measure, would be $3,080 per LTCH annually, or $1,330,721 for all 
LTCHs annually. We also estimate that while there will be some 
additional burden associated with our proposal to expand data 
collection for the measure NQF #0680 Percent of Residents or Patients 
Who Were Assessed and Appropriately Given the Seasonal Influenza 
Vaccine (77 FR 53624 through 53627), this burden has been previously 
accounted for in PRA submissions approved under OMB control number 
0938-1163. For a detailed explanation, we refer readers to section I.M. 
of Appendix A (Economic Analyses) of this proposed rule. There is no 
additional burden for the three other claims-based measures proposed 
for adoption. Overall, we estimate the total cost for the 13 previously 
adopted measures and the four proposed new

[[Page 24960]]

measures would be $27,905 per LTCH annually or $12,054,724 for all 
LTCHs annually. These estimates were based on 432 LTCHs that are 
currently certified by Medicare. This is an average increase of 14 
percent over the burden for FY 2016. This increase includes all quality 
measures that LTCHs are required to report, with the exception of the 
four proposed measures for FY 2017. Section VIII.C. of this proposed 
rule includes a detailed discussion of the policies.
     Proposed Changes to the IPFQR Program. In this proposed 
rule, we are proposing to add two new measures beginning with the FY 
2019 payment determination and for subsequent years. One of these 
measures, the 30-Day All-Cause Unplanned Readmissions following 
Psychiatric Hospitalization in an Inpatient Psychiatric Facility 
measure, is calculated from administrative claims data. For the second 
measure, we estimate that our proposed policies would result in total 
costs of $11,834,748 for 1,684 IPFs nationwide.

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 training residents in an approved residency 
program(s), it receives a percentage add-on payment for each case paid 
under the IPPS, known as the indirect medical education (IME) 
adjustment. This percentage varies, depending on the ratio of residents 
to beds.
    Additional payments may be made for cases that involve new 
technologies or medical services that have been approved for special 
add-on payments. To qualify, a new technology or medical service must 
demonstrate that it is a substantial clinical improvement over 
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG 
payment.
    The costs incurred by the hospital for a case are evaluated to 
determine whether the hospital is eligible for an additional payment as 
an outlier case. This additional payment is designed to protect the 
hospital from large financial losses due to unusually expensive cases. 
Any eligible outlier payment is added to the DRG-adjusted base payment 
rate, plus any DSH, IME, and new technology or medical service add-on 
adjustments.
    Although payments to most hospitals under the IPPS are made on the 
basis of the standardized amounts, some categories of hospitals are 
paid in whole or in part based on their hospital-specific rate, which 
is determined from their costs in a base year. For example, sole 
community hospitals (SCHs) receive the higher of a hospital-specific 
rate based on their costs in a base year (the highest of FY 1982, FY 
1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the 
standardized amount. SCHs are the sole source of care 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.
    Under current law, the Medicare-dependent, small rural hospital 
(MDH) program is effective through FY 2017. Through and including FY 
2006, an MDH received the higher of the Federal rate or the Federal 
rate plus 50 percent of the amount by which the Federal rate was 
exceeded by the higher of its FY 1982 or FY 1987 hospital-specific 
rate. For discharges occurring on or after October 1, 2007, but before 
October 1, 2017, an MDH receives 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. MDHs are a major source of care for Medicare 
beneficiaries in their areas. 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).
    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: Inpatient rehabilitation facility (IRF) 
hospitals and units; long-term care hospitals (LTCHs); psychiatric 
hospitals and units; children's hospitals; and cancer hospitals. 
Religious nonmedical health care institutions (RNHCIs) are also 
excluded from the IPPS. Various sections of the Balanced Budget Act of

[[Page 24961]]

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 IRF hospitals and units, 
LTCHs, and psychiatric hospitals and units (referred to as inpatient 
psychiatric facilities (IPFs)). (We note that the annual updates to the 
LTCH PPS are now included as part of the IPPS annual update document. 
Updates to the IRF PPS and IPF PPS are issued as separate documents.) 
Children's hospitals, cancer hospitals, and RNHCIs continue to be paid 
solely under a reasonable cost-based system subject to a rate-of-
increase ceiling on inpatient operating costs.
    The existing regulations governing payments to excluded hospitals 
and hospital units are located in 42 CFR parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    The Medicare prospective payment system (PPS) for LTCHs applies to 
hospitals described in section 1886(d)(1)(B)(iv) of the Act effective 
for cost reporting periods beginning on or after October 1, 2002. The 
LTCH PPS was established under the authority of sections 123 of the 
BBRA and section 307(b) of the BIPA (as codified under section 
1886(m)(1) of the Act). During the 5-year (optional) transition period, 
a LTCH's payment under the PPS was based on an increasing proportion of 
the LTCH Federal rate with a corresponding decreasing proportion based 
on reasonable cost principles. Effective for cost reporting periods 
beginning on or after October 1, 2006, all LTCHs are paid 100 percent 
of the Federal rate. Section 1206(a) of Public Law 113-67 established 
the site neutral payment rate under the LTCH PPS, which made the LTCH 
PPS a dual rate payment system beginning in FY 2016. Under this 
statute, based on a rolling effective date that is linked to the date 
on which a given LTCH's Federal FY 2016 cost reporting period begins, 
LTCHs are paid for LTCH discharges at the site neutral payment rate 
unless the discharge meets the patient criteria for payment at the LTCH 
PPS standard Federal payment rate. The existing regulations governing 
payment under the LTCH PPS are located in 42 CFR part 412, subpart O. 
Beginning October 1, 2009, we issue the annual updates to the LTCH PPS 
in the same documents that update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
    Under sections 1814(l), 1820, and 1834(g) of the Act, payments made 
to critical access hospitals (CAHs) (that is, rural hospitals or 
facilities that meet certain statutory requirements) for inpatient and 
outpatient services are generally based on 101 percent of reasonable 
cost. Reasonable cost is determined under the provisions of section 
1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 
413 and 415.
5. Payments for Graduate Medical Education (GME)
    Under section 1886(a)(4) of the Act, costs of approved educational 
activities are excluded from the operating costs of inpatient hospital 
services. Hospitals with approved graduate medical education (GME) 
programs are paid for the direct costs of GME in accordance with 
section 1886(h) of the Act. The amount of payment for direct GME costs 
for a cost reporting period is based on the hospital's number of 
residents in that period and the hospital's costs per resident in a 
base year. The existing regulations governing payments to the various 
types of hospitals are located in 42 CFR part 413.

C. Summary of Provisions of Recent Legislation Proposed To Be 
Implemented in This Proposed Rule

1. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)
    The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), 
enacted on January 2, 2013, made a number of changes that affect the 
IPPS. In this proposed rule, we are proposing to make 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).
2. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)
    The Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) introduced 
new payment rules in the LTCH PPS. Under section 1206 of this law, 
discharges in cost reporting periods beginning on or after October 1, 
2015 under the LTCH PPS will receive payment under a site neutral rate 
unless the discharge meets certain patient-specific criteria. In this 
proposed rule, we are providing clarifications to prior policy changes 
that implemented provisions under section 1206 of the Pathway for SGR 
Reform Act.
3. Improving Medicare Post-Acute Care Transformation Act of 2014 
(IMPACT Act) (Pub. L. 113-185)
    The Improving Medicare Post-Acute Care Transformation Act of 2014 
(IMPACT Act (Pub. L. 113-185), enacted on October 6, 2014, made a 
number of changes that affect the Long-Term Care Quality Reporting 
Program (LTCH QRP). In this proposed rule, we are continuing to 
implement portions of section 1899B of the Act, as added by section 2 
of the IMPACT Act, which, in part, requires LTCHs, among other 
postacute care providers, to report standardized patient assessment 
data, data on quality measures, and data on resource use and other 
measures.
4. The Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L. 
114-10)
    The Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L. 
114-10) extended the MDH program and changes to the payment adjustment 
for low-volume hospitals through FY 2017. In this proposed rule, we are 
proposing to update the low-volume hospital payment adjustment for FY 
2017 under the extension of the temporary changes to the low-volume 
hospital payment adjustment provided for by section 204 of Public Law 
114-10. We also state our intention to finalize in the FY 2017 IPPS/
LTCH PPS final rule the provisions of the FY 2016 IPPS/LTCH PPS interim 
final rule with comment period (80 FR 49594 through 49597) that 
implemented sections 204 and 205 of Public Law 114-10.
5. The Consolidated Appropriations Act, 2016 (Pub. L. 114-113)
    The Consolidated Appropriations Act, 2016 (Pub. L. 114-113), 
enacted on December 18, 2015, made changes that affect the IPPS and the 
LTCH PPS. Section 231 of Public Law 114-113 provides for a temporary 
exception for certain wound care discharges from the application of the 
site neutral payment rate under the LTCH PPS for certain LTCHs, which 
is being implemented in an interim final rule with comment period. 
Section 601 of Public Law 114-113 made changes to the payment 
calculation for operating IPPS payments for hospitals located in Puerto 
Rico. Section 602 of Public Law 114-113 specifies that Puerto Rico 
hospitals are eligible for incentive payments for the

[[Page 24962]]

meaningful use of certified EHR technology, effective beginning FY 
2016, and also applies the adjustments to the applicable percentage 
increase under the statute for Puerto Rico hospitals that are not 
meaningful EHR users, effective FY 2022. In this proposed rule, we are 
proposing conforming changes to our regulations to reflect the 
provisions of section 601 of Public Law 114-113, which increased the 
applicable Federal percentage of the operating IPPS payment for 
hospitals located in Puerto Rico from 75 percent to 100 percent and 
decreased the applicable Puerto Rico percentage of the operating IPPS 
payments for hospitals located in Puerto Rico from 25 percent to zero 
percent, applicable to discharges occurring on or after January 1, 
2016.
6. The Notice of Observation Treatment and Implication for Care 
Eligibility Act (the NOTICE Act) (Pub. L. 114-42)
    The Notice of Observation Treatment and Implication for Care 
Eligibility Act (the NOTICE Act) (Pub. L. 114-42) enacted on August 6, 
2015, amended section 1866(a)(1) of the Act by adding new subparagraph 
(Y) that requires hospitals and CAHs to provide written notification 
and an oral explanation of such notification to individuals receiving 
observation services as outpatients for more than 24 hours at the 
hospitals or CAHs. In this proposed rule, we are proposing to implement 
the provisions of Public Law 114-42.

D. Summary of the Provisions of This Proposed Rule

    In this proposed rule, we are setting forth proposed payment and 
policy changes to the Medicare IPPS for FY 2017 operating costs and for 
capital-related costs of acute care hospitals and certain hospitals and 
hospital units that are excluded from IPPS, including proposed changes 
relating to payments for IME and direct GME to certain hospitals that 
continue to be excluded from the IPPS and paid on a reasonable cost 
basis. In addition, in this proposed rule, we are setting forth 
proposed changes to the payment rates, factors, and other payment and 
policy-related changes to programs associated with payment rate 
policies under the LTCH PPS for FY 2017.
    Below is a summary of the major changes that we are proposing to 
make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of 
Relative Weights
    In section II. of the preamble of the proposed rule, we include--
     Proposed changes to MS-DRG classifications based on our 
yearly review for FY 2017.
     Proposed application of the documentation and coding 
adjustment for FY 2017 resulting from implementation of the MS-DRG 
system.
     Proposed recalibrations of the MS-DRG relative weights.
     A discussion of the FY 2017 status of new technologies 
approved for add-on payments for FY 2016 and a presentation of our 
evaluation and analysis of the FY 2017 applicants for add-on payments 
for high-cost new medical services and technologies (including public 
input, as directed by Public Law 108-173, obtained in a town hall 
meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
    In section III. of the preamble to this proposed rule, we are 
proposing revisions to the wage index for acute care hospitals and the 
annual update of the wage data. Specific issues addressed include, but 
not limited to, the following:
     The proposed FY 2017 wage index update using wage data 
from cost reporting periods beginning in FY 2013.
     Calculation of the proposed occupational mix adjustment 
for FY 2017 based on the 2013 Occupational Mix Survey.
     Analysis and implementation of the proposed FY 2017 
occupational mix adjustment to the wage index for acute care hospitals.
     Proposed application of the rural floor, the proposed 
imputed floor, and the proposed frontier State floor.
     Transitional wage indexes relating to the continued use of 
the revised OMB labor market area delineations based on 2010 Decennial 
Census data.
     Proposed revisions to the wage index for acute care 
hospitals based on hospital redesignations and reclassifications under 
sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act.
     Notification regarding proposed CMS ``lock-in'' date for 
urban to rural reclassifications under Sec.  412.103.
     The proposed adjustment to the wage index for acute care 
hospitals for FY 2017 based on commuting patterns of hospital employees 
who reside in a county and work in a different area with a higher wage 
index.
     Determination of the labor-related share for the proposed 
FY 2017 wage index.
     Solicitation of Comments on Treatment of Overhead and Home 
Office Costs in the Wage Index Calculation
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs 
and GME Costs
    In section IV. of the preamble of this proposed rule, we discuss 
proposed changes or clarifications of a number of the provisions of the 
regulations in 42 CFR parts 412 and 413, including the following:
     Proposed conforming changes to our regulations to reflect 
the changes to operating payments for subsection (d) Puerto Rico 
hospitals in accordance with the provisions of section 601 of Public 
Law 114-113.
     Proposed changes to the inpatient hospital update for FY 
2017.
     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 2017.
     The statutorily required IME adjustment factor for FY 
2017.
     Proposed changes to the methodologies for determining 
Medicare DSH payments and the additional payments for uncompensated 
care.
     Proposed changes to the rules for payment adjustments 
under the Hospital Readmissions Reduction Program based on hospital 
readmission measures and the process for hospital review and correction 
of those rates for FY 2017.
     Proposed changes to the requirements and provision of 
value-based incentive payments under the Hospital Value-Based 
Purchasing Program for FY 2017.
     Proposed requirements for payment adjustments to hospitals 
under the HAC Reduction Program for FY 2017.
     Proposed changes relating to direct GME and IME payments 
to urban hospitals with rural track training programs.
     Discussion of the Rural Community Hospital Demonstration 
Program and a proposal for making a budget neutrality adjustment for 
the demonstration program.
     Proposed implementation of the Notice of Observation 
Treatment and Implications for Care Eligibility Act (the NOTICE Act) 
for hospitals and CAHs.
     Proposed technical changes and corrections to regulations 
relating to cost to related organizations and Medicare cost reports.
4. Proposed FY 2017 Policy Governing the IPPS for Capital-Related Costs
    In section V. of the preamble to this proposed rule, we discuss the 
proposed payment policy requirements for capital-related costs and 
capital

[[Page 24963]]

payments to hospitals for FY 2017. In addition, we discuss proposed 
changes to the calculation of capital IPPS payments to hospitals 
located in Puerto Rico to parallel the change in the statutory 
calculation of operating IPPS payments to hospitals located in Puerto 
Rico, beginning in FY 2017.
5. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VI. of the preamble of this proposed rule, we discuss--
     Proposed changes to payments to certain excluded hospitals 
for FY 2017.
     Proposed implementation of the Frontier Community Health 
Integration Project (FCHIP) Demonstration.
6. Proposed Changes to the LTCH PPS
    In section VII. of the preamble of this proposed rule, we set 
forth--
     Proposed changes to the LTCH PPS Federal payment rates, 
factors, and other payment rate policies under the LTCH PPS for FY 
2017.
     Proposals to sunset our existing 25-percent threshold 
policy regulations, and replace them with single consolidated 25 
percent threshold policy regulation.
     Proposed changes to the limitation on charges (LOC) to 
beneficiaries and related billing requirements for ``subclause (II)'' 
LTCHs to align those LTCH PPS payment adjustment policies with the LOC 
policies applied in the TEFRA payment context.
     Proposed technical corrections to certain definitions to 
correct and clarify their use under the application of the site neutral 
payment rate and proposed additional definitions in accordance with our 
proposed modifications to the 25-percent policy.
     Proposed rebasing and revising of the LTCH market basket 
to update the LTCH PPS, effective for FY 2017.
7. Proposed Changes Relating to Quality Data Reporting for Specific 
Providers and Suppliers
    In section VIII. of the preamble of the proposed rule, we address--
     Proposed requirements for the Hospital Inpatient Quality 
Reporting (IQR) Program as a condition for receiving the full 
applicable percentage increase.
     Proposed changes to the requirements for the quality 
reporting program for PPS-exempt cancer hospitals (PCHQR Program).
     Proposed changes to the requirements under the LTCH 
Quality Reporting Program (LTCH QRP).
     Proposed changes to the requirements under the Inpatient 
Psychiatric Facility Quality Reporting (IPFQR) Program.
     Proposed changes relating to clinical quality measures for 
the Medicare Electronic Health Record (EHR) Incentive Program and 
eligible hospitals and CAHs.
8. Determining Prospective Payment Operating and Capital Rates and 
Rate-of-Increase Limits for Acute Care Hospitals
    In the Addendum to this proposed rule, we set forth proposed 
changes to the amounts and factors for determining the proposed FY 2017 
prospective payment rates for operating costs and capital-related costs 
for acute care hospitals. We are proposing to establish the threshold 
amounts for outlier cases. In addition, we address the update factors 
for determining the rate-of-increase limits for cost reporting periods 
beginning in FY 2017 for certain hospitals excluded from the IPPS.
9. Determining Prospective Payment Rates for LTCHs
    In the Addendum to this proposed rule, we set forth proposed 
changes to the amounts and factors for determining the proposed FY 2017 
LTCH PPS standard Federal payment rate and other factors used to 
determine LTCH PPS payments under both the LTCH PPS standard Federal 
payment rate and the site neutral payment rate in FY 2017. We are 
proposing to establish the adjustments for wage levels, the labor-
related share, the cost-of-living adjustment, and high-cost outliers, 
including the applicable fixed-loss amounts and the LTCH cost-to-charge 
ratios (CCRs) for both payment rates. We also are providing the 
estimated market basket update to apply to the ceiling used to 
determine payments under the existing payment adjustment for 
``subclause (II)'' LTCHs for cost reporting periods beginning in FY 
2017.
10. Impact Analysis
    In Appendix A of this proposed rule, we set forth an analysis of 
the impact that the proposed changes would have on affected acute care 
hospitals, CAHs, LTCHs, PCHs, and IPFs.
11. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    In Appendix B of this proposed rule, as required by sections 
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of 
the appropriate percentage changes for FY 2017 for the following:
     A single average standardized amount for all areas for 
hospital inpatient services paid under the IPPS for operating costs of 
acute care hospitals (and hospital-specific rates applicable to SCHs 
and MDHs).
     Target rate-of-increase limits to the allowable operating 
costs of hospital inpatient services furnished by certain hospitals 
excluded from the IPPS.
     The LTCH PPS standard Federal payment rate and the site 
neutral payment rate for hospital inpatient services provided for LTCH 
PPS discharges.
12. Discussion of Medicare Payment Advisory Commission Recommendations
    Under section 1805(b) of the Act, MedPAC is required to submit a 
report to Congress, no later than March 15 of each year, in which 
MedPAC reviews and makes recommendations on Medicare payment policies. 
MedPAC's March 2016 recommendations concerning hospital inpatient 
payment policies address the update factor for hospital inpatient 
operating costs and capital-related costs for hospitals under the IPPS. 
We addressed these recommendations in Appendix B of this proposed rule. 
For further information relating specifically to the MedPAC March 2016 
report or to obtain a copy of the report, contact MedPAC at (202) 220-
3700 or visit MedPAC's Web site at: http://www.medpac.gov.

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

A. Background

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

[[Page 24964]]

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), the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50512), the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 49871), and the FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49342).

C. Adoption of the MS-DRGs in FY 2008

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

D. Proposed FY 2017 MS-DRG Documentation and Coding Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    In the FY 2008 IPPS final rule with comment period (72 FR 47140 
through 47189), we adopted the MS-DRG patient classification system for 
the IPPS, effective October 1, 2007, to better recognize severity of 
illness in Medicare payment rates for acute care hospitals. The 
adoption of the MS-DRG system resulted in the expansion of the number 
of DRGs from 538 in FY 2007 to 745 in FY 2008. (Currently, for FY 2016, 
there are 756 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 Assistance], Abstinence Education, and QI [Qualifying 
Individuals] Programs Extension Act of 2007 (Pub. L. 110-90). Section 
7(a) of Public Law 110-90 reduced the documentation and coding 
adjustment made as a result of the MS-DRG system that we adopted in the 
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 
and -0.9 percent for FY 2009, and we finalized the FY 2008 adjustment 
through rulemaking, effective October 1, 2007 (72 FR 66886).
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent, and we finalized 
that adjustment through rulemaking effective October 1, 2008 (73 FR 
48447). The documentation and coding adjustments established in the FY 
2008 IPPS final rule with comment period, which reflected the 
amendments made by section 7(a) of Public Law 110-90, are cumulative. 
As a result, the -0.9 percent documentation and coding adjustment for 
FY 2009 was in addition to the -0.6 percent adjustment for FY 2008, 
yielding a combined effect of -1.5 percent.
2. Adjustment to the Average Standardized Amounts Required by Public 
Law 110-90
a. Prospective Adjustment Required by Section 7(b)(1)(A) of Public Law 
110-90
    Section 7(b)(1)(A) of Public Law 110-90 requires that, if the 
Secretary determines that implementation of the MS-DRG system resulted 
in changes in documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FY 2008 or FY 2009 
that are different than the prospective documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90, the 
Secretary shall make an appropriate adjustment under section 
1886(d)(3)(A)(vi) of the Act.
    Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the 
average standardized amounts for subsequent fiscal years in order to 
eliminate the effect of such coding or classification changes. These 
adjustments are intended to ensure that future annual aggregate IPPS 
payments are the same as the payments that otherwise would have been 
made had the prospective adjustments for documentation and coding 
applied in FY 2008 and FY 2009 reflected the change that occurred in 
those years.
b. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Section 7(b)(1)(B) Public Law 110-90
    If, based on a retroactive evaluation of claims data, the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different from the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of 
Public Law 110-90 requires the Secretary to make an additional 
adjustment to the standardized amounts under section 1886(d) of the 
Act. This adjustment must offset the estimated increase or decrease in 
aggregate payments for FYs 2008 and 2009 (including interest) resulting 
from the difference between the estimated actual documentation and 
coding effect and the documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90. This adjustment is in addition to 
making an appropriate adjustment to the standardized amounts under 
section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) 
of Public Law 110-90. That is, these adjustments are intended to recoup 
(or repay, in the case of underpayments) spending in excess of (or less 
than) spending that would have occurred had the prospective adjustments 
for changes in documentation and coding applied in FY 2008 and FY 2009 
matched the changes that occurred in those years. Public Law 110-90 
requires that the Secretary only make these recoupment or repayment 
adjustments for discharges occurring during FYs 2010, 2011, and 2012.
3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
    In order to implement the requirements of section 7 of Public Law 
110-90, we performed a retrospective

[[Page 24965]]

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 proposed by various commenters that the methodology we 
employed to determine the required documentation and coding adjustments 
was sound.
    As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files 
are available to the public to allow independent analysis of the FY 
2008 and FY 2009 documentation and coding effects. Interested 
individuals may still order these files through the CMS Web site at: 
http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/ by clicking on MedPAR Limited Data Set (LDS)--
Hospital (National). This CMS Web page describes the file and provides 
directions and further detailed instructions for how to order.
    Persons placing an order must send the following: A Letter of 
Request, the LDS Data Use Agreement and Research Protocol (refer to the 
Web site for further instructions), the LDS Form, and a check (refer to 
the Web site for the required payment amount) to:
    Mailing address if using the U.S. Postal Service:

Centers for Medicare & Medicaid Services, RDDC Account, Accounting 
Division, P.O. Box 7520, Baltimore, MD 21207-0520.

Mailing address if using express mail:

Centers for Medicare & Medicaid Services, OFM/Division of Accounting--
RDDC, 7500 Security Boulevard, C3-07-11, Baltimore, MD 21244-1850.
4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by 
Section 7(b)(1)(A) of Public Law 110-90
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 
through 43777), we opted to delay the implementation of any 
documentation and coding adjustment until a full analysis of case-mix 
changes based on FY 2009 claims data could be completed. We refer 
readers to the FY 2010 IPPS/RY LTCH PPS final rule for a detailed 
description of our proposal, responses to comments, and finalized 
policy. After analysis of the FY 2009 claims data for the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50057 through 50073), we found a total 
prospective documentation and coding effect of 5.4 percent. After 
accounting for the -0.6 percent and the -0.9 percent documentation and 
coding adjustments in FYs 2008 and 2009, we found a remaining 
documentation and coding effect of 3.9 percent. As we have discussed, 
an additional cumulative adjustment of -3.9 percent would be necessary 
to meet the requirements of section 7(b)(1)(A) of Public Law 110-90 to 
make an adjustment to the average standardized amounts in order to 
eliminate the full effect of the documentation and coding changes that 
do not reflect real changes in case-mix on future payments. Unlike 
section 7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not 
specify when we must apply the prospective adjustment, but merely 
requires us to make an ``appropriate'' adjustment. Therefore, as we 
stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50061), we 
believed the law provided some discretion as to the manner in which we 
applied the prospective adjustment of -3.9 percent. As we discussed 
extensively in the FY 2011 IPPS/LTCH PPS final rule, it has been our 
practice to moderate payment adjustments when necessary to mitigate the 
effects of significant downward adjustments on hospitals, to avoid what 
could be widespread, disruptive effects of such adjustments on 
hospitals. Therefore, we stated that we believed it was appropriate to 
not implement the -3.9 percent prospective adjustment in FY 2011 
because we finalized a -2.9 percent recoupment adjustment for that 
fiscal year. Accordingly, we did not propose a prospective adjustment 
under section 7(b)(1)(A) of Public Law 110-90 for FY 2011 (75 FR 23868 
through 23870). We noted that, as a result, payments in FY 2011 (and in 
each future fiscal year until we implemented the requisite adjustment) 
would be higher than they would have been if we had implemented an 
adjustment under section 7(b)(1)(A) of Public Law 110-90.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51489 and 51497), we 
indicated that, because further delay of this prospective adjustment 
would result in a continued accrual of unrecoverable overpayments, it 
was imperative that we implement a prospective adjustment for FY 2012, 
while recognizing CMS' continued desire to mitigate the effects of any 
significant downward adjustments to hospitals. Therefore, we 
implemented a -2.0 percent prospective adjustment to the standardized 
amount instead of the full -3.9 percent.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274 through 
53276), we completed the prospective portion of the adjustment required 
under section 7(b)(1)(A) of Public Law 110-90 by finalizing a -1.9 
percent adjustment to the standardized amount for FY 2013. We stated 
that this adjustment would remove the remaining effect of the 
documentation and coding changes that do not reflect real changes in 
case-mix that occurred in FY 2008 and FY 2009. We believed that it was 
imperative to implement the full remaining adjustment, as any further 
delay would result in an overstated standardized amount in FY 2013 and 
any future fiscal years until a full adjustment was made.
    We noted again that delaying full implementation of the prospective 
portion of the adjustment required under section 7(b)(1)(A) of Public 
Law 110-90 until FY 2013 resulted in payments in FY 2010 through FY 
2012 being overstated. These overpayments could not be recovered by 
CMS, as section 7(b)(1)(B) of Public Law 110-90 limited recoupments to 
overpayments made in FY 2008 and FY 2009.
5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) 
of Public Law 110-90
    Section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to 
make an adjustment to the standardized amounts under section 1886(d) of 
the Act to offset the estimated increase or decrease in aggregate 
payments for FY 2008 and FY 2009 (including interest) resulting from 
the difference between the estimated actual documentation and coding 
effect and the documentation and coding adjustments applied under 
section 7(a) of Public Law 110-90. This determination must be based on 
a retrospective evaluation of claims data. Our actuaries estimated that 
there was a 5.8 percentage point difference resulting in an increase in 
aggregate payments of approximately $6.9 billion. Therefore, as 
discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 
50067), we determined that an aggregate adjustment of -5.8 percent in 
FYs 2011 and 2012 would be necessary in order to meet the requirements 
of section 7(b)(1)(B) of Public Law 110-90

[[Page 24966]]

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. Proposed 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, we anticipated that any 
adjustment made to reduce payment rates in one year would eventually be 
offset by a positive adjustment in 2018, once the necessary amount of 
overpayment was recovered. However, section 414 of the Medicare Access 
and CHIP Reauthorization Act (MACRA) of 2015, Public Law 114-10, 
enacted on April 16, 2015, replaced the single positive adjustment we 
intended to make in FY 2018 with a 0.5 percent positive adjustment for 
each of FYs 2018 through 2023. We stated in the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49345) that we will address this MACRA provision in 
future rulemaking.
    As we stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 
through 50517), our actuaries estimate that a -9.3 percent adjustment 
to the standardized amount would be necessary if CMS were to fully 
recover the $11 billion recoupment required by section 631 of the ATRA 
in FY 2014. It is often our practice to phase in payment rate 
adjustments over more than one year, in order to moderate the effect on 
payment rates in any one year. Therefore, consistent with the policies 
that we have adopted in many similar cases, and after consideration of 
the public comments we received, in the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50515 through 50517), we implemented a -0.8 percent 
recoupment adjustment to the standardized amount in FY 2014. We stated 
that if adjustments of approximately -0.8 percent are implemented in 
FYs 2014, 2015, 2016, and 2017, using standard inflation factors, we 
estimate that the entire $11 billion will be accounted for by the end 
of the statutory 4-year timeline. As estimates of any future 
adjustments are subject to slight variations in total savings, we did 
not provide for specific adjustments for FYs 2015, 2016, or 2017 at 
that time. We stated that we believed that this level of adjustment for 
FY 2014 was a reasonable and fair approach that satisfies the 
requirements of the statute while mitigating extreme annual 
fluctuations in payment rates.
    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 final rule (79 FR 49874) and the FY 2016 
IPPS/LTCH PPS final rule (80 FR 49345), we implemented additional -0.8 
percent recoupment adjustments to the standardized amount in FY 2015 
and FY 2016, respectively. We estimated that these adjustments, 
combined with leaving the prior -0.8 percent adjustments in place, 
would recover up to $2 billion in FY 2015 and another $3 billion in FY 
2016. When combined with the approximately $1 billion adjustment made 
in FY 2014, we estimated that approximately $5 to $6 billion would be 
left to recover under section 631 of the ATRA by the end of FY 2016.
    However, due to lower than previously estimated inpatient spending, 
an adjustment of -0.8 percent in FY 2017 would not recoup the $11 
billion under section 631 of the ATRA. Based on the FY 2017 President's 
Budget, our actuaries currently estimate that FY 2014 through FY 2016 
spending subject to the documentation and coding recoupment adjustment 
in the absence of the -0.8 percent adjustments made in FYs 2014 through 
2016 would have been $123.783 billion in FY 2014, $124.361 billion in 
FY 2015, and $127.060 billion in FY 2016. As shown in the following 
table, the amount recouped in each of those fiscal years is therefore 
calculated as the difference between those amounts and the amounts 
determined to have been spent in those years with the -0.8 percent 
adjustment applied, namely $122.801 billion in FY 2014, $122.395 
billion in FY 2015, and $124.059 billion in FY 2016. This yields an 
estimated total recoupment through the end of FY 2016 of $5.950 
billion.

              Recoupment Made Under Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)
----------------------------------------------------------------------------------------------------------------
                                                                    Cumulative     Adjusted IPPS    Recoupment
                                                   IPPS Spending    adjustment       spending         amount
                                                   *  (billions)      factor        (billions)      (billions)
----------------------------------------------------------------------------------------------------------------
FY 2014.........................................        $122.801         1.00800        $123.783           $0.98

[[Page 24967]]

 
FY 2015.........................................         122.395         1.01606         124.361            1.97
FY 2016.........................................         124.059         1.02419         127.060            3.00
                                                 ---------------------------------------------------------------
    Total.......................................  ..............  ..............  ..............            5.95
----------------------------------------------------------------------------------------------------------------
* Based on FY 2017 President's Budget, including capital, IME, and DSH payments.

    These estimates and the estimate of FY 2017 spending subject to the 
documentation and coding recoupment adjustment also will be contained 
in a memorandum from the Office of the Actuary that we will make 
publicly available on the CMS Web site. A description of the 
President's Budget for FY 2017 is currently available on the OMB Web 
site at: https://www.whitehouse.gov/omb/budget.
    Our actuaries currently estimate that the FY 2017 spending subject 
to the documentation and coding recoupment adjustment (including 
capital, IME, and DSH payment) would be $129.625 billion in the absence 
of any documentation and recoupment adjustments from FY 2014 through FY 
2017. Therefore, our actuaries currently estimate that, to the nearest 
tenth of a percent, the FY 2017 documentation and coding adjustment 
factor that will recoup as closely as possible $11 billion from FY 2014 
through FY 2017 without exceeding this amount is -1.5 percent. This 
adjustment factor yields an estimated spending amount in FY 2017 of 
$124.693 billion, calculated as $129.625/(1.008*1.008*1.008*1.015). 
This estimated -1.5 percent adjustment factor will be updated for the 
final rule based on the FY 2017 President's Budget Midsession Review. 
It is possible that, based on updated estimates, the necessary 
adjustment factor to the nearest tenth of a percent could be different 
than our actuaries' current estimate of -1.5 percent. The proposed -1.5 
percent adjustment would be the final adjustment required under section 
631 of the ATRA, and when combined with the effects of previous 
adjustments made in FY 2014, FY 2015, and FY 2016, we estimate will 
satisfy the section 631 of the ATRA recoupment. As stated earlier, once 
the recoupment was complete, we had anticipated making a single 
positive adjustment in FY 2018 to offset the reductions required to 
recoup the $11 billion under section 631 of the ATRA. However, as 
stated earlier, section 414 of the MACRA requires that we not make the 
single positive adjustment we intended to make in FY 2018, but instead 
make a 0.5 percent positive adjustment for each of FYs 2018 through 
2023. The provision under section 414 of the MACRA does not impact our 
proposed FY 2017 adjustment, and we will address this MACRA provision 
in future rulemaking.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
    Beginning in FY 2007, we implemented relative weights for DRGs 
based on cost report data instead of charge information. We refer 
readers to the FY 2007 IPPS final rule (71 FR 47882) for a detailed 
discussion of our final policy for calculating the cost-based DRG 
relative weights and to the FY 2008 IPPS final rule with comment period 
(72 FR 47199) for information on how we blended relative weights based 
on the CMS DRGs and MS-DRGs.
    As we implemented cost-based relative weights, some public 
commenters raised concerns about potential bias in the weights due to 
``charge compression,'' which is the practice of applying a higher 
percentage charge markup over costs to lower cost items and services, 
and a lower percentage charge markup over costs to higher cost items 
and services. As a result, the cost-based weights would undervalue 
high-cost items and overvalue low-cost items if a single 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 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 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

[[Page 24968]]

OPPS relative weights would better estimate the costs of those services 
if CMS were to add standard cost centers for CT scans, MRIs, and 
cardiac catheterization in order for hospitals to report separately the 
costs and charges for those services and in order for CMS to calculate 
unique CCRs to estimate the costs from charges on claims data. In the 
FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we 
finalized our proposal to create standard cost centers for CT scans, 
MRIs, and cardiac catheterization, and to require that hospitals report 
the costs and charges for these services under new cost centers on the 
revised Medicare cost report Form CMS-2552-10. (We refer readers to the 
FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a 
detailed discussion of the reasons for the creation of standard cost 
centers for CT scans, MRIs, and cardiac catheterization.) The new 
standard cost centers for CT scans, MRIs, and cardiac catheterization 
are effective for cost reporting periods beginning on or after May 1, 
2010, on the revised cost report Form CMS-2552-10.
    In the FY 2009 IPPS final rule (73 FR 48468), we stated that, due 
to what is typically a 3-year lag between the reporting of cost report 
data and the availability for use in ratesetting, we anticipated that 
we might be able to use data from the new ``Implantable Devices Charged 
to Patients'' cost center to develop a CCR for ``Implantable Devices 
Charged to Patients'' in the FY 2012 or FY 2013 IPPS rulemaking cycle. 
However, as noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 
FR 43782), due to delays in the issuance of the revised cost report 
Form CMS 2552-10, we determined that a new CCR for ``Implantable 
Devices Charged to Patients'' might not be available before FY 2013. 
Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS 
final rule to add new cost centers for CT scans, MRIs, and cardiac 
catheterization, we explained that data from any new cost centers that 
may be created will not be available until at least 3 years after they 
are first used (75 FR 50077). In preparation for the FY 2012 IPPS/LTCH 
PPS rulemaking, we checked the availability of data in the 
``Implantable Devices Charged to Patients'' cost center on the FY 2009 
cost reports, but we did not believe that there was a sufficient amount 
of data from which to generate a meaningful analysis in this particular 
situation. Therefore, we did not propose to use data from the 
``Implantable Devices Charged to Patients'' cost center to create a 
distinct CCR for ``Implantable Devices Charged to Patients'' for use in 
calculating the MS-DRG relative weights for FY 2012. We indicated that 
we would reassess the availability of data for the ``Implantable 
Devices Charged to Patients'' cost center for the FY 2013 IPPS/LTCH PPS 
rulemaking cycle and, if appropriate, we would propose to create a 
distinct CCR at that time.
    During the development of the FY 2013 IPPS/LTCH PPS proposed and 
final rules, hospitals were still in the process of transitioning from 
the previous cost report Form CMS-2552-96 to the new cost report Form 
CMS-2552-10. Therefore, we were able to access only those cost reports 
in the FY 2010 HCRIS with fiscal year begin dates on or after October 
1, 2009, and before May 1, 2010; that is, those cost reports on Form 
CMS-2552-96. Data from the Form CMS-2552-10 cost reports were not 
available because cost reports filed on the Form CMS-2552-10 were not 
accessible in the HCRIS. Further complicating matters was that, due to 
additional unforeseen technical difficulties, the corresponding 
information regarding charges for implantable devices on hospital 
claims was not yet available to us in the MedPAR file. Without the 
breakout in the MedPAR file of charges associated with implantable 
devices to correspond to the costs of implantable devices on the cost 
report, we believed that we had no choice but to continue computing the 
relative weights with the current CCR that combines the costs and 
charges for supplies and implantable devices. We stated in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53281 through 53283) that when we do 
have the necessary data for supplies and implantable devices on the 
claims in the MedPAR file to create distinct CCRs for the respective 
cost centers for supplies and implantable devices, we hoped that we 
would also have data for an analysis of creating distinct CCRs for CT 
scans, MRIs, and cardiac catheterization, which could then be finalized 
through rulemaking. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53281), we stated that, prior to proposing to create these CCRs, we 
would first thoroughly analyze and determine the impacts of the data, 
and that distinct CCRs for these new cost centers would be used in the 
calculation of the relative weights only if they were first finalized 
through rulemaking.
    At the time of the development of the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27506 through 27507), we had a substantial number 
of hospitals completing all, or some, of these new cost centers on the 
FY 2011 Medicare cost reports, compared to prior years. We stated that 
we believed that the analytic findings described using the FY 2011 cost 
report data and FY 2012 claims data supported our original decision to 
break out and create new cost centers for implantable devices, MRIs, CT 
scans, and cardiac catheterization, and we saw no reason to further 
delay proposing to implement the CCRs of each of these cost centers. 
Therefore, beginning in FY 2014, we proposed a policy to calculate the 
MS-DRG relative weights using 19 CCRs, creating distinct CCRs from cost 
report data for implantable devices, MRIs, CT scans, and cardiac 
catheterization.
    We 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 calculate 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 2017
    Consistent with our established policy, we calculated the proposed 
MS-DRG relative weights for FY 2017 using 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 proposed 19 CCRs and the proposed 
MS-DRG relative weights for FY 2017 is included in section II.G. of the 
preamble of this proposed rule. As we did with the FY 2016 IPPS/LTCH 
PPS final rule, we are providing the version of the HCRIS from which we 
calculated these proposed 19 CCRs 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 2017 IPPS Proposed Rule Home Page'' or ``Acute 
Inpatient Files for Download.''

[[Page 24969]]

F. Proposed 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)
    As of October 1, 2015, providers use the International 
Classification of Diseases, 10th Revision (ICD-10) coding system to 
report diagnoses and procedures for Medicare hospital inpatient 
services under the MS-DRG system instead of the ICD-9-CM coding system, 
which was used through September 30, 2015. 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 (the 
Secretary) 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. Accordingly, the U.S. Department of Health and 
Human Services released a final rule in the Federal Register on August 
4, 2014 (79 FR 45128 through 45134) that included a new compliance date 
that required the use of ICD-10 beginning October 1, 2015. The rule 
also required 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 to be implemented at 
the same time as ICD-10 (75 FR 50127 and 50128). While we did not 
propose an ICD-10 version of the MS-DRGs in the FY 2011 IPPS/LTCH PPS 
proposed rule, we noted that we have been actively involved in 
converting current MS-DRGs from ICD-9-CM codes to ICD-10 codes and 
sharing this information through the ICD-10 (previously ICD-9-CM) 
Coordination and Maintenance Committee. We undertook this early 
conversion project to assist other payers and providers in 
understanding how to implement their own conversion projects. We posted 
ICD-10 MS-DRGs based on Version 26.0 (FY 2009) of the MS-DRGs. We also 
posted a paper that describes how CMS went about completing this 
project and suggestions for other payers and providers to follow. 
Information on the ICD-10 MS-DRG conversion project can be found on the 
ICD-10 MS-DRG Conversion Project Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We have 
continued to keep the public updated on our maintenance efforts for 
ICD-10-CM and ICD-10-PCS coding systems, as well as the General 
Equivalence Mappings that assist in conversion through the ICD-10 
(previously ICD-9-CM) Coordination and Maintenance Committee. 
Information on these committee meetings can be found on the CMS Web 
site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.
    During FY 2011, we developed and posted Version 28.0 of the ICD-10 
MS-DRGs based on the FY 2011 MS-DRGs (Version 28.0) that we finalized 
in the FY 2011 IPPS/LTCH PPS final rule on the CMS Web site. This ICD-
10 MS-DRGs Version 28.0 also included the CC Exclusion List and the 
ICD-10 version of the hospital-acquired conditions (HACs), which was 
not posted with Version 26. 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 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 site. 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, 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 on our ICD-10 MS-DRG Conversion Project Web site. We also 
prepared a document that describes changes made from Version 28 to 
Version 29 to facilitate a review. The ICD-10 MS-DRGs Version 29 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 based on the FY 2013 MS-
DRGs (Version 30) 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 
on our ICD-10 MS-DRG Conversion Project Web site. We also prepared a 
document that describes changes made from Version 29 to Version 30 to 
facilitate a review. We produced mainframe and computer software for 
Version 30, 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

[[Page 24970]]

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 the 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.
    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 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 based on the FY 2014 MS-
DRGs (Version 31) 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 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 to Version 31 to facilitate a review. We produced 
mainframe and computer software for Version 31, 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.
    We reviewed public comments received and developed an update of 
ICD-10 MS-DRGs Version 31, which we called ICD-10 MS-DRGs Version 31-R. 
We posted a Definitions Manual of the ICD-10 MS-DRGs Version 31-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 to Version 31-R to facilitate a review. We continued to 
share ICD-10 MS-DRG conversion activities with the public through this 
Web site.
    CMS prepared the ICD-10 MS-DRGs Version 32 based on the FY 2015 MS-
DRGs (Version 32) that we finalized in the FY 2015 IPPS/LTCH PPS final 
rule. In November 2014, we made available a Definitions Manual of the 
ICD-10 MS DRGs Version 32 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 also prepared a document that described 
changes made from Version 31-R to Version 32 to facilitate a review. We 
produced mainframe and computer software for Version 32, which was made 
available to the public in January 2015. Information on ordering the 
mainframe and computer software through NTIS was made available on the 
CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the ``Related Links'' section. This 
ICD-10 MS-DRGs Version 32 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 32. We discussed five requests from the public to 
update the ICD-10 MS-DRGs Version 32 to better replicate the ICD-9-CM 
MS-DRGs in section II.G.3., 4., and 5. of the preamble of the FY 2016 
IPPS/LTCH PPS final rule. In the FY 2016 IPPS/LTCH PPS proposed rule 
(80 FR 24351), we proposed to implement the MS-DRG code logic in the 
ICD-10 MS-DRGs Version 32 along with any finalized updates to the ICD-
10 MS-DRGs Version 32 for the final ICD-10 MS-DRGs Version 33. In the 
proposed rule, we proposed the ICD-10 MS-DRGs Version 33 as the 
replacement logic for the ICD-9-CM based MS-DRGs Version 32 as part of 
the proposed MS-DRG updates for FY 2016. We invited public comments on 
how well the ICD-10 MS-DRGs Version 32 replicated the logic of the MS-
DRGs Version 32 based on ICD-9-CM codes.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49356 through 49357 
and 49363 through 49407), we addressed the public comments we received 
on the replication in the ICD-10 MS-DRGs Version 32 of the logic of the 
MS-DRGs Version 32 based on ICD-9-CM codes. We refer readers to that 
final rule for a discussion of the changes we made in response to 
public comments.
b. Basis for Proposed FY 2017 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

[[Page 24971]]

in FY 2017, comments and suggestions should have been submitted by 
December 7, 2015. The comments that were submitted in a timely manner 
for FY 2017 are discussed in this section of the proposed rule. 
Interested parties should submit any comments and suggestions for FY 
2018 by December 7, 2016, via the new CMS MS-DRG Classification Change 
Requests Mailbox located at: [email protected].
    Following are the changes we are proposing to the MS-DRGs for FY 
2017. We are inviting public comment on each of the MS-DRG 
classification proposed changes described in this rule, as well as our 
proposals to maintain certain existing MS-DRG classifications, which 
are also discussed later in this section of the proposed rule. In some 
cases, we are proposing changes to the MS-DRG classifications based on 
our analysis of claims data. In other cases, we are proposing to 
maintain the existing MS-DRG classification based on our analysis of 
claims data. For this FY 2017 proposed rule, our MS-DRG analysis is 
based on claims data from the December 2015 update of the FY 2015 
MedPAR file, which contains hospital bills received through September 
30, 2015, for discharges occurring through September 30, 2015. In our 
discussion of the proposed MS-DRG reclassification changes that 
follows, we refer to our analysis of claims data from the ``December 
2015 update of the FY 2015 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 consider 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 evaluate patient care costs using 
average costs and lengths of stay and rely 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 consider both the absolute and percentage differences in average 
costs between the cases we select for review and the remainder of cases 
in the MS-DRG. We also consider variation in costs within these groups; 
that is, whether observed average differences are consistent across 
patients or attributable to cases that are extreme in terms of costs or 
length of stay, or both. Further, we consider the number of patients 
who will have a given set of characteristics and generally prefer not 
to create a new MS-DRG unless it would include a substantial number of 
cases.
    In our examination of the claims data, we apply the following 
criteria established in FY 2008 (72 FR 47169) to determine if the 
creation of a new complication or comorbidity (CC) or major 
complication or comorbidity (MCC) subgroup within a base MS-DRG is 
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 difference 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.
    We note that some of the issues being evaluated for the FY 2017 MS-
DRGs update continue to relate to the need for the ICD-10 MS-DRGs to 
accurately replicate the logic of the ICD-9-CM based version of the MS-
DRGs. Replication is important because both the logic for the proposed 
MS-DRGs and the data source used to calculate and develop proposed 
relative payment weights are based on the same MedPAR claims data. In 
other words, as the logic for the proposed FY 2017 ICD-10 MS-DRGs is 
based upon the FY 2015 ICD-9-CM MedPAR claims data, the data source 
used to calculate and develop the proposed FY 2017 relative payment 
weights is also based on the FY 2015 ICD-9-CM MedPAR claims data, 
including any proposed MS-DRG classification changes discussed in this 
proposed rule. This is consistent with how the current FY 2016 relative 
payment weights are based on the ICD-9-CM diagnosis and procedure codes 
from the FY 2014 MedPAR claims data that were grouped through the ICD-
9-CM version of the FY 2016 GROUPER Version 33. We note that we made 
the MS-DRG GROUPER and Medicare Code Editor (MCE) ICD-9-CM Software 
Version 33 available to the public for use in analyzing ICD-9-CM data 
to create relative payment weights using ICD-9-CM data on our CMS Web 
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page.html?DLSort=0&DLEntries=10&DLPage=1&DLSortDir=ascending. 
Therefore, as discussed in section II.G. of the preamble of this 
proposed rule, ICD-9-CM data were used for computing the proposed FY 
2017 MS-DRG relative payment weights. If the ICD-9 and ICD-10 versions 
of MS-DRGs cease to be replications of each other, the relative payment 
weights computed using the ICD-9 claims data and MS-DRGs would be 
inconsistent with the relative payment weights assigned for the ICD-10 
MS-DRGs, causing unintended payment redistributions. Thus, if the 
findings of our data analyses and the recommendations of our clinical 
advisors supported modifications to the current ICD-10 MS-DRG 
structure, prior to proposing any changes, we first evaluated whether 
the requested change could be replicated in the ICD-9-CM MS-DRGs. If 
the answer was ``yes,'' from a replication perspective, the change was 
considered feasible. If the answer was ``no,'' we examined whether the 
change in the ICD-10 MS-DRGs was likely to cause a significant number 
of patient cases to change or ``shift'' ICD-10 MS-DRGs. If relatively 
few patient cases would be impacted, we evaluated if it would be 
feasible to propose the change even though it could not be replicated 
by the ICD-9 MS-DRGs because it would not cause a material payment 
redistribution. For the ICD-10 MS-DRG classification change requests 
that could not be replicated in ICD-9-CM and that would cause a 
significant number of patient cases to shift MS-DRG assignment, we 
considered other alternatives.
2. Pre-Major Diagnostic Category (Pre-MDC): Total Artificial Heart 
Replacement
    An ICD-10 MS-DRG replication issue regarding the assignment of two 
ICD-10-PCS procedure codes was identified after the October 1, 2015 
implementation of the Version 33 ICD-10 MS-DRGs. ICD-10-PCS procedure 
codes 02RK0JZ (Replacement of right ventricle with synthetic 
substitute, open approach) and 02RL0JZ (Replacement of left ventricle 
with synthetic substitute, open approach), when reported together, 
describe a biventricular heart replacement (artificial heart). Under 
the Version 32 ICD-9-CM based MS-DRGs, this procedure was described by 
ICD-9-CM procedure code 37.52 (Implantation of total internal 
biventricular heart replacement system) and grouped to MS-DRGs 001 and 
002 (Heart Transplant or Implant of Heart Assist System with and 
without MCC, respectively).
    As discussed in section II.F.1.a. of the preamble of this proposed 
rule, to assist in the conversion from the ICD-9-CM

[[Page 24972]]

based MS-DRGs to ICD-10, beginning in FY 2011, draft versions of the 
ICD-10 based MS-DRGs were developed and made available for public 
comment. The two ICD-10-PCS procedure codes (02RK0JZ and 02RL0JZ) were 
assigned as a ``cluster'' to the draft ICD-10 based MS-DRGs 001 and 002 
in prior draft versions of the ICD-10 MS-DRGs. In ICD-10-PCS, a cluster 
is the term used to describe when a combination of ICD-10-PCS procedure 
codes are needed to fully satisfy the equivalent meaning of an ICD-9-CM 
procedure code for it to be considered a plausible translation. Upon 
review of prior draft versions of the ICD-10 MS-DRGs, it was determined 
that Version 30 was the last version to include ICD-10-PCS procedure 
codes 02RK0JZ and 02RL0JZ as a code cluster (from ICD-9-CM procedure 
code 37.52) that grouped to the draft ICD-10 based MS-DRGs 001 and 002. 
Subsequent draft versions of the ICD-10 MS-DRGs inadvertently omitted 
this code cluster from those MS-DRGs.
    Therefore, for FY 2017, we are proposing to assign ICD-10-PCS 
procedure codes 02RK0JZ and 02RL0JZ as a code cluster to ICD-10 Version 
34 MS-DRGs 001 and 002 (Heart Transplant or Implant of Heart Assist 
System with and without MCC, respectively) to accurately replicate the 
Version 32 ICD-9-CM based MS-DRG logic of procedure code 37.52. We are 
inviting public comments on our proposal.
3. MDC 1 (Diseases and Disorders of the Nervous System)
a. Endovascular Embolization (Coiling) or Occlusion of Head and Neck 
Procedures
    We received a repeat request to change the MS-DRG assignment for 
procedure codes describing endovascular embolization (coiling) or 
occlusion of the head and neck. This topic was discussed in the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28005 through 28007); the FY 2015 
IPPS/LTCH PPS final rule (79 FR 49883 through 49886); the FY 2016 IPPS/
LTCH PPS proposed rule (80 FR 24351 through 24356); and the FY 2016 
IPPS/LTCH PPS final rule (80 FR 49358 through 49363). For these 2 
fiscal years, we did not change the MS-DRG assignment for procedure 
codes describing endovascular embolization (coiling) or occlusion of 
the head and neck for the reasons discussed in these proposed and final 
rules.
    For FY 2017, the requestor again asked that CMS change the MS-DRG 
assignment for procedure codes describing endovascular embolization or 
occlusion of the head and neck as well as several other codes 
describing endovascular procedures of the head and neck.
    The ICD-10-PCS procedure codes listed in the following table 
capture endovascular embolization or occlusion of the head and neck 
procedures that are assigned to the following MS-DRGs in ICD-10 Version 
33 MS-DRGs: 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 
and Endovascular Intracranial Procedures with MCC); MS-DRG 026 
(Craniotomy and Endovascular Intracranial Procedures with CC); and MS-
DRG 027 (Craniotomy and Endovascular Intracranial Procedures without 
CC/MCC):

 ICD-10-PCS Codes for Endovascular Embolization or Occlusion of the Head
  and Neck Procedures Assigned to MS-DRGs 020 Through 027 in ICD-10 MS-
                             DRGs Version 33
------------------------------------------------------------------------
     ICD-10-PCS code                      Code description
------------------------------------------------------------------------
03LG3BZ..................  Occlusion of intracranial artery with
                            bioactive intraluminal device, percutaneous
                            approach.
03LG3DZ..................  Occlusion of intracranial artery with
                            intraluminal device, percutaneous approach.
03LG4BZ..................  Occlusion of intracranial artery with
                            bioactive intraluminal device, percutaneous
                            endoscopic approach.
03LG4DZ..................  Occlusion of intracranial artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03LH3BZ..................  Occlusion of right common carotid artery with
                            bioactive intraluminal device, percutaneous
                            approach.
03LH3DZ..................  Occlusion of right common carotid artery with
                            intraluminal device, percutaneous approach.
03LH4BZ..................  Occlusion of right common carotid artery with
                            bioactive intraluminal device, percutaneous
                            endoscopic approach.
03LH4DZ..................  Occlusion of right common carotid artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03LJ3BZ..................  Occlusion of left common carotid artery with
                            bioactive intraluminal device, percutaneous
                            approach.
03LJ3DZ..................  Occlusion of left common carotid artery with
                            intraluminal device, percutaneous approach.
03LJ4BZ..................  Occlusion of left common carotid artery with
                            bioactive intraluminal device, percutaneous
                            endoscopic approach.
03LJ4DZ..................  Occlusion of left common carotid artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03LK3BZ..................  Occlusion of right internal carotid artery
                            with bioactive intraluminal device,
                            percutaneous approach.
03LK3DZ..................  Occlusion of right internal carotid artery
                            with intraluminal device, percutaneous
                            approach.
03LK4BZ..................  Occlusion of right internal carotid artery
                            with bioactive intraluminal device,
                            percutaneous endoscopic approach.
03LK4DZ..................  Occlusion of right internal carotid artery
                            with intraluminal device, percutaneous
                            endoscopic approach.
03LL3BZ..................  Occlusion of left internal carotid artery
                            with bioactive intraluminal device,
                            percutaneous approach.
03LL3DZ..................  Occlusion of left internal carotid artery
                            with intraluminal device, percutaneous
                            approach.
03LL4BZ..................  Occlusion of left internal carotid artery
                            with bioactive intraluminal device,
                            percutaneous endoscopic approach.
03LL4DZ..................  Occlusion of left internal carotid artery
                            with intraluminal device, percutaneous
                            endoscopic approach.
03LM3BZ..................  Occlusion of right external carotid artery
                            with bioactive intraluminal device,
                            percutaneous approach.
03LM3DZ..................  Occlusion of right external carotid artery
                            with intraluminal device, percutaneous
                            approach.
03LM4BZ..................  Occlusion of right external carotid artery
                            with bioactive intraluminal device,
                            percutaneous endoscopic approach.
03LM4DZ..................  Occlusion of right external carotid artery
                            with intraluminal device, percutaneous
                            endoscopic approach.
03LN3BZ..................  Occlusion of left external carotid artery
                            with bioactive intraluminal device,
                            percutaneous approach.
03LN3DZ..................  Occlusion of left external carotid artery
                            with intraluminal device, percutaneous
                            approach.
03LN4BZ..................  Occlusion of left external carotid artery
                            with bioactive intraluminal device,
                            percutaneous endoscopic approach.
03LN4DZ..................  Occlusion of left external carotid artery
                            with intraluminal device, percutaneous
                            endoscopic approach.
03LP3BZ..................  Occlusion of right vertebral artery with
                            bioactive intraluminal device, percutaneous
                            approach.
03LP3DZ..................  Occlusion of right vertebral artery with
                            intraluminal device, percutaneous approach.
03LP4BZ..................  Occlusion of right vertebral artery with
                            bioactive intraluminal device, percutaneous
                            endoscopic approach.

[[Page 24973]]

 
03LP4DZ..................  Occlusion of right vertebral artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03LQ3BZ..................  Occlusion of left vertebral artery with
                            bioactive intraluminal device, percutaneous
                            approach.
03LQ3DZ..................  Occlusion of left vertebral artery with
                            intraluminal device, percutaneous approach.
03LQ4BZ..................  Occlusion of left vertebral artery with
                            bioactive intraluminal device, percutaneous
                            endoscopic approach.
03LQ4DZ..................  Occlusion of left vertebral artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03LR3DZ..................  Occlusion of face artery with intraluminal
                            device, percutaneous approach.
03LR4DZ..................  Occlusion of face artery with intraluminal
                            device, percutaneous endoscopic approach.
03LS3DZ..................  Occlusion of right temporal artery with
                            intraluminal device, percutaneous approach.
03LS4DZ..................  Occlusion of right temporal artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03LT3DZ..................  Occlusion of left temporal artery with
                            intraluminal device, percutaneous approach.
03LT4DZ..................  Occlusion of left temporal artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03VG3BZ..................  Restriction of intracranial artery with
                            bioactive intraluminal device, percutaneous
                            approach.
03VG3DZ..................  Restriction of intracranial artery with
                            intraluminal device, percutaneous approach.
03VG4BZ..................  Restriction of intracranial artery with
                            bioactive intraluminal device, percutaneous
                            endoscopic approach.
03VG4DZ..................  Restriction of intracranial artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03VH3BZ..................  Restriction of right common carotid artery
                            with bioactive intraluminal device,
                            percutaneous approach.
03VH3DZ..................  Restriction of right common carotid artery
                            with intraluminal device, percutaneous
                            approach.
03VH4BZ..................  Restriction of right common carotid artery
                            with bioactive intraluminal device,
                            percutaneous endoscopic approach.
03VH4DZ..................  Restriction of right common carotid artery
                            with intraluminal device, percutaneous
                            endoscopic approach.
03VJ3BZ..................  Restriction of left common carotid artery
                            with bioactive intraluminal device,
                            percutaneous approach.
03VJ3DZ..................  Restriction of left common carotid artery
                            with intraluminal device, percutaneous
                            approach.
03VJ4BZ..................  Restriction of left common carotid artery
                            with bioactive intraluminal device,
                            percutaneous endoscopic approach.
03VJ4DZ..................  Restriction of left common carotid artery
                            with intraluminal device, percutaneous
                            endoscopic approach.
03VK3BZ..................  Restriction of right internal carotid artery
                            with bioactive intraluminal device,
                            percutaneous approach.
03VK3DZ..................  Restriction of right internal carotid artery
                            with intraluminal device, percutaneous
                            approach.
03VK4BZ..................  Restriction of right internal carotid artery
                            with bioactive intraluminal device,
                            percutaneous endoscopic approach.
03VK4DZ..................  Restriction of right internal carotid artery
                            with intraluminal device, percutaneous
                            endoscopic approach.
03VL3BZ..................  Restriction of left internal carotid artery
                            with bioactive intraluminal device,
                            percutaneous approach.
03VL3DZ..................  Restriction of left internal carotid artery
                            with intraluminal device, percutaneous
                            approach.
03VL4BZ..................  Restriction of left internal carotid artery
                            with bioactive intraluminal device,
                            percutaneous endoscopic approach.
03VL4DZ..................  Restriction of left internal carotid artery
                            with intraluminal device, percutaneous
                            endoscopic approach.
03VM3BZ..................  Restriction of right external carotid artery
                            with bioactive intraluminal device,
                            percutaneous approach.
03VM3DZ..................  Restriction of right external carotid artery
                            with intraluminal device, percutaneous
                            approach.
03VM4BZ..................  Restriction of right external carotid artery
                            with bioactive intraluminal device,
                            percutaneous endoscopic approach.
03VM4DZ..................  Restriction of right external carotid artery
                            with intraluminal device, percutaneous
                            endoscopic approach.
03VN3BZ..................  Restriction of left external carotid artery
                            with bioactive intraluminal device,
                            percutaneous approach.
03VN3DZ..................  Restriction of left external carotid artery
                            with intraluminal device, percutaneous
                            approach.
03VN4BZ..................  Restriction of left external carotid artery
                            with bioactive intraluminal device,
                            percutaneous endoscopic approach.
03VN4DZ..................  Restriction of left external carotid artery
                            with intraluminal device, percutaneous
                            endoscopic approach.
03VP3BZ..................  Restriction of right vertebral artery with
                            bioactive intraluminal device, percutaneous
                            approach.
03VP3DZ..................  Restriction of right vertebral artery with
                            intraluminal device, percutaneous approach.
03VP4BZ..................  Restriction of right vertebral artery with
                            bioactive intraluminal device, percutaneous
                            endoscopic approach.
03VP4DZ..................  Restriction of right vertebral artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03VQ3BZ..................  Restriction of left vertebral artery with
                            bioactive intraluminal device, percutaneous
                            approach.
03VQ3DZ..................  Restriction of left vertebral artery with
                            intraluminal device, percutaneous approach.
03VQ4BZ..................  Restriction of left vertebral artery with
                            bioactive intraluminal device, percutaneous
                            endoscopic approach.
03VQ4DZ..................  Restriction of left vertebral artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03VR3DZ..................  Restriction of face artery with intraluminal
                            device, percutaneous approach.
03VR4DZ..................  Restriction of face artery with intraluminal
                            device, percutaneous endoscopic approach.
03VS3DZ..................  Restriction of right temporal artery with
                            intraluminal device, percutaneous approach.
03VS4DZ..................  Restriction of right temporal artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03VT3DZ..................  Restriction of left temporal artery with
                            intraluminal device, percutaneous approach.
03VT4DZ..................  Restriction of left temporal artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03VU3DZ..................  Restriction of right thyroid artery with
                            intraluminal device, percutaneous approach.
03VU4DZ..................  Restriction of right thyroid artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
03VV3DZ..................  Restriction of left thyroid artery with
                            intraluminal device, percutaneous approach.
03VV4DZ..................  Restriction of left thyroid artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
------------------------------------------------------------------------

    Cases reporting any of the ICD-10-PCS procedures codes listed in 
the table above that are assigned to MS-DRGs 020, 021, and 022 under 
MDC 1 require a principal diagnosis of hemorrhage. Cases reporting any 
of the ICD-10-PCS procedure codes listed in the table above that are 
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 reporting any of the ICD-10-PCS procedure codes listed 
in the table above that are 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.
    The requestor expressed concerns about the appropriateness of the 
MS-DRG assignment for the endovascular embolization or occlusion of 
head and neck procedures. The requestor stated that past data 
demonstrated that the cost of cases involving endovascular coils

[[Page 24974]]

exceeds the average cost of all cases within each of the MS-DRGs to 
which these procedures are assigned. The requestor pointed out that 
these procedures were formerly captured by the following ICD-9-CM codes 
that were assigned to MS-DRGs 020 through 027:
     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).
    The commenter also expressed concern about the appropriateness of 
the current ICD-10 MS-DRG assignment of the following ICD-9-CM codes 
that describe other endovascular procedures of head and neck that were 
previously assigned to MS-DRGs 023 through 027 in the ICD-9-CM MS-DRGs 
Version 32. The commenter stated that these procedures are more 
clinically complex than other procedures assigned to these MS-DRGs.
     00.62 (Percutaneous angioplasty of intracranial 
vessels(s));
     39.74 (Endovascular removal of obstruction from head and 
neck vessel(s)); and
     39.79 (Other endovascular procedures on other vessels).
    We examined claims data from the December 2015 update of the FY 
2015 MedPAR file for the endovascular embolization or occlusion of the 
head and neck procedures or other endovascular procedures reported 
under ICD-9-CM procedure codes 00.62, 39.72, 39.74, 39.75, 39.76, and 
39.79 in MS-DRGs 020 through 027. The table below shows our findings.

    Endovascular Embolization or Occlusion of the Head and Neck Procedures and Other Endovascular Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 020--All cases...........................................           1,213           16.44         $70,716
MS-DRG 020--Cases with procedure code 00.62, 39.72, 39.74,                   895           16.15          72,357
 39.75, 39.76, or 39.79.........................................
MS-DRG 021--All cases...........................................             350           13.74          53,289
MS-DRG 021--Cases with procedure code 00.62, 39.72, 39.74,                   272           13.21          53,478
 39.75, 39.76, or 39.79.........................................
MS-DRG 022--All cases...........................................              84            7.83          33,598
MS-DRG 022--Cases with procedure code 00.62, 39.72, 39.74,                    63            7.27          33,606
 39.75, 39.76, or 39.79.........................................
MS-DRG 023--All cases...........................................           6,360           10.63          38,204
MS-DRG 023--Cases with procedure code 00.62, 39.72, 39.74,                 2,183            8.57          38,935
 39.75, 39.76, or 39.79.........................................
MS-DRG 024--All cases...........................................           2,376            5.52          28,270
MS-DRG 024--Cases with procedure code 00.62, 39.72, 39.74,                 1,402            5.46          28,543
 39.75, 39.76, or 39.79.........................................
MS-DRG 025--All cases...........................................          17,756            9.19          29,657
MS-DRG 025--Cases with procedure code 00.62, 39.72, 39.74,                   671            9.20          47,579
 39.75, 39.76 or 39.79..........................................
MS-DRG 026--All cases...........................................           7,630            5.80          21,441
MS-DRG 026--Cases with procedure code 00.62, 39.72, 39.74,                   825            3.11          27,429
 39.75, 39.76, or 39.79.........................................
MS-DRG 027--All cases...........................................           9,628            2.99          17,158
MS-DRG 027--Cases with procedure code 00.62, 39.72, 39.74,                 1,847            1.62          22,845
 39.75, 39.76 or 39.79..........................................
----------------------------------------------------------------------------------------------------------------

    As can be seen from the table, most of the cases of endovascular 
embolization or occlusion of the head and neck procedures and other 
endovascular procedures reported with procedure codes 00.62, 39.72, 
39.74, 39.75, 39.76, and 39.79 occur in MS-DRGs 023, 024, and 027. 
There were 2,183 of these procedure cases reported in MS-DRG 023 with 
an average length of stay of 8.57 days and average costs of $38,935, 
compared to an average length of stay of 10.63 days and average costs 
of $38, 204 for all 6,360 cases reported in MS-DRG 023. There were 
1,402 of these cases reported in MS-DRG 024 with an average length of 
stay of 5.46 days and average costs of $28,543, compared to an average 
length of stay of 5.52 days and average costs of $28,270 for all 2,376 
cases reported in MS-DRG 024. There were 1,847 of these cases reported 
in MS-DRG 027 with an average length of stay of 1.62 days and average 
costs of $22,845, compared to an average length of stay of 2.99 days 
and average costs of $17,158 for all 9,628 cases reported in MS-DRG 
027. The average costs for endovascular embolization or occlusion of 
the head and neck procedures and other endovascular procedures cases 
reported in MS-DRGs 023 and 024 are not significantly different from 
the average costs for all cases reported in MS-DRGs 023 and 024. The 
average costs for endovascular embolization or occlusion of the head 
and neck procedures and other endovascular procedures cases reported in 
MS-DRG 027 are higher ($22,845) than the average costs of all cases 
reported in MS-DRG 027 ($17,158). However, average costs are not 
significantly different for the endovascular embolization or occlusion 
of the head and neck procedures and other endovascular procedures cases 
reported in MS-DRG 020 ($72,357) compared to the average costs for all 
cases ($70,716) reported in MS-DRS 020; for the endovascular 
embolization or occlusion of the head and neck procedures and other 
endovascular procedures cases reported in MS-DRG 021 ($53,478) compared 
to the average costs for all cases ($53,289) reported in MS-DRG 021; 
and for the endovascular embolization or occlusion of the head and neck 
procedures and other endovascular procedures cases reported in MS-DRG 
022 ($33,606) compared to the average costs for all cases ($33,598) 
reported in MS-DRG 022.
    Average costs were higher for the 671 endovascular embolization or 
occlusion of the head and neck procedures and other endovascular 
procedures cases reported in MS-DRG 025 ($47,579) compared to the 
average costs for all 17,756 cases ($29,657) reported in MS-DRG 025. 
The average costs also were higher for the 825 endovascular 
embolization or occlusion of the head and neck procedures and other 
endovascular procedures cases reported in MS-DRG 26 ($27,429) compared 
to the average costs for all 7,630 cases ($21,441) reported in MS-DRG 
26. Given that average costs are similar for most endovascular 
embolization or occlusion of the head and neck

[[Page 24975]]

procedures and other endovascular procedures cases reported in MS-DRGs 
020, 021, 022, 023, 024, 025, 026, and 027, we do not believe that all 
endovascular embolization or occlusion of the head and neck procedures 
and other endovascular procedures should be reassigned from these eight 
MS-DRGs.
    We also examined the average costs for each specific ICD-9-CM code 
compared to the average costs of all cases within each of the eight MS-
DRGs. The following table shows our findings.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 020--All cases...........................................           1,213           16.44         $70,716
MS-DRG 020--Cases with code 00.62...............................              11           16.09          95,422
MS-DRG 020--Cases with code 39.72...............................             422           16.31          74,951
MS-DRG 020--Cases with code 39.74...............................               9           16.78          71,478
MS-DRG 020--Cases with code 39.75...............................             424           15.79          69,081
MS-DRG 020--Cases with code 39.76...............................              39           18.26          71,630
MS-DRG 020--Cases with code 39.79...............................              25           16.64          73,043
MS-DRG 021--All cases...........................................             350           13.74          53,289
MS-DRG 021--Cases with code 00.62...............................               1           11.00          75,492
MS-DRG 021--Cases with code 39.72...............................             130           13.12          54,715
MS-DRG 021--Cases with code 39.74...............................               1           11.00          75,492
MS-DRG 021--Cases with code 39.75...............................             133           13.46          52,819
MS-DRG 021--Cases with code 39.76...............................               7           10.57          48,749
MS-DRG 021--Cases with code 39.79...............................               3           12.00          40,458
MS-DRG 022--All cases...........................................              84            7.83          33,598
MS-DRG 022--Cases with code 00.62...............................               0               0               0
MS-DRG 022--Cases with code 39.72...............................              40            6.43          32,598
MS-DRG 022--Cases with code 39.74...............................               0               0               0
MS-DRG 022--Cases with code 39.75...............................              21            8.81          32,690
MS-DRG 022--Cases with code 39.76...............................               3           10.00          62,417
MS-DRG 022--Cases with code 39.79...............................               0               0               0
MS-DRG 023--All cases...........................................           6,360           10.63          38,204
MS-DRG 023--Cases with code 00.62...............................              67            9.30          43,741
MS-DRG 023--Cases with code 39.72...............................              56           11.14          52,589
MS-DRG 023--Cases with code 39.74...............................           2,016            8.30          38,047
MS-DRG 023--Cases with code 39.75...............................              20           12.65          53,837
MS-DRG 023--Cases with code 39.76...............................               3           23.00          84,947
MS-DRG 023--Cases with code 39.79...............................              71           13.08          50,720
MS-DRG 024--All cases...........................................           2,376            5.52          28,270
MS-DRG 024--Cases with code 00.62...............................              76            6.74          32,415
MS-DRG 024--Cases with code 39.72...............................              31            6.35          29,977
MS-DRG 024--Cases with code 39.74...............................           1,284            5.35          28,268
MS-DRG 024--Cases with code 39.75...............................               8            6.50          50,333
MS-DRG 024--Cases with code 39.76...............................               2            1.50          19,567
MS-DRG 024--Cases with code 39.79...............................              27            6.74          28,019
MS-DRG 025--All cases...........................................          17,756            9.19          29,657
MS-DRG 025--Cases with code 00.62...............................              17            5.88          29,036
MS-DRG 025--Cases with code 39.72...............................             380            9.46          51,082
MS-DRG 025--Cases with code 39.74...............................              55            9.87          45,895
MS-DRG 025--Cases with code 39.75...............................             139            8.94          52,188
MS-DRG 025--Cases with code 39.76...............................              25            5.84          38,654
MS-DRG 025--Cases with code 39.79...............................              82           11.04          39,839
MS-DRG 026--All cases...........................................           7,630            5.80          21,441
MS-DRG 026--Cases with code 00.62...............................              31            3.48          25,611
MS-DRG 026--Cases with code 39.72...............................             481            3.00          27,180
MS-DRG 026--Cases with code 39.74...............................              16            4.69          27,519
MS-DRG 026--Cases with code 39.75...............................             253            2.77          26,863
MS-DRG 026--Cases with code 39.76...............................              31            3.32          27,891
MS-DRG 026--Cases with code 39.79...............................              45            5.42          37,410
MS-DRG 027--All cases...........................................           9,628            2.99          17,158
MS-DRG 027--Cases with code 00.62...............................              61            2.23          21,337
MS-DRG 027--Cases with code 39.72...............................           1,159            1.58          22,893
MS-DRG 027--Cases with code 39.74...............................              13            1.62          69,081
MS-DRG 027--Cases with code 39.75...............................             580            1.63          23,296
MS-DRG 027--Cases with code 39.76...............................              61            1.74          27,403
MS-DRG 027--Cases with code 39.79...............................              30            1.53          17,740
----------------------------------------------------------------------------------------------------------------

    As can be seen from the table above, there are a large number of 
cases reporting procedure code 39.74 in MS-DRGs 023 and 024. There were 
2,016 cases that reported procedure code 39.74 in MS-DRG 023 compared 
to 6,360 total cases reported in the MS-DRG. The cases that reported 
procedure code 39.74 in MS-DRG 023 had an average length of stay of 
8.30 days and average costs of $38,047, compared to an average length 
of stay of 10.63 days and average costs of $38,204 for all cases 
reported in MS-DRG 023. There were 1,284 cases that reported

[[Page 24976]]

procedure code 39.74 in MS-DRG 024 compared to 2,376 total cases 
reported in MS-DRG 024. The cases that reported procedure code 39.74 in 
MS-DRG 024 had an average length of stay of 5.35 days and average costs 
of $28,268, compared to an average length of stay of 5.52 days and 
average costs of $28,270 for all cases reported in MS-DRG 024. The 
average length of stay and average costs for cases that reported 
procedure code 39.74 are very similar to the average length of stay and 
average costs for all cases reported in MS-DRGs 023 and 024. The only 
other group of endovascular embolization or occlusion of the head and 
neck procedures and other endovascular procedures cases that exceeded 
1,000 in number was reported in MS-DRG 027. There were 1,159 cases that 
reported procedure code 39.72 in MS-DRG 027, compared to 9,628 total 
cases reported in MS-DRG 027. The cases that reported procedure code 
39.72 in MS-DRG 027 had an average length of stay of 1.58 days and 
average costs of $22,893, compared to an average length of stay of 2.99 
days and average costs of $17,158 for all cases reported in MS-DRG 027. 
In other words, the cases that reported procedure code 39.72 in MS-DRG 
027 had a shorter average length of stay and average costs that were 
$5,735 higher than the average costs for all cases reported in MS-DRG 
027. The cases that reported procedure code 39.72 in MS-DRG 020 had a 
shorter average length of stay and average costs that were $4,235 
higher than the average costs for all cases reported in MS-DRG 020. 
However, the average costs for the cases that reported procedure code 
39.72 in MS-DRGs 021, 022, and 024 were close to the average costs for 
all cases reported in the three MS-DRGs ($54,715 compared to $53,289 in 
MS-DRG 021; $32,598 compared to $33,598 in MS-DRG 022; and $29,997 
compared to $28,270 in MS-DRG 024).
    Our clinical advisors reviewed this issue and advised us that the 
endovascular embolization or occlusion of head and neck procedures and 
other endovascular procedures currently are appropriately assigned to 
MS-DRGs 020 through 027. They did not support reassigning these 
procedures from MS-DRGs 020 through 027 to another MS-DRG or creating a 
new MS-DRG for these procedures. Our clinical advisors stated that 
these procedures are all clinically similar to other procedures in 
these MS-DRGs. In addition, they stated that the surgical techniques 
are all designed to correct the same clinical problem and advised us 
against reassigning the procedures from MS-DRGs 020 through 027.
    Based on the findings from our data analyses and the 
recommendations from our clinical advisors, we are not proposing to 
reassign the cited endovascular embolization or occlusion of head and 
neck procedures and other endovascular procedures from MS-DRGs 020 
through 027 to another MS-DRG or to create a new MS-DRG for these 
procedures for FY 2017. We are inviting public comments on our proposal 
to maintain the current MS-DRG assignments of these procedures in MS-
DRGs 020 through 027.
b. Mechanical Complication Codes
    We received a request to reassign the following four ICD-10-CM 
diagnosis codes from MDC 21 (Injuries, Poisonings and Toxic Effects of 
Drugs) under MS-DRGs 919, 920, and 921 (Complications of Treatment with 
MCC, with CC, and without CC/MCC, respectively) to MDC 1 (Diseases and 
Disorders of the Nervous System) under MS-DRGs 091, 092, and 093 (Other 
Disorders of the Nervous System with MCC, with CC, and without CC/MCC, 
respectively):
     T85.610A (Breakdown (mechanical) of epidural and subdural 
infusion catheter, initial encounter);
     T85.620A (Displacement of epidural and subdural infusion 
catheter, initial encounter);
     T85.630A (Leakage of epidural and subdural infusion 
catheter, initial encounter); and
     T85.690A (Other mechanical complication of epidural and 
subdural infusion catheter, initial encounter).
    The requestor stated that these ICD-10-CM diagnosis code titles 
clearly describe mechanical complications of nervous system devices, 
implants, or grafts and are unquestionably nervous system codes. 
Therefore, the requestor recommended that these diagnosis codes be 
reassigned to MDC 1 under MS-DRGs 091, 092, and 093.
    We examined ICD-10-CM diagnosis codes T85.610A, T85.620A, T85.630A, 
and T85.690A that are currently assigned to MDC 21 under MS-DRGs 919, 
920, and 921. We note that the predecessor ICD-9-CM diagnosis code for 
these four ICD-10-CM diagnosis codes was diagnosis code 996.59 
(Mechanical complication due to other implant and internal device, not 
elsewhere classified), which also was assigned to MDC 21 under MS-DRGs 
919, 920, and 921. ICD-9-CM diagnosis code 996.59 did not describe the 
location of the device. However, ICD-10-CM diagnosis codes T85.610A, 
T85.620A, T85.630A, and T85.690A provide additional detail that 
describes the location of the mechanical complication as being within 
the nervous system.
    Based on the results of our examination, we agree with the 
requestor that ICD-10-CM diagnosis codes T85.610A, T85.620A, T85.630A, 
and T85.690A describe conditions occurring within the nervous system. 
Within the ICD-9-CM MS-DRGs, codes describing nervous system disorders 
were assigned to MDC 1. The prior ICD-9-CM codes for mechanical 
complications did not indicate the type of complication and therefore 
could not be assigned to a specific MDC. Therefore, the nonspecific 
complication codes were assigned to MDC 21. These new ICD-10-CM 
diagnosis codes describe concepts not previously captured by the ICD-9-
CM codes and capture nervous system conditions. Therefore, ICD-10-CM 
diagnosis codes T85.610A, T85.620A, T85.630A, and T85.690A should be 
reassigned from MDC 21 under MS-DRGs 919, 920, and 921 to MDC 1 under 
MS-DRGs 091, 092, and 093. Our clinical advisors reviewed this issue 
and also agree that the four ICD-10-CM diagnosis codes describe 
conditions occurring within the nervous system and therefore should be 
reassigned from MDC 21 to MDC 1. Based on the results of our analysis 
and the recommendations of our clinical advisors, we are proposing to 
reassign ICD-10-CM diagnosis codes T85.610A, T85.620A, T85.630A, and 
T85.690A from MDC 21 under MS-DRGs 919, 920, and 921 to MDC 1 under MS-
DRGs 091, 092, and 093.
    We are inviting public comments on our proposal.
4. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat)
a. Proposed Reassignment of Diagnosis Code R22.2 (Localized Swelling, 
Mass and Lump, Trunk)
    We received a request to reassign ICD-10-CM diagnosis code R22.2 
(Localized swelling, mass and lump, trunk) from MDC 4 (Diseases and 
Disorders of the Respiratory System) to MDC 9 (Diseases and Disorders 
of the Skin, Subcutaneous Tissue and Breast). The requestor stated that 
this code is used to capture a buttock mass. The requestor pointed out 
that the ICD-10-CM index for localized swelling and localized mass 
directs the coder to diagnosis code R22.2 for both the chest and the 
trunk as sites.
    We reviewed this issue and note that diagnosis code R22.2 is 
included in a category of ICD-10-CM codes describing symptoms and signs

[[Page 24977]]

involving the skin and subcutaneous tissue (categories R20 through 
R23). Diagnosis code R22.2 is clearly designated within the ICD-10 
coding system as a code that describes a condition of the skin and 
subcutaneous tissue. Therefore, we agree with the requester that ICD-
10-CM diagnosis code R22.2 should be reassigned from MDC 4 to MDC 9. 
One of the predecessor ICD-9-CM codes for ICD-10-CM diagnosis code 
R22.2 was diagnosis code 782.2 (Localized superficial swelling, mass, 
or lump), which is assigned to MS-DRG 606 and 607 (Minor Skin Disorders 
with and without MCC, respectively). Our clinical advisors reviewed 
this issue and agree that ICD-10-CM diagnosis code R22.2 captures a 
skin diagnosis. Therefore, for FY 2017, we are proposing to reassign 
ICD-10-CM diagnosis code R22.2 from MDC 4 to MDC 9 under MS-DRGs 606 
and 607 (Minor Skin Disorders with and without MCC, respectively).
    We are inviting public comments on our proposal to reassign ICD-10-
CM diagnosis code R22.2 from MDC 4 to MDC 9 under MS-DRGs 606 and 607.
b. Pulmonary Embolism With tPA or Other Thrombolytic Therapy
    We received a request to create a new MS-DRG or to reassign cases 
with a principal diagnosis of pulmonary embolism where tPA or other 
thrombolytic therapy was administered from MS-DRGs 175 and 176 
(Pulmonary Embolism with and without MCC, respectively) to a higher 
paying MS-DRG. The requestor suggested that CMS review cases reporting 
the following ICD-9-CM diagnosis codes describing pulmonary embolism: 
415.11 (Iatrogenic pulmonary embolism and infarction), 415.12 (Septic 
pulmonary embolism), 415.13 (Saddle embolus of pulmonary artery), and 
415.19 (Other pulmonary embolism and infarction), when reported in 
combination with ICD-9-CM procedure code 99.10 (Injection or infusion 
of thrombolytic agent), to identify that thrombolytic therapy was 
administered.
    The comparable ICD-10-CM diagnosis code translations for the ICD-9-
CM pulmonary embolism diagnosis codes to which the requestor cited 
consist of the following:

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                   Description
------------------------------------------------------------------------
I26.01...................  Septic pulmonary embolism with acute cor
                            pulmonale.
I26.02...................  Saddle embolus of pulmonary artery with acute
                            cor pulmonale.
I26.09...................  Other pulmonary embolism with acute cor
                            pulmonale.
I26.90...................  Septic pulmonary embolism without acute cor
                            pulmonale.
I26.92...................  Saddle embolus of pulmonary artery without
                            acute cor pulmonale.
I26.99...................  Other pulmonary embolism without acute cor
                            pulmonale.
------------------------------------------------------------------------

    Thrombolytic therapy is identified with the following ICD-10-PCS 
procedure codes:

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
3E03017..................  Introduction of other thrombolytic into
                            peripheral vein, open approach.
3E03317..................  Introduction of other thrombolytic into
                            peripheral vein, percutaneous approach.
3E04017..................  Introduction of other thrombolytic into
                            central vein, open approach.
3E04317..................  Introduction of other thrombolytic into
                            central vein, percutaneous approach.
3E05017..................  Introduction of other thrombolytic into
                            peripheral artery, open approach.
3E05317..................  Introduction of other thrombolytic into
                            peripheral artery, percutaneous approach.
3E06017..................  Introduction of other thrombolytic into
                            central artery, open approach.
3E06317..................  Introduction of other thrombolytic into
                            central artery, percutaneous approach.
------------------------------------------------------------------------

    A pulmonary embolism is an obstruction of pulmonary vasculature 
most commonly caused by a venous thrombus, and less commonly by fat or 
tumor tissue or air bubbles or both. Risk factors for a pulmonary 
embolism include prolonged immobilization from any cause, obesity, 
cancer, fractured hip or leg, use of certain medications such as oral 
contraceptives, presence of certain medical conditions such as heart 
failure, sickle cell anemia, or certain congenital heart defects. 
Common symptoms of pulmonary embolism include shortness of breath with 
or without chest pain, tachycardia, hemoptysis, low grade fever, 
pleural effusion, and depending on the etiology of the embolus, might 
include lower extremity pain or swelling, syncope, jugular venous 
distention, and finally a pulmonary embolus could be asymptomatic.
    We examined the claims data from the December 2015 update of the FY 
2015 MedPAR file for ICD-9-CM MS-DRGs 175 and 176 for cases with a 
principal diagnosis of pulmonary embolism where tPA or other 
thrombolytic therapy (procedure code 99.10) was administered and cases 
of a principal diagnosis of pulmonary embolism where no tPA or other 
thrombolytic therapy was administered. Our findings are shown in the 
table below.

    Principal Diagnosis of Pulmonary Embolism With and Without tPA or Other Thrombolytic Therapy Administered
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 175--All MCC cases.......................................          19,274            5.76         $10,479

[[Page 24978]]

 
MS-DRG 175--MCC cases with principal diagnosis of pulmonary                  630            6.31          19,419
 embolism with tPA or other thrombolytic therapy administered...
MS-DRG 175--MCC cases with principal diagnosis of pulmonary               18,529            5.74          10,181
 embolism without tPA or other thrombolytic therapy administered
MS-DRG 176--All Without MCC cases...............................          33,565            3.81           6,645
MS-DRG 176--Without MCC cases with principal diagnosis of                    544            5.07          16,345
 pulmonary embolism with tPA or other thrombolytic therapy
 administered...................................................
MS-DRG 176--Without MCC cases with principal diagnosis of                 32,789            3.79           6,483
 pulmonary embolism without tPA or other thrombolytic therapy
 administered...................................................
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, for MS-DRG 175, there were a total of 
19,274 cases with an average length of stay of 5.76 days and average 
costs of $10,479. Of the 19,274 cases in MS-DRG 175, there were 630 
cases that reported a principal diagnosis of pulmonary embolism where 
tPA or other thrombolytic therapy was also reported with an average 
length of stay of 6.31 days and average costs of $19,419. For MS-DRG 
176, there were a total of 33,565 cases with an average length of stay 
of 3.81 days and average costs of $6,645. Of the 33,565 cases reported 
in MS-DRG 176, there were 544 cases that reported a principal diagnosis 
of pulmonary embolism where tPA or other thrombolytic therapy also was 
reported with an average length of stay of 5.07 days and average costs 
of $16,345.
    To address the request we received to create a new MS-DRG, we 
reviewed the data for the 1,174 total cases (630 and 544, respectively) 
that reported a principal diagnosis of pulmonary embolism that received 
tPA or other thrombolytic therapy in MS-DRGs 175 and 176. As shown in 
the table above, our data analysis demonstrates the average costs for 
these cases are higher ($19,419 compared to $10,479 for MS-DRG 175, and 
$16,345 compared to $6,645 for MS-DRG 176) and the length of stay is 
slightly longer (6.31 days compared to 5.76 days for MS-DRG 175, and 
5.07 days compared to 3.81 days for MS-DRG 176) compared to all cases 
reported in MS-DRGs 175 and 176. Out of a total of 52,492 cases (630 + 
18,529 + 544 + 32,789) in MS-DRGs 175 and 176 reporting a principal 
diagnosis of pulmonary embolism, 1,174 (2.24 percent) of these cases 
also received tPA or other thrombolytic therapy. While we recognize the 
differences in average costs and length of stay for these cases, the 
volume of these cases as well as the potential creation of a new MS-DRG 
for this subset of patients raised some concerns with our clinical 
advisors. We present our clinical advisors' concerns following the 
additional data analysis discussions below.
    We then conducted additional data analyses to determine if 
reassignment of cases with a principal diagnosis of pulmonary embolism 
where tPA or other thrombolytic therapy was administered to a higher 
paying MS-DRG was supported. As displayed in the data findings in the 
tables below, we explored reassigning cases with a principal diagnosis 
of pulmonary embolism that received tPA or other thrombolytic therapy 
from MS-DRG 176 to the higher severity level MS-DRG 175. The data do 
not adequately support this reassignment, as the cases with a principal 
diagnosis of pulmonary embolism where tPA or other thrombolytic therapy 
is administered would continue to be underpaid.
    As shown in the data findings in the table below, the initial data 
analysis for MS-DRG 175 found the average costs for cases that reported 
a principal diagnosis of pulmonary embolism that received tPA or other 
thrombolytic therapy were $19,419, and for MS-DRG 176, the average 
costs for these cases were $16,345.

          Principal Diagnosis of Pulmonary Embolism With tPA or Other Thrombolytic Therapy Administered
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 175--All MCC cases.......................................          19,274            5.76         $10,479
MS-DRG 175--MCC cases with principal diagnosis of pulmonary                  630            6.31          19,419
 embolism with tPA or other thrombolytic therapy administered...
MS-DRG 176--All without MCC cases...............................          33,565            3.81           6,645
MS-DRG 176--Without MCC cases with principal diagnosis of                    544            5.07          16,345
 pulmonary embolism with tPA or other thrombolytic therapy
 administered...................................................
----------------------------------------------------------------------------------------------------------------

    As displayed in the table below, if we reassigned the 544 cases 
with a principal diagnosis of pulmonary embolism where tPA or other 
thrombolytic therapy is administered from the ``without MCC'' level, 
MS-DRG 176, to the ``with MCC'' severity level, MS-DRG 175, the average 
costs for all cases in MS-DRG 175 would be approximately $10,640. This 
figure continues to result in a difference of approximately $9,000 for 
the MCC cases and $6,000 for the without MCC cases when compared to 
findings for the average costs of these cases from the initial data 
analysis ($19,419-$10,640 = $8,779 and $16,345-$10,640 = $5,705, 
respectively). In addition, our clinical advisors had concerns about 
the prospect of moving the subset of 544 patients from the ``without 
MCC'' level to the ``with MCC'' level. We present these concerns 
following the additional data analysis discussion below.

[[Page 24979]]



        Option of Reassignment of Cases of Principal Diagnosis of Pulmonary Embolism With and Without tPA
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
MS-DRG 175--Cases with pulmonary embolism with MCC or tPA or              19,818            5.74         $10,640
 other thrombolytic therapy.....................................
MS-DRG 176--Cases with pulmonary embolism without MCC...........          33,021            3.79           6,486
----------------------------------------------------------------------------------------------------------------

    We also reviewed claims data in considering the option of adding 
another severity level to the current structure of MS-DRGs 175 and 176 
and assigning the cases with a principal diagnosis of pulmonary 
embolism that receive tPA or other thrombolytic therapy to the highest 
level. This option would involve modifying the current 2-way severity 
level split of ``with MCC'' and ``without MCC'' to a 3-way severity 
level split of ``with MCC or tPA, with CC, and without CC/MCC.'' 
Therefore, it would include proposing new MS-DRGs if the data and our 
clinical advisors supported creation of new MS-DRGs. However, as 
displayed in the data findings in the table below, the data did not 
support this option. In addition to similar results from the previous 
option's discussion regarding continued differences in average costs 
for these cases, the data failed to meet the criterion that there be at 
least a $2,000 difference between the ``with CC'' and ``without CC/
MCC'' subgroups. Our data analysis shows the average costs in the 
hypothetical ``with CC'' subgroup of $6,932 and the average costs in 
the hypothetical ``without CC/MCC'' subgroup of $5,309. The difference 
only amounts to $1,623 ($6,932 minus $5,309 = $1,623).

          Principal Diagnosis of Pulmonary Embolism With and Without tPA or Other Thrombolytic Therapy
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                       Optional new MS-DRG                             cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG XXX--Pulmonary embolism with MCC or tPA or other                   19,819            5.74         $10,641
 thrombolytic therapy...........................................
MS-DRG XXX--Pulmonary embolism with CC..........................          23,929            4.04           6,932
MS-DRG XXX--Pulmonary embolism without CC/MCC...................           9,091            3.13           5,309
----------------------------------------------------------------------------------------------------------------

    Lastly, we explored reassigning cases with a principal diagnosis of 
pulmonary embolism that receive tPA or other thrombolytic therapy to 
other MS-DRGs within MDC 4. However, our review did not support 
reassignment of these cases to any other medical MS-DRGs as these cases 
would not be clinically coherent with the cases assigned to those other 
MS-DRGs.
    In addition to the results of the various data analyses we 
performed for creating a new MS-DRG or for reassignment of cases of 
pulmonary embolism with tPA or other thrombolytic therapy to another 
higher paying MS-DRG, our clinical advisors also expressed a number of 
concerns. They pointed out that all patients with a diagnosis of 
pulmonary embolism are considered high risk and the small subset of 
patients receiving thrombolytic therapy does not necessarily warrant a 
separate MS-DRG or reassignment at this time. Our clinical advisors 
noted that it is unclear if: (1) The higher costs associated with 
receiving tPA or other thrombolytic therapy are due to a different 
subset of patients or complications; (2) if those patients treated with 
tPA or other thrombolytic therapy for pulmonary embolism are indeed 
sicker patients; (3) if the cost of tPA or other thrombolytic therapy 
for patients with pulmonary embolism is the reason for the higher costs 
seen with these cases; or (4) if the increased average costs for cases 
of pulmonary embolism with tPA or other thrombolytic therapy is a 
combination of numbers (1) through (3). They recommended maintaining 
the current structure of MS-DRGs 175 and 176 at this time.
    As a result of the data analysis and the concerns expressed by our 
clinical advisors, we are not proposing to create a new MS-DRG or to 
reassign cases with a principal diagnosis of pulmonary embolism with 
tPA or other thrombolytic therapy for FY 2017. We are inviting public 
comment on our proposal.
5. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Implant of Loop Recorder
    We received a request to examine a potential ICD-9 to ICD-10 
replication issue for procedures describing implantation or revision of 
loop recorder that were reported using ICD-9-CM procedure code 37.79 
(Revision or relocation of cardiac device pocket). A loop recorder is 
also known as an implantable cardiac monitor. It is indicated for 
patients who experience episodes of unexplained syncope (fainting), 
heart palpitations, or patients at risk for various types of cardiac 
arrhythmias, such as atrial fibrillation or ventricular 
tachyarrhythmia. Loop recorders function by detecting and monitoring 
potential episodes of these kinds of conditions. The requestor 
acknowledged that these implantation procedures are frequently 
performed in the outpatient setting. However, the requestor also noted 
that the implantation procedures are often performed in the inpatient 
setting and suggested that they be recognized under the ICD-10 MS-DRGs 
as they had been under the ICD-9-CM based MS-DRG logic.
    The requestor stated that, under the ICD-9-CM based MS-DRGs, 
procedure code 37.79 was designated as an operating room (O.R.) 
procedure in the Definitions Manual under Appendix E--Operating Room 
Procedures and Procedure Code/MS-DRG Index and grouped to MS-DRGs 040, 
041, and 042 (Peripheral, Cranial Nerve and Other Nervous System 
Procedures with MCC, with CC or peripheral neurostimulator, and without 
CC/MCC, respectively); MS-DRGs 260, 261, and 262 (Cardiac Pacemaker 
Revision Except Device Replacement with MCC, with CC, and without CC/
MCC, respectively); MS-DRGs 579, 580, and 581 (Other Skin, Subcutaneous 
Tissue and Breast Procedures with MCC, with CC and without CC/MCC, 
respectively); MS-DRGs 907, 908, and 909 (Other O.R. Procedures for 
Injuries with MCC, with CC, and without CC/MCC, respectively); and MS-
DRGs 957, 958, and 959 (Other O.R. Procedures for Multiple Significant 
Trauma with MCC, with CC, and without CC/MCC, respectively).
    Under the current Version 33 ICD-10 MS-DRGs, there are two 
comparable ICD-10-PCS code translations for ICD-9-CM code 37.79. They 
are procedure codes 0JWT0PZ (Revision of cardiac

[[Page 24980]]

rhythm related device in trunk subcutaneous tissue and fascia, open 
approach) and 0JWT3PZ (Revision of cardiac rhythm related device in 
trunk subcutaneous tissue and fascia, percutaneous approach), which are 
designated as O.R. procedures and group to the above listed MS-DRGs.
    According to the requestor, the following six ICD-10-PCS procedure 
codes identify the implantation or revision of a loop recorder and were 
not replicated appropriately because they are currently designated as 
nonoperating room (non-O.R.) procedures under the ICD-10 MS-DRGs. The 
requestor suggested that these codes be designated as O.R. procedures 
and assigned to the same MS-DRGs as the former ICD-9-CM procedure code 
37.79:

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
0JH602Z..................  Insertion of monitoring device into chest
                            subcutaneous tissue and fascia, open
                            approach.
0JH632Z..................  Insertion of monitoring device into chest
                            subcutaneous tissue and fascia, percutaneous
                            approach.
0JH802Z..................  Insertion of monitoring device into abdomen
                            subcutaneous tissue and fascia, open
                            approach.
0JH832Z..................  Insertion of monitoring device into abdomen
                            subcutaneous tissue and fascia, percutaneous
                            approach.
0JWT02Z..................  Revision of monitoring device in trunk
                            subcutaneous tissue and fascia, open
                            approach.
0JWT32Z..................  Revision of monitoring device in trunk
                            subcutaneous tissue and fascia, percutaneous
                            approach.
------------------------------------------------------------------------

    We examined the six ICD-10-PCS procedure codes that the commenter 
recommended be designated as O.R. procedures and assigned to the same 
MS-DRGs as ICD-9-CM procedure code 37.79. As discussed in section 
II.F.1.b. of the preamble of this proposed rule, in evaluating 
requested MS-DRG changes, we determined if they could be replicated in 
the ICD-9-CM MS-DRGs so as not to affect the FY 2017 relative payment 
weights. If the answer was ``no,'' we examined whether the change in 
the ICD-10 MS-DRGs was likely to cause a significant number of patient 
cases to change or ``shift'' ICD-10 MS-DRGs. If relatively few patient 
cases would be impacted, we evaluated if it would be feasible to 
propose the change even though it could not be replicated by the ICD-9 
MS-DRGs logic because it would not cause a material payment 
redistribution.
    Under our review, we recognized that the six ICD-10-PCS procedure 
codes are currently identified as comparable translations of ICD-9-CM 
procedure code 86.09 (Other incision of skin and subcutaneous tissue), 
which was designated as a non-O.R. procedure code under the ICD-9-CM 
based MS-DRGs. Therefore, changing the designation of the six ICD-10-
PCS procedure codes from non-O.R. to O.R. for the ICD-10 MS-DRGs cannot 
be replicated in the ICD-9-CM based MS-DRGs. In other words, we cannot 
designate ICD-9-CM procedure code 86.09 as an O.R. code. However, we 
believe that if we limit the change in designation to four of the six 
identified ICD-10-PCS procedure codes from non-O.R. to O.R., the change 
would not have any impact. We are not including the two ICD-10-PCS 
procedure codes that describe the insertion of a monitoring device into 
the abdomen in our proposal because a loop recorder is not inserted 
into that location and it would not be clinically appropriate.
    Therefore, for FY 2017, we are proposing to designate the following 
four ICD-10-PCS codes as O.R. procedures within Appendix E of the 
Version 34 ICD-10 MS-DRG Definitions Manual:
     0JH602Z (Insertion of monitoring device into chest 
subcutaneous tissue and fascia, open approach);
     0JH632Z (Insertion of monitoring device into chest 
subcutaneous tissue and fascia, percutaneous approach);
     0JWT02Z (Revision of monitoring device in trunk 
subcutaneous tissue and fascia, open approach); and
     0JWT32Z (Revision of monitoring device in trunk 
subcutaneous tissue and fascia, percutaneous approach).
    We also are proposing that the ICD-10 MS-DRG assignment for these 
four ICD-10-PCS codes replicate the ICD-9-CM based MS-DRG assignment 
for procedure code 37.79; that is, MS-DRGs 040, 041, 042, 260, 261, 
262, 579,580, 581, 907, 908, 909, 957, 958, and 959 as cited earlier in 
this section.
    We are inviting public comments on our proposals.
b. Endovascular Thrombectomy of the Lower Limbs
    We received a comment stating that the logic for ICD-10 MS-DRGs 
Version 33 is not compatible with the ICD-9-CM MS-DRGs Version 32 for 
the assignment of procedures describing endovascular thrombectomy of 
the lower limbs. The commenter asked CMS to reconfigure the MS-DRG 
structure within the ICD-10 MS-DRGs for endovascular thrombectomy of 
the lower limbs, specifically MS-DRGs 270, 271, and 272 (Endovascular 
Thrombectomy of the Lower Limbs with MCC, with CC, and without CC/MCC, 
respectively). The commenter believed that this requested restructuring 
would be consistent with the MS-DRG assignments for the other 
procedures describing lower extremity thrombectomy, and would 
accurately replicate the logic of the ICD-9-CM MS-DRGs Version 32. 
Under the ICD-9-CM, endovascular thrombectomy of the lower limbs is 
described by procedure code 39.79 (Other endovascular procedures on 
other vessels). The commenter stated that, with deep vein thrombosis 
(DVT) or any other circulatory system disorders as the principal 
diagnosis, cases involving procedures described by procedure code 39.79 
grouped to ICD-9-CM MS-DRGs 237 and 238 (Major Cardiovascular 
Procedures with and without MCC, respectively). However, the commenter 
pointed out that, for FY 2016, ICD-9-CM MS-DRGs 237 and 238 were 
deleted and replaced with ICD-10 Version 33 MS-DRGs 268 and 269 (Aortic 
and Heart Assist Procedures Except Pulsation Balloon with and without 
MCC, respectively), for the higher complexity procedures, and MS-DRGs 
270, 271, and 272 (Other Major Cardiovascular Procedures with MCC, with 
CC, and without CC/MCC, respectively), for the lower complexity 
procedures (80 FR 49389). The commenter stated that ICD-9-CM procedure 
code 39.79 describes the lower complexity procedures assigned to ICD-
10-PCS MS-DRGs 270, 271, and 272. The commenter believed that the 
comparable ICD-10-PCS procedure codes also should have been assigned to 
MS-DRGs 270, 271, and 272.
    We agree with the requestor that procedures describing endovascular 
thrombectomy of the lower limbs should be assigned to ICD-10 MS-DRGs 
270, 271, and 272. Therefore, for implementation October 1, 2016, we 
are proposing to restructure the ICD-10-PCS MS-DRG configuration and 
add the ICD-10-PCS code translations listed in the following chart 
(which would

[[Page 24981]]

capture procedures describing endovascular thrombectomy of the lower 
limbs) to ICD-10-PCS Version 34 MS-DRGs 270, 271, and 272.

   ICD-10-PCS Endovascular Thrombectomy Procedure Codes Proposed To Be
            Assigned to MS-DRGs 270, 271, and 272 for FY 2017
------------------------------------------------------------------------
 
------------------------------------------------------------------------
03C53ZZ..................  Extirpation of matter from right axillary
                            artery, percutaneous approach.
03C63ZZ..................  Extirpation of matter from left axillary
                            artery, percutaneous approach.
03C73ZZ..................  Extirpation of matter from right brachial
                            artery, percutaneous approach.
03C83ZZ..................  Extirpation of matter from left brachial
                            artery, percutaneous approach.
03C93ZZ..................  Extirpation of matter from right ulnar
                            artery, percutaneous approach.
03CA3ZZ..................  Extirpation of matter from left ulnar artery,
                            percutaneous approach.
03CB3ZZ..................  Extirpation of matter from right radial
                            artery, percutaneous approach.
03CC3ZZ..................  Extirpation of matter from left radial
                            artery, percutaneous approach.
03CD3ZZ..................  Extirpation of matter from right hand artery,
                            percutaneous approach.
03CF3ZZ..................  Extirpation of matter from left hand artery,
                            percutaneous approach.
03CY3ZZ..................  Extirpation of matter from upper artery,
                            percutaneous approach.
04CK3ZZ..................  Extirpation of matter from right femoral
                            artery, percutaneous approach.
04CL3ZZ..................  Extirpation of matter from left femoral
                            artery, percutaneous approach.
04CM3ZZ..................  Extirpation of matter from right popliteal
                            artery, percutaneous approach.
04CN3ZZ..................  Extirpation of matter from left popliteal
                            artery, percutaneous approach.
04CP3ZZ..................  Extirpation of matter from right anterior
                            tibial artery, percutaneous approach.
04CQ3ZZ..................  Extirpation of matter from left anterior
                            tibial artery, percutaneous approach.
04CR3ZZ..................  Extirpation of matter from right posterior
                            tibial artery, percutaneous approach.
04CS3ZZ..................  Extirpation of matter from left posterior
                            tibial artery, percutaneous approach.
04CT3ZZ..................  Extirpation of matter from right peroneal
                            artery, percutaneous approach.
04CU3ZZ..................  Extirpation of matter from left peroneal
                            artery, percutaneous approach.
04CV3ZZ..................  Extirpation of matter from right foot artery,
                            percutaneous approach.
04CW3ZZ..................  Extirpation of matter from left foot artery,
                            percutaneous approach.
04CY3ZZ..................  Extirpation of matter from lower artery,
                            percutaneous approach.
05C73ZZ..................  Extirpation of matter from right axillary
                            vein, percutaneous approach.
05C83ZZ..................  Extirpation of matter from left axillary
                            vein, percutaneous approach.
05C93ZZ..................  Extirpation of matter from right brachial
                            vein, percutaneous approach.
05CA3ZZ..................  Extirpation of matter from left brachial
                            vein, percutaneous approach.
05CB3ZZ..................  Extirpation of matter from right basilic
                            vein, percutaneous approach.
05CC3ZZ..................  Extirpation of matter from left basilic vein,
                            percutaneous approach.
05CD3ZZ..................  Extirpation of matter from right cephalic
                            vein, percutaneous approach.
05CF3ZZ..................  Extirpation of matter from left cephalic
                            vein, percutaneous approach.
05CG3ZZ..................  Extirpation of matter from right hand vein,
                            percutaneous approach.
05CH3ZZ..................  Extirpation of matter from left hand vein,
                            percutaneous approach.
05CL3ZZ..................  Extirpation of matter from intracranial vein,
                            percutaneous approach.
05CM3ZZ..................  Extirpation of matter from right internal
                            jugular vein, percutaneous approach.
05CN3ZZ..................  Extirpation of matter from left internal
                            jugular vein, percutaneous approach.
05CP3ZZ..................  Extirpation of matter from right external
                            jugular vein, percutaneous approach.
05CQ3ZZ..................  Extirpation of matter from left external
                            jugular vein, percutaneous approach.
05CR3ZZ..................  Extirpation of matter from right vertebral
                            vein, percutaneous approach.
05CS3ZZ..................  Extirpation of matter from left vertebral
                            vein, percutaneous approach.
05CT3ZZ..................  Extirpation of matter from right face vein,
                            percutaneous approach.
05CV3ZZ..................  Extirpation of matter from left face vein,
                            percutaneous approach.
05CY3ZZ..................  Extirpation of matter from upper vein,
                            percutaneous approach.
06C33ZZ..................  Extirpation of matter from esophageal vein,
                            percutaneous approach.
06CM3ZZ..................  Extirpation of matter from right femoral
                            vein, percutaneous approach.
06CN3ZZ..................  Extirpation of matter from left femoral vein,
                            percutaneous approach.
06CP3ZZ..................  Extirpation of matter from right greater
                            saphenous vein, percutaneous approach.
06CQ3ZZ..................  Extirpation of matter from left greater
                            saphenous vein, percutaneous approach.
06CR3ZZ..................  Extirpation of matter from right lesser
                            saphenous vein, percutaneous approach.
06CS3ZZ..................  Extirpation of matter from left lesser
                            saphenous vein, percutaneous approach.
06CT3ZZ..................  Extirpation of matter from right foot vein,
                            percutaneous approach.
------------------------------------------------------------------------

    We are inviting public comments on our proposal to assign the ICD-
10-PCS procedures describing the endovascular thrombectomy of the lower 
limbs listed in the table above to ICD-10 Version 34 MS-DRGs 270, 271, 
and 272 for FY 2017.
c. Pacemaker Procedures Code Combinations
    We received a request that CMS examine the list of ICD-10-PCS 
procedure code combinations that describe procedures involving 
pacemakers to determine if some procedure code combinations were 
excluded from the ICD-10 MS-DRG assignments for MS-DRGs 242, 243, and 
244 (Permanent Cardiac Pacemaker Implant with MCC, with CC, and without 
CC/MCC). The requestor believed that some ICD-10-PCS procedure code 
combinations describing procedures involving pacemaker devices and 
leads are not included in the current list.
    We reviewed the list of ICD-10-PCS procedure code combinations 
describing procedures involving pacemakers assigned to ICD-10 MS-DRGs 
242, 243, and 244, and determined that our initial approach of using 
specified procedure code combinations to identify procedures involving 
pacemakers and leads was overly complex and may have led to inadvertent 
omissions of qualifying procedure code combinations. Under our initial 
approach, we developed a list of

[[Page 24982]]

possible ICD-10-PCS procedure code combinations that describe 
procedures involving pacemaker devices and leads as well as ICD-10-PCS 
procedure code combinations for procedures describing the removal and 
replacement of pacemaker devices. We now believe that a more 
appropriate approach would be to compile a list of all procedure codes 
describing procedures involving pacemaker devices and a list of all 
procedure codes describing procedures involving pacemaker leads. If a 
procedure code from the list of procedure codes describing procedures 
involving pacemaker devices and a procedure code from the list of 
procedure codes describing procedures involving pacemaker leads are 
reported in combination with one another, the case would be assigned to 
ICD-10 MS-DRGs 242, 243, and 244. We believe that this more generic 
approach would capture a wider range of possible reported procedure 
codes describing procedures involving pacemaker devices and leads. 
Therefore, we are proposing to modify the ICD-10 MS-DRG logic so that 
if one of the ICD-10-PCS procedure codes describing procedures 
involving pacemaker devices listed in column 1 of the table below is 
reported in combination with one of the ICD-10-PCS procedure codes 
describing procedures involving leads listed in column 3 of the table 
below, the case would be assigned to MS-DRGs 242, 243, and 244. We 
believe that this proposed simplified approach would capture all 
possible cases reporting procedure code combinations describing 
procedures involving pacemaker devices and leads to ensure that these 
cases would be assigned to MS-DRGs 242, 243, and 244.

----------------------------------------------------------------------------------------------------------------
     ICD-10-PCS Procedure codes describing                             ICD-10-PCS Procedure codes describing
 procedures involving cardiac pacemaker devices                    procedures  involving cardiac pacemaker leads
 (any one code reported from this column list)    In combination   (any one code reported from this column list)
                      (1)                            with (2)                           (3)
------------------------------------------------                 -----------------------------------------------
     Procedure code         Code description                           Procedure code         Code description
----------------------------------------------------------------------------------------------------------------
0JH604Z................  Insertion of            ...............  02H40JZ                  Insertion of
                          pacemaker, single                                                 pacemaker lead into
                          chamber into chest                                                coronary vein, open
                          subcutaneous tissue                                               approach.
                          and fascia, open
                          approach.
0JH605Z................  Insertion of            ...............  02H40MZ                  Insertion of cardiac
                          pacemaker, single                                                 lead into coronary
                          chamber rate                                                      vein, open approach.
                          responsive into chest
                          subcutaneous tissue
                          and fascia, open
                          approach.
0JH606Z................  Insertion of            ...............  02H43JZ                  Insertion of
                          pacemaker, dual                                                   pacemaker lead into
                          chamber into chest                                                coronary vein,
                          subcutaneous tissue                                               percutaneous
                          and fascia, open                                                  approach.
                          approach.
0JH607Z................  Insertion of cardiac    ...............  02H43MZ                  Insertion of cardiac
                          resynchronization                                                 lead into coronary
                          pacemaker pulse                                                   vein, percutaneous
                          generator into chest                                              approach.
                          subcutaneous tissue
                          and fascia, open
                          approach.
0JH60PZ................  Insertion of cardiac    ...............  02H44JZ                  Insertion of
                          rhythm related device                                             pacemaker lead into
                          into chest                                                        coronary vein,
                          subcutaneous tissue                                               percutaneous
                          and fascia, open                                                  endoscopic approach.
                          approach.
0JH634Z................  Insertion of            ...............  02H44MZ                  Insertion of cardiac
                          pacemaker, single                                                 lead into coronary
                          chamber into chest                                                vein, percutaneous
                          subcutaneous tissue                                               endoscopic approach.
                          and fascia,
                          percutaneous approach.
0JH635Z................  Insertion of            ...............  02H60JZ                  Insertion of
                          pacemaker, single                                                 pacemaker lead into
                          chamber rate                                                      right atrium, open
                          responsive into chest                                             approach.
                          subcutaneous tissue
                          and fascia,
                          percutaneous approach.
0JH636Z................  Insertion of            ...............  02H60MZ                  Insertion of cardiac
                          pacemaker, dual                                                   lead into right
                          chamber into chest                                                atrium, open
                          subcutaneous tissue                                               approach.
                          and fascia,
                          percutaneous approach.
0JH637Z................  Insertion of cardiac    ...............  02H63JZ                  Insertion of
                          resynchronization                                                 pacemaker lead into
                          pacemaker pulse                                                   right atrium,
                          generator into chest                                              percutaneous
                          subcutaneous tissue                                               approach.
                          and fascia,
                          percutaneous approach.
0JH63PZ................  Insertion of cardiac    ...............  02H63MZ                  Insertion of cardiac
                          rhythm related device                                             lead into right
                          into chest                                                        atrium, percutaneous
                          subcutaneous tissue                                               approach.
                          and fascia,
                          percutaneous approach.
0JH804Z................  Insertion of            ...............  02H64JZ                  Insertion of
                          pacemaker, single                                                 pacemaker lead into
                          chamber into abdomen                                              right atrium,
                          subcutaneous tissue                                               percutaneous
                          and fascia, open                                                  endoscopic approach.
                          approach.
0JH805Z................  Insertion of            ...............  02H64MZ                  Insertion of cardiac
                          pacemaker, single                                                 lead into right
                          chamber rate                                                      atrium, percutaneous
                          responsive into                                                   endoscopic approach.
                          abdomen subcutaneous
                          tissue and fascia,
                          open approach.
0JH806Z................  Insertion of            ...............  02H70JZ                  Insertion of
                          pacemaker, dual                                                   pacemaker lead into
                          chamber into abdomen                                              left atrium, open
                          subcutaneous tissue                                               approach.
                          and fascia, open
                          approach.
0JH807Z................  Insertion of cardiac    ...............  02H70MZ                  Insertion of cardiac
                          resynchronization                                                 lead into left
                          pacemaker pulse                                                   atrium, open
                          generator into                                                    approach.
                          abdomen subcutaneous
                          tissue and fascia,
                          open approach.
0JH80PZ................  Insertion of cardiac    ...............  02H73JZ                  Insertion of
                          rhythm related device                                             pacemaker lead into
                          into abdomen                                                      left atrium,
                          subcutaneous tissue                                               percutaneous
                          and fascia, open                                                  approach.
                          approach.
0JH834Z................  Insertion of            ...............  02H73MZ                  Insertion of cardiac
                          pacemaker, single                                                 lead into left
                          chamber into abdomen                                              atrium, percutaneous
                          subcutaneous tissue                                               approach.
                          and fascia,
                          percutaneous approach.

[[Page 24983]]

 
0JH835Z................  Insertion of            ...............  02H74JZ                  Insertion of
                          pacemaker, single                                                 pacemaker lead into
                          chamber rate                                                      left atrium,
                          responsive into                                                   percutaneous
                          abdomen subcutaneous                                              endoscopic approach.
                          tissue and fascia,
                          percutaneous approach.
0JH836Z................  Insertion of            ...............  02H74MZ                  Insertion of cardiac
                          pacemaker, dual                                                   lead into left
                          chamber into abdomen                                              atrium, percutaneous
                          subcutaneous tissue                                               endoscopic approach.
                          and fascia,
                          percutaneous approach.
0JH837Z................  Insertion of cardiac    ...............  02HK0JZ                  Insertion of
                          resynchronization                                                 pacemaker lead into
                          pacemaker pulse                                                   right ventricle,
                          generator into                                                    open approach.
                          abdomen subcutaneous
                          tissue and fascia,
                          percutaneous approach.
0JH83PZ................  Insertion of cardiac    ...............  02HK0MZ                  Insertion of cardiac
                          rhythm related device                                             lead into right
                          into abdomen                                                      ventricle, open
                          subcutaneous tissue                                               approach.
                          and fascia,
                          percutaneous approach.
                                                                  02HK3JZ                  Insertion of
                                                                                            pacemaker lead into
                                                                                            right ventricle,
                                                                                            percutaneous
                                                                                            approach.
                                                                  02HK3MZ                  Insertion of cardiac
                                                                                            lead into right
                                                                                            ventricle,
                                                                                            percutaneous
                                                                                            approach.
                                                                  02HK4JZ                  Insertion of
                                                                                            pacemaker lead into
                                                                                            right ventricle,
                                                                                            percutaneous
                                                                                            endoscopic approach.
                                                                  02HK4MZ                  Insertion of cardiac
                                                                                            lead into right
                                                                                            ventricle,
                                                                                            percutaneous
                                                                                            endoscopic approach.
                                                                  02HL0JZ                  Insertion of
                                                                                            pacemaker lead into
                                                                                            left ventricle, open
                                                                                            approach.
                                                                  02HL0MZ                  Insertion of cardiac
                                                                                            lead into left
                                                                                            ventricle, open
                                                                                            approach.
                                                                  02HL3JZ                  Insertion of
                                                                                            pacemaker lead into
                                                                                            left ventricle,
                                                                                            percutaneous
                                                                                            approach.
                                                                  02HL3MZ                  Insertion of cardiac
                                                                                            lead into left
                                                                                            ventricle,
                                                                                            percutaneous
                                                                                            approach.
                                                                  02HL4JZ                  Insertion of
                                                                                            pacemaker lead into
                                                                                            left ventricle,
                                                                                            percutaneous
                                                                                            endoscopic approach.
                                                                  02HL4MZ                  Insertion of cardiac
                                                                                            lead into left
                                                                                            ventricle,
                                                                                            percutaneous
                                                                                            endoscopic approach.
                                                                  02HN0JZ                  Insertion of
                                                                                            pacemaker lead into
                                                                                            pericardium, open
                                                                                            approach.
                                                                  02HN0MZ                  Insertion of cardiac
                                                                                            lead into
                                                                                            pericardium, open
                                                                                            approach.
                                                                  02HN3JZ                  Insertion of
                                                                                            pacemaker lead into
                                                                                            pericardium,
                                                                                            percutaneous
                                                                                            approach.
                                                                  02HN3MZ                  Insertion of cardiac
                                                                                            lead into
                                                                                            pericardium,
                                                                                            percutaneous
                                                                                            approach.
                                                                  02HN4JZ                  Insertion of
                                                                                            pacemaker lead into
                                                                                            pericardium,
                                                                                            percutaneous
                                                                                            endoscopic approach.
                                                                  02HN4MZ                  Insertion of cardiac
                                                                                            lead into
                                                                                            pericardium,
                                                                                            percutaneous
                                                                                            endoscopic approach.
----------------------------------------------------------------------------------------------------------------

    We are inviting public comments on our proposal to modify the MS-
DRG logic for MS-DRGs 242, 243, and 244 to establish that cases 
reporting one ICD-10-PCS code from the list of procedure codes 
describing procedures involving pacemaker devices and one ICD-10-PCS 
code from the list of procedure codes describing procedures involving 
pacemaker leads in combination with one another would qualify the case 
for assignment to MS-DRGs 242, 243, and 244.
    We also examined our GROUPER logic for MS-DRGs 258 and 259 (Cardiac 
Pacemaker Device Replacement with and without MCC, respectively). 
Assignments of cases to these MS-DRGs also include qualifying ICD-10-
PCS procedure code combinations describing procedures that involve the 
removal of pacemaker devices and the insertion of new devices. We 
believe that this logic may also be overly complex. Moreover, we 
believe that a more simplified approach would be to compile a list of 
all ICD-10-PCS procedure codes describing procedures involving cardiac 
pacemaker device insertions. Therefore, we are proposing this approach 
for FY 2017. Under the proposed approach, if one of the procedure codes 
describing procedures involving pacemaker device insertions is 
reported, and there are no other procedure codes describing procedures 
involving the insertion of a pacemaker lead reported in combination 
with one of these procedures, the case would be assigned to MS-DRG 258 
and 259. Cases reporting any one of the following ICD-10-PCS procedure 
codes describing procedures involving pacemaker device insertions would 
be assigned to MS-DRG 258 and 259.

[[Page 24984]]



Procedure Codes Describing Procedures Involving Cardiac Pacemaker Device
  Insertions Reported Without Any Other Pacemaker Device Procedure Code
          Proposed To Be Assigned to ICD-10 MS-DRGs 258 and 259
------------------------------------------------------------------------
      Procedure code                        Description
------------------------------------------------------------------------
0JH604Z..................  Insertion of pacemaker, single chamber into
                            chest subcutaneous tissue and fascia, open
                            approach.
0JH605Z..................  Insertion of pacemaker, single chamber rate
                            responsive into chest subcutaneous tissue
                            and fascia, open approach.
0JH606Z..................  Insertion of pacemaker, dual chamber into
                            chest subcutaneous tissue and fascia, open
                            approach.
0JH607Z..................  Insertion of cardiac resynchronization
                            pacemaker pulse generator into chest
                            subcutaneous tissue and fascia, open
                            approach.
0JH60PZ..................  Insertion of cardiac rhythm related device
                            into chest subcutaneous tissue and fascia,
                            open approach.
0JH634Z..................  Insertion of pacemaker, single chamber into
                            chest subcutaneous tissue and fascia,
                            percutaneous approach.
0JH635Z..................  Insertion of pacemaker, single chamber rate
                            responsive into chest subcutaneous tissue
                            and fascia, percutaneous approach.
0JH636Z..................  Insertion of pacemaker, dual chamber into
                            chest subcutaneous tissue and fascia,
                            percutaneous approach.
0JH637Z..................  Insertion of cardiac resynchronization
                            pacemaker pulse generator into chest
                            subcutaneous tissue and fascia, percutaneous
                            approach.
0JH63PZ..................  Insertion of cardiac rhythm related device
                            into chest subcutaneous tissue and fascia,
                            percutaneous approach.
0JH804Z..................  Insertion of pacemaker, single chamber into
                            abdomen subcutaneous tissue and fascia, open
                            approach.
0JH805Z..................  Insertion of pacemaker, single chamber rate
                            responsive into abdomen subcutaneous tissue
                            and fascia, open approach.
0JH806Z..................  Insertion of pacemaker, dual chamber into
                            abdomen subcutaneous tissue and fascia, open
                            approach.
0JH807Z..................  Insertion of cardiac resynchronization
                            pacemaker pulse generator into abdomen
                            subcutaneous tissue and fascia, open
                            approach.
0JH80PZ..................  Insertion of cardiac rhythm related device
                            into abdomen subcutaneous tissue and fascia,
                            open approach.
0JH834Z..................  Insertion of pacemaker, single chamber into
                            abdomen subcutaneous tissue and fascia,
                            percutaneous approach.
0JH835Z..................  Insertion of pacemaker, single chamber rate
                            responsive into abdomen subcutaneous tissue
                            and fascia, percutaneous approach.
0JH836Z..................  Insertion of pacemaker, dual chamber into
                            abdomen subcutaneous tissue and fascia,
                            percutaneous approach.
0JH837Z..................  Insertion of cardiac resynchronization
                            pacemaker pulse generator into abdomen
                            subcutaneous tissue and fascia, percutaneous
                            approach.
0JH83PZ..................  Insertion of cardiac rhythm related device
                            into abdomen subcutaneous tissue and fascia,
                            percutaneous approach.
------------------------------------------------------------------------

    We are inviting public comments on our proposal to modify the 
GROUPER logic for MS-DRGs 258 and 259 to establish that a case 
reporting one procedure code from the above list of ICD-10-PCS 
procedure codes describing procedures involving pacemaker device 
insertions without any other procedure codes describing procedures 
involving pacemaker leads reported would be assigned to MS-DRGs 258 and 
259.
    We also examined our GROUPER logic for MS-DRGs 260, 261, and 262 
(Cardiac Pacemaker Revision Except Device with MCC, with CC, and 
without CC/MCC, respectively). Cases assigned to MS-DRGs 260, 261, and 
262 also include lists of procedure code combinations describing 
procedures involving the removal of pacemaker leads and the insertion 
of new leads, in addition to lists of single procedure codes describing 
procedures involving the insertion of pacemaker leads, removal of 
devices, and revision of devices. We believe that this logic may also 
be overly complex. Moreover, we believe that a more simplified approach 
would be to provide a single list of procedure codes describing 
procedures involving cardiac pacemaker lead insertions and other 
related procedures involving device insertions that would be assigned 
to MS-DRGs 260, 261, and 262. If one of these procedure codes 
describing procedures involving the insertion of pacemaker leads is 
reported, and there are no other procedure codes describing procedures 
involving the insertion of a device reported, the case would be 
assigned to MS-DRG 260, 261, and 262. We are proposing that the list of 
ICD-10-PCS procedure codes describing procedures involving pacemaker 
lead insertion, removal, or revisions and insertion of hemodynamic 
devices in the following table would be assigned to MS-DRGs 260, 261, 
and 262. We are simply proposing to use a single list of ICD-10-PCS 
procedure codes to determine the MS-DRG assignment.

List of Procedure Codes Proposed To Be Assigned to MS-DRGs 260, 261, and
                                   262
------------------------------------------------------------------------
      Procedure code                        Description
------------------------------------------------------------------------
02H40JZ..................  Insertion of pacemaker lead into coronary
                            vein, open approach.
02H40MZ..................  Insertion of cardiac lead into coronary vein,
                            open approach.
02H43JZ..................  Insertion of pacemaker lead into coronary
                            vein, percutaneous approach.
02H43MZ..................  Insertion of cardiac lead into coronary vein,
                            percutaneous approach.
02H44JZ..................  Insertion of pacemaker lead into coronary
                            vein, percutaneous endoscopic approach.
02H44MZ..................  Insertion of cardiac lead into coronary vein,
                            percutaneous endoscopic approach.
02H60MZ..................  Insertion of pacemaker lead into right
                            atrium, open approach.
02H63JZ..................  Insertion of cardiac lead into right atrium,
                            open approach.
02H63MZ..................  Insertion of pacemaker lead into right
                            atrium, percutaneous approach.
02H64JZ..................  Insertion of cardiac lead into right atrium,
                            percutaneous approach.
02H64MZ..................  Insertion of pacemaker lead into right
                            atrium, percutaneous endoscopic approach.
02H70JZ..................  Insertion of cardiac lead into right atrium,
                            percutaneous endoscopic approach.
02H70MZ..................  Insertion of pacemaker lead into left atrium,
                            open approach.
02H73JZ..................  Insertion of cardiac lead into left atrium,
                            open approach.
02H73MZ..................  Insertion of pacemaker lead into left atrium,
                            percutaneous approach.
02H74JZ..................  Insertion of cardiac lead into left atrium,
                            percutaneous approach.
02H74MZ..................  Insertion of pacemaker lead into left atrium,
                            percutaneous endoscopic approach.
02HK00Z..................  Insertion of cardiac lead into left atrium,
                            percutaneous endoscopic approach.

[[Page 24985]]

 
02HK02Z..................  Insertion of pressure sensor monitoring
                            device into right ventricle, open approach.
02HK0JZ..................  Insertion of monitoring device into right
                            ventricle, open approach.
02HK0MZ..................  Insertion of pacemaker lead into right
                            ventricle, open approach.
02HK30Z..................  Insertion of cardiac lead into right
                            ventricle, open approach.
02HK32Z..................  Insertion of pressure sensor monitoring
                            device into right ventricle, percutaneous
                            approach.
02HK3JZ..................  Insertion of monitoring device into right
                            ventricle, percutaneous approach.
02HK3MZ..................  Insertion of pacemaker lead into right
                            ventricle, percutaneous approach.
02HK40Z..................  Insertion of cardiac lead into right
                            ventricle, percutaneous approach.
02HK42Z..................  Insertion of pressure sensor monitoring
                            device into right ventricle, percutaneous
                            endoscopic approach.
02HK4JZ..................  Insertion of monitoring device into right
                            ventricle, percutaneous endoscopic approach.
02HK4MZ..................  Insertion of pacemaker lead into right
                            ventricle, percutaneous endoscopic approach.
02HL0JZ..................  Insertion of cardiac lead into right
                            ventricle, percutaneous endoscopic approach.
02HL0MZ..................  Insertion of pacemaker lead into left
                            ventricle, open approach.
02HL3JZ..................  Insertion of cardiac lead into left
                            ventricle, open approach.
02HL3MZ..................  Insertion of pacemaker lead into left
                            ventricle, percutaneous approach.
02HL4JZ..................  Insertion of cardiac lead into left
                            ventricle, percutaneous approach.
02HL4MZ..................  Insertion of pacemaker lead into left
                            ventricle, percutaneous endoscopic approach.
02HN0JZ..................  Insertion of cardiac lead into left
                            ventricle, percutaneous endoscopic approach.
02HN0MZ..................  Insertion of pacemaker lead into pericardium,
                            open approach.
02HN3JZ..................  Insertion of cardiac lead into pericardium,
                            open approach.
02HN3MZ..................  Insertion of pacemaker lead into pericardium,
                            percutaneous approach.
02HN4JZ..................  Insertion of cardiac lead into pericardium,
                            percutaneous approach.
02HN4MZ..................  Insertion of pacemaker lead into pericardium,
                            percutaneous endoscopic approach.
02PA0MZ..................  Insertion of cardiac lead into pericardium,
                            percutaneous endoscopic approach.
02PA3MZ..................  Removal of cardiac lead from heart, open
                            approach.
02PA4MZ..................  Removal of cardiac lead from heart,
                            percutaneous approach.
02PAXMZ..................  Removal of cardiac lead from heart,
                            percutaneous endoscopic approach.
02WA0MZ..................  Revision of cardiac lead in heart, open
                            approach.
02WA3MZ..................  Revision of cardiac lead in heart,
                            percutaneous approach.
02WA4MZ..................  Revision of cardiac lead in heart,
                            percutaneous endoscopic approach.
0JH600Z..................  Insertion of hemodynamic monitoring device
                            into chest subcutaneous tissue and fascia,
                            open approach.
0JH630Z..................  Insertion of hemodynamic monitoring device
                            into chest subcutaneous tissue and fascia,
                            percutaneous approach.
0JH800Z..................  Insertion of hemodynamic monitoring device
                            into abdomen subcutaneous tissue and fascia,
                            open approach.
0JH830Z..................  Insertion of hemodynamic monitoring device
                            into abdomen subcutaneous tissue and fascia,
                            percutaneous approach.
0JPT0PZ..................  Removal of cardiac rhythm related device from
                            trunk subcutaneous tissue and fascia, open
                            approach.
0JPT3PZ..................  Removal of cardiac rhythm related device from
                            trunk subcutaneous tissue and fascia,
                            percutaneous approach.
0JWT0PZ..................  Revision of cardiac rhythm related device in
                            trunk subcutaneous tissue and fascia, open
                            approach.
0JWT3PZ..................  Revision of cardiac rhythm related device in
                            trunk subcutaneous tissue and fascia,
                            percutaneous approach.
------------------------------------------------------------------------

    We are inviting public comments on our proposal to modify the 
GROUPER logic for MS-DRGs 260, 261, and 262 so that cases reporting any 
one of the ICD-10-PCS procedure codes describing procedures involving 
pacemakers and related procedures and associated devices listed in the 
table above would be assigned to MS-DRGs 260, 261, and 262.
d. Transcatheter Mitral Valve Repair With Implant
    As we did for the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28008 
through 28010), for FY 2017, we received a request to modify the MS-DRG 
assignment for transcatheter mitral valve repair with implant 
procedures. We refer readers to detailed discussions of the 
MitraClip[supreg] System (hereafter referred to as MitraClip[supreg]) 
for transcatheter mitral valve repair in previous rulemakings, 
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 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.
    In the FY 2015 IPPS/LTCH PPS final rule, we finalized our proposal 
to not create a new MS-DRG or to reassign cases reporting procedures 
involving the MitraClip[supreg] to another MS-DRG (79 FR 49890 through 
49892). Under a separate process, the request for a new technology add-
on payment for the MitraClip[supreg] System was approved (79 FR 49941 
through 49946). As discussed in section II.I.4.e. of the preamble of 
this proposed rule, we are proposing to discontinue the new technology 
add-on payment for MitraClip[supreg] for FY 2017.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49371), we finalized 
a modification to the MS-DRGs to which the procedure involving the 
MitraClip[supreg] System was assigned. For the ICD-10 based MS-DRGs to 
fully replicate the ICD-9-CM based MS-DRGs, ICD-10-PCS code 02UG3JZ 
(Supplement mitral valve with synthetic substitute, percutaneous 
approach), which identifies the use of the MitraClip[supreg] technology 
and is the ICD-10-PCS code translation for ICD-9-CM procedure code 
35.97 (Percutaneous mitral valve repair with implant), was assigned to 
new MS-DRGs 273 and 274 (Percutaneous Intracardiac Procedures with and 
without MCC, respectively) and continued to be assigned to MS-DRGs 231 
and 232 (Coronary Bypass with PTCA with MCC and without MCC, 
respectively). According to the requestor, there are substantial 
clinical and resource differences between the transcatheter mitral 
valve repair procedure and other procedures currently grouping to MS-
DRGs 273 and 274, which are the focus of the request.

[[Page 24986]]

    The requestor submitted three options for CMS to consider for FY 
2017. The first option was to create a new MS-DRG for endovascular 
cardiac valve repair with implant; the second option was to reassign 
cases for the MitraClip[supreg] implant from MS-DRGs 273 and 274 to MS-
DRGs 266 and 267 (Endovascular Cardiac Valve Replacement with and 
without MCC, respectively); and the third option was to reassign cases 
involving the MitraClip[supreg] system to another higher paying MS-DRG.
    We analyzed claims data from the December 2015 update of the FY 
2015 MedPAR file on reported cases of percutaneous mitral valve repair 
with implant (ICD-9-CM procedure code 35.97) in MS-DRGs 273 and 274. 
Our findings are shown in the table below.

                                  Percutaneous Mitral Valve Repair With Implant
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 273--All cases...........................................           6,620            8.01         $27,625
MS-DRG 273--Cases with procedure code 35.97.....................             457            7.57          50,560
MS-DRG 274--All cases...........................................          14,220            3.46          19,316
MS-DRG 274--Cases with procedure code 35.97.....................             693            2.67          37,686
----------------------------------------------------------------------------------------------------------------

    As shown in the table, the total number of cases reported in MS-DRG 
273 was 6,620 and had an average length of stay of 8.01 days and 
average costs of $27,625. The number of cases reporting the ICD-9-CM 
procedure code 35.97 in MS-DRG 273 totaled 457 and had an average 
length of stay of 7.57 days and average costs of $50,560. For MS-DRG 
274, there were a total of 14,220 cases with an average length of stay 
of 3.46 days and average costs of $19,316. There were a total of 693 
cases in MS-DRG 274 that reported procedure code 35.97; these cases had 
an average length of stay of 2.67 days and average costs of $37,686. We 
recognize that the cases reporting procedure code 35.97 had a shorter 
length of stay and higher average costs in comparison to all the cases 
within MS-DRGs 273 and 274.
    As stated above, the first option of the requestor was that we 
create a new MS-DRG for endovascular cardiac valve repair with implant 
procedures for all cardiac valve repairs. We reviewed the following 
list of ICD-10-PCS procedure codes that the requestor submitted to 
comprise this proposed new MS-DRG.

------------------------------------------------------------------------
     ICD-10-PCS Code                        Description
------------------------------------------------------------------------
02UF37Z..................  Supplement aortic valve with autologous
                            tissue substitute, percutaneous approach.
02UF38Z..................  Supplement aortic valve with zooplastic
                            tissue, percutaneous approach.
02UF3JZ..................  Supplement aortic valve with synthetic
                            substitute, percutaneous approach.
02UF3KZ..................  Supplement aortic valve with nonautologous
                            tissue substitute, percutaneous approach.
02UG37Z..................  Supplement mitral valve with autologous
                            tissue substitute, percutaneous approach.
02UG38Z..................  Supplement mitral valve with zooplastic
                            tissue, percutaneous approach.
02UG3JZ..................  Supplement mitral valve with synthetic
                            substitute, percutaneous approach.
02UG3KZ..................  Supplement mitral valve with nonautologous
                            tissue substitute, percutaneous approach.
02UH37Z..................  Supplement pulmonary valve with autologous
                            tissue substitute, percutaneous approach.
02UH38Z..................  Supplement pulmonary valve with zooplastic
                            tissue, percutaneous approach.
02UH3JZ..................  Supplement pulmonary valve with synthetic
                            substitute, percutaneous approach.
02UH3KZ..................  Supplement pulmonary valve with nonautologous
                            tissue substitute, percutaneous approach.
02UJ37Z..................  Supplement tricuspid valve with autologous
                            tissue substitute, percutaneous approach.
02UJ38Z..................  Supplement tricuspid valve with zooplastic
                            tissue, percutaneous approach.
02UJ3JZ..................  Supplement tricuspid valve with synthetic
                            substitute, percutaneous approach.
02UJ3KZ..................  Supplement tricuspid valve with nonautologous
                            tissue substitute, percutaneous approach.
------------------------------------------------------------------------

    The above list of ICD-10-PCS procedure codes are currently assigned 
to MS-DRGs 216 through 221 (Cardiac Valve and Other Major 
Cardiovascular Procedures with and without Cardiac Catheterization with 
MCC, with CC, and without CC/MCC, respectively), with the exception of 
procedure code 02UG3JZ, which is assigned to MS-DRGs 273 and 274, as 
noted earlier in this section.
    All 16 of the ICD-10-PCS procedure codes submitted by the requester 
are comparable translations of ICD-9-CM procedure code 35.33 
(Annuloplasty), which also grouped to MS-DRGs 216 through 221. However, 
ICD-10-PCS procedure code 02UG3JZ (Supplement mitral valve with 
synthetic substitute, percutaneous approach) is the comparable 
translation for both ICD-9-CM procedure code 35.33 and ICD-9-CM 
procedure code 35.97 (Percutaneous mitral valve repair with implant), 
which grouped to MS-DRGs 273 and 274 as mentioned previously.
    Upon review of the 16 ICD-10-PCS procedure codes submitted for 
consideration by the requestor, we determined that we cannot propose 
the suggested change because the resulting ICD-10 MS-DRG logic would 
not be an accurate replication of the ICD-9-CM based MS-DRG logic. 
Specifically, it is not possible to replicate reassigning the 
percutaneous annuloplasty codes from ICD-9-CM based MS-DRGs 216 through 
221 to a new MS-DRG because we cannot isolate those cases from 
procedure code 35.33. Under ICD-9-CM, procedure code 35.33 does not 
differentiate the specific type of approach used to perform the 
procedure. This is in contrast to the 60 comparable ICD-10 code 
translations that do differentiate among various approaches (open, 
percutaneous, and percutaneous endoscopic).
    As stated previously, if the ICD-9-CM and ICD-10 versions of the 
MS-DRGs cease to be replications of each other, the relative payment 
weights (computed using the ICD-9-CM based MS-DRGs) would be 
inconsistent with the ICD-10 MS-DRG assignment, which may cause 
unintended payment redistribution. Therefore, we are not proposing to

[[Page 24987]]

create a new MS-DRG for transcatheter mitral valve repair with implant 
procedures for FY 2017.
    The second option in the request was to evaluate reassigning cases 
involving the MitraClip[supreg] to MS-DRGs 266 and 267. This option is 
not supported for the same reasons provided in previous rulemaking 
regarding differences between valve replacements and valve repairs. Our 
clinical advisors do not believe that these procedures are clinically 
coherent or similar in terms of resource consumption because the 
MitraClip[supreg] technology is utilized for a percutaneous mitral 
valve repair, while the other technologies assigned to MS-DRGs 266 and 
267 are utilized for transcatheter/endovascular cardiac valve 
replacements. In addition, if cases involving the MitraClip[supreg] 
were reassigned to MS-DRGs 266 and 267, they would be overpaid by 
approximately $10,000 as shown in the table below. Our clinical 
advisors agree that we should not propose to reassign endovascular 
cardiac valve repair procedures to the endovascular cardiac valve 
replacement MS-DRGs.

                           Endovascular Cardiac Valve Replacement With and Without MCC
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
MS-DRG 266--All cases...........................................           7,436            8.54         $59,675
MS-DRG 267--All cases...........................................           8,480            4.45          47,013
----------------------------------------------------------------------------------------------------------------

    Next, we analyzed claims data from the December 2015 update of the 
FY 2015 MedPAR file relating to the possible reassignment of cases 
involving the MitraClip[supreg] (identified by ICD-9-CM procedure code 
35.97) to MS-DRGs 228, 229, and 230 (Other Cardiothoracic Procedures 
with MCC, with CC, and without CC/MCC, respectively). However, as shown 
in the findings in the table below, the claims data did not support 
this option under the current 3-way severity level split. That is, the 
data findings based on reassignment of MitraClip[supreg] cases (ICD-9-
CM procedure code 35.97) to MS-DRGs 228, 229, and 230 did not support 
the required criterion that there be at least a $2,000 difference 
between subgroups. A reassignment would not meet the requirement for 
the ``with CC'' and ``without CC/MCC'' subgroups ($34,461 - $33,216 = 
$1,245).

                           Other Cardiothoracic Procedures (With Procedure Code 35.97)
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 228--with MCC............................................           1,966           11.53         $51,634
MS-DRG 229--with CC.............................................           2,318            6.28          34,461
MS-DRG 230--without CC/MCC......................................             709            3.76          33,216
----------------------------------------------------------------------------------------------------------------

    We then performed additional analysis consisting of the base DRG 
report for MS-DRGs 228, 229 and 230. As shown in the table below, the 
average costs between the ``with CC'' and the ``without CC/MCC'' 
subgroups no longer meet the criterion that there be at least a 20-
percent difference in average costs between subgroups. These data 
findings support collapsing MS-DRGs 228, 229, and 230 from a 3-way 
severity level split into a 2-way severity level split (with MCC and 
without MCC) based on 2 years (FY 2014 and FY 2015) of MedPAR data. 
This option would involve the deletion of an MS-DRG.

                                                             Other Cardiothoracic Procedures
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Average length                                  Average length
                         MS-DRG                              Number of      of stay FY     Average costs     Number of      of stay FY     Average costs
                                                           cases FY 2015       2015           FY 2015      cases FY 2014       2014           FY 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
MS-DRG 228--with MCC....................................           1,509           12.73         $51,960           1,486           12.75         $50,688
MS-DRG 229--with CC.....................................           1,835            7.16          33,786           1,900            7.46          33,277
MS-DRG 230--without CC/MCC..............................             499            4.52          30,697             443            4.84          31,053
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In the additional analysis, we evaluated if reassignment of cases 
reporting ICD-9-CM procedure code 35.97 to this proposed 2-way severity 
split was supported. We confirmed that the reassignment of ICD-9-CM 
procedure code 35.97 could be replicated under the ICD-9 MS-DRGs. We 
believe that deleting MS-DRG 230, revising MS-DRG 229, and reassigning 
cases with procedure code 35.97 from MS-DRGs 273 and 274 to this new 
structure would reflect these procedures more accurately in the ICD-10 
MS-DRGs. Our clinical advisors agreed with a proposal to delete MS-DRG 
230 and reassign cases involving percutaneous mitral valve repair with 
implant (MitraClip[supreg]) to MS-DRG 228 and revised MS-DRG 229. We 
believe that this approach would maintain clinical coherence for these 
MS-DRGs and reflect more appropriate payment for procedures involving 
percutaneous mitral valve repair. The proposed revisions to the MS-
DRGs, which include the MitraClip[supreg] cases, are shown in the table 
below.

[[Page 24988]]



                                         Other Cardiothoracic Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                    Proposed revised MS-DRGs                           cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 228--with MCC............................................           1,966           11.53         $51,634
MS-DRG 229--without MCC.........................................           3,027            5.69          34,169
----------------------------------------------------------------------------------------------------------------

    For FY 2017, we are proposing to collapse MS-DRGs 228, 229, and 230 
from three severity levels to two severity levels by deleting MS-DRG 
230 and revising MS-DRG 229. We also are proposing to reassign ICD-9-CM 
procedure code 35.97 and the cases reporting ICD-10-PCS procedure code 
02UG3JZ (Supplement mitral valve with synthetic substitute, 
percutaneous approach) from MS-DRGs 273 and 274 to MS-DRG 228 and 
proposed revised MS-DRG 229. The title of MS-DRG 229 would be modified 
as follows to reflect the ``without MCC'' designation. The title of 
proposed revised MS-DRG 229 would be ``Other Cardiothoracic Procedures 
without MCC''. The title for MS-DRG 228 would remain the same: MS-DRG 
228 (Other Cardiothoracic Procedures with MCC). We are inviting public 
comments on our proposals.
    We also note that, as discussed earlier in this section, in the FY 
2016 IPPS/LTCH PPS final rule (80 FR 49371), ICD-10-PCS code 02UG3JZ 
(Supplement mitral valve with synthetic substitute, percutaneous 
approach) was assigned to MS-DRGs 231 and 232 (Coronary Bypass with 
PTCA with MCC and without MCC, respectively), in addition to new MS-
DRGs 273 and 274, to fully replicate the ICD-9-CM based MS-DRG logic 
for ICD-9-CM procedure code 35.97. If our proposal in this FY 2017 
proposed rule to reassign ICD-10-PCS code 02UG3JZ to MS-DRGs 228 and 
proposed revised MS-DRG 229 is finalized in the FY 2017 IPPS/LTCH PPS 
final rule, it will eliminate the need to continue having ICD-10-PCS 
code 02UG3JZ and ICD-9-CM code 35.97 group to MS-DRGs 231 and 232. This 
is due to the fact that, currently, MS-DRGs 228, 229, and 230 are 
listed higher than MS-DRGs 231 through 236 in the surgical hierarchy, 
as shown in the ICD-9 and ICD-10 MS-DRGs Definitions Manual Files in 
Appendix D--MS-DRG Surgical Hierarchy by MDC and MS-DRG, which is 
available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page-Items/FY2016-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending. 
Therefore, if the proposal is finalized for FY 2017, cases reporting 
ICD-10-PCS procedure code 02UG3JZ will group to MS-DRGs 228 and revised 
MS-DRG 229 versus MS-DRGs 231 and 232 because of the surgical hierarchy 
GROUPER logic.
    As a result, we are proposing to remove ICD-10-PCS procedure code 
02UG3JZ and ICD-9-CM procedure code 35.97 from the PTCA list in MS-DRGs 
231 and 232 (Coronary Bypass with PTCA with MCC and without MCC, 
respectively) for FY 2017 if the proposal to reassign ICD-9-CM 
procedure code 35.97 and the cases reporting ICD-10-PCS procedure codes 
02UG3JZ from MS-DRGs 273 and 274 to MS-DRGs 228 and proposed revised 
MS-DRG 229 is finalized. We are inviting public comments on our 
proposals.
e. MS-DRG 245 (AICD Generator Procedures)
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49369), we stated 
that we would continue to monitor MS-DRG 245 (AICD Generator 
Procedures) to determine if the data supported subdividing this base 
MS-DRG into severity levels. As displayed in the table below, the 
results of the FY 2015 data analysis showed there were a total of 1,464 
cases, with an average length of stay of 5.5 days and average costs of 
$34,564 for MS-DRG 245.

                                            AICD Generator Procedures
----------------------------------------------------------------------------------------------------------------
                                                                                 Average length
                            MS-DRG                             Number of cases      of stay       Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 245...................................................           1,464              5.5          $34,564
----------------------------------------------------------------------------------------------------------------

    We applied the five criteria established in the FY 2008 IPPS final 
rule (72 FR 47169), as described in section II.F.1.b. of the preamble 
of this proposed rule to determine if it was appropriate to subdivide 
MS-DRG 245 into severity levels. The table below illustrates our 
findings.

                                            AICD Generator Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
               MS-DRG by suggested severity level                      cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 245--with MCC............................................             449            8.37         $40,175
MS-DRG 245--with CC.............................................             861            4.59          32,518
MS-DRG 245--without CC/MCC......................................             154            2.86          29,646
----------------------------------------------------------------------------------------------------------------

    Based on our analysis of claims data from the December 2015 update 
of the FY 2015 MedPAR file, the data findings do not support creating 
new severity levels. The findings show that the data do not meet the 
criteria for a 3-way severity level split as the criterion that there 
be at least a 20-percent difference in average costs between subgroups 
is

[[Page 24989]]

not met for the ``with CC'' and ``without CC/MCC'' severity levels. We 
also looked at the prospect of a 2-way severity level split.

                                            AICD Generator Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
               MS-DRG by suggested severity level                      cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 245--with MCC............................................             449            8.37         $40,175
MS-DRG 245--without MCC.........................................           1,015            4.33          32,081
----------------------------------------------------------------------------------------------------------------

    The findings do show that the data are close to meeting the 
criteria for a 2-way severity level split of ``with MCC and without 
MCC.'' However, the required criterion that there must be at least 500 
cases in the MCC group is not met.
    Therefore, for FY 2017, we are not proposing to subdivide MS-DRG 
245 into severity levels. We are inviting public comments on our 
proposal to maintain the current structure for MS-DRG 245.
6. MDC 6 (Diseases and Disorders of the Digestive System): Excision of 
Ileum
    We received a request to analyze an MS-DRG replication issue from 
the ICD-9-CM based MS-DRGs to the ICD-10 based MS-DRGs for excision 
procedures performed on the ileum. Under ICD-9-CM, procedure code 45.62 
(Other partial resection of small intestine) was assigned to MS-DRGs 
329, 330 and 331 (Major Small and Large Bowel Procedures with MCC, with 
CC, and without CC/MCC, respectively). Under the current ICD-10 MS-DRGs 
Version 33, ICD-10-PCS procedure code 0DBB0ZZ (Excision of ileum, open 
approach) is assigned to MS-DRGs 347, 348, and 349 (Anal and Stomal 
Procedures with MCC, with CC, and without CC/MCC, respectively). The 
requestor indicated that, despite the variation in terms for 
``excision'' and ``resection'' between the two code sets, the surgical 
procedure to remove a portion of the small intestine, whether it is the 
ileum, duodenum, or jejunum, has not changed and should not result in 
different MS-DRG assignments when translated from ICD-9-CM to ICD-10.
    We agree that this is a replication error. In addition to ICD-10-
PCS code 0DBB0ZZ, we also reviewed the MS-DRG assignments for ICD-10-
PCS code 0DBA0ZZ (Excision of jejunum, open approach) and determined 
the MS-DRG assignment for this code resulted in the same replication 
error. Therefore, we are proposing to reassign ICD-10-PCS codes 0DBB0ZZ 
and 0DBA0ZZ from MS-DRGs 347, 348, and 349 to MS-DRGs 329, 330, and 
331, effective with the ICD-10 MS-DRGs Version 34 on October 1, 2016.
    We are inviting public comments on our proposal.
7. MDC 7 (Diseases and Disorders of the Hepatobiliary System and 
Pancreas): Bypass Procedures of the Veins
    We received a request to assign ICD-10-PCS code 06183DY (Bypass 
portal vein to lower vein with intraluminal device, percutaneous 
approach) to MDC 7 (Diseases and Disorders of the Hepatobiliary System 
and Pancreas) under MS-DRGs 405, 406, and 407 (Pancreas Liver and Shunt 
Procedures with MCC, with CC, and without CC/MCC, respectively). The 
requestor described this code as capturing a transjugular intrahepatic 
portosystem shunt procedure. The requestor stated that, under ICD-9-CM, 
when a procedure for cirrhosis of the liver was performed, the 
procedure was assigned to ICD-9-CM code 39.1 (Intra-abdominal venous 
shunt). The requestor noted that when ICD-9-CM procedure code 39.1 is 
reported with a principal diagnosis of cirrhosis of the liver, the 
procedure was assigned to MS-DRG 405, 406, or 407 in the ICD-9-CM MS-
DRGs.
    Currently, ICD-10-PCS procedure code 06183DY is assigned to only 
MDC 5 (Diseases and Disorders of the Circulatory System) and MS-DRGs 
270, 271, and 272 (Other Major Cardiovascular Procedures with MCC, with 
CC, and without CC/MCC, respectively) under ICD-10 MS-DRGs Version 33. 
The requestor stated that ICD-10-PCS procedure code 06183DY code should 
also be assigned to MDC 7 and MS-DRGs 405, 406, and 407 to be 
consistent with the ICD-9-CM MS-DRGs Version 32.
    We analyzed this issue and agree that the ICD-10 MS-DRGs do not 
fully replicate the ICD-9-CM MS-DRGs. We agree that ICD-10-PCS 
procedure code 06183DY should be assigned to MDC 7 and MS-DRGs 405, 
406, and 407 to replicate the ICD-9-CM MS-DRGs. Our clinical advisors 
reviewed this issue and also agree that ICD-10-PCS procedure code 
06183DY should be assigned to MDC 7 and MS-DRGs 405, 406, and 407. 
Therefore, we are proposing to assign ICD-10-PCS procedure code 06183DY 
to MDC 7 and MS-DRGs 405, 406, and 407 for FY 2017.
    We are inviting public comments on our proposal.
8. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue)
a. Proposed Updates to MS-DRGs 469 and 470 (Major Joint Replacement or 
Reattachment of Lower Extremity With and Without MCC, respectively)
(1) Total Ankle Replacement (TAR) Procedures
    We received a request to create a new MS-DRG for total ankle 
replacement (TAR) procedures, which are currently assigned to MS-DRGs 
469 and 470 (Major Joint Replacement or Reattachment of Lower Extremity 
with and without MCC, respectively). We previously discussed requested 
changes to the MS-DRG assignment for TAR procedures in the FY 2015 
IPPS/LTCH PPS proposed rule (79 FR 28013 through 28015) and in the FY 
2015 IPPS/LTCH PPS final rule (79 FR 49896 through 49899). For FY 2015, 
we did not change the MS-DRG assignment for total ankle replacements. 
The requestor stated that reassigning total ankle replacement 
procedures from MS-DRGs 469 and 470 to a new MS-DRG would have an 
important benefit for the new Medicare Comprehensive Care for Joint 
Replacement (CJR) model. The commenter noted that because total ankle 
replacement cases currently are assigned to MS-DRGs 469 and 470, they 
are included in the model.
    Ankle replacement procedures were captured by ICD-9-CM code 81.56 
(Total ankle replacement). We examined claims data for total ankle 
procedures using the December 2015 update of the FY 2015 MedPAR file. 
Our findings are displayed in the table below.

[[Page 24990]]



                          Total Ankle Replacement Cases Reported in MS-DRGs 469 and 470
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases...........................................          25,729            6.92         $22,358
MS-DRG 469--Total ankle replacement cases.......................              30            5.40          34,889
MS-DRG 470--All cases...........................................         421,149            2.92          14,834
MS-DRG 470--Total ankle replacement cases.......................           1,626            1.94          20,019
----------------------------------------------------------------------------------------------------------------

    As the total ankle replacement claims data analysis showed, these 
procedures represent a small fraction of the total number of cases 
reported in MS-DRGs 469 and 470. There were 30 total ankle replacement 
cases reported in MS-DRG 469 and 1,626 total ankle replacement cases in 
MS-DRG 470, compared to 25,729 total cases reported in MS-DRG 469 and 
421,149 total cases reported in MS-DRG 470. The average length of stay 
for total ankle replacement cases was 5.40 days and average costs for 
total ankle replacement cases were $34,889 reported in MS-DRG 469, 
compared to average length of stay of 6.92 days and average costs of 
$22,358 for all cases reported in MS-DRG 469. The average length of 
stay for total ankle replacement cases was 1.94 days and average costs 
of total ankle replacement cases were $20,019 reported in MS-DRG 470, 
compared to an average length of stay of 2.92 days and average costs of 
$14,834 for all cases reported in MS-DRG 470.
    Given the low volume of cases, we believe that these cost data may 
not be a complete measure of actual differences in inpatient resource 
utilization for beneficiaries receiving total ankle replacements. In 
addition, these total ankle replacement cases may have been impacted by 
other factors such as complication or comorbidities. Several expensive 
cases could impact the average costs for a very small number of 
patients. The average cost of total ankle replacement cases reported in 
MS-DRG 469 was $12,531 higher than all cases reported in MS-DRG 469 
($34,889 compared to $22,358 for all reported cases), but there were 
only 30 cases compared to a total of 25,729 cases reported in MS-DRG 
469. The average cost of total ankle replacement cases reported in MS-
DRG 470 was $5,185 higher than all cases reported in MS-DRG 470. There 
were 1,626 total ankle replacement cases out of a total of 421,149 
cases reported in MS-DRG 470. The average costs of the total ankle 
replacement cases were higher than those for all cases reported in MS-
DRG 469 and 470. However, some cases have higher and some cases have 
lower average costs within any MS-DRG. 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.
    The data do not support creating a new total ankle replacement MS-
DRG for this small number of cases. Also, our clinical advisors pointed 
out that creating a new MS-DRG for total ankle replacements would 
result in combining cases reporting an MCC with an average length of 
stay of 5.40 days and cases not reporting an MCC with an average length 
of stay of 1.94 days. Our clinical advisors did not recommend the 
creation of a new MS-DRG for this single procedure with such a small 
number of cases. They also stated that patients undergoing total ankle 
replacement have similar clinical features compared to other patients 
undergoing procedures included in MS-DRGs 469 and 470. Furthermore, we 
believe that the volume of total ankle replacement procedures performed 
relative to hip and knee replacement procedures minimizes the benefit 
that a new MS-DRG would have on the Medicare CJR model. Our clinical 
advisors determined that the cases involving total ankle replacements 
are more appropriately assigned to MS-DRGs 469 and 470 with the two 
severity levels.
    Based on the findings from our data analysis and the 
recommendations from our clinical advisors, we are not proposing to 
create a new MS-DRG for total ankle replacement procedures. We are 
proposing to maintain the current MS-DRG structure for MS-DRGs 469 and 
470.
    We are inviting public comments on this proposal.
(2) Hip Replacement Procedures With Principal Diagnosis of Hip Fracture
    We received several requests to remove hip replacement procedures 
with a principal diagnosis of hip fracture from MS-DRGs 469 and 470 
(Major Joint Replacement or Reattachment of Lower Extremity with and 
without MCC, respectively) and to create a new MS-DRG for assignment of 
these hip replacement procedures. One requestor suggested that if such 
a new MS-DRG could not be created, CMS consider reassigning all hip 
replacement procedures with a principal diagnosis of hip fracture only 
to MS-DRG 469, even if there were no reported MCC.
    The requestors stated that hip replacement procedures performed on 
patients with hip fractures involve a more fragile population of 
patients than the typical patient population who undergo elective hip 
or knee replacement and that these more fragile patient cases also are 
assigned to MS-DRGs 469 and 470. The requestors stated that cases of 
patients who have hip replacements with hip fractures may have 
significant comorbidities not present in patients who undergo elective 
hip replacements. One requestor stated that the absolute number of 
hospitalizations for hip fractures in the United States is currently 
more than 350,000 and the number is rising. The requestor stated that 
90 percent of hip fractures result from a simple fall, and that hip 
fracture rates increase with age. According to the requestor, the 1-
year mortality rate for patients who undergo hip replacement procedures 
after a hip fracture was approximately 20 percent, and the 3-year 
mortality rate was up to 50 percent. The requestor also stated that one 
out of three adults who lived independently before their hip fracture 
remains in a nursing home for at least a year after the hip fracture. 
In contrast, the requestor noted that patients under elective hip 
replacement procedures for arthritis have fewer comorbidities, improved 
health after the procedure, low rates of readmission, and less 
postacute needs. The requestor believed that there are many factors 
that impact the outcome of hip replacements for hip fractures, 
including patient factors, fracture type, surgeon and hospital factors, 
treatment decisions, complication rates, and rehabilitation factors/
access. The requestor added that, despite the commitment to 
standardization, the use of protocol-driven care, early surgery (<24 
hours) after surgical optimization, prevention of recurrent fractures, 
and comanagement with medical/surgical teams, many patients who undergo 
hip replacement procedures for hip

[[Page 24991]]

fractures have serious renal, cardiovascular, and liver disease, as 
well as multiple medical comorbidities. The rates of postoperative 
infections, readmissions, and postacute care for the patients who 
undergo hip replacements for hip fractures are higher than for patients 
who undergo elective hip replacement. Some requestors referenced the 
Bundled Payments for Care Improvement Initiative (BPCI) and believed 
that their requested changes to MS-DRGs 469 and 470 would support this 
effort. The requestors stated that the MS-DRG assignment for the hip 
replacement procedures with hip fractures has tremendous implications 
for successful participation in the BPCI because the BPCI's clinical 
episodes track to MS-DRG assignment, and the Major Joint Replacement of 
the Lower Extremity Clinical Episode encompasses procedures assigned to 
MS-DRGs 469 and 470. Alternatively, the requestors suggested that CMS 
reassign all cases of hip replacement procedures with a principal 
diagnosis of hip fracture to MS-DRG 469 to recognize the more 
significant adverse health profile of these types of cases.
    We examined claims data for cases reporting hip replacement 
procedures for patients admitted with hip fractures under MS-DRGs 469 
and 470 in the December 2015 update of the FY 2015 MedPAR file. We used 
the following list of ICD-9-CM diagnosis codes to identify cases 
representing hip replacements for hip fractures:

ICD-9-CM Diagnosis Codes Reviewed for Cases Representing Hip Replacement
                            for Hip Fractures
------------------------------------------------------------------------
  ICD-9-CM diagnosis code                   Descriptions
------------------------------------------------------------------------
733.14...................  Pathological fracture of neck of femur.
733.15...................  Pathological fracture of other specified part
                            of femur.
733.81...................  Malunion of fracture.
733.82...................  Nonunion of fracture.
733.96...................  Stress fracture of femoral neck.
808.0....................  Closed fracture of acetabulum.
808.1....................  Open fracture of acetabulum.
820.8....................  Fracture of unspecified part of neck of femur
                            closed.
820.9....................  Fracture of unspecified part of neck of femur
                            open.
820.00...................  Fracture of unspecified intracapsular section
                            of neck of femur closed.
820.01...................  Fracture of epiphysis (separation) (upper) of
                            neck of femur closed.
820.02...................  Fracture of midcervical section of femur
                            closed.
820.03...................  Fracture of base of neck of femur closed.
820.09...................  Other transcervical fracture of femur closed.
820.10...................  Fracture of unspecified intracapsular section
                            of neck of femur open.
820.11...................  Fracture of epiphysis (separation) (upper) of
                            neck of femur open.
820.12...................  Fracture of midcervical section of femur
                            open.
820.13...................  Fracture of base of neck of femur open.
820.19...................  Other transcervical fracture of femur open.
820.20...................  Fracture of unspecified trochanteric section
                            of femur closed.
820.21...................  Fracture of intertrochanteric section of
                            femur closed.
820.22...................  Fracture of subtrochanteric section of femur
                            closed.
820.30...................  Fracture of unspecified trochanteric section
                            of femur open.
820.31...................  Fracture of intertrochanteric section of
                            femur open.
820.32...................  Fracture of subtrochanteric section of femur
                            open.
------------------------------------------------------------------------

    Our findings from our examination of the data are shown in the 
table below.

                 Cases of Hip Replacements With and Without Principal Diagnosis of Hip Fracture
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases...........................................          25,729             6.9         $22,358
MS-DRG 469--Hip replacement cases with hip fractures............          14,459             7.9          22,852
MS-DRG 469--Hip replacement cases without hip fractures.........           4,714             5.7          22,430
MS-DRG 470--All cases...........................................         421,149             2.9          14,834
MS-DRG 470--Hip replacement cases with hip fractures............          49,703             4.7          15,795
MS-DRG 470--Hip replacement cases without hip fractures.........         125,607             2.6          14,870
----------------------------------------------------------------------------------------------------------------

    For MS-DRG 469, the average costs of all 25,729 reported cases were 
$22,358 and the average length of stay was 6.9 days. Within MS-DRG 469, 
there were 14,459 cases of hip replacements with hip fractures 
reported, with average costs of $22,852 and an average length of stay 
of 7.9 days. Within MS-DRG 469, there were 4,714 cases of hip 
replacements without hip fractures reported, with average costs of 
$22,430 and an average length of stay of 5.7 days. The average costs of 
reported cases of hip replacements with hip fractures are similar to 
the average costs of all cases reported within MS-DRG 469 ($22,852 
compared to $22,358), and to the average costs of reported cases of hip 
replacements without hip fractures ($22,852 compared to $22,430). 
However, the average length of stay for cases of hip replacements with 
hip fractures reported in MS-DRG 469 is higher than the average length 
of stay for all cases reported in MS-DRG 469 and for cases of hip 
replacements without hip fractures reported in MS-

[[Page 24992]]

DRG 469 (7.9 days compared to 6.9 days and 5.7 days, respectively.)
    For MS-DRG 470, the average costs of all 421,149 cases reported 
were $14,834 and the average length of stay was 2.9 days. Within MS-DRG 
470, there were 49,703 reported cases of hip replacements with hip 
fractures, with average costs $15,795 and an average length of stay of 
4.7 days. Within MS-DRG 470, there were 125,607 cases of hip 
replacements without hip fractures reported, with average costs of 
$14,870 and an average length of stay of 2.6 days. However, the average 
length of stay for cases of hip replacements with hip fractures 
reported in MS-DRG 470 was higher than the average length of stay for 
all cases and for cases of hip replacements without hip fractures 
reported in MS-DRG 470 (4.7 days compared to 2.9 days and 2.6 days, 
respectively). Therefore, the average costs of cases of hip 
replacements with hip fractures were similar for both MS-DRG 469 and 
MS-DRG 470 ($22,852 compared to $22,358 and $15,795 compared to 
$14,834, respectively). However, the average lengths of stay are longer 
for cases of hip replacements with hip fractures compared to all cases 
reported in both MS-DRGs 469 and 470 (7.9 days compared to 6.9 days and 
4.7 days compared to 2.9 days, respectively).
    The claims data do not support creating a new MS-DRG for the 
assignment of cases of hip replacements with hip fractures. As 
discussed earlier, the average costs for cases of hip replacements with 
hip fractures reported in MS-DRG 469 and MS-DRG 470 are similar to the 
average costs for all cases reported in MS-DRG 469 and MS-DRG 470. 
While the average length of stay is longer for cases of hip 
replacements with hip fractures than for cases of hip replacements 
without hip fractures reported within MS-DRGs 469 and 470, the 
increased length of stay did not impact the average costs of reported 
cases in either MS-DRG 469 or 470. The data showed that cases of hip 
replacement procedures are clearly influenced by the presence of an 
MCC. The average costs of all cases reported in MS-DRG 469, which 
identifies an MCC, were $22,358, compared to average costs of $14,834 
for all cases reported in MS-DRG 470, which did not identify an MCC. 
The data showed that the presence of a principal diagnosis of a hip 
fracture did not impact the average costs of cases reported in either 
MS-DRG 469 or MS-DRG 470.
    We also examined the data in relation to the request to reassign 
all procedures of hip replacement with hip fractures from MS-DRG 470 to 
MS-DRG 469, even if there is no MCC present. The data showed that the 
49,703 cases of hip replacements with hip fractures reported in MS-DRG 
470 have average costs of $15,795 and an average length of stay of 4.7 
days. The 25,729 total cases of hip replacements reported in MS-DRG 469 
have average costs of $22,358 and an average length of stays of 6.9 
days. Therefore, the data for average costs and average length of stay 
for all cases involving hip replacement procedures with hip fractures 
reported in MS-DRG 470 do not support reassigning all cases of hip 
replacement procedures with hip fractures to MS-DRG 469, even if there 
is no MCC present.
    Our clinical advisors reviewed this issue and agree that the hip 
replacement procedures performed for patients with hip fractures are 
appropriately assigned to MS-DRGs 469 and 470. They did not support 
reassigning these procedures from MS-DRGs 469 and 470 to a new MS-DRG 
or reassigning all cases of hip replacement procedures with hip 
fractures to MS-DRG 469, even if the case does not have an MCC. Our 
clinical advisors stated that the surgical techniques used for hip 
replacements are similar for all patients. They advised that the fact 
that some patients also had a hip fracture would not justify creating a 
new MS-DRG or reassigning all cases of hip replacement procedures with 
hip fractures to MS-DRG 469. Our clinical advisors noted that the costs 
of cases of hip replacements are more directly impacted by the presence 
or absence of an MCC than the presence or absence of a hip fracture.
    Based on the findings from our data analyses and the 
recommendations from our clinical advisors, we are not proposing to 
create a new MS-DRG for the assignment of procedures involving hip 
replacement in patients who have hip fractures or to reassign all 
procedures involving hip replacements with hip fractures to MS-DRG 469 
even if there is no MCC present. We are proposing to maintain the 
current MS-DRG structure for MS-DRGs 469 and 470.
    We are inviting public comments on our proposals.
b. Revision of Total Ankle Replacement Procedures
(1) Revision of Total Ankle Replacement Procedures
    We received a request to modify the MS-DRG assignment for revision 
of total ankle replacement procedures. Currently, these procedures are 
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). This topic was discussed in the FY 2015 IPPS/LTCH PPS 
proposed rule (79 FR 28013 through 28015) and the FY 2015 IPPS/LTCH PPS 
final rule (79 FR 49896 through 49899). However, at that time, we did 
not change the MS-DRG assignment for revisions of total ankle 
replacement procedures.
    The requestor presented two options for consideration for modifying 
the MS-DRG assignment for the revisions of total ankle replacement 
procedures. The requestor's first option was to create a new MS-DRG for 
the assignment of revision of total ankle replacement procedures. The 
requestor believed that a new MS-DRG would be justified based on the 
distinct costs, resources, and utilization associated with ankle joint 
revision cases. The requestor's second option was to reassign revision 
of total ankle replacement procedures to MS-DRGs 466, 467, and 468 
(Revision of Hip or Knee Replacement with MCC, with CC, and without CC/
MCC, respectively) and rename MS-DRGs 466, 467, and 468 as ``Revision 
of Hip, Knee, or Ankle with MCC, with CC, and without CC/MCC'', 
respectively. The requestor believed that this second option would be 
justified because it is a reasonable, temporary approach until CMS has 
sufficient utilization and cost data for revision of total ankle 
replacement procedures based on the reporting of the new and more 
specific ICD-10-PCS procedure codes. The requestor pointed out that the 
following more specific ICD-10-PCS procedure codes were implemented 
effective October 1, 2015, with the implementation of ICD-10. The 
requestor stated that these new codes will provide improved data on 
these procedures that can be analyzed for future MS-DRG updates.

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
0SWF0JZ..................  Revision of synthetic substitute in right
                            ankle joint, open approach.
0SWF3JZ..................  Revision of synthetic substitute in right
                            ankle joint, percutaneous approach.
0SWF4JZ..................  Revision of synthetic substitute in right
                            ankle joint, percutaneous endoscopic
                            approach.

[[Page 24993]]

 
0SWFXJZ..................  Revision of synthetic substitute in right
                            ankle joint, external approach.
0SWG0JZ..................  Revision of synthetic substitute in left
                            ankle joint, open approach.
0SWG3JZ..................  Revision of synthetic substitute in left
                            ankle joint, percutaneous approach.
0SWG4JZ..................  Revision of synthetic substitute in left
                            ankle joint, percutaneous endoscopic
                            approach.
0SWGXJZ..................  Revision of synthetic substitute in left
                            ankle joint, external approach.
------------------------------------------------------------------------

    We agree with the requestor that the previous code used to identify 
revisions of total ankle replacement procedures, ICD-9-CM procedure 
code 81.59 (Revision of joint replacement of lower extremity, not 
elsewhere classified), is not as precise as the new ICD-10-PCS 
procedure codes that were implemented on October 1, 2015. As discussed 
in the FY 2015 IPPS/LTCH PPS proposed rule and final rule, ICD-9-CM 
procedure code 81.59 included procedures involving revisions of joint 
replacements of a variety of lower extremity joints, including the 
ankle, foot, and toe. Therefore, the ICD-9-CM procedure code does not 
provide precise information on the number of revisions of total ankle 
replacement procedures as do the ICD-10-PCS procedure codes listed 
above. We also agree that the ICD-10-PCS procedure codes will provide 
more precise data on revisions of ankle replacements.
    We examined claims data from the December 2015 update of the FY 
2015 MedPAR file on cases reporting procedure code 81.59 in MS-DRGs 
515, 516, and 517. The table below shows our findings.

                                   Revisions of Joint Replacements Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 515--All cases...........................................           3,852            8.54         $21,900
MS-DRG 515--Cases reporting procedure code 81.59................               2            7.00          36,983
MS-DRG 516--All cases...........................................           8,567            5.24          14,839
MS-DRG 516--Cases reporting procedure code 81.59................              19            3.74          14,957
MS-DRG 517--All cases...........................................           5,664            3.20          12,979
MS-DRG 517--Cases reporting procedure code 81.59................              47            1.89          16,524
----------------------------------------------------------------------------------------------------------------

    As can be seen from the data in the above table, there were only 68 
total cases reported with procedure code 81.59 among MS-DRGs 515, 516, 
and 517: 2 Cases in MS-DRG 515; 19 cases in MS-DRG 516; and 47 in MS-
DRG 517. We point out that while there were 68 total cases reported 
with procedure code 81.59 in MS-DRGs 515, 516, and 517, we are unable 
to determine how many of these cases were actually revisions of ankle 
replacements versus other revisions of joint replacement of lower 
extremities such as those of the foot or toe. This small number of 
cases does not justify creating a new MS-DRG as suggested by the 
requestor in its first option.
    While the average costs of cases reporting procedure code 81.59 in 
MS-DRG 515 were $36,983, compared to $21,900 for all cases reported in 
MS-DRG 515, there were only 2 cases reporting procedure code 81.59 in 
MS-DRG 515, of the 3,852 total cases reported in MS-DRG 515. In MS-DRG 
516, the average costs of the 19 cases reporting procedure code 81.59 
cases were $14,957, which is very close to the average costs of $14,839 
for all 8,567 cases reported in MS-DRG 516. The average costs for cases 
reporting procedure code 81.59 in MS-DRG 517 were higher than the 
average costs for all cases reported in MS-DRG 517 ($16,524 for cases 
reporting procedure code 81.59 cases compared to $12,979 for all cases 
reported in MS-DRG 517). While the average costs for cases reporting 
procedure code 81.59 were $3,545 higher than all cases reported in MS-
DRG 517, we point out that there were only 47 cases that reported 
procedure code 81.59 out of the 5,664 total cases reported in MS-DRG 
517. The relatively small number of cases may have been impacted by 
other factors. Several expensive cases could impact the average costs 
for a very small number of patients.
    As stated by the requestor, we do not yet have data using the more 
precise ICD-10-PCS revisions of total ankle replacement procedure codes 
that were implemented on October 1, 2015. These new codes will more 
precisely identify the number of patients who had a revision of total 
ankle replacement procedure and the number of patients who had 
revisions of other lower joint replacement procedures such as the foot 
or toe. The available clinical data from the December 2015 update of 
the FY 2015 MedPAR file do not support the creation of a new MS-DRG for 
the assignment of revisions of total ankle replacement procedures or 
the reassignment of these cases to other MS-DRGs, such as MS-DRGs 466, 
467, and 468, because there were so few cases and because we could not 
determine how many of these cases were revisions of ankle replacements. 
Claims data on the ICD-10-PCS codes will not be available until 2 years 
after the implementation of the codes, which was October 1, 2015.
    Our clinical advisors reviewed this issue and determined that the 
revision of total ankle replacement procedures are appropriately 
classified within MS-DRGs 515, 516, and 517 along with other orthopedic 
procedures captured by nonspecific codes. They do not support 
reassignment of the procedures to MS-DRGs 466, 467, and 468 until such 
time as detailed data for ICD-10-PCS claims are available to evaluate 
revision of total ankle replacement procedures. Therefore, based on the 
findings of our analysis of claims data and the advice of our clinical 
advisors, we are proposing to maintain the current MS-DRG assignment 
for revision of total ankle replacement procedures for FY 2017.
    We are inviting public comments on our proposal.
(2) Combination Codes for Removal and Replacement of Knee Joints
    We received several requests asking CMS to examine whether 
additional combinations of procedure codes for the removal and 
replacements of knee joints should be added to MS-DRGs 466, 467,

[[Page 24994]]

and 468 (Revision of Hip or Knee Replacement with MCC, with CC, and 
without CC/MCC, respectively). This topic was discussed in the FY 2016 
IPPS/LTCH PPS proposed rule (80 FR 24379 through 24395) and the FY 2016 
IPPS/LTCH PPS final rule (80 FR 49390 through 49406). One requestor 
stated that the procedure codes in the following table were not 
included in the code pairs that group to MS-DRGs 466, 467, and 468 in 
the ICD-10 MS-DRGs Version 33.

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
0SPD08Z..................  Removal of spacer from left knee joint, open
                            approach.
0SPD38Z..................  Removal of spacer from left knee joint,
                            percutaneous approach.
0SPD48Z..................  Removal of spacer from left knee joint,
                            percutaneous endoscopic approach.
0SPC08Z..................  Removal of spacer from right knee joint, open
                            approach.
0SPC38Z..................  Removal of spacer from right knee joint,
                            percutaneous approach.
0SPC48Z..................  Removal of spacer from right knee joint,
                            percutaneous approach.
------------------------------------------------------------------------

    Other requestors stated that the procedure codes in the following 
table are not included in the list of combinations that group to MS-
DRGs 466, 467, and 468 when reported in conjunction with an ICD-10-PCS 
code for the removal of synthetic substitute from the joint in the ICD-
10 MS-DRGs Version 33.

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
0SRC0J9..................  Replacement of right knee joint with
                            synthetic substitute, cemented, open
                            approach.
0SRC0JA..................  Replacement of right knee joint with
                            synthetic substitute, uncemented, open
                            approach.
0SRC0JZ..................  Replacement of right knee joint with
                            synthetic substitute, open approach.
0SRC07Z..................  Replacement of right knee joint with
                            autologous tissue substitute, open approach.
0SRC0KZ..................  Replacement of right knee joint with
                            nonautologous tissue substitute, open
                            approach.
------------------------------------------------------------------------

    We agree that the joint revision cases involving the removal of a 
spacer and subsequent insertion of a new knee joint prosthesis should 
be assigned to MS-DRGs 466, 467, and 468. We examined knee joint 
revision combination codes that are not currently assigned to MS-DRGs 
466, 467, and 468 in ICD-10 MS-DRGs Version 33 and identified 58 
additional combinations that also should be included so that the same 
logic is used in the ICD-10 version of the MS-DRGs as is used in the 
ICD-9-CM version. We are proposing to add the following 58 new code 
combinations that capture the joint revisions to the Version 34 MS DRG 
structure for MS-DRGs 466, 467, and 468, effective October 1, 2016.

  ICD-10-PCS Code Pairs Proposed To Be Added to Version 34 ICD-10 MS-DRGs 466, 467, and 468: Proposed New Knee
                                        Revision ICD-10-PCS Combinations
----------------------------------------------------------------------------------------------------------------
           Code                Code description                          Code                Code description
----------------------------------------------------------------------------------------------------------------
0SPC08Z..................  Removal of Spacer from       and   0SRC0J9..................  Replacement of Right
                            Right Knee Joint, Open                                        Knee Joint with
                            Approach.                                                     Synthetic Substitute,
                                                                                          Cemented, Open
                                                                                          Approach.
0SPC08Z..................  Removal of Spacer from       and   0SRC0JA..................  Replacement of Right
                            Right Knee Joint, Open                                        Knee Joint with
                            Approach.                                                     Synthetic Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPC08Z..................  Removal of Spacer from       and   0SRC0JZ..................  Replacement of Right
                            Right Knee Joint, Open                                        Knee Joint with
                            Approach.                                                     Synthetic Substitute,
                                                                                          Open Approach.
0SPC08Z..................  Removal of Spacer from       and   0SRT0J9..................  Replacement of Right
                            Right Knee Joint, Open                                        Knee Joint, Femoral
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute, Cemented,
                                                                                          Open Approach.
0SPC08Z..................  Removal of Spacer from       and   0SRT0JA..................  Replacement of Right
                            Right Knee Joint, Open                                        Knee Joint, Femoral
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPC08Z..................  Removal of Spacer from       and   0SRT0JZ..................  Replacement of Right
                            Right Knee Joint, Open                                        Knee Joint, Femoral
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute, Open
                                                                                          Approach.
0SPC08Z..................  Removal of Spacer from       and   0SRV0J9..................  Replacement of Right
                            Right Knee Joint, Open                                        Knee Joint, Tibial
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute, Cemented,
                                                                                          Open Approach.
0SPC08Z..................  Removal of Spacer from       and   0SRV0JA..................  Replacement of Right
                            Right Knee Joint, Open                                        Knee Joint, Tibial
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPC08Z..................  Removal of Spacer from       and   0SRV0JZ..................  Replacement of Right
                            Right Knee Joint, Open                                        Knee Joint, Tibial
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute, Open
                                                                                          Approach.
0SPC38Z..................  Removal of Spacer from       and   0SRC0J9..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint with
                            Percutaneous Approach.                                        Synthetic Substitute,
                                                                                          Cemented, Open
                                                                                          Approach.
0SPC38Z..................  Removal of Spacer from       and   0SRC0JA..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint with
                            Percutaneous Approach.                                        Synthetic Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPC38Z..................  Removal of Spacer from       and   0SRC0JZ..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint with
                            Percutaneous Approach.                                        Synthetic Substitute,
                                                                                          Open Approach.

[[Page 24995]]

 
0SPC38Z..................  Removal of Spacer from       and   0SRT0J9..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Femoral
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute, Cemented,
                                                                                          Open Approach.
0SPC38Z..................  Removal of Spacer from       and   0SRT0JA..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Femoral
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPC38Z..................  Removal of Spacer from       and   0SRT0JZ..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Femoral
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute, Open
                                                                                          Approach.
0SPC38Z..................  Removal of Spacer from       and   0SRV0J9..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Tibial
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute, Cemented,
                                                                                          Open Approach.
0SPC38Z..................  Removal of Spacer from       and   0SRV0JA..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Tibial
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPC38Z..................  Removal of Spacer from       and   0SRV0JZ..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Tibial
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute, Open
                                                                                          Approach.
0SPC48Z..................  Removal of Spacer from       and   0SRC0J9..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint with
                            Percutaneous Endoscopic                                       Synthetic Substitute,
                            Approach.                                                     Cemented, Open
                                                                                          Approach.
0SPC48Z..................  Removal of Spacer from       and   0SRC0JA..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint with
                            Percutaneous Endoscopic                                       Synthetic Substitute,
                            Approach.                                                     Uncemented, Open
                                                                                          Approach.
0SPC48Z..................  Removal of Spacer from       and   0SRC0JZ..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint with
                            Percutaneous Endoscopic                                       Synthetic Substitute,
                            Approach.                                                     Open Approach.
0SPC48Z..................  Removal of Spacer from       and   0SRT0J9..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Femoral
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute, Cemented,
                                                                                          Open Approach.
0SPC48Z..................  Removal of Spacer from       and   0SRT0JA..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Femoral
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPC48Z..................  Removal of Spacer from       and   0SRT0JZ..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Femoral
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute, Open
                                                                                          Approach.
0SPC48Z..................  Removal of Spacer from       and   0SRV0J9..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Tibial
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute, Cemented,
                                                                                          Open Approach.
0SPC48Z..................  Removal of Spacer from       and   0SRV0JA..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Tibial
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPC48Z..................  Removal of Spacer from       and   0SRV0JZ..................  Replacement of Right
                            Right Knee Joint,                                             Knee Joint, Tibial
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute, Open
                                                                                          Approach.
0SPC4JZ..................  Removal of Synthetic         and   0SRT0JZ..................  Replacement of Right
                            Substitute from Right                                         Knee Joint, Femoral
                            Knee Joint,                                                   Surface with Synthetic
                            Percutaneous Endoscopic                                       Substitute, Open
                            Approach.                                                     Approach.
0SPC4JZ..................  Removal of Synthetic         and   0SRV0JZ..................  Replacement of Right
                            Substitute from Right                                         Knee Joint, Tibial
                            Knee Joint,                                                   Surface with Synthetic
                            Percutaneous Endoscopic                                       Substitute, Open
                            Approach.                                                     Approach.
0SPD08Z..................  Removal of Spacer from       and   0SRD0J9..................  Replacement of Left
                            Left Knee Joint, Open                                         Knee Joint with
                            Approach.                                                     Synthetic Substitute,
                                                                                          Cemented, Open
                                                                                          Approach.
0SPD08Z..................  Removal of Spacer from       and   0SRD0JA..................  Replacement of Left
                            Left Knee Joint, Open                                         Knee Joint with
                            Approach.                                                     Synthetic Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPD08Z..................  Removal of Spacer from       and   0SRD0JZ..................  Replacement of Left
                            Left Knee Joint, Open                                         Knee Joint with
                            Approach.                                                     Synthetic Substitute,
                                                                                          Open Approach.
0SPD08Z..................  Removal of Spacer from       and   0SRU0JA..................  Replacement of Left
                            Left Knee Joint, Open                                         Knee Joint, Femoral
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute, Cemented,
                                                                                          Open Approach.
0SPD08Z..................  Removal of Spacer from       and   0SRU0JA..................  Replacement of Left
                            Left Knee Joint, Open                                         Knee Joint, Femoral
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPD08Z..................  Removal of Spacer from       and   0SRU0JZ..................  Replacement of Left
                            Left Knee Joint, Open                                         Knee Joint, Femoral
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute, Open
                                                                                          Approach.
0SPD08Z..................  Removal of Spacer from       and   0SRW0J9..................  Replacement of Left
                            Left Knee Joint, Open                                         Knee Joint, Tibial
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute, Cemented,
                                                                                          Open Approach.
0SPD08Z..................  Removal of Spacer from       and   0SRW0JA..................  Replacement of Left
                            Left Knee Joint, Open                                         Knee Joint, Tibial
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPD08Z..................  Removal of Spacer from       and   0SRW0JZ..................  Replacement of Left
                            Left Knee Joint, Open                                         Knee Joint, Tibial
                            Approach.                                                     Surface with Synthetic
                                                                                          Substitute, Open
                                                                                          Approach.
0SPD38Z..................  Removal of Spacer from       and   0SRD0J9..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint with
                            Percutaneous Approach.                                        Synthetic Substitute,
                                                                                          Cemented, Open
                                                                                          Approach.
0SPD38Z..................  Removal of Spacer from       and   0SRD0JA..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint with
                            Percutaneous Approach.                                        Synthetic Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPD38Z..................  Removal of Spacer from       and   0SRD0JZ..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint with
                            Percutaneous Approach.                                        Synthetic Substitute,
                                                                                          Open Approach.

[[Page 24996]]

 
0SPD38Z..................  Removal of Spacer from       and   0SRU0JA..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Femoral
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute, Cemented,
                                                                                          Open Approach.
0SPD38Z..................  Removal of Spacer from       and   0SRU0JA..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Femoral
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPD38Z..................  Removal of Spacer from       and   0SRU0JZ..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Femoral
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute, Open
                                                                                          Approach.
0SPD38Z..................  Removal of Spacer from       and   0SRW0J9..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Tibial
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute, Cemented,
                                                                                          Open Approach.
0SPD38Z..................  Removal of Spacer from       and   0SRW0JA..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Tibial
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPD38Z..................  Removal of Spacer from       and   0SRW0JZ..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Tibial
                            Percutaneous Approach.                                        Surface with Synthetic
                                                                                          Substitute, Open
                                                                                          Approach.
0SPD48Z..................  Removal of Spacer from       and   0SRD0J9..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint with
                            Percutaneous Endoscopic                                       Synthetic Substitute,
                            Approach.                                                     Cemented, Open
                                                                                          Approach.
0SPD48Z..................  Removal of Spacer from       and   0SRD0JA..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint with
                            Percutaneous Endoscopic                                       Synthetic Substitute,
                            Approach.                                                     Uncemented, Open
                                                                                          Approach.
0SPD48Z..................  Removal of Spacer from       and   0SRD0JZ..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint with
                            Percutaneous Endoscopic                                       Synthetic Substitute,
                            Approach.                                                     Open Approach.
0SPD48Z..................  Removal of Spacer from       and   0SRU0JA..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Femoral
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute, Cemented,
                                                                                          Open Approach.
0SPD48Z..................  Removal of Spacer from       and   0SRU0JA..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Femoral
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPD48Z..................  Removal of Spacer from       and   0SRU0JZ..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Femoral
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute, Open
                                                                                          Approach.
0SPD48Z..................  Removal of Spacer from       and   0SRW0J9..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Tibial
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute, Cemented,
                                                                                          Open Approach.
0SPD48Z..................  Removal of Spacer from       and   0SRW0JA..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Tibial
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute,
                                                                                          Uncemented, Open
                                                                                          Approach.
0SPD48Z..................  Removal of Spacer from       and   0SRW0JZ..................  Replacement of Left
                            Left Knee Joint,                                              Knee Joint, Tibial
                            Percutaneous Endoscopic                                       Surface with Synthetic
                            Approach.                                                     Substitute, Open
                                                                                          Approach.
0SPD4JZ..................  Removal of Synthetic         and   0SRU0JZ..................  Replacement of Left
                            Substitute from Left                                          Knee Joint, Femoral
                            Knee Joint,                                                   Surface with Synthetic
                            Percutaneous Endoscopic                                       Substitute, Open
                            Approach.                                                     Approach.
----------------------------------------------------------------------------------------------------------------

    We are inviting public comments on our proposal to add the joint 
revision code combinations listed above to the ICD-10 Version 34 MS-
DRGs 466, 467, and 468.
c. Decompression Laminectomy
    Currently, under ICD-10-PCS, the procedure describing a 
decompression laminectomy is coded for the ``release'' of a specified 
area of the spinal cord. These decompression codes are assigned to MS-
DRGs 028, 029, and 030 (Spinal Procedures with MCC, with CC or Spinal 
Neurostimulators, or without CC/MCC, respectively) and to MS-DRGs 518, 
519, and 520 (Back and Neck Procedures Except Spinal Fusion with MCC or 
Disc Device or Neurostimulator, with CC, or without CC/MCC, 
respectively) in the ICD-10 MS-DRGs Version 33. A commenter brought to 
our attention that codes describing release of specific peripheral 
nerve are 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 commenter suggested that a subset of 
these codes also be assigned to MS-DRGs 028 through 030 and MS-DRGs 518 
through 520 for clinical coherence purposes. The commenter stated, for 
example, that ICD-10-PCS procedure code 00NY0ZZ (Release lumbar spinal 
cord, open approach) is assigned to MS-DRGs 028 through 030 and MS-DRGs 
518 through 520. However, ICD-10-PCS procedure code 01NB0ZZ (Release 
lumbar nerve, open approach) is assigned to MS-DRGs 515 through 517.
    We agree with the commenter's suggestion. Therefore, for FY 2017, 
we are proposing to reassign the ICD-10-PCS procedure codes listed in 
the following table from MS-DRGs 515 through 517 to MS-DRGs 028 through 
030 and MS-DRGs 518 through 520 under the ICD-10 MS-DRGs Version 34.

------------------------------------------------------------------------
  ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
01N00ZZ......................  Release cervical plexus, open approach.
01N03ZZ......................  Release cervical plexus, percutaneous
                                approach.
01N04ZZ......................  Release cervical plexus, percutaneous
                                endoscopic approach.
01N10ZZ......................  Release cervical nerve, open approach.
01N13ZZ......................  Release cervical nerve, percutaneous
                                approach.

[[Page 24997]]

 
01N14ZZ......................  Release cervical nerve, percutaneous
                                endoscopic approach.
01N80ZZ......................  Release thoracic nerve, open approach.
01N83ZZ......................  Release thoracic nerve, percutaneous
                                approach.
01N84ZZ......................  Release thoracic nerve, percutaneous
                                endoscopic approach.
01N90ZZ......................  Release lumbar plexus, open approach.
01N93ZZ......................  Release lumbar plexus, percutaneous
                                approach.
01N94ZZ......................  Release lumbar plexus, percutaneous
                                endoscopic approach.
01NA0ZZ......................  Release lumbosacral plexus, open
                                approach.
01NA3ZZ......................  Release lumbosacral plexus, percutaneous
                                approach.
01NA4ZZ......................  Release lumbosacral plexus, percutaneous
                                approach.
01NB0ZZ......................  Release lumbar nerve, open approach.
01NB3ZZ......................  Release lumbar nerve, percutaneous
                                approach.
01NB4ZZ......................  Release lumbar nerve, percutaneous
                                endoscopic approach.
------------------------------------------------------------------------

    We are inviting public comments on our proposal.
d. Lordosis
    An ICD-10 replication issue involving four diagnosis codes related 
to lordosis (excessive curvature of the lower spine) was discovered in 
MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal 
Curvature or Malignancy or Infection or Extensive Fusions with MCC, 
with CC, and without CC/MCC). These MS-DRGs contain specific logic that 
requires a principal diagnosis describing a spinal curvature, a 
malignancy, or infection or a secondary diagnosis that describes a 
spinal curvature disorder related to another condition.
    Under the ICD-10 MS-DRGs Version 33, the following diagnosis codes 
were listed on the principal diagnosis list and the secondary diagnosis 
list for MS-DRGs 456, 457, and 458:
     M40.50 (Lordosis, unspecified, site unspecified);
     M40.55 (Lordosis, unspecified, thoracolumbar region);
     M40.56 (Lordosis, unspecified, lumbar region); and
     M40.57 (Lordosis, unspecified, lumbosacral region).
    We are proposing to remove the above four diagnosis codes from the 
secondary diagnosis list. We also are proposing to maintain these same 
four codes in the logic for the principal diagnosis list. This proposed 
change for MS-DRGs 456, 457, and 458 would be effective October 1, 
2016, in the ICD-10 MS-DRGs Version 34.
    We are inviting public comments on our proposals.
9. MDC 13 (Diseases and Disorders of the Female Reproductive System): 
Pelvic Evisceration
    In the ICD-10 MS-DRG Definitions Manual Version 33, the GROUPER 
logic for ICD-10 MS-DRGs 332, 333, and 334 (Rectal Resection with MCC, 
with CC and without CC/MCC, respectively) under MDC 6 (Diseases and 
Disorders of the Digestive System) and the GROUPER logic for MS-DRGs 
734 and 735 (Pelvic Evisceration, Radical Hysterectomy and Radical 
Vulvectomy with CC/MCC and without CC/MCC, respectively) under MDC 13 
(Diseases and Disorders of the Female Reproductive System) include a 
``cluster'' of ICD-10-PCS procedure codes that describe pelvic 
evisceration. A ``cluster'' is the term used to describe a circumstance 
when a combination of ICD-10-PCS procedure codes is needed to fully 
satisfy the equivalent meaning of an ICD-9-CM procedure code for it to 
be considered a plausible code translation. The code cluster in MS-DRGs 
332, 333, and 334 and MS-DRGs 734 and 735 is shown in the table below.

------------------------------------------------------------------------
ICD-10-PCS procedure code
        in cluster                          Description
------------------------------------------------------------------------
0TTB0ZZ..................  Resection of bladder, open approach.
0TTD0ZZ..................  Resection of urethra, open approach.
0UT20ZZ..................  Resection of bilateral ovaries, open
                            approach.
0UT70ZZ..................  Resection of bilateral fallopian tubes, open
                            approach.
0UT90ZZ..................  Resection of uterus, open approach.
0UTC0ZZ..................  Resection of cervix, open approach.
0UTG0ZZ..................  Resection of vagina, open approach.
------------------------------------------------------------------------

    Pelvic evisceration (or exenteration) is a procedure performed to 
treat gynecologic cancers (cervical, uterine, vulvar, and vaginal, 
among others) and involves resection of pelvic structures such as the 
procedures described by the cluster of procedure codes listed above.
    Under the ICD-9-CM MS-DRGs Version 32, procedure code 68.8 (Pelvic 
evisceration) was used to report pelvic evisceration. ICD-9-CM 
procedure code 68.8 also was assigned to ICD-9-CM MS-DRGs 332, 333, and 
334 and MS-DRGs 734 and 735 in MDCs 6 and 13, respectively. The 
inclusion term in the ICD-9-CM Tabular List of Diseases for pelvic 
evisceration (procedure code 68.8) was ``Removal of ovaries, tubes, 
uterus, vagina, bladder, and urethra (with removal of sigmoid colon and 
rectum).'' In the ICD-9-CM Tabular List, the terms shown in parentheses 
are called a ``non-essential modifier''. A ``non-essential modifier'' 
is used in the classification to identify a supplementary word that 
may, or may not, be present in the statement of a disease or procedure. 
In other words, the terms in parentheses do not have to be documented 
to report the code.
    Because the removal of sigmoid colon and the removal of rectum were 
classified as non-essential modifiers under ICD-9-CM, documentation 
that identified that removal of those body sites occurred was not 
required to report the procedure code describing pelvic evisceration 
(procedure code 68.8). In other words, when a pelvic evisceration 
procedure was performed and included removal of other body sites 
(ovaries and tubes, among others) listed in the

[[Page 24998]]

inclusion term, absent the terms in parentheses, procedure code 68.8 
could be reported and grouped appropriately to MDC 13 under MS-DRGs 734 
and 735. When a pelvic evisceration procedure was performed and removal 
of the body sites listed in the inclusion term occurred, including the 
terms in parentheses, procedure code 68.8 could be reported and grouped 
appropriately to MDC 6 under MS-DRGs 332 through 334.
    Under ICD-10-PCS, users are instructed to code separately the 
organs or structures that are actually removed and for which there is a 
distinctly defined body part. Therefore, the case of a patient who 
undergoes a pelvic evisceration (exenteration) that involves the 
removal of the sigmoid colon and rectum would have each of those 
procedure sites (sigmoid colon and rectum) coded and reported 
separately (in addition to the procedure codes displayed in the 
cluster). In this scenario, if the principal diagnosis is a condition 
from the MDC 6 diagnosis list, the case would group to MS-DRGs 332, 
333, and 334, regardless of the code cluster. In other words, it would 
not be necessary to retain the code cluster describing procedures 
performed on female pelvic organs in MDC 6.
    Therefore, for FY 2017, we are proposing to remove the procedure 
code cluster for pelvic evisceration procedures from MDC 6 under the 
ICD-10 MS-DRGs Version 34. The cluster would remain in ICD-10 MDC 13 
under MS-DRGs 734 and 735 only. We are inviting public comments on our 
proposal.
10. MDC 19 (Mental Diseases and Disorders): Proposed Modification of 
Title of MS-DRG 884 (Organic Disturbances and Mental Retardation)
    We received a request to change the title of MS-DRG 884 (Organic 
Disturbances and Mental Retardation) under MDC 19 (Mental Diseases and 
Disorders) to ``MS-DRG 884 (Organic Disturbances and Intellectual 
Disability)'' to reflect more recent terminology used to appropriately 
describe the latter medical condition in the MDC.
    We agree with the requestor that the reference to the phrase 
``Mental Retardation'' should be changed to ``Intellectual 
Disability'', to reflect the current terminology used to describe the 
condition. Therefore, we are proposing to change the title of MS-DRG 
884 as requested by the requestor.
    We are inviting public comments on our proposal to change the title 
of MS-DRG 884 from ``Organic Disturbances and Mental Retardation'' to 
``Organic Disturbances and Intellectual Disability'', effective October 
1, 2016, in the ICD-10 MS-DRGs Version 34.
11. MDC 23 (Factors Influencing Health Status and Other Contacts With 
Health Services): Logic of MS-DRGs 945 and 946 (Rehabilitation With and 
Without CC/MCC, Respectively)
    We received several requests to examine the MS-DRG logic for MS-
DRGs 945 and 946 (Rehabilitation with CC/MCC and without CC/MCC, 
respectively). The requestors were concerned that ICD-9-CM codes that 
clearly identified an encounter for rehabilitation services such as 
procedure codes V57.89 (Care involving other specified rehabilitation 
procedure) and V57.9 (Care involving unspecified rehabilitation 
procedure) were not included in ICD-10-CM Version 33. In addition, the 
requestors pointed out that ICD-10-CM has significantly changed the 
guidelines for coding of admissions/encounters for rehabilitation. The 
requestors pointed out that under ICD-9-CM, Section I.B.15. of the 
Official Guidelines for Coding and Reporting indicates that ``when the 
purpose for the admission/encounter is rehabilitation, sequence the 
appropriate V code from category V57, Care involving use of 
rehabilitation procedures, as the principal/first listed diagnosis.'' 
The requestors stated that the concept of the ICD-9-CM category V57 
codes is no longer valid in ICD-10-CM and the guidelines have been 
revised to provide greater specificity. Instead, the requestors added, 
the ICD-10-CM guidelines state in Section II.K., ``When the purpose for 
the admission/encounter is rehabilitation, sequence first the code for 
the condition for which the service is being performed. For example, 
for an admission/encounter for rehabilitation for right-sided dominant 
hemiplegia following a cerebrovascular infarction, report code I69.351, 
Hemiplegia and hemiparesis following cerebral infarction affecting 
right dominant side, as the first-listed or principal diagnosis.''
    Given this lack of ICD-10-CM codes to indicate that the reason for 
the encounter was for rehabilitation, some requesters asked that CMS 
review ICD-10-CM codes for conditions requiring rehabilitation (such as 
codes from category I69) and add them to MS-DRGs 945 and 946 when 
rehabilitation services are provided in order to replicate the logic 
found in the ICD-9-CM MS-DRG GROUPER. The requestors did not suggest 
any specific ICD-10-CM codes to add to MS-DRGs 945 and 946.
    One requestor made a specific recommendation for updating MS-DRGs 
945 and 946. The requestor previously recommended that CMS review 
diagnosis codes in ICD-10-CM category I69 for possible addition to MS-
DRGs 945 and 946. The requestor stated that, upon further review, they 
believe that a great number of diagnosis codes beyond sequelae of 
stroke (ICD-10-CM category I69) would need to be added in order to 
replicate the logic of the ICD-9-CM MS-DRGs. Therefore, they modified 
their recommendation as follows:
     Designate MS-DRGs 945 and 946 as pre-major diagnostic 
categories (Pre-MDC) MS-DRGs so that cases are grouped to these MS-DRGs 
on the basis of the procedure code rather than the principal diagnosis. 
The requestor stated that the ICD-10-PCS rehabilitation codes (Section 
F, Physical Rehabilitation and Diagnostic Audiology, Body system 0, 
Rehabilitation) should be used to group cases to MS-DRGs 945 and 946 
similar to how the MS-DRG GROUPER logic currently treats lung 
transplants and tracheostomies. This would ensure that the 
rehabilitation procedure codes drive the MS-DRG assignment.
     Revise ICD-10-PCS Official Guidelines for Coding and 
Reporting and designate that the ICD-10-PCS rehabilitation codes be 
used only for admissions for rehabilitation therapy.
    We acknowledge that ICD-10-CM does not have clear diagnosis codes 
that indicate the reason for the encounter was for rehabilitation 
services. For that reason, CMS had to modify the MS-DRG logic using 
ICD-10-PCS procedure codes to assign these cases to MS-DRGs 945 and 
946. The logic used in MS-DRGs 945 and 946 is shown in the Definitions 
Manual Version 33, which is posted on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page-Items/FY2016-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending. We also 
posted a Frequently Asked Question section to explain how inpatient 
admissions are assigned to MS-DRGs 945 and 946, which is posted on the 
CMS Web site at: https://questions.cms.gov/faq.php?id=5005&faqId=12548. 
As indicated in the Frequently Asked Question section, the ICD-10-CM 
codes required a different approach to make sure the same cases 
captured with ICD-9-CM codes would be captured with ICD-10-CM codes. As 
stated earlier, ICD-10-CM does not contain specific codes for 
encounters for rehabilitation such as ICD-9-CM procedure codes V57.89 
and V57.9. In order to replicate the ICD-9-CM MS-DRG logic using ICD-
10-CM and ICD-

[[Page 24999]]

10-PCS codes, CMS developed the new logic included in the MS-DRG 
Version 33 Definitions Manual.
    The Frequently Asked Question section explains that, in order to be 
assigned to ICD-10 MS-DRG 945 or 946, a case must first have a 
principal diagnosis from MDC 23 (Factors Influencing Health Status and 
Other Contacts with Health Services), where MS-DRGs 945 and 946 are 
assigned. This is currently the logic with the ICD-9-CM MS-DRGs Version 
33 where one would first have to have a MDC 23 principal diagnosis. A 
complete list of ICD-10-CM principal diagnoses for MDC 23 can be found 
in the ICD-10 MS-DRGs Version 33 Definitions Manual which is posted on 
the FY 2016 IPPS Final Rule Home Page under the link for the FY 2016 
Final Rule Data Files at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page-Items/FY2016-IPPS-Final-Rule-Data-Files.html. Look under the Related 
Links section and select the ICD-10-CM/PCS MS-DRG v33 Definitions 
Manual Table of Contents Full Titles HTML Version file. Open this file 
and the Table of Contents page will appear. Click on the link for MDC 
23 (Factors Influencing Health Status and Other Contacts with Health 
Services). On the next page that opens (MDC 23), click on the link 
titled ``MDC 23 Assignment of Diagnosis Codes'' on the upper left side 
of the screen. By using the navigation arrows at the top right hand 
side of the page, users can review the 24 pages listing all of the 
principal diagnosis codes assigned to MDC 23, including many injury 
codes for subsequent encounters.
    Under the GROUPER Logic, cases are assigned to MS-DRGs 945 and 946 
in one of two ways as described in the Definitions Manual as follows:
     The encounter has a principal diagnosis code Z44.8 
(Encounter for fitting and adjustment of other external prosthetic 
devices) or Z44.9 (Encounter for fitting and adjustment of unspecified 
external prosthetic device). Both of these codes are included in the 
list of principal diagnosis codes assigned to MDC 23.
     The encounter has an MDC 23 principal diagnosis code and 
one of the rehabilitation procedure codes listed under MS-DRGs 945 and 
946.
    If the case does not have a principal diagnosis code from the MDC 
23 list, but does have a procedure code from the list included under 
the Rehabilitation Procedures for MS-DRGs 945 and 946, the case will 
not be assigned to MS-DRGs 945 or 946. The case will instead be 
assigned to a MS-DRG within the MDC where the principal diagnosis code 
is found.

    Example:  The encounter has a principal diagnosis code of 
S02119D (Unspecified fracture of occiput, subsequent encounter for 
fracture with routine healing). This code is included in MDC 8. 
Therefore, diagnosis code S02119D and a procedure code from the MS-
DRG 945 and 946 Rehabilitation Procedure list, such as procedure 
code F0706GZ (Therapeutic Exercise Treatment of Neurological 
System--Head and Neck using Aerobic Endurance and Conditioning 
Equipment) would not lead to assignment of the case to MS-DRGs 945 
and 946 because the principal diagnosis code is not included in MDC 
23.

    Diagnosis code S02119D is included in MDC 8 as was the ICD-9-CM 
predecessor code, V54.19 (Aftercare for healing traumatic fracture of 
other bone). Therefore, these cases would be assigned to MS-DRGs 559, 
560, and 561 (Aftercare, Musculoskeletal System and Connective Tissue 
with MCC, with CC, and without MCC/CC, respectively) within MDC 8.
    At this time, we do not have any claims data that indicate how well 
this MS-DRG logic is working. We are hesitant to simply add more codes 
from category I69 without evaluating the impact of doing so using 
claims data. We also do not have claims data to indicate whether or not 
there have been changes in the types or numbers of cases assigned to 
MS-DRGs 945 and 946. We welcome specific suggestions of codes to be 
added to MS-DRGs 945 and 946 based on hospitals' experience in coding 
these cases. We would evaluate these suggestions once we have claims 
data to study the impact.
    We have major concerns about the recommendation to revise the ICD-
10-PCS Official Guidelines for Coding and Reporting and designate that 
the ICD-10-PCS rehabilitation codes be assigned and reported only for 
admissions for rehabilitation therapy. This would be a major new 
precedent for developing coding and reporting guidelines based on one 
specific payer's payment polices, in this case Medicare inpatient acute 
care prospective payment system policies. Hospitals would need to know 
who the payer was prior to knowing whether or not they could assign a 
code for a rehabilitation service that they provided. If those payment 
policies change, the hospital coder would need to be aware of those 
changes in order to determine whether or not they could submit a code 
that captures the fact that a rehabilitation service was provided. CMS 
has worked with the Centers for Disease Control and Prevention (CDC), 
the American Hospital Association (AHA), and the American Health 
Information Management Association (AHIMA) to make ICD-10-PCS 
guidelines generic and applicable to all types of inpatient facilities 
and for all payer types. The current ICD-10-PCS Guidelines for Coding 
and Reporting do not support this recommendation that rehabilitation 
services could only be coded and reported if the admission was 
specifically for rehabilitation therapy. The ICD-10-PCS codes were 
created to accurately capture services provided.
    We also have concerns about designating MS-DRGs 945 and 946 as pre-
MDCs so that cases are grouped to these MS-DRGs on the basis of a 
rehabilitation procedure code rather than a principal diagnosis. Pre-
MDCs were an addition to Version 8 of the Diagnosis Related Groups. 
This was the first departure from the use of principal diagnosis as the 
initial variable in DRG and subsequently MS-DRG assignment. For Pre-MDC 
DRGs, the initial step in DRG assignment was not the principal 
diagnosis, but was instead certain surgical procedures with extremely 
high costs such as heart transplant, liver transplant, bone marrow 
transplant, and tracheostomies performed on patients on long-term 
ventilation. These types of services were viewed as being very resource 
intensive. Recognizing these resource intensive services and assigning 
them to one of the high-cost MS-DRGs assures appropriate payment even 
if the patient is admitted for a variety of principal diagnoses. We 
believe it is inappropriate to consider rehabilitation services in the 
same group as high-cost procedures such as heart transplants. There is 
the significant potential of patients being classified out of higher 
paying surgical MS-DRGs in other MDCs and into the lower paying MS-DRGs 
945 and 946 based on the reporting of a rehabilitation procedure code 
if these MS-DRGs are moved to the Pre-MDCs. We examined claims data for 
cases reporting a rehabilitation therapy code and found cases assigned 
to a wide variety of both medical and surgical MS-DRGs. The current 
coding and reporting of rehabilitation procedure codes for services 
provided suggest the potential of significant payment problems if MS-
DRGs 945 and 946 were assigned to the Pre-MDC section and the reporting 
of cases with a rehabilitation code led to an inappropriate 
reassignment to the lower paying medical MS-DRGs 945 and 946.
    The following are only a few examples of current claims data that 
showed the hospital reported a rehabilitation therapy procedure code 
for services provided which did not impact the MS-DRG assignment. Under 
the suggested approach of making MS-

[[Page 25000]]

DRGs 945 and 946 a Pre-MDC, these cases would move from the 
appropriately assigned MS-DRGs which may have significantly higher 
average costs, to MS-DRGs 945 and 946, which have much lower average 
costs. Based on claims data from the December 2015 update of the FY 
2015 MedPAR file, the average costs for cases reported in MS-DRGs 945 
and 946 were $8,531 and $8,411, respectively.
    Examples of cases reporting a rehabilitation therapy code that 
would move to MS-DRGs 945 and 946 based on the suggested logic change 
are as follows:
     An MS-DRG 460 (Spinal Fusion Except Cervical with MCC) 
case with average costs of $42,390;
     An MS-DRG 464 (Wound Debridement and Skin Graft Excluding 
Hand, for Musculoskeletal Tissue Disease with CC) case with average 
costs of $55,633;
     An MS-DRG 579 (Other Skin, Subcutaneous Tissue and Breast 
Procedure with MCC) case with average costs of $63,834;
     An MS-DRG 854 (Infectious and Parasitic Diseases with O.R. 
procedure with MCC) case with average costs of $62,455; and
     An MS-DRG 021 (Intracranial Vascular Procedures with 
Principal Diagnosis of Hemorrhage with CC) case with average costs of 
$90,522.
    Our clinical advisors reviewed this issue and agreed that we should 
wait for ICD-10 claims data to become available prior to proposing 
updates to MS-DRGs 945 and 946. They did not support adding MS-DRGs 945 
and 946 to the Pre-MDCs because the rehabilitation services are not as 
resource intensive as are the other MS-DRGs in the Pre-MDC section.
    Considering these ICD-10-PCS guideline concerns, the structure of 
the pre-MDC section, and the lack of any ICD-10 claims data for MS-DRGs 
945 and 946, we are proposing to maintain the current structure of MS-
DRGs 945 and 946 and reconsider the issue when ICD-10 claims data 
become available and prior to proposing any updates.
    We are inviting public comments on our proposal to maintain the 
current structure of MS-DRGs 945 and 946.
12. Proposed Medicare Code Editor (MCE) Changes
    The Medicare Code Editor (MCE) is a software program that detects 
and reports errors in the coding of Medicare claims data. Patient 
diagnoses, procedure(s), and demographic information are entered into 
the Medicare claims processing systems and are subjected to a series of 
automated screens. The MCE screens are designed to identify cases that 
require further review before classification into an MS-DRG.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49409 through 
49412), we finalized the ICD-10 Definitions of Medicare Code Edits 
(ICD-10 MCE) Version 33. ICD-10 MCE Version 33 was based on the FY 2015 
ICD-9-CM MCE Version 32 and the draft ICD-10 MCE Version 32 that had 
been made publicly available for comments in November 2014 on the ICD-
10 MS-DRG Conversion Project Web site at: https://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. In August 2015, we 
posted the finalized FY 2016 ICD-10 MCE Version 33 manual file and an 
ICD-9-CM MCE Version 33.0A manual file (for analysis purposes only). 
The links to these MCE manual files, along with the links to purchase 
the mainframe and computer software for the MCE Version 33 (and ICD-10 
MS-DRGs) were posted on the CMS Web site through the FY 2016 IPPS Final 
Rule Home Page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page.html?DLSort=0&DLEntries=10&DLPage=1&DLSortDir=ascending.
    After implementation of the ICD-10 MCE Version 33, we received 
several requests to examine specific code edit lists that the 
requestors believed were incorrect and that affected claims processing 
functions. We received requests to review the MCE relating specifically 
to the Age conflict edit, the Sex conflict edit, the Non-covered 
procedure edit, and the Unacceptable principal diagnosis code edit. We 
discuss these code edit issues below.
a. Age Conflict Edit
    In the MCE, the Age conflict edit exists to detect inconsistencies 
between a patient's age and any diagnosis on the patient's record; for 
example, a 5-year-old patient with benign prostatic hypertrophy or a 
78-year-old patient coded with a delivery. In these cases, the 
diagnosis is clinically and virtually impossible for a patient of the 
stated age. Therefore, either the diagnosis or the age is presumed to 
be incorrect. Currently, in the MCE, the following four age diagnosis 
categories appear under the Age conflict edit and are listed in the 
manual and written in the software program:
     Newborn--Age of 0 years; a subset of diagnoses intended 
only for newborns and neonates (e.g., fetal distress, perinatal 
jaundice).
     Pediatric--Age is 0-17 years inclusive (e.g., Reye's 
syndrome, routine child health exam).
     Maternity--Age range is 12-55 years inclusive (e.g., 
diabetes in pregnancy, antepartum pulmonary complication).
     Adult--Age range is 15-124 years inclusive (e.g., senile 
delirium, mature cataract).
(1) Newborn Diagnosis Category
    Under the ICD-10-CM Official Guidelines for Coding and Reporting 
(available on the Web site at: https://www.cms.gov/Medicare/Coding/ICD10/2016-ICD-10-CM-and-GEMs.html), there are general guidelines and 
chapter-specific coding guidelines. The chapter-specific guidelines 
state that diagnosis codes from Chapter 16 (Certain Conditions 
Originating in the Perinatal Period) may be reported throughout the 
life of the patient if the condition is still present. The requestors 
noted that several codes from this Chapter 16 appear on the ICD-10 MCE 
Version 33 Age conflict edit for the newborn diagnosis category. Codes 
from this chapter are included in the P00 through P96 code range. 
Therefore, the requestors believed that because the chapter-specific 
guidelines state that codes within this chapter may be reported 
throughout the life of a patient, all codes within this range (P00 
through P96) should be removed from the newborn diagnosis category on 
the Age conflict edit code list.
    We examined the newborn diagnosis category on the age conflict edit 
list in the ICD-9-CM MCE Version 32 in comparison to the ICD-9-CM 
chapter-specific guidelines. Under ICD-9-CM, Chapter 15 (Certain 
Conditions Originating in the Perinatal Period) includes codes within 
the 760 through 779 range. We found that the same chapter-specific 
guideline under ICD-10 exists under ICD-9-CM: Diagnosis codes from 
Chapter 15 may be reported throughout the life of the patient if the 
condition is still present. Similar to the ICD-10 MCE Version 33 
newborn diagnosis category in the Age conflict edit code list, we noted 
that several codes from this Chapter 15 appear on the ICD-9-CM MCE 
Version 32 Age conflict edit for the newborn diagnosis category.
    Because the full definition of the chapter-specific guideline for 
``Certain Conditions Originating in the Perinatal Period'' clearly 
states the codes within the chapter may be reported throughout the life 
of the patient if the condition is still present, we believe that, 
historically, under ICD-9-CM, this was the rationale for inclusion of 
the

[[Page 25001]]

diagnosis codes that were finalized for the newborn diagnosis category 
under the Age conflict edit (in code range 760 through 779). For 
example, under ICD-9-CM, there are four diagnosis codes in the 760.6x 
series that specifically include the term ``newborn'' in the title. 
These diagnosis codes are:
     760.61 (Newborn affected by amniocentesis);
     760.62 (Newborn affected by other in utero procedure);
     760.63 (Newborn affected by other surgical operations on 
mother during pregnancy); and
     760.64 (Newborn affected by previous surgical procedure on 
mother not associated with pregnancy).
    Under the ICD-9-CM classification, the chapter-specific guidelines 
in Chapter 15 (Certain Conditions Originating in the Perinatal Period) 
state that, for coding and reporting purposes, the perinatal period is 
defined as before birth through the 28th day following birth. As such, 
for coding and reporting purposes, a patient that is beyond the 28th 
day of life is no longer considered a newborn. Therefore, we believe 
that the diagnosis codes listed on the newborn diagnosis category in 
the Age conflict edit code list are, in fact, appropriate because they 
identify what the title of Chapter 15 describes (certain conditions 
specific to beginning in the perinatal period); that is, a newborn. The 
intent of the diagnosis codes included on the Age conflict edit code 
list is to identify claims where any one of the listed diagnoses is 
reported for a patient who is beyond the 28th day of life. If that 
definition is met according to the patient's date of birth, the edit is 
correctly triggered in those cases.
    Transitioning to the ICD-10 MCE was based on replication of the 
ICD-9-CM based MCE (in parallel with the transition to the ICD-10 MS-
DRGs, which was based on replication of the ICD-9-CM MS-DRGs). 
Therefore, the diagnosis codes included in the newborn diagnosis 
category on the Age conflict edit code list in the ICD-10 MCE are a 
replication of the diagnosis code descriptions included on the newborn 
diagnosis category on the Age conflict edit code list under the ICD-9-
CM MCE. However, the chapter-specific guideline in ICD-10-CM Chapter 
16, section C.16.e. (Low birth weight and immaturity status), specifies 
that codes within category P07 (Disorders of newborn related to short 
gestation and low birth weight, not elsewhere classified) are for use 
for a child or adult who was premature or had a low birth weight as a 
newborn and this condition is affecting the patient's current health 
status. Therefore, we agree that codes within the range of P07.00 
through P07.39 should not be listed under newborn diagnosis category on 
the Age conflict edit code list in the ICD-10 MCE. It is unclear why 
this range of codes within category P07 is distinguished separately 
when under the General Perinatal Rules for Chapter 16 (Certain 
Conditions Originating in the Perinatal Period), section I.C.16.a.1. 
states that diagnosis codes from Chapter 16 may be reported throughout 
the life of the patient if the condition is still present. In addition, 
the guideline at section I.C.16.a.4. states that ``should a condition 
originate in the perinatal period, and continue throughout the life of 
the patient, the perinatal code should continue to be used regardless 
of the patient's age.'' According to these general guidelines, we could 
assume that potentially all codes within Chapter 16 in the code range 
of P00 through P96 should be considered for removal from the newborn 
diagnosis category on the Age conflict edit code list. However, a 
subsequent section of Chapter 16, section 1.C.16.c.2. (Codes for 
conditions specified as having implication for future health care 
needs), instructs users to assign codes for conditions that have been 
specified by the provider as having implications for future health care 
needs. Immediately below that instruction is a note which states: 
``This guideline should not be used for adult patients.''
    The ICD-10-CM Official Guidelines for Coding and Reporting are 
updated separately from the IPPS rulemaking process. Due to the 
confusion with the chapter-specific guidelines for codes in Chapter 16 
and how they impact the newborn diagnosis category on the Age conflict 
edit code list, we believe it would be beneficial to fully evaluate the 
intent of these guidelines with the Centers for Disease Control's 
(CDC's) National Center for Health Statistics (NCHS) because NCHS has 
the lead responsibility for the ICD-10-CM diagnosis codes.
    In the meantime, to address claims processing concerns related to 
the newborn diagnosis category on the Age conflict edit code list, we 
are proposing to remove all the ICD-10-CM diagnoses in the code range 
of P00 through P96 from the newborn diagnosis category in the Age 
conflict code edit list for the ICD-10 MCE for FY 2017. We are inviting 
public comments on our proposal. We also are soliciting public comments 
on the appropriateness of the other diagnosis codes currently listed 
under the newborn diagnosis category in the Age conflict edit in the 
ICD-10 MCE Version 33. We refer readers to Table 6P.1a. associated with 
this proposed rule (which is available via the Internet on the CMs Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) for review of the diagnosis codes we are 
proposing to remove. In addition, for FY 2017, we are examining the 
need to revise the description for the newborn diagnosis category in 
the Age conflict edit under the MCE. The current description as 
written, Newborn--Age of 0 years; a subset of diagnoses intended only 
for newborns and neonates (e.g., fetal distress, perinatal jaundice), 
is not consistent with the instructions for reporting the diagnosis 
codes in Chapter 16. We are inviting public comments on our proposal to 
revise the description of the newborn diagnosis category in the Age 
conflict edit under the MCE.
(2) Pediatric Diagnosis Category
    Under the ICD-10 MCE Version 33, the pediatric diagnosis category 
for the Age conflict edit considers the age range of 0 to 17 years 
inclusive. For that reason, the diagnosis codes on this Age conflict 
edit list would be expected to apply to conditions or disorders 
specific to that age group only. The code list for the pediatric 
diagnosis category in the Age conflict edit currently includes 12 
diagnosis codes that fall within the F90 through F98 code range. These 
codes were included as a result of replication from the ICD-9-CM MCE 
Version 32 and the draft ICD-10 MCE Version 32.
    We received a request to review the 12 ICD-10-CM diagnosis codes 
listed in the following table because they appear to conflict with 
guidance in the ICD-10-CM classification:

------------------------------------------------------------------------
   ICD-10-CM  diagnosis
           code                             Description
------------------------------------------------------------------------
F93.0....................  Separation anxiety disorder of childhood.
F93.8....................  Other childhood emotional disorders.
F93.9....................  Childhood emotional disorder, unspecified.

[[Page 25002]]

 
F94.1....................  Reactive attachment disorder of childhood.
F94.2....................  Disinhibited attachment disorder of
                            childhood.
F94.8....................  Other childhood disorders of social
                            functioning.
F94.9....................  Childhood disorder of social functioning,
                            unspecified.
F98.21...................  Rumination disorder of infancy.
F98.29...................  Other feeding disorders of infancy and early
                            childhood.
F98.3....................  Pica of infancy and childhood.
F98.8....................  Other specified behavioral and emotional
                            disorders with onset usually occurring in
                            childhood and adolescence.
F98.9....................  Unspecified behavioral and emotional
                            disorders with onset usually occurring in
                            childhood and adolescence.
------------------------------------------------------------------------

    Under the ICD-10-CM Tabular List of Diseases and Injuries, Chapter 
5 (Mental, Behavioral and Neurodevelopmental Disorders) contains a 
section titled ``Behavioral and emotional disorders with onset usually 
occurring in childhood and adolescence'' which includes codes for the 
F90 to F98 code range. At the beginning of this tabular section is an 
instructional ``note'' that states: ``Codes within categories F90-F98 
may be used regardless of the age of a patient. These disorders 
generally have onset within the childhood or adolescent years, but may 
continue throughout life or not be diagnosed until adulthood.''
    Because the note specifically states that these codes may be used 
regardless of the age of a patient, we believe they should not be 
included on the pediatric diagnosis category on the Age conflict edit 
code list. Therefore, we are proposing to remove the 12 codes that fall 
within the F90 through F98 code range currently listed for the 
pediatric diagnosis category on the ICD-10 MCE age conflict edit code 
list, effective October 1, 2016, for FY 2017. We are inviting public 
comments on our proposal.
    We also received a request to review whether another group of 
diagnosis codes is clinically incorrect for the ICD-10 MCE Version 33 
pediatric diagnosis category in the Age conflict edit. The requestor 
stated that ICD-10-CM diagnosis codes describing infantile and juvenile 
cataracts, by their titles, appear to merit inclusion on the pediatric 
diagnosis category on the Age conflict edit code list. However, 
according to the requestor, the diagnosis is not constrained to a 
patient's age, but rather the ``infantile'' versus ``juvenile'' 
reference is specific to the type of cataract the patient has. These 
diagnosis codes that are currently listed for the pediatric diagnosis 
category in the ICD-10 MCE Age conflict edit code list are as follows:

------------------------------------------------------------------------
   ICD-10-CM  diagnosis
           code                             Description
------------------------------------------------------------------------
H26.001..................  Unspecified infantile and juvenile cataract,
                            right eye.
H26.002..................  Unspecified infantile and juvenile cataract,
                            left eye.
H26.003..................  Unspecified infantile and juvenile cataract,
                            bilateral.
H26.009..................  Unspecified infantile and juvenile cataract,
                            unspecified eye.
H26.011..................  Infantile and juvenile cortical, lamellar, or
                            zonular cataract, right eye.
H26.012..................  Infantile and juvenile cortical, lamellar, or
                            zonular cataract, left eye.
H26.013..................  Infantile and juvenile cortical, lamellar, or
                            zonular cataract, bilateral.
H26.019..................  Infantile and juvenile cortical, lamellar, or
                            zonular cataract, unspecified eye.
H26.031..................  Infantile and juvenile nuclear cataract,
                            right eye.
H26.032..................  Infantile and juvenile nuclear cataract, left
                            eye.
H26.033..................  Infantile and juvenile nuclear cataract,
                            bilateral.
H26.039..................  Infantile and juvenile nuclear cataract,
                            unspecified eye.
H26.041..................  Anterior subcapsular polar infantile and
                            juvenile cataract, right eye.
H26.042..................  Anterior subcapsular polar infantile and
                            juvenile cataract, left eye.
H26.043..................  Anterior subcapsular polar infantile and
                            juvenile cataract, bilateral.
H26.049..................  Anterior subcapsular polar infantile and
                            juvenile cataract, unspecified eye.
H26.051..................  Posterior subcapsular polar infantile and
                            juvenile cataract, right eye.
H26.052..................  Posterior subcapsular polar infantile and
                            juvenile cataract, left eye.
H26.053..................  Posterior subcapsular polar infantile and
                            juvenile cataract, bilateral.
H26.059..................  Posterior subcapsular polar infantile and
                            juvenile cataract, unspecified eye.
H26.061..................  Combined forms of infantile and juvenile
                            cataract, right eye.
H26.062..................  Combined forms of infantile and juvenile
                            cataract, left eye.
H26.063..................  Combined forms of infantile and juvenile
                            cataract, bilateral.
H26.069..................  Combined forms of infantile and juvenile
                            cataract, unspecified eye.
H26.09...................  Other infantile and juvenile cataract.
------------------------------------------------------------------------

    Our clinical advisors reviewed the list of diagnoses presented 
above and confirmed that these diagnosis codes are appropriate to 
include in the ICD-10 MCE for the pediatric diagnosis category in the 
Age conflict edit because the diseases described by these codes are 
typically diagnosed in early childhood and treated very rapidly to 
prevent amblyopia. Therefore, for FY 2017, we are not proposing to 
remove these codes under the pediatric diagnosis category in the Age 
conflict edit. We are proposing to maintain this list in the ICD-10 MCE 
Version 34, effective October 1, 2016. We are inviting public comments 
on our proposal.
    As stated earlier, for the pediatric diagnosis category in the Age 
conflict edit, the MCE considers the age range of 0 through 17 years 
inclusive. In the ICD-10 MCE Version 33, there are four diagnosis codes 
describing the body

[[Page 25003]]

mass index (BMI) for pediatric patients in the pediatric diagnosis 
category on the Age conflict edit code list. The four ICD-10-CM 
diagnosis codes describing the BMI percentiles for pediatric patients 
are as follows:

------------------------------------------------------------------------
   ICD-10-CM  diagnosis
           code                             Description
------------------------------------------------------------------------
Z68.51...................  Body mass index (BMI) pediatric, less than
                            5th percentile for age.
Z68.52...................  Body mass index (BMI) pediatric, 5th
                            percentile to less than 85th percentile for
                            age.
Z68.53...................  Body mass index (BMI) pediatric, 85th
                            percentile to less than 95th percentile for
                            age.
Z68.54...................  Body mass index (BMI) pediatric, greater than
                            or equal to 95th percentile for age.
------------------------------------------------------------------------

    Under the ICD-10-CM Tabular List of Diseases and Injuries, the BMI 
pediatric diagnosis codes are designated for use in persons 2 through 
20 years of age. The percentiles are based on the growth charts 
published by the CDC. As a result of the age discrepancy between the 
MCE pediatric diagnosis category in the Age conflict edit (ages 0 
through 17) and the Tabular reference for the BMI pediatric codes (ages 
2 through 20), we are proposing to remove ICD-10 diagnosis codes 
Z68.51, Z68.52, Z68.53, and Z68.54 from the ICD-10 MCE pediatric 
diagnosis category on the Age conflict edit code list for Version 34, 
effective FY 2017. We are inviting public comments on our proposal.
    One requestor also asked that CMS review the ICD-10-CM diagnosis 
codes currently included in ICD-10-CM category R62 (Lack of expected 
normal physiological development in childhood and adults) series. 
Specifically, the requestor noted that there are adult patients 
diagnosed with the conditions in subcategory R62.5 (Other and 
unspecified lack of expected normal physiological development in 
childhood) and that three of these conditions also were listed in the 
ICD-10 MCE Version 33 pediatric diagnosis category on the Age conflict 
edit code list. These three diagnosis codes are:
     R62.50 (Unspecified lack of expected normal physiological 
development in childhood);
     R62.52 (Short stature (child)); and
     R62.59 (Other lack of expected normal physiological 
development in childhood).
    We acknowledge that subcategory R62.5 can be confusing with regard 
to how to appropriately report a condition diagnosed for an adult when 
the titles reference the terms ``child'' or ``childhood''. Therefore, 
we consulted with the ICD-10-CM classification staff at the NCHS to 
determine the intended use and reporting of the diagnosis codes R62.50, 
R62.52, and R62.59. The NCHS staff agreed that the three diagnosis 
codes should not be restricted to the pediatric ages as defined by the 
MCE. The NCHS staff stated the codes are appropriate to report for 
adult patients, noting that if a patient is diagnosed with short 
stature as a child, the patient could very well carry over that 
diagnosis into adulthood.
    During our review of the issue relating to the subcategory R62.5 
pediatric diagnosis category on the Age conflict edit code list, we 
identified another diagnosis code that also appeared appropriate to 
report for an adult patient. ICD-10-CM diagnosis code Y93.6A (Activity, 
physical games generally associated with school recess, summer camp and 
children) is one of several activity codes included in ICD-10-CM 
Chapter 20 (External Causes of Morbidity). This diagnosis code includes 
games such as dodge ball and captures the flag, which one can 
reasonably expect an adult to be engaged in for physical activity.
    We discussed this diagnosis code with the NCHS staff to receive 
their input on the intent for coding and reporting the code. They 
agreed that ICD-10-CM diagnosis code Y93.6A is applicable for adults as 
well as children. Therefore, for FY 2017, we are proposing to remove 
ICD-10-CM diagnosis codes R62.50, R62.52, and R62.59 in subcategory 
R62.5 and ICD-10-CM diagnosis code Y93.6A from the ICD-10 MCE pediatric 
diagnosis category on the Age conflict edit code list. We are inviting 
public comment on our proposal.
b. Sex Conflict Edit
    In the MCE, the Sex conflict edit detects inconsistencies between a 
patient's sex and any diagnosis or procedure on the patient's record; 
for example, a male patient with cervical cancer (diagnosis) or a 
female patient with a prostatectomy (procedure). In both instances, the 
indicated diagnosis or the procedure conflicts with the stated sex of 
the patient. Therefore, the patient's diagnosis, procedure, or sex is 
presumed to be incorrect.
    We received a request to review ICD-10-CM diagnosis code Z79.890 
(Hormone replacement therapy (postmenopausal)). This code is listed on 
the Diagnoses for females only edit code list. Therefore, when the 
diagnosis is reported for a male patient, the edit will be triggered. 
However, the requester noted that the term ``postmenopausal'' is 
enclosed in parentheses and is a ``non-essential modifier.'' A ``non-
essential modifier'' is used in the ICD-10-CM classification to 
identify a supplementary word that may, or may not be present in the 
statement of a disease or procedure. In other words, the term in 
parentheses does not have to be documented to report the code. If the 
medical record documentation states a female patient is undergoing 
hormone replacement therapy, the documentation supports assignment of 
the case to ICD-10-CM diagnosis code Z79.890 (Hormone replacement 
therapy (postmenopausal)). There does not need to be a diagnostic 
statement that the patient is postmenopausal to assign the code. The 
requester asked that CMS review why this diagnosis code is being 
classified as applicable to females only because, in the absence of the 
non-essential modifier (postmenopausal), the code could also apply to 
males.
    We note that the ICD-9-CM equivalent code, V07.4 Hormone 
replacement therapy (postmenopausal) has been on the female only edit 
since October 1, 1992 in the ICD-9-CM MCE. We consulted with the ICD-
10-CM classification staff at the NCHS to determine the intended use 
and reporting of this diagnosis code. The staff at NCHS acknowledged 
that, historically, the intent of the ICD-9-CM diagnosis code was for 
females only. However, they agreed that, under ICD-10-CM, the diagnosis 
code Z79.890 can be reported for both men and women. Therefore, we are 
proposing to remove this diagnosis code from the Diagnoses for females 
only edit code list effective October 1, 2016. We are inviting public 
comments on our proposal.
    We also considered the ICD-10-CM diagnosis codes listed in the 
table below that are included on the Diagnoses for females only edit 
code list.

[[Page 25004]]



------------------------------------------------------------------------
   ICD-10-CM  diagnosis
           code                             Description
------------------------------------------------------------------------
Z44.30...................  Encounter for fitting and adjustment of
                            external breast prosthesis, unspecified
                            breast.
Z44.31...................  Encounter for fitting and adjustment of
                            external right breast prosthesis.
Z44.32...................  Encounter for fitting and adjustment of
                            external left breast prosthesis).
Z45.811..................  Encounter for adjustment or removal of right
                            breast implant.
Z45.812..................  Encounter for adjustment or removal of left
                            breast implant.
Z45.819..................  Encounter for adjustment or removal of
                            unspecified breast implant).
------------------------------------------------------------------------

    These codes describe encounters for breast implants or prostheses. 
Our clinical advisors and the NCHS staff agree that diagnosis codes 
Z44.30, Z44.31, Z44.32, Z45.811, Z45.812, and Z45.819 are clinically 
appropriate to report for male patients and should not be restricted to 
females. Therefore, we are proposing to remove these diagnosis codes 
from the Diagnoses for females only edit code list in the ICD-10 MCE, 
effective October 1, 2016. We are inviting public comments on our 
proposal.
c. Non-Covered Procedure Edit
    In the MCE, the Non-covered procedure edit identifies procedures 
for which Medicare does not provide payment. Payment is not provided 
due to specific criteria that are established in the National Coverage 
Determination (NCD) process. We refer readers to the Web site at: 
https://www.cms.gov/Medicare/Coverage/DeterminationProcess/howtorequestanNCD.html for additional information on this process. In 
addition, there are procedures that would normally not be paid by 
Medicare but, due to the presence of certain diagnoses, are paid.
(1) Endovascular Mechanical Thrombectomy
    We received several requests to review ICD-10-PCS procedure code 
03CG3ZZ (Extirpation of matter from intracranial artery, percutaneous 
approach) which is currently listed as a non-covered procedure in the 
ICD-10 MCE Non-covered procedure edit code list. The comparable ICD-9-
CM code translations for ICD-10-PCS code 03CG3ZZ are ICD-9-CM codes 
17.54 (Percutaneous atherectomy of intracranial vessel(s)) and 39.74 
(Endovascular removal of obstruction from head and neck vessel(s)).
    The requestors noted that, under ICD-9-CM, endovascular mechanical 
thrombectomy of a cerebral artery to remove a clot that is causing an 
ischemic stroke was reported with procedure code 39.74 (Endovascular 
removal of obstruction from head and neck vessel(s)) and is a well-
recognized procedure that has been covered by Medicare. After 
implementation of ICD-10 on October 1, 2015, claims that were correctly 
submitted for endovascular mechanical thrombectomy procedures with ICD-
10-PCS procedure code 03CG3ZZ were triggering the Non-covered procedure 
edit. The requestors sought clarification as to whether there was a 
change in coverage or if there was a replication issue.
    Under the ICD-9-CM MCE Version 32, procedure code 00.62 is listed 
on the Non-covered procedure edit code list. Percutaneous angioplasty 
of an intracranial vessel procedure (with and without stent) may be 
reported under ICD-10 with the ICD-10-PCS procedure codes listed in the 
following table:

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
037G34Z..................  Dilation of intracranial artery with drug-
                            eluting intraluminal device, percutaneous
                            approach.
037G3DZ..................  Dilation of intracranial artery with
                            intraluminal device, percutaneous approach.
037G3ZZ..................  Dilation of intracranial artery, percutaneous
                            approach.
037G44Z..................  Dilation of intracranial artery with drug-
                            eluting intraluminal device, percutaneous
                            endoscopic approach.
037G4DZ..................  Dilation of intracranial artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
037G4ZZ..................  Dilation of intracranial artery, percutaneous
                            endoscopic approach.
057L3DZ..................  Dilation of intracranial vein with
                            intraluminal device, percutaneous approach.
057L4DZ..................  Dilation of intracranial vein with
                            intraluminal device, percutaneous endoscopic
                            approach.
------------------------------------------------------------------------

    We discovered that a replication error occurred due to an outdated 
ICD-9-CM entry for procedure code 00.62. This error led to ICD-10-PCS 
procedure codes 03CG3ZZ (Extirpation of matter from intracranial 
artery, percutaneous approach) and 05CL3ZZ (Extirpation of matter from 
intracranial vein, percutaneous approach) being listed as comparable 
translations for ICD-9-CM code 00.62. As a result, ICD-10-PCS procedure 
code 03CG3ZZ was included on the ICD-10 MCE Version 33 Non-covered 
procedure edit code list.
    For FY 2017, we are proposing to remove the ICD-10-PCS procedure 
codes listed in the following table from the ICD-10 MCE Version 34.0 
Non-covered procedure edit code list.

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
03CG3ZZ..................  Extirpation of matter from intracranial
                            artery, percutaneous approach.
03CG4ZZ..................  Extirpation of matter from intracranial
                            artery, percutaneous endoscopic approach.
05CL3ZZ..................  Extirpation of matter from intracranial vein,
                            percutaneous approach.
05CL4ZZ..................  Extirpation of matter from intracranial vein,
                            percutaneous endoscopic approach.
------------------------------------------------------------------------


[[Page 25005]]

    We are inviting public comments on our proposal.
(2) Radical Prostatectomy
    We received a request to review ICD-10-PCS procedure codes related 
to a radical prostatectomy. Specifically, the requestor noted that when 
coding cases where the removal of the vas deferens is also performed, a 
Non-covered procedure edit is triggered. The requestor suggested that 
the edit for this procedure may be intended for cases where the removal 
of the vas deferens is being performed for sterilization (vasectomy) 
purposes. According to the requester, removal of the vas deferens also 
may be involved with removing the prostate in the radical prostatectomy 
procedure. The requestor suggested that CMS address this issue by 
revising the ICD-10 MCE Non-covered procedure edit code list to reflect 
non-coverage of the procedure codes when the removal of vas deferens 
procedure is being performed solely for sterilization (vasectomy) 
purposes.
    Because radical procedures can have different meanings, depending 
on the procedure, the term ``radical'' is not always reliable 
information for coding and reporting the procedure. Under ICD-10-PCS, 
users are instructed to code separately the organs or structures that 
were actually removed and for which there is a distinctly defined body 
part. A radical prostatectomy is coded as a ``cluster'' under ICD-10-
PCS. A ``cluster'' is the term used to describe the circumstance when a 
combination of ICD-10-PCS procedure codes are needed to fully satisfy 
the equivalent meaning of an ICD-9-CM procedure code for it to be 
considered a plausible translation.
    The cluster definition for a radical prostatectomy in ICD-10-PCS 
currently consists of the one of the following codes:
     0VT00ZZ (Resection of prostate, open approach);
     0VT04ZZ (Resection of prostate, percutaneous endoscopic 
approach);
     0VT07ZZ (Resection of prostate, via natural or artificial 
opening); or
     0VT08ZZ Resection of prostate, via natural or artificial 
opening endoscopic; in combination with one of the following codes:
     0VT30ZZ (Resection of bilateral seminal vesicles, open 
approach); or
     0VT34ZZ (Resection of bilateral seminal vesicles, 
percutaneous endoscopic approach).
    As stated earlier, under ICD-10-PCS, users are instructed to code 
separately the organs or structures that were actually removed and for 
which there is a distinctly defined body part. Therefore, a patient who 
undergoes a radical prostatectomy that involves removal of the vas 
deferens would have this procedure reported separately, in addition to 
the options displayed in the ``cluster.''
    The ICD-10-PCS procedure codes that may be reported for 
sterilization and involve the bilateral vas deferens include the 
following:

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
0V5Q0ZZ..................  Destruction of bilateral vas deferens, open
                            approach.
0V5Q3ZZ..................  Destruction of bilateral vas deferens,
                            percutaneous approach.
0V5Q4ZZ..................  Destruction of bilateral vas deferens,
                            percutaneous endoscopic approach.
0VBQ0ZZ..................  Excision of bilateral vas deferens, open
                            approach.
0VBQ3ZZ..................  Excision of bilateral vas deferens,
                            percutaneous approach.
0VBQ4ZZ..................  Excision of bilateral vas deferens,
                            percutaneous endoscopic approach.
0VTQ0ZZ..................  Resection of bilateral vas deferens, open
                            approach.
0VTQ4ZZ..................  Resection of bilateral vas deferens,
                            percutaneous endoscopic approach.
------------------------------------------------------------------------

    The eight procedure codes listed above describing various methods 
to remove the bilateral vas deferens are currently listed on the ICD-10 
MCE Version 33 Non-covered procedure edit code list.
    The requester is correct in stating that the codes related to 
removal of the bilateral vas deferens are included on the ICD-10 MCE 
Version 33 Non-covered procedure edit code list to reflect a 
sterilization procedure. While the vast majority of sterilization 
procedures will involve reporting the bilateral procedure codes, there 
are instances where one vas deferens may have been previously removed 
for other reasons and the remaining vas deferens requires 
sterilization. Therefore, the procedure codes describing removal of a 
unilateral vas deferens are also included on the ICD-10 MCE Version 33 
Non-covered procedure edit code list to reflect a sterilization 
procedure. We agree that revising the language in the edit will resolve 
the issue of covered procedures being inappropriately subject to the 
edit.
    In addition, while reviewing the Non-covered procedure edit list of 
codes that may be reported to identify sterilization procedures for 
males, we considered the procedure codes that may be reported to 
identify sterilization procedures for females. We examined the list of 
ICD-10-PCS procedure codes included on the ICD-10 MCE Version 33 Non-
covered procedure edit code list that could reflect female 
sterilization (removal of fallopian tubes) and determined those codes 
also could be reported for other conditions and could be 
inappropriately subject to the current edit as well.
    Therefore, for FY 2017, we are proposing to create a new ICD-10 MCE 
Version 34 Non-covered procedure edit to reflect that procedures 
performed on males involving the unilateral or bilateral vas deferens 
and procedures performed on females involving the fallopian tubes are 
not covered procedures for sterilization purposes. The proposed new 
ICD-10 MCE Version 34 Non-covered procedure edit would be displayed as 
follows: ``G. Non-covered procedure. The procedure codes shown below 
are identified as non-covered procedures only when ICD-10-CM diagnosis 
code Z30.2 (Encounter for sterilization) is listed as the principal 
diagnosis.''
    We refer readers to Table 6P.1b. associated with this proposed rule 
(which are available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) to review the proposed list of non-
covered procedure codes describing sterilization procedures for males 
and females for this proposed Non-covered procedure edit. We are 
inviting public comments on our proposal to create this new Non-covered 
procedure edit and also invite public comments on the proposed list of 
codes to describe sterilization procedures for the proposed edit.
d. Unacceptable Principal Diagnosis Edit
    In the MCE, there are select codes that describe a circumstance 
which influences an individual's health status

[[Page 25006]]

but does not actually describe a current illness or injury. There also 
are codes that are not specific manifestations but may be due to an 
underlying cause. These codes are considered unacceptable as a 
principal diagnosis. In limited situations, there are a few codes on 
the MCE Unacceptable principal diagnosis edit code list that are 
considered ``acceptable'' when a specified secondary diagnosis is also 
coded and reported on the claim.
(1) Liveborn Infant
    We received a request to examine ICD-10-CM diagnosis codes Z38.1 
(Single liveborn infant, born outside hospital), Z38.4 (Twin liveborn 
infant, born outside hospital), and Z38.7 (Other multiple liveborn 
infant, born outside hospital), all of which are currently listed on 
the Unacceptable principal diagnosis edit code list for the ICD-10 MCE 
Version 33. The requestor believed that these codes are listed in error 
and suggested their removal.
    The ICD-10-CM diagnosis code descriptions for liveborn infants 
differ from the ICD-9-CM diagnosis code descriptions for liveborn 
infants. The ICD-9-CM codes differentiate between a liveborn infant 
that was born prior to admission and hospitalized versus a liveborn 
infant that was born prior to admission and not hospitalized. The 
following codes in the ICD-9-CM MCE Version 32 included on the 
Unacceptable principal diagnosis edit code list are those that describe 
a liveborn infant that was born outside the hospital and not 
hospitalized:

------------------------------------------------------------------------
 ICD-9-CM diagnosis code                    Description
------------------------------------------------------------------------
V30.2....................  Single liveborn, born outside hospital and
                            not hospitalized.
V31.2....................  Twin birth, mate liveborn, born outside
                            hospital and not hospitalized.
V32.2....................  Twin birth, mate stillborn, born outside
                            hospital and not hospitalized.
V33.2....................  Twin birth, unspecified whether mate liveborn
                            or stillborn, born outside hospital and not
                            hospitalized.
V34.2....................  Other multiple birth (three or more), mates
                            all liveborn, born outside hospital and not
                            hospitalized.
V35.2....................  Other multiple birth (three or more), mates
                            all stillborn, born outside of hospital and
                            not hospitalized.
V36.2....................  Other multiple birth (three or more), mates
                            liveborn and stillborn, born outside
                            hospital and not hospitalized.
V37.2....................  Other multiple birth (three or more),
                            unspecified whether mates liveborn or
                            stillborn, born outside of hospital.
V39.1....................  Liveborn, unspecified whether single, twin or
                            multiple, born before admission to hospital.
V39.2....................  Liveborn, unspecified whether single, twin or
                            multiple, born outside hospital and not
                            hospitalized.
------------------------------------------------------------------------

    For replication purposes, the comparable ICD-10-CM diagnosis codes 
for the above listed codes are: Z38.1 (Single liveborn infant, born 
outside hospital); Z38.4 (Twin liveborn infant, born outside hospital); 
and Z38.7 (Other multiple liveborn infant, born outside hospital). 
There are no other ICD-10-CM diagnosis codes that describe a liveborn 
infant born outside a hospital.
    The liveborn infant codes are an example of where a particular 
concept involving the place of birth is not the same between the ICD-9-
CM and ICD-10-CM classification systems. Because the ICD-10-CM 
diagnosis codes do not include the same concept as the ICD-9-CM 
diagnosis codes regarding whether the liveborn infant was hospitalized 
or not, we agree it would not be appropriate to continue to include the 
ICD-10-CM diagnosis codes on the Unacceptable principal diagnosis list.
    For FY 2017, we are proposing to remove ICD-10-CM diagnosis codes 
Z38.1, Z38.4, and Z38.7 from the Unacceptable principal diagnosis edit 
in the ICD-10 MCE Version 34. We are inviting public comments on our 
proposal.
(2) Multiple Gestation
    We received a request to review the ICD-10-CM diagnosis codes 
related to multiple gestation that are currently listed on the ICD-10 
MCE Version 33 Unacceptable principal diagnosis edit code list. The 
requestor expressed concern that these codes were included in the edit 
and suggested that CMS evaluate further to determine if they were 
appropriate.
    In the ICD-10-CM classification, a single diagnosis code describes 
a multiple gestation and contains information pertaining to the 
placenta. This differs from the ICD-9-CM classification, where two 
diagnosis codes are required to separately report (1) multiple 
gestation with a delivery or complication and (2) multiple gestation 
with the status of the placenta.
    In the ICD-9-CM MCE Version 32, only the ICD-9-CM diagnosis codes 
describing the status of the placenta are listed on the Unacceptable 
principal diagnosis edit code list. These ICD-9-CM diagnosis codes are:

------------------------------------------------------------------------
 ICD-9-CM diagnosis code                    Description
------------------------------------------------------------------------
V91.00...................  Twin gestation, unspecified number of
                            placenta, unspecified number of amniotic
                            sacs.
V91.01...................  Twin gestation, monochorionic/monoamniotic
                            (one placenta, one amniotic sac).
V91.02...................  Twin gestation, monochorionic/diamniotic (one
                            placenta, two amniotic sacs).
V91.03...................  Twin gestation, dichorionic/diamniotic (two
                            placentae, two amniotic sacs).
V91.09...................  Twin gestation, unable to determine number of
                            placenta and number of amniotic sacs.
V91.10...................  Triplet gestation, unspecified number of
                            placenta and unspecified number of amniotic
                            sacs.
V91.11...................  Triplet gestation, with two or more
                            monochorionic fetuses.
V91.12...................  Triplet gestation, with two or more
                            monoamniotic fetuses.
V91.19...................  Triplet gestation, unable to determine number
                            of placenta and number of amniotic sacs.
V91.20...................  (Quadruplet gestation, unspecified number of
                            placenta and unspecified number of amniotic
                            sacs.
V91.21...................  Quadruplet gestation, with two or more
                            monochorionic fetuses.
V91.22...................  Quadruplet gestation, with two or more
                            monoamniotic fetuses.
V91.29...................  Quadruplet gestation, unable to determine
                            number of placenta and number of amniotic
                            sacs.
V91.90...................  Other specified multiple gestation,
                            unspecified number of placenta and
                            unspecified number of amniotic sacs.
V91.91...................  Other specified multiple gestation, with two
                            or more monochorionic fetuses.
V91.92...................  Other specified multiple gestation, with two
                            or more monoamniotic fetuses.

[[Page 25007]]

 
V91.99...................  Other specified multiple gestation, unable to
                            determine number of placenta and number of
                            amniotic sacs.
------------------------------------------------------------------------

    There are 68 ICD-10-CM diagnosis codes included on the ICD-10 MCE 
Version 33 Unacceptable principal diagnosis edit code list as 
comparable translations that describe multiple gestation and status of 
the placenta. The list of these codes is included in Table 6P.1c. 
associated with this proposed rule (which 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 only one, and not both, concepts from the ICD-9-CM 
classification was considered to be an unacceptable principal diagnosis 
(status of placenta) in the ICD-9-CM MCE, we agree this was a 
replication error that incorrectly included the ICD-10-CM diagnosis 
codes that identify both concepts (multiple gestation and status of 
placenta) in a single code on the ICD-10 MCE. The edit cannot isolate 
the status of placenta for the ICD-10 MCE because it is reported in 
combination with the multiple gestation as a single code. Therefore, it 
is inappropriate to include these codes on the Unacceptable principal 
diagnosis edit code list.
    For FY 2017, we are proposing to remove the ICD-10-CM diagnosis 
codes listed in Table 6P.1c. associated with this proposed rule (which 
is available via Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) 
from the ICD-10 MCE Version 34 Unacceptable principal diagnosis list. 
We are inviting public comments on our proposal.
(3) Supervision of High Risk Pregnancy
    We received a request to review the ICD-10-CM diagnosis codes 
related to supervision of high risk pregnancy (elderly primigravida and 
multigravida) that are currently listed on the ICD-10 MCE Version 33 
Unacceptable principal diagnosis edit code list. The requestor stated 
that these codes were not included in the edit under the ICD-9-CM MCE. 
According to the requester, the codes describing these conditions 
should be allowed for reporting as a principal diagnosis based on the 
ICD-10-CM Tabular List of Diseases instructions for Chapter 15 (Certain 
Conditions Originating in the Perinatal Period). The chapter-specific 
guidelines for ICD-10-CM state that ``diagnosis code O80 (Encounter for 
full-term uncomplicated delivery) should be assigned when a woman is 
admitted for a full-term normal delivery and delivers a single, healthy 
infant without any complications antepartum, during the delivery, or 
postpartum during the delivery episode. Code O80 is always a principal 
diagnosis. It is not to be used if any other code from Chapter 15 is 
needed to describe a current complication of the antenatal, delivery, 
or perinatal period.'' The requestor stated that obstetric patients 
admitted as inpatients often meet the definition of an elderly 
primigravida or elderly multigravida, \1\ which is the appropriate 
condition to be reported as the principal diagnosis. However, because 
the codes describing this condition are listed on the Unacceptable 
principal diagnosis edit code list, they are unable to be reported.
---------------------------------------------------------------------------

    \1\ The ICD-10-CM classification defines an elderly primigravida 
or elderly multigravida as a complication of the pregnancy since the 
management and care of the expectant mother is affected by the fact 
they are an older patient.
---------------------------------------------------------------------------

    The diagnosis codes describing high-risk patients admitted for 
delivery differ between the ICD-10-CM and ICD-9-CM classifications. 
Under ICD-9-CM, two diagnosis codes are required to separately report 
concept 1 of elderly primigravida or elderly multigravida and whether a 
delivery occurred and concept 2 of supervision of high-risk pregnancy 
with elderly primigravida or elderly multigravida. We display the codes 
that correspond to these concepts below and titled them as Code List 1 
and Code List 2. A code from each list would be reported to fully 
describe the circumstances of the admission and the patient.
    Code List 1--We note that the following codes are listed on the 
ICD-9-CM MCE Version 32 Unacceptable principal diagnosis edit code 
list:

------------------------------------------------------------------------
 ICD-9-CM diagnosis code                    Description
------------------------------------------------------------------------
V23.81...................  Supervision of high-risk pregnancy with
                            elderly primigravida
V23.82...................  Supervision of high-risk pregnancy with
                            elderly multigravida
------------------------------------------------------------------------

    Code List 2--We note that the following codes are not listed on the 
ICD-9-CM MCE Version 32 Unacceptable principal diagnosis edit code 
list. However, we display them here for the benefit of the reader in 
the discussion that follows.

------------------------------------------------------------------------
 ICD-9-CM diagnosis code                    Description
------------------------------------------------------------------------
659.50...................  Elderly primigravida, unspecified as to
                            episode of care or not applicable
659.51...................  Elderly primigravida, delivered, with or
                            without mention of antepartum condition
659.53...................  Elderly primigravida, antepartum condition or
                            complication
659.60...................  Elderly multigravida, unspecified as to
                            episode of care or not applicable
659.61...................  Elderly multigravida, delivered with or
                            without mention of antepartum condition
659.63...................  Elderly multigravida, antepartum condition or
                            complication
------------------------------------------------------------------------

    As noted above, in the ICD-9-CM MCE Version 32, only the ICD-9-CM 
diagnosis codes describing the supervision of high-risk pregnancy are 
listed on the Unacceptable principal diagnosis edit code list.

[[Page 25008]]

    There are eight ICD-10-CM diagnosis codes included on the ICD-10 
MCE Version 33 Unacceptable principal diagnosis edit code list that 
describe the concept of elderly primigravida or elderly multigravida 
and supervision of high-risk pregnancy, in a single code. As shown 
below, the concept of whether a delivery occurred is not included in 
the code description for the eight codes.

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                   Description
------------------------------------------------------------------------
O09.511..................  Supervision of elderly primigravida, first
                            trimester
O09.512..................  Supervision of elderly primigravida, second
                            trimester
O09.513..................  Supervision of elderly primigravida, third
                            trimester
O09.519..................  Supervision of elderly primigravida,
                            unspecified trimester
O09.521..................  Supervision of elderly multigravida, first
                            trimester
O09.522..................  Supervision of elderly multigravida, second
                            trimester
O09.523..................  Supervision of elderly multigravida, third
                            trimester
O09.529..................  Supervision of elderly multigravida,
                            unspecified trimester
------------------------------------------------------------------------

    Because the concepts and coding guidelines between the ICD-9-CM and 
ICD-10-CM classifications differ greatly in how they define this subset 
of patients, we acknowledge that the eight ICD-10-CM diagnosis codes 
listed above should be removed from the ICD-10 MCE Unacceptable 
principal diagnosis edit code list to permit the reporting of these 
codes as principal diagnosis when the documentation supports such 
assignment.
    We also note that during our analysis of the eight diagnosis codes 
describing elderly primigravida and elderly multigravida high risk 
pregnancy patients, we found additional codes on the ICD-10 MCE Version 
33 Unacceptable principal diagnosis edit code list related to high-risk 
pregnancy that we believe should also be removed so as to permit the 
reporting of these codes as principal diagnosis when the documentation 
supports such assignment.
    For FY 2017, we are proposing to remove all the ICD-10-CM diagnosis 
codes related to high-risk pregnancy currently listed in Table 6P.1d. 
associated with this proposed rule (which is available via Internet on 
the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) from the ICD-10 MCE 
Version 34 Unacceptable principal diagnosis edit code list. We are 
inviting public comment on our proposal.
e. Other MCE Issues
    The following MCE discussion and proposals are the result of 
internal review of other MCE issues.
(1) Procedure Inconsistent With Length of Stay Edit
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49411), we finalized 
a revision for the language of the ICD-10 MCE Version 33 edit for 
``Procedure inconsistent with length of stay'' with regard to ICD-10-
PCS procedure code 5A1955Z (Respiratory ventilation, greater than 96 
consecutive hours). The current description of the code edit reads as 
follows: ``The following procedure code should only be coded on claims 
with a length of stay greater than four days.''
    As we strive to assist providers with correct coding and reporting 
of this service, we are proposing to further revise the description of 
this code edit. For FY 2017, we are proposing to modify the edit 
description to read as follows: ``The following procedure code should 
only be coded on claims when the respiratory ventilation is provided 
for greater than four consecutive days during the length of stay.''
    We believe this modification will further clarify the appropriate 
circumstances in which ICD-10-PCS code 5A1955Z may be reported. We are 
inviting public comments on our proposal.
    Also, consistent with the discussion in the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49411 through 49412), we believe it would be 
beneficial to revise the title for ICD-10 MS-DRG 208 (Respiratory 
System Diagnosis with Ventilator Support <96 Hours). Currently, this 
ICD-10 MS-DRG title references terminology for mechanical ventilation 
``< 96 hours'' based on the GROUPER logic for MS-DRG 208, which 
includes ICD-10-PCS codes 5A1935Z (Respiratory ventilation, less than 
24 consecutive hours) and 5A1945Z (Respiratory ventilation, 24-96 
consecutive hours). Because ICD-10-PCS code 5A1945Z includes mechanical 
ventilation up to and including 96 hours, we are proposing to modify 
the title of MS-DRG 208 by adding an ``equal'' sign (=) after the 
``less than'' (<) sign to better reflect the GROUPER logic. We are 
proposing to revise the title of ICD-10 MS-DRG 208 as follows, 
effective October 1, 2016: MS-DRG 208 (Respiratory System Diagnosis 
with Ventilator Support <=96 Hours). We are inviting public comments on 
our proposal.
(2) Maternity Diagnoses
    We identified three ICD-10-CM diagnosis codes that describe 
conditions related to pregnancy or the puerperium that are not 
currently listed on the ICD-10 MCE Version 33 Age conflict edit code 
list for maternity diagnoses. The diagnosis codes include:
     C58 (Malignant neoplasm of placenta);
     D39.2 (Neoplasm of uncertain behavior of placenta); and
     F53 (Puerperal psychosis).
    To be consistent with other related conditions currently included 
on the Age conflict edit code list for maternity diagnoses, we are 
proposing to add ICD-10-CM diagnosis codes C58, D39.2, and F53 to the 
Age conflict edit code list for maternity diagnoses.
    We are inviting public comments on our proposals for changes to the 
FY 2017 ICD-10 MCE Version 34.
(3) Manifestation Codes Not Allowed as Principal Diagnosis Edit
    Section I.A.13. of the FY 2016 ICD-10-CM Official Guidelines for 
Coding and Reporting states that certain conditions have both an 
underlying etiology and multiple body system manifestations due to the 
underlying etiology. For such conditions, the classification has a 
coding convention that requires the underlying condition be sequenced 
first followed by the manifestation. Wherever such a combination 
exists, there is a ``use additional code'' note at the etiology code, 
and a ``code first'' note at the manifestation code. These 
instructional notes indicate proper sequencing order of the codes, 
etiology followed by manifestation.
    We found that in the ICD-10-CM Tabular List of Diseases at category 
M02- (Postinfective and reactive arthropathies), a ``Code first 
underlying disease'' note exists. This would

[[Page 25009]]

indicate that there are codes in that category that are manifestations 
of an underlying etiology. We then examined the ICD-10 MCE Version 33 
to determine if diagnosis codes from that category were included on the 
Manifestation codes not allowed as principal diagnosis edit code list. 
Only three ICD-10-CM diagnosis codes from that category were listed:
     M02.88 (Other reactive arthropathies, vertebrae);
     M02.89 (Other reactive arthropathies, multiple sites); and
     M02.9 (Reactive arthropathy, unspecified).
    Based on the instructional note at the M02- category level, the 
title at subcategory M02.8 (Other reactive arthropathies), and the 
three diagnosis codes listed above on the current ICD-10 MCE Version 33 
Manifestation codes not allowed as principal diagnosis edit code list, 
it seems appropriate that all of the diagnosis codes in subcategory 
M02.8 should be identified as manifestation codes.
    We are proposing to add the ICD-10-CM diagnosis codes listed in the 
following table to the ICD-10 MCE Version 34 Manifestation codes not 
allowed as principal diagnosis edit code list.

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                   Description
------------------------------------------------------------------------
M02.80...................  Other reactive arthropathies, unspecified
                            site.
M02.811..................  Other reactive arthropathies, right shoulder.
M02.812..................  Other reactive arthropathies, left shoulder.
M02.819..................  Other reactive arthropathies, unspecified
                            shoulder.
M02.821..................  Other reactive arthropathies, right elbow.
M02.822..................  Other reactive arthropathies, left elbow.
M02.829..................  Other reactive arthropathies, unspecified
                            elbow.
M02.831..................  Other reactive arthropathies, right wrist.
M02.832..................  Other reactive arthropathies, left wrist.
M02.839..................  Other reactive arthropathies, unspecified
                            wrist.
M02.841..................  Other reactive arthropathies, right hand.
M02.842..................  Other reactive arthropathies, left hand.
M02.849..................  Other reactive arthropathies, unspecified
                            hand.
M02.851..................  Other reactive arthropathies, right hip.
M02.852..................  Other reactive arthropathies, left hip.
M02.859..................  Other reactive arthropathies, unspecified
                            hip.
M02.861..................  Other reactive arthropathies, right knee.
M02.862..................  Other reactive arthropathies, left knee.
M02.869..................  Other reactive arthropathies, unspecified
                            knee.
M02.871..................  Other reactive arthropathies, right ankle and
                            foot.
M02.872..................  Other reactive arthropathies, left ankle and
                            foot.
M02.879..................  Other reactive arthropathies, unspecified
                            ankle and foot.
------------------------------------------------------------------------

    We are inviting public comments on our proposal.
(4) Questionable Admission Edit
    In the MCE, some diagnoses are not usually sufficient justification 
for admission to an acute care hospital. For example, if a patient is 
assigned ICD-10-CM diagnosis code R03.0 (Elevated blood pressure 
reading, without diagnosis of hypertension), the patient would have a 
questionable admission because an elevated blood pressure reading is 
not normally sufficient justification for admission to a hospital.
    Upon review of the ICD-10-CM diagnosis codes listed under the ICD-
10 MCE Version 33 Questionable Admission edit, our clinical advisors 
determined that certain diagnoses clinically warrant hospital 
admission. Therefore, we are proposing to remove the following 
diagnosis codes from the ICD-10 MCE Version 34.0 Questionable admission 
edit.
     T81.81XA (Complication of inhalation therapy, initial 
encounter);
     T88.4XXA (Failed or difficult intubation, initial 
encounter);
     T88.7XXA (Unspecified adverse effect of drug or 
medicament, initial encounter);
     T88.8XXA (Other specified complications of surgical and 
medical care, not elsewhere classified, initial encounter); and
     T88.9XXA (Complication of surgical and medical care, 
unspecified, initial encounter).
    We are inviting public comments on our proposal.
(5) Removal of Edits and Future Enhancement
    With the implementation of ICD-10, it is clear that there are 
several concepts that differ from the ICD-9-CM classification. These 
differences are evident in the MCE as discussed earlier in this 
section. Looking ahead to the needs and uses of coded data as the data 
continue to evolve from the reporting, collection, processing, 
coverage, payment and analysis aspect, we believe the need to ensure 
the accuracy of the coded data becomes increasingly significant.
    The purpose of the MCE is to ensure that errors and inconsistencies 
in the coded data are recognized during Medicare claims processing. As 
shown in the FY 2016 ICD-10 MCE Version 33 manual file and an ICD-9-CM 
MCE Version 33.0A manual file (developed for analysis only), an edit 
code list exists according to the definition or criteria set forth for 
each specified type of edit. Over time, certain edits under the ICD-9-
CM MCE became discontinued as they were no longer needed. However, the 
MCE manual has continued to make reference to these discontinued edits, 
including through the replication process with transitioning to ICD-10.
    Currently, the FY 2016 ICD-10 MCE Version 33 manual file displays 
the following edits:
     12. Open biopsy check. Effective October 1, 2010, the Open 
biopsy check edit was discontinued and will appear for claims processed 
using MCE Version 2.0-26.0 only.
     13. Bilateral procedure. Effective with the ICD-10 
implementation, the bilateral procedure edit will be discontinued.
    Because these edits are no longer valid, we are proposing to remove 
the reference to them, effective with the ICD-10 MCE manual and 
software

[[Page 25010]]

Version 34.0, for FY 2017. We are inviting public comments on our 
proposal.
    As we continue to evaluate the purpose and function of the MCE with 
respect to the transition to ICD-10, we encourage public input for 
future discussion. For instance, we recognize a need to further examine 
the current list of edits and the definitions of those edits. We 
encourage public comments on whether there are additional concerns with 
the current edits, including specific edits or language that should be 
removed or revised, edits that should be combined, or new edits that 
should be added to assist in detecting errors or inaccuracies in the 
coded data.
13. Proposed Changes to Surgical Hierarchies
    Some inpatient stays entail multiple surgical procedures, each one 
of which, occurring by itself, could result in assignment of the case 
to a different MS-DRG within the MDC to which the principal diagnosis 
is assigned. Therefore, it is necessary to have a decision rule within 
the GROUPER by which these cases are assigned to a single MS-DRG. The 
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function. 
Application of this hierarchy ensures that cases involving multiple 
surgical procedures are assigned to the MS-DRG associated with the most 
resource-intensive surgical class.
    Because the relative resource intensity of surgical classes can 
shift as a function of MS-DRG reclassification and recalibrations, for 
FY 2017, we reviewed the surgical hierarchy of each MDC, as we have for 
previous reclassifications and recalibrations, to determine if the 
ordering of classes coincides with the intensity of resource 
utilization.
    A surgical class can be composed of one or more MS-DRGs. For 
example, in MDC 11, the surgical class ``kidney transplant'' consists 
of a single MS-DRG (MS-DRG 652) and the class ``major bladder 
procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655). 
Consequently, in many cases, the surgical hierarchy has an impact on 
more than one MS-DRG. The methodology for determining the most 
resource-intensive surgical class involves weighting the average 
resources for each MS-DRG by frequency to determine the weighted 
average resources for each surgical class. For example, assume surgical 
class A includes MS-DRGs 001 and 002 and surgical class B includes MS-
DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG 
001 are higher than that of MS-DRG 003, but the average costs of MS-
DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To 
determine whether surgical class A should be higher or lower than 
surgical class B in the surgical hierarchy, we would weigh the average 
costs of each MS-DRG in the class by frequency (that is, by the number 
of cases in the MS-DRG) to determine average resource consumption for 
the surgical class. The surgical classes would then be ordered from the 
class with the highest average resource utilization to that with the 
lowest, with the exception of ``other O.R. procedures'' as discussed in 
this rule.
    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 are proposing to make for FY 2017, as 
discussed in section II.F.4.c. of the preamble of this FY 2017 IPPS/
LTCH PPS proposed rule, we are proposing to maintain the existing 
surgical hierarchy in MDC 5 for proposed revised MS-DRGs 228 and 229 
(Other Cardiothoracic Procedures with MCC and without MCC, 
respectively).
    We are inviting public comments on our proposals.
14. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2017
    The tables identifying the proposed additions and deletions to the 
MCC severity levels list and the proposed additions and deletions to 
the CC severity levels list for FY 2017 are 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.1--Proposed Additions to the MCC List--FY 2017;
     Table 6I.2--Proposed Deletions to the MCC List--FY 2017;
     Table 6J.1--Proposed Additions to the CC List--FY 2017; 
and
     Table 6J.2--Proposed Deletions to the CC List--FY 2017.
15. Proposed 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).

[[Page 25011]]

b. Proposed CC Exclusions List for FY 2017
    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 previously indicated, 
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 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. We 
refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541) for 
detailed information regarding revisions that were made to the CC 
Exclusion Lists under the ICD-9-CM MS-DRGs.
    For FY 2017, we are proposing changes to the ICD-10 MS-DRGs Version 
34 CC Exclusion List. Therefore, we have developed Table 6G.1.--
Proposed Secondary Diagnosis Order Additions to the CC Exclusions 
List--FY 2017; Table 6G.2.--Proposed Principal Diagnosis Order 
Additions to the CC Exclusions List--FY 2017; Table 6H.1.--Proposed 
Secondary Diagnosis Order Deletions to the CC Exclusions List--FY 2017; 
and Table 6H.2.--Proposed Principal Diagnosis Order Deletions to the CC 
Exclusions List--FY 2017. Each of these principal diagnosis codes for 
which there is a CC exclusion is shown in Table 6G.2. 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. Tables 6G and 6H associated with 
this proposed rule are available via the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
    To capture new and deleted diagnosis and procedure codes, for FY 
2017, we have developed Table 6A.--New Diagnosis Codes, Table 6B.--New 
Procedure Codes, and Table 6C--Invalid Diagnosis Codes to this proposed 
rule. However, they are not published in the Addendum to this proposed 
rule but are available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html, as described in section VI. of the 
Addendum to this proposed rule. We note that while we did not 
specifically develop a Table 6E.--Revised Diagnosis Code Titles for 
this proposed rule, a document containing the FY 2017 revised diagnosis 
code titles, as well as new diagnosis codes that have been finalized to 
date since implementation of the partial code freeze, was made 
available in advance in response to requests from the health care 
industry. During the March 9-10, 2016 ICD-10 Coordination and 
Maintenance Committee meeting, a discussion regarding this document was 
presented. Participants were informed that the document titled ``FY 
2017 New Released ICD-10-CM Codes'' would contain the information that 
would otherwise be included for this table. This document has been 
posted along with the other March 9-10, 2016 ICD-10 Coordination and 
Maintenance Committee meeting materials on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd9cm_maintenance.htm.
    In addition, we did not specifically develop a Table 6F.--Revised 
Procedure Code Titles for this proposed rule. However, a document 
containing the FY 2017 revised procedure code titles, as well as new 
procedure codes that have been finalized to date since implementation 
of the partial code freeze, was made available in advance in response 
in response to requests from the health care industry. During the March 
9-10, 2016 ICD-10 Coordination and Maintenance Committee meeting, a 
discussion regarding this document was presented. Participants were 
informed that the document titled ``FY 2017 New Revised ICD-10-PCS 
Codes'' would contain the information that would otherwise be included 
for this table. This document is posted on the CMS Web site at: https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2016-03-09-MeetingMaterials.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=descending.
    As mentioned in section II.F.14. of this proposed rule, we are 
proposing additions and deletions to the MS-DRG MCC and CC Lists for FY 
2017 based on the creation of new ICD-10-CM codes. This information is 
available in Tables 6I.1 (Proposed Additions to the MCC List--FY 2017), 
6I.2 (Proposed Deletions to the MCC List--FY 2017), 6J.1 (Proposed 
Additions to the CC List--FY 2017), and 6J.2 (Proposed Deletions to the 
CC List--FY 2017). However, they are not published in the Addendum to 
this proposed rule but are available via the Internet on the CMS Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html, as described in section VI. of the 
Addendum to this proposed rule.
16. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 
986; and 987 Through 989
    Each year, we review cases assigned to MS-DRGs 981, 982, and 983 
(Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC, and without CC/MCC, respectively); MS-DRGs 984, 985, and 986 
(Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC, and without CC/MCC, respectively); and MS-DRGs 987, 988, and 
989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with 
MCC, with CC, and without CC/MCC, respectively) to determine whether it 
would be appropriate to change the procedures assigned among these MS-
DRGs. MS-DRGs 981 through 983, 984 through 986, and 987 through 989 are 
reserved for those cases in which none of the O.R. procedures performed 
are related to the

[[Page 25012]]

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. Under ICD-9-CM, MS-
DRGs 984 through 986 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).
    Under the ICD-10 MS-DRGs Version 33, the comparable ICD-10-PCS code 
translations for the above list of codes are available in Table 6P.2. 
associated with this proposed rule (which is available via the Internet 
on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html). 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.
    We refer the reader to the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50544 through 50545) for detailed information regarding modifications 
that were made to the former ICD-9-CM CMS DRG 468 (MS-DRGs 981 through 
983), CMS DRG 476 (MS-DRGs 984 through 986), and CMS DRG 477 (MS-DRGs 
987 through 989) with regard to the movement of procedure codes. We 
note that no procedure codes were moved from these DRGs from FY 2008 
through FY 2016.
    Our review of MedPAR claims data showed that there are no cases 
that merited movement or should logically be reassigned from ICD-10 MS-
DRGs 984 through 986 to any of the other MDCs. Therefore, for FY 2017, 
we are not proposing to change the procedures assigned among these MS-
DRGs. We are inviting public comments on our proposal to maintain the 
current structure of these MS-DRGs.
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 
Through 989 Into MDCs
    We annually conduct a review of procedures producing assignment to 
MS-DRGs 981 through 983 (Extensive O.R. Procedure Unrelated to 
Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively) on the basis of volume, by procedure, to see if it would 
be appropriate to move procedure codes out of these MS-DRGs into one of 
the surgical MS-DRGs for the MDC into which the principal diagnosis 
falls. The data are arrayed in two ways for comparison purposes. We 
look at a frequency count of each major operative procedure code. We 
also compare procedures across MDCs by volume of procedure codes within 
each MDC.
    We identify those procedures occurring in conjunction with certain 
principal diagnoses with sufficient frequency to justify adding them to 
one of the surgical MS-DRGs for the MDC in which the diagnosis falls. 
Upon review of the claims data from the December 2015 update of the FY 
2015 MedPAR file, we did not find any cases that merited movement or 
that should logically be assigned to any of the other MDCs. Therefore, 
for FY 2017, we are not proposing to remove any procedures from MS-DRGs 
981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-
DRGs for the MDC into which the principal diagnosis is assigned. We are 
inviting public comments on our proposal to maintain the current 
structure of these MS-DRGs.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    We also reviewed the list of ICD-10-PCS procedures that, when in 
combination with their principal diagnosis code, result in assignment 
to MS-DRGs 981 through 983, 984 through 986, or 987 through 989, to 
ascertain whether any of those procedures should be reassigned from one 
of those three groups of MS-DRGs to another of the three groups of MS-
DRGs based on average costs and the length of stay. We look at the data 
for trends such as shifts in treatment practice or reporting practice 
that would make the resulting MS-DRG assignment illogical. If we find 
these shifts, we would propose to move cases to keep the MS-DRGs 
clinically similar or to provide payment for the cases in a similar 
manner. Generally, we move only those procedures for which we have an 
adequate number of discharges to analyze the data.
    There are 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 2017, we are not 
proposing to move any procedure codes among these MS-DRGs. We are 
inviting public comments on our proposal.
c. Adding Diagnosis or Procedure Codes to MDCs
    Based on the review of cases in the MDCs, we are proposing to add 
multiple diagnosis and procedure codes to MDCs for FY 2017 to address 
replication issues. We discuss each of these proposals below.
(1) Angioplasty of Extracranial Vessel
    In the ICD-9-CM MS-DRGs Version 32, procedures describing 
angioplasty of an extracranial vessel were assigned to MDC 1 (Diseases 
and Disorders of the Nervous System) under MS-DRGs 037, 038, and 039 
(Extracranial Procedures with MCC, with CC, or without CC/MCC, 
respectively). Under ICD-9-CM, more than one ICD-9-CM code could be 
reported for these procedures, depending on the approach that was 
documented. For example, ICD-9-CM procedure code 00.61 (Percutaneous 
angioplasty of extracranial vessel(s)) would have been appropriately 
reported if the percutaneous approach was documented, and procedure 
code 39.50 (Angioplasty of other non-coronary vessel(s)) would have 
been appropriately reported if a specified approach was not documented.
    A replication issue for 41 ICD-10-PCS procedure codes describing 
angioplasty with the open approach was identified after implementation 
of the ICD-10 MS-DRGs Version 33. In the code translation, these 41 
ICD-10-PCS procedure codes were grouped and assigned to ICD-10 MS-DRGs 
981 through 983 (Extensive O.R. Procedure Unrelated to Principal 
Diagnosis with

[[Page 25013]]

MCC, with CC, and without CC/MCC, respectively). However, these 
procedure codes should have been grouped to ICD-10 MS-DRGs 037 through 
039 when a principal diagnosis was reported under MDC 1.
    To resolve this replication issue, we are proposing to add the 41 
ICD-10-PCS procedure codes listed in the following table to ICD-10 MS-
DRGs 037 through 039 under MDC 1.

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
037H04Z..................  Dilation of right common carotid artery with
                            drug-eluting intraluminal device, open
                            approach.
037H0DZ..................  Dilation of right common carotid artery with
                            intraluminal device, open approach.
037H0ZZ..................  Dilation of right common carotid artery, open
                            approach.
037J04Z..................  Dilation of left common carotid artery with
                            drug-eluting intraluminal device, open
                            approach.
037J0DZ..................  Dilation of left common carotid artery with
                            intraluminal device, open approach.
037J0ZZ..................  Dilation of left common carotid artery, open
                            approach.
037K04Z..................  Dilation of right internal carotid artery
                            with drug-eluting intraluminal device, open
                            approach.
037K0DZ..................  Dilation of right internal carotid artery
                            with intraluminal device, open approach.
037K0ZZ..................  Dilation of right internal carotid artery,
                            open approach.
037L04Z..................  Dilation of left internal carotid artery with
                            drug-eluting intraluminal device, open
                            approach.
037L0DZ..................  Dilation of left internal carotid artery with
                            intraluminal device, open approach.
037L0ZZ..................  Dilation of left internal carotid artery,
                            open approach.
037M04Z..................  Dilation of right external carotid artery
                            with drug-eluting intraluminal device, open
                            approach.
037M0DZ..................  Dilation of right external carotid artery
                            with intraluminal device, open approach.
037M0ZZ..................  Dilation of right external carotid artery,
                            open approach.
037N04Z..................  Dilation of left external carotid artery with
                            drug-eluting intraluminal device, open
                            approach.
037N0DZ..................  Dilation of left external carotid artery with
                            intraluminal device, open approach.
037N0ZZ..................  Dilation of left external carotid artery,
                            open approach.
037P04Z..................  Dilation of right vertebral artery with drug-
                            eluting intraluminal device, open approach.
037P0DZ..................  Dilation of right vertebral artery with
                            intraluminal device, open approach.
037P0ZZ..................  Dilation of right vertebral artery, open
                            approach.
037Q04Z..................  Dilation of left vertebral artery with drug-
                            eluting intraluminal device, open approach.
037Q0DZ..................  Dilation of left vertebral artery with
                            intraluminal device, open approach.
037Q0ZZ..................  Dilation of left vertebral artery, open
                            approach.
037Y04Z..................  Dilation of upper artery with drug-eluting
                            intraluminal device, open approach.
037Y0DZ..................  Dilation of upper artery with intraluminal
                            device, open approach.
037Y0ZZ..................  Dilation of upper artery, open approach.
057M0DZ..................  Dilation of right internal jugular vein with
                            intraluminal device, open approach.
057M0ZZ..................  Dilation of right internal jugular vein, open
                            approach.
057N0DZ..................  Dilation of left internal jugular vein with
                            intraluminal device, open approach.
057N0ZZ..................  Dilation of left internal jugular vein, open
                            approach.
057P0DZ..................  Dilation of right external jugular vein with
                            intraluminal device, open approach.
057P0ZZ..................  Dilation of right external jugular vein, open
                            approach
057Q0DZ..................  Dilation of left external jugular vein with
                            intraluminal device, open approach.
057Q0ZZ..................  Dilation of left external jugular vein, open
                            approach.
057R0DZ..................  Dilation of right vertebral vein with
                            intraluminal device, open approach.
057R0ZZ..................  Dilation of right vertebral vein, open
                            approach.
057S0DZ..................  Dilation of left vertebral vein with
                            intraluminal device, open approach.
057S0ZZ..................  Dilation of left vertebral vein, open
                            approach.
057T0DZ..................  Dilation of right face vein with intraluminal
                            device, open approach.
057T0ZZ..................  Dilation of right face vein, open approach.
------------------------------------------------------------------------

    We are inviting public comments on our proposal to add the above 
listed codes to ICD-10 MS-DRGs 037, 038, and 039 (Extracranial 
Procedures with MCC, with CC, or without CC/MCC, respectively) under 
MDC 1, effective October 1, 2016, for the ICD-10 MS-DRGs Version 34.
(2) Excision of Abdominal Arteries
    In the ICD-9-CM MS-DRGs Version 32, procedures involving excision 
of a vessel and anastomosis, such as those performed for the treatment 
of an abdominal artery aneurysm (aneurysmectomy), are identified with 
procedure code 38.36 (Resection of vessel with anastomosis, abdominal 
arteries) and are assigned to the following MDCs and MS-DRGs:
     MDC 5 (Diseases and Disorders of the Circulatory System): 
MS-DRGs 270 through 272 (Other Major Cardiovascular Procedures with 
MCC, with CC and without CC/MCC, respectively);
     MDC 6 (Diseases and Disorders of the Digestive System): 
MS-DRGs 356 through 358 (Other Digestive System O.R. Procedures with 
MCC, with CC and without CC/MCC, respectively);
     MDC 11 (Diseases and Disorders of the Kidney and Urinary 
Tract): MS-DRGs 673 through 675 (Other Kidney and Urinary Tract 
Procedures with MCC, with CC and without CC/MCC, respectively);
     MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): 
MS-DRGs 907 through 909 (Other O.R. Procedures for Injuries with MCC, 
with CC, and without CC/MCC, respectively); and
     MDC 24 (Multiple Significant Trauma): MS-DRG 957 through 
959 (Other O.R. Procedures for Multiple Significant Trauma without CC/
MCC).
    A replication issue for 34 ICD-10-PCS procedure codes describing 
aneurysmectomy procedures with the open and percutaneous endoscopic 
approach was identified after implementation of the ICD-10 MS-DRGs 
Version 33. For example, cases with a principal diagnosis of I72.2 
(Aneurysm of renal artery) and procedure code 04BA0ZZ (Excision of left 
renal artery, open approach) are resulting in assignment to ICD-10 MS-
DRGs 981 through 983 (Extensive O.R. Procedure Unrelated to Principal 
Diagnosis with MCC, with CC, and

[[Page 25014]]

without CC/MCC, respectively) instead of to MDC 11 in MS-DRGs 673 
through 675 (Other Kidney and Urinary Tract Procedures with MCC, with 
CC, and without CC/MCC, respectively).
    To resolve this replication issue, we are proposing to add the 34 
ICD-10-PCS procedure codes listed in the following table that are 
comparable translations of ICD-9-CM procedure code 38.36 to ICD-10 MDCs 
6, 11, 21, and 24. We note that there is no replication issue related 
to MDC 5 as the ICD-10-PCS procedure codes listed in the table below 
group there appropriately.

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
04B10ZZ..................  Excision of celiac artery, open approach.
04B14ZZ..................  Excision of celiac artery, percutaneous
                            endoscopic approach.
04B20ZZ..................  Excision of gastric artery, open approach.
04B24ZZ..................  Excision of gastric artery, percutaneous
                            endoscopic approach.
04B30ZZ..................  Excision of hepatic artery, open approach.
04B34ZZ..................  Excision of hepatic artery, percutaneous
                            endoscopic approach.
04B40ZZ..................  Excision of splenic artery, open approach.
04B44ZZ..................  Excision of splenic artery, percutaneous
                            endoscopic approach.
04B50ZZ..................  Excision of superior mesenteric artery, open
                            approach.
04B54ZZ..................  Excision of superior mesenteric artery,
                            percutaneous endoscopic approach.
04B60ZZ..................  Excision of right colic artery, open
                            approach.
04B64ZZ..................  Excision of right colic artery, percutaneous
                            endoscopic approach.
04B70ZZ..................  Excision of left colic artery, open approach.
04B74ZZ..................  Excision of left colic artery, percutaneous
                            endoscopic approach.
04B80ZZ..................  Excision of middle colic artery, open
                            approach.
04B84ZZ..................  Excision of middle colic artery, percutaneous
                            endoscopic approach.
04B90ZZ..................  Excision of right renal artery, open
                            approach.
04B94ZZ..................  Excision of right renal artery, percutaneous
                            endoscopic approach.
04BA0ZZ..................  Excision of left renal artery, open approach.
04BA4ZZ..................  Excision of left renal artery, percutaneous
                            endoscopic approach.
04BB0ZZ..................  Excision of inferior mesenteric artery, open
                            approach.
04BB4ZZ..................  Excision of inferior mesenteric artery,
                            percutaneous endoscopic approach.
04BC0ZZ..................  Excision of right common iliac artery, open
                            approach.
04BC4ZZ..................  Excision of right common iliac artery,
                            percutaneous endoscopic approach.
04BD0ZZ..................  Excision of left common iliac artery, open
                            approach.
04BD4ZZ..................  Excision of left common iliac artery,
                            percutaneous endoscopic approach.
04BE0ZZ..................  Excision of right internal iliac artery, open
                            approach.
04BE4ZZ..................  Excision of right internal iliac artery,
                            percutaneous endoscopic approach.
04BF0ZZ..................  Excision of left internal iliac artery, open
                            approach.
04BF4ZZ..................  Excision of left internal iliac artery,
                            percutaneous endoscopic approach.
04BH0ZZ..................  Excision of right external iliac artery, open
                            approach.
04BH4ZZ..................  Excision of right external iliac artery,
                            percutaneous endoscopic approach.
04BJ0ZZ..................  Excision of left external iliac artery, open
                            approach.
04BJ4ZZ..................  Excision of left external iliac artery,
                            percutaneous endoscopic approach.
------------------------------------------------------------------------

    Adding these procedures to those MDCs in the ICD-10 MS-DRGs Version 
34 will result in a more accurate replication for the same procedure 
under the ICD-9-CM MS-DRGs Version 32. We also are proposing that these 
procedure codes be assigned to the corresponding MS-DRGs in each 
respective MDC as listed above. The proposed changes would eliminate 
erroneous assignment to MS-DRGs 981 through 983 (Extensive O.R. 
Procedure Unrelated to Principal Diagnosis with MCC, with CC, and 
without CC/MCC, respectively) for these procedures.
    We are inviting public comments on our proposal to add the above 
listed codes to MDCs 6, 11, 21, and 24 in the corresponding MS-DRGs, 
effective October 1, 2016, in the ICD-10 MS-DRGs Version 34.
(3) Excision of Retroperitoneal Tissue
    In the ICD-9-CM MS-DRGs Version 32, procedures involving excision 
of a retroperitoneal lesion (or tissue), such as those performed for 
the treatment of a neoplasm, are identified with procedure code 54.4 
(Excision or destruction of peritoneal tissue) and are assigned to a 
number of MDCs and MS-DRGs across a variety of body systems, some of 
which include the following:
     MDC 6 (Diseases and Disorders of the Digestive System): 
MS-DRGs 356 through 358 (Other Digestive System O.R. Procedures with 
MCC, with CC, and without CC/MCC, respectively);
     MDC 7 (Diseases and Disorders of the Hepatobiliary System 
and Pancreas): MS-DRGs 423 through 425 (Other Hepatobiliary or Pancreas 
O.R. Procedures with MCC, with CC, and without CC/MCC, respectively); 
and
     MDC 10 (Endocrine, Nutritional and Metabolic Diseases and 
Disorders): MS-DRGs 628 through 630 (Other Endocrine, Nutritional and 
Metabolic O.R. Procedures with MCC, with CC, and without CC/MCC, 
respectively).
    A replication issue for the ICD-10-PCS procedure codes describing 
excision of retroperitoneum that involves MDC 6 was identified after 
implementation of the ICD-10 MS-DRGs Version 33. These procedure codes 
are ICD-10-PCS codes 0WBH0ZZ (Excision of retroperitoneum, open 
approach), 0WBH3ZZ (Excision of retroperitoneum, percutaneous 
approach), and 0WBH4ZZ (Excision of retroperitoneum, percutaneous 
endoscopic approach). For example, when an ICD-10-CM diagnosis code 
such as D20.0 (Benign neoplasm of soft tissue of retroperitoneum) is 
reported with any one of these three ICD-10-PCS procedure codes, the 
case is assigned to MS-DRGs 981 through 983 (Extensive O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively).
    To resolve this replication issue, we are proposing to add the 
three ICD-10-PCS procedure codes to MDC 6 in MS-DRGs 356 through 358 
(Other Digestive System O.R. Procedures with MCC, with CC, and without 
CC/MCC, respectively). This would result in a more accurate replication 
of the comparable procedure under the ICD-9-CM MS-DRGs Version

[[Page 25015]]

32. The proposed changes also would eliminate erroneous assignment to 
MS-DRGs 981 through 983 for these procedures.
    We are inviting public comments on our proposal to add the three 
ICD-10-PCS codes describing excision of retroperitoneum to MDC 6 in MS-
DRGs 356 through 358, effective October 1, 2016, in the ICD-10 MS-DRGs 
Version 34.
(4) Occlusion of Vessels: Esophageal Varices
    In the ICD-9-CM MS-DRGs Version 32, procedures including ligation 
or surgical occlusion of esophageal varices are identified with 
procedure code 42.91 (Ligation of esophageal varices) and are assigned 
to MDC 6 (Diseases and Disorders of the Digestive System) under MS-DRGs 
326 through 328 (Stomach, Esophageal and Duodenal Procedures with MCC, 
with CC, and without CC/MCC, respectively) and MDC 7 (Diseases and 
Disorders of the Hepatobiliary System and Pancreas) under MS-DRGs 423 
through 425 (Other Hepatobiliary or Pancreas O.R. procedures with MCC, 
with CC, and without CC/MCC, respectively).
    A replication issue for MDC 7 involving ICD-10-PCS procedure codes 
06L30CZ (Occlusion of esophageal vein with extraluminal device, open 
approach) and 06L30DZ (Occlusion of esophageal vein with intraluminal 
device, open approach) was identified in the ICD-10 MS-DRGs Version 33 
after implementation on October 1, 2015. For instance, when an ICD-10-
CM diagnosis code such as K70.30 (Alcoholic cirrhosis of liver without 
ascites) is reported with either one of the ICD-10-PCS procedure codes, 
it results in assignment to MS-DRGs 981 through 983 (Extensive O.R. 
Procedure Unrelated to Principal Diagnosis with MCC, with CC, and 
without CC/MCC, respectively).
    To resolve this replication issue, we are proposing to add the two 
ICD-10-PCS procedure codes describing occlusion of esophageal vein to 
MDC 7 under MS-DRGs 423 through 425. This will result in a more 
accurate replication of the comparable procedure under the ICD-9-CM MS-
DRGs Version 32. The proposed changes also would eliminate erroneous 
assignment to MS-DRGs 981 through 983 (Extensive O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively) for these procedures.
    We are inviting public comments on our proposal to add ICD-10-PCS 
procedure codes 06L30CZ and 06L30DZ to MDC 7 under MS-DRGs 423 through 
425, effective October 1, 2016, in the ICD-10 MS-DRGs Version 34.
(5) Excision of Vulva
    In the ICD-9-CM MS-DRGs Version 32, procedures involving excision 
of the vulva are identified with procedure code 71.3 (Other local 
excision or destruction of vulva and perineum) and are assigned to the 
following MDCs and MS-DRGs:
     MDC 9 (Diseases & Disorders of the Skin, Subcutaneous 
Tissue and Breast): MS-DRGs 579 through 581 (Other Skin, Subcutaneous 
Tissue and Breast Procedures with MCC, with CC, and without CC/MCC, 
respectively); and
     MDC 13 (Diseases & Disorders of the Female Reproductive 
System): MS-DRG 746 (Vagina, cervix and vulva procedures with CC/MCC) 
and MS-DRG 747 (Vagina, Cervix and Vulva procedures without CC/MCC).
    A replication issue involving ICD-10-PCS procedure code 0UBMXZZ 
(Excision of vulva, external approach) was identified after 
implementation of the ICD-10 MS-DRGs Version 33. For example, when 
cases with an ICD-10-CM principal diagnosis of code D07.1 (Carcinoma in 
situ of vulva) are reported with ICD-10-PCS procedure code 0UBMXZZ 
(Excision of vulva, external approach), they are resulting in 
assignment to MS-DRGs 981 through 983 (Extensive O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively).
    To resolve this replication issue, we are proposing to add ICD-10-
PCS procedure code 0UBMXZZ to MDC 13 under MS-DRGs 746 and 747. Adding 
procedure code 0UBMXZZ to MDC 13 in MS-DRGs 746 and 747 would result in 
a more accurate replication of the comparable procedure under the ICD-
9-CM MS-DRGs Version 32. The proposed changes also would eliminate 
erroneous assignment to MS-DRGs 981 through 983 for these procedures. 
In addition, the proposed changes would be consistent with the 
assignment of other clinically similar procedures, such as ICD-10-PCS 
procedure code 0WBNXZZ (Excision of female perineum, external 
approach). Finally, we note that there is no replication issue for MDC 
9 regarding this procedure code.
    We are inviting public comment on our proposal to add ICD-10-PCS 
procedure code 0UBMXZZ to MDC 13 in MS-DRGs 746 and 747, effective 
October 1, 2016, in the ICD-10 MS-DRGs Version 34.
(6) Lymph Node Biopsy
    In the ICD-9-CM MS-DRGs Version 32, procedures involving a lymph 
node biopsy are identified with procedure code 40.11 (Biopsy of 
lymphatic structure), which may be assigned to several MDCs 
representing various body systems. Under the ICD-10 MS-DRGs Version 33, 
this procedure has 114 ICD-10-PCS procedure codes considered to be 
comparable translations that describe diagnostic drainage or excision 
of specified lymphatic structures and also warrant assignment to the 
same MDCs across various body systems.
    A replication issue for the lymph node biopsy procedure involving 
MDC 4 (Diseases and Disorders of the Respiratory System) under the ICD-
10 MS-DRGs Version 33 was identified after implementation on October 1, 
2015. For example, when a respiratory system diagnosis is reported with 
the comparable ICD-10-PCS procedure code 07B74ZX (Excision of thorax 
lymphatic, percutaneous endoscopic approach, diagnostic), the case is 
assigned to MS-DRGs 987 through 989 (Non-Extensive O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively).
    To resolve this replication issue, we are proposing to add ICD-10-
PCS procedure code 07B74ZX to MDC 4 under MS-DRGs 166 through 168 
(Other Respiratory System O.R. Procedures with MCC, with CC, and 
without CC/MCC, respectively) to more accurately replicate assignment 
of the comparable procedure code under the ICD-9-CM MS-DRGs Version 32.
    While reviewing that specific example, we also identified two other 
comparable ICD-10-PCS procedure code translations of ICD-9-CM procedure 
code 40.11 (Biopsy of lymphatic structure) describing diagnostic 
excision of thoracic lymphatic structures that were not replicated 
consistent with the ICD-9-CM MS-DRGs Version 32. These are ICD-10-PCS 
procedure codes 07B70ZX (Excision of thorax lymphatic, open approach, 
diagnostic) and 07B73ZX (Excision of thorax lymphatic, percutaneous 
approach, diagnostic). Therefore, we are proposing to add these two 
ICD-10-PCS procedure codes to MDC 4 in MS-DRGs 166 through 168 as well.
    Adding ICD-10-PCS procedure codes 07B74ZX, 07B70ZX, and 07B73ZX 
that describe diagnostic excision of thoracic lymphatic structures to 
MDC 4 under MS-DRGs 166 through 168 would result in a more accurate 
replication of the comparable procedure under ICD-9-CM MS-DRGs Version 
32. The proposed changes would eliminate erroneous assignment to MS-
DRGs 987 through 989 for these procedures.

[[Page 25016]]

    We are inviting public comments on our proposal to add ICD-10-PCS 
procedure codes 07B74ZX, 07B70ZX, and 07B73ZX to the ICD-10 MS-DRGs 
Version 34 for MS-DRGs 166 through 168 in MDC 4, effective October 1, 
2016.
(7) Obstetrical Laceration Repair
    A replication issue for eight ICD-10-PCS procedure codes describing 
procedures that may be performed for the repair of obstetrical 
lacerations was identified after implementation of the ICD-10 MS-DRGs 
Version 33. These codes are:

------------------------------------------------------------------------
  ICD-10-PCS  procedure
           code                             Description
------------------------------------------------------------------------
0DQQ0ZZ..................  Repair anus, open approach.
0DQQ3ZZ..................  Repair anus, percutaneous approach.
0DQQ4ZZ..................  Repair anus, percutaneous endoscopic
                            approach.
0DQQ7ZZ..................  Repair anus, via natural or artificial
                            opening.
0DQQ8ZZ..................  Repair anus, via natural or artificial
                            opening endoscopic.
0DQR0ZZ..................  Repair anal sphincter, open approach.
0DQR3ZZ..................  Repair anal sphincter, percutaneous approach.
0DQR4ZZ..................  Repair anal sphincter, percutaneous
                            endoscopic approach.
------------------------------------------------------------------------

    We discovered that the ICD-10 MDC and MS-DRG assignment are not 
consistent with other ICD-10-PCS procedure codes that identify and 
describe clinically similar procedures for the repair of obstetrical 
lacerations which are coded and reported based on the extent of the 
tear. For example, ICD-10-PCS procedure code 0DQP0ZZ (Repair rectum, 
open approach) is appropriately assigned to MDC 14 (Pregnancy, 
Childbirth and the Puerperium) under MS-DRG 774 (Vaginal Delivery with 
Complicating Diagnoses). This procedure may be performed in the 
treatment of a fourth-degree perineal laceration involving the rectal 
mucosa. In contrast, ICD-10-PCS procedure code 0DQR0ZZ (Repair anal 
sphincter, open approach), when reported for repair of a perineal 
laceration, currently results in assignment to MS-DRGs 987 through 989 
(Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis).
    To resolve this replication issue, we are proposing to add these 
eight ICD-10-PCS procedure codes to MDC 14 in MS-DRG 774. The proposed 
changes would eliminate erroneous assignment to MS-DRGs 987 through 989 
for these procedures.
    We are inviting public comments on our proposal to add the eight 
listed codes to MDC 14 under MS-DRG 774, effective October 1, 2016, in 
the ICD-10 MS-DRGs Version 34.
17. Proposed Changes to the ICD-10-CM and ICD-10-PCS Coding Systems
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 addresses updates to the ICD-10-
CM and ICD-10-PCS 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 previously mentioned 
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 2017 at a public meeting held on September 22-23, 
2015, and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 13, 2015.
    The Committee held its 2016 meeting on March 9-10, 2016. 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 2016 would be included in the 
October 1, 2016 update to ICD-10-CM/ICD-10-PCS. As discussed in earlier 
sections of this preamble, there are new and deleted ICD-10-CM 
diagnosis codes and ICD-10-PCS procedure codes that are captured in 
Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure Codes, and 
Table 6C.--Invalid Diagnosis Codes for the proposed rule, which are 
available 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 these tables, they are not

[[Page 25017]]

published in the Addendum to this proposed rule. Rather, they are 
available via the Internet as discussed in section VI. of the Addendum 
to this proposed rule.
    Live Webcast recordings of the discussions of procedure codes at 
the Committee's September 22-23, 2015 meeting and March 9-10, 2016 
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 
discussions of diagnosis codes at the September 23-24, 2015 meeting and 
March 9-10, 2016 meeting are found at: http://www.cdc.gov/nchs/icd/icd9cm_maintenance.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 diagnosis and procedure codes twice a year instead of a single 
update on October 1 of each year. This requirement was included as part 
of the amendments to the Act relating to recognition of new technology 
under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act 
by adding a clause (vii) which states that the Secretary shall provide 
for the addition of new diagnosis and procedure codes on April 1 of 
each year, but the addition of such codes shall not require the 
Secretary to adjust the payment (or diagnosis-related group 
classification) until the fiscal year that begins after such date. This 
requirement improves the recognition of new technologies under the IPPS 
system by providing information on these new technologies at an earlier 
date. Data will be available 6 months earlier than would be possible 
with updates occurring only once a year on October 1.
    While section 1886(d)(5)(K)(vii) of the Act states that the 
addition of new diagnosis and procedure codes on April 1 of each year 
shall not require the Secretary to adjust the payment, or DRG 
classification, under section 1886(d) of the Act until the fiscal year 
that begins after such date, we have to update the DRG software and 
other systems in order to recognize and accept the new codes. We also 
publicize the code changes and the need for a mid-year systems update 
by providers to identify the new codes. Hospitals also have to obtain 
the new code books and encoder updates, and make other system changes 
in order to identify and report the new codes.
    The ICD-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. 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, 2016 implementation of a 
code at the September 22-23, 2015 Committee meeting. Therefore, there 
were no new codes implemented on April 1, 2016.
    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/icd10.htm. 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-10-CM and ICD-10-PCS coding 
changes to its Medicare contractors for use in updating their systems 
and providing education to providers.

[[Page 25018]]

    The code titles are adopted as part of the ICD-10 (previously ICD-
9-CM) Coordination and Maintenance Committee process. Therefore, 
although we publish the code titles in the IPPS proposed and final 
rules, they are not subject to comment in the proposed or final rules.
b. Code Freeze
    In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 
3340), there was a discussion of the need for a partial or total freeze 
in the annual updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS 
codes. The public comment addressed in that final rule stated that the 
annual code set updates should cease l year prior to the implementation 
of ICD-10. The commenters stated that this freeze of code updates would 
allow for instructional and/or coding software programs to be designed 
and purchased early, without concern that an upgrade would take place 
immediately before the compliance date, necessitating additional 
updates and purchases.
    HHS responded to comments in the ICD-10 final rule that the ICD-9-
CM Coordination and Maintenance Committee has jurisdiction over any 
action impacting the ICD-9-CM and ICD-10 code sets. Therefore, HHS 
indicated that the issue of consideration of a moratorium on updates to 
the ICD-9-CM, ICD-10-CM, and ICD-10-PCS code sets in anticipation of 
the adoption of ICD-10-CM and ICD-10-PCS would be addressed through the 
Committee at a future public meeting.
    The code freeze was discussed at multiple meetings of the ICD-9-CM 
Coordination and Maintenance Committee and public comment was actively 
solicited. The Committee evaluated all comments from participants 
attending the Committee meetings as well as written comments that were 
received. The Committee also considered the delay in implementation of 
ICD-10 until October 1, 2014. There was an announcement at the 
September 19, 2012 ICD-9-CM Coordination and Maintenance Committee 
meeting that a partial freeze of both ICD-9-CM and ICD-10 codes will be 
implemented as follows:
     The last regular annual update to both ICD-9-CM and ICD-10 
code sets was made on October 1, 2011.
     On October 1, 2012 and October 1, 2013, there will be only 
limited code updates to both ICD-9-CM and ICD-10 code sets to capture 
new technology and new diseases.
     On October 1, 2014, there were to be only limited code 
updates to ICD-10 code sets to capture new technology and diagnoses as 
required by section 503(a) of Public Law 108-173. There were to be no 
updates to ICD-9-CM on October 1, 2014.
     On October 1, 2015, one year after the originally 
scheduled implementation of ICD-10, regular updates to ICD-10 were to 
begin.
    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 August 4, 
2014, the Department published a final rule with a compliance date to 
require the use of ICD-10 beginning October 1, 2015. The final rule 
also required HIPAA-covered entities to continue to use ICD-9-CM 
through September 30, 2015. Accordingly, the updated schedule for the 
partial code freeze was 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 was 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 dramatically decreased the number of codes 
created each year as shown by the following information.

                                       Total Number of Codes and Changes in Total Number of Codes per Fiscal Year
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                 ICD-9-CM Codes                                                       ICD-10-CM and ICD-10-PCS Codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
                  Fiscal year                        Number           Change                    Fiscal year                   Number          Change
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2009 (October 1, 2008)                                                         FY 2009                                 ..............  ..............
    Diagnoses..................................          14,025             348      ICD-10-CM..........................          68,069              +5
    Procedures.................................           3,824              56      ICD-10-PCS.........................          72,589         -14,327
FY 2010 (October 1, 2009)                                                         FY 2010                                 ..............  ..............
    Diagnoses..................................          14,315             290      ICD-10-CM..........................          69,099          +1,030
    Procedures.................................           3,838              14      ICD-10-PCS.........................          71,957            -632
FY 2011 (October 1, 2010)
    Diagnoses..................................          14,432             117      ICD-10-CM..........................          69,368            +269
    Procedures.................................           3,859              21      ICD-10-PCS.........................          72,081            +124
FY 2012 (October 1, 2011)                                                         FY 2012                                 ..............  ..............
    Diagnoses..................................          14,567             135      ICD-10-CM..........................          69,833            +465

[[Page 25019]]

 
    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
FY 2016 (October 1, 2015)                                                         FY 2016                                 ..............  ..............
    Diagnoses..................................          14,567               0      ICD-10-CM..........................          69,823               0
    Procedures.................................           3,882               0      ICD-10-PCS.........................          71,924               0
Proposed FY 2017 (October 1, 2016)                                                Proposed FY 2017                        ..............  ..............
    Diagnoses..................................          14,567               0      ICD-10-CM..........................          71,558               0
    Procedures.................................           3,882               0      ICD-10-PCS.........................          75,625               0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As mentioned previously, 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 previously shown data. 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 22-23, 2015 and March 9-10, 2016 Committee 
meetings, we discussed any requests we had received for new ICD-10-CM 
diagnosis codes and ICD-10-PCS procedure codes that were to be 
implemented on October 1, 2016. We did not discuss ICD-9-CM codes. 
Because the partial code freeze will end on October 1, 2016, the public 
no longer had 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. We 
invited public comments on any code requests discussed at the September 
22-23, 2015 and March 9-10, 2016 Committee meetings for implementation 
as part of the October 1, 2016 update. The deadline for commenting on 
code proposals discussed at the September 22-23, 2015 Committee meeting 
was November 13, 2015. The deadline for commenting on code proposals 
discussed at the March 9-10, 2016 Committee meeting was April 8, 2016.
18. Replaced Devices Offered Without Cost or With a Credit
a. Background
    In the FY 2008 IPPS final rule with comment period (72 FR 47246 
through 47251), we discussed the topic of Medicare payment for devices 
that are replaced without cost or where credit for a replaced device is 
furnished to the hospital. We implemented a policy to reduce a 
hospital's IPPS payment for certain MS-DRGs where the implantation of a 
device that has been recalled determined the base MS-DRG assignment. At 
that time, we specified that we will reduce a hospital's IPPS payment 
for those MS-DRGs where the hospital received a credit for a replaced 
device equal to 50 percent or more of the cost of the device.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51556 through 
51557), we clarified this policy to state that the policy applies if 
the hospital received a credit equal to 50 percent or more of the cost 
of the replacement device and issued instructions to hospitals 
accordingly.
b. Proposed Changes for FY 2017
    For FY 2017 we are proposing not to add any MS-DRGs to the policy 
for replaced devices offered without cost or with a credit. We are 
proposing to continue to include the existing MS-DRGs currently subject 
to the policy as displayed in the table below.

------------------------------------------------------------------------
      MDC           MS-DRG                   MS-DRG Title
------------------------------------------------------------------------
Pre-MDC........          001  Heart Transplant or Implant of Heart
                               Assist System with MCC.
Pre-MDC........          002  Heart Transplant or Implant of Heart
                               Assist System without MCC.
1..............          023  Craniotomy with Major Device Implant/Acute
                               Complex CNS Principal Diagnosis with MCC
                               or Chemo Implant.
1..............          024  Craniotomy with Major Device Implant/Acute
                               Complex CNS Principal Diagnosis without
                               MCC.
1..............          025  Craniotomy & Endovascular Intracranial
                               Procedures with MCC.
1..............          026  Craniotomy & Endovascular Intracranial
                               Procedures with CC.
1..............          027  Craniotomy & Endovascular Intracranial
                               Procedures without CC/MCC.
1..............          040  Peripheral/Cranial Nerve & Other Nervous
                               System Procedure with MCC.
1..............          041  Peripheral/Cranial Nerve & Other Nervous
                               System Procedure with CC or Peripheral
                               Neurostimulator.
1..............          042  Peripheral/Cranial Nerve & Other Nervous
                               System Procedure without CC/MCC.
3..............          129  Major Head & Neck Procedures with CC/MCC
                               or Major Device.
3..............          130  Major Head & Neck Procedures without CC/
                               MCC.
5..............          215  Other Heart Assist System Implant.
5..............          216  Cardiac Valve & Other Major Cardiothoracic
                               Procedure with Cardiac Catheter with MCC.
5..............          217  Cardiac Valve & Other Major Cardiothoracic
                               Procedure with Cardiac Catheter with CC.
5..............          218  Cardiac Valve & Other Major Cardiothoracic
                               Procedure with Cardiac Catheter without
                               CC/MCC.
5..............          219  Cardiac Valve & Other Major Cardiothoracic
                               Procedure without Cardiac Catheter with
                               MCC.
5..............          220  Cardiac Valve & Other Major Cardiothoracic
                               Procedure without Cardiac Catheter with
                               CC.

[[Page 25020]]

 
5..............          221  Cardiac Valve & Other Major Cardiothoracic
                               Procedure without Cardiac Catheter
                               without CC/MCC.
5..............          222  Cardiac Defibrillator Implant with Cardiac
                               Catheter with AMI/Heart Failure/Shock
                               with MCC.
5..............          223  Cardiac Defibrillator Implant with Cardiac
                               Catheter with AMI/Heart Failure/Shock
                               without MCC.
5..............          224  Cardiac Defibrillator Implant with Cardiac
                               Catheter without AMI/Heart Failure/Shock
                               with MCC.
5..............          225  Cardiac Defibrillator Implant with Cardiac
                               Catheter without AMI/Heart Failure/Shock
                               without MCC.
5..............          226  Cardiac Defibrillator Implant without
                               Cardiac Catheter with MCC.
5..............          227  Cardiac Defibrillator Implant without
                               Cardiac Catheter without MCC.
5..............          242  Permanent Cardiac Pacemaker Implant with
                               MCC.
5..............          243  Permanent Cardiac Pacemaker Implant with
                               CC.
5..............          244  Permanent Cardiac Pacemaker Implant
                               without CC/MCC.
5..............          245  AICD Generator Procedures.
5..............          258  Cardiac Pacemaker Device Replacement with
                               MCC.
5..............          259  Cardiac Pacemaker Device Replacement
                               without MCC.
5..............          260  Cardiac Pacemaker Revision Except Device
                               Replacement with MCC.
5..............          261  Cardiac Pacemaker Revision Except Device
                               Replacement with CC.
5..............          262  Cardiac Pacemaker Revision Except Device
                               Replacement without CC/MCC.
5..............          266  Endovascular Cardiac Valve Replacement
                               with MCC.
5..............          267  Endovascular Cardiac Valve Replacement
                               without MCC.
5..............          268  Aortic and Heart Assist Procedures Except
                               Pulsation Balloon with MCC.
5..............          269  Aortic and Heart Assist Procedures Except
                               Pulsation Balloon without MCC.
5..............          270  Other Major Cardiovascular Procedures with
                               MCC.
5..............          271  Other Major Cardiovascular Procedures with
                               CC.
5..............          272  Other Major Cardiovascular Procedures
                               without CC/MCC.
8..............          461  Bilateral or Multiple Major Joint
                               Procedures Of Lower Extremity with MCC.
8..............          462  Bilateral or Multiple Major Joint
                               Procedures of Lower Extremity without
                               MCC.
8..............          466  Revision of Hip or Knee Replacement with
                               MCC.
8..............          467  Revision of Hip or Knee Replacement with
                               CC.
8..............          468  Revision of Hip or Knee Replacement
                               without CC/MCC.
8..............          469  Major Joint Replacement or Reattachment of
                               Lower Extremity with MCC.
8..............          470  Major Joint Replacement or Reattachment of
                               Lower Extremity without MCC.
------------------------------------------------------------------------

    We are soliciting public comments on our proposal to continue to 
include the existing MS-DRGs currently subject to the policy and to not 
add any additional MS-DRGs to the policy. The final list of MS-DRGs 
subject to the policy for FY 2017 will be listed in the FY 2017 IPPS/
LTCH PPS final rule, as well as issued to providers in the form of a 
Change Request (CR).
19. Other Proposed Policy Changes
a. MS-DRG GROUPER Logic
(1) Operations on Products of Conception
    In the ICD-9-CM MS-DRGs Version 32, intrauterine operations that 
may be performed in an attempt to correct a fetal abnormality are 
identified by ICD-9-CM procedure code 75.36 (Correction of fetal 
defect). This procedure code is designated as an O.R. procedure and is 
assigned to MDC 14 (Pregnancy, Childbirth and the Puerperium) in MS-DRG 
768 (Vaginal Delivery with O.R. Procedure Except Sterilization and/or 
Dilation and Curettage).
    A replication issue for 208 ICD-10-PCS comparable code translations 
that describe operations on the products of conception (fetus) to 
correct fetal defects was identified during an internal review. These 
208 procedure codes were inadvertently omitted from the MDC 14 GROUPER 
logic for ICD-10 MS-DRG 768. To resolve this replication issue, we are 
proposing to add the 208 ICD-10-PCS procedure codes shown in Table 
6P.3a. associated with this proposed rule (which is available via the 
Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) to MDC 14 in MS-DRG 
768, effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We are 
inviting public comments on our proposal.
    Separate from the replication issue described above, during our 
internal review, we also concluded that the proposed MS-DRG logic for 
these intrauterine procedures under ICD-10 may not accurately represent 
a subset of the 208 ICD-10-PCS procedure codes (listed in Table 
6P.3a.). For example, the GROUPER logic for MS-DRG 768 requires that a 
vaginal delivery occur during the same episode of care in which an 
intrauterine procedure is performed. However, this scenario may not be 
clinically consistent with all pregnant patients who undergo fetal 
surgery. For example, a pregnant patient whose fetus is diagnosed with 
a congenital diaphragmatic hernia (CDH) may undergo a fetoscopic 
endoluminal tracheal occlusion (FETO) procedure in which the pregnant 
patient does not subsequently deliver during the same hospital stay. 
The goal of this specific fetal surgery is to allow the fetus to remain 
in utero until its lungs have developed to increase the chance of 
survival. Therefore, this scenario of a patient who has fetal surgery 
but does not have a delivery during the same hospital stay is not 
appropriately captured in the GROUPER logic. We believe that further 
analysis is warranted regarding a future proposal for a new MS-DRG to 
better recognize this subset of patients.
    In past rulemaking (72 FR 24700 and 24705), we have acknowledged 
that CMS does not have the expertise or data to maintain the DRGs in 
clinical areas that have very low volume in the Medicare population, 
including for conditions associated with and/or occurring in the 
maternal-fetal patient population. Additional information is needed to 
fully and accurately evaluate all the possible fetal conditions that 
may fall under similar scenarios to the one described above before 
making a specific proposal. Therefore, we are soliciting public 
comments on two clinical concepts for consideration for a possible 
future proposal for the FY 2018 ICD-10 MS-DRGs Version 35: (1) The ICD-
10-CM diagnosis codes and ICD-10-PCS procedure codes that describe 
fetal abnormalities for which fetal surgery may be performed in the 
absence of a delivery during the same hospital stay; and (2) the ICD-
10-CM diagnosis codes and ICD-10-PCS procedure codes that describe 
fetal abnormalities for which fetal surgery

[[Page 25021]]

may be performed with a subsequent delivery during the same hospital 
stay. This second concept is the structure of current MS-DRG 768. 
Commenters should submit their code recommendations for these concepts 
to the following email address [email protected] by 
December 7, 2016. We encourage public comments as we consider these 
enhancements for the FY 2018 ICD-10 MS-DRGs Version 35.
(2) Other Heart Revascularization
    In the ICD-9-CM MS-DRGs Version 32, revascularization procedures 
that are performed to restore blood flow to the heart are identified 
with procedure code 36.39 (Other heart revascularization). This 
procedure code is designated as an O.R. procedure and is assigned to 
MDC 5 (Diseases and Disorders of the Circulatory System) in MS-DRGs 228 
through 230 (Other Cardiothoracic Procedures with MCC, with CC, and 
without CC/MCC, respectively).
    A replication issue for 16 ICD-10-PCS comparable code translations 
that describe revascularization procedures was identified after 
implementation of the ICD-10 MS-DRGs Version 33. These 16 procedure 
codes were inadvertently omitted from the MDC 5 GROUPER logic for ICD-
10 MS-DRGs 228 through 230. We note that, as discussed in section 
II.F.5.d. of the preamble of this proposed rule, we are proposing to 
delete MS-DRG 230 and revise MS-DRG 229. Accordingly, to resolve this 
replication issue, we are proposing to add the 16 ICD-10-PCS procedure 
codes listed in the table below to MDC 5 in MS-DRG 228 and proposed 
revised MS-DRG 229.

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
0210344..................  Bypass coronary artery, one site from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous approach.
02103D4..................  Bypass coronary artery, one site from
                            coronary vein with intraluminal device,
                            percutaneous approach.
0210444..................  Bypass coronary artery, one site from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous endoscopic approach.
02104D4..................  Bypass coronary artery, one site from
                            coronary vein with intraluminal device,
                            percutaneous endoscopic approach.
0211344..................  Bypass coronary artery, two sites from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous approach.
02113D4..................  Bypass coronary artery, two sites from
                            coronary vein with intraluminal device,
                            percutaneous approach.
0211444..................  Bypass coronary artery, two sites from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous endoscopic approach.
02114D4..................  Bypass coronary artery, two sites from
                            coronary vein with intraluminal device,
                            percutaneous endoscopic approach.
0212344..................  Bypass coronary artery, three sites from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous approach.
02123D4..................  Bypass coronary artery, three sites from
                            coronary vein with intraluminal device,
                            percutaneous approach.
0212444..................  Bypass coronary artery, three sites from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous endoscopic approach.
02124D4..................  Bypass coronary artery, three sites from
                            coronary vein with intraluminal device,
                            percutaneous endoscopic approach.
0213344..................  Bypass coronary artery, four or more sites
                            from coronary vein with drug-eluting
                            intraluminal device, percutaneous approach.
02133D4..................  Bypass coronary artery, four or more sites
                            from coronary vein with intraluminal device,
                            percutaneous approach.
0213444..................  Bypass coronary artery, four or more sites
                            from coronary vein with drug-eluting
                            intraluminal device, percutaneous endoscopic
                            approach.
02134D4..................  Bypass coronary artery, four or more sites
                            from coronary vein with intraluminal device,
                            percutaneous endoscopic approach.
------------------------------------------------------------------------

    We are inviting public comments on our proposal to add the above 
listed ICD-10-PCS procedure codes to MDC 5 in MS-DRG 228 and proposed 
revised MS-DRG 229 (Other Cardiothoracic Procedures with and without 
MCC, respectively), effective October 1, 2016, in ICD-10 MS-DRGs 
Version 34.
(3) Procedures on Vascular Bodies: Chemoreceptors
    In the ICD-9-CM MS-DRGs Version 32, procedures performed on the 
sensory receptors are identified with ICD-9-CM procedure code 39.89 
(Other operations on carotid body, carotid sinus and other vascular 
bodies). This procedure code is designated as an O.R. procedure and is 
assigned to MDC 5 (Diseases and Disorders of the Circulatory System) in 
MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, 
and without CC/MCC, respectively).
    A replication issue for 234 ICD-10-PCS comparable code translations 
that describe these procedures was identified after implementation of 
the ICD-10 MS-DRGs Version 33. These 234 procedure codes were 
inadvertently omitted from the MDC 5 GROUPER logic for ICD-10 MS-DRGs 
252 through 254. To resolve this replication issue, we are proposing to 
add the 234 ICD-10-PCS procedure codes listed in Table 6P.3b. 
associated with this proposed rule (which is available via the Internet 
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) to MDC 5 in MS-DRG 252, 253, 
and 254, effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We 
are inviting public comments on our proposal.
(4) Repair of the Intestine
    In the ICD-9-CM MS-DRGs Version 32, the procedure for a repair to 
the intestine may be identified with procedure code 46.79 (Other repair 
of intestine). This procedure code is designated as an O.R. procedure 
and is assigned to MDC 6 (Diseases and Disorders of the Digestive 
System) in MS-DRGs 329, 330, and 331 (Major Small and Large Bowel 
Procedures with MCC, with CC, and without CC/MCC, respectively).
    A replication issue for four ICD-10-PCS comparable code 
translations was identified after implementation of the ICD-10 MS-DRGs 
Version 33. These four procedure codes are:
     0DQF0ZZ (Repair right large intestine, open approach);
     0DQG0ZZ (Repair left large intestine, open approach);
     0DQL0ZZ (Repair transverse colon, open approach); and
     0DQM0ZZ (Repair descending colon, open approach).
    These four ICD-10-PCS codes were inadvertently omitted from the MDC 
6 GROUPER logic for ICD-10 MS-DRGs 329 through 331. To resolve this 
replication issue, we are proposing to add the four ICD-10-PCS 
procedure codes to MDC 6 in MS-DRG 329, 230, and 331, effective October 
1, 2016, in ICD-10 MS-DRGs Version 34. We are inviting public comments 
on our proposal.
(5) Insertion of Infusion Pump
    In the ICD-9-CM MS-DRGs Version 32, the procedure for insertion of 
an infusion pump is identified with procedure code 86.06 (Insertion of

[[Page 25022]]

totally implantable infusion pump), which is designated as an O.R. 
procedure and assigned to a number of MDCs and MS-DRGs across various 
body systems. We refer readers to the ICD-9-CM MS-DRG Definitions 
Manual Appendix E--Operating Room Procedures and Procedure Code/MS-DRG 
Index, which is available on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page-Items/FY2016-IPPS-Rule-Data-Files.html, for 
the complete list of MDCs and MS-DRGs to which procedure code 86.06 is 
assigned
    A replication issue for 16 ICD-10-PCS comparable code translations 
was identified after implementation of the ICD-10 MS-DRGs Version 33. 
These 16 procedure codes are listed in the table below:

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
0JHD0VZ..................  Insertion of infusion pump into right upper
                            arm subcutaneous tissue and fascia, open
                            approach.
0JHD3VZ..................  Insertion of infusion pump into right upper
                            arm subcutaneous tissue and fascia,
                            percutaneous approach.
0JHF0VZ..................  Insertion of infusion pump into left upper
                            arm subcutaneous tissue and fascia, open
                            approach.
0JHF3VZ..................  Insertion of infusion pump into left upper
                            arm subcutaneous tissue and fascia,
                            percutaneous approach.
0JHG0VZ..................  Insertion of infusion pump into right lower
                            arm subcutaneous tissue and fascia, open
                            approach.
0JHG3VZ..................  Insertion of infusion pump into right lower
                            arm subcutaneous tissue and fascia,
                            percutaneous approach.
0JHH0VZ..................  Insertion of infusion pump into left lower
                            arm subcutaneous tissue and fascia, open
                            approach.
0JHH3VZ..................  Insertion of infusion pump into left lower
                            arm subcutaneous tissue and fascia,
                            percutaneous approach.
0JHL0VZ..................  Insertion of infusion pump into right upper
                            leg subcutaneous tissue and fascia, open
                            approach.
0JHL3VZ..................  Insertion of infusion pump into right upper
                            leg subcutaneous tissue and fascia,
                            percutaneous approach.
0JHM0VZ..................  Insertion of infusion pump into left upper
                            leg subcutaneous tissue and fascia, open
                            approach.
0JHM3VZ..................  Insertion of infusion pump into left upper
                            leg subcutaneous tissue and fascia,
                            percutaneous approach.
0JHN0VZ..................  Insertion of infusion pump into right lower
                            leg subcutaneous tissue and fascia, open
                            approach.
0JHN3VZ..................  Insertion of infusion pump into right lower
                            leg subcutaneous tissue and fascia,
                            percutaneous approach.
0JHP0VZ..................  Insertion of infusion pump into left lower
                            leg subcutaneous tissue and fascia, open
                            approach.
0JHP3VZ..................  Insertion of infusion pump into left lower
                            leg subcutaneous tissue and fascia,
                            percutaneous approach.
------------------------------------------------------------------------

    These codes were inadvertently omitted from the MDCs and MS-DRGs to 
which they should be assigned (consistent with the assignment of ICD-9-
CM procedure code 86.06) to accurately replicate the ICD-9-CM MS-DRG 
logic. To resolve this replication issue, we are proposing to add the 
16 ICD-10-PCS procedure codes listed above to the corresponding MDCs 
and MS-DRGs, as set forth in the ICD-9-CM MS-DRG Definitions Manual--
Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index 
as described earlier, effective October 1, 2016, in ICD-10 MS-DRGs 
Version 34. We are inviting public comments on our proposal.
(6) Procedures on the Bursa
    In the ICD-9-CM MS-DRGs Version 32, procedures that involve cutting 
into the bursa are identified with procedure code 83.03 (Bursotomy). 
This procedure code is designated as an O.R. procedure and is assigned 
to MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue) in MS-DRGs 500, 501, and 502 (Soft Tissue Procedures 
with MCC, with CC, and without CC/MCC, respectively).
    A replication issue for six ICD-10-PCS comparable code translations 
was identified after implementation of the ICD-10 MS-DRGs Version 33. 
These six procedure codes are:
     0M850ZZ (Division of right wrist bursa and ligament, open 
approach);
     0M853ZZ (Division of right wrist bursa and ligament, 
percutaneous approach);
     0M854ZZ (Division of right wrist bursa and ligament, 
percutaneous endoscopic approach);
     0M860ZZ (Division of left wrist bursa and ligament, open 
approach);
     0M863ZZ (Division of left wrist bursa and ligament, 
percutaneous approach); and
     0M864ZZ (Division of left wrist bursa and ligament, 
percutaneous endoscopic approach).
    These codes were inadvertently omitted from the MDC 8 GROUPER logic 
for ICD-10 MS-DRGs 500, 501, and 502. To resolve this replication 
issue, we are proposing to add the six ICD-10-PCS procedure codes 
listed above to MDC 8 in MS-DRGs 500, 501, and 502, effective October 
1, 2016, in ICD-10 MS-DRGs Version 34. We are inviting public comments 
on our proposal.
(7) Procedures on the Breast
    In the ICD-9-CM MS-DRGs Version 32, procedures performed for a 
simple repair to the skin of the breast may be identified with 
procedure code 86.59 (Closure of skin and subcutaneous tissue of other 
sites). This procedure code is designated as a non-O.R. procedure. 
Therefore, this procedure code does not have an impact on MS-DRG 
assignment.
    A replication issue for two ICD-10-PCS comparable code translations 
was identified after implementation of the ICD-10 MS-DRGs Version 33. 
These two procedure codes are: 0HQVXZZ (Repair bilateral breast, 
external approach) and 0HQYXZZ (Repair supernumerary breast, external 
approach). These ICD-10-PCS procedures codes were inadvertently 
assigned to ICD-10 MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC, 
respectively) in the ICD-10 MS-DRG GROUPER logic. To resolve this 
replication issue, we are proposing to remove these two ICD-10-PCS 
procedure codes from MS-DRG 981, 982, and 983, to designate them as 
non-O.R. procedures, effective October 1, 2016, in ICD-10 MS-DRGs 
Version 34. We are inviting public comments on our proposal.
(8) Excision of Subcutaneous Tissue and Fascia
    In the ICD-9-CM MS-DRGs Version 32, procedures involving excision 
of the skin and subcutaneous tissue are identified with procedure code 
86.3 (Other local excision of lesion or tissue of skin and subcutaneous 
tissue). This procedure code is designated as a non-O.R. procedure that 
affects MS-DRG assignment for MS-DRGs 579, 580, and 581 (Other Skin, 
Subcutaneous Tissue and Breast Procedures with MCC, with CC and without 
CC/MCC, respectively) in MDC 9 (Diseases and Disorders of the Skin, 
Subcutaneous Tissue and Breast).
    A replication issue for 19 ICD-10-PCS comparable code translations 
was

[[Page 25023]]

identified after implementation of the ICD-10 MS-DRGs Version 33. These 
19 procedure codes are listed in the table below:

------------------------------------------------------------------------
     ICD-10-PCS code                        Description
------------------------------------------------------------------------
0JB03ZZ..................  Excision of scalp subcutaneous tissue and
                            fascia, percutaneous approach.
0JB43ZZ..................  Excision of anterior neck subcutaneous tissue
                            and fascia, percutaneous approach.
0JB53ZZ..................  Excision of posterior neck subcutaneous
                            tissue and fascia, percutaneous approach.
0JB63ZZ..................  Excision of chest subcutaneous tissue and
                            fascia, percutaneous approach.
0JB73ZZ..................  Excision of back subcutaneous tissue and
                            fascia, percutaneous approach.
0JB83ZZ..................  Excision of abdomen subcutaneous tissue and
                            fascia, percutaneous approach.
0JB93ZZ..................  Excision of buttock subcutaneous tissue and
                            fascia, percutaneous approach.
0JBB3ZZ..................  Excision of perineum subcutaneous tissue and
                            fascia, percutaneous approach.
0JBC3ZZ..................  Excision of pelvic region subcutaneous tissue
                            and fascia, percutaneous approach.
0JBD3ZZ..................  Excision of right upper arm subcutaneous
                            tissue and fascia, percutaneous approach.
0JBF3ZZ..................  Excision of left upper arm subcutaneous
                            tissue and fascia, percutaneous approach.
0JBG3ZZ..................  Excision of right lower arm subcutaneous
                            tissue and fascia, percutaneous approach.
0JBH3ZZ..................  Excision of left lower arm subcutaneous
                            tissue and fascia, percutaneous approach.
0JBL3ZZ..................  Excision of right upper leg subcutaneous
                            tissue and fascia, percutaneous approach.
0JBM3ZZ..................  Excision of left upper leg subcutaneous
                            tissue and fascia, percutaneous approach.
0JBN3ZZ..................  Excision of right lower leg subcutaneous
                            tissue and fascia, percutaneous approach.
0JBP3ZZ..................  Excision of left lower leg subcutaneous
                            tissue and fascia, percutaneous approach.
0JBQ3ZZ..................  Excision of right foot subcutaneous tissue
                            and fascia, percutaneous approach.
0JBR3ZZ..................  Excision of left foot subcutaneous tissue and
                            fascia, percutaneous approach.
------------------------------------------------------------------------

    These codes were inadvertently omitted from the ICD-10 MS-DRG 
GROUPER logic for MDC 9 in MS-DRGs 579, 580, and 581. To resolve this 
replication issue, we are proposing to add the 19 ICD-10-PCS procedure 
codes listed in the table above to MDC 9 in MS-DRGs 579, 580, and 581, 
effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We are 
inviting public comments on our proposal.
(9) Shoulder Replacement
    In the ICD-9-CM MS-DRGs Version 32, procedures that involve 
replacing a component of bone from the upper arm are identified with 
procedure code 78.42 (Other repair or plastic operations on bone, 
humerus). This procedure code is designated as an O.R. procedure and is 
assigned to MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue) in MS-DRGs 492, 493, and 494 (Lower Extremity 
and Humerus Procedures Except Hip, Foot and Femur with MCC, with CC, 
and without CC/MCC, respectively).
    A replication issue for two ICD-10-PCS comparable code translations 
was identified after implementation of the ICD-10 MS-DRGs Version 33. 
These two procedure codes are: 0PRC0JZ (Replacement of right humeral 
head with synthetic substitute, open approach) and 0PRD0JZ (Replacement 
of left humeral head with synthetic substitute, open approach). These 
two codes were inadvertently omitted from the ICD-10 MS-DRG GROUPER 
logic for MDC 8 in MS-DRGs 492, 493, and 494. To resolve this 
replication issue, we are proposing to add these two ICD-10-PCS 
procedure codes to MDC 8 in MS-DRGs 492, 493, and 494, effective 
October 1, 2016, in ICD-10 MS-DRGs Version 34. We are inviting public 
comments on our proposal.
(10) Reposition
    In the ICD-9-CM MS-DRGs Version 32, procedures that involve the 
percutaneous repositioning of an area in the vertebra are identified 
with procedure code 81.66 (Percutaneous vertebral augmentation). This 
procedure code is designated as an O.R. procedure and is assigned to 
MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue) in MS-DRGs 515, 516, and 517 (Other Musculoskeletal 
System and Connective Tissue Procedures with MCC, with CC, and without 
CC/MCC, respectively).
    A replication issue for four ICD-10-PCS comparable code 
translations was identified after implementation of the ICD-10 MS-DRGs 
Version 33. These four procedure codes are:
     0PS33ZZ (Reposition cervical vertebra, percutaneous 
approach);
     0PS43ZZ (Reposition thoracic vertebra, percutaneous 
approach);
     0QS03ZZ (Reposition lumbar vertebra, percutaneous 
approach); and
     0QS13ZZ (Reposition sacrum, percutaneous approach).
    These four ICD-10PCS procedure codes were inadvertently omitted 
from the ICD-10 MS-DRG GROUPER logic for MDC 8 and MS-DRGs 515, 516, 
and 517. To resolve this replication issue, we are proposing to add 
these four ICD-10-PCS procedure codes to MDC 8 in MS-DRGs 515, 516, and 
517, effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We are 
inviting public comments on our proposal.
(11) Insertion of Infusion Device
    In the ICD-9-CM MS-DRGs Version 32, the procedure for insertion of 
an infusion pump is identified with procedure code 86.06 (Insertion of 
totally implantable infusion pump) which is designated as an O.R. 
procedure and assigned to a number of MDCs and MS-DRGs, one of which is 
MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue) in MS-DRGs 515, 516, and 517 (Other Musculoskeletal 
System and Connective Tissue O.R. Procedures with MCC, with CC, and 
without CC/MCC, respectively).
    A replication issue for 49 ICD-10-PCS comparable code translations 
that describe insertion of an infusion device into a joint or disc was 
identified after implementation of the ICD-10 MS-DRGs Version 33. These 
49 procedure codes appear to describe procedures that utilize a 
specific type of infusion device known as an infusion pump and were 
inadvertently omitted from the ICD-10 MS-DRG GROUPER logic for MDC 8. 
To resolve this replication issue, we are proposing to add the 49 ICD-
10-PCS procedure codes shown in Table 6P.3c. (which is available via 
the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) to MDC 8 in 
MS-DRGs 515, 516, and 517, effective October 1, 2016, in ICD-10 MS-DRGs 
Version 34. We are inviting public comments on our proposal.
(12) Bladder Neck Repair
    In the ICD-9-CM MS-DRGs Version 32, a procedure involving a bladder

[[Page 25024]]

repair is identified with procedure code 57.89 (Other repair of 
bladder) which is designated as an O.R. procedure and assigned to MDC 
11 (Diseases and Disorders of the Kidney and Urinary Tract) in MS-DRGs 
653, 654, and 655 (Major Bladder Procedures with MCC, with CC, and 
without CC/MCC, respectively) and MDC 13 (Diseases and Disorders of the 
Female Reproductive System) in MS-DRGs 749 and 750 (Other Female 
Reproductive System O.R. Procedures with CC/MCC and without CC/MCC, 
respectively).
    A replication issue for five ICD-10-PCS comparable code 
translations that describe a bladder neck repair was identified after 
implementation of the ICD-10 MS-DRGs Version 33. These five procedure 
codes are:
     0TQC0ZZ (Repair Bladder Neck, Open Approach);
     0TQC3ZZ (Repair Bladder Neck, Percutaneous Approach);
     0TQC4ZZ (Repair Bladder Neck, Percutaneous Endoscopic 
Approach);
     0TQC7ZZ (Repair Bladder Neck, Via Natural or Artificial 
Opening); and
     0TQC8ZZ (Repair Bladder Neck, Via Natural or Artificial 
Opening Endoscopic).
    These five ICD-10-PCS procedure codes were inadvertently omitted 
from the ICD-10 MS-DRG GROUPER logic for MDC 11 in MS-DRGs 653, 654, 
and 655 and MDC 13 in MS-DRGs 749 and 750. To resolve this replication 
issue, we are proposing to add these five ICD-10-PCS procedure codes to 
MDC 11 in MS-DRGs 653, 654, and 655 and MDC 13 in MS-DRGs 749 and 750, 
effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We are 
inviting public comments on our proposal.
(13) Future Consideration
    We note that commenters have suggested that there are a number of 
procedure codes that may not appear to be clinically feasible due to a 
specific approach or device value in relation to a unique body part in 
a given body system. These commenters have not identified a 
comprehensive list of codes to be deleted. However, they have suggested 
that CMS examine these codes further. Due to the multiaxial structure 
of ICD-10-PCS, the current system allows for multiple possibilities for 
a given procedure, some of which may not currently be used. As our 
focus to refine the ICD-10 MS-DRGs continues, for FY 2018, we will 
begin to conduct an analysis of where such ICD-10-PCS codes may exist. 
We welcome suggestions from the public of code refinements that could 
address the issue of current ICD-10-PCS codes that capture procedures 
that would not reasonably be performed. Commenters should submit their 
recommendations for these code refinements to the following email 
address: [email protected] by December 7, 2016.
    We also note that any suggestions that are received by December 7, 
2016 to update ICD-10-PCS, including creating new codes or deleting 
existing codes, will be addressed by the ICD-10 Coordination and 
Maintenance Committee. Proposals to address the modification of any 
ICD-10-PCS codes are discussed at the ICD-10 Coordination and 
Maintenance Committee meetings held in March and September of each 
year. We refer the reader to section II.F.17. of the preamble of this 
proposed rule for information related to this process to request 
updates to ICD-10-PCS.
b. Issues Relating to MS-DRG 999 (Ungroupable)
    Under the ICD-9-CM MS-DRGs Version 32, a diagnosis of complications 
of an obstetric surgical wound after delivery is identified with 
diagnosis code 674.32 (Other complications of obstetrical surgical 
wounds, delivered, with mention of postpartum complication) and is 
assigned to MDC 14 (Pregnancy, Childbirth and the Puerperium) under MS-
DRG 769 (Postpartum and Post Abortion Diagnoses with O.R. Procedure) or 
MS-DRG 776 (Postpartum and Post Abortion Diagnoses without O.R. 
Procedure). A replication issue under the ICD-10 MS-DRGs Version 33 for 
this condition was identified after implementation on October 1, 2015. 
Under ICD-10-CM, diagnosis code O90.2 (Hematoma of obstetric wound) is 
the comparable translation for ICD-9-CM diagnosis code 674.32. We 
discovered that cases where a patient has been readmitted to the 
hospital after a delivery and ICD-10-CM diagnosis code O90.2 is 
reported as the principal diagnosis are resulting in assignment to MS-
DRG 999 (Ungroupable).
    In the ICD-9-CM diagnosis code description, the concept of 
``delivery'' is included in the code title. This concept is not present 
in the ICD-10-CM classification and has led to a replication issue for 
patients who delivered during a previous stay and are subsequently 
readmitted for the complication. To resolve this replication issue, we 
are proposing to add ICD-10-CM diagnosis code O90.2 to MDC 14 under MS-
DRGs 769 and 776. This refinement would be consistent with the ICD-9-CM 
diagnosis code assignment and result in a more accurate replication of 
the ICD-9-CM MS-DRGs Version 32.
    We are inviting public comments on our proposal to add ICD-10-CM 
diagnosis code O90.2 to MS-DRG 769 and MS-DRG 776 in MDC 14, effective 
October 1, 2016, in the ICD-10 MS-DRGs Version 34.
c. Other Operating Room (O.R.) and Non-O.R. Issues
(1) O.R. Procedures to Non-O.R. Procedures
    For this FY 2017 IPPS/LTCH PPS proposed rule, we continued our 
efforts to address the MS-DRG replication issues between ICD-9-CM logic 
and ICD-10 that were brought to our attention. As a result of analyzing 
those specific requests, we identified areas in the ICD-10-PCS 
classification where additional refinements could further support our 
replication efforts. We discuss these below.
    We evaluated specific groups of ICD-10-PCS procedure codes with 
respect to their current operating room (O.R.) designation that were 
determined to be inconsistent with the ICD-9-CM procedure codes from 
which the designation was initially derived. Our review demonstrated 
that these ICD-10-PCS procedure codes should instead have the 
attributes of a more logical ICD-9-CM procedure code translation for 
MS-DRG replication purposes. As specified below, we are proposing to 
change the status of ICD-10-PCS procedure codes from being designated 
as O.R. to non-O.R. for the ICD-10 MS-DRGs Version 34. For each group 
summarized below, the detailed code lists are shown in Tables 6P.4a. 
through 6P.4k. (ICD-10-CM and ICD-10-PCS Codes for Proposed MCE and MS-
DRG Changes--FY 2017) associated with this proposed rule, which are 
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
(a) Endoscopic/Transorifice Insertion
    We found 72 ICD-10-PCS procedure codes describing an endoscopic/
transorifice (via natural or artificial opening) insertion of infusion 
and monitoring devices into various tubular body parts that, when coded 
under ICD-9-CM, would reasonably correlate to other noninvasive 
catheterization and monitoring types of procedure codes versus an 
``incision of [body part]'' or ``other operation on a [body part]'' 
procedure code. We are proposing that the 72 ICD-10-PCS procedure codes 
in Table 6P.4a. associated with this proposed rule (which is available 
via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/

[[Page 25025]]

Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be 
assigned the attributes of the ICD-9-CM procedure code specified in 
column C. The ICD-9-CM procedure codes and descriptions in column C 
would replace the ICD-9-CM procedure codes and descriptions reflected 
in column D, which are considered less accurate correlations. We are 
inviting public comments on this proposal.
(b) Endoscopic/Transorifice Removal
    We found 155 ICD-10-PCS procedure codes describing an endoscopic/
transorifice (via natural or artificial opening) removal of common 
devices such as a drainage device, infusion device, intraluminal 
device, or monitoring device from various tubular body parts that, when 
coded under ICD-9-CM, would reasonably correlate to other nonoperative 
removal of a wide range of devices/appliances procedure codes versus an 
``incision of [body part]'' or ``other operation on a [body part]'' 
procedure code. We are proposing that the 155 ICD-10-PCS procedure 
codes in Table 6P.4b. associated with this proposed rule (which is 
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) 
be assigned the attributes of the ICD-9-CM procedure code specified in 
column C. The ICD-9-CM procedure codes and descriptions in column C 
would replace the ICD-9-CM procedure codes and descriptions reflected 
in column D, which are considered less accurate correlations. We are 
inviting public comments on this proposal.
(c) Tracheostomy Device Removal
    We found five ICD-10-PCS procedure codes describing removal of a 
tracheostomy device with various approaches such that, when coded under 
ICD-9-CM, would reasonably correlate to the nonoperative removal of a 
tracheostomy device procedure code versus an ``incision of [body 
part]'' or ``other operation on a [body part]'' procedure code. We 
acknowledge that, under ICD-10-PCS, an ``open'' approach is defined as 
``cutting through.'' However, this procedure was designated as non-O.R. 
under ICD-9-CM. For replication purposes, we are proposing that the 
five ICD-10-PCS procedure codes in Table 6P.4c. associated with this 
proposed rule (which is available via the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the attributes of the ICD-9-
CM procedure code specified in column C. The ICD-9-CM procedure codes 
and descriptions in column C would replace the ICD-9-CM procedure codes 
and descriptions reflected in column D, which are considered less 
accurate correlations. We are inviting public comments on this 
proposal.
(d) Endoscopic/Percutaneous Insertion
    We found 117 ICD-10-PCS procedure codes describing the endoscopic/
percutaneous insertion of infusion and monitoring devices into vascular 
and musculoskeletal body parts that, when coded under ICD-9-CM, would 
reasonably correlate to other noninvasive catheterization and 
monitoring types of procedure codes versus an ``incision of [body 
part]'' or ``other operation on a [body part]'' procedure code. We are 
proposing that the 117 ICD-10-PCS procedure codes in Table 6P.4d. 
associated with this proposed rule (which is available via the Internet 
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html be assigned the attributes 
of the ICD-9-CM procedure code specified in column C. The ICD-9-CM 
procedure codes and descriptions in column C would replace the ICD-9-CM 
procedure codes and descriptions reflected in column D, which are less 
accurate correlations. We are inviting public comments on this 
proposal.
(e) Percutaneous Removal
    We found 124 ICD-10-PCS procedure codes describing the percutaneous 
removal of drainage, infusion and monitoring devices from vascular and 
musculoskeletal body parts that, when coded under ICD-9-CM, would 
reasonably correlate to the nonoperative removal of a wide range of 
devices/appliances procedure codes versus an ``incision of [body 
part]'' or ``other operation on a [body part]'' procedure code. We are 
proposing that the 124 ICD-10-PCS procedure codes in Table 6P.4e. 
associated with this proposed rule (which is available via the Internet 
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the 
attributes of the ICD-9-CM procedure code specified in column C. The 
ICD-9-CM procedure codes and descriptions in column C would replace the 
ICD-9-CM procedure codes and descriptions reflected in column D, which 
are considered less accurate correlations. We are inviting public 
comments on this proposal.
(f) Percutaneous Drainage
    We found 518 ICD-10-PCS procedure codes describing the percutaneous 
therapeutic drainage of all body sites that do not have specific 
percutaneous drainage codes. The list includes procedure codes for 
drainage with or without placement of a drainage device. Exceptions to 
this are cranial, intracranial and the eye where small incisions are 
the norm and appropriately classified as O.R. These 518 ICD-10-PCS 
procedures codes, when coded under ICD-9-CM, would reasonably correlate 
to the nonoperative puncture or drainage of various body sites and 
other miscellaneous procedures versus an ``incision of [body part]'' 
procedure code. We are proposing that the 518 ICD-10-PCS procedure 
codes in Table 6P.4f. associated with this proposed rule (which is 
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) 
be assigned the attributes of the ICD-9-CM procedure code specified in 
column C. The ICD-9-CM procedure codes and descriptions in column C 
would replace the ICD-9-CM procedure codes and descriptions reflected 
in column D, which are considered less accurate correlations. We are 
inviting public comments on this proposal.
(g) Percutaneous Inspection
    We found 131 ICD-10-PCS procedure codes describing the percutaneous 
inspection of body part sites, with the exception of the cranial cavity 
and brain, whose designation is not consistent with other percutaneous 
inspection codes. When coded under ICD-9-CM, these procedure codes 
would reasonably correlate to the ``other nonoperative examinations'' 
and ``other diagnostic procedures on [body part]'' codes where the 
approach is not specified and the codes are designated as non-O.R. We 
are proposing that the 131 ICD-10-PCS procedure codes in Table 6P.4g. 
associated with this proposed rule (which is available via the Internet 
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the 
attributes of the ICD-9-CM procedure code specified in column C. The 
ICD-9-CM procedure codes and descriptions in column C would replace the 
ICD-9-CM procedure codes and descriptions reflected in column D, which 
are considered less accurate correlations. We are inviting public 
comments on this proposal.

[[Page 25026]]

(h) Inspection Without Incision
    We found 40 ICD-10-PCS procedure codes describing the inspection of 
various body sites with endoscopic/transorifice and external 
approaches. Under ICD-9-CM, these codes would reasonably correlate to 
``other diagnostic procedures on [body part]'' codes where the approach 
is not specified and the codes are designated as non-O.R. We are 
proposing that the 40 ICD-10-PCS codes in Table 6P.4h. associated with 
this proposed rule (which is available via the Internet on the CMS Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the attributes of the ICD-9-
CM code specified in column C. The ICD-9-CM codes and descriptions in 
column C would replace the ICD-9-CM codes and descriptions reflected in 
column D, which are considered less accurate correlations. We are 
inviting public comments on this proposal.
(i) Dilation of Stomach
    We found six ICD-10-PCS procedure codes describing the dilation of 
stomach and pylorus body sites with various approaches whose 
designation is not consistent with all other gastrointestinal body 
parts dilation codes. Under ICD-9-CM, where a unique dilation code 
exists, the approach is not specified and these codes are designated as 
non-O.R. Therefore, we are proposing that the six ICD-10-PCS procedure 
codes in Table 6P.4i. (which is available via the Internet on the CMS 
Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the attributes of the 
ICD-9-CM code specified in column C. The ICD-9-CM codes and 
descriptions in column C would replace the ICD-9-CM codes and 
descriptions reflected in column D, which are considered less accurate 
correlations. We are inviting public comments on this proposal.
(j) Endoscopic/Percutaneous Occlusion
    We found six ICD-10-PCS codes describing percutaneous occlusion of 
esophageal vein with and without a device that, when coded under ICD-9-
CM would reasonably correlate to the endoscopic excision or destruction 
of the vessel versus an open surgical procedure. We are proposing that 
the six ICD-10-PCS procedure codes in Table 6P.4j. associated with this 
proposed rule (which is available via the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the attributes of the ICD-9-
CM code specified in column C. The ICD-9-CM codes and descriptions in 
column C would replace the ICD-9-CM codes and descriptions reflected in 
column D, which are considered less accurate correlations. We are 
inviting public comments on this proposal.
(k) Infusion Device
    We found 82 ICD-10-PCS codes describing the insertion of an 
infusion device to various body parts that, when coded under ICD-9-CM, 
would reasonably correlate to the insertion of a common infusion 
catheter versus the insertion of a totally implantable infusion pump. 
We are proposing that the 82 ICD-10-PCS procedure codes in Table 6P.4k. 
associated with this proposed rule (which is available via the Internet 
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) be assigned the attributes of 
the ICD-9-CM code specified in column C. The ICD-9-CM codes and 
descriptions in column C would replace the ICD-9-CM codes and 
descriptions reflected in column D, which are considered less accurate 
correlations. We are inviting public comments on this proposal.
(2) Non-O.R. Procedures to O.R. Procedures
(a) Drainage of Pleural Cavity
    In the ICD-9-CM MS-DRGs Version 32 Definitions Manual under 
Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index, 
procedure code 34.06 (Thoracoscopic drainage of pleural cavity) is 
designated as an O.R. procedure code and is assigned to MS-DRGs 166 
through 168 (Other Respiratory System O.R. Procedures with MCC, with 
CC, and without CC/MCC, respectively) in MDC 4 (Diseases and Disorders 
of the Respiratory System).
    A replication issue regarding the procedure code designation and 
MS-DRG assignment for the comparable code translations under the ICD-10 
MS-DRGs Version 33 was brought to our attention after implementation on 
October 1, 2015. The replication issue involves the following four ICD-
10-PCS procedure codes:
     0W9940Z (Drainage of right pleural cavity with drainage 
device, percutaneous endoscopic approach);
     0W994ZZ (Drainage of right pleural cavity, percutaneous 
endoscopic approach);
     0W9B40Z (Drainage of left pleural cavity with drainage 
device, percutaneous endoscopic approach); and
     0W9B4ZZ (Drainage of left pleural cavity, percutaneous 
endoscopic approach).
    In the ICD-10 MS-DRGs Version 33, these four ICD-10-PCS procedure 
codes are not recognized as O.R. procedures for purposes of MS-DRG 
assignment. We agree that this was a replication error and the 
designation and MS-DRG assignment should be consistent with the 
designation and MS-DRG assignment of ICD-9-CM procedure code 34.06.
    To resolve this replication issue, we are proposing to add ICD-10-
PCS procedure codes 0W9940Z, 0W994ZZ, 0W9B40Z, and 0W9B4ZZ to the FY 
2017 ICD-10 MS-DRGs Version 34 Definitions Manual in Appendix E--
Operating Room Procedures and Procedure Code/MS-DRG Index as O.R. 
procedures assigned to MS-DRGs 166 through 168 in MDC 4. We are 
inviting public comments on our proposal.
(b) Drainage of Cerebral Ventricle
    In the ICD-9-CM MS-DRGs Version 32 Definitions Manual under 
Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index, 
procedure code 02.22 (Intracranial ventricular shunt or anastomosis) is 
designated as an O.R. procedure code and is assigned to MS-DRGs 023 
through 027, collectively referred to as the ``Craniotomy'' MS-DRGs, in 
MDC 1 (Diseases and Disorders of the Nervous System).
    A replication issue regarding the procedure code designation and 
MS-DRG assignment for the comparable code translations under the ICD-10 
MS-DRGs Version 33 was brought to our attention after implementation on 
October 1, 2015. The replication issue involves the following ICD-10-
PCS procedure codes:

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
009130Z..................  Drainage of cerebral meninges with drainage
                            device, percutaneous approach.
00913ZZ..................  Drainage of cerebral meninges, percutaneous
                            approach.
009140Z..................  Drainage of cerebral meninges with drainage
                            device, percutaneous endoscopic approach.

[[Page 25027]]

 
00914ZZ..................  Drainage of cerebral meninges with drainage
                            device, percutaneous endoscopic approach.
009230Z..................  Drainage of dura mater with drainage device,
                            percutaneous approach.
00923ZZ..................  Drainage of dura mater, percutaneous
                            approach.
009240Z..................  Drainage of dura mater with drainage device,
                            percutaneous endoscopic approach.
00924ZZ..................  Drainage of dura mater, percutaneous
                            endoscopic approach.
009430Z..................  Drainage of subdural space with drainage
                            device, percutaneous approach.
00943ZZ..................  Drainage of subdural space, percutaneous
                            approach.
009440Z..................  Drainage of subdural space with drainage
                            device, percutaneous endoscopic approach.
00944ZZ..................  Drainage of subdural space, percutaneous
                            endoscopic approach.
009530Z..................  Drainage of subarachnoid space with drainage
                            device, percutaneous approach.
00953ZZ..................  Drainage of subarachnoid space, percutaneous
                            approach.
009540Z..................  Drainage of subarachnoid space with drainage
                            device, percutaneous endoscopic approach.
00954ZZ..................  Drainage of subarachnoid space, percutaneous
                            endoscopic approach.
00963ZZ..................  Drainage of cerebral ventricle, percutaneous
                            approach.
00964ZZ..................  Drainage of cerebral ventricle, percutaneous
                            endoscopic approach.
------------------------------------------------------------------------

    In the ICD-10 MS-DRGs Version 33, these ICD-10-PCS procedure codes 
are not recognized as O.R. procedures for purposes of MS-DRG 
assignment. We agree that this was a replication error and their 
translation should be consistent with the designation and MS-DRG 
assignment of ICD-9-CM procedure 02.22.
    To resolve this replication issue, we are proposing to add the ICD-
10-PCS procedure codes listed above to the FY 2017 ICD-10 MS-DRGs 
Version 34 Definitions Manual in Appendix E--Operating Room Procedures 
and Procedure Code/MS-DRG Index as O.R. procedures assigned to MS-DRGs 
023 through 027 in MDC 1. We are inviting public comments on our 
proposal.

G. Recalibration of the Proposed FY 2017 MS-DRG Relative Weights

1. Data Sources for Developing the Relative Weights
    In developing the proposed FY 2017 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 2015 MedPAR data used in this proposed rule include 
discharges occurring on October 1, 2014, through September 30, 2015, 
based on bills received by CMS through December 31, 2015, 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). The FY 
2015 MedPAR file used in calculating the proposed relative weights 
includes data for approximately 9,706,869 Medicare discharges from IPPS 
providers. Discharges for Medicare beneficiaries enrolled in a Medicare 
Advantage managed care plan are excluded from this analysis. These 
discharges are excluded when the MedPAR ``GHO Paid'' indicator field on 
the claim record is equal to ``1'' or when the MedPAR DRG payment 
field, which represents the total payment for the claim, is equal to 
the MedPAR ``Indirect Medical Education (IME)'' payment field, 
indicating that the claim was an ``IME only'' claim submitted by a 
teaching hospital on behalf of a beneficiary enrolled in a Medicare 
Advantage managed care plan. In addition, the December 31, 2015 update 
of the FY 2015 MedPAR file complies with version 5010 of the X12 HIPAA 
Transaction and Code Set Standards, and includes a variable called 
``claim type.'' Claim type ``60'' indicates that the claim was an 
inpatient claim paid as fee-for-service. Claim types ``61,'' ``62,'' 
``63,'' and ``64'' relate to encounter claims, Medicare Advantage IME 
claims, and HMO no-pay claims. Therefore, the calculation of the 
proposed relative weights for FY 2017 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 proposed FY 2017 relative weights are 
based on the ICD-9-CM diagnoses and procedures codes from the FY 2015 
MedPAR claims data, grouped through the ICD-9-CM version of the FY 2017 
GROUPER (Version 34).
    The second data source used in the cost-based relative weighting 
methodology is the Medicare cost report data files from the HCRIS. 
Normally, we use the HCRIS dataset that is 3 years prior to the IPPS 
fiscal year. Specifically, we used cost report data from the December 
31, 2015 update of the FY 2014 HCRIS for calculating the proposed FY 
2017 cost-based relative weights.
2. Methodology for Calculation of the Proposed Relative Weights
    As we explain in section II.E.2. of the preamble of this proposed 
rule, we calculated the proposed FY 2017 relative weights based on 19 
CCRs, as we did for FY 2016. The methodology we used to calculate the 
proposed FY 2017 MS-DRG cost-based relative weights based on claims 
data in the FY 2015 MedPAR file and data from the FY 2014 Medicare cost 
reports is as follows:
     To the extent possible, all the claims were regrouped 
using the proposed FY 2017 MS-DRG classifications discussed in sections 
II.B. and II.F. of the preamble of this proposed 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 2015 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,

[[Page 25028]]

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 92.4 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.
     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.
    In addition, 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 Bundled Payments for Care Improvement (BPCI) 
initiative the same as prior fiscal years for the IPPS payment modeling 
and ratesetting process without regard to hospitals' participation 
within these bundled payment models (that is, as if hospitals were not 
participating in those models under the BPCI initiative). The 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. For FY 2017, we are proposing to continue to include 
all applicable data from subsection (d) hospitals participating in BPCI 
Models 1, 2, and 4 in our IPPS payment modeling and ratesetting 
calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 
for a complete discussion on our final policy for the treatment of 
hospitals participating in the BPCI initiative in our ratesetting 
process. 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).
    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 2014 cost report data.
    The 19 cost centers that we used in the proposed relative weight 
calculation are shown in the following table. The table shows the lines 
on the cost report and the corresponding revenue codes that we used to 
create the proposed 19 national cost center CCRs. If stakeholders have 
comments about the groupings in this table, we may consider those 
comments as we finalize our policy.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       Medicare charges
                                                         Revenue codes                          Cost from HCRIS   Charges from HCRIS      from HCRIS
   Cost center group name (19        MedPAR charge       contained in      Cost report line   (worksheet C, Part  (worksheet C, Part    (worksheet D-3,
             total)                      field           MedPAR charge        description       1, column 5 and     1, column 6 & 7      column & line
                                                             field                             line number) form   and line number)    number) form CMS-
                                                                                                  CMS-2552-10      form CMS-2552-10         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).

[[Page 25029]]

 
                                  Semi[dash]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 Unit  C_1_C5_32.........  C_1_C6_32.........  D3_HOS_C2_32
                                   Charges.
                                                                          Burn Intensive      C_1_C5_33.........  C_1_C6_33.........  D3_HOS_C2_33
                                                                           Care Unit.
                                                                          Surgical Intensive  C_1_C5_34.........  C_1_C6_34.........  D3_HOS_C2_34
                                                                           Care Unit.
                                                                          Other Special Care  C_1_C5_35.........  C_1_C6_35.........  D3_HOS_C2_35
                                                                           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, 0272,   Medical Supplies    C_1_C5_71.........  C_1_C6_71.........  D3_HOS_C2_71
                                   Supply Charges.     0273, 0274, 0277,   Charged to                             C_1_C7_71.........
                                                       0279, and 0621,     Patients.
                                                       0622, 0623.
                                  Durable Medical     0290, 0291, 0292    DME[dash]Rented...  C_1_C5_96.........  C_1_C6_96.........  D3_HOS_C2_96
                                   Equipment Charges.  and                                                        C_1_C7_96.........
                                                       0294[dash]0299.
                                  Used Durable        0293..............  DME[dash]Sold.....  C_1_C5_97.........  C_1_C6_97.........  D3_HOS_C2_97
                                   Medical Charges.                                                               C_1_C7_97.........
Implantable Devices.............  ..................  0275, 0276, 0278,   Implantable         C_1_C5_72.........  C_1_C6_72.........  D3_HOS_C2_72
                                                       0624.               Devices Charged                        C_1_C7_72.........
                                                                           to Patients.
Therapy Services................  Physical Therapy    042X..............  Physical Therapy..  C_1_C5_66.........  C_1_C6_66.........  D3_HOS_C2_66
                                   Charges.                                                                       C_1_C7_66.........
                                  Occupational        043X..............  Occupational        C_1_C5_67.........  C_1_C6_67.........  D3_HOS_C2_67
                                   Therapy Charges.                        Therapy.                               C_1_C7_67.........
                                  Speech Pathology    044X and 047X.....  Speech Pathology..  C_1_C5_68.........  C_1_C6_68.........  D3_HOS_C2_68
                                   Charges.                                                                       C_1_C7_68.........
Inhalation Therapy..............  Inhalation Therapy  041X and 046X.....  Respiratory         C_1_C5_65.........  C_1_C6_65.........  D3_HOS_C2_65
                                   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 and   C_1_C5_52.........  C_1_C6_52.........  D3_HOS_C2_52
                                   Charges.                                Labor Room.                            C_1_C7_52.........
Anesthesia......................  Anesthesia Charges  037X..............  Anesthesiology....  C_1_C5_53.........  C_1_C6_53.........  D3_HOS_C2_53
                                                                                                                  C_1_C7_53.........
Cardiology......................  Cardiology Charges  048X and 073X.....  Electro-cardiology  C_1_C5_69.........  C_1_C6_69.........  D3_HOS_C2_69
                                                                                                                  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 Charges  030X, 031X, and     Laboratory........  C_1_C5_60.........  C_1_C6_60.........  D3_HOS_C2_60
                                                       075X.                                                      C_1_C7_60.........
                                                                          PBP Clinic          C_1_C5_61.........  C_1_C6_61.........  D3_HOS_C2_61
                                                                           Laboratory                             C_1_C7_61.........
                                                                           Services.
                                                      074X, 086X........  Electro-            C_1_C5_70.........  C_1_C6_70.........  D3_HOS_C2_70
                                                                           Encephalography.                       C_1_C7_70.........
Radiology.......................  Radiology Charges.  032X, 040X........  Radiology--Diagnos  C_1_C5_54.........  C_1_C6_54.........  D3_HOS_C2_54
                                                                           tic.                                   C_1_C7_54.........
                                                      028x, 0331, 0332,   Radiology--Therape  C_1_C5_55.........  C_1_C6_55.........  D3_HOS_C2_55
                                                       0333, 0335, 0339,   utic.
                                                       0342.
                                                      0343 and 344......  Radioisotope......  C_1_C5_56.........  C_1_C6_56.........  D3_HOS_C2_56
                                                                                                                  C_1_C7_56.........
Computed Tomography (CT) Scan...  CT Scan Charges...  035X..............  Computed            C_1_C5_57.........  C_1_C6_57.........  D3_HOS_C2_57
                                                                           Tomography (CT)                        C_1_C7_57.........
                                                                           Scan.

[[Page 25030]]

 
Magnetic Resonance Imaging (MRI)  MRI Charges.......  061X..............  Magnetic Resonance  C_1_C5_58.........  C_1_C6_58.........  D3_HOS_C2_58
                                                                           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 Blood                       C_1_C7_62.........
                                                                           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-088X                                          C_1_C7_74.........
                                   Setting Charges.
                                                                          Home Program        C_1_C5_94.........  C_1_C6_94.........  D3_HOS_C2_94
                                                                           Dialysis.                              C_1_C7_94.........
                                  Outpatient Service  049X..............  ASC (Non Distinct   C_1_C5_75.........  C_1_C6_75.........  D3_HOS_C2_75
                                   Charges.                                Part).                                 C_1_C7_75.........
                                  Lithotripsy Charge  079X..............
                                                                          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 Fees   096X, 097X, and     Other Outpatient    C_1_C5_93.........  C_1_C6_93.........  D3_HOS_C2_93
                                   Charges.            098X.               Services.                              C_1_C7_93.........
                                  Ambulance Charges.  054X..............  Ambulance.........  C_1_C5_95.........  C_1_C6_95.........  D3_HOS_C2_95
                                                                                                                  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.........
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Development of National Average CCRs
    We developed the national average CCRs as follows:
    Using the FY 2014 cost report data, we removed CAHs, Indian Health 
Service hospitals, all-inclusive rate hospitals, and cost reports that 
represented time periods of less than 1 year (365 days). We included 
hospitals located in Maryland because we include their charges in our 
claims database. We then created CCRs for each provider for each cost 
center (see prior table for line items used in the calculations) and 
removed any CCRs that were greater than 10 or less than 0.01. We 
normalized the departmental CCRs by dividing the CCR for each 
department by the total CCR for the hospital for the purpose of 
trimming the data. We then took the logs of the normalized cost center 
CCRs and removed any cost center CCRs where the log of the cost center 
CCR was greater or less than the mean log plus/minus 3 times the 
standard deviation for the log of that cost center CCR. Once the cost 
report data were trimmed, we calculated a Medicare-specific CCR. The 
Medicare-specific CCR was determined by taking the Medicare charges for 
each line item from Worksheet D-3 and deriving the Medicare-specific 
costs by applying the hospital-specific departmental CCRs to the 
Medicare-specific charges for each line item from Worksheet D-3. Once 
each hospital's Medicare-specific costs were established, we summed the 
total Medicare-specific costs and divided by the sum of the total 
Medicare-specific charges to produce national average, charge-weighted 
CCRs.
    After we multiplied the total charges for each MS-DRG in each of 
the 19 cost centers by the corresponding national average CCR, we 
summed the 19 ``costs'' across each MS-DRG to produce a total 
standardized cost for the MS-DRG. The average standardized cost for 
each MS-DRG was then computed as the total standardized cost for the 
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The 
average cost for each MS-DRG was then divided by the national average 
standardized cost per case to determine the relative weight.
    The proposed FY 2017 cost-based relative weights were then 
normalized by an adjustment factor of 1.690233 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

[[Page 25031]]

payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of 
the Act.
    The proposed 19 national average CCRs for FY 2017 are as follows:

------------------------------------------------------------------------
                            Group                                 CCR
------------------------------------------------------------------------
Routine Days.................................................      0.459
Intensive Days...............................................      0.378
Drugs........................................................      0.194
Supplies & Equipment.........................................      0.298
Implantable Devices..........................................      0.336
Therapy Services.............................................      0.322
Laboratory...................................................      0.120
Operating Room...............................................      0.192
Cardiology...................................................      0.113
Cardiac Catheterization......................................      0.119
Radiology....................................................      0.154
MRIs.........................................................      0.079
CT Scans.....................................................      0.039
Emergency Room...............................................      0.172
Blood and Blood Products.....................................      0.325
Other Services...............................................      0.368
Labor & Delivery.............................................      0.411
Inhalation Therapy...........................................      0.170
Anesthesia...................................................      0.090
------------------------------------------------------------------------

    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. For FY 2017, we are proposing to use that 
same case threshold in recalibrating the MS-DRG relative weights for FY 
2017. Using data from the FY 2015 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 are for newborns. For FY 2017, because we do not have sufficient 
MedPAR data to set accurate and stable cost relative weights for these 
low-volume MS-DRGs, we are proposing to compute relative weights for 
the low-volume MS-DRGs by adjusting their final FY 2016 relative 
weights by the percentage change in the average weight of the cases in 
other MS-DRGs. The crosswalk table is shown:

------------------------------------------------------------------------
    Low-volume MS-DRG          MS-DRG title        Crosswalk to MS-DRG
------------------------------------------------------------------------
768......................  Vaginal Delivery     Final FY 2016 relative
                            with O.R.            weight (adjusted by
                            Procedure Except     percent change in
                            Sterilization and/   average weight of the
                            or D&C.              cases in other MS-
                                                 DRGs).
789......................  Neonates, Died or    Final FY 2016 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   Final FY 2016 relative
                            or Respiratory       weight (adjusted by
                            Distress Syndrome,   percent change in
                            Neonate.             average weight of the
                                                 cases in other MS-
                                                 DRGs).
791......................  Prematurity with     Final FY 2016 relative
                            Major Problems.      weight (adjusted by
                                                 percent change in
                                                 average weight of the
                                                 cases in other MS-
                                                 DRGs).
792......................  Prematurity without  Final FY 2016 relative
                            Major Problems.      weight (adjusted by
                                                 percent change in
                                                 average weight of the
                                                 cases in other MS-
                                                 DRGs).
793......................  Full-Term Neonate    Final FY 2016 relative
                            with Major           weight (adjusted by
                            Problems.            percent change in
                                                 average weight of the
                                                 cases in other MS-
                                                 DRGs).
794......................  Neonate with Other   Final FY 2016 relative
                            Significant          weight (adjusted by
                            Problems.            percent change in
                                                 average weight of the
                                                 cases in other MS-
                                                 DRGs).
795......................  Normal Newborn.....  Final FY 2016 relative
                                                 weight (adjusted by
                                                 percent change in
                                                 average weight of the
                                                 cases in other MS-
                                                 DRGs).
------------------------------------------------------------------------

    We are inviting public comments on this proposal.

H. Proposed Add-On Payments for New Services and Technologies for FY 
2017

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

[[Page 25032]]

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 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 these criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments. For a detailed 
discussion of the criteria for substantial similarity, we refer readers 
to the FY 2006 IPPS final rule (70 FR 47351 through 47352), and the FY 
2010 IPPS/LTCH PPS final rule (74 FR 43813 through 43814).
    Under the second criterion, Sec.  412.87(b)(3) further provides 
that, to be eligible for the add-on payment for new medical services or 
technologies, the MS-DRG prospective payment rate otherwise applicable 
to the discharge involving the new medical services or technologies 
must be assessed for adequacy. Under the cost criterion, consistent 
with the formula specified in section 1886(d)(5)(K)(ii)(I) of the Act, 
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 2016 IPPS/LTCH PPS 
final rule contains the final thresholds that we used to evaluate 
applications for new medical service and new technology add-on payments 
for FY 2017. We refer readers to the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page-Items/FY2016-IPPS-Final-Rule-Tables.html to download and view Table 10.
    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 medical 
service and 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 or medical 
service (if the estimated costs for the case including the new 
technology or medical service 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 or new medical service.
    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 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 and medical services 
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

[[Page 25033]]

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 2010 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 services 
or 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 2018 must submit a formal request, 
including a full description of the clinical applications of the 
medical service or technology and the results of any clinical 
evaluations demonstrating that the new medical service or technology 
represents a substantial clinical improvement, along with a significant 
sample of data to demonstrate that the medical service or technology 
meets the high-cost threshold. Complete application information, along 
with final deadlines for submitting a full application, will be posted 
as it becomes available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html. To allow interested parties to identify the new medical 
services or technologies under review before the publication of the 
proposed rule for FY 2018, 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 2017 prior 
to publication of the FY 2017 IPPS/LTCH PPS proposed rule, we published 
a notice in the Federal Register on November 30, 2015 (80 FR 74774), 
and held a town hall meeting at the CMS Headquarters Office in 
Baltimore, MD, on February 16, 2016. In the announcement notice for the 
meeting, we stated that the opinions and presentations 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 2017 new medical service and technology 
add-on payment applications before the publication of the FY 2017 IPPS/
LTCH PPS proposed rule.
    Approximately 76 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: https://www.youtube.com/watch?v=dn-R5KGQu-M. We considered each applicant's presentation made 
at the town hall meeting, as well as written comments submitted on the 
applications that were received by the due date of February 26, 2016, 
in our evaluation of the new technology add-on payment applications for 
FY 2017 in this proposed rule.
    As indicated earlier in this section, CMS is required to 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 
recent years, CMS has live-streamed the town hall meeting through the 
CMS YouTube Web page and later posted the recorded version of the town 
hall meeting, in addition to maintaining an open telephone line. We are 
proposing to conduct future town hall meetings entirely via 
teleconference and Webcast using the same technologies. Under this 
proposal, we would continue to publish a notice informing the public of 
the date of the meeting, as well as requirements for the submission of 
presentations. We also would continue to maintain an open telephone 
line, with an option for participation in the Webcast. The recording of 
the town hall meeting would continue to be available on the CMS You 
Tube Web page or other CMS Web site following the meeting. This 
recording would include closed captioning of all presentations and 
comments. In addition to submitting materials for discussion at the 
town hall meeting, individuals would continue to be able to submit 
other written comments after the town hall meeting on whether the 
service or technology represents a substantial clinical improvement. We 
are inviting public comments on this proposal.
    In response to the published notice and the February 16, 2016 New 
Technology Town Hall meeting, we received written comments regarding 
the applications for FY 2017 new technology add-on payments. We 
summarize below a general comment that does not relate to a specific 
application for FY 2017 new technology

[[Page 25034]]

add-on payments. We also summarize comments regarding individual 
applications, or, if applicable, indicate that there were no comments 
received in section II.H.5. of the preamble of this proposed rule at 
the end of each discussion of the individual applications.
    Comment: One commenter recommended that CMS broaden the criteria 
applied in making substantial clinical improvement determinations to 
require, in addition to existing criteria, consideration of whether the 
new technology or medical service meets one or more of the following 
additional suggested criteria: (1) Results in a reduction of the length 
of a hospital stay; (2) improves patient quality of life; (3) creates 
long-term clinical efficiencies in treatment; (3) addresses patient-
centered objectives as defined by the Secretary; or (4) meets such 
other criteria as the Secretary may specify. The commenter also 
suggested that an entity that submits an application for new technology 
add-on payments be entitled to administrative review of an adverse 
determination made by the Secretary.
    Response: We appreciate these recommendations and suggestions and 
will consider them in future rulemaking.
    We note that the commenter also provided comments that were 
unrelated to the substantial clinical improvement criterion. As stated 
earlier, the purpose of the new technology town hall meeting is 
specifically to discuss the substantial clinical improvement criterion 
in regard to pending new technology add-on payment applications for FY 
2017. Therefore, we are not summarizing these additional comments in 
this proposed rule. However, the commenter is welcome to resubmit its 
comments in response to proposals presented in this proposed rule.
3. ICD-10-PCS Section ``X'' Codes for Certain New Medical Services and 
Technologies
    As discussed in the FY 2016 IPPS/LTCH final rule (80 FR 49434), the 
ICD-10-PCS includes a new section containing the new Section ``X'' 
codes, which began being used with discharges occurring on or after 
October 1, 2015. Decisions regarding changes to ICD-10-PCS Section 
``X'' codes will be handled in the same manner as the decisions for all 
of the other ICD-10-PCS code changes. That is, proposals to create, 
delete, or revise Section ``X'' codes under the ICD-10-PCS structure 
will be referred to the ICD-10 Coordination and Maintenance Committee. 
In addition, several of the new medical services and technologies that 
have been, or may be, approved for new technology add-on payments may 
now, and in the future, be assigned a Section ``X'' code within the 
structure of the ICD-10-PCS. We posted ICD-10-PCS Guidelines on the CMS 
Web site at: http://www.cms.gov/Medicare/Coding/ICD10/2016-ICD-10-PCS-and-GEMs.html, including guidelines for ICD-10-PCS ``X'' codes. We 
encourage providers to view the material provided on ICD-10-PCS Section 
``X'' codes.
4. Proposed FY 2017 Status of Technologies Approved for FY 2016 Add-On 
Payments
a. 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. 
Under the ICD-10 coding system, KcentraTM is uniquely 
identified by ICD-10-CM procedure code 30283B1 (Transfusion of 
nonautologous 4-factor prothrombin complex concentrate into vein, 
percutaneous approach).
    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). 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), we limit new technology add-on payments to the lesser of 
50 percent of the average cost of the technology or 50 percent of the 
costs in excess of the MS-DRG payment for the case. As a result, the 
maximum add-on payment for a case of KcentraTM was $1,587.50 
for FY 2014. We refer the reader to the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50579) for complete details on the new technology add-on 
payments for KcentraTM.
    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 KcentraTM, we 
considered the beginning of the newness period to commence when 
KcentraTM was approved by the FDA on April 29, 2013. Because 
the 3-year anniversary date for KcentraTM will occur in the 
latter half of FY 2016 (April 29, 2016), in the FY 2016 IPPS/LTCH PPS 
final rule, we continued new technology add-on payments for this 
technology for FY 2016 (80 FR 49437). However, for FY 2017, the 3-year 
anniversary date of the entry of KcentraTM on the U.S. 
market (April 29, 2016) will occur prior to the beginning of FY 2017. 
Therefore, we are proposing to discontinue new technology add-on 
payments for this technology for FY 2017. We are inviting public 
comments on this proposal.
b. Argus[supreg] II Retinal Prosthesis System
    Second Sight Medical Products, Inc. submitted an application for 
new technology add-on payments for the Argus[supreg] II Retinal 
Prosthesis System (Argus[supreg] II System) for FY 2014. The 
Argus[supreg] II System is an active implantable medical device that is 
intended to provide electrical stimulation of the retina to induce 
visual perception in patients who are profoundly blind due to retinitis

[[Page 25035]]

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.
    With regard to the newness criterion, the applicant received a 
Humanitarian Device Exemption (HDE) approval from the FDA on February 
14, 2013. However, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49924 
through 49925), we discussed comments we had received informing CMS 
that the Argus[supreg] II System was not available on the U.S. market 
until December 20, 2013. The applicant explained that, as part of the 
lengthy approval process, it was required to submit a request to the 
Federal Communications Commission (FCC) for a waiver of section 
15.209(a) of the FCC rules that would allow the applicant to apply for 
FCC authorization to utilize this specific RF band. The FCC approved 
the applicant's waiver request on November 30, 2011. After receiving 
the FCC waiver of the section 15.209(a) rules, the applicant requested 
and obtained a required Grant of Equipment Authorization to utilize the 
specific RF band, which the FCC issued on December 20, 2013. Therefore, 
the applicant stated that the date the Argus[supreg] II System first 
became available for commercial sale in the United States was December 
20, 2013. We agreed with the applicant that, due to the delay, the date 
of newness for the Argus[supreg] II System was December 20, 2013, 
instead of February 14, 2013.
    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 currently are identified when one of the 
following ICD-10-PCS procedure codes is reported: 08H005Z (Insertion of 
epiretinal visual prosthesis into right eye, open approach); or 08H105Z 
(Insertion of epiretinal visual prosthesis into left eye, open 
approach). 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), 
we limit new technology add-on payments 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 
was $72,028.75.
    With regard to the newness criterion for the Argus[supreg] II 
System, we considered the beginning of the newness period to commence 
when the Argus[supreg] II System became available on the U.S. market on 
December 20, 2013. Because the 3-year anniversary date for the 
Argus[supreg] II System will occur after FY 2016 (December 20, 2016), 
in the FY 2016 IPPS/LTCH PPS final rule, we continued new technology 
add-on payments for this technology for FY 2016 (80 FR 49439). However, 
for FY 2017, the 3-year anniversary date of the entry of the 
Argus[supreg] II System on the U.S. market (December 20, 2016) will 
occur in the first half of FY 2017. As discussed previously in this 
section, in general, we extend new technology add-on payments for an 
additional year only if the 3-year anniversary date of the product's 
entry on to the U.S. market occurs in the latter half of the fiscal 
year. Therefore, we are proposing to discontinue new technology add-on 
payments for this technology for FY 2017. We are inviting public 
comments on this proposal.
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 received FDA approval on May 28, 2014.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for the 
CardioMEMSTM HF Monitoring System and consideration of the 
public comments we received in response to the FY 2015 IPPS/LTCH PPS 
proposed rule, we approved the CardioMEMSTM HF Monitoring 
System for new technology add-on payments for FY 2015 (79 FR 49940). 
Cases involving the CardioMEMSTM HF Monitoring System that 
are eligible for new technology add-on payments are identified by 
either ICD-10-PCS procedure code 02HQ30Z (Insertion of pressure sensor 
monitoring device into right pulmonary artery, percutaneous approach) 
or ICD-10-PCS procedure code 02HR30Z (Insertion of pressure sensor 
monitoring device into left pulmonary artery, percutaneous approach). 
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), we limit new 
technology add-on payments 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 new technology add-on 
payment for a case involving the CardioMEMSTM HF Monitoring 
System is $8,875.
    With regard to the newness criterion for the 
CardioMEMSTM HF Monitoring System, we considered the 
beginning of the newness period to commence when the 
CardioMEMSTM HF Monitoring System was approved by the FDA on 
May 28, 2014. Because the 3-year

[[Page 25036]]

anniversary date of the entry of the CardioMEMSTM HF 
Monitoring System on the U.S. market will occur in the latter half of 
FY 2017 (May 28, 2017), we are proposing to continue new technology 
add-on payments for this technology for FY 2017. The maximum payment 
for a case involving the CardioMEMSTM HF Monitoring System 
would remain at $8,875 for FY 2017. We are inviting public comments on 
our proposal.
d. MitraClip[supreg] System
    Abbott Vascular submitted an application for new technology add-on 
payments for the MitraClip[supreg] System for FY 2015. 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.
    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. Cases involving the MitraClip[supreg] 
System are identified using ICD-10-PCS procedure code 02UG3JZ 
(Supplement mitral valve with synthetic substitute, percutaneous 
approach).
    On August 7, 2014, CMS issued a National Coverage Decision (NCD) 
concerning Transcatheter Mitral Valve Repair procedures. 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 NCD.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for the 
MitraClip[supreg] System and consideration of the public comments we 
received in response to the FY 2015 IPPS/LTCH PPS proposed rule, we 
approved the MitraClip[supreg] System for new technology add-on 
payments for FY 2015 (79 FR 49946). As discussed in the FY 2015 IPPS/
LTCH PPS final rule, this approval is on the basis of using the 
MitraClip[supreg] consistent with the NCD. The average cost of the 
MitraClip[supreg] System is reported as $30,000. Under section 
412.88(a)(2), we limit new technology add-on payments 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 
new technology add-on payment for a case involving the 
MitraClip[supreg] System is $15,000 for FY 2015.
    With regard to the newness criterion for the MitraClip[supreg] 
System, we considered the beginning of the newness period to commence 
when the MitraClip[supreg] System was approved by the FDA on October 
24, 2013. Because the 3-year anniversary date of the entry of the 
MitraClip[supreg] System on the U.S. market (October 24, 2016) will 
occur after FY 2016, in the FY 2016 IPPS/LTCH PPS final rule, we 
continued new technology add-on payments for this technology for FY 
2016 (80 FR 49442). However, for FY 2017, the 3-year anniversary date 
of the entry of MitraClip[supreg] System on the U.S. market (October 
24, 2016) will occur in the first half of FY 2017. As discussed 
previously in this section, in general, we extend new technology add-on 
payments for an additional year only if the 3-year anniversary date of 
the product's entry on to the U.S. market occurs in the latter half of 
the fiscal year. Therefore, we are proposing to discontinue new 
technology add-on payments for this technology for FY 2017. We are 
inviting public comments on this proposal.
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 regard to the newness criterion, the applicant stated that 
some patients diagnosed with partial onset seizures that cannot be 
controlled with antiepileptic medications may be candidates for the 
vagus nerve stimulator (VNS) or for surgical removal of the seizure 
focus. According to the applicant, these treatments are not appropriate 
for, or helpful to, all patients. Therefore, the applicant believed 
that there is an unmet clinical need for additional therapies for 
partial onset seizures. The applicant further stated that the 
RNS[supreg] System addresses this unmet clinical need by providing a 
novel treatment option for treating persons diagnosed with medically 
intractable partial onset seizures. The applicant received FDA 
premarket approval on November 14, 2013.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for the RNS[supreg] 
System and consideration of the public comments we received in response 
to the FY 2015 IPPS/LTCH PPS proposed rule, we approved the RNS[supreg] 
System for new technology add-on payments for FY 2015 (79 FR 49950). 
Cases involving the RNS[supreg] System that are eligible for new 
technology add-on payments are identified using the following ICD-10-
PCS procedure code

[[Page 25037]]

combination: 0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach) in combination with 00H00MZ (Insertion of 
neurostimulator lead into brain, open approach). 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, we limit new technology add-on payments 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 new technology add-on payment for cases involving the 
RNS[supreg] System is $18,475.
    With regard to the newness criterion for the RNS[supreg] System, we 
considered the beginning of the newness period to commence when the 
RNS[supreg] System was approved by the FDA on November 14, 2013. 
Because the 3-year anniversary date of the entry of the RNS[supreg] 
System on the U.S. market (November 14, 2016) will occur after FY 2016, 
in the FY 2016 IPPS/LTCH PPS final rule, we continued new technology 
add-on payments for this technology for FY 2016 (80 FR 49443). However, 
for FY 2017, the 3-year anniversary date of the entry of RNS[supreg] 
System on the U.S. market (November 14, 2016) will occur in the first 
half of FY 2017. As discussed previously in this section, in general, 
we extend new technology add-on payments for an additional year only if 
the 3-year anniversary date of the product's entry on to the U.S. 
market occurs in the latter half of the fiscal year. Therefore, we are 
proposing to discontinue new technology add-on payments for this 
technology for FY 2017. We are inviting public comments on this 
proposal.
f. Blinatumomab (BLINCYTOTM Trade Brand)
    Amgen, Inc. submitted an application for new technology add-on 
payments for FY 2016 for Blinatumomab (BLINCYTOTM), a bi-
specific T-cell engager (BiTE) used for the treatment of Philadelphia 
chromosome-negative (Ph-) relapsed or refractory (R/R) B-cell precursor 
acute-lymphoblastic leukemia (ALL), which is a rare aggressive cancer 
of the blood and bone marrow. Approximately 6,050 individuals are 
diagnosed with Ph- R/R B-cell precursor ALL in the United States each 
year, and approximately 2,400 individuals, representing 30 percent of 
all new cases, are adults. Ph- R/R B-cell precursor ALL occurs when 
there are malignant transformations of B-cell or T-cell progenitor 
cells, causing an accumulation of lymphoblasts in the blood, bone 
marrow, and occasionally throughout the body. As a bi-specific T-cell 
engager, the BLINCYTOTM technology attaches to a molecule on 
the surface of the tumorous cell, as well as to a molecule on the 
surface of normal T-cells, bringing the two into closer proximity and 
allowing the normal T-cell to destroy the tumorous cell. Specifically, 
the BLINCYTOTM technology attaches to a cell identified as 
CD19, which is present on all of the cells of the malignant 
transformations that cause Ph- R/R B-cell precursor ALL and helps 
attract the cell into close proximity of the T-cell CD3 with the intent 
of getting close enough to allow the T-cell to inject toxins that 
destroy the cancerous cell. According to the applicant, the 
BLINCYTOTM technology is the first, and the only, bi-
specific CD19-directed CD3 T-cell engager single-agent immunotherapy 
approved by the FDA.
    BLINCYTOTM is administered as a continuous IV infusion 
delivered at a constant flow rate using an infusion pump. A single 
cycle of treatment consists of 28 days of continuous infusion, and each 
treatment cycle followed by 2 weeks without treatment prior to 
administering any further treatments. A course of treatment would 
consist of two phases. Phase 1 consists of initial inductions or 
treatments intended to achieve remission followed by additional 
inductions and treatments to maintain consolidation; or treatments 
given after remission has been achieved to prolong the duration. During 
phase 1 of a single treatment course, up to two cycles of 
BLINCYTOTM are administered, and up to three additional 
cycles are administered during consolidation. The recommended dosage of 
BLINCYTOTM administered during the first cycle of treatment 
is 9 mcg per day for the first 7 days of treatment. The dosage is then 
increased to 28 mcg per day for 3 weeks until completion. During phase 
2 of the treatment course, all subsequent doses are administered as 28 
mcg per day throughout the entire duration of the 28-day treatment 
period.
    With regard to the newness criterion, the BLINCYTOTM 
technology received FDA approval on December 3, 2014, for the treatment 
of patients diagnosed with Ph- R/R B-cell precursor ALL, and the 
product gained entry onto the U.S. market on December 17, 2014.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for 
BLINCYTOTM and consideration of the public comments we 
received in response to the FY 2016 IPPS/LTCH PPS proposed rule, we 
approved BLINCYTOTM for new technology add-on payments for 
FY 2016 (80 FR 49449). Cases involving BLINCYTOTM that are 
eligible for new technology add-on payments are identified using one of 
the following ICD-10-PCS procedure codes: XW03351 (Introduction of 
Blinatumomab antineoplastic immunotherapy into peripheral vein, 
percutaneous approach, new technology group 1) or XW04351 (Introduction 
of Blinatumomab antineoplastic immunotherapy into central vein, 
percutaneous approach, new technology group1).
    As discussed in the FY 2016 IPPS/LTCH final rule (80 FR 49449), the 
applicant recommended that CMS consider and use the cost of the full 
28-day inpatient treatment cycle as the expected length of treatment 
when determining the maximum new technology add-on payment for cases 
involving the BLINCYTOTM rather than the average cost of 
lesser number of days used as other variables. For the reasons 
discussed, we disagreed with the applicant and established the maximum 
new technology add-on payment amount for a case involving the 
BLINCYTOTM technology for FY 2016 using the weighted average 
of the cycle 1 and cycle 2 observed treatment length. Specifically, in 
the Phase II trial, the most recent data available, 92 patients 
received cycle 1 for an average length of 21.2 days, and 52 patients 
received cycle 2 for an average length of 10.2 days. The weighted 
average of cycle 1 and 2 treatment length is 17 days. We noted that a 
small number of patients also received 3 to 5 treatment cycles. 
However, based on the data provided, these cases do not appear to be 
typical at this point and we excluded them from this calculation. We 
noted that, if we included all treatment cycles in this calculation, 
the weighted average number of days of treatment is much lower, 10 
days. Using the clinical data provided by the applicant, we stated that 
we believe that setting the maximum new technology add-on payment 
amount for a case involving the BLINCYTOTM technology for FY 
2016 based on a 17-day length of treatment cycle is representative of 
historical and current practice. We also stated that, for FY 2017, if 
new data on length of treatment are available, we would consider any 
such data in evaluating the maximum new technology add-on payment 
amount. However, we did not receive any new data from the applicant to 
evaluate for FY 2017.
    In the application, the applicant estimated that the average 
Medicare beneficiary would require a dosage of 9mcg/day for the first 7 
days under the

[[Page 25038]]

first treatment cycle, followed by a dosage of 28mcg/day for the 
duration of the treatment cycle, as well as all days included in 
subsequent cycles. All vials contain 35mcg at a cost of $3,178.57 per 
vial. The applicant noted that all vials are single-use. Therefore, we 
determined that cases involving the use of the BLINCYTOTM 
technology would incur an average cost per case of $54,035.69 (1 vial/
day x 17 days x $3,178.57/vial). Under 42 CFR 412.88(a)(2), we limit 
new technology add-on payments 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 amount for a case involving the use of the 
BLINCYTOTM is $27,017.85 for FY 2016.
    With regard to the newness criterion for BLINCYTOTM, we 
considered the beginning of the newness period to commence when the 
product gained entry onto the U.S. market on December 17, 2014. Because 
the 3-year anniversary date of the entry of the BLINCYTOTM 
on the U.S. market will occur after FY 2017 (December 17, 2017), we are 
proposing to continue new technology add-on payments for this 
technology for FY 2017. The maximum payment for a case involving 
BLINCYTOTM would remain at $27,017.85 for FY 2017. We are 
inviting public comments on this proposal.
g. Lutonix[supreg] Drug Coated Balloon PTA Catheter and 
In.PACTTM AdmiralTM Paclitaxel Coated 
Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter
    Two manufacturers, CR Bard Inc. and Medtronic, submitted 
applications for new technology add-on payments for FY 2016 for 
LUTONIX[supreg] Drug-Coated Balloon (DCB) Percutaneous Transluminal 
Angioplasty (PTA) Catheter (LUTONIX[supreg]) and IN.PACTTM 
AdmiralTM Paclitaxel Coated Percutaneous Transluminal 
Angioplasty (PTA) Balloon Catheter (IN.PACTTM 
AdmiralTM), respectively. Both of these technologies are 
drug-coated balloon angioplasty treatments for patients diagnosed with 
peripheral artery disease (PAD). Typical treatments for patients with 
PAD include angioplasty, stenting, atherectomy and vascular bypass 
surgery. PAD most commonly occurs in the femoropopliteal segment of the 
peripheral arteries, is associated with significant levels of morbidity 
and impairment in quality of life, and requires treatment to reduce 
symptoms and prevent or treat ischemic events.\2\ Treatment options for 
symptomatic PAD include noninvasive treatment such as medication and 
life-style modification (for example, exercise programs, diet, and 
smoking cessation) and invasive options which include endovascular 
treatment and surgical bypass. The 2013 American College of Cardiology 
and American Heart Association (ACC/AHA) guidelines for the management 
of PAD recommend endovascular therapy as the first-line treatment for 
femoropopliteal artery lesions in patients suffering from claudication 
(Class I, Level A recommendation).\3\
---------------------------------------------------------------------------

    \2\ Tepe G, Zeller T, Albrecht T, Heller S, Schwarzwalder U, 
Beregi JP, Claussen CD, Oldenburg A, Scheller B, Speck U.: Local 
delivery of paclitaxel to inhibit restenosis during angioplasty of 
the leg. N Engl J Med 2008; 358: 689-99.
    \3\ Anderson JL, Halperin JL, Albert NM, Bozkurt B, Brindis RG, 
Curtis LH, DeMets D, Guyton RA, Hochman JS, Kovacs RJ, Ohman EM, 
Pressler SJ, Sellke FW, Shen WK.: Management of patients with 
peripheral artery disease (compilation of 2005 and 2011 ACCF/AHA 
guideline recommendations): a report of the American College of 
Cardiology Foundation/American Heart Association Task Force on 
Practice Guidelines. J Am Coll Cardiol 2013; 61:1555-70. Available 
at: http://dx.doi.org/10.1016/j.jacc.2013.01.004.
---------------------------------------------------------------------------

    According to both applicants, LUTONIX[supreg] and 
IN.PACTTM AdmiralTM are the first drug coated 
balloons that can be used for treatment of patients who are diagnosed 
with PAD. In the FY 2016 IPPS/LTCH final rule, we stated that because 
cases eligible for the two devices would group to the same MS-DRGs and 
we believe that these devices are substantially similar to each other 
(that is, they are intended to treat the same or similar disease in the 
same or similar patient population and are purposed to achieve the same 
therapeutic outcome using the same or similar mechanism of action), we 
evaluated both technologies as one application for new technology add-
on payment under the IPPS. The applicants submitted separate cost and 
clinical data, and we reviewed and discussed each set of data 
separately. However, we made one determination regarding new technology 
add-on payments that applied to both devices. We believe that this is 
consistent with our policy statements in the past regarding substantial 
similarity. Specifically, we have noted that approval of new technology 
add-on payments would extend to all technologies that are substantially 
similar (66 FR 46915), and that we believe that continuing our current 
practice of extending a new technology add-on payment without a further 
application from the manufacturer of the competing product or a 
specific finding on cost and clinical improvement if we make a finding 
of substantial similarity among two products is the better policy 
because we avoid--
     Creating manufacturer-specific codes for substantially 
similar products;
     Requiring different manufacturers of substantially similar 
products from having to submit separate new technology applications;
     Having to compare the merits of competing technologies on 
the basis of substantial clinical improvement; and
     Bestowing an advantage to the first applicant representing 
a particular new technology to receive approval (70 FR 47351).
    CR Bard, Inc. received FDA approval for LUTONIX[supreg] on October 
9, 2014. Commercial sales in the U.S. market began on October 10, 2014. 
Medtronic received FDA approval for IN.PACTTM 
AdmiralTM on December 30, 2014. Commercial sales in the U.S. 
market began on January 29, 2015.
    In accordance with our policy, we stated in the FY 2016 IPPS\LTCH 
final rule (80 FR 49463) that we believe it is appropriate to use the 
earliest market availability date submitted as the beginning of the 
newness period. Accordingly, for both devices, we stated that the 
beginning of the newness period will be October 10, 2014.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for the 
LUTONIX[supreg] and IN.PACTTM AdmiralTM 
technologies and consideration of the public comments we received in 
response to the FY 2016 IPPS/LTCH PPS proposed rule, we approved the 
LUTONIX[supreg] and IN.PACTTM AdmiralTM 
technologies for new technology add-on payments for FY 2016 (80 FR 
49469). Cases involving the LUTONIX[supreg] and IN.PACTTM 
AdmiralTM technologies that are eligible for new technology 
add-on payments are identified using one of the ICD-10-PCS procedure 
codes in the following table:

------------------------------------------------------------------------
     ICD-10-PCS Code                      Code description
------------------------------------------------------------------------
047K041..................  Dilation of right femoral artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, open approach.

[[Page 25039]]

 
047K0D1..................  Dilation of right femoral artery with
                            intraluminal device using drug-coated
                            balloon, open approach.
047K0Z1..................  Dilation of right femoral artery using drug-
                            coated balloon, open approach.
047K341..................  Dilation of right femoral artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, percutaneous approach.
047K3D1..................  Dilation of right femoral artery with
                            intraluminal device using drug-coated
                            balloon, percutaneous approach.
047K3Z1..................  Dilation of right femoral artery using drug-
                            coated balloon, percutaneous approach.
047K441..................  Dilation of right femoral artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, percutaneous endoscopic
                            approach.
047K4D1..................  Dilation of right femoral artery with
                            intraluminal device using drug-coated
                            balloon, percutaneous endoscopic approach.
047K4Z1..................  Dilation of right femoral artery using drug-
                            coated balloon, percutaneous endoscopic
                            approach.
047L041..................  Dilation of left femoral artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, open approach.
047L0D1..................  Dilation of left femoral artery with
                            intraluminal device using drug-coated
                            balloon, open approach.
047L0Z1..................  Dilation of left femoral artery using drug-
                            coated balloon, open approach.
047L341..................  Dilation of left femoral artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, percutaneous approach.
047L3D1..................  Dilation of left femoral artery with
                            intraluminal device using drug-coated
                            balloon, percutaneous approach.
047L3Z1..................  Dilation of left femoral artery using drug-
                            coated balloon, percutaneous approach.
047L441..................  Dilation of left femoral artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, percutaneous endoscopic
                            approach.
047L4D1..................  Dilation of left femoral artery with
                            intraluminal device using drug-coated
                            balloon, percutaneous endoscopic approach.
047L4Z1..................  Dilation of left femoral artery using drug-
                            coated balloon, percutaneous endoscopic
                            approach.
047M041..................  Dilation of right popliteal artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, open approach.
047M0D1..................  Dilation of right popliteal artery with
                            intraluminal device using drug-coated
                            balloon, open approach.
047M0Z1..................  Dilation of right popliteal artery using drug-
                            coated balloon, open approach.
047M341..................  Dilation of right popliteal artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, percutaneous approach.
047M3D1..................  Dilation of right popliteal artery with
                            intraluminal device using drug-coated
                            balloon, percutaneous approach.
047M3Z1..................  Dilation of right popliteal artery using drug-
                            coated balloon, percutaneous approach.
047M441..................  Dilation of right popliteal artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, percutaneous endoscopic
                            approach.
047M4D1..................  Dilation of right popliteal artery with
                            intraluminal device using drug-coated
                            balloon, percutaneous endoscopic approach.
047M4Z1..................  Dilation of right popliteal artery using drug-
                            coated balloon, percutaneous endoscopic
                            approach.
047N041..................  Dilation of left popliteal artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, open approach.
047N0D1..................  Dilation of left popliteal artery with
                            intraluminal device using drug-coated
                            balloon, open approach.
047N0Z1..................  Dilation of left popliteal artery using drug-
                            coated balloon, open approach.
047N341..................  Dilation of left popliteal artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, percutaneous approach.
047N3D1..................  Dilation of left popliteal artery with
                            intraluminal device using drug-coated
                            balloon, percutaneous approach.
047N3Z1..................  Dilation of left popliteal artery using drug-
                            coated balloon, percutaneous approach.
047N441..................  Dilation of left popliteal artery with drug-
                            eluting intraluminal device using drug-
                            coated balloon, percutaneous endoscopic
                            approach.
047N4D1..................  Dilation of left popliteal artery with
                            intraluminal device using drug-coated
                            balloon, percutaneous endoscopic approach.
047N4Z1..................  Dilation of left popliteal artery using drug-
                            coated balloon, percutaneous endoscopic
                            approach.
------------------------------------------------------------------------

    As discussed in the FY 2016 IPPS/LTCH final rule (80 FR 49469), 
each of the applicants submitted operating costs for its DCB. The 
manufacturer of the LUTONIX[supreg] stated that a mean of 1.37 drug-
coated balloons was used during the LEVANT 2 clinical trial. The 
acquisition price for the hospital will be $1,900 per drug-coated 
balloon, or $2,603 per case (1.37 x $1,900). The applicant projected 
that approximately 8,875 cases will involve use of the LUTONIX[supreg] 
for FY 2016. The manufacturer for the IN.PACTTM 
AdmiralTM stated that a mean of 1.4 drug-coated balloons was 
used during the IN.PACTTM AdmiralTM DCB arm. The 
acquisition price for the hospital will be $1,350 per drug-coated 
balloon, or $1,890 per case (1.4 x $1,350). The applicant projected 
that approximately 26,000 cases will involve use of the 
IN.PACTTM AdmiralTM for FY 2016.
    For FY 2016, we based the new technology add-on payment for cases 
involving these technologies on the weighted average cost of the two 
DCBs described by the ICD-10-PCS procedure codes listed above (which 
are not manufacturer specific). Because ICD-10 codes are not 
manufacturer specific, we cannot set one new technology add-on payment 
amount for IN.PACTTM AdmiralTM and a different 
new technology add-on payment amount for LUTONIX[supreg]; both 
technologies will be captured by using the same ICD-10-PCS procedure 
code. As such, we stated that we believe that the use of a weighted 
average of the cost of the standard DCBs based on the projected number 
of cases involving each technology to determine the maximum new 
technology add-on payment would be most appropriate. To compute the 
weighted cost average, we summed the total number of projected cases 
for each of the applicants, which equaled 34,875 cases (26,000 plus 
8,875). We then divided the number of projected cases for each of the 
applicants by the total number of cases, which resulted in the 
following case-weighted percentages: 25 Percent for the LUTONIX[supreg] 
and 75 percent for the IN.PACTTM AdmiralTM. We 
then multiplied the cost per case for the manufacturer specific DCB by 
the case-weighted percentage (0.25 * $2,603=$662.41 for LUTONIX[supreg] 
and 0.75 * $1,890=$1,409.03 for the IN.PACTTM 
AdmiralTM). This resulted in a case-weighted average cost of 
$2,071.45 for DCBs. Under Sec.  412.88(a)(2), we limit new technology 
add-on payments 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 
LUTONIX[supreg] or IN.PACTTM AdmiralTM DCBs is 
$1,035.72.
    With regard to the newness criterion for LUTONIX[supreg] and 
IN.PACTTM AdmiralTM technologies, we considered 
the beginning of the newness period to commence when LUTONIX[supreg] 
gained entry onto the U.S. market on October 10, 2014. Because the 3-
year anniversary date of the entry of LUTONIX[supreg] on the U.S. 
market will occur after FY 2017 (October 10, 2017), we are proposing to 
continue new technology add-on payments for both the LUTONIX[supreg] 
and IN.PACTTM AdmiralTM technologies for

[[Page 25040]]

FY 2017. The maximum add-on payment for a case involving 
LUTONIX[supreg] and IN.PACTTM AdmiralTM would 
remain at $1,035.72 for FY 2017. We are inviting public comments on 
this proposal.
5. Proposed FY 2017 Applications for New Technology Add-On Payments
    We are reviewing nine applications for new technology add-on 
payments for FY 2017. 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. One applicant withdrew 
its application prior to the issuance of this proposed rule.
a. MAGEC[supreg] Spinal Bracing and Distraction System (MAGEC[supreg] 
Spine)
    Ellipse Technologies, Inc. submitted an application for new 
technology add-on payments for FY 2017 for the MAGEC[supreg] Spine. 
According to the applicant, the MAGEC[supreg] Spine has been developed 
for use in the treatment of children diagnosed with severe spinal 
deformities, such as scoliosis. The system can be used in the treatment 
of skeletally immature patients less than 10 years of age who have been 
diagnosed with severe progressive spinal deformities associated with or 
at risk of Thoracic Insufficiency Syndrome (TIS). The MAGEC[supreg] 
Spine consists of a (spinal growth) rod that can be lengthened through 
the use of magnets that are controlled by an external remote controller 
(ERC). The rod(s) can be implanted into children as young as 2 years of 
age. According to the applicant, use of the MAGEC[supreg] Spine has 
proven to be successfully used in the treatment of patients diagnosed 
with scoliosis who have not been responsive to other treatments.
    The MAGEC[supreg] Spine initially received FDA approval for use of 
the predicate device, which used a Harrington Rod on February 27, 2014. 
Subsequent FDA approval was granted for use of the modified device, 
which uses a shorter 70 mm on September 18, 2014. After minor 
modification of the product, the MAGEC[supreg] Spine received its final 
FDA approvals on March 24, 2015, and May 29, 2015, respectively. 
Currently, there is no ICD-9-CM or ICD-10-PCS code to uniquely describe 
procedures involving the MAGEC[supreg] Spine.
    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 these criteria, it would be considered 
substantially similar to an existing technology and would not be 
considered ``new'' for purposes of new technology add-on payments. For 
a detailed discussion of the criteria for substantial similarity, we 
refer readers to the FY 2006 IPPS final rule (70 FR 47351 through 
47352), and the FY 2010 IPPS/LTCH PPS final rule (74 FR 43813 through 
43814).
    With regard to the first criterion, the applicant stated that the 
MAGEC[supreg] Spine's mechanism of action is dependent upon growing 
rods used for the treatment of patients diagnosed with early onset 
scoliosis (EOS), and is unique because the technique uses magnetic 
distraction (lengthening), which does not require the patients to be 
subjected to the potential and adverse effects of additional surgeries.
    The applicant explained that treatment of patients diagnosed with 
EOS involves the implantation of traditional growth rods (TGRs) 
followed by surgery every 6 months to distract the rods to accommodate 
the growing spine until the patient reaches a level of spinal maturity 
when the spine can then be fused. The average number of distraction 
surgeries per patient is 12 over the course of 6 years. Once spinal 
alignment and maturity is reached, the TGRs are surgically and 
permanently removed. The applicant stated that, while the most recent 
modification to the MAGEC[supreg] Spine's rods accomplish the same goal 
as the predicate device, Harrington rods, MAGEC[supreg] Spine rods 
achieve the predetermined goal with minimally invasive techniques after 
implantation, which prevents the patients from being subjected to the 
potential and adverse effects of numerous lengthening surgeries. The 
applicant further noted that after the MAGEC[supreg] Spine's rod has 
been implanted, the ERC is placed externally over the patient's spine 
at the location of the magnet in the MAGEC[supreg] Spine's rod. 
Periodic, noninvasive distraction of the rod is performed to lengthen 
the spine and to provide adequate bracing during growth. Routine X-ray 
or ultrasound procedures are used to confirm the position and amount of 
distraction. The frequency of distraction sessions is customized to the 
needs of the individual patient by the treating surgeon.
    With regard to the first criterion, we are concerned that the 
MAGEC[supreg] Spine uses the same mechanism of action, spinal rod 
distraction, to achieve the same therapeutic outcome of spinal 
alignment as other currently available technologies and treatment 
options for Medicare beneficiaries. Specifically, TGRs are implanted 
and affixed to the immature spine in order to correct spinal 
deformities. As a child grows, the TGRs must be distracted to 
accommodate spinal growth. The common denominator between TGRs and the 
MAGEC[supreg] Spine is that they both are devices (rods) that use the 
same mechanism of action to perform and achieve spinal distraction, the 
implantation of rods that are later lengthened. While we acknowledge 
the applicant noted that the MAGEC[supreg] Spine does not require the 
patient to endure the potential and adverse effects of additional 
surgeries, this assertion seems to be a component of substantial 
clinical improvement rather than a basis to distinguish the mechanism 
of action.
    In consideration of the applicant's statements that the mechanism 
of action of the MAGEC[supreg] Spine, which uses growing rods in the 
treatment of patients diagnosed with EOS, is unique because the 
technique of using magnetic distraction (lengthening) does not require 
patients to endure the potential and adverse effects of additional 
surgeries, we note that there are other technologies and products 
currently available that achieve spinal growth without the need to 
subject patients to potential and adverse effects of additional 
surgeries. For example, the Shilla growth guidance system, which 
received FDA approval in 2014, uses a non-locking set screw at the 
proximal and distal portions of the construct's rods. This specific 
feature is designed to allow the rod to slide through the screw heads 
as a child's spine grows, while still providing correction of the 
spinal deformity. The Shilla technique also eliminates the need for 
scheduled distraction surgeries, as the applicant pointed out are 
needed with the use of TGRs. Therefore, we believe that the 
MAGEC[supreg] Spine's mechanism of action may be similar to the 
mechanism of action employed by the Shilla growth guidance system 
because both technologies achieve the same therapeutic outcome and do 
not require the patient to endure the potential and adverse effects of 
additional surgeries.
    With regard to the second criterion, cases that may be eligible for 
treatment involving the MAGEC[supreg] Spine map to the following MS-
DRGs: 456 (Spinal

[[Page 25041]]

Fusion Except Cervical With Spinal Curvature or Malignancy or Infection 
or Extensive Fusions with MCC); 457 (Spinal Fusion Except Cervical with 
Spinal Curvature or Malignancy or Infection or Extensive Fusions with 
CC); and 458 (Spinal Fusion Except Cervical with Spinal Curvature or 
Malignancy or Infection or Extensive Fusions without CC/MCC). All cases 
involving procedures describing spinal distraction devices, including 
those that use TGRs and the Shilla growth guidance system, currently 
map to the same MS-DRGs.
    With regard to the third criterion, we believe that the 
MAGEC[supreg] Spine technology involves the treatment of the same or 
similar type of disease and the same or similar patient population. 
Although the applicant stated that the MAGEC[supreg] Spine was 
developed for the use in the treatment of children diagnosed with 
severe spinal deformities, the MAGEC[supreg] Spine treats the same 
patient population as other currently available spinal distraction 
devices and technologies, including those that use TGRs and the Shilla 
growth guidance system. Because it appears that the MAGEC[supreg] Spine 
is substantially similar to these other currently available devices 
used to treat the same or similar types of diseases and the same or 
similar patient populations, we are concerned that the technology may 
not be considered ``new'' for the purposes of new technology add-on 
payments. We are inviting public comments on whether the MAGEC[supreg] 
Spine meets the newness criterion.
    With regard to the cost criterion, the applicant maintained that 
there is an insufficient number of cases in the Medicare claims data to 
evaluate because of the small number of potential cases and cases 
reflecting patients who were actually diagnosed with or who experience 
early onset scoliosis (EOS) requiring the implantation of growing rods. 
Specifically, the majority of the Medicare population is 65 years of 
age and older, while patients who may be eligible for the MAGEC[supreg] 
Spine are typically less than 10 years of age. Therefore, the applicant 
estimated the number of EOS cases using internal estimates for de novo 
cases (<10 year of age), as well as cases that could potentially 
convert to using the MAGEC[supreg] Spine without searching the MedPAR 
data file or any other data source. The applicant estimated that a 
total of 2,500 EOS cases may be eligible for treatment using the 
MAGEC[supreg] Spine in FY 2016. According to the applicant, 580 cases 
would map to MS-DRG 456, 870 cases would map to MS-DRG 457, and 1,050 
cases would map to MS-DRG 458. The applicant based the distribution of 
cases on data from its medical advisors, customers, and reimbursement 
support team.
    The applicant used Medicare and non-Medicare data for six providers 
that used the MAGEC[supreg] Spine during CY 2016. This resulted in an 
average unstandardized case-weighted charge per case of $243,999. The 
applicant then removed charges related to the predicate technology. 
Using the Impact File published with the FY 2016 IPPS/LTCH PPS final 
rule, the applicant standardized the charges and applied an inflation 
factor of 10 percent. The applicant computed an average CCR of the six 
hospitals based on the overall hospitals CCRs in the FY 2016 IPPS/LTCH 
final rule Impact File. The applicant then computed the charges for the 
device by dividing the costs of the device by the average CCR and added 
these charges to determine the inflated average standardized case-
weighted charge per case. The applicant noted that the cost of the 
technology was proprietary information. Based on the FY 2016 IPPS/LTCH 
PPS Table 10 thresholds, the average case-weighted threshold amount was 
$105,909. The applicant computed an inflated average standardized case-
weighted charge per case of $248,037. Because the inflated average 
standardized case-weighted charge per case exceeds the average case-
weighted threshold amount, the applicant maintained that the technology 
meets the cost criterion.
    We have the following concerns regarding the applicant's cost 
analysis:
     The applicant did not specify how many cases were the 
basis for the average standardized case-weighted charges per case. 
Therefore, we cannot determine if the charges per case represent a 
statistical sample relative to the projected cases eligible for the 
MAGEC[supreg] Spine for the upcoming fiscal year.
     The applicant did not specify how many cases included in 
the analysis were Medicare and non-Medicare cases. We typically rely on 
Medicare data and understand the limitations of this patient population 
in the Medicare data (as the applicant explained above). However, CMS 
would still like the details regarding the numerical representation of 
Medicare and non-Medicare cases the applicant used in its analysis.
     The applicant did not explain the methodology it used to 
remove the charges for the predicate technology, as well as the type of 
technology that the charges replaced. Therefore, we are unable to 
validate the accuracy of the applicant's methodology.
     The applicant did not explain the basis of using a 10-
percent inflation factor. Specifically, the applicant used cases from 
CY 2016 and inflated the costs to FY 2017 using a 10-percent inflation 
factor. However, the 1-year inflation factor in the FY 2016 IPPS/LTCH 
final rule (80 FR 49784) is 3.7 percent. Therefore, we do not believe 
that a 10-percent inflation factor is appropriate.
    The applicant used the average overall CCR of the six hospitals to 
convert the costs of the MAGEC[supreg] Spine to charges. However, 
rather than using an average CCR, to increase the precision of 
determining the charges of the MAGEC[supreg] Spine, the applicant could 
have instead used each hospital's individual CCR or the implantable 
device CCR of 0.337 as reported in the FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49429).
    We are inviting public comments on whether the MAGEC[supreg] Spine 
meets the cost criterion, particularly with regard to the concerns we 
have raised.
    With regard to substantial clinical improvement, the applicant 
stated that use of the MAGEC[supreg] Spinal Bracing and Distraction 
System significantly improves clinical outcomes for the pediatric 
patient population with spinal deformities when compared to 
technologies and treatment options that employ TGRs by decreasing the 
number of subsequent surgeries and potential adverse effects following 
implantation. The applicant provided results from a study \4\, which 
demonstrated that patients receiving treatment using the magnetically 
controlled growth rods (MCGR) system had 57 fewer surgeries as a whole 
than those patients receiving treatment options using TGRs. According 
to the applicant, the results further projected decreased rates of 
infection and attendant costs because the need for additional 
distraction (lengthening) surgeries is eliminated. In addition, the 
applicant stated that 1,500 patients located around the world have been 
successfully treated with the use of this technology. The applicant 
indicated that the results from another study \5\ cited the following 
qualitative outcomes: Minimal surgical scarring, decreased 
psychological distress and improved quality of life, improved

[[Page 25042]]

pulmonary function tests (PFTs), and capabilities to continuously 
monitor neurological behaviors because the patient is not exposed to 
anesthesia during follow-up distractions.
---------------------------------------------------------------------------

    \4\ Akbarnia BA, Cheung K, Noordeen H et al. Traditional rods 
versus magnetically controlled growing rods in early onset 
scoliosis: a case-matched two year study. 2013.
    \5\ Cheng, KMC, Cheung JPY, Damartzis, D, Mak, KC, Wong, WYC, 
Akbaria, BA, Luk KDK. Magnetically controlled growing rods for sever 
spinal curvature in young children. A prospective study. Lancet 379 
(830) 26 May-1 June 2012, pp. 1967-1974.
---------------------------------------------------------------------------

    We are concerned that the applicant's assertions that the 
MAGEC[supreg] Spine technology leads to significantly better clinical 
outcomes; specifically, decreased rates of infection, when compared to 
treatment options that use TGRs has not been shown by the results of 
the studies provided. The results of the studies provided did not 
compare rates of infection for patients receiving treatment using the 
MAGEC[supreg] Spine versus patients receiving treatment using TGRs or 
other spinal growth rods. Also, as previously mentioned, there are 
other currently available technologies and devices such as the Shilla 
growth guidance system that also achieve the same therapeutic outcome 
and do not require the patient to be subjected to the potential and 
adverse effects of additional surgery. Therefore, we are concerned that 
the MAGEC[supreg] Spine may not represent a substantial clinical 
improvement over existing technologies. We are inviting public comments 
on whether the MAGEC[supreg] Spine meets the substantial clinical 
improvement criterion.
    We did not receive any written public comments in response to the 
February 2016 New Technology Town Hall meeting regarding this 
application for new technology add-on payments.
b. MIRODERM Biologic Wound Matrix (MIRODERM)
    Miromatrix Medical, Inc. submitted an application for new 
technology add-on payments for FY 2017 for MIRODERM. MIRODERM is a non-
crosslinked acellular wound matrix that is derived from the porcine 
liver and is processed and stored in a phosphate buffered aqueous 
solution. MIRODERM is clinically indicated for the management of 
wounds, including: Partial and full-thickness wounds, pressure ulcers, 
venous ulcers, chronic vascular ulcers, diabetic ulcers, trauma wounds, 
drainage wounds, and surgical wounds. Typical decellularization where 
tissues are immersed in a decellularization solution is a diffusion-
based process, and thereby limits the ability to fully decellularize 
thick, complex tissues such as the liver. MIRODERM uses a perfusion 
decellularization process that rapidly removes cellular material while 
maintaining the native architecture, vasculature and tissue structure. 
Following decellularization, MIRODERM is isolated from partial 
thickness liver sections following slight compression of the liver. 
This allows for the retention of the native liver structure, including 
the vasculature, within MIRODERM. The applicant noted that the MIRODERM 
is the only acellular skin substitute product that is derived from the 
liver.
    According to the applicant, MIRODERM is positioned to completely 
contact the entire surface of the wound bed and extend slightly beyond 
all wound margins. As required, it is securely anchored to the wound 
site with a physician's preferred fixation method. An appropriate, 
primary non-adherent wound dressing is then applied over the MIRODERM 
matrix. A secondary dressing (multi-layer compression bandage system), 
total contact cast, or other appropriate dressing that will manage the 
wound exudate should be applied in order to keep the MIRODERM matrix 
moist and keep all layers securely in place. Additional applications of 
MIRODERM are applied as needed until the wound closes.
    MIRODERM received FDA approval for its use on January 27, 2015. 
Currently, there are no ICD-10-PCS procedure codes to uniquely identify 
the use of MIRODERM. The applicant submitted a request for a unique 
ICD-10-PCS procedure code that was presented at the March 2016 ICD-10 
Coordination and Maintenance Committee meeting. If approved, the 
procedure codes would become effective on October 1, 2016 (FY 2017). 
More information on this request can be found on the CMS Web site 
located at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
    As discussed earlier, if a technology meets all three of the 
substantial similarity criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments.
    With regard to the first substantial similarity criterion, whether 
the product uses the same or a similar mechanism of action to achieve a 
therapeutic outcome, the applicant stated that current wound healing 
therapies are provided in several different modalities, which include 
hyperbaric oxygen treatment, negative wound pressure therapy, and 
treatment with other bioengineered skin substitute products. The 
applicant noted that other products that have been commonly used for 
similar procedures are Oasis Wound Matrix, Primatrix Dermal Repair, and 
Theraskin. The applicant asserted that MIRODERM is different from these 
other products because it is the only product sourced from porcine 
liver and undergoes a unique, patented process of perfusion 
decellularization that rapidly removes cellular material, while 
maintaining the native architecture, vasculature and tissue structure. 
The applicant explained that MIRODERM is isolated from partial 
thickness liver sections following slight compression of the liver, 
which allows for the retention of the native liver structure, including 
the vasculature, within MIRODERM. The applicant stated that partial 
thickness allows for one surface of MIRODERM to retain the native liver 
capsule (an epithelial basement membrane) and the other opposite 
surface to be comprised of open liver matrix. The applicant further 
stated that case studies of the MIRODERM demonstrated accelerated 
healing, which is likely the result of the unique perfusion 
decellularization technology that retains a 3-dimensional extracellular 
matrix that includes the vasculature.
    With regard to the first criterion, similar to other current wound 
matrix treatments, the MIRODERM uses a collagen matrix for tissue 
repair and regeneration. Therefore, we are concerned that MIRODERM 
employs the same mechanism of action as other wound matrix treatments. 
Although the applicant has described how the MIRODERM differs from 
other wound matrix treatments due to the perfusion decellularization 
process, and is the first product that is derived from the porcine 
liver, we believe that the mechanism of action of MIRODERM may be 
substantially similar or the same as those employed by other wound 
treatment matrixes. With regard to the second criterion, whether a 
product is assigned to the same or a different MS-DRG, cases that may 
be eligible for treatment using MIRODERM map to the same MS-DRGs as 
other currently approved wound treatment matrixes. With regard to the 
third criterion, 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, MIRODERM is used to treat the same patient 
population as other currently approved wound treatment matrixes. 
Because it appears that the MIRODERM may be substantially similar to 
currently approved wound treatment matrixes, we are concerned that the 
technology may not be considered ``new'' for the purposes of new 
technology add-on payments. We are inviting public comments on whether 
MIRODERM meets the newness criterion.
    With regard to the cost criterion, the applicant conducted the 
following

[[Page 25043]]

analysis. The applicant began by researching the 2014 Medicare 
Inpatient Hospital Standard Analytical File (SAF) file for cases 
primarily associated with dermal regenerative grafts that may be 
eligible for treatment using MIRODERM. The applicant searched for 
claims that reported ICD-9-CM procedure code 86.67 (Dermal regenerative 
graft) that mapped to one of the following MS-DRGs: 463, 464, and 465 
(Wound Debridement and Skin Graft Except Hand for Musculoskeletal 
System and Connective Tissue Disorders with MCC, with CC, or without 
CC/MCC, respectively); 573, 574, and 575 (Skin Graft for Skin Ulcer or 
Cellulitis with MCC, with CC, or without CC/MCC, respectively); 576, 
577, and 578 (Skin Graft Except for Skin Ulcer or Cellulitis with MCC, 
with CC, or without CC/MCC, respectively); 622, 623, and 624 (Skin 
Grafts and Wound Debridement for Endocrine, Nutritional and Metabolic 
Diseases with MCC, with CC or without CC/MCC, respectively); and 904 
and 905 (Skin Grafts for Injuries with CC/MCC or without CC/MCC, 
respectively). As a result, the applicant identified 1,130 cases across 
the MS-DRGs listed, which resulted in an average case-weighted charge 
per case of $83,059.
    Included in the average case-weighted charge per case were charges 
for other previously used dermal regenerative grafts. According to the 
applicant, the MIRODERM would replace the need for other dermal 
regenerative grafts and, therefore, the applicant removed charges 
related to the use of other currently used dermal regenerative grafts 
from the average case-weighted charge per case. Specifically, using the 
January 2016 CMS Part B Drug Pricing File, the applicant first computed 
an average cost per square centimeter for currently used dermal 
regenerative grafts (Apligraf $31.207/cm\2\, Oasis $10.676/cm\2\, 
Integra DRT $21.585/cm\2\, Dermagraft $32.858/cm\2\, Integra skin 
substitute $35.627/cm\2\, Primatrix $37.590/cm\2\, and Theraskin 
$38.474/cm\2\), which equaled $29.72/cm\2\. To determine the average 
amount of square centimeters of the other dermal regenerative grafts 
used for each case within the MS-DRG, given the vast complexity and 
variation in wounds, the applicant used clinical judgment based on 
experience, observation and typical sizes and depths of wounds that 
would present on different parts of the body. For an example, wounds on 
the hand would typically be smaller than those located on the lower 
extremities. The applicant also assumed that other dermal regenerative 
grafts would require three applications to close a wound as opposed to 
treatment using MIRODERM, which requires only two applications. Based 
on this assumption, the applicant noted that it assumed that the first 
application required 100 percent of the amount of skin substitute 
required to treat the original wound area, the second application 
required 70 percent, and the third application required 40 percent, 
totaling 210 percent. To compute the total amount of square centimeters 
used for each case within the MS-DRG, the applicant multiplied this 
percentage (210 percent) by the amount of square centimeters used for 
the first application for each case within the MS-DRG. The applicant 
then multiplied the average cost of the other previously used dermal 
regenerative grafts ($29.72/cm\2\) by the average amount of centimeters 
used for each case within the MS-DRG to determine the average cost of 
the other previously used dermal regenerative grafts for each case 
within the MS-DRG. To convert the costs to charges, the applicant 
computed an average CCR for each MS-DRG using CCRs from the FY 2014 
Standardizing File of the hospitals indicated on each of the claims for 
each case within the MS-DRG. The applicant then divided the average 
cost of the other previously used dermal regenerative grafts for each 
MS-DRG by the average CCR for each MS-DRG to determine the average 
charges of the other previously used dermal regenerative grafts for 
each MS-DRG. The applicant also reduced the charges for the number of 
days of hospitalization by 30 percent because the applicant believed 
that MIRODERM heals patients faster than the other currently used 
dermal regenerative grafts, resulting in a reduction in the average 
lengths of stay. The applicant then deducted the charges related to the 
other previously used dermal regenerative grafts and the charges for 
the reduction in the average lengths of stay from the average case-
weighted charge per case and then standardized the charges, which 
resulted in an average standardized case-weighted charge per case of 
$34,279. The applicant then inflated the average standardized case-
weighted charge per case by 7.7 percent, the same inflation factor used 
by CMS to update the FY 2016 outlier threshold (80 FR 49784).
    After inflating the charges it was necessary to add the associated 
charges for the use of MIRODERM. The applicant conducted a similar 
calculation to compute the charges for MIRODERM. Specifically, the 
applicant used clinical judgment based on experience, observation, and 
typical sizes and depths of wounds that would be present on different 
parts of the body. The applicant stated that because MIRODERM has shown 
greater efficacy in wound closure based on their case series, the 
applicant modeled for only two applications with 50 percent closure of 
the wound after the first application and full closure of the wound 
after the second application. Based on this assumption, the applicant 
noted that it assumed that the first application required 100 percent 
of the amount of skin substitute required to treat the original wound 
area and the second application required 50 percent, totaling 150 
percent. To compute the total amount of square centimeters used for 
each MS-DRG, the applicant multiplied this percentage (150 percent) by 
the amount of square centimeters used for the first application for 
each MS-DRG. The applicant then multiplied the cost per square 
centimeter for MIRODERM by the average amount of centimeters used for 
each case within the MS-DRG to determine the average cost of MIRODERM 
grafts used for each MS-DRG. Similar to above, to convert the costs to 
charges, the applicant used the same average CCRs for each MS-DRG and 
divided the average cost of MIRODERM for each MS-DRG by the average CCR 
for each MS-DRG to determine the average charges of MIRODERM for each 
MS-DRG. The applicant then added charges related to the use of MIRODERM 
to the inflated average standardized charges and determined a final 
inflated average standardized case-weighted charge per case of $94,009. 
Using the FY 2016 IPPS Table 10 thresholds, the average case-weighted 
threshold amount was $67,559 (all calculations above were performed 
using unrounded numbers). Because the final inflated average 
standardized case-weighted charge per case exceeds the average case-
weighted threshold amount, the applicant maintained that the technology 
meets the cost criterion.
    We are inviting public comments on whether the MIRODERM technology 
meets the cost criterion.
    With regard to substantial clinical improvement, the applicant 
believed that the technology represents a substantial clinical 
improvement over existing technologies because patients treated with 
the MIRODERM for complicated wounds heal quicker and avoid additional 
surgeries. To demonstrate that the technology meets the substantial 
clinical improvement criterion, the applicant submitted the results of 
two actual case studies of a complicated wound from necrotizing 
fasciitis that was treated with the

[[Page 25044]]

MIRODERM. According to the applicant, one case study involved a 
complicated wound that would typically be treated with a diverting 
colostomy. The applicant noted that that the patient was discharged 
with intact anoplasty and good sphincter control after 35 days and four 
applications for MIRODERM. The applicant further stated that the use of 
MIRODERM demonstrated rapid healing and likely avoided at least two 
major debilitating surgeries, as well as the emotional and physical 
impact of a colostomy for 3 to 6 months. In the second case study, 
according to the applicant, the attending physician estimated the wound 
would likely take greater than 90 days to close using traditional wound 
care matrixes. The applicant stated that after 12 days and two 
applications of MIRODERM the patient was discharged and after 21 days 
the wound was sutured closed.
    The applicant noted that additional patients have been treated with 
MIRODERM. According to the applicant, given the recent product launch, 
the case studies have not been completed, but similar results have been 
communicated to the applicant.
    We are concerned that the clinical data the applicant submitted is 
from a very small sample with no comparisons to other currently 
approved wound treatment matrixes. Specifically, the applicant 
submitted data from only two case studies. Also, the applicant compared 
the use of MIRODERM to the use of other treatments, such as diverting 
colostomy. While MIRODERM may represent an improvement in treatment 
options compared to the other treatment options such as diverting 
colostomy, we are unable to determine if use of MIRODERM represents a 
substantial clinical improvement when compared to other wound treatment 
matrixes of other currently approved treatments. We are inviting public 
comments on whether MIRODERM meets the substantial clinical improvement 
criterion.
    We did not receive any written public comments in response to the 
February 2016 New Technology Town Hall meeting regarding this 
application for new technology add-on payments.
c. Idarucizumab
    Boehringer Ingelheim Pharmaceuticals, Inc. submitted an application 
for new technology add-on payments for FY 2017 for Idarucizumab; a 
product developed as an antidote to reverse the effects of 
PRADAXA[supreg] (Dabigatran), which is also manufactured by Boehringer 
Ingelheim Pharmaceuticals, Inc. (We note that the applicant submitted 
an application for new technology add-on payments for FY 2016, but 
failed to obtain FDA approval prior to the July 1 deadline.) Dabigatran 
is an oral direct thrombin inhibitor currently indicated to: (1) Reduce 
the risk of stroke and systemic embolism in patients who have been 
diagnosed with nonvalvular atrial fibrillation (NVAF); (2) treat deep 
venous thrombosis (DVT) and pulmonary embolism (PE) in patients who 
have been administered a parenteral anticoagulant for 5 to 10 days; and 
(3) reduce the risk of recurrence of DVT and PE in patients who have 
been previously diagnosed with NVAF. Currently, unlike the 
anticoagulant Warfarin, there is no specific way to reverse the 
anticoagulant effect of Dabigatran in the event of a major bleeding 
episode.
    Idarucizumab is a humanized fragment antigen binding (Fab) 
molecule, which specifically binds to Dabigatran to deactivate the 
anticoagulant effect, thereby allowing thrombin to act in blood clot 
formation. The applicant stated that Idarucizumab represents a new 
pharmacologic approach to neutralizing the specific anticoagulant 
effect of Dabigatran in emergency situations. Idarucizumab was approved 
by the FDA on October 16, 2015. The applicant noted that Idarucizumab 
is the only FDA-approved therapy available to neutralize the 
anticoagulant effect of Dabigatran. Before the FDA approval of 
Idarucizumab, the approach for the management of the anticoagulant 
effect of Dabigatran prior to an invasive procedure was to withhold 
administration of Dabigatran, when possible, for a certain duration of 
time prior to the procedure to allow sufficient time for the patient's 
kidneys to flush out the medication. The duration of time needed to 
flush out the medication prior to the surgical procedure is based on 
the patient's kidney function. According to the applicant, if surgery 
cannot be delayed to allow the kidneys the necessary time to flush out 
the traces of Dabigatran, there is an increased risk of bleeding.
    Based on the FDA indication for Idarucizumab, the product can be 
used in the treatment of patients who have been diagnosed with NVAF and 
administered Dabigatran to reverse life-threatening bleeding events, or 
who require emergency surgery or medical procedures and rapid reversal 
of the anticoagulant effects of Dabigatran is necessary and desired. 
The applicant received a unique ICD-10-PCS procedure code that became 
effective October 1, 2015. The approved procedure code is XW03331 
(Introduction of Idarucizumab, Dabigatran reversal agent into central 
vein, percutaneous approach, New Technology Group 1). We are inviting 
public comments on whether Idarucizumab meets the newness criterion.
    With regard to the cost criterion, the applicant conducted two 
analyses. The applicant began by researching claims data in the FY 2014 
MedPAR file for cases that may be eligible for Idarucizumab using a 
combination of ICD-9-CM diagnosis and procedure codes. Specifically, 
the applicant searched the database for cases reporting anticoagulant 
therapy diagnosis code E934.2 (Agents primarily affecting blood 
constituents, anticoagulants) or V58.61 (Long-term (current) use of 
anticoagulants) in combination with either current standard of care 
procedure code 99.03 (Other transfusion of whole blood), 99.04 
(Transfusion of packed cells), 99.05 (Transfusion of platelets), 99.06 
(Transfusion of coagulation factors), 99.07 (Transfusion of other 
serum), or 39.95 (Hemodialysis), and Dabigatran indication diagnosis 
code 427.31 (Atrial fibrillation), 453.40 (Acute venous embolism and 
thrombosis of unspecified deep vessels of lower extremity), 453.41 
(Acute venous embolism and thrombosis of deep vessels of proximal lower 
extremity), 453.42 (Acute venous embolism and thrombosis of deep 
vessels of distal lower extremity), 453.50 (Chronic venous embolism and 
thrombosis of unspecified deep vessels of lower extremity), 453.51 
(Chronic venous embolism and thrombosis of deep vessels of proximal 
lower extremity), 453.52 (Chronic venous embolism and thrombosis of 
deep vessels of distal lower extremity), 415.11 (Iatrogenic pulmonary 
embolism and infarction), 415.12 (Septic pulmonary embolism), 415.13 
(Saddle embolus of pulmonary artery), 415.19 (Other pulmonary embolism 
and infarction), 416.2 (Chronic pulmonary embolism), V12.51 (Personal 
history of venous thrombosis and embolism), or V12.55 (Personal history 
of pulmonary embolism).
    To further target potential cases that may be eligible for 
Idarucizumab, the applicant also excluded specific cases based on 
Dabigatran contraindications, including all cases representing patients 
who have been diagnosed with chronic kidney disease (CKD) stage V 
(diagnosis code 585.5), end-stage renal disease (diagnosis code 585.6), 
prosthetic heart valves (diagnosis code V43.3), and cases representing 
patients who have been diagnosed with both CKD stage IV (diagnosis code 
585.4) and either DVT or PE (using the same ICD-9-CM

[[Page 25045]]

diagnosis codes listed above). As a result, the applicant identified 
84,224 cases that mapped to 684 MS-DRGs. The applicant standardized the 
charges and computed an average case-weighted standardized charge per 
case of $60,089.
    The applicant then identified hospital charges potentially 
associated with the current treatments to reverse anticoagulation, 
specifically charges associated with pharmacy services, dialysis 
services, and laboratory services for blood work. Due to limitations 
associated with the claims data, the applicant was unable to determine 
the specific drugs used to reverse anticoagulation and if these cases 
represented patients who required laboratory services for blood work or 
dialysis services unrelated to the reversal of anticoagulation. 
Therefore, the applicant subtracted 40 percent of the charges related 
to these three categories from the standardized charge per case, based 
on the estimation that the full amount of charges associated with these 
services would not be incurred by hospitals when Idarucizumab is 
administered for use in the treatment of patients who have been 
diagnosed with NVAF and Dabigatran is administered during treatment. 
The applicant then inflated the standardized charge per case by 7.665 
percent, the same inflation factor used by CMS to update the FY 2016 
outlier threshold (80 FR 49784) and added charges for Idarucizumab. 
This resulted in an inflated average case-weighted standardized charge 
per case of $67,617. Using the FY 2016 IPPS Table 10 thresholds, the 
average case-weighted threshold amount across all 684 MS-DRGs is 
$55,586 (all calculations above were performed using unrounded 
numbers). Because the inflated average case-weighted standardized 
charge per case exceeds the average case-weighted threshold amount, the 
applicant maintained that the technology meets the cost criterion under 
this analysis.
    Further, the applicant conducted an additional analysis using the 
same data from the FY 2014 MedPAR file and variables used in the 
previous analysis. However, instead of using potentially eligible cases 
that mapped to 100 percent of the 684 MS-DRGs identified, the applicant 
used potentially eligible cases that mapped to the top 75 percent of 
the 684 MS-DRGs identified. By applying this limitation, the applicant 
identified 63,033 cases that mapped to 87 MS-DRGs. The applicant 
computed an inflated average case-weighted standardized charge per case 
of $55,872. Using the FY 2016 IPPS Table 10 thresholds, the average 
case-weighted threshold amount across all 87 MS-DRGs is $63,323 (all 
calculations above were performed using unrounded numbers). Because the 
inflated average case-weighted standardized charge per case exceeds the 
average case-weighted threshold amount, the applicant maintained that 
the technology also meets the cost criterion under this analysis. We 
are inviting public comments regarding the applicant's analyses with 
regard to the cost criterion.
    With regard to substantial clinical improvement, according to the 
applicant, aside from Idarucizumab, there are no other FDA-approved 
antidotes to reverse the anticoagulant effects of Dabigatran. 
Management of the treatment of patients who have been diagnosed with 
NVAF and administered Dabigatran and experience bleeding may often 
include supportive care such as Hemodialysis and the use of fresh 
frozen plasma, blood factor products such as prothrombin complex 
concentrates (PCC), activated prothrombin complex concentrates, and 
recombinant factor VIIa or delayed intervention. Protamine sulfate and 
Vitamin K are typically used to reverse the effects of Heparin and 
Warfarin, respectively. However, due to the mechanism of action in 
Dabigatran, the applicant maintained that the use of protamine sulfate 
and Vitamin K may not be effective to reverse the anticoagulant effect 
of Dabigatran.
    The applicant provided information regarding the management of 
major bleeding events experienced by patients who were administered 
Dabigatran and Warfarin during the RE-LY trial.\6\ During this study, 
most major bleeding events were only managed by supportive care. 
Patients who were administered 150 mg of Dabigatran were transfused 
with pack red blood cells more often when compared to patients who were 
administered Warfarin (61.4 percent versus 49.9 percent, respectively). 
However, patients who were administered Warfarin were transfused with 
plasma more often when compared to patients who were administered 150 
mg of Dabigatran (30.2 percent versus 21.6 percent, respectively). In 
addition, the use of Vitamin K in the treatment of patients who were 
administered Warfarin was more frequent when compared to the frequency 
of use in the treatment of patients who were administered 150 mg of 
Dabigatran (27.3 percent versus 10.3 percent, respectively). The use of 
PCCs, recombinant factor VIIa and other coagulation factor replacements 
in the treatment of patients who were administered both Warfarin and 
150 mg of Dabigatran was minimal, and did not significantly differ in 
frequency when compared among patients assigned to either group. 
Hemodialysis was used in a single case.
---------------------------------------------------------------------------

    \6\ Healy, et al.: Periprocedural bleeding and thromboembolic 
events with dabigatran compared with Warfarin: results from the 
randomized evaluation of long-term anticoagulation therapy (RE-LY) 
randomized trial, Circulation, 2012; 126:343-348.
---------------------------------------------------------------------------

    The applicant reported that, currently, it is recommended that the 
administration of Dabigatran be discontinued 1 to 2 days (CrCl >=50 ml/
min) or 3 to 5 days (CrCl <50 ml/min), if possible, before invasive or 
surgical procedures because of the increased risk of bleeding.\7\ A 
longer period of discontinuation time should be considered for patients 
undergoing major surgery, spinal puncture, or placement of a spinal or 
epidural catheter or port, if complete hemostasis is required. The 
applicant stated that delaying emergency medical or surgical procedures 
can cause urgent conditions to become more severe if intervention is 
not initiated. The applicant further maintained that delaying emergency 
medical or surgical procedures for an extended period of time can 
ultimately lead to negative healthcare outcomes and increased 
healthcare costs. The applicant asserted that rapidly reversing the 
anticoagulant effect of Dabigatran administered to patients that 
require an urgent medical procedure or surgery allows the medical 
procedure or surgery to be performed in a timely manner, which in turn 
may decrease complications and minimize the need for more costly 
therapies.
---------------------------------------------------------------------------

    \7\ Pradaxa[supreg] (Dabigatran Etexilate Mesylate) prescribing 
information. Ridgefield, CT: Boehringer Ingelheim; 2014.
---------------------------------------------------------------------------

    The applicant also provided interim data from an ongoing Phase III 
trial 8 9 in patients who may have life-threatening 
bleeding, or require emergency procedures. The applicant noted that 
published results of the interim data based on 90 patients suggested 
the following: Reversal of the Dabigatran anticoagulant effect, which 
was evident immediately after administration; reversal was 100 percent 
in the first 4 hours and greater than 89 percent of patients achieved 
complete reversal; hemostasis in 35 patients in Group A was restored at 
a median of 11.4 hours. Also, the 5 gram dose of Idarucizumab was 
calculated to reverse the total body load of Dabigatran that was 
associated

[[Page 25046]]

with the 99th percentile of the Dabigatran levels measured in the RE-LY 
trial.
---------------------------------------------------------------------------

    \8\ Pollack C, et al. Design and rationale for RE-VERSE AD: A 
phase 3 study of idarucizumab, a specific reversal agent for 
dabigatran. Thromb Haemost. 2015 Jul; 114(1):198-205.
    \9\ Pollack C, et al. Idarucizumab for Dabigatran Reversal. N 
Engl J Med. 2015 Aug 6; 373(6):511-20.
---------------------------------------------------------------------------

    The applicant provided safety data from three Phase I studies and 
interim data from the Phase III study. In the Phase I study, 110 
healthy male patients enrolled in the study were administered dosages 
of Idarucizumab that ranged from 20 mg to 8 grams. In this study, 135 
patients received placebo. The applicant reported that adverse events 
were generally mild in intensity and nonspecific. Healthy human 
volunteers enrolled in the Phase I study were administered Idarucizumab 
in dosages of 2 and 4 grams, which resulted in immediate and complete 
reversal of the anticoagulant effect of Dabigatran that was sustained 
for several hours. In the Phase III study, five thrombotic events 
occurred. One occurred 2 days after treatment and the remainder 
occurred 7, 9, 13, and 26 days after treatment. These patients were not 
receiving antithrombotic therapy when the events occurred, and 
complications or adverse effects can be attributed to patients' 
underlying medical conditions. Twenty-one patients (13 in Group A and 8 
in Group B) had a serious adverse event. The most frequently reported 
adverse reactions in greater than or equal to 5 percent of the patients 
treated with Idarucizumab were hypokalemia, delirium, constipation, 
pyrexia, and pneumonia. The applicant concluded that the data from 
these studies demonstrated that Idarucizumab effectively, safely, and 
potently reverses the anticoagulant effect of Dabigatran. We are 
inviting public comments on whether Idarucizumab meets the substantial 
clinical improvement criterion.
    We did not receive any written public comments in response to the 
February 2016 New Technology Town Hall meeting regarding this 
application for new technology add-on payments.
d. Titan Spine (Titan Spine Endoskeleton[supreg] nanoLOCKTM 
Interbody Device)
    Titan Spine submitted an application for new technology add-on 
payments for the Titan Spine Endoskeleton[supreg] nanoLOCKTM 
Interbody Device (the Titan Spine nanoLOCKTM) for FY 2017. 
The Titan Spine nanoLOCKTM is a nanotechnology-based 
interbody medical device with a dual acid-etched titanium interbody 
system used to treat patients diagnosed with degenerative disc disease 
(DDD). One of the key distinguishing features of the device is the 
surface manufacturing technique and materials, which produce macro, 
micro, and nano surface textures. According to the applicant, the 
combination of surface topographies enables initial implant fixation, 
mimics an osteoclastic pit for bone growth, and produces the nano-scale 
features that interface with the integrins on the outside of the 
cellular membrane. Further, the applicant noted that these features 
generate better osteogenic and angiogenic responses that enhance bone 
growth, fusion, and stability. The applicant asserted that the Titan 
Spine nanoLOCKTM's clinical features also reduce pain, 
improve recovery time, and produces lower rates of device complications 
such as debris and inflammation.
    On October 27, 2014, the Titan Spine nanoLOCKTM received 
FDA approval for the use of five lumbar interbody devices and one 
cervical interbody device: The nanoLOCK\TM\ TA-Sterile Packaged Lumbar 
ALIF Interbody Fusion Device with nanoLOCKTM surface, 
available in multiple sizes to accommodate anatomy; the nanoLOCK\TM\ 
TAS-Sterile Packaged Lumbar ALIF Stand Alone Interbody Fusion Device 
with nanoLOCKTM surface, available in multiple sizes to 
accommodate anatomy; the nanoLOCK\TM\ TL-Sterile Packaged Lumbar 
Lateral Approach Interbody Fusion Device with nanoLOCKTM 
surface, available in multiple sizes to accommodate anatomy; the 
nanoLOCK\TM\ TO-Sterile Packaged Lumbar Oblique/PLIF Approach Interbody 
Fusion Device with nanoLOCKTM surface, available in multiple 
sizes to accommodate anatomy; the nanoLOCK\TM\ TT-Sterile Packaged 
Lumbar TLIF Interbody Fusion Device with nanoLOCKTM surface, 
available in multiple sizes to accommodate anatomy and the nanoLOCK\TM\ 
TC-Sterile Packaged Cervical Interbody Fusion Device with 
nanoLOCKTM surface, available in multiple sizes to 
accommodate anatomy. The applicant received FDA approval on December 
14, 2015, for the nanoLOCKTM TCS-Sterile Package Cervical 
Stand Alone Interbody Fusion Device with nanoLOCKTM surface, 
available in multiple sizes to accommodate anatomy. Currently, there 
are no ICD-10-PCS procedure codes that uniquely describe procedures 
involving use of the Titan Spine nanoLOCKTM surface 
technology.
    We note that cases reporting procedures involving lumbar and 
cervical interbody devices map to different MS-DRGs. As discussed in 
the Inpatient New Technology Add-On Payment Final Rule (66 FR 46915), 
two separate reviews and evaluations of the technologies are necessary 
in this instance because cases representing patients receiving 
treatment for diagnoses associated with lumbar procedures 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 for diagnoses associated with cervical procedures using the 
technology under the second indication. Specifically, cases 
representing patients who have been diagnosed with lumbar DDD and 
received treatment that involved implanting a lumbar device map to MS-
DRGs 028 (Spinal Procedures with MCC), 029 (Spinal Procedures with CC 
or Spinal Neurostimulators), 030 (Spinal Procedures without CC/MCC), 
453 (Combined Anterior/Posterior Spinal Fusion with MCC), 454 (Combined 
Anterior/Posterior Spinal Fusion with CC), 455 (Combined Anterior/
Posterior Spinal Fusion without CC/MCC), 456 (Spinal Fusion Except 
Cervical with Spinal Curvature or Malignancy or Infection or Extensive 
Fusions with MCC), 457 (Spinal Fusion Except Cervical with Spinal 
Curvature or Malignancy or Infection or Extensive Fusion without MCC), 
458 (Spinal Fusion Except Cervical with Spinal Curvature or Malignancy 
or Infection or Extensive Fusions without CC/MCC), 459 (Spinal Fusion 
Except Cervical with MCC), and 460 (Spinal Fusion Except Cervical 
without MCC), while cases representing patients who have been diagnosed 
with cervical DDD and received treatment that involved implanting a 
cervical interbody device map to MS-DRGs 471 (Cervical Spinal Fusion 
with MCC), 472 (Cervical Spinal Fusion with CC), and 473 (Cervical 
Spinal Fusion without CC/MCC). Procedures involving the lumbar and 
cervical interbody devices are assigned to separate MS-DRGs. Therefore, 
the devices categorized as lumbar devices and the devices categorized 
as cervical devices must distinctively (each category) meet the cost 
criterion and the substantial clinical improvement criterion in order 
to be eligible for new technology add-on payments beginning in FY 2017. 
We discuss application of these criteria following discussion of the 
newness criterion.
    As discussed previously in this section, if a technology meets all 
three of the substantial similarity criteria, it would be considered 
substantially similar to an existing technology and would not be 
considered ``new'' for the purposes of new technology add-on payments. 
We note that the substantial similarity discussion is applicable to 
both the lumbar and the cervical devices

[[Page 25047]]

because all of the devices use the Titan Spine nanLOCKTM 
technology.
    With regard to the first criterion, whether a product uses the same 
or a similar mechanism of action to achieve a therapeutic outcome, the 
applicant stated that, for both interbody devices (the lumbar and the 
cervical interbody device), the Titan Spine nanoLOCKTM's 
surface stimulates osteogenic cellular response to assist in bone 
formation during fusion. During the manufacturing process, the surface 
produces macro, micro, and nano-surface textures. The applicant 
believed that this unique combination and use of these surface 
topographies represents a new approach to stimulating osteogenic 
cellular response. The applicant asserted that the macro-scale textured 
features are important for initial implant fixation. The micro-scale 
textured features mimic an osteoclastic pit for supporting bone growth. 
The nano-scale textured features interface with the integrins on the 
outside of the cellular membrane, which generates the osteogenic and 
angiogenic (mRNA) responses necessary to promote healthy bone growth 
and fusion. The applicant provided the results from in vitro studies, 
using human mesenchymal cells (MSCs), which showed positive effects on 
bone growth related to cellular signaling achieved by using the 
device's surface, and osteoblasts exhibited a more differentiated 
phenotype and increased bone morphogenetic protein (BMP) production 
using titanium alloy substrates as opposed to poly-ether-ether-ketone 
(PEEK) substrates. The applicant stated that Titan Spine's proprietary 
and unique surface technology, the Titan Spine nanoLOCKTM 
interbody devices, contain optimized nano-surface characteristics, 
which generate the distinct cellular responses necessary for improved 
bone growth, fusion, and stability. The applicant further stated that 
the Titan Spine nanoLOCKTM's surface engages with the 
strongest portion of the endplate, which enables better resistance to 
subsidence because a unique dual acid-etched titanium surface promotes 
earlier bone in-growth. The Titan Spine nanoLOCKTM's surface 
is created by using a reductive process of the titanium itself. The 
applicant asserted that use of the Titan Spine nanoLOCKTM 
significantly reduces the potential for debris generated during 
impaction when compared to treatments using PEEK-based implants coated 
with titanium. According to the results of an in vitro study \10\ 
provided by the applicant, which compared angiogenic factor production 
using PEEK-based versus titanium alloy surfaces, osteogenic production 
levels were greater with the use of rough titanium alloy surfaces than 
the levels produced using smooth titanium alloy surfaces. The results 
of an additional study \11\ provided by the applicant examined whether 
inflammatory microenvironment generated by cells as a result of use of 
titanium aluminum-vanadium (Ti-alloy, TiAlV) surfaces is effected by 
surface microtexture, and whether it differs from the effects generated 
by PEEK-based substrates. The applicant noted that the use of 
microtextured surfaces has demonstrated greater promotion of osteoblast 
differentiation when compared to use of PEEK-based surfaces.
---------------------------------------------------------------------------

    \10\ Olivares-Navarrete R, Hyzy S, Gittens R. Titanium Alloys 
Regulate Osteoblast Production of Angiogenic Factors. The Spine 
Journal, 2013, ep.13. 1563-1570.
    \11\ Olivares-Navrrete R, Hyzy s, Slosar P, et al. Implant 
Materials Generate Different Peri-implant Inflammatory Factors. 
SPINE. 2015: 40:6:339-404.
---------------------------------------------------------------------------

    With regard to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, cases that may be eligible for 
treatment involving the Titan Spine nanoLOCKTM map to the 
same MS-DRGs as other (lumbar and cervical) interbody devices currently 
available to Medicare beneficiaries and also are used for the treatment 
of patients who have been diagnosed with DDD (lumbar or cervical).
    With regard to the third criterion, 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, the applicant 
stated that the Titan Spine nanoLOCKTM can be used in the 
treatment of patients diagnosed with similar types of diseases, such as 
DDD, and for a similar patient population receiving treatment involving 
both lumbar and cervical interbody devices.
    In summary, the applicant maintained that the Titan Spine 
nanoLOCKTM technology has a different mechanism of action 
when compared to other spinal fusion devices. Therefore, the applicant 
did not believe that the Titan Spine nanoLOCKTM technology 
is substantially similar to existing technologies.
    After reviewing the applicant's statements regarding nonsubstantial 
similarity of its technology with other existing technologies, we are 
still concerned that there are other titanium surfaced devices 
currently available on the U.S. market. While these devices do not use 
the Titan Spine nanoLOCKTM technology, their surfaces also 
are made of titanium. Therefore, we believe that the Titan Spine 
nanoLOCKTM interbody devices may be substantially similar to 
currently available titanium interbody devices.
    We are seeking public comments on whether the Titan Spine 
Endoskeleton[supreg] nanoLOCKTM Interbody Devices are 
substantially similar to existing technologies and whether these 
devices meet the newness criterion.
(1) Titan Spine Endoskeleton[supreg] nanoLOCKTM Interbody 
Device for Lumbar DDD
    As previously mentioned, the Titan Spine nanoLOCKTM 
received FDA approval for the use of five lumbar interbody devices on 
October 27, 2014. To demonstrate that the Titan Spine 
nanoLOCKTM for Lumbar DDD technology meets the cost 
criterion, the applicant researched claims data in the FY 2014 MedPAR 
file for cases assigned to MS-DRGs 028, 029, 030, 453, 454, and 455 
reporting any of the ICD-9-CM procedure codes within the code series 
81.xx (Repair and plastic operations on joint structures) or code 
series 084.6x (Replacement of spinal disk), excluding cases reporting 
the following ICD-9-CM procedure codes describing cervical fusion: 
81.01 (Atlas-axis spinal fusion), 81.02 (Other cervical fusion, 
anterior technique), 81.03 (Other cervical fusion, posterior 
technique), 81.31 (Refusion of atlas-axis spine), 81.32 (Refusion of 
other cervical spine, anterior technique), or 81.33 (Refusion of other 
cervical spine, posterior technique). As a result, the applicant found 
that all cases potentially eligible for treatment using the technology 
mapped to MS-DRGs 456, 457, 458, 459, and 460. However, the applicant 
focused its analyses on MS-DRGs 028 through 030, 453 through 455, and 
456 through 460 because these are the MS-DRGs to which cases treated 
with interbody fusion devices for degenerative disc disease would most 
likely be assigned. The applicant applied CMS' relative weight 
filtering process as described in the FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49424) to ensure the correct claim types were used and the 
charge details across the cost centers were appropriate.
    According to the applicant, 78.03 percent of the 96,281 cases found 
in the FY 2014 MedPAR file mapped to MS-DRG 460, while the remaining 
21.97 percent of cases mapped to MS-DRGs 028 through 030, 453 through 
455, and 456 through 459. This resulted in an average case-weighted 
charge per case of $127,082. The applicant then removed $15,766 for 
associated charges for other previously used spinal devices. The

[[Page 25048]]

applicant determined the associated charges to be removed for other 
previously used devices based on current Titan Spine sales data for the 
Titan Spine nanolockTM for Lumbar DDD various sizes. The 
applicant computed the associated charges by multiplying the weighted 
sales mix by the average sales price for each product in the Titan 
Spine nanoLOCKTM for Lumbar DDD product line. After the 
charges for other previously used technologies were removed, the 
applicant standardized the charges for all cases using the FY 2014 
standardizing file posted on the CMS Web site. The applicant excluded 
all cases without standardized charges, resulting in a total of 96,281 
cases. The applicant then inflated the average standardized case-
weighted charges from 2014 to 2016 by applying a 2-year rate of 
inflation factor of 7.7 percent, which is the same inflation factor 
used by CMS to update the FY 2016 outlier threshold (80 FR 49784).
    To calculate the appropriate charges for the Titan Spine 
nanoLOCKTM for Lumbar DDD, the applicant used a case-
weighted charge because the devices implanted are produced and made 
available in different sizes. To calculate the case-weighted charge for 
different lumbar device sizes, the applicant determined the average 
cost to the hospital per device and divided that amount by the national 
average CCR for implantable devices (0.337) published in the FY 2016 
IPPS/LTCH PPS final rule (80 FR 49429). Based on sales data, the 
applicant then applied a factor of 1.5 per patient to the case-weighted 
charge by dividing the total number of products sold in the United 
States by the total invoices generated; with one invoice being the 
equivalent to one patient and a single surgery. The applicant then 
added the device-related charges to the inflated average standardized 
charge per case, which resulted in an inflated average standardized 
case-weighted charge per case of $167,197. Using the FY 2016 IPPS Table 
10 thresholds, the average case-weighted threshold amount was $112,825 
(all calculations above were performed using unrounded numbers). 
Because the final inflated average standardized case-weighted charge 
per case exceeds the average case-weighted threshold amount, the 
applicant maintained that the technology meets the cost criterion.
    We are inviting public comments on whether the Titan Spine 
nanoLOCKTM for Lumbar DDD meets the cost criterion, 
particularly with regard to the assumptions and methodology used in the 
applicant's analyses.
(2) Titan Spine Endoskeleton[supreg] nanoLOCKTM Interbody 
Device for Cervical DDD
    As previously mentioned, Titan Spine received FDA approval for the 
use of the nanoLOCKTM TC-Sterile Packaged Cervical Interbody 
Fusion Device with nanoLOCKTM surface on October 27, 2014, 
and the nanoLOCKTM TCS-Sterile Package Cervical Interbody 
Fusion Device with nanoLOCKTM surface on December 14, 2015. 
To demonstrate that the Titan Spine nanoLOCKTM for Cervical 
DDD meets the cost criterion, the applicant researched claims data in 
the FY 2014 MedPAR file for cases assigned to MS-DRGs 028, 029, 030, 
453, 454, and 455 reporting any of the following ICD-9-CM cervical 
fusion procedure codes: 81.01, 81.02, 81.03, 81.32, 81.33. The 
applicant found that all of the cases mapped to MS-DRGs 471, 472, and 
473. However, the applicant focused its analysis on MS-DRGs 028 through 
030, 453 through 455, and 471 through 473 because these are the MS-DRGs 
to which cases treated with the implantation of cervical spinal devices 
for degenerative disc disease would most likely be assigned. Similar to 
the sensitivity analysis submitted for the Titan Spine 
nanoLOCKTM for Lumbar DDD, the applicant applied CMS' 
relative weight filtering process as described in the FY 2016 IPPS/LTCH 
PPS final rule (80 FR 49424) to ensure the correct claim types were 
used and the charge details across the cost centers were appropriate.
    According to the applicant, 59.47 percent of the 48,187 cases 
mapped to MS-DRG 473 and 25.65 percent of the cases mapped to MS-DRG 
472, while the remaining 14.88 percent of the cases mapped to MS-DRGs 
028 through 030, 453 through 455, and 471. This resulted in an average 
case-weighted charge per case of $83,841. Using the same methodology 
described above, the applicant removed $4,423 for associated charges 
for other previously used technologies from the average case-weighted 
charge per case using current Titan Spine sales data for cervical 
device sizes and then standardized the charges. The applicant then 
inflated the average standardized case-weighted charges from 2014 to 
2016 by applying the same 2-year rate of inflation factor used above 
(7.7 percent). Similar to the methodology described above, the 
applicant calculated $36,023 for associated device related charges for 
the Titan Spine nanoLOCKTM for Cervical DDD and added this 
amount to the inflated average standardized case-weighted charge per 
case, which resulted in a final inflated average standardized case-
weighted charge per case of $114,472. Using the FY 2016 IPPS Table 10 
thresholds, the average case-weighted threshold amount was $79,827 (all 
calculations above were performed using unrounded numbers). Because the 
final inflated average standardized case-weighted charge per case 
exceeds the average case-weighted threshold amount, the applicant 
maintained that the technology meets the cost criterion.
    We are inviting public comments on whether the Titan Spine 
nanoLOCKTM for Cervical DDD meets the cost criterion.
    With regard to the substantial clinical improvement criterion for 
the Titan Spine Endoskeleton[supreg] nanoLOCKTM Interbody 
Device for Lumbar and Cervical DDD, the applicant asserted that the 
Titan Spine nanoLOCKTM substantially improves the treatment 
of Medicare beneficiaries who have been diagnosed with and receive 
treatment for serious spinal pathologies, such as DDD, compared to the 
currently available technologies and treatment options, especially in 
terms of improved fusion, decreased pain, greater stability, faster 
recovery times, and lower rates of interbody device related 
complications, such as debris and inflammation.
    The applicant noted that the cellular process that occurs after 
implantation of the Titan Spine nanoLOCKTM induces the body 
to produce and regulate its own bone morphogenetic proteins (BMP), 
which help stimulate bone growth naturally in the human body. According 
to the applicant, this result supports new bone growth without 
requiring use of exogenous BMP. The applicant explained that exogenous 
rhBMPs trigger a significant cytokine related anti-inflammatory 
reaction that has resulted in adverse side effects. The applicant 
stated that the Titan Spine nanoLOCKTM's proprietary surface 
and use promotes endogenous production of osteogenic growth factors, 
such as BMP-2, BMP-4, BMP-7, and TGF-[beta]1.2, which produce only the 
physiologic amounts necessary for bone production without the 
concomitant cytokine related to anti-inflammatory reaction.
    The applicant also stated that the unique surface of the TitanSpine 
nanoLOCKTM differentiates the technology from existing 
interbody devices, which use materials such as PEEK-based or ceramic 
surfaces. The applicant explained that these materials cause stem cells 
to flatten on the surface of the implant and primarily differentiate 
into fibroblasts (fiber-producing cells). This result is avoided by 
using the Titan Spine nanoLOCKTM because the nano-textured 
surface

[[Page 25049]]

promotes differentiation of osteoblasts (bone-forming cells), which 
increases bone production around the implant site and increases the 
potential for a faster and more robust fusion. The applicant further 
stated that use of titanium and titanium alloy surfaces with rough 
microtopography demonstrate greater bone apposition, but use of 
macrotextured titanium and titanium alloy surfaces, such as the Titan 
Spine nanoLOCKTM, promotes osteoblast differentiation and 
productions of factors that favor bone formation, whereas PEEK-based 
surfaces do not.
    As previously noted, the applicant provided results from in vitro 
studies, using human MSCs, which showed positive effects on bone growth 
related to cellular signaling achieved from use of the device's 
surface, and osteoblasts exhibited a more differentiated phenotype and 
increased bone morphogenetic protein BMP production using titanium 
alloy substrates as opposed to PEEK-based substrates. The applicant 
believed that the Titan Spine nanoLOCKTM substantially 
improves the treatment of Medicare beneficiaries diagnosed with and 
receiving treatment for serious spinal pathologies, such as DDD, 
compared to currently available technologies and treatment options for 
Medicare beneficiaries, especially in terms of improved fusion, 
decreased pain, greater stability, faster recovery times, and lower 
rates of interbody device related complications, such as debris and 
inflammation.
    We are concerned that the results of the in vitro studies may not 
necessarily correlate with the clinical results specified by the 
applicant. Specifically, because the applicant has only conducted in 
vitro studies without obtaining any clinical data from live subjects 
during a specific clinical trial, we are unable to substantiate the 
clinical results that the applicant believed the technology achieved 
from a clinical standpoint based on the results of the studies 
provided. As a result, we are concerned that the results of the studies 
provided by the applicant do not demonstrate that the Titan Spine 
nanoLOCKTM technologies meet the substantial clinical 
improvement criterion. We are inviting public comments on whether the 
Titan Spine nanoLOCKTM technologies meet the substantial 
clinical improvement criterion.
    We did not receive any written public comments in response to the 
February 2016 New Technology Town Hall meeting regarding this 
application for new technology add-on payments.
e. Andexanet Alfa
    Portola Pharmaceuticals, Inc. (Portola) submitted an application 
for new technology add-on payments for FY 2017 for use of Andexanet 
Alfa, an antidote used to treat patients who are receiving treatment 
with an oral Factor Xa inhibitor who suffer a major bleeding episode 
and require urgent reversal of direct and indirect Factor Xa 
anticoagulation. Patients at high risk for thrombosis, including those 
who have been diagnosed with atrial fibrillation (AF) and venous 
thrombosis (VTE), typically receive treatment using long-term oral 
anticoagulation agents, such as Warfarin. Factor Xa inhibitors are 
included in a new class of anticoagulants. Factor Xa inhibitors are 
oral anticoagulants used to prevent stroke and systemic embolism in 
patients who have been diagnosed with AF. These oral anticoagulants are 
also used to treat patients diagnosed with deep-vein thrombosis (DVT) 
and its complications, pulmonary embolism (PE), and patients who have 
undergone knee, hip, or abdominal surgery. Rivarobaxan 
(Xarelto[supreg]), apixaban (Eliqis[supreg]), and edoxaban 
(Savaysa[supreg]) also are included in the new class of Factor Xa 
inhibitors, and are often referred to as ``novel oral anticoagulants'' 
(NOACs) or ``non-vitamin K antagonist oral anticoagulants.'' Although 
these anticoagulants have been commercially available since 2010, there 
is no FDA-approved therapy used for the urgent reversal of any Factor 
Xa inhibitor as a result of serious bleeding episodes.
    Andexanet Alfa has not received FDA approval at the time of the 
development of this proposed rule. The applicant anticipates receiving 
FDA approval for use of the technology in approximately June of 2016. 
Currently, there are no ICD-10-PCS procedure codes that uniquely 
identify the use of and administration of Andexanet Alfa. We note that 
the applicant submitted a request for unique ICD-10-PCS procedure codes 
that was presented at the March 2016 ICD-10 Coordination and 
Maintenance Committee meeting. If approved, the procedure codes would 
become effective on October 1, 2016 (FY 2017). More information on this 
request can be found on the CMS Web site located at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
    As discussed earlier, if a technology meets all three of the 
substantial similarity criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments.
    The applicant believed that, if approved, Andexanet Alfa would be 
the first and only antidote available used to treat patients receiving 
treatment with an oral Factor Xa inhibitor who suffer a major bleeding 
episode and require urgent reversal of direct and indirect Factor Xa 
anticoagulation. Therefore, the applicant asserted that the technology 
is not substantially similar to any other currently approved and 
available treatment options for Medicare beneficiaries.
    With regard to the first criterion, whether a product uses the same 
or a similar mechanism of action to achieve a therapeutic outcome, 
Andexanet Alfa, if approved, would be the first reversal agent that 
binds to direct Factor Xa inhibitors with high affinity, sequestering 
the inhibitors, and consequently rapidly reducing free plasma 
concentration of Factor Xa inhibitors and neutralizing the inhibitors' 
anticoagulant effect, which allows for the restoration of normal 
hemostasis. Andexanet Alfa also binds to and sequesters antithrombin 
III molecules that are complexed with indirect inhibitor molecules, 
disrupting the capacity of the antithrombin complex to bind to native 
Factor Xa inhibitors. According to the applicant, Andexanet Alfa 
represents a significant therapeutic advance by providing rapid 
reversal of anticoagulation therapy in the event of a serious bleeding 
episode. Other reversal agents, such as KcentraTM and 
Idarucizumab, do not reverse the effects of Factor Xa inhibitors.
    With regard to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, Andexanet Alfa would be the first 
FDA approved reversal agent for Factor Xa inhibitors. Therefore, the 
MS-DRGs do not contain cases representing patients that have been 
treated with any reversal agents for Factor Xa inhibitors.
    With regard to the third criterion, 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, Andexanet Alfa, if 
approved, would be the only reversal agent available for treating 
patients receiving direct or indirect Factor Xa therapy who experience 
serious, uncontrolled bleeding events or who require emergency surgery. 
Therefore, Andexanet Alfa would be the first type of treatment option 
available to this patient population, As a result, it appears that 
Andexanet Alfa is not substantially similar to any existing 
technologies. We are inviting public comments on whether Andexanet Alfa

[[Page 25050]]

meets the substantial similarity criteria and whether Andexanet Alfa 
meets the newness criterion.
    With regard to the cost criterion, the applicant researched the FY 
2014 MedPAR claims data file for cases that may be eligible for 
treatment using Andexanet Alfa. The applicant used three sets of ICD-9-
CM codes to identify these cases: (1) Codes identifying cases of 
patients who were treated with an anticoagulant and, therefore, are at 
risk of bleeding; (2) Codes identifying cases of patients with a 
history of conditions that were treated with Factor Xa inhibitors; and 
(3) codes identifying cases of patients who experienced bleeding 
episodes as the reason for the current admission. The applicant 
included with its application the following table displaying a complete 
list of ICD-9-CM codes that met its selection criteria:

------------------------------------------------------------------------
ICD-9-CM codes applicable       Applicable ICD-9-CM code description
------------------------------------------------------------------------
V12.50...................  Personal history of unspecified circulatory
                            disease.
V12.51...................  Personal history of venous thrombosis and
                            embolism.
V12.52...................  Personal history of thrombophlebitis.
V12.54...................  Personal history of transient ischemic attack
                            (TIA), and cerebral infarction without
                            residual deficits.
V12.55...................  Personal history of pulmonary embolism.
V12.59...................  Personal history of other diseases of
                            circulatory system.
V43.64...................  Hip joint replacement.
V43.65...................  Knee joint replacement.
V58.43...................  Aftercare following surgery for injury and
                            trauma.
V58.49...................  Other specified aftercare following surgery.
V58.73...................  Aftercare following surgery of the
                            circulatory system, NEC.
V58.75...................  Aftercare following surgery of the teeth,
                            oral cavity and digestive system, NEC.
V58.61...................  Long-term (current) use of anticoagulants.
E934.2...................  Anticoagulants causing adverse effects in
                            therapeutic use.
99.00....................  Perioperative autologous transfusion of whole
                            blood or blood components.
99.01....................  Exchange transfusion.
99.02....................  Transfusion of previously collected
                            autologous blood.
99.03....................  Other transfusion of whole blood.
99.04....................  Transfusion of packed cells.
99.05....................  Transfusion of platelets.
99.06....................  Transfusion of coagulation factors.
99.07....................  Transfusion of other serum.
------------------------------------------------------------------------

    The applicant identified a total of 54,200 cases that mapped to 680 
MS-DRGs, resulting in an average case-weighted charge per case of 
$67,197. The applicant also provided an analysis limited to 80 percent 
of all cases (47,273 cases), which mapped to the top 147 MS-DRGs. Under 
this analysis, the average case-weighted charge per case was $64,095. 
Under each of these two analyses, the applicant also provided 
sensitivity analyses based on variables representing two areas of 
uncertainty: (1) Whether to remove 40 percent or 60 percent of blood 
and blood administration charges; and (2) whether to remove pharmacy 
charges based on the ceiling price of factor eight inhibitor bypass 
activity (FEIBA), a branded anti-inhibitor coagulant complex, or on the 
pharmacy indicator 5 (PI5) in the MedPAR data file, which correlates to 
cases utilizing generic coagulation factors. Overall, the applicant 
conducted eight sensitivity analyses, and provided the following 
rationales:
     The applicant chose to remove 40 percent and 60 percent of 
blood and blood administration charges because patients who require 
Andexanet Alfa for Factor Xa reversal may still require blood and blood 
products to treat other conditions. Therefore, it would be 
inappropriate to remove all of the charges associated with blood and 
blood administration because all of the charges cannot be attributed to 
Factor Xa reversal. The applicant maintained that the amounts of blood 
and blood products required for treatment vary according to the 
severity of the bleeding. Therefore, the use of Andexanet Alfa may 
replace 60 percent of blood and blood product administration charges 
for cases with less severity of bleeding, but only 40 percent of 
charges for cases with more severe bleeding.
     The applicant maintained that FEIBA is the highest priced 
clotting factor used for Factor Xa inhibitor reversal, and it is 
unlikely that pharmacy charges for Factor Xa reversal would exceed the 
FEIBA ceiling price of $10,570. Therefore, the applicant capped the 
charges to be removed at $10,570, which in many cases removed 100 
percent of the pharmacy charges. The applicant also considered an 
alternative scenario in which charges associated with pharmacy 
indicator 5 (PI5) were removed from the costs of cases that included 
this indicator in the MedPAR data. On average, charges removed from the 
costs of cases utilizing generic coagulation factors were much lower 
than the total pharmacy charges.
    The applicant noted that, in all eight scenarios, the average 
standardized case-weighted charge per case for cases eligible for 
treatment using Andexanet Alfa would exceed the average case-weighted 
threshold amounts in Table 10 of the FY 2016 IPPS/LTCH PPS final rule 
by approximately $3,247 to $7,844, depending on the results determined 
by using the combination of variables of the two areas of uncertainty 
and the number of MS-DRGs analyzed.
    The applicant's order of operations used for each analysis follows: 
(1) Removing 60 percent or 40 percent of blood and blood administration 
charges and up to 100 percent of pharmacy charges for PI5 or FEIBA from 
the average unstandardized case-weighted charge per case; (2) 
standardizing the charges per cases using the Impact File published 
with the FY 2014 IPPS/LTCH PPS final rule. After removing the charges 
for the prior technology and standardizing charges, the applicant 
applied an inflation factor of 1.076647, which is the 2-year inflation 
factor in the FY 2016 IPPS/LTCH final rule (80 FR 49784) to update the 
charges from FY 2014 to FY 2016. The applicant noted that it did not 
add charges for Andexanet Alfa and related services. Under each 
scenario, the applicant stated that the inflated average standardized 
case-weighted charge per case exceeded the average case-weighted 
threshold (based on the FY 2016 IPPS Table 10 thresholds). Below

[[Page 25051]]

we provide a table for all eight scenarios that the applicant indicated 
demonstrate that the technology meets the cost criterion.

------------------------------------------------------------------------
                                         Inflated
                                          average
                                       standardized         Average
              Scenario                 case-weighted  case[dash]weighted
                                        charge per     threshold amount
                                           case
------------------------------------------------------------------------
100 Percent of Cases, FEIBA, 60              $60,231           $55,799
 Percent Removal of Blood and Blood
 Administration Costs...............
100 Percent of Cases, PI5, 60                 63,643            55,799
 Percent Removal of Blood and Blood
 Administration Costs...............
100 Percent of Cases, FEIBA, 40               61,651            55,799
 Percent Removal of Blood and Blood
 Administration Costs...............
100 Percent of Cases, PI5, 40                 64,203            55,799
 Percent Removal of Blood and Blood
 Administration Costs...............
80 Percent of Cases, FEIBA, 60                57,686            54,413
 Percent Removal of Blood and Blood
 Administration Costs...............
80 Percent of Cases, PI5, 60 Percent          60,994            54,413
 Removal of Blood and Blood
 Administration Costs...............
80 Percent of Cases, FEIBA, 40                59,096            54,413
 Percent Removal of Blood and Blood
 Administration Costs...............
80 Percent of Cases, PI5, 40 Percent          61,558            54,413
 Removal of Blood and Blood
 Administration Costs...............
------------------------------------------------------------------------

    The applicant noted that 25 percent of the total volume of cases 
map to the following 10 MS-DRGs: MS-DRG 378 (Gastrointestinal 
Hemorrhage with CC), 7.56 percent of all cases; MS-DRG 812 (Red Blood 
Cell Disorders without MCC), 3.13 percent of all cases; MS-DRG 377 
(Gastrointestinal Hemorrhage with MCC), 2.68 percent of all cases; MS-
DRG 470 (Major Joint Replacement or Reattachment of Lower Extremity 
without MCC), 2.32 percent of all cases); MS-DRG 871 (Septicemia or 
Severe Sepsis without Mechanical Ventilation >96 hours with MCC), 2.26 
percent of all cases; MS-DRG 481 (Hip & Femur Procedures, Except Major 
Joint with CC), 2.08 percent of all cases; MS-DRG 811 (Red Blood Cell 
Disorders with MCC), 1.70 percent of all cases; MS-DRG 291 (Heart 
Failure and Shock with MCC), 1.22 percent of all cases; MS-DRG 379 
(Gastro intestinal Hemorrhage without CC/MCC), 1.12 percent of all 
cases; and MS-DRG 683 (Renal Failure with CC), 1.06 percent of all 
cases. We are concerned that the applicant did not include sensitivity 
analyses for this subset of cases.
    We are inviting public comments on whether Andexanet Alfa meets the 
cost criterion, including with regard to the concern we have raised.
    With regard to the substantial clinical improvement criterion, the 
applicant asserted that Andexanet Alfa represents a substantial 
clinical improvement for the treatment of patients receiving direct or 
indirect Factor Xa therapy who experience serious, uncontrolled 
bleeding events or who require emergency surgery because it addresses 
an unmet medical need for a universal antidote to direct and indirect 
Factor Xa inhibitors; if approved, would be the only agent shown in 
prospective clinical trials to rapidly (within 2-5 minutes) and 
sustainably reverse the anticoagulation activity of Factor Xa 
inhibitors; is potentially non-thrombogenic, as no serious adverse 
effects of thrombosis were observed in clinical trials; and could 
supplant current treatments for bleeding from anti-Factor Xa treatment, 
which have not been shown to be effective in the treatment of all 
patients.
    With regard to addressing an unmet need for a universal antidote to 
direct and indirect Factor Xa inhibitors, the applicant asserted that 
the use of any anticoagulant is associated with an increased risk of 
bleeding, and bleeding complications can be life-threatening. Bleeding 
is especially concerning in patients treated with Factor Xa inhibitors 
because there are currently no antidotes to Factor Xa inhibitors 
available. The applicant stated that Andexanet Alfa has a unique 
mechanism of action and represents a new biological approach to the 
treatment of patients who have been diagnosed with acute severe 
bleeding who require immediate reversal of the Factor Xa inhibitor 
therapy. The applicant explained that although Andexanet Alfa is 
structurally very similar to native Factor Xa inhibitors, it has 
undergone several modifications that restrict its biological activity 
to reversing the effects of Factor Xa inhibitors by binding with and 
sequestering direct or indirect Factor Xa inhibitors, which allows 
native Factor Xa inhibitors to dictate the normal coagulation and 
hemostasis process. As a result, the applicant maintained that 
Andexanet Alfa represents a safe and effective therapy for the 
management of bleeding in a fragile patient population and a 
substantial clinical improvement over existing technologies and 
reversal strategies.
    The applicant noted the following: On average, patients with a 
bleeding complication were hospitalized for 6.3 to 7.4 days; the most 
common therapies currently used to manage bleeding events in patients 
undergoing anticoagulant treatment are blood transfusions, most 
frequently with packed red blood cells or fresh frozen plasma; and 
Vitamin K therapy was used only in 1 percent of Medicare beneficiaries 
who were receiving treatment with the indirect Factor Xa inhibitor 
enoxaparin.
    The applicant asserted that laboratory studies have failed to 
provide consistent evidence of ``reversal'' of the anticoagulant effect 
of Factor Xa inhibitors across a range of different PCC products and 
concentrations. Results of thrombin generation assays have varied 
depending on the format of the assay. Despite years of experience with 
low molecular weight heparins and pentasaccharide anticoagulants, 
neither PCCs nor factor eight inhibitor bypassing activity are 
recognized as safe and effective reversal agents for these Factor Xa 
inhibitors. Unlike patients taking Vitamin K antagonists, patients 
receiving treatment with oral Factor Xa inhibitor drugs have normal 
levels of clotting factors. Therefore, a strategy based on 
``repleting'' factor levels is of uncertain foundation and could result 
in supra-normal levels of coagulation factors after rapid metabolism 
and clearance of the oral anticoagulant.
    The applicant provided results from two Phase III studies 
12 13 in which older healthy volunteers pretreated with 
direct or indirect Factor Xa inhibitors (apixaban, edoxaban, 
rivaroxaban, and enoxaparin) demonstrated the following: Rapid and 
sustainable reversal of anticoagulation; reduced Factor Xa inhibitor 
free plasma levels by at least 80 percent below a calculated no-effect 
level; and reduced anti-Factor Xa activity to the lowest level of 
detection within 2 to 5 minutes of

[[Page 25052]]

infusion. The applicant noted that decreased Factor Xa inhibitor levels 
have been shown to correspond to decreased bleeding complications, 
reconstitution of activity of coagulation factors, and correction of 
coagulation.
---------------------------------------------------------------------------

    \12\ Conners, J.M. Antidote for Factor Xa Anticoagulants. N Engl 
J Med. 2015 Nov 13.
    \13\ Siegal DM, Curnutte JT, Connolly SJ, et al. Andexanet Alfa 
for the Reversal of Factor Xa Inhibitor Activity. N Engl J Med. 2015 
Nov 11.
---------------------------------------------------------------------------

    The applicant stated that the results from the two Phase III 
studies and previous proof-of-concept Phase II dose-finding studies \2\ 
showed that use of Andexanet Alfa can rapidly reverse anticoagulation 
activity of Factor Xa inhibitors and sustain that reversal. Therefore, 
the applicant asserted that Andexanet Alfa has the potential to 
successfully treat patients who only need short-duration reversal of 
the Factor Xa inhibitor anticoagulant, as well as patients who require 
longer-duration reversal, such as patients experiencing a severe 
intracranial hemorrhage or requiring emergency surgery. Furthermore, 
the applicant noted that its technology's duration of action allows for 
a gradual return of Factor Xa inhibitor concentrations to placebo 
control levels within 2 hours following the end of infusion.
    With regard to Andexanet Alfa's non-thrombogenic nature, as no 
serious adverse effects of thrombosis were observed in clinical trials, 
the applicant provided clinical trial data which revealed participants 
in Phase II and Phase III trials had no thrombotic events and there 
were no serious or severe adverse events reported. Results also showed 
that use of Andexanet Alfa has a much lower risk of thrombosis than 
typical procoagulants because it lacks the region responsible for 
inducing coagulation. Furthermore, the applicant asserted that 
Andexanet Alfa is not associated with the known complications seen with 
red blood cell transfusions.
    The applicant asserted that, while the Phase II and Phase III 
trials and studies measured physiological hallmarks of reversal of 
NOACs, it is expected that the availability of a safe and reliable 
Factor Xa reversal will result in an overall better prognosis for 
patients--potentially leading to a reduction in length of hospital 
stay, fewer complications, and decreased mortality associated with 
unexpected bleeding episodes.
    The applicant also stated that use of Andexanet Alfa can supplant 
currently available treatments used for reversing bleeding from anti-
Factor Xa treatments, which have not been shown to be effective in the 
treatment of all patients. With regard to PCCs, NOACs, and FFP, the 
applicant stated that there is a lack of clinical evidence available 
for patients taking Factor Xa inhibitors that experience bleeding 
events. The applicant noted that the case reports provide a snapshot of 
emergent treatment of these often medically complex anti-Factor Xa-
treated patients with major bleeds. However, the applicant stated that 
these analyses reveal the inconsistent approach in assessing the degree 
of anticoagulation in the patient and the variability in treatment 
strategy. The applicant explained that little or no assessment of 
efficacy in restoring coagulation in the patients was performed, and 
the major outcomes measures were bleeding cessation or mortality. The 
applicant concluded that overall, there is very little evidence for the 
efficacy suggested in some guidelines, and the evidence is insufficient 
to draw any conclusions.
    We are inviting public comments on whether Andexanet Alfa meets the 
substantial clinical improvement criterion.
    Below is a summary of the written comments we received on the 
Andexanet Alfa application in response to the February 2016 New 
Technology Town Hall meeting and our response:
    Comment: Two commenters supported the approval of new technology 
add-on payments for Andexanet Alfa. According to the commenters, 
Andexanet Alfa is a significant clinical improvement over existing 
therapies used to reverse major bleeding in patients receiving 
treatment using Factor Xa inhibitors. One commenter stated that 
Andexanet Alfa would be the first and only antidote to treat patients 
receiving an oral Factor Xa inhibitor who have suffered a major 
bleeding episode and require urgent reversal of Factor Xa 
anticoagulation. Based on professional experience as a first line 
clinician charged with stabilizing and treating patients with bleeding 
events or trauma such as assaults and motor vehicle accidents, the 
commenter stated that patients on anticoagulation therapy present a 
difficult scenario and they often have comorbidities, which complicate 
the effectiveness of medical care and put them at risk for 
complications. The commenter stated that major bleeding is observed in 
approximately five percent of patients receiving treatment using Factor 
Xa inhibitors, but only a small subset of those patients require urgent 
reversal of anti-Factor Xa activity. The commenter believed that, in 
spite of oral Factor Xa inhibitor's short half-life (7 to 9 hours) and 
similar or even lower bleeding rates than with warfarin or low 
molecular weight heparin, the lack of a targeted antidote that is safe 
for Factor Xa inhibitors is believed to limit these anticoagulants, 
which do not have a monitoring requirement, nor any dietary 
restrictions. The commenter believed that a significant disadvantage of 
Factor Xa inhibitors is the lack of an effective strategy to rapidly 
reverse the anticoagulant effects in patients requiring emergency 
surgery or presenting with an emergent bleed. There is currently no 
agent indicated or proven to be effective for the treatment of patients 
with Factor Xa inhibitor related bleeding. The commenter believed that 
Andexanet Alfa would provide clinicians and their patients the ability 
to restore homeostasis in critical emergency settings for the broad 
range of bleeds experienced by patients receiving treatment using 
Factor Xa inhibitors. The commenter compared Andexanet Alfa to 
KcentraTM and FEIBA, and noted that both work upstream in 
the coagulation cascade and thus cannot overcome the effects of the 
Factor Xa inhibitors. The commenter further stated that human plasma-
derived clotting factors were not designed to reverse Factor Xa 
inhibitors. The commenter also believed that it is well recognized 
among clinicians that there is a critical need for a reversal agent for 
the new oral anticoagulants (NOAC) that will rapidly restore normal 
coagulation, and stated that Andexanet Alfa represents a significant 
clinical improvement over existing therapies that should be approved 
for the new technology add-on payments.
    Another commenter also believed that Andexanet Alfa represents a 
significant clinical improvement over existing therapies. The commenter 
stated that, in the dire moment that a patient presents a critical care 
team with a life-threatening bleed, reversing coagulation immediately 
provides the foundation for stabilizing the patient, which is needed to 
prevent further morbidity and mortality. The commenter also noted 
KcentraTM's and FEIBA's inability to affect Factor Xa 
inhibitors because they act on upstream coagulation cascade factors. 
The commenter further believed that Andexanet Alfa's mechanism of 
action is different from the mechanism of action of existing 
treatments.
    Response: We appreciate the commenters' input. We will take these 
comments into consideration when deciding whether to approve new 
technology add-on payments for Andexanet Alfa for FY 2017.
f. Defitelio[supreg] (Defibrotide)
    Jazz Pharmaceuticals submitted an application for new technology 
add-on payments for FY 2017 for Defibrotide (Defitelio[supreg]), a 
treatment for patients diagnosed with hepatic veno-occlusive disease 
(VOD) with evidence of multi-organ dysfunction. VOD is a potentially

[[Page 25053]]

life-threatening complication resulting from hematopoietic stem cell 
transplantation (HSCT), with an incidence rate of 8 percent to 15 
percent of patients experiencing its effects after HSCT. Diagnoses of 
VOD range in severity from what has been classically defined as a 
disease limited to the liver (mild) and reversible, to a severe 
syndrome associated with multi-organ dysfunction or failure and death. 
Patients treated with HSCT who develop VOD with evidence of multi-organ 
dysfunction face an immediate risk of death, with a mortality rate of 
more than 80 percent when only supportive care is used.
    VOD is believed to be the result of endothelial cell damage and 
hepatocellular injury from high-dose conditioning regimens administered 
prior to receiving treatment with HSCT. Preclinical data suggest that 
Defitelio[supreg] stabilizes endothelial cells by reducing endothelial 
cell activation and by protecting endothelial cells from further 
damage. Defitelio[supreg] is administered as a 2-hour intravenous 
infusion every 6 hours. The recommended dosage is 6.25 mg/kg body 
weight (25mg/kg/day). Defitelio[supreg] should be administered for a 
minimum of 21 days. If after 21 days the signs and symptoms associated 
with hepatic VOD are not resolved, the administration of 
Defitelio[supreg] should be continued until clinical resolution.
    With regard to the newness criterion, according to the 
manufacturer, Defitelio[supreg] received FDA approval in March 30, 2016 
and is expected to be commercially available on the U.S. market on 
April 6, 2016. At this time, the applicant has not submitted any 
specific information to establish that the technology was not available 
on the U.S. market as of the FDA approval date or to describe the 
reasons for a delay of availability until the first week of April 2016. 
Therefore, we believe the newness period for Defitelio[supreg] would 
begin on March 30, 2016, the date of FDA approval.
    There are currently no ICD-10-PCS codes to uniquely identify the 
intravenous administration of Defitelio[supreg]. The applicant 
submitted an application for the March 9-10, 2016 meeting of the ICD-10 
Coordination and Maintenance Committee for a unique ICD-10-PCS 
procedure code to identify the use of Defitelio. If approved, the 
procedure code would become effective on October 1, 2016 (FY 2017). 
More information on this request can be found on the CMS Web site 
located at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
    As discussed earlier, if a technology meets all three of the 
criteria for substantial similarity, it would be considered 
substantially similar to an existing technology and would not be 
considered ``new'' for purposes of new technology add-on payments.
    With regard to the first criterion, whether the product uses the 
same or similar mechanism of action to achieve a therapeutic outcome, 
the applicant maintained that Defitelio[supreg] has a unique mechanism 
of action that is not shared by any other drug on the market used to 
treat patients diagnosed with VOD with evidence of multi-organ failure. 
According to the applicant, there are no FDA-approved treatments for 
VOD other than supportive care. Anticoagulants such as heparin, 
antithrombin, and tissue plasminogen factor have been used to treat 
patients diagnosed with VOD, but there is a lack of conclusive evidence 
that these treatments are effective and they also present a high risk 
of bleeding. The applicant maintained that Defitelio[supreg] addresses 
the underlying pathology of VOD with evidence of multi-organ failure 
and its use is effective as a treatment for this form of the disease. 
According to the applicant, it is speculated that the mechanism of 
action of the Defitelio[supreg] revolves around the stabilization of 
endothelial cells because endothelial cell damage is believed to be a 
major contributing factor to the development of VOD. However, we are 
concerned that this mechanism of action is not well understood by the 
manufacturer and we are unable to determine whether Defitelio[supreg] 
is substantially similar to the other drugs on the market without full 
understanding of its distinct mechanism of action.
    With regard to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, the applicant maintained that cases 
potentially eligible for treatment using Defitelio[supreg] and 
representing the target patient population mainly group to two MS-DRGs: 
MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 016 
(Autologous Bone Marrow Transplant with CC/MCC). We believe that these 
are the same MS-DRGs that identify cases of patients treated with 
supportive care for VOD with multi-organ failure.
    With regard to the third criterion, 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, the applicant 
asserted that there are no FDA-approved treatments for VOD other than 
supportive care, such as dialysis or ventilation. In addition, the 
applicant stated that poor outcomes have been reported for patients 
treated with nonapproved pharmacological treatments for VOD. These 
treatments have largely been discontinued because of the high incidence 
of hemorrhagic complications, particularly among patients diagnosed 
with multi-organ failure. According to the applicant, Defitelio[supreg] 
would be the first and only FDA-approved treatment for VOD with 
evidence of multi-organ failure. However, we are concerned that the 
applicant did not include in its application data comparing the 
outcomes of patients treated with Defitelio[supreg] to outcomes of 
patients treated only for supportive care. We are concerned that 
Defitelio[supreg] may not produce outcomes that are significantly 
different than the outcomes of patients treated with supportive care.
    We are inviting public comments on whether Defitelio[supreg] is 
substantially similar to existing technologies and whether it meets the 
newness criterion.
    With regard to the cost criterion, the applicant conducted 
sensitivity analyses using claims data from 2012 through 2014 and 
determined the results in aggregate and by year. The applicant 
researched 100 percent of the 2012 through 2014 Inpatient Standard 
Analytic Files (SAFs) for cases eligible for Defitelio[supreg]. Because 
an ICD-9-CM code specific to treatment for VOD does not exist, the 
applicant used an algorithm to identify cases to use in its sensitivity 
analyses. The most appropriate ICD-9-CM diagnosis codes were identified 
based on clinical criteria used to diagnose VOD and were used to 
identify cohorts of patients diagnosed with VOD and VOD with multi-
organ dysfunction. The applicant first identified claims with an ICD-9-
CM procedure code indicating an HSCT (Group A) within a 30-day window; 
VOD most commonly occurs after receipt of HSCT. The applicant then 
looked for cases with ICD-9-CM diagnosis codes related to liver injury 
(Group B) or clinical evidence of suspected VOD symptoms based on at 
least two relevant ICD-9 diagnosis codes (Group C). Lastly, the 
applicant filtered out cases that did not show clinical evidence of 
multi-organ dysfunction based on at least one relevant ICD-9-CM code 
(Group D).
    The applicant submitted the following table indicating the ICD-9-CM 
codes used for each category of the algorithm.

[[Page 25054]]



                            Table 12--ICD-9 Codes Used for the Premier VOD Algorithm
----------------------------------------------------------------------------------------------------------------
         Group                      Title              ICD-9-CM Code                  Description
----------------------------------------------------------------------------------------------------------------
A......................  Hematopoietic Stem Cell               41.00  Bone marrow transplant, not otherwise
                          Transplant (HSCT) (at                41.01   specified.
                          least one code).                     41.02  Autologous bone marrow transplant without
                                                                       purging.
                                                                      Allogeneic bone marrow transplant with
                                                                       purging.
                                                               41.03  Allogeneic bone marrow transplant without
                                                                       purging.
                                                               41.04  Autologous hematopoietic stem cell
                                                                       transplant without purging.
                                                               41.05  Allogeneic hematopoietic stem cell
                                                                       transplant without purging.
                                                               41.06  Cord blood stem cell transplant.
                                                               41.07  Autologous hematopoietic stem cell
                                                                       transplant with purging.
                                                               41.08  Allogeneic hematopoietic stem cell
                                                                       transplant.
                                                               41.09  Autologous bone marrow transplant with
                                                                       purging.
B......................  Liver Injury (at least one           453.xx  Other venous embolism and thrombosis.
                          code).                              570.xx  Acute and subacute necrosis of liver.
                                                               573.8  Other specified disorders of liver.
                                                               573.9  Unspecified disorder of liver.
                                                              459.89  Other specified disorders of the
                                                                       circulatory system.
                                                               277.4  Disorders of bilirubin excretion.
C......................  VOD Symptoms (at least two            782.4  Hyperbilirubinemia.
                          codes).                              789.1  Hepatomegaly.
                                                               783.1  Abnormal weight gain.
                                                               789.5  Ascites.
D......................  Multi-Organ Dysfunction (at          518.8x  Acute/Chronic Respiratory Failure.
                          least one code).                    786.09  Other respiratory abnormalities
                                                                       (respiratory distress, except that
                                                                       associated with trauma/surgery in adults,
                                                                       or with RDS in newborns).
                                                              799.02  Hypoxemia.
                                                              518.81  Acute respiratory failure.
                                                               V46.2  Other dependence on machines, supplemental
                                                                       oxygen.
                                                               96.7x  Other continuous invasive mechanical
                                                                       ventilation.
                                                       93.90, 93.91,  Non-invasive mechanical ventilation.
                                                        93.93, 93.99
                                                               584.X  Acute renal failure.
                                                               586.X  Renal failure unspecified.
                                                               593.9  Renal Failure.
                                                       39.27, 39.42,  Dialysis, including hemodialysis,
                                                        39.95, 54.98   peritoneal dialysis, hemofiltration.
----------------------------------------------------------------------------------------------------------------

    Using the above algorithm, the applicant identified a total of 267 
patient cases of VOD with multi-organ dysfunction in the 2012-2014 
Inpatient SAFs, with 78 patient cases in 2012, 102 patient cases in 
2013, and 87 patient cases in 2014, or an average annual patient case 
volume of 89. The applicant determined that these cases grouped mainly 
into two MS-DRGs: 014 and 016. The applicant noted that there were no 
cases in the data from MS-DRG 017 (Autologous Bone Marrow Transplant 
without CC/MCC). The applicant further noted that there were no cases 
from MS-DRG 017 because the ICD-9-CM codes identifying VOD with multi-
organ dysfunction include serious medical conditions that are listed on 
the MCC and CC lists. In total, 38 MS-DRGs were represented in the 
patient cohort, with 27 percent of cases mapping to MS-DRG 014 and 42 
percent of cases mapping to MS-DRG 016. The remaining cases mapped to 1 
of the 36 remaining MS-DRGs with fewer than 11 cases.
    For results in the aggregate, the applicant calculated an average 
case-weighted charge per case of $427,440 across 267 cases representing 
diagnoses of VOD with multi-organ dysfunction from 2012 through 2014. 
The applicant assumed there would be a reduction in the use of selected 
drugs as a result of using Defitelio[supreg] and removed 50 percent of 
the estimated charges for heparin, furosemide, and spironolactone. The 
charges for these drugs were estimated based on pricing taken from the 
Medispan PriceRx database, whose costs were marked up according to the 
inverse of CCRs from cost center 073 (Drugs Charged to Patients) 
obtained from providers' 2012, 2013, and 2014 cost reports. The 
applicant matched these CCRs with the provider numbers on each claim. 
The applicant removed an average of $2,631 in charges for these drugs 
from the overall unstandardized charges for Defitelio[supreg].
    The applicant then standardized the charges and calculated an 
average standardized case-weighted charge per case of $310,651. To 
update the charge data to the current fiscal year, the applicant 
inflated the charges based on the charge inflation factor of 1.048116 
in the FY 2016 IPPS/LTCH final rule (80 FR 49779). The 1-year inflation 
factor was applied four times to FY 2012 claims, three times to FY 2013 
claims, and twice to FY 2014 claims to inflate all charges to 2016. The 
applicant computed an inflated average standardized case-weighted 
charge per case of $356,015. Using the FY 2016 IPPS Table 10 
thresholds, the average case-weighted threshold amount was $157,951 
(all calculations above were performed using unrounded numbers). 
Because the inflated average standardized case-weighted charge per case 
exceeds the average case-weighted threshold amount, the applicant 
maintained that the technology meets the cost criterion. The applicant 
noted that it did not include charges for Defitelio[supreg] in the 
inflated average standardized case-weighted charge per case because the 
inflated average standardized case-weighted charge per case exceeded 
the average case-weighted threshold amount without charges for 
Defitelio[supreg].
    The applicant provided a similar analysis for each individual year 
of the SAF data rather than combining all the data from all 3 years 
into one analysis. Under the other three analyses, the applicant noted 
that the average standardized case-weighted charge per case exceeded 
the average case-

[[Page 25055]]

weighted threshold amount (as shown in the table below) without 
inflating the charges and without adding any charges for 
Defitelio[supreg]. We are inviting public comments on whether 
Defitelio[supreg] meets the cost criterion.

------------------------------------------------------------------------
                                                              Average
                                            Average        standardized
              SAF year                case[dash]weighted   case-weighted
                                       threshold amount     charge per
                                                               case
------------------------------------------------------------------------
2012................................          $161,469          $347,910
2013................................           150,585           326,445
2014................................           163,434           404,883
------------------------------------------------------------------------

    With regard to the substantial clinical improvement criterion, the 
applicant maintained that Defitelio[supreg] is an effective treatment 
for VOD as an early onset cause of mortality following HSCT. According 
to the applicant, patients treated with Defitelio[supreg] have improved 
survival and efficacy rates compared to patients who were not treated 
with Defitelio[supreg]. In increasing the chances of post-HSCT 
survival, Defitelio[supreg] affords the transplant patient the 
opportunity for engraftment, which could be a potential cure for the 
underlying disease that required HSCT.
    The applicant supported these assertions with clinical evidence 
from pivotal trial 2005-01, a Phase III historical control study in 
which patients with VOD with multi-organ failure were given 
Defitelio[supreg] in doses of 25/mg/kg/day for the recommended minimum 
treatment duration of 21 days. Patients in the historical control group 
were selected by an independent medical review committee (MRC) from a 
pool of 6,867 medical charts of patients receiving HSCT that were 
hospitalized from January 1995 through November 2007. The trial 
consisted of 102 patients in the Defitelio[supreg] treated group and 32 
patients in the historical control group. The trial used the survival 
rate and rate of Complete Response (CR) at Day+100 as clinical 
endpoints. The observed survival rate at Day+100 in the 
Defitelio[supreg] treated group was 38.2 percent compared to 25 percent 
in the historical control group. Moreover, the rate of CR by Day+100 
post-HSCT for the Defitelio[supreg] treated group was 25.5 percent 
compared to 12.5 percent in the historical control group. The applicant 
conducted additional analyses that showed improvements in survival 
outcomes among subgroups of patients with baseline prognostic factors 
related to worse outcomes.
    According to the applicant, running a controlled, blinded, and 
randomized trial in a patient population with high mortality rates 
would be unethical. We are concerned that there are limitations to the 
historical control group used in pivotal trial 2005-01. We believe that 
the discrepancy between the size of the treatment group (N=102) and the 
historical control group (N=32) may skew the trial results in favor of 
the treatment group. We also are uncertain, given the small sample size 
and historical data used, whether the historical control group is 
representative of patients with VOD with multi-organ failure. According 
to the applicant, patients in the historical control group were 
hospitalized between January 1995 and November 2007. Because of 
advancements in medicine within this timeframe, we are concerned that 
the patients in the historical control group cannot be appropriately 
compared to patients in the treatment group. Moreover, we believe that 
it is difficult to attribute improved survival and CR rates only to 
Defitelio[supreg] treatment.
    We are inviting public comments on whether Defitelio[supreg] meets 
the substantial clinical improvement criterion.
    We did not receive any written public comments in response to the 
February 2016 New Technology Town Hall meeting regarding this 
application for new technology add-on payments.
g. EDWARDS INTUITY EliteTM Valve System
    Edwards Lifesciences submitted an application for new technology 
add-on payments for the EDWARDS INTUITY EliteTM Valve System 
(INTUITY) for FY 2017. The device uses a rapid deployment valve system 
and serves as a prosthetic aortic valve, which is inserted using 
surgical aortic valve replacement (AVR). The device replaces the 
diseased native valve in patients with aortic valve disease, including 
aortic stenosis. The components of the device are: (1) A bovine 
pericardial aortic bioprosthetic valve; (2) a balloon expandable 
stainless steel frame; and (3) a textured sealing cloth. The INTUITY 
valve shares many basic features with other tissue, bioprosthetic 
valves. The leaflets are made of bovine pericardium, rather than 
porcine valve tissue, or purely mechanical elements.
    With regard to the newness criterion, the applicant submitted an 
application to the FDA for pre-market approval of the INTUITY valve and 
anticipates FDA approval prior to July 1, 2016. The applicant indicated 
that the device would be available on the market shortly after 
approval. The applicant submitted a request for a unique ICD-10-PCS 
code for consideration at the March 2016 ICD-10 Coordination and 
Maintenance Committee meeting. If approved, the codes will be effective 
on October 1, 2016 (FY 2017). More information on this request can be 
found on the CMS Web site located at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
    As discussed earlier, if a technology meets all three of the 
substantial similarity criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments.
    With regard to the first criterion, whether a product uses the same 
or a similar mechanism of action to achieve a therapeutic outcome, the 
applicant described three aspects of the valve system that are unique 
relative to existing devices. First, the valve system has a deployment 
mechanism that allows for rapid deployment and only requires 3 sutures, 
as opposed to 12 to 18 sutures used in standard valve replacement 
procedures. Second, the flexible deployment arm allows improved 
surgical access and visualization, making the surgery less challenging 
for the surgeon, which improves the likelihood that the surgeon can use 
a minimally invasive approach. Third, the assembly of the device only 
allows the correct valve size to be fitted, which ensures that the 
valve does not slip or migrate, which prevents paravalvular leaks and 
patient prosthetic mismatch. The applicant maintained that the INTUITY 
has a different mechanism of action than other prosthetic aortic valves 
and, therefore, is not substantially similar to those used in standard 
aortic valve replacement procedures.
    With regard to the second and third criteria, the device is used in 
the same

[[Page 25056]]

patient population and would be assigned to the same MS-DRGs as cases 
involving other prosthetic aortic valves. We also received information 
about the Perceval aortic valve (LivaNova), which received FDA approval 
in January 2016 and which appears to be a substantially similar aortic 
valve. If the INTUITY valve were to receive approval for new technology 
add-on payments, we would consider whether the INTUITY valve is 
substantially similar to the device that has already received FDA 
approval. If we determine that it is substantially similar, we note 
that the start date for determining the duration of new technology add-
on payments would be the date of FDA approval for the Perceval aortic 
valve.
    After reviewing the information provided by the applicant with 
regard to the substantial similarity criteria discussed above, we have 
the following concerns. First, it appears that this device uses a 
similar mechanism of action as standard aortic valves; the differences 
described in the application, with respect to how the valve is placed 
and secured, and the number of sutures required, do not readily 
distinguish the mechanism of action from other aortic valves. Second, 
the MS-DRGs to which cases using the INTUITY would be assigned, as 
indicated in the application, are the same MS-DRGs to which cases 
involving standard aortic valves would be assigned. Third, the device 
is used to treat the same disease and patient population as standard 
aortic valves. In light of these concerns, we believe that this device 
appears to be substantially similar to other valves used in aortic 
valve replacement. We are inviting public comments on whether the 
INTUITY meets the newness criterion.
    With regard to the cost criterion, the applicant researched the FY 
2014 MedPAR claims data file to identify cases of patients who 
represent potential recipients of treatment using the INTUITY. The 
applicant identified claims that had an ICD-9-CM diagnosis code of 
424.1 (Aortic valve disorder) in combination with an ICD-9-CM procedure 
code of 35.21 (Replacement of aortic valve with tissue) or 35.22 (Open 
and other replacement of aortic valve). The applicant also identified 
cases with or without a coronary artery bypass graft (CABG) using the 
ICD-9-CM procedure codes in the table below.

------------------------------------------------------------------------
           ICD-9-CM code                      Code description
------------------------------------------------------------------------
36.10.............................  Aortocoronary bypass for heart
                                     revascularization, not otherwise
                                     specified.
36.11.............................  (Aorto)coronary bypass of one
                                     coronary artery.
36.12.............................  (Aorto)coronary bypass of two
                                     coronary arteries.
36.13.............................  (Aorto)coronary bypass of three
                                     coronary arteries.
36.14.............................  (Aorto)coronary bypass of four or
                                     more coronary arteries.
36.15.............................  Single internal mammary-coronary
                                     artery bypass.
36.16.............................  Double internal mammary-coronary
                                     artery bypass.
36.17.............................  Abdominal-coronary artery bypass.
------------------------------------------------------------------------

    The applicant identified a total of 15,291 cases that mapped 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 applicant calculated an average unstandardized charge per 
case of $178,608 for all cases. The applicant then removed 100 percent 
of the charges for pacemakers, investigational devices, and other 
implants that would not be required for patients receiving treatment 
using the INTUITY.
    The applicant standardized the charges and then applied an 
inflation factor of 1.076647, which is the 2-year inflation factor in 
the FY 2016 IPPS/LTCH final rule (80 FR 49784), to update the charges 
from FY 2014 to FY 2016. Because the price of the INTUITY has yet to be 
determined, the applicant calculated the average expected charge using 
the same price as charged in the recent IDE trial. Although the 
applicant submitted data that related to the estimated clinical trial 
cost of the INTUITY, the applicant noted that the cost of the 
technology was proprietary information. To add charges for the new 
technology, the applicant assumed a hospital mark-up of approximately 
3.0 percent, based on the current average CCR for implantable devices 
(0.337) as reported in the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49429). Based on the FY 2016 IPPS/LTCH PPS Table 10 thresholds, the 
average case-weighted threshold amount was $163,173. The applicant 
computed an inflated average standardized case-weighted charge per case 
of $185,982, which is $22,809 above the average case-weighted threshold 
amount. Because the inflated average standardized case-weighted charge 
per case exceeds the average case-weighted threshold amount, the 
applicant maintained that the technology meets the cost criterion.
    We are concerned that the number of individual cases that were 
identified and provided by the applicant indicated a total of 26,520 
cases that would be eligible for treatment using the INTUITY, but the 
applicant only included 15,291 cases in the final sensitivity analysis. 
We would like more information from the applicant regarding how it 
decided upon which cases to include in the sensitivity analysis, as 
well as further details about how and on what basis the applicant 
weighted CABG and non-CABG cases. We are inviting public comments on 
whether the INTUITY meets the cost criterion, including with regard to 
the concerns we have raised.
    With regard to the substantial clinical improvement criterion, the 
applicant stated that the device improves clinical outcomes for 
patients undergoing minimally invasive AVR and full-sternotomy AVR. The 
applicant also stated that the rapid deployment technology enables 
reduced operative time, specifically cross-clamp time, thereby reducing 
the period of myocardial ischemia. The applicant also indicated that 
the flexible deployment arm increases the likelihood that a minimally 
invasive approach can be used. In addition, the applicant suggested 
that the device offers a reduction in operative time for full-
sternotomy AVR. The applicant noted that clinical results demonstrated 
significant patient outcome and utilization improvements, including 
improved patient satisfaction, faster return to normal activity, 
decreased post-operative pain, reduced mortality and decreased 
complications, including

[[Page 25057]]

need for reoperation due to bleeding, reduced recovery time, and 
reduced length of stay.
    According to the applicant, the valve has been tested clinically in 
several programs. In the TRITON trial (Kocher et al., 2013 \14\), 287 
patients with aortic stenosis underwent surgery in 1 of 6 European 
centers. The first 149 patients received the first generation Model 
8300A valve, and the next 138 patients received the second generation 
Model 8300AB. The average age of the patients was 75.7 years. Early, 
30-day mortality was 1.7 percent (5/287), the post-operative valve 
gradient was low, and 75 percent of the patients improved functionally. 
A total of four valves were explanted in the final 30 days due to 
bleeding, and three were explanted later for paravalvular leak, 
endocarditis, and aortic root aneurysms. Follow-up extended to 3 years 
(mean 1.8 years).
---------------------------------------------------------------------------

    \14\ Kocher AA, Laufer G, Haverich A, et al. One-year outcomes 
of the surgical treatment of aortic stenosis with a next generation 
surgical aortic valve (TRITON) trial: A prospective multicenter 
study of rapid-deployment aortic valve replacement with the EDWARDS 
INTUITY valve system. J Thorac Cardiovasc Surg. 2013; 145:110-116.
---------------------------------------------------------------------------

    Implantation of the INTUITY using minimally invasive surgery was 
compared with conventional aortic valve replacement in the CADENCE-MIS 
randomized trial (Borger et al., 2015 \15\) of 100 patients treated in 
1 of 5 centers in Germany (3). Aortic cross-clamp time was reduced from 
54.0 to 41.3 minutes (p<0.0001), and cardiopulmonary bypass time was 
reduced from 74.4 to 68.8 minutes (p=0.21). Early clinical outcomes 
were similar: Two deaths in the MIS group versus one death in the 
conventional surgery group (p = 0.53), reoperation in one patient in 
each group, and no differences in other clinical outcomes. The aortic 
valve gradient was significantly lower in the MIS group: 8.5 vs. 10.3 
mmHg.
---------------------------------------------------------------------------

    \15\ Borger MA, Moustafine V, Conradi L, et al. A randomized 
multicenter trial of minimally invasive rapid deployment versus 
conventional full sternotomy aortic valve replacement. Ann Thorac 
Surg 2015; 99:17-25.
---------------------------------------------------------------------------

    The applicant also provided information referring to unpublished 
data about the preliminary outcomes of the Transform trial; this trial 
included a study arm that compared MIS surgery with the INTUITY valve 
to historical comparators that involved MIS surgery with another valve. 
The applicant indicated that key findings of this trial included 
reduced procedure times and cross-clamp times, reduced reoperations and 
30-day mortality, and reduced length of stay for the INTUITY valve 
relative to historical comparators that involved another valve. The 
applicant did not provide any details about these outcomes, stating 
that the data would be submitted for publication after FDA review.
    After reviewing the information provided by the applicant, we have 
the following concerns. We are concerned that the INTUITY does not have 
sufficient advantages over other alternative surgically implanted valve 
systems to constitute a substantial clinical improvement. While the 
studies included with the application demonstrate reduced aortic cross-
clamp time, conventional aortic valve replacement was used in the 
comparison group; therefore, it is unclear whether the reduced aortic 
cross-clamp time is associated with the INTUITY valve or with MIS 
surgery in general. We understand that this issue is currently being 
studied in the Transform trial, which is in progress. We also note 
that, there have been no conducted trials of the INTUITY valve, 
implanted using minimally invasive surgery, versus traditional 
transcatheter aortic valve replacement (TAVR) procedures, which we 
believe would be the most relevant comparison. We also do not believe 
that the applicant provided evidence to support its assertion that the 
use of the INTUITY valve increase the likelihood of MIS surgery being 
performed. We are inviting public comments on whether the INTUITY valve 
meets the substantial clinical improvement criterion.
    Below is a summary of the written comments we received on the 
INTUITY valve in response to the February 2016 New Technology Town Hall 
meeting and our response.
    Comment: One commenter stated that the Perceval bioprothesis is 
substantially similar to the INTUITY valve, in that they both map to 
the same MS-DRGs 219, 220, and 221; they utilize the same ICD-10 code 
02RF8Z (Replacement of aortic valve with zooplastic tissue, open 
approach); they are intended to treat the same or similar disease and 
patient population; they are intended to achieve the same therapeutic 
outcome; and they are both considered to be sutureless/rapid deployment 
aortic heart valves used for the replacement of diseased, damaged, or 
malfunctioning native or prosthetic aortic valves. The commenter cited 
several meta-analyses that include both the Perceval and INTUITY valves 
and consider them clinically equivalent technologies. The commenter 
also cited excerpts from articles as well as a description of the 
ongoing Perceval IDE study to provide support for the substantial 
clinical improvement of sutureless/rapid deployment heart valves. The 
applicant requested that Perceval and INTUITY valves be considered in 
the same category for the new technology add-on payment.
    Response: We appreciate the commenter's input. We welcome 
additional input from the public and will take these comments into 
consideration when deciding whether to approve new technology add-on 
payments for the INTUITY valve for FY 2017.
h. GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis (IBE)
    W.L. Gore and Associates, Inc. submitted an application for new 
technology add-on payments for the GORE[supreg] EXCLUDER[supreg] Iliac 
Branch Endoprosthesis (GORE IBE device) for FY 2017. The device 
consists of two components: The Iliac Branch Component (IBC) and the 
Internal Iliac Component (IIC). The applicant indicated that each 
endoprosthesis is pre-mounted on a customized delivery and deployment 
system allowing for controlled endovascular delivery via bilateral 
femoral access. According to the applicant, the device is designed to 
be used in conjunction with the GORE[supreg] EXCLUDER[supreg] AAA 
Endoprosthesis for the treatment of patients requiring repair of common 
iliac or aortoiliac aneurysms. When deployed, the GORE IBE device 
excludes the common iliac aneurysm from systemic blood flow, while 
preserving blood flow in the external and internal iliac arteries.
    With regard to the newness criterion, the applicant submitted an 
application to the FDA for pre-market approval of the GORE IBE device, 
but has not yet received FDA approval. The applicant submitted a 
request for a unique ICD-10-PCS code that was presented at the March 
2016 ICD-10 Coordination and Maintenance Committee meeting. If 
approved, the code will be effective on October 1, 2016 (FY 2017). More 
information on this request can be found on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
    As discussed earlier, if a technology meets all three of the 
substantial similarity criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments.
    With regard to the first criterion, whether a product uses the same 
or a similar mechanism of action to achieve a therapeutic outcome, the 
applicant indicated that the GORE IBE device is based on the same 
design principles as other endovascular repair devices, and

[[Page 25058]]

its use differs because of the specific target site for implantation. 
Consequently, it has a different shape and method of delivery from 
other endovascular devices. The GORE IBE device is similar to the 
GORE[supreg] EXCLUDER[supreg] AAA Endoprosthesis, primarily differing 
in device dimensions to fit within the iliac artery anatomy. With 
regard to the first criterion, we are concerned that the GORE IBE 
device has a similar mechanism of action to other stenting grafts used 
to treat patients with abdominal aortic aneurysms (AAAs) because it 
repairs the abdominal aortoiliac aneurysm from the inside and is 
inserted in a similar manner to other abdominal aortoiliac endovascular 
aneurysm repair devices.
    With regard to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, the applicant indicated that cases 
using the GORE IBE device would map to the same MS-DRGs as cases 
involving other stent-grafts used to treat patients with AAAs. 
Specifically, similar to cases involving other stent-grafts used to 
treat AAAs, cases involving the GORE IBE device would be assigned to 
MS-DRG 268 (Aortic and Heart Assist Procedures except Pulsation Balloon 
with MCC) and MS-DRG 269 (Aortic and Heart Assist Procedures except 
Pulsation Balloon without MCC).
    With regard to the third criterion, 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, the applicant 
indicated that the GORE IBE device is intended to be used in the 
treatment of patients requiring repair of common iliac or aortoiliac 
aneurysms. The applicant stated that this device, if approved, would be 
the first purpose-built endovascular device for patients whose 
conditions (common iliac or aortoiliac aneurysm) put them at risk for 
negative clinical outcomes due to limitations of current treatment 
methods, which may not preserve internal iliac artery perfusion. The 
applicant described current repair options for these patients as: (a) 
Intentional occlusion and coverage of the internal iliac artery; (b) 
undergoing a more extensive surgical operation to place a bypass graft; 
or (c) use of combinations of devices in a nonindicated, variable, and 
inconsistent manner. With regard to the third criterion, we are 
concerned that this device appears to treat a similar type of disease 
to existing stent grafts.
    Based on the statements above, the applicant maintained that the 
GORE IBE device is not substantially similar to other stent-grafts used 
to treat patients with AAAs. We are inviting public comments on whether 
Gore IBE device is substantially similar to existing technologies and 
whether the technology meets the newness criterion.
    With regard to the cost criterion, the applicant researched the FY 
2014 MedPAR claims data to identify patients who may be eligible for 
treatment using the GORE IBE device. The applicant noted that cases 
eligible for the GORE IBE device would map to MS-DRGs 268 (Aortic and 
Heart Assist Procedures Except Pulsation Balloon with MCC) and 269 
(Aortic and Heart Assist Procedures Except Pulsation Balloon without 
MCC). The applicant provided two analyses. The first analysis searched 
for cases that may be potentially eligible for the GORE IBE device by 
identifying cases with endovascular aneurysm repair (EVAR) with iliac 
diagnoses. To identify these cases, the applicant searched for cases 
that had an ICD-9-CM primary procedure code of 39.71 (Endovascular 
implantation of other graft in abdominal aorta) in combination with a 
primary diagnosis code of 441.4 (Abdominal aneurysm without mention of 
rupture) or 441.02 (Dissection of aorta, abdominal). The applicant 
excluded cases with a diagnosis code of 441.3 (Abdominal aneurysm, 
ruptured), and cases with atherosclerosis of the lower extremities 
(ICD-9-CM diagnosis code 440.20 through 440.28). The applicant then 
identified a subset of cases (1,615 cases) with significant iliac 
involvement (which indicated use of the prior technology as well as 
disease extent where the new technology could be used) by searching for 
cases with a secondary ICD-9-CM diagnosis code of 442.2 (Aneurysm of 
iliac artery) or 443.22 (Dissection of iliac artery). This subset of 
cases was used in the analysis with 205 cases that mapped to MS-DRG 268 
and 1,410 cases that mapped to MS-DRG 269. As discussed below, the 
remaining cases (11,926 cases) were used to help evaluate and compare 
subsequent offset charge calculations (base EVAR cases).
    Using the 1,615 cases, the applicant calculated an average 
unstandardized case-weighted charge per case of $121,527. Charges for 
the prior technology (implants), which would be offset by the new 
technology were established by subtracting the average implant charge 
in the 1,615 cases from the average implant charge in the base EVAR 
sample. The excess implant charge represents current implant charges 
being used in EVAR cases with iliac involvement, and was subtracted 
from the average unstandardized case-weighted charge per case.
    The applicant compared the average unstandardized O.R. and 
radiology charges associated with the new technology from the clinical 
trial data with the unstandardized O.R. and radiology charges 
associated with the prior technology from the MedPAR data and noted 
that O.R. and radiology charges for resources related to the new 
technology and the prior technology were similar. However, with regard 
to charges in the intensive care unit (ICU), there was a reduction of 
56 percent in ICU associated charges for the new technology. Therefore, 
the applicant offset the ICU associated charge by 56 percent and 
deducted this amount from the average unstandardized case-weighted 
charge per case. The applicant then standardized the charges, but noted 
that it did not inflate the charges. The applicant added charges for 
the GORE IBE device by converting the costs of the device to charges 
using the average CCR for implantable devices (0.337) as reported in 
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49429). The applicant noted 
that the cost of the technology was proprietary information. Based on 
the FY 2016 IPPS/LTCH PPS Table 10 thresholds, the average case-
weighted threshold amount was $109,241. The applicant computed an 
average standardized case-weighted charge per case of $124,129. Because 
the average standardized case-weighted charge per case exceeds the 
average case-weighted threshold amount, the applicant maintained that 
the technology meets the cost criterion.
    The second analysis was similar to the first analysis, but searched 
the MedPAR claims data file for cases with an EVAR with an iliac 
diagnosis and procedure instead of cases with EVAR and only an iliac 
diagnosis. The applicant used the same ICD-9-CM procedure and diagnoses 
codes as used in the first analysis, but used the following ICD-9-CM 
procedure codes to identify cases that had an iliac procedure: 39.79 
(Other endovascular procedures on other vessels) in combination with 
39.29 (Other (peripheral) vascular shunt or bypass), 39.79 in 
combination with 39.90 (Insertion of non-drug-eluting peripheral (non-
coronary) vessel stent(s)) without 39.29, 39.90 in combination with 
00.41 (Procedure on two vessels), 00.46 (Insertion of two vascular 
stents), and 00.47 (Insertion of three vascular stents) without 39.79 
and 39.29. The applicant noted that the expected distribution of cases 
for the GORE IBE device is that 20 percent of the cases would map to 
MS-DRG 268 and 80 percent of the cases would map

[[Page 25059]]

to MS-DRG 269. Because this analysis represents cases that had an 
actual iliac procedure, the applicant applied this distribution to the 
cases. The applicant then followed the same methodology above and 
removed charges for the prior technology and resources related to the 
prior technology, standardized the charges, and then added charges 
related to the GORE IBE device. Based on the FY 2016 IPPS/LTCH PPS 
Table 10 thresholds, the average case-weighted threshold amount was 
$113,015. The applicant computed an inflated average standardized case-
weighted charge per case of $138,179. Because the inflated average 
standardized case-weighted charge per case exceeds the average case-
weighted threshold amount, the applicant maintained that the technology 
meets the cost criterion.
    With regard to the second analysis, the applicant imputed the 
distribution of cases. We are not sure how the applicant determined 
which cases would map to MS-DRG 268 or MS-DRG 269, if the distribution 
was imputed. Also, the applicant did not disclose how many cases were 
found in the claims data after filtering the case volume using ICD-9-CM 
procedure codes identifying cases that had an iliac procedure. We are 
inviting public comments on whether the GORE IBE device meets the cost 
criterion, including with regard to the concerns we have raised.
    With regard to the substantial clinical improvement criterion, the 
applicant indicated that current treatment approaches have substantial 
risks of complications that can negatively impact quality of life. 
Available treatment methods that do not preserve internal iliac artery 
perfusion increase risks for negative clinical outcomes; compared to 
methods that preserve the internal iliac artery, those that use 
contralateral hypogastric embolization result in a higher incidence of 
buttock claudication (15-55 percent), sexual dysfunction (5-45 
percent), ischemia of the colon (2.6 percent), and rarely, ischemia of 
the spine. The applicant cited the ``12-04'' study,\16\ which the 
applicant suggested showed the GORE IBE device to have 0 percent rates 
of buttock claudication, new onset erectile dysfunction, colonic 
ischemia, and spinal cord ischemia. The applicant also suggested that 
the 12-04 study showed the GORE IBE device to have reduced procedure 
time, reduced fluoroscopy time, reduced reintervention rates, and 
increased patency rates. The applicant asserted that because the GORE 
IBE device preserves flow to the internal iliac artery, the risk of 
complications is reduced, which represents a substantial clinical 
improvement relative to current treatment approaches. The applicant 
also stated that, compared with historical data for procedures done 
using contralateral hypogastric embolization, the GORE IBE device is 
associated with reduced procedure time, reduced fluoroscopy time, 
reduced reintervention rates, reduced incidence of aneurysm 
enlargement, and improved patency rates.
---------------------------------------------------------------------------

    \16\ DeRubertis BG, Quinones-Baldrich WJ, Greenberg JI, Jimenez 
JC, Lee JT. Results of a double-barrel technique with commercially 
available devices for hypogastric preservation during aortoilac 
endovascular abdominal aortic aneurysm repair. J Vasc Surg 
2012;56:1252-1259.
---------------------------------------------------------------------------

    The applicant submitted several research articles with its 
application, which consisted of a few very small case series of 23 
total patients published,17 18 19 as well as some abstracts 
of other case series. These publications describe the procedural 
results of using the device, with angiographic endpoints, and 
demonstrate the feasibility of insertion. The applicant also indicated 
that other treatment approaches, including open surgery, are done 
infrequently, while other approaches are not approved for this purpose. 
Therefore, the applicant indicated that it would be impractical to 
conduct comparative studies.
---------------------------------------------------------------------------

    \17\ DeRubertis BG, Quinones-Baldrich WJ, Greenberg JI, Jimenez 
JC, Lee JT. Results of a double-barrel technique with commercially 
available devices for hypogastric preservation during aortoilac 
endovascular abdominal aortic aneurysm repair. J Vasc Surg 
2012;56:1252-1259.
    \18\ Ferrer C, De Crescenzo F, Coscarella C, Cao P. Early 
experience with the Excluder(R) iliac branch endoprosthesis. J 
Cardiovasc Surg 2014;55:679-683.
    \19\ Sch[ouml]nhofer S, Mansour R, Ghotbi R. Initial results of 
the management of aortoiliac aneurysms with GORE(R) Excluder(R) 
iliac branched endoprosthesis. J Cardiovasc Surg 2015;56:883-888.
---------------------------------------------------------------------------

    After reviewing the information provided by the applicant, we have 
the following concerns: We are concerned about the lack of clinical 
studies comparing the GORE IBE device with alternative methods of 
treatment, and note that the application did not provide data that 
supported its assertions that the GORE IBE device is associated with 
reduced procedure time, reduced fluoroscopy time, reduced 
reintervention rates, reduced incidence of aneurysm enlargement, and 
improved patency rates. We also note that the applicant's assertions 
about decreased rates of complications appear to compare a small number 
of published cases of the use of the GORE IBE device with complication 
rates cited in the literature, which does not indicate whether there is 
a valid basis for comparison. We are inviting public comments on 
whether the GORE IBE device meets the substantial clinical improvement 
criterion.
    We did not receive any written public comments in response to the 
February 2016 New Technology Town Hall meeting regarding this 
application for new technology add-on payments.
i. VistogardTM (Uridine Triacetate)
    BTG International Inc., submitted an application for new technology 
add-on payments for the VistogardTM for FY 2017. 
VistogardTM (Uridine Triacetate) was developed as an 
antidote to Fluorouracil toxicity. Chemotherapeutic agent 5-
fluorouracil (5-FU) is used to treat specific solid tumors. It acts 
upon deoxyribonucleic acid (DNA) and ribonucleic acid (RNA) in the 
body, as uracil is a naturally occurring building block for genetic 
material. Fluorouracil is a fluorinated pyrimidine. As a chemotherapy 
agent, Fluorouracil is absorbed up by cells and causes the cell to 
metabolize into byproducts that are toxic and used to destroy cancerous 
cells. The byproducts fluorodoxyuridine monophosphate (F-dUMP) and 
floxuridine triphosphate (FUTP) are believed to do the following: 
Reduce DNA synthesis, lead to DNA fragmentation, and disrupt RNA 
synthesis. Fluorouracil is used to treat a variety of solid tumors such 
as colorectal, head and neck, breast, and ovarian cancer. With 
different tumor treatments, different dosages, and different dosing 
schedules, there is a risk for toxicity in these patients.
    Patients may suffer from fluorouracil toxicity/death if 5-FU is 
delivered in slight excess or at faster infusion rates than prescribed. 
The cause of overdose can happen for a variety of reasons including: 
Pump malfunction, incorrect pump programming or miscalculated doses, 
and accidental or intentional ingestion.
    According to the applicant, current treatment for fluorouracil 
toxicity is supportive care, including discontinuation of the drug, 
hydration, filgrastim for neutropenia, as well as antibiotics, 
antiemetics, and treatments that are required for potential 
gastrointestinal and cardiovascular compromise. VistogardTM 
is an antidote to Fluorouracil toxicity and is a pro-drug of uridine. 
Once the drug is metabolized into uridine, it competes with the toxic 
byproduct FUTP in binding to RNA, thus reducing the impact FUTP has on 
cell death.
    With regard to the newness criterion, VistogardTM 
received FDA approval on December 11, 2015. The applicant noted that 
VistogardTM is the first FDA approved antidote used to 
reverse fluorouracil toxicity. Currently, there

[[Page 25060]]

are no ICD-10-CM procedure codes that uniquely identify the use of 
VistogardTM. The applicant presented an application at the 
March 9-10, 2016 meeting of the ICD-10 Coordination and Maintenance 
Committee for a unique ICD-10-PCS procedure code to identify the use of 
VistogardTM. If approved, the code will be effective on 
October 1, 2016 (FY 2017). More information on this request can be 
found on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
    As discussed earlier, if a technology meets all three of the 
substantial similarity criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments.
    With regard to the first criterion, whether the product uses the 
same or a similar mechanism of action to achieve a therapeutic outcome, 
the applicant stated that VistogardTM is the first FDA-
approved antidote used to reverse fluorouracil toxicity. The applicant 
maintained that VistogardTM has a unique mechanism of action 
that is not comparable to any other drug's mechanism of action that is 
currently available on the U.S. market. The applicant described in 
technical detail how the novel and unique mechanism of action provides 
bioavailable uridine, a direct biochemical antagonist of 5-FU toxicity; 
quickly absorbs into the gastrointestinal tract due to its lipophilic 
nature; in normal cells, stops the process of cell damage and cell 
destruction caused by 5-FU and counteracts the effects of 5-FU 
toxicity; protects normal cells and allows recovery from damage caused 
by 5-FU, without interfering with the primary antitumor mechanism of 5-
FU; and uses uridine derived from VistogardTM to convert it 
into uridine triphosphate (UTP), which competes with FUTP for 
incorporation into RNA, preventing further cell destruction and dose-
limiting toxicities.
    With regard to the second criterion, whether the product is 
assigned to the same or a different MS-DRG, the applicant noted that 
Xuriden (uridine triacetate) was also approved by the FDA on September 
8, 2015, as a pyrimidine analog for uridine replacement indicated for 
the treatment of hereditary orotic aciduria (HOA). According to the 
applicant, HOA is a rare, potentially life-threatening, genetic 
disorder in which patients (primarily pediatric patients) lack the 
ability to synthesize adequate amounts of uridine and consequently can 
suffer from hematologic abnormalities, failure to thrive, a range of 
developmental delays, and episodes of crystalluria leading to 
obstructive uropathy. The applicant stated that, although Xuriden is 
approved as a chronic, once daily medication (not to exceed 8 grams) 
that is administered orally in the patient's home and also used to 
replace uridine, Xuriden is not administered in a hospital setting and 
cases involving the use of Xuriden would not be assigned to the same 
MS-DRGs associated with the use of VistogardTM in the 
treatment of patients experiencing 5-FU overdose or severe toxicity. 
Therefore, the applicant maintained that no other technology similar to 
VistogardTM would map to the same MS-DRGs as cases involving 
the use of VistogardTM.
    With regard to the third criterion, 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, similar to above, 
the applicant maintained that VistogardTM is the first FDA 
approved antidote to reverse fluorouracil toxicity and, therefore, no 
other technology treats this disease or patient population to reverse 
fluorouracil toxicity. Therefore, the applicant believed that 
VistogardTM is not substantially similar to any other 
currently approved technology. We are inviting public comments on 
whether VistogardTM is substantially similar to existing 
technologies and whether it meets the newness criterion.
    With regard to the cost criterion, the applicant searched the 
claims data from the 2013 and 2014 Inpatient SAFs for cases that may be 
eligible for treatment involving VistogardTM. Specifically, 
the applicant searched for cases reporting a primary ICD-9-CM diagnosis 
code for colorectal cancer, head and neck cancer, gastric cancers and 
pancreatic cancer. The applicant further narrowed the potential target 
patient population by identifying cases reporting toxicity due to an 
antineoplastic. In order to include only patients diagnosed with severe 
toxicity that would be eligible for treatment using 
VistogardTM, using revenue center codes and ICD-9-CM V 
codes, the applicant included an additional cohort of cases 
representing patients admitted from the emergency department, an 
observation unit, another short-term, acute care hospital, or who have 
received chemotherapy treatment during the inpatient stay included on 
the claim. Because 5-FU toxicity is associated with a high mortality 
rate, the applicant identified a subgroup of patients diagnosed with 
chemotherapy toxicity who expired during their inpatient visit or 
within 7 days of discharge. The applicant provided two analyses to 
determine that the technology meets the cost criterion: One analysis of 
patients that experienced toxicity with mortality and a second analysis 
using the broader chemotherapy toxicity cohort, which includes patients 
who did not expire. The table below provides the diagnosis codes and 
information the applicant used to identify cases for both of these 
analyses.

------------------------------------------------------------------------
          Criterion                ICD-9 code            Description
------------------------------------------------------------------------
Colorectal, head and neck,    153.x...............  Malignant neoplasm
 gastric, or pancreatic       154.x...............   of colon.
 cancer (at least one code).                        Malignant neoplasm
                                                     of rectum,
                                                     rectosigmoid
                                                     junction, and anus.
                              171.0...............  Malignant neoplasm
                                                     of head, face, and
                                                     neck.
                              151.x...............  Malignant neoplasm
                                                     of stomach.
                              157.x...............  Malignant neoplasm
                                                     of pancreas.
Toxicity due to an            963.1...............  Poisoning by
 antineoplastic (at least                            antineoplastic and
 one code).                                          immunosuppressive
                                                     drugs.
                              E933.1..............  Antineoplastic and
                                                     immunosuppressive
                                                     drugs causing
                                                     adverse effects in
                                                     therapeutic use.
Admission to Inpatient        Revenue Center......  Revenue Center Codes
 Setting Admitted from ED.                           450, 451, 452, 456,
                                                     459.
    or observation unit.....  Revenue Center......  Revenue Center Codes
                                                     760, 761, 762, 769.
    or short-term, acute      N/A.................  Source of admission
     care hospital.                                  code = ``4''
                                                     ``Transfer from
                                                     hospital (Different
                                                     facility)''.
    or received chemotherapy  V58.0...............  Encounter or
     during inpatient stay.                          admission for
                                                     radiation.
                              V58.11..............  Encounter for
                                                     antineoplastic
                                                     chemotherapy.
                              V58.12..............  Encounter for
                                                     antineoplastic
                                                     immunotherapy (Must
                                                     be primary
                                                     diagnosis on the
                                                     claim).

[[Page 25061]]

 
Expired during inpatient      N/A.................  Determined by
 stay or within seven days    N/A.................   patient discharge
 of discharge (at least one                          status code.
 code) \a\.                                         If date of death in
                                                     100 percent
                                                     Denominator File
                                                     pertaining to the
                                                     year of the claim
                                                     was within 7 days
                                                     of claim discharge
                                                     date.
------------------------------------------------------------------------
\a\ Required only for toxicity with mortality cohort.
Source: KNG Health analysis of 2013-2014 100% Inpatient Standard
  Analytic Files and 2013-2014 100% Denominator Files.

    Under the first analysis, the applicant found 76 cases with 18.42 
percent of those cases mapping to MS-DRG 871 (Septicemia or Severe 
Sepsis without Mechanical Ventilation > 96 hours with MCC), and the 
remaining number of cases mapping to MS-DRGs with less than 11 cases. 
According to the applicant, the results of the analysis of the MS-DRGs 
with less than 11 cases could not be discussed separately because of 
the small sample sizes. The applicant believed that it was unnecessary 
to remove any charges for other previously used technologies because 
although VistogardTM is singular in its ability to treat 5-
FU toxicity, the associated charges for palliative care would continue 
to be necessary to treat the symptoms of the toxicity, even though it 
is possible that the use of VistogardTM may reduce a 
patient's hospital length of stay. To update the charge data to the 
current fiscal year, the applicant inflated the charges based on the 
charge inflation factor of 1.048116 in the FY 2016 IPPS/LTCH proposed 
rule (80 FR 24632). A 1-year inflation factor was applied three times 
for FY 2013 claims and two times for FY 2014 claims, inflating all 
claims to FY 2016. This resulted in an inflated average standardized 
case-weighted charge per case of $51,451. Using the FY 2016 IPPS Table 
10 thresholds, the average case-weighted threshold amount was $46,233 
(all calculations above were performed using unrounded numbers). The 
applicant noted that the inflated average standardized case-weighted 
charge per case exceeded the average case-weighted threshold amount 
without including charges for VistogardTM. Therefore, 
because the inflated average standardized case-weighted charge per case 
exceeds the average case-weighted threshold amount, the applicant 
maintained that the technology meets the cost criterion.
    Under the second analysis, the applicant used the same methodology 
it used in its first analysis, except that the analysis included cases 
representing patients who did not expire. The applicant found 879 cases 
with 8.53 percent of those cases mapping to MS-DRG 392 (Esophagitis, 
Gastroenteritis and Miscellaneous Digestive System Disorders without 
MCC), and the remaining number of cases spread across several MS-DRGs. 
The inflated average standardized case-weighted charge per case was 
$42,708. Using the FY 2016 IPPS Table 10 thresholds, the average case-
weighted threshold amount was $42,377 (all calculations above were 
performed using unrounded numbers). Similar to the results of the first 
analysis, the applicant noted that the inflated average standardized 
case-weighted charge per case exceeded the average case-weighted 
threshold amount without including charges for VistogardTM. 
Therefore, because the inflated average standardized case-weighted 
charge per case exceeds the average case-weighted threshold amount, the 
applicant maintained that the technology also meets the cost criterion 
under the second analysis.
    We note that the applicant used the inflation factor of 1.048116 
from the FY 2016 IPPS/LTCH proposed rule instead of the inflation 
factor of 1.037616 from the FY 2016 IPPS/LTCH final rule (80 FR 49784). 
We believe that the applicant should use the most recent data 
available, which is the inflation factor from the final rule. The 
inflation factor from the FY 2016 IPPS/LTCH final rule is lower than 
the inflation factor from the proposed rule. However, the difference 
between these two factors is marginal. Also, as the applicant noted, it 
did not include charges for VistogardTM in its analysis. 
Therefore, we believe that it is likely that the applicant would still 
meet the cost criterion under both analyses even if it used the lower 
inflation factor from the FY 2016 final rule. We are inviting public 
comments on whether VistogardTM meets the cost criterion 
under both analyses.
    With regard to substantial clinical improvement, the applicant 
maintained that VistogardTM represents a substantial 
clinical improvement. The applicant noted that VistogardTM 
is the first and only antidote indicated to treat adult and pediatric 
patients following a fluorouracil overdose, regardless of the presence 
of symptoms or whether a patient exhibits early-onset, severe or life-
threatening toxicity within 96 hours following the conclusion of 
fluorouracil or capecitabine administration. The applicant provided 
data from two studies (Study 1, an open-label, single arm, multi-center 
expanded access study and Study 2, an open-label, single arm, multi-
center emergency use study), which combined enrolled 135 patients. The 
applicant noted that 130 patients treated with VistogardTM 
survived through the 30-day treatment and observation period (95 
percent Confidence Interval: 0.92, 0.99). Of the 135 patients, 30 
percent were 65 years old and older, including 11 percent of patients 
who were 75 years old and older.
    According to the applicant, the studies' results demonstrate that 
VistogardTM reduced the incidence, severity and virulence of 
toxicities associated with 5-FU toxicity due to overdose or rapid 
onset. Specifically, the applicant noted the following results:
     VistogardTM ameliorated the progression of 
mucositis, leukopenia and thrombocytopenia; leukopenia and 
thrombocytopenia were resolved in almost all patients by the 4th week, 
indicating recovery of the hematopoietic system; mucositis also was 
resolved in almost all patients within the 30-day observation period 
with the incidence of serious (Grade 3 or 4) mucositis being very low; 
and no grade 4 mucositis was observed in any patients who received 
treatment using VistogardTM within 96 hours after 5-FU.
     Thirty-eight percent of patients who experienced 5-FU 
overdose were able to resume chemotherapy treatment in less than 30 
days after 5-FU toxicity, with the majority of these patients resuming 
treatment within 21 days. According to the applicant, 21 percent of the 
patients who presented with rapid onset of serious toxicities resumed 
chemotherapy treatment (typically with a different agent than 5-FU) in 
less than 30 days, with an overall median time to resumption of 
chemotherapy of 19 days.
     The safety and tolerability profile of 
VistogardTM is consistent with what would be expected for 
patients diagnosed with cancer following 5-FU chemotherapy treatment, 
but is generally less in severity and incidence when compared to what 
would be expected with patients who experience a 5-FU overdose. 
Specifically, during Study 1, there were no patients that

[[Page 25062]]

discontinued uridine triacetate treatment as a result of adverse 
events, and during Study 2, three patients discontinued uridine 
triacetate treatment as a result of adverse events, one of which was 
considered possibly related to uridine triacetate (nausea and 
vomiting).
    We are inviting public comments on whether VistogardTM 
meets the substantial clinical improvement criterion.
    We did not receive any written public comments in response to the 
February 2016 New Technology Town Hall meeting regarding this 
application for new technology add-on payments.

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

A. Background

1. Legislative Authority
    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary adjust the standardized amounts for area differences in 
hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level. We 
currently define hospital labor market areas based on the delineations 
of statistical areas established by the Office of Management and Budget 
(OMB). A discussion of the proposed FY 2017 hospital wage index based 
on the statistical areas appears under sections III.A.2. and G. of the 
preamble of this proposed rule.
    Section 1886(d)(3)(E) of the Act requires the Secretary to update 
the wage index annually and to base the update on a survey of wages and 
wage-related costs of short-term, acute care hospitals. (CMS collects 
these data on the Medicare cost report, CMS Form 2552-10, Worksheet S-
3, Parts II, III, and IV. The OMB control number for approved 
collection of this information is 0938-0050.) This provision also 
requires that any updates or adjustments to the wage index be made in a 
manner that ensures that aggregate payments to hospitals are not 
affected by the change in the wage index. The proposed adjustment for 
FY 2017 is discussed in section II.B. of the Addendum to this proposed 
rule.
    As discussed in section III.J. of the preamble of this proposed 
rule, we also take into account the geographic reclassification of 
hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of 
the Act when calculating IPPS payment amounts. Under section 
1886(d)(8)(D) of the Act, the Secretary is required to adjust the 
standardized amounts so as to ensure that aggregate payments under the 
IPPS after implementation of the provisions of sections 1886(d)(8)(B), 
1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate 
prospective payments that would have been made absent these provisions. 
The proposed budget neutrality adjustment for FY 2017 is discussed in 
section II.A.4.b. of the Addendum to this proposed rule.
    Section 1886(d)(3)(E) of the Act also provides for the collection 
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in 
order to construct an occupational mix adjustment to the wage index. A 
discussion of the occupational mix adjustment that we are proposing to 
apply to the FY 2017 wage index, appears under sections III.E.3. and F. 
of the preamble of this proposed rule.
2. Core-Based Statistical Areas (CBSAs) Revisions for the Proposed FY 
2017 Hospital Wage Index
    The wage index is calculated and assigned to hospitals on the basis 
of the labor market area in which the hospital is located. Under 
section 1886(d)(3)(E) of the Act, beginning with FY 2005, we delineate 
hospital labor market areas based on OMB-established Core-Based 
Statistical Areas (CBSAs). The current statistical areas (which were 
implemented beginning with FY 2015) are based on revised OMB 
delineations issued on February 28, 2013, in OMB Bulletin No. 13-01. 
OMB Bulletin No. 13-01 established revised delineations for 
Metropolitan Statistical Areas, Micropolitan Statistical Areas, and 
Combined Statistical Areas in the United States and Puerto Rico based 
on the 2010 Census, and provided guidance on the use of the 
delineations of these statistical areas using standards published on 
June 28, 2010 in the Federal Register (75 FR 37246 through 37252). We 
refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 49951 
through 49963) for a full discussion of our implementation of the new 
OMB labor market area delineations beginning with the FY 2015 wage 
index.
    Generally, OMB issues major revisions to statistical areas every 10 
years, based on the results of the decennial census. However, OMB 
occasionally issues minor updates and revisions to statistical areas in 
the years between the decennial censuses. On July 15, 2015, OMB issued 
OMB Bulletin No. 15-01, which provides updates to and supersedes OMB 
Bulletin No. 13-01 that was issued on February 28, 2013. The attachment 
to OMB Bulletin No. 15-01 provides detailed information on the update 
to statistical areas since February 28, 2013. The updates provided in 
OMB Bulletin No. 15-01 are based on the application of the 2010 
Standards for Delineating Metropolitan and Micropolitan Statistical 
Areas to Census Bureau population estimates for July 1, 2012 and July 
1, 2013. The complete list of statistical areas incorporating these 
changes is provided in the attachment to OMB Bulletin No. 15-01. 
According to OMB, ``[t]his bulletin establishes revised delineations 
for the Nation's Metropolitan Statistical Areas, Micropolitan 
Statistical Areas, and Combined Statistical Areas. The bulletin also 
provides delineations of Metropolitan Divisions as well as delineations 
of New England City and Town Areas.'' A copy of this bulletin may be 
obtained on the Web site at: https://www.whitehouse.gov/omb/bulletins_default.
    OMB Bulletin No. 15-01 made the following changes that are relevant 
to the IPPS wage index:
     Garfield County, OK, with principal city Enid, OK, which 
was a Micropolitan (geographically rural) area, now qualifies as an 
urban new CBSA 21420 called Enid, OK.
     The county of Bedford City, VA, a component of the 
Lynchburg, VA CBSA 31340, changed to town status and is added to 
Bedford County. Therefore, the county of Bedford City (SSA State county 
code 49088, FIPS State County Code 51515) is now part of the county of 
Bedford, VA (SSA State county code 49090, FIPS State County Code 
51019). However, the CBSA remains Lynchburg, VA, 31340.
     The name of Macon, GA, CBSA 31420, as well as a principal 
city of the Macon-Warner Robins, GA combined statistical area, is now 
Macon-Bibb County, GA. The CBSA code remains as 31420.
    We believe that 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 (79 FR 28055). Therefore, we are proposing to implement 
these revisions, effective October 1, 2016, beginning with the FY 2017 
wage indexes. We are proposing to use these new definitions to 
calculate area wage indexes in a manner that is generally consistent 
with the CBSA-based methodologies finalized in the FY 2005 and the FY 
2015 IPPS final rules. For FY

[[Page 25063]]

2017, Tables 2 and 3 for this proposed rule and the County to CBSA 
Crosswalk File and Urban CBSAs and Constituent Counties for Acute Care 
Hospitals File posted on the CMS Web site reflect these CBSA changes. 
We are inviting public comments on these proposals.

B. Worksheet S-3 Wage Data for the Proposed FY 2017 Wage Index

    The proposed FY 2017 wage index values are based on the data 
collected from the Medicare cost reports submitted by hospitals for 
cost reporting periods beginning in FY 2013 (the FY 2016 wage indexes 
were based on data from cost reporting periods beginning during FY 
2012).
1. Included Categories of Costs
    The proposed FY 2017 wage index includes all of the following 
categories of data associated with costs paid under the IPPS (as well 
as outpatient costs):
     Salaries and hours from short-term, acute care hospitals 
(including paid lunch hours and hours associated with military leave 
and jury duty);
     Home office costs and hours;
     Certain contract labor costs and hours, which include 
direct patient care, certain top management, pharmacy, laboratory, and 
nonteaching physician Part A services, and certain contract indirect 
patient care services (as discussed in the FY 2008 final rule with 
comment period (72 FR 47315 through 47317)); and
     Wage-related costs, including pension costs (based on 
policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 
through 51590)) and other deferred compensation costs.
2. Excluded Categories of Costs
    Consistent with the wage index methodology for FY 2016, the 
proposed wage index for FY 2017 also excludes the direct and overhead 
salaries and hours for services not subject to IPPS payment, such as 
skilled nursing facility (SNF) services, home health services, costs 
related to GME (teaching physicians and residents) and certified 
registered nurse anesthetists (CRNAs), and other subprovider components 
that are not paid under the IPPS. The proposed FY 2017 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.

C. Verification of Worksheet S-3 Wage Data

    The wage data for the proposed FY 2017 wage index were obtained 
from Worksheet S-3, Parts II and III of the Medicare cost report (Form 
CMS-2552-10, OMB control number 0938-0050) for cost reporting periods 
beginning on or after October 1, 2012, and before October 1, 2013. For 
wage index purposes, we refer to cost reports during this period as the 
``FY 2013 cost report,'' the ``FY 2013 wage data,'' or the ``FY 2013 
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. The 
data file used to construct the proposed FY 2017 wage index includes FY 
2013 data submitted to us as of February 29, 2016. As in past years, we 
performed an extensive review of the wage data, mostly through the use 
of edits for reasonableness 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 2017 wage index, we 
identified and excluded 62 providers with aberrant data that should not 
be included in the proposed wage index. Of these 62 providers that we 
excluded from the proposed wage index, 47 have data that we do not 
expect to change such that the data would be included in the final wage 
index (for example, among the reasons these providers were excluded is 
they are low Medicare utilization providers, they closed and failed 
edits for reasonableness, or they have extremely high or low average 
hourly wages that are atypical for their CBSAs). If data elements for 
some of these providers are corrected, we intend to include those 
providers in the calculation of the final FY 2017 wage index. We also 
adjusted certain aberrant data and included these data in the proposed 
wage index. For example, in situations where a hospital did not have 
documentable salaries, wages, and hours for housekeeping and dietary 
services, we imputed estimates, in accordance with policies established 
in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967).
    In constructing the proposed FY 2017 wage index, we included the 
wage data for facilities that were IPPS hospitals in FY 2013, 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 believed 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 this 
proposed rule, we removed 3 hospitals that converted to CAH status on 
or after February 5, 2015, the cut-off date for CAH exclusion from the 
FY 2016 wage index, and through and including January 22, 2016, the 
cut-off date for CAH exclusion from the FY 2017 wage index. After 
removing hospitals that converted to CAH status, we calculated the 
proposed FY 2017 wage index based on 3,345 hospitals.
    For the proposed FY 2017 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 2016 wage index (80 FR 49489 
through 49491). Table 2, which contains the proposed FY 2017 wage index 
associated with proposed rule (available via the Internet on the CMS 
Web site), includes separate wage data for the campuses of 9 
multicampus hospitals.

D. Method for Computing the Proposed FY 2017 Unadjusted Wage Index

    The method used to compute the proposed FY 2017 wage index without 
an occupational mix adjustment follows the same methodology that we 
used to compute the FY 2012, FY 2013, FY 2014, FY 2015, and FY 2016 
final wage indexes without an occupational mix adjustment (76 FR 51591 
through 51593, 77 FR 53366 through 53367, 78 FR 50587 through 50588, 79 
FR 49967 and

[[Page 25064]]

80 FR 49491 through 49492, respectively).
    As discussed in the FY 2012 IPPS/LTCH PPS 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, 2012, through April 15, 
2014, for private industry hospital workers from the BLS' Compensation 
and Working Conditions. We have consistently used the ECI as the data 
source for our wages and salaries and other price proxies in the IPPS 
market basket, and we are not proposing any changes to the usage for FY 
2017. 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
------------------------------------------------------------------------
10/14/2012......................  11/15/2012........  1.02321
11/14/2012......................  12/15/2012........  1.02183
12/14/2012......................  01/15/2013........  1.02040
01/14/2013......................  02/15/2013........  1.01894
02/14/2013......................  03/15/2013........  1.01743
03/14/2013......................  04/15/2013........  1.01592
04/14/2013......................  05/15/2013........  1.01443
05/14/2013......................  06/15/2013........  1.01297
06/14/2013......................  07/15/2013........  1.01152
07/14/2013......................  08/15/2013........  1.01006
08/14/2013......................  09/15/2013........  1.00859
09/14/2013......................  10/15/2013........  1.00711
10/14/2013......................  11/15/2013........  1.00561
11/14/2013......................  12/15/2013........  1.00408
12/14/2013......................  01/15/2014........  1.00260
01/14/2014......................  02/15/2014........  1.00124
02/14/2014......................  03/15/2014........  1.00000
03/14/2014......................  04/15/2014........  0.99878
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2013, and ending December 31, 2013, is June 30, 2013. An 
adjustment factor of 1.01152 would be applied to the wages of a 
hospital with such a cost reporting period.
    Using the data as previously described, the proposed FY 2017 
national average hourly wage (unadjusted for occupational mix) is 
$41.1026.
    Previously, we would also provide a Puerto Rico overall average 
hourly wage. As discussed in section IV.A. of the preamble of this 
proposed rule, prior to January 1, 2016, Puerto Rico hospitals were 
paid based on 75 percent of the national standardized amount and 25 
percent of the Puerto Rico-specific standardized amount. As a result, 
we calculated a Puerto Rico-specific wage index that was applied to the 
labor share of the Puerto Rico-specific standardized amount. Section 
601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113), 
enacted on December 18, 2015, amended section 1886(d)(9)(E) of the Act 
to specify that the payment calculation with respect to operating costs 
of inpatient hospital services of a subsection (d) Puerto Rico hospital 
for inpatient hospital discharges on or after January 1, 2016, shall 
use 100 percent of the national standardized amount. Because Puerto 
Rico hospitals are no longer paid with a Puerto Rico-specific 
standardized amount as of January 1, 2016, under section 1886(d)(9)(E) 
of the Act, as amended by section 601 of the Consolidated 
Appropriations Act, 2016, there is no longer a need to calculate a 
Puerto Rico-specific average hourly wage and wage index. Hospitals in 
Puerto Rico are now paid 100 percent of the national standardized 
amount and, therefore, are subject to the national average hourly wage 
(unadjusted for occupational mix) (which would be $41.1026 for this FY 
2017 proposed rule) and the national wage index, which is applied to 
the national labor share of the national standardized amount. 
Accordingly, for FY 2017, we are not proposing a Puerto Rico-specific 
overall average hourly wage or wage index.

E. Proposed Occupational Mix Adjustment to the FY 2017 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. Use of 2013 Occupational Mix Survey for the FY 2017 Proposed 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 every 3 years on the 
occupational mix of employees for each short-term, acute care hospital 
participating in the Medicare program. We collected data in 2013 to 
compute the occupational mix adjustment for the FY 2016, FY 2017, and 
FY 2018 wage indexes. A new measurement of occupational mix is required 
for FY 2019.
    The 2013 survey included the same data elements and definitions as 
the previous 2010 survey and provided 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). We published the 2013 survey in the Federal 
Register on February 28, 2013 (78 FR 13679 through 13680). This survey 
was approved by OMB on May 14, 2013, and is available on the CMS Web 
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/Medicare-Wage-Index-Occupational-Mix-Survey2013.html. The 2013 Occupational Mix Survey 
Hospital Reporting Form CMS-10079 for the Wage Index Beginning FY 2016 
(in Excel format) is available on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/Medicare-Wage-Index-Occupational-Mix-Survey2013.html. Hospitals were required to submit 
their completed 2013 surveys to their MACs by July 1, 2014. The 
preliminary, unaudited 2013 survey data were posted on the CMS Web site 
on July 11, 2014. As with the Worksheet S-3, Parts II and III cost 
report wage data, we asked our MACs to revise or verify data elements 
in hospitals' occupational mix surveys that result in certain edit 
failures.
2. Development of the 2016 Medicare Wage Index Occupational Mix Survey 
for the FY 2019 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 collected data 
in 2013 to compute the occupational mix adjustment for the FY 2016, FY 
2017, and FY 2018 wage indexes. A new measurement of occupational mix 
is required for FY 2019. The FY 2019 occupational mix adjustment will 
be based on a new calendar year (CY) 2016 survey. The CY 2016 survey 
(CMS Form CMS-10079) is currently awaiting approval by OMB,

[[Page 25065]]

and can be accessed at http://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201512-0938-011.
3. Calculation of the Proposed Occupational Mix Adjustment for FY 2017
    For FY 2017, we are proposing to calculate the occupational mix 
adjustment factor using the same methodology that we used for the FY 
2012, FY 2013, FY 2014, FY 2015, and FY 2016 wage indexes (76 FR 51582 
through 51586, 77 FR 53367 through 53368, 78 FR 50588 through 50589, 79 
FR 49968, and 80 FR 49492 through 49493, respectively) and to apply the 
occupational mix adjustment to 100 percent of the FY 2017 wage index. 
Because the statute requires that the Secretary measure the earnings 
and paid hours of employment by occupational category not less than 
once every 3 years, 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 2017 wage index. For the FY 2017 wage index, we are using the 
Worksheet S-3, Parts II and III wage data of 3,345 hospitals, and we 
are using the occupational mix surveys of 3,143 hospitals for which we 
also have Worksheet S-3 wage data, which represents a ``response'' rate 
of 94 percent (3,143/3,345). For the proposed FY 2017 wage index in 
this proposed rule, we applied proxy data for noncompliant hospitals, 
new hospitals, or hospitals that submitted erroneous or aberrant data 
in the same manner that we applied proxy data for such hospitals in the 
FY 2012 wage index occupational mix adjustment (76 FR 51586).

F. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2017 Occupational Mix Adjusted Wage 
Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix 
Adjusted Wage Index
    As discussed in section III.E. of the preamble of this proposed 
rule, for FY 2017, we are proposing to apply the occupational mix 
adjustment to 100 percent of the FY 2017 wage index. We calculated the 
proposed occupational mix adjustment using data from the 2013 
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 2017 wage index 
results in a proposed national average hourly wage of $41.0651. 
Previously, we would also provide a Puerto Rico overall average hourly 
wage. As discussed in section IV.A. of the preamble of this proposed 
rule, prior to January 1, 2016, Puerto Rico hospitals were paid based 
on 75 percent of the national standardized amount and 25 percent of the 
Puerto Rico-specific standardized amount. As a result, we calculated a 
Puerto Rico-specific wage index that was applied to the labor-related 
share of the Puerto Rico-specific standardized amount. Section 601 of 
the Consolidated Appropriations Act, 2016 (Pub. L. 114-113), enacted on 
December 18, 2015, amended section 1886(d)(9)(E) of the Act to specify 
that the payment calculation with respect to operating costs of 
inpatient hospital services of a subsection (d) Puerto Rico hospital 
for inpatient hospital discharges on or after January 1, 2016, shall 
use 100 percent of the national standardized amount. Because Puerto 
Rico hospitals are no longer paid with a Puerto Rico-specific 
standardized amount as of January 1, 2016 under section 1886(d)(9)(E) 
of the Act, as amended by section 601 of the Consolidated 
Appropriations Act, 2016, there is no longer a need to calculate a 
Puerto Rico-specific average hourly wage and wage index. Hospitals in 
Puerto Rico are now paid 100 percent of the national standardized 
amount and, therefore, are subject to the national average hourly wage 
(adjusted for occupational mix) (which would be $41.0651 for this FY 
2017 IPPS proposed rule) and the national wage index, which is applied 
to the national labor share of the national standardized amount. 
Accordingly, for FY 2017, we are not proposing a Puerto Rico-specific 
overall average hourly wage or wage index.
    The proposed FY 2017 national average hourly wages for each 
occupational mix nursing subcategory as calculated in Step 2 of the 
occupational mix calculation are as follows:

------------------------------------------------------------------------
                                                         Average hourly
         Occupational mix nursing subcategory                 wage
------------------------------------------------------------------------
National RN...........................................     $38.814164598
National LPN and Surgical Technician..................      22.733613839
National Nurse Aide, Orderly, and Attendant...........       15.94875556
National Medical Assistant............................      18.058859076
National Nurse Category...............................      32.844074591
------------------------------------------------------------------------

    The proposed national average hourly wage for the entire nurse 
category as computed in Step 5 of the occupational mix calculation is 
$32.844074591. 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 2013 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 42.6 percent, 
and the national percentage of hospital employees in the all other 
occupations category is 57.4 percent. At the CBSA level, the percentage 
of hospital employees in the nurse category ranged from a low of 25.6 
percent in one CBSA to a high of 80.5 percent in another CBSA.
    We compared the proposed FY 2017 occupational mix adjusted wage 
indexes for each CBSA to the proposed unadjusted wage indexes for each 
CBSA. As a result of applying the occupational mix adjustment to the 
wage data, the proposed wage index values for 221 (54.2 percent) urban 
areas and 24 (51.1 percent) rural areas would increase. One hundred and 
three (25.2 percent) urban areas would increase by greater than or 
equal to 1 percent but less than 5 percent, and 6 (1.5 percent) urban 
areas would increase by 5 percent or more. Nine (19.1 percent) rural 
areas would increase by greater than or equal to 1 percent but less 
than 5 percent, and no rural areas would increase by 5 percent or more. 
However, the proposed

[[Page 25066]]

wage index values for 185 (45.3 percent) urban areas and 23 (48.9 
percent) rural areas would decrease. Eighty-nine (21.8 percent) urban 
areas would decrease by greater than or equal to 1 percent but less 
than 5 percent, and no urban area would decrease by 5 percent or more. 
Seven (14.9 percent) rural areas would decrease by greater than or 
equal to 1 percent and less than 5 percent, and no rural areas would 
decrease by 5 percent or more. The largest positive impacts would be 
17.4 percent for an urban area and 2.9 percent for a rural area. The 
largest negative impacts would be 4.9 percent for an urban area and 2.1 
percent for a rural area. Two urban areas' wage indexes, but no rural 
area wage indexes, would remain unchanged by application of the 
proposed occupational mix adjustment. These results indicate that a 
larger percentage of urban areas (54.2 percent) would benefit from the 
proposed occupational mix adjustment than would rural areas (51.1 
percent).

G. Transitional Wage Indexes

1. Background
    In the FY 2015 IPPS/LTCH PPS proposed rule and final rule (79 FR 
28060 and 49957, respectively), we stated that, overall, we believed 
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 these new OMB labor market area delineations. We also 
realized that some hospitals would have higher wage index values due to 
the implementation of the new OMB labor market area delineations.
    The FY 2015 IPPS/LTCH PPS final rule (79 FR 49957) explained the 
methodology utilized in implementing prior transition periods when 
adopting changes that have significant payment implications, 
particularly large negative impacts. Specifically, for FY 2005, in the 
FY 2005 IPPS final rule (69 FR 49032 through 49034), we provided 
transitional wage indexes when the OMB definitions were implemented 
after the 2000 Census. The FY 2015 IPPS/LTCH PPS final rule (79 FR 
49957 through 49962) established similar transition methodologies to 
mitigate any negative payment impacts experienced by hospitals due to 
our adoption of the new OMB labor market area delineations for FY 2015.
    As finalized in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49957 
through 49960) and as discussed below, for FY 2017, we will be in the 
third and final year of two 3-year transition periods for wage index 
(1) for hospitals that, for FY 2014, were located in an urban county 
that became rural under the new OMB delineations, and had 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); and (2) for 
hospitals deemed urban under section 1886(d)(8)(B) of the Act where the 
urban area became rural under the new OMB delineations.
2. Transition for Hospitals in Urban Areas That Became Rural
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49957 through 
49959), for hospitals that, for FY 2014, were located in an urban 
county that became rural under the new OMB delineations, and had 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 adopted a 
policy to assign them the urban wage index value of the CBSA in which 
they were 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). FY 2017 
will be the third year of this transition policy, and we are not 
proposing any changes to this policy in this proposed rule. In the FY 
2015 IPPS/LTCH PPS final rule (79 FR 49957) and the FY 2016 IPPS/LTCH 
PPS final rule (80 FR 49495), we stated our belief that 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. We continue to believe that assigning the wage index 
of the hospitals' FY 2014 area for a 3-year transition is the simplest 
and most effective method for mitigating negative payment impacts due 
to the adoption of the new OMB delineations.
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49959), we noted 
that there were situations where a hospital could not be assigned the 
wage index value of the CBSA in which it geographically was located in 
FY 2014 because that CBSA split and no longer exists and some or all of 
the constituent counties were added to another urban labor market area 
under the new OMB delineations. If the hospital could not be assigned 
the wage index value of the CBSA in which it was geographically located 
in FY 2014 because that CBSA 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, we established that 
hospitals located in such counties that became rural under the new OMB 
delineations were assigned the wage index of the urban labor market 
area that contained the urban county in their FY 2014 CBSA to which 
they were closest (with the rural and imputed floors applied and with 
the rural floor budget neutrality adjustment applied). Any such 
assignment made in FY 2015 and continued in FY 2016 will continue for 
FY 2017, except as discussed later in this section. We continue to 
believe this approach minimizes the negative effects of the change in 
the OMB delineations.
    Under the policy adopted in the FY 2015 IPPS/LTCH PPS final rule, 
if a hospital for FY 2014 was located in an urban county that became 
rural for FY 2015 under the new OMB delineations and such hospital 
sought and was granted reclassification or redesignation for FY 2015 or 
FY 2016, or such hospital seeks and is granted any reclassification or 
redesignation for FY 2017, the hospital will permanently lose its 3-
year transitional assigned wage index status, and will not be eligible 
to reinstate it. We established the transition policy to assist 
hospitals if they experience a negative payment impact specifically due 
to the adoption of the new OMB delineations in FY 2015. If a hospital 
chooses 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 
transition adjustment policy 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.
    As we did for FY 2015 (79 FR 49959) and FY 2016 (80 FR 49495), with 
respect to the wage index computation for FY 2017, 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

[[Page 25067]]

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, for FY 2017, 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 
labor market area delineations. After the 3-year transition period, 
beginning in FY 2018, these formerly urban hospitals will receive their 
statewide rural wage index, absent any reclassification or 
redesignation.
    In addition, we established in the FY 2015 IPPS/LTCH PPS final rule 
(79 FR 49959) that the hospitals receiving this 3-year transition 
because they are in counties that were urban under the FY 2014 CBSA 
definitions, but are 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. This is because our 
application of a 3-year transitional wage index for these newly rural 
hospitals only applies for the purpose of calculating the wage index 
under our adoption of the new OMB delineations.
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 the FY 2015 IPPS/LTCH PPS final rule (79 FR 49959 
through 49960) and FY 2016 IPPS/LTCH PPS final rule (80 FR 49495 
through 49496), there were some hospitals that, for FY 2014, were 
geographically located in rural areas but were deemed to be urban under 
section 1886(d)(8)(B) of the Act. For FY 2015, some of these hospitals 
redesignated under section 1886(d)(8)(B) of the Act were no longer 
eligible for deemed urban status under the new OMB delineations, as 
discussed in detail in section III.H.3. of the preamble of the FY 2015 
IPPS/LTCH PPS final rule. Similar to the policy implemented in the FY 
2005 IPPS final rule (69 FR 49059), and consistent with the FY 2015 
policy we established for other hospitals in counties that were urban 
and became rural under the new OMB delineations, we finalized a policy 
to apply a 3-year transition to these hospitals redesignated to urban 
areas under section 1886(d)(8)(B) of the Act for FY 2014 that are no 
longer deemed urban under the new OMB delineations and revert to being 
rural.
    For FY 2017, we are not proposing any changes to this policy and 
will continue the third and final year of the implementation of our 
policy to provide a 3-year transition adjustment to hospitals that are 
deemed urban under section 1886(d)(8)(B) of the Act under the FY 2014 
labor market area delineations, but are considered rural under the new 
OMB delineations, assuming no other form of wage index reclassification 
or redesignation is granted. We assign these hospitals the 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 are 
assigned the wage index of the hospitals reclassified to the urban 
labor market area that contained the urban county in their FY 2014 
redesignated CBSA to which they were closest. We 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. This wage index assignment will be 
forfeited if the hospital obtains any form of wage index 
reclassification or redesignation.
4. Budget Neutrality
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50372 through 
50373), for FY 2015, and in the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49496), for FY 2016, we applied the 3-year transition wage index 
adjustments in a budget neutral manner. For FY 2017, we are proposing 
to apply the 3-year transition adjustments in a budget neutral manner. 
We are proposing to make an adjustment to the standardized amount to 
ensure that the total payments, including the effect of the transition 
provisions, would equal what payments would have been if we would not 
be providing for any transitional wage indexes under the new OMB 
delineations. For a complete discussion on the proposed budget 
neutrality adjustment for FY 2017, we refer readers to section 
II.A.4.b. of the Addendum to this proposed rule.

H. Proposed Application of the Proposed Rural, Imputed, and Frontier 
Floors

1. Proposed Rural Floor
    Section 4410(a) of Public Law 105-33 provides that, for discharges 
on or after October 1, 1997, the area wage index applicable to any 
hospital that is located in an urban area of a State may not be less 
than the area wage index applicable to hospitals located in rural areas 
in that State. This provision is referred to as the ``rural floor.'' 
Section 3141 of Public Law 111-148 also requires that a national budget 
neutrality adjustment be applied in implementing the rural floor. Based 
on the proposed FY 2017 wage index associated with this proposed rule 
(which is available via the Internet on the CMS Web site), we estimated 
that 371 hospitals would receive an increase in their FY 2017 proposed 
wage index due to the application of the rural floor.
2. Proposed Imputed Floor for FY 2017
    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 six times, 
the last of which was adopted in the FY 2016 IPPS/LTCH PPS final rule 
and is set to expire on September 30, 2016. (We refer readers to 
further discussions of the imputed floor in the FY 2014, FY 2015, and 
FY 2016 IPPS/LTCH PPS final rules (78 FR 50589 through 50590, 79 FR 
49969 through 49970, and 80 FR 49497 through 49498, respectively) and 
to the regulations at 42 CFR 412.64(h)(4).) Currently, there are three 
all-urban States--Delaware, New Jersey, and Rhode Island--with 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.J. of the preamble of this proposed rule.)
    In computing the imputed floor for an all-urban State under the 
original methodology, which was established beginning in FY 2005, 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

[[Page 25068]]

highest CBSA wage index value in the State--the product of which 
established the imputed floor for the State. As of FY 2012, there were 
only two all-urban States--New Jersey and Rhode Island--and only New 
Jersey benefitted under this methodology. Under the previous OMB labor 
market area delineations, Rhode Island had only one CBSA (Providence-
New Bedford-Fall River, RI-MA) and New Jersey had 10 CBSAs. Therefore, 
under the original methodology, Rhode Island's own ratio equaled 1.0, 
and its imputed floor was equal to its original CBSA wage index value. 
However, because the average ratio of New Jersey and Rhode Island was 
higher than New Jersey's own ratio, this methodology provided a benefit 
for New Jersey, but not for Rhode Island.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 
53369), we retained the imputed floor calculated under the original 
methodology as discussed above, and established an alternative 
methodology for computing the imputed floor wage index to address the 
concern that the original imputed floor methodology guaranteed a 
benefit 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 via the Internet 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 under the original methodology.
    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 final rule (79 FR 49969 through 
49970), for FY 2015, we adopted a policy to extend the imputed floor 
policy (both the original methodology and alternative methodology) for 
another year, through September 30, 2015, as we continued to explore 
potential wage index reforms. In that final rule, we revised the 
regulations at Sec.  412.64(h)(4) and (h)(4)(vi) to reflect the 1-year 
extension of the imputed floor.
    As discussed in section III.B. of the preamble of that FY 2015 
final rule, we adopted the new OMB labor market area delineations 
beginning in FY 2015. Under the new OMB delineations, Delaware became 
an all-urban State, along with New Jersey and Rhode Island. Under the 
new OMB delineations, Delaware has three CBSAs, New Jersey has seven 
CBSAs, and Rhode Island continues to have only one CBSA (Providence-
Warwick, RI-MA). We refer readers to a detailed discussion of our 
adoption of the new OMB labor market area delineations in section 
III.B. of the preamble of the FY 2015 IPPS/LTCH PPS final rule. 
Therefore, under the adopted new OMB delineations discussed in section 
III.B. of the preamble of the FY 2015 IPPS/LTCH PPS final rule, 
Delaware became an all-urban State and was subject to an imputed floor 
as well for FY 2015.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49497 through 
49498), for FY 2016, we extended the imputed floor policy (under both 
the original methodology and the alternative methodology) for 1 
additional year, through September 30, 2016. In that final rule, we 
revised the regulations at Sec.  412.64(h)(4) and (h)(4)(vi) to reflect 
this additional 1-year extension.
    For FY 2017, we are proposing to extend the imputed floor policy 
(under both the original methodology and the alternative methodology) 
for 1 additional year, through September 30, 2017, while we continue to 
explore potential wage index reforms. We are proposing to revise the 
regulations at Sec.  412.64(h)(4) and (h)(4)(vi) to reflect this 
proposed additional 1-year extension. We are inviting public comments 
on the proposed additional 1-year extension of the imputed floor 
through September 30, 2017. The wage index and impact tables associated 
with this FY 2017 IPPS/LTCH PPS proposed rule (which are available on 
the Internet via the CMS Web site) reflect the proposed continued 
application of the imputed floor policy at Sec.  412.64(h)(4) and a 
proposed national budget neutrality adjustment for the imputed floor 
for FY 2017. There are 20 providers in New Jersey that would receive an 
increase in their proposed FY 2017 wage index due to the proposed 
continued application of the imputed floor policy under the original 
methodology, and 10 hospitals in Rhode Island that would benefit under 
the alternative methodology. No providers in Delaware would benefit 
under the original methodology or the alternative methodology.
3. Proposed State Frontier Floor for FY 2017
    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)). Fifty hospitals would receive the 
frontier floor value of 1.0000 for their FY 2017 wage index in this 
proposed rule. These hospitals are located in Montana, Nevada, North 
Dakota, South Dakota, and Wyoming.
    We are not proposing any changes to the frontier floor policy for 
FY 2017.
    The areas affected by the proposed rural, imputed, and frontier 
floor policies for the proposed FY 2017 wage index are identified in 
Table 2 associated with this proposed rule, which is available via the 
Internet on the CMS Web site.

I. Proposed FY 2017 Wage Index Tables

    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49498 and 49807 
through 49808), we finalized a proposal to streamline and consolidate 
the wage index tables associated with the IPPS proposed and final rules 
for FY 2016 and subsequent fiscal years. Prior to FY 2016, the wage 
index tables had consisted of 12 tables (Tables 2, 3A, 3B, 4A, 4B, 4C, 
4D, 4E, 4F, 4J, 9A, and 9C) that were made available via the Internet 
on the CMS Web site. Effective beginning FY 2016, with the exception of 
Table 4E, we streamlined and consolidated 11 tables (Tables 2, 3A, 3B, 
4A, 4B, 4C, 4D, 4F, 4J, 9A, and 9C) into 2 tables (Tables 2 and 3). We 
refer readers to section VI. of the Addendum to this proposed rule for 
a discussion of

[[Page 25069]]

the proposed wage index tables for FY 2017.

J. Proposed 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 Medicare Geographic 
Classification Review Board (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 (usually by September 1). Generally, hospitals must be 
proximate to the labor market area to which they are seeking 
reclassification and must demonstrate characteristics similar to 
hospitals located in that area. The MGCRB issues its decisions by the 
end of February for reclassifications that become effective for the 
following fiscal year (beginning October 1). The regulations applicable 
to reclassifications by the MGCRB are located in 42 CFR 412.230 through 
412.280. (We refer readers to a discussion in the FY 2002 IPPS final 
rule (66 FR 39874 and 39875) regarding how the MGCRB defines mileage 
for purposes of the proximity requirements.) The general policies for 
reclassifications and redesignations that we are proposing for FY 2017, 
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). In addition, 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.
2. MGCRB Reclassification and Redesignation Issues for FY 2017
a. FY 2017 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 proposed rule was constructed, the MGCRB had 
completed its review of FY 2017 reclassification requests. Based on 
such reviews, there are 299 hospitals approved for wage index 
reclassifications by the MGCRB starting in FY 2017. Because MGCRB wage 
index reclassifications are effective for 3 years, for FY 2017, 
hospitals reclassified beginning in FY 2015 or FY 2016 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 302 hospitals approved for wage index reclassifications in 
FY 2015 that will continue for FY 2017, and 266 hospitals approved for 
wage index reclassifications in FY 2016 that will continue for FY 2017. 
Of all the hospitals approved for reclassification for FY 2015, FY 
2016, and FY 2017, based upon the review at the time of this proposed 
rule, 867 hospitals are in a reclassification status for FY 2017.
    Under the regulations at 42 CFR 412.273, hospitals that have been 
reclassified by the MGCRB are permitted to withdraw their applications 
within 45 days of the publication of a proposed rule. For information 
about withdrawing, terminating, or canceling a previous withdrawal or 
termination of a 3-year reclassification for wage index purposes, we 
refer readers to 42 CFR 412.273, as well as the FY 2002 IPPS final rule 
(66 FR 39887 through 39888) and the FY 2003 IPPS final rule (67 FR 
50065 through 50066). Additional discussion on withdrawals and 
terminations, and clarifications regarding reinstating 
reclassifications and ``fallback'' reclassifications, were included in 
the FY 2008 IPPS final rule (72 FR 47333).
    Changes to the wage index that result from withdrawals of requests 
for reclassification, terminations, wage index corrections, appeals, 
and the Administrator's review process for FY 2017 will be incorporated 
into the wage index values published in the FY 2017 IPPS/LTCH PPS final 
rule. These changes affect not only the wage index value for specific 
geographic areas, but also the wage index value that redesignated/
reclassified hospitals receive; that is, whether they receive the wage 
index that includes the data for both the hospitals already in the area 
and the redesignated/reclassified hospitals. Further, the wage index 
value for the area from which the hospitals are redesignated/
reclassified may be affected.
b. Requirements for FY 2018 Applications and Proposed Revisions 
Regarding Paper Application Requirements
    Applications for FY 2018 reclassifications are due to the MGCRB by 
September 1, 2016 (the first working day of September 2016). We note 
that this is also the deadline for canceling a previous wage index 
reclassification withdrawal or termination under 42 CFR 412.273(d). 
Applications and other information about MGCRB reclassifications may be 
obtained, beginning in mid-July 2016, via the Internet on the CMS Web 
site at https://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.
    Under existing regulations at 42 CFR 412.256(a)(1), applications 
for reclassification must be mailed or delivered to the MGCRB, with a 
copy to CMS, and may not be submitted through the facsimile (FAX) 
process or by other electronic means. While existing regulations 
exclusively require paper applications, we believe this policy to be 
outdated and overly restrictive. Therefore, to promote ease of 
application for FY 2018 and subsequent years, we are proposing to 
revise this policy to require applications and supporting documentation 
to be submitted via the method prescribed in instructions by the MGCRB, 
with an electronic copy to CMS. Therefore, we are proposing to revise 
Sec.  412.256(a)(1) to specify that an application must be submitted to 
the MGCRB according to the method prescribed by the MGCRB, with an 
electronic copy of the application sent to CMS. We are specifying that 
CMS copies should be sent via email to [email protected]. We are 
inviting public comments on this proposal.
c. Other Policy Regarding Reclassifications for Terminated Hospitals
    Under longstanding CMS policy, if a hospital that has an approved 
reclassification by the MGCRB terminates its CMS certification number 
(CCN), we terminate the reclassification status for that hospital when 
calculating the wage index, because the CCN is no longer active, and 
because the MGCRB makes its reclassification decisions based on CCNs. 
We believe this policy results in more accurate reclassifications when 
compiling CBSA labor market wage data, as it is often the case that

[[Page 25070]]

hospitals that have terminated their CCNs have also terminated 
operations, and can no longer make timely and informed decisions 
regarding reclassification statuses, which could have ramifications for 
various wage index floors and labor market values.
    However, as discussed in response to a comment in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49499 through 49500), in the case of a 
merger or acquisition where the acquiring hospital accepted the 
Medicare provider agreement of the acquired hospital located in a 
different market area that has an existing MGCRB reclassification, we 
do believe that the acquiring hospital should be able to make 
determinations regarding the reclassification status of the subordinate 
campus. While the original CCN for the acquired hospital would be 
considered terminated or ``tied out'' by CMS, in the specific 
situations where a hospital merges with or acquires another hospital 
located in a different labor market area to create a ``multicampus'' 
hospital and accepts the Medicare provider agreement of the acquired 
hospital, the reclassification status of the subordinate campus remains 
in effect. The acquired campus (that is, the hospital whose CCN is no 
longer active) may continue to receive its previously approved 
reclassification status, and the acquiring hospital is authorized to 
make timely requests to terminate, withdraw, or reinstate any 
reclassification for the subordinate campus for any remaining years of 
the reclassification. We believe this policy is consistent with 
existing regulations regarding reclassification status of 
``multicampus'' hospitals at Sec.  412.230(d)(2)(v). Hospitals should 
take care to review their status on Table 2 associated with this 
proposed rule (which is available via the Internet on the CMS Web site) 
and notify CMS if they believe a reclassification for a hospital was 
mistakenly terminated by CMS.
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 MSA 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 MSAs 
published in the Federal Register by the Director of the Office of 
Management and Budget (OMB) based on the most recently available 
decennial population data. Effective beginning FY 2015, we use the OMB 
delineations based on the 2010 Decennial 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 are referred to as ``Lugar'' hospitals and the counties 
themselves are often referred to as ``Lugar'' counties. The chart for 
this FY 2017 proposed rule with the listing of the rural counties 
containing the hospitals designated as urban under section 
1886(d)(8)(B) of the Act is available via the Internet on the CMS Web 
site.
    In an interim final rule with comment period (IFC) (CMS-1664-IFC) 
that appeared elsewhere in this issue of the Federal Register, CMS made 
regulatory changes in order to implement the decisions in Geisinger 
Community Medical Center v. Secretary, United States Department of 
Health and Human Services, 794 F.3d 383 (3d Cir. 2015) and Lawrence + 
Memorial Hospital v. Burwell, No. 15-164, 2016 WL 423702 (2d Cir. Feb. 
4, 2015) in a nationally consistent manner. Specifically, the IFC 
revises the regulations at Sec.  412.230(a)(5)(ii) and removes the 
regulatory provision at Sec.  412.230(a)(5)(iii) to allow hospitals 
nationwide to reclassify based on their acquired rural status, 
effective with reclassifications beginning with FY 2018. The IFC also 
gives hospitals with an existing MGCRB reclassification the opportunity 
to seek rural reclassification for IPPS payment and other purposes 
under Sec.  412.103 and keep their existing MGCRB reclassification.
    As a consequence of the regulatory changes in the IFC that allow a 
hospital to have more than one reclassification simultaneously, we are 
clarifying in this proposed rule that a hospital with Lugar status may 
simultaneously receive an urban to rural reclassification under Sec.  
412.103. The IFC provides that when there is both a Sec.  412.103 
reclassification and an MGCRB reclassification, the MGCRB 
reclassification controls for wage index calculation and payment 
purposes (the IFC can be downloaded from the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/IPPS-Regulations-and-Notices.html). Similarly, in 
this proposed rule, we are clarifying that we are treating the wage 
data of hospitals with simultaneous Lugar status and Sec.  412.103 
reclassification as Lugar for wage index calculation and wage index 
payment purposes. We believe it is appropriate to apply a similar 
policy for simultaneous MGCRB reclassification and Sec.  412.103 
reclassifications, and simultaneous Lugar and Sec.  412.103 
reclassifications, because CMS treats Lugar status as a 
reclassification for purposes of calculating the wage index in 
accordance with section 1886(d)(8)(C)(iii) of the Act. (Section 
1886(d)(8)(C)(iii) of the Act states that the application of section 
1886(d)(8)(B) of the Act or a decision of the MGCRB or the Secretary 
under section 1886(d)(10) of the Act may not result in the reduction of 
any county's wage index to a level below the wage index for rural areas 
in the State in which the county is located.) The wage index associated 
with the Lugar status, and not the wage index associated with the Sec.  
412.103 reclassification, is reflected accordingly in Table 2 
associated with this proposed rule (which is available via the Internet 
on the CMS Web site). We note that, for payment purposes other than the 
wage index, a hospital with simultaneous Sec.  412.103 status and Lugar 
reclassification receives payment as a rural hospital.
4. Waiving Lugar Redesignation for the Out-Migration Adjustment
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 
51600), we adopted the policy that, beginning with FY 2012, an eligible 
hospital that waives its Lugar status in order to receive the out-
migration adjustment has effectively waived its deemed urban status 
and, thus, is rural for all purposes under the IPPS, including being 
considered rural for the DSH payment adjustment, effective for the 
fiscal year in which the hospital receives the out-migration 
adjustment. (We refer readers to a discussion of DSH payment adjustment 
under section IV.F. of the preamble of this proposed rule.)
    In addition, we adopted a minor procedural change in that rule that 
allows 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

[[Page 25071]]

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.

K. Proposed Out-Migration Adjustment Based on Commuting Patterns of 
Hospital Employees for FY 2017

    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.
    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. When the provision of section 1886(d)(13) of the 
Act was implemented for the FY 2005 wage index, we analyzed commuting 
data compiled by the U.S. Census Bureau that were 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 which contained questions on where 
residents in each county worked (69 FR 49062). However, the 2010 Census 
was ``short form'' only; information on where residents in each county 
worked was not collected as part of the 2010 Census. The Census Bureau 
worked with CMS to provide an alternative dataset based on the latest 
available data on where residents in each county worked in 2010, for 
use in developing a new out-migration adjustment based on new commuting 
patterns developed from the 2010 Census data beginning with FY 2016.
    To determine the out-migration adjustments and applicable counties 
for FY 2016, we analyzed commuting data compiled by the Census Bureau 
that were derived from a custom tabulation of the American Community 
Survey (ACS), an official Census Bureau survey, utilizing 2008 through 
2012 (5-Year) Microdata. The data were compiled from responses to the 
ACS questions regarding the county where workers reside and the county 
to which workers commute. As we discussed in the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49501), the same policies, procedures, and 
computation that were used for the FY 2012 out-migration adjustment 
were applicable for FY 2016, and we are proposing to use them again for 
FY 2017. We have applied the same policies, procedures, and 
computations since FY 2012, and we believe they continue to be 
appropriate for FY 2017. We refer readers to the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49500 through 49502) for a full explanation of the 
revised data source.
    For FY 2017, until such time that CMS finalizes out-migration 
adjustments based on the next Census, the out-migration adjustment 
continues to be based on the data derived from the custom tabulation of 
the ACS utilizing 2008 through 2012 (5-Year) Microdata. For FY 2017, we 
are not proposing any changes to the methodology or data source that we 
used for FY 2016. (We refer readers to a full discussion of the out-
migration 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 2 associated with this 
proposed rule (which is available via the Internet on the CMS Web site) 
includes the proposed out-migration adjustments for the FY 2017 wage 
index.

L. Notification Regarding Proposed CMS ``Lock-In'' Date for Urban to 
Rural Reclassifications Under Sec.  412.103

    Under section 1886(d)(8)(E) of the Act, a qualifying prospective 
payment hospital located in an urban area may apply for rural status 
for payment purposes separate from reclassification through the MGCRB. 
Specifically, section 1886(d)(8)(E) of the Act provides that, not later 
than 60 days after the receipt of an application (in a form and manner 
determined by the Secretary) from a subsection (d) hospital that 
satisfies certain criteria, the Secretary shall treat the hospital as 
being located in the rural area (as defined in paragraph (2)(D)) of the 
State in which the hospital is located. We refer readers to the 
regulations at 42 CFR 412.103 for the general criteria and application 
requirements for a subsection (d) hospital to reclassify from urban to 
rural status in accordance with section 1886(d)(8)(E) of the Act. The 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51595 through 51596) includes 
our policies regarding the effect of wage data from reclassified or 
redesignated hospitals.
    Hospitals must meet the criteria to be reclassified from urban to 
rural status under Sec.  412.103, as well as fulfill the requirements 
for the application process. However, under existing Sec.  412.103(b), 
there is no timeframe requirement as to when hospitals must apply for 
the urban to rural reclassification. Therefore, a hospital can apply 
for the urban to rural reclassification at any time, and under Sec.  
412.103(d), the effective date of the hospital's rural status, once 
approved, is the filing date of the application.
    There may be one or more reasons that a hospital applies for the 
urban to rural reclassification, and the timeframe that a hospital 
submits an application is often dependent on those reason(s). Because 
there are no timeframes for when a hospital must submit its application 
under Sec.  412.103, it is the hospital's prerogative as to when it 
files the application with the CMS Regional Office. Because the wage 
index is part of the methodology for determining the prospective 
payments to hospitals for each fiscal year, we believe there should be 
a definitive timeframe within which a hospital should apply for rural 
status in order for the reclassification to be reflected in the next 
Federal fiscal year's wage data used for setting payment rates. As 
hospitals are aware, the IPPS ratesetting process that CMS undergoes 
each proposed and final rulemaking is complex and labor-intensive, and 
subject to a compressed timeframe in order to issue the final rule each 
year within the timeframes for publication. Accordingly, CMS must 
ensure that it receives, in a timely fashion, the necessary data, 
including, but not limited to, the list of hospitals that are 
reclassified from urban to rural status under Sec.  412.103, in order 
to calculate the wage indexes and other IPPS rates.
    Therefore, in this proposed rule, we are proposing a date by when 
we would ``lock in'' the list of hospitals that are reclassified from 
urban to rural status under Sec.  412.103 in order to include them in 
the upcoming Federal fiscal year's wage index calculation provided for 
at Sec.  412.64(h) and budget neutrality calculations provided for at

[[Page 25072]]

Sec. Sec.  412.64(e)(1)(ii), (e)(2), and (e)(4) that are part of the 
ratesetting process). The ratesetting process is described in the 
Addendum of the annual proposed and final rules and includes the budget 
neutrality adjustments in accordance with the regulations at Sec. Sec.  
412.64(e)(1)(ii), (e)(2), and (e)(4), as well as adjustments for 
differences in area wage levels provided for at Sec.  412.64(h). We 
believe that this proposal would introduce additional transparency and 
predictability regarding the timing of accounting for urban or rural 
status in the IPPS ratesetting each Federal fiscal year. We are 
proposing that this date for ``locking in'' the list of hospitals with 
rural status achieved under Sec.  412.103 would be the second Monday in 
June of each year. Therefore, if a hospital is applying for an urban to 
rural reclassification under Sec.  412.103 for the purpose and 
expectation that its rural status be reflected in the wage index and 
budget neutrality calculations for setting payment rates for the next 
Federal fiscal year, the hospital would need to file its application 
with the CMS Regional Office not later than 70 days prior to the second 
Monday in June. Because, under 412.103(c), the CMS Regional Office must 
notify the hospital of its approval or disapproval of the application 
within 60 days of the hospital's filing date (the date it is received 
by the CMS Regional Office, in accordance with Sec.  412.103(b)(5)), we 
would expect that the extra 10 days would provide the CMS Regional 
Office with sufficient processing and administrative time to notify the 
CMS Central Office of the reclassification status of the applications 
by the second Monday in June of each year. This is the latest date that 
CMS would need the information in order to ensure that reclassified 
hospitals would be included as such in the wage index and budget 
neutrality calculations for setting payment rates for the next Federal 
fiscal year. This does not preclude a hospital from applying for 
reclassification under Sec.  412.103 earlier or later than the proposed 
deadline. Nor does the proposed deadline change the fact that the rural 
reclassification is effective as of its filing date, in accordance with 
Sec.  412.103(d). However, in order to ensure that a reclassification 
is reflected in the wage index and budget neutrality calculations for 
setting payment rates for the next Federal fiscal year, applications 
must be received by the CMS Regional Office (the filing date) by no 
later than 70 days prior to the second Monday in June of each year. If 
the CMS Central Office is informed of a reclassification status after 
the second Monday in June, for wage index and budget neutrality 
purposes, the reclassification would not be reflected in the payment 
rates until the following Federal fiscal year; that is, the Federal 
fiscal year following the next Federal fiscal year. We are proposing to 
revise Sec.  412.103(b) by adding a new paragraph (6) to incorporate 
this proposed policy. Proposed Sec.  412.103(b)(6) would specify that 
in order for a hospital to be treated as rural in the wage index and 
budget neutrality calculations under Sec. Sec.  412.64(e)(1)(ii), 
(e)(2), (e)(4), and (h) for payment rates for the next Federal fiscal 
year, the hospital's filing date must be no later than 70 days prior to 
the second Monday in June of the current Federal fiscal year and the 
application must be approved by the CMS Regional Office in accordance 
with the requirements of Sec.  412.103.

M. Process for Requests for Wage Index Data Corrections

    The preliminary, unaudited Worksheet S-3 wage data files for the 
proposed FY 2017 wage index were made available on May 15, 2015, and 
the preliminary CY 2013 occupational mix data files on May 15, 2015, 
through the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html.
    On January 29, 2016, we posted a public use file (PUF) at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html containing FY 2017 wage index data available as of January 
28, 2016. This PUF contains a tab with the Worksheet S-3 wage data 
(which includes Worksheet S-3, Parts II and III wage data from cost 
reporting periods beginning on or after October l, 2012 through 
September 30, 2013; that is, FY 2013 wage data), a tab with the 
occupational mix data (which includes data from the CY 2013 
occupational mix survey, Form CMS-10079), and new for FY 2017, a tab 
containing the Worksheet S-3 wage data of hospitals deleted from the 
January 29, 2016 wage data PUF and a tab containing the CY 2013 
occupational mix data (if any) of the hospitals deleted from the 
January 29, 2016 wage data PUF. In a memorandum dated January 21, 2016, 
we instructed all MACs to inform the IPPS hospitals that they service 
of the availability of the January 29, 2016 wage index data PUFs, and 
the process and timeframe for requesting revisions in accordance with 
the FY 2017 Wage Index Timetable.
    In the interest of meeting the data needs of the public, beginning 
with the proposed FY 2009 wage index, we post an additional PUF 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 about the dates 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 April 30, 2015, we instructed all MACs to 
inform the IPPS hospitals that they service of the availability of the 
wage index data files and the process and timeframe for requesting 
revisions (including the specific deadlines listed later in this 
section). 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 
May 15, 2015 wage data files and May 15, 2015 occupational mix data 
files, the hospital was to submit corrections along with complete, 
detailed supporting documentation to its MAC by September 2, 2015. 
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 letters sent to them by their MACs.
    November 4, 2015 was the date by when MACs notified State hospital 
associations regarding hospitals that failed to respond to issues 
raised during the desk reviews. The MACs notified the hospitals by mid-
January 2016 of any changes to the wage index data as a result of the 
desk reviews and the resolution of the hospitals' revision requests. 
The MACs also submitted the revised data to CMS by January 22, 2016. 
CMS published the proposed wage index PUFs that included hospitals' 
revised wage index data on January 29, 2016. Hospitals had until 
February 16, 2016, to submit requests to the MACs for reconsideration 
of adjustments made by the MACs as a result of the desk review, and to 
correct errors due to CMS' or the MAC's mishandling of the wage index 
data. Hospitals also were required to submit

[[Page 25073]]

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 March 24, 2016. The deadline for 
a hospital to request CMS intervention in cases where a hospital 
disagreed with a MAC's policy interpretation was April 5, 2016. We note 
that, as we did for the FY 2016 wage index, for the FY 2017 wage index, 
in accordance with the FY 2017 wage index timeline posted on the CMS 
Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html, the April appeals have to be sent via mail and email. 
We refer readers to the wage index timeline for complete details.
    Hospitals are given the opportunity to examine Table 2, which is 
listed in section VI. of the Addendum to this proposed rule and 
available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html. Table 2 contains each 
hospital's proposed adjusted average hourly wage used to construct the 
wage index values for the past 3 years, including the FY 2013 data used 
to construct the proposed FY 2017 wage index. We note that the proposed 
hospital average hourly wages shown in Table 2 only reflect changes 
made to a hospital's data that were transmitted to CMS by late February 
2016.
    We plan to post the final wage index data PUFs in late April 2016 
on the Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html. The April 2016 PUFs 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 previously described (revisions submitted to CMS 
by the MACs by March 24, 2016).
    After the release of the April 2016 wage index data PUFs, changes 
to the wage and occupational mix data can 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 March 24, 2016.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the January 29, 
2016 wage index PUFs.
     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 April 2016 final wage index data PUFs, a 
hospital believes 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 is 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 is required to send its 
request to CMS and to the MAC no later than May 23, 2016. Similar to 
the April appeals, beginning with the FY 2015 wage index, in accordance 
with the FY 2017 wage index timeline posted on the CMS Web site at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home.html, 
the May appeals must be sent via mail and email to CMS and the MACs. We 
refer readers to the wage index timeline for complete details.
    Verified corrections to the wage index data received timely by CMS 
and the MACs (that is, by May 23, 2016) will be incorporated into the 
final FY 2017 wage index, which will be effective October 1, 2016.
    We created the processes previously described to resolve all 
substantive wage index data correction disputes before we finalize the 
wage and occupational mix data for the FY 2017 payment rates. 
Accordingly, hospitals that do not meet the procedural deadlines set 
forth above will not be afforded a later opportunity to submit wage 
index data corrections or to dispute the MAC's decision with respect to 
requested changes. Specifically, our policy is that hospitals that do 
not meet the procedural deadlines set forth above will not be permitted 
to challenge later, before the PRRB, the failure of CMS to make a 
requested data revision. We refer readers also to the FY 2000 IPPS 
final rule (64 FR 41513) for a discussion of the parameters for appeals 
to the PRRB for wage index data corrections.
    Again, we believe the wage index data correction process described 
earlier provides hospitals with sufficient opportunity to bring errors 
in their wage and occupational mix data to the MAC's attention. 
Moreover, because hospitals have access to the final wage index data 
PUFs by late April 2016, they have the opportunity to detect any data 
entry or tabulation errors made by the MAC or CMS before the 
development and publication of the final FY 2017 wage index by August 
2016, and the implementation of the FY 2017 wage index on October 1, 
2016. 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 May 23, 
2016, 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 
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 May 
deadline for making corrections to the wage data for the following 
fiscal year's wage index (for example, May 23, 2016 for the FY 2017 
wage index). This provision is not available to a hospital seeking to 
revise another hospital's data that may be affecting the requesting 
hospital's wage index for the labor market area. As indicated earlier, 
because CMS makes the wage index data available to hospitals on the CMS 
Web site prior to publishing both the proposed and final IPPS rules, 
and the MACs notify hospitals directly of any wage index data changes 
after completing their desk reviews, we do not expect that midyear 
corrections will be necessary. However, under our current policy, if 
the correction of a data error changes the wage index value for an 
area, the revised wage index value will be effective prospectively from 
the date the correction is made.
    In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and 
47485), we revised 42 CFR 412.64(k)(2) to specify that, effective on 
October 1, 2005, that is, beginning with the FY 2006 wage index, a 
change to the wage index can be made retroactive to the beginning of 
the Federal fiscal year only when CMS determines all of the following: 
(1) The MAC or CMS made an error in tabulating data used for the wage 
index calculation; (2) the hospital knew about

[[Page 25074]]

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 May 23, 
2016 deadline for the FY 2017 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 May 23, 2016 deadline for the FY 2017 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.

N. Proposed Labor Market Share for the Proposed FY 2017 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 and 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. 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, FY 2015, and FY 2016 of 69.6 percent. 
In addition, in FY 2014, we implemented this revised and rebased labor-
related share in a budget neutral manner (78 FR 51016). 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 this proposed rule, for FY 2017, we are not proposing to 
make any further changes to the national average proportion of 
operating costs that are attributable to wages and salaries, employee 
benefits, contract labor, the labor-related portion of professional 
fees, administrative and facilities support services, and all other 
labor-related services. Therefore, for FY 2017, we are proposing to 
continue to use a labor-related share of 69.6 percent for discharges 
occurring on or after October 1, 2016.
    As discussed in section IV.A of the preamble of this proposed rule, 
prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 
percent of the national standardized amount and 25 percent of the 
Puerto Rico-specific standardized amount. As a result, we applied the 
Puerto Rico-specific labor-related share percentage and nonlabor-
related share percentage to the Puerto Rico-specific standardized 
amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub. 
L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that 
the payment calculation with respect to operating costs of inpatient 
hospital services of a subsection (d) Puerto Rico hospital for 
inpatient hospital discharges on or after January 1, 2016, shall use 
100 percent of the national standardized amount. Because Puerto Rico 
hospitals are no longer paid with a Puerto Rico-specific standardized 
amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as 
amended by section 601 of the Consolidated Appropriations Act, 2016, 
there is no longer a need for us to calculate a Puerto Rico-specific 
labor-related share percentage and nonlabor-related share percentage 
for application to the Puerto Rico-specific standardized amount. 
Hospitals in Puerto Rico are now paid 100 percent of the national 
standardized amount and, therefore, are subject to the national labor-
related share and nonlabor-related share percentages that are applied 
to the national standardized amount. Accordingly, for FY 2017, we are 
not proposing a Puerto Rico-specific labor-related share percentage or 
a nonlabor-related share percentage.
    Tables 1A and 1B, which are published in section VI. of the 
Addendum to this FY 2017 IPPS/LTCH PPS proposed rule and available via 
the Internet on the CMS Web site, reflect the proposed national labor-
related share, which is also applicable to Puerto Rico hospitals. For 
FY 2017, for all IPPS hospitals (including Puerto Rico hospitals) whose 
wage indexes are less than or equal to 1.0000, we are proposing to 
apply the wage index to a labor-related share of 62 percent of the 
national standardized amount. For all IPPS hospitals (including Puerto 
Rico hospitals) whose wage indexes are greater than 1.000, for FY 2017, 
we are proposing to apply the wage index to a proposed labor-related 
share of 69.6 percent of the national standardized amount.

[[Page 25075]]

O. Solicitation of Comments on Treatment of Overhead and Home Office 
Costs in the Wage Index Calculation

    Section III.D. of the preamble of this proposed rule states that 
the method used to compute the proposed FY 2017 wage index without an 
occupational mix adjustment follows the same methodology that we used 
to compute the FY 2012, FY 2013, FY 2014, FY 2015, and FY 2016 final 
wage indexes without an occupational mix adjustment (76 FR 51591 
through 51593, 77 FR 53366 through 53367, 78 FR 50587 through 50588, 79 
FR 49967, and 80 FR 49491 through 49492, respectively).
    As discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592), 
in ``Step 4'' of the calculation of the unadjusted wage index, for each 
hospital reporting both total overhead salaries and total overhead 
hours greater than zero, we allocate overhead costs to areas of the 
hospital excluded from the wage index calculation. We also compute the 
amounts of overhead wage-related costs to be allocated to excluded 
areas. Finally, we subtract the computed overhead salaries, overhead 
wage-related costs, and hours associated with excluded areas from the 
total salaries (plus allowable wage-related costs) and hours derived in 
``Steps 2 and 3'' of the calculation of the unadjusted wage index. (We 
refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592) for 
a description of the calculation of the unadjusted wage index.) We 
first began to remove from the wage index the overhead salaries and 
hours allocated to excluded areas beginning with the FY 1999 wage index 
calculation (63 FR 40971 and 40972). Beginning with the FY 2002 wage 
index calculation, we estimated and removed overhead wage-related costs 
allocated to excluded areas in addition to removing overhead salaries 
and hours allocated to excluded areas (66 FR 39863 and 39864). We began 
to estimate and remove overhead wage-related costs associated with 
excluded areas because we realized that without doing so, the formula 
resulted in large and inappropriate increases in the average hourly 
wages of some hospitals, particularly hospitals with large overhead and 
excluded area costs. These findings led us to believe that not all 
hospitals were fully or consistently allocating their overhead salaries 
among the lines on Worksheet S-3, Part II, of the hospital cost report 
for allowable wage-related costs (Worksheet S-3, Part II, lines 13 and 
14 on CMS Form 2552-96, and lines 17 and 18 on CMS Form 2552-10), and 
nonallowable wage-related costs associated with excluded areas 
(Worksheet S-3, Part II, line 15 on CMS Form 2552-96 and line 19 on CMS 
Form 2552-10). Therefore, we determined that it was necessary to 
estimate and remove overhead wage-related costs allocated to excluded 
areas, and we have been doing so in ``Step 4'' of the unadjusted wage 
index calculation since FY 2002.
    With the implementation of CMS Form 2552-10, Worksheet S-3, Part IV 
was added to the cost report on which hospitals are required to itemize 
their wage-related costs (formerly reported on Exhibit 6 of CMS Form-
339). The total amount of wage-related costs reported on Worksheet S-3, 
Part II, lines 17 through 25 (CMS Form 2552-10) must correspond to the 
total core wage-related costs on Worksheet S-3, Part IV, line 24. (We 
refer readers to the instructions for line 17 of Worksheet S-3, Part 
II, which state: ``Enter the core wage-related costs from Worksheet S-
3, Part IV, line 24.'') Hospitals report wage-related costs associated 
with excluded areas of the hospital on Worksheet S-3, Part II, line 19. 
We understand that hospitals use an allocation methodology to allocate 
total wage-related costs to each of lines Worksheet S-3, Part II, lines 
17 through 25 respectively, typically based on the ratio of individual 
line costs to total wage-related costs on lines 17 through 25. 
Alternatively, we understand that hospitals use the ratio of full-time 
equivalent (FTE) hours of an individual line to total FTE hours for 
those lines 17 through 25. Because the wage-related costs of employees 
who work in overhead areas of the hospital are included in the wage-
related costs of the hospital reported on Worksheet S-3, Part IV, and 
in turn, on Worksheet S-3, Part II, it is possible to conclude that 
hospitals' own allocation methodologies are properly allocating an 
accurate amount of wage-related costs for both direct cost centers and 
overhead areas to line 19 for the excluded areas. Accordingly, the 
question has been raised whether it continues to be necessary for CMS 
to estimate and remove the overhead wage-related costs associated with 
excluded areas from the unadjusted wage index calculation.
    We have tested the effect on the average hourly wages of hospitals 
if we would not estimate and remove the overhead wage-related costs 
associated with excluded areas from the unadjusted wage index 
calculation. The results show that the problem manifested in the 
formula prior to FY 2002 continues to be a concern; that is, while the 
average hourly wages of all hospitals with excluded areas are impacted, 
hospitals that have particularly large excluded areas experience large 
and inappropriate increases to their average hourly wages. For example, 
one hospital with an excluded area percentage of 95 percent that has an 
average hourly wage of approximately $32 under our current methodology 
would have an average hourly wage of $128 under the formula in effect 
prior to FY 2002 (that is, without removal of overhead wage-related 
costs). Accordingly, we believe that, at this point, there is a need 
for CMS to continue to estimate and remove the overhead wage-related 
costs associated with excluded areas from the unadjusted wage index 
calculation. However, in an effort to improve consistency in hospital 
cost reporting practices and to improve the accuracy of the wage index, 
we are considering the possibility of future rulemaking or cost 
reporting changes, or a combination of both, where hospitals would 
apply a single allocation methodology between Worksheet S-3, Part IV 
and Worksheet S-3, Part II, lines 17 through 25. For example, one 
possibility is the modification and expansion of Worksheet S-3, Part IV 
to add columns that would correspond to each line 17 through 25 of 
Worksheet S-3, Part II. In addition, Worksheet S-3, Part IV could 
employ one or two standard statistical allocation methods, facilitating 
a direct flow of the allocated amounts to each line 17 through 25 of 
Worksheet S-3, Part II. We are soliciting comments from stakeholders to 
gain a better understanding of the nature of hospitals' reporting of 
wage-related costs on Worksheet S-3, Part IV, statistical allocation 
methods that hospitals typically use to allocate their wage-related 
costs, the treatment of direct versus overhead employee wage-related 
costs, and suggestions for possible modifications to Worksheet S-3, 
Parts II and IV respectively, which would preempt the need for CMS to 
estimate and remove overhead wage-related costs associated with 
excluded areas from the unadjusted wage index.
    Another issue about which we are concerned and would like to 
solicit public comments relates to inconsistent reporting of home 
office salaries and wage-related costs. Worksheet S-2, Part I, line 
140, requires hospitals to complete Worksheet A-8-1 if they have any 
related organization or home office costs claimed as defined in the 
Provider Reimbursement Manual, CMS Pub. 15-1, Chapter 10, Section 1002, 
and 42 CFR 413.17. Then, line 14 of Worksheet S-3, Part II instructs 
hospitals to enter the salaries and wage-related costs paid to

[[Page 25076]]

personnel who are affiliated with a home office and/or related 
organization, who provide services to the hospital, and whose salaries 
are not included on Worksheet A, Column 1. Because home office salaries 
and wage-related costs are not included on Worksheet A, Column 1, we 
are concerned that hospitals are not including home office costs on 
Worksheet A, Column 2 or Column 6 in the appropriate cost centers on 
lines 4 through 17, adjusted from Worksheet A-8 or Worksheet A-8-1.\20\ 
Another concern is a hospital's inadvertent inclusion on line 14 of the 
home office salaries or wage-related costs associated with excluded 
areas on Worksheet S-3, Part II, lines 9 or 10. In addition, we are 
concerned about the amalgam of personnel costs that hospitals report on 
line 14, particularly when another more precise line exists for those 
personnel costs to be reported. For example, if cafeteria services are 
provided through the home office, those wages and hours should not be 
reported on line 14, but instead should be reported on the more 
specific cost center for Cafeteria, Worksheet S-3, Part II, line 36 
(corresponding to Cafeteria on Worksheet A, line 11 \21\). We note 
that, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 
49967), 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). We have learned of 
instances where housekeeping or dietary services are provided through 
the home office, and the hospital reported those wages and hours on 
line 14. This is inconsistent with other hospitals' reporting of 
housekeeping and dietary services on lines 32 through 35. As stated in 
the FY 2015 IPPS/LTCH PPS final rule, we have instructed the MACs to 
impute housekeeping or dietary wages and hours when hospitals have not 
properly completed those lines 32 through 35. Hospitals whose 
housekeeping or dietary services (either direct or under contract) are 
provided through their home office are not exempt from this requirement 
to report wages and hours on the specific cost centers for housekeeping 
and dietary. Hospitals should also take care to report housekeeping and 
dietary services in the appropriate cost centers on Worksheet A, lines 
9 and 10 respectively. Because the nature of services provided by home 
office personnel are for general management or administrative services 
related to the provision of patient care (CMS Pub. 15-1, Chapter 21, 
Section 2150), and may be provided to multiple areas of the hospital, 
we are considering ending reporting of home office costs on line 14 of 
Worksheet S-3, Part II, and instead we may require reporting of home 
office costs as part of the overhead lines, possibly by adding lines or 
columns, or subscripting existing line 27 (Administrative & General), 
and line 28 (Administrative & General for contract labor). We are 
soliciting public comments to gain a better understanding of hospitals' 
reporting of home office salaries and wage-related costs for possible 
future revisions to the cost report instructions and lines.
---------------------------------------------------------------------------

    \20\ CMS Pub. 15-2, Chapter 40, Section 4013, Worksheet A 
instructions for column 6: ``Enter on the appropriate lines in 
column 6 the amounts of any adjustments to expenses indicated on 
Worksheet A-8, column 2,'' and the note for line 12 of Worksheet A-
8, section 4016: ``Worksheet A-8-1 represents the detail of the 
various cost centers on Worksheet A which must be adjusted.''
    \21\ CMS Pub. 15-2, Chapter 40, Section 4013, Worksheet A 
instructions under Line Descriptions: ``The trial balance of 
expenses is broken down into general service, inpatient routine 
service, ancillary service, outpatient service, other reimbursable, 
special purpose, and nonreimbursable cost center categories to 
facilitate the transfer of costs to the various worksheets. The line 
numbers on Worksheet A are used on subsequent worksheets. * * *'' 
(emphasis added).
---------------------------------------------------------------------------

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

A. Changes to Operating Payments for Subsection (d) Puerto Rico 
Hospitals as a Result of Section 601 of Public Law 114-113

    Prior to January 1, 2016, Puerto Rico hospitals were paid with 
respect to operating costs of inpatient hospital services for inpatient 
hospital discharges based on 75 percent of the national standardized 
amount and 25 percent of the Puerto Rico-specific standardized amount. 
Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-
113) amended section 1886(d)(9)(E) of the Act to specify that the 
payment calculation with respect to operating costs of inpatient 
hospital services of a subsection (d) Puerto Rico hospital for 
inpatient hospital discharges on or after January 1, 2016, shall use 
100 percent of the national standardized amount. As a result of the 
amendment made by section 601 of Public Law 114-113, on February 4, 
2016, we issued Change Request 9523 which updated the payment rates for 
subsection (d) Puerto Rico hospitals for discharges occurring on or 
after January 1, 2016. Change Request 9523 can be downloaded from the 
CMS Web site at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2016-Transmittals-Items/R3449CP.html.
    For operating costs for inpatient hospital discharges occurring in 
FY 2017 and subsequent fiscal years, consistent with the provisions of 
section 1886(d)(9)(E) of the Act as amended by section 601 of Public 
Law 114-113, subsection (d) Puerto Rico hospitals will continue to be 
paid based on 100 percent of the national standardized amount.
    In this proposed rule, we are proposing to make conforming changes 
to the regulations at 42 CFR 412.204 to reflect the current law that is 
effective for discharges occurring on or after January 1, 2016. 
Specifically, we are proposing to add a new paragraph (e) to Sec.  
412.204 to reflect that, beginning January 1, 2016, subsection (d) 
Puerto Rico hospitals are paid based on 100 percent of the national 
standardized amount. We also are proposing to revise paragraph (d) of 
Sec.  412.204 to specify that subsection (d) Puerto Rico hospitals were 
paid based on 75 percent of the national standardized amount and 25 
percent of the Puerto Rico-specific standardized amount for discharges 
occurring through December 31, 2015.

B. Proposed Changes in the Inpatient Hospital Update for FY 2017 (Sec.  
412.64(d))

1. Proposed FY 2017 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 hospital 
operating costs by a factor called the ``applicable percentage 
increase.'' For FY 2017, we are setting the applicable percentage 
increase by applying the adjustments listed in this section in the same 
sequence as we did for FY 2016. Specifically, 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. 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) 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

[[Page 25077]]

rules established by the Secretary in accordance with section 
1886(b)(3)(B)(viii) of the Act;
    (b) A reduction of three-quarters 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;
    (c) An adjustment based on changes in economy-wide productivity 
(the multifactor productivity (MFP) adjustment); and
    (d) An additional reduction of 0.75 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 2017 adjustment of 0.75 
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 (78 FR 50596 through 50607), 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 final rule (79 FR 
49993 through 49996) and the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49508 through 49511), we continued to use the FY 2010-based IPPS 
operating and capital market baskets for FY 2015 and FY 2016 and the 
labor-related share of 69.6 percent, which was based on the FY 2010-
based IPPS market basket. For FY 2017, we are proposing to continue 
using the FY 2010-based IPPS operating and capital market baskets and 
the proposed labor-related share of 69.6 percent, which is based on the 
FY 2010-based IPPS market basket.
    Based on the most recent data available for this FY 2017 proposed 
rule, in accordance with section 1886(b)(3)(B) of the Act, we are 
proposing to base the proposed FY 2017 market basket update used to 
determine the applicable percentage increase for the IPPS on IHS Global 
Insight, Inc.'s (IGI's) first quarter 2016 forecast of the FY 2010-
based IPPS market basket rate-of-increase with historical data through 
fourth quarter 2015, which is estimated to be 2.8 percent. We are 
proposing that if more recent data subsequently become 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 2017 market basket update and the MFP adjustment in the final rule.
    For FY 2017, depending on whether a hospital submits quality data 
under the rules established in accordance with section 
1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital 
that submits quality data) and is a meaningful EHR user under section 
1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that 
is a meaningful EHR user), there are four possible applicable 
percentage increases that can be applied to the standardized amount as 
specified in the table that appears later in this section.
    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. As we explained in that rule, section 
1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the 
Affordable Care Act, defines this productivity adjustment as equal to 
the 10-year moving average of changes in annual economy-wide, private 
nonfarm business MFP (as projected by the Secretary for the 10-year 
period ending with the applicable fiscal year, calendar year, cost 
reporting period, or other annual period). The Bureau of Labor 
Statistics (BLS) publishes the official measure of private nonfarm 
business MFP. We refer readers to the BLS Web site at http://www.bls.gov/mfp for the BLS historical published MFP data.
    MFP is derived by subtracting the contribution of labor and capital 
input growth from output growth. The projections of the components of 
MFP are currently produced by IGI, a nationally recognized economic 
forecasting firm with which CMS contracts to forecast the components of 
the market baskets and MFP. As we discussed in the FY 2016 IPPS/LTCH 
PPS final rule (80 FR 49509), beginning with the FY 2016 rulemaking 
cycle, the MFP adjustment is calculated using the revised series 
developed by IGI to proxy the aggregate capital inputs. Specifically, 
in order to generate a forecast of MFP, IGI forecasts BLS aggregate 
capital inputs using a regression model. A complete description of the 
MFP projection methodology is available on the CMS Web site at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html. As 
discussed in the FY 2016 IPPS/LTCH PPS final rule, if IGI makes changes 
to the MFP methodology, we will announce them on our Web site rather 
than in the annual rulemaking.
    For FY 2017, we are proposing an MFP adjustment of 0.5 percentage 
point. Similar to the market basket update, for the proposed rule, we 
used the most recent data available to compute the MFP adjustment. As 
noted previously, we are proposing that if more recent data 
subsequently become available, we would use such data, if appropriate, 
to determine the FY 2017 market basket update and MFP adjustment for 
the final rule.
    Based on the most recent data available for this proposed rule, as 
described previously, we have determined four proposed applicable 
percentage increases to the standardized amount for FY 2017, as 
specified in the following table:

                          Proposed FY 2017 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 2017                         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
----------------------------------------------------------------------------------------------------------------
Proposed Market Basket                                       2.8             2.8             2.8             2.8
 Rate[dash]of[dash]Increase.....................
Proposed Adjustment for Failure to Submit                    0.0             0.0            -0.7            -0.7
 Quality Data under Section 1886(b)(3)(B)(viii)
 of the Act.....................................
Proposed Adjustment for Failure to be a                      0.0            -2.1             0.0            -2.1
 Meaningful EHR User under Section
 1886(b)(3)(B)(ix) of the Act...................
Proposed MFP Adjustment under Section                       -0.5            -0.5            -0.5            -0.5
 1886(b)(3)(B)(xi) of the Act...................
Statutory Adjustment under Section                         -0.75           -0.75           -0.75           -0.75
 1886(b)(3)(B)(xii) of the Act..................

[[Page 25078]]

 
Proposed Applicable Percentage Increase Applied             1.55           -0.55            0.85           -1.25
 to Standardized Amount.........................
----------------------------------------------------------------------------------------------------------------

    We are proposing to revise the existing regulations at 42 CFR 
412.64(d) to reflect the current law for the FY 2017 update. 
Specifically, in accordance with section 1886(b)(3)(B) of the Act, we 
are proposing to add a new paragraph (vii) to Sec.  412.64(d)(1) to 
reflect the applicable percentage increase to the FY 2017 operating 
standardized amount as the percentage increase in the market basket 
index, subject to the reductions specified under Sec.  412.64(d)(2) for 
a hospital that does not submit quality data and Sec.  412.64(d)(3) for 
a hospital that is not a meaningful EHR user, less an MFP adjustment 
and less an additional reduction of 0.75 percentage point.
    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 also 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. We note that section 205 of the 
Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 
114-10, enacted on April 16, 2015) extended the MDH program (which, 
under previous law, was to be in effect for discharges on or before 
March 31, 2015 only) for discharges occurring on or after April 1, 
2015, through FY 2017 (that is, for discharges occurring on or before 
September 30, 2017).
    For FY 2017, we are proposing the following updates to the 
hospital-specific rates applicable to SCHs and MDHs: A proposed update 
of 1.55 percent for a hospital that submits quality data and is a 
meaningful EHR user; a proposed update of 0.85 percent for a hospital 
that fails to submit quality data and is a meaningful EHR user; a 
proposed update of -0.55 percent for a hospital that submits quality 
data and is not a meaningful EHR user; and a proposed update of -1.25 
percent for a hospital that fails to submit quality data and is not a 
meaningful EHR user. As mentioned previously, for this FY 2017 proposed 
rule, we are using IGI's first quarter 2016 forecast of the FY 2010-
based IPPS market basket update with historical data through fourth 
quarter 2015. Similarly, we are using IGI's first quarter 2016 forecast 
of the MFP adjustment. We are proposing that if more recent data 
subsequently become available (for example, a more recent estimate of 
the market basket increase and the MFP adjustment), we would use such 
data, if appropriate, to determine the update for SCHs and MDHs in the 
final rule.
2. Proposed FY 2017 Puerto Rico Hospital Update
    As discussed in section IV.A. of the preamble of this proposed 
rule, prior to January 1, 2016, Puerto Rico hospitals were paid based 
on 75 percent of the national standardized amount and 25 percent of the 
Puerto Rico-specific standardized amount. Section 601 of Public Law 
114-113 amended section 1886(d)(9)(E) of the Act to specify that the 
payment calculation with respect to operating costs of inpatient 
hospital services of a subsection (d) Puerto Rico hospital for 
inpatient hospital discharges on or after January 1, 2016, shall use 
100 percent of the national standardized amount. Because Puerto Rico 
hospitals are no longer paid with a Puerto Rico-specific standardized 
amount under the amendments to section 1886(d)(9)(E) of the Act, there 
is no longer a need for us to propose an update to the Puerto Rico 
standardized amount. Hospitals in Puerto Rico are now paid 100 percent 
of the national standardized amount and, therefore, are subject to the 
same update to the national standardized amount discussed under section 
IV.B.1. of the preamble of this proposed rule. Accordingly, for FY 
2017, we are proposing an applicable percentage increase of 1.55 
percent to the standardized amount for hospitals located in Puerto 
Rico.
    We note that section 1886(b)(3)(B)(viii) of the Act, which 
specifies the adjustment to the applicable percentage increase for 
``subsection (d)'' hospitals that do not submit quality data under the 
rules established by the Secretary, is not applicable to hospitals 
located in Puerto Rico.
    In addition, section 602 of Public Law 114-113 amended section 
1886(n)(6)(B) of the Act to specify that Puerto Rico hospitals are 
eligible for incentive payments for the meaningful use of certified EHR 
technology, effective beginning FY 2016, and also to apply the 
adjustments to the applicable percentage increase under section 
1886(b)(3)(B)(ix) of the Act to Puerto Rico hospitals that are not 
meaningful EHR users, effective FY 2022. Accordingly, because the 
provisions of section 1886(b)(3)(B)(ix) of the Act are not applicable 
to hospitals located in Puerto Rico until FY 2022, the adjustments 
under this provision are not applicable for FY 2017.

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

    Under the authority of section 1886(d)(5)(C)(i) of the Act, the 
regulations at Sec.  412.96 set forth the criteria that a hospital must 
meet in order to qualify under the IPPS as a rural referral center 
(RRC). RRCs receive some special treatment under both the DSH payment 
adjustment and the criteria for geographic reclassification.
    Section 402 of Public Law 108-173 raised the DSH payment adjustment 
for RRCs such that they are not subject to the 12-percent cap on DSH 
payments that is applicable to other rural hospitals. RRCs also are not 
subject to the proximity criteria when applying for geographic 
reclassification. In addition, they do not have to meet the requirement 
that a hospital's average hourly wage must exceed, by a certain 
percentage, the average hourly wage of the labor market area in which 
the hospital is located.
    Section 4202(b) of Public Law 105-33 states, in part, that any 
hospital classified as an RRC by the Secretary for FY 1991 shall be 
classified as such an RRC for FY 1998 and each subsequent fiscal year. 
In the August 29, 1997 IPPS final rule with comment period (62 FR 
45999), we reinstated RRC status for all hospitals that lost that 
status due to triennial review or MGCRB

[[Page 25079]]

reclassification. However, we 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 case-mix index (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) for additional discussion.) With respect to the two 
mandatory prerequisites, a hospital may be classified as an RRC if--
     The hospital's CMI is at least equal to the lower of the 
median CMI for urban hospitals in its census region, excluding 
hospitals with approved teaching programs, or the median CMI for all 
urban hospitals nationally; and
     The hospital's number of discharges is at least 5,000 per 
year, or, if fewer, the median number of discharges for urban hospitals 
in the census region in which the hospital is located. The number of 
discharges criterion for an osteopathic hospital is at least 3,000 
discharges per year, as specified in section 1886(d)(5)(C)(i) of the 
Act.
1. Case-Mix Index (CMI)
    Section 412.96(c)(1) provides that CMS establish updated national 
and regional CMI values in each year's annual notice of prospective 
payment rates for purposes of determining RRC status. The methodology 
we used to determine the national and regional CMI values is set forth 
in the regulations at Sec.  412.96(c)(1)(ii). The proposed national 
median CMI value for FY 2017 is based on the CMI values of all urban 
hospitals nationwide, and the proposed regional median CMI values for 
FY 2017 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 proposed values are 
based on discharges occurring during FY 2015 (October 1, 2014 through 
September 30, 2015), and include bills posted to CMS' records through 
December 2015.
    We are proposing that, in addition to meeting other criteria, if 
rural hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting periods beginning on or after October 1, 
2016, they must have a CMI value for FY 2015 that is at least--
     1.6125 (national--all urban); or
     The median CMI value (not transfer-adjusted) for urban 
hospitals (excluding hospitals with approved teaching programs as 
identified in Sec.  413.75) calculated by CMS for the census region in 
which the hospital is located.
    The proposed CMI values by region are set forth in the following 
table.

------------------------------------------------------------------------
                                                              Case-mix
                          Region                            index value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)..................        1.3637
2. Middle Atlantic (PA, NJ, NY)..........................        1.4441
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)...        1.51235
4. East North Central (IL, IN, MI, OH, WI)...............        1.5324
5. East South Central (AL, KY, MS, TN)...................        1.45055
6. West North Central (IA, KS, MN, MO, NE, ND, SD).......        1.59535
7. West South Central (AR, LA, OK, TX)...................        1.643
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).............        1.6966
9. Pacific (AK, CA, HI, OR, WA)..........................        1.616
------------------------------------------------------------------------

    We intend to update the preceding CMI values in the FY 2017 final 
rule to reflect the updated FY 2015 MedPAR file, which would contain 
data from additional bills received through March 2016.
    A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its 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 criteria 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. For FY 2017, we are 
proposing to update the regional standards based on discharges for 
urban hospitals' cost reporting periods that began during FY 2014 (that 
is, October 1, 2013 through September 30, 2014), which are the latest 
cost report data available at the time this proposed rule was 
developed.
    We are proposing that, in addition to meeting other criteria, a 
hospital, if it is to qualify for initial RRC status for cost reporting 
periods beginning on or after October 1, 2016, must have, as the number 
of discharges for its cost reporting period that began during FY 2014, 
at least--
     5,000 (3,000 for an osteopathic hospital); or
     The median number of discharges for urban hospitals in the 
census region in which the hospital is located as indicated in the 
following table.

------------------------------------------------------------------------
                                                             Number of
                         Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................           8,090
2. Middle Atlantic (PA, NJ, NY).........................          10,745
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          10,309
4. East North Central (IL, IN, MI, OH, WI)..............           8,090
5. East South Central (AL, KY, MS, TN)..................           7,457
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......           7,718
7. West South Central (AR, LA, OK, TX)..................           5,027
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............           8,621
9. Pacific (AK, CA, HI, OR, WA).........................           8,509
------------------------------------------------------------------------

    We intend to update these numbers in the FY 2017 final rule based 
on the latest available cost report data.
    We note that the median number of discharges for hospitals in each 
census region is greater than the national standard of 5,000 
discharges. Therefore, under this proposed rule, 5,000 discharges is 
the minimum criterion for all hospitals, except for osteopathic 
hospitals for which the minimum criterion is 3,000 discharges.

[[Page 25080]]

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

1. Background
    Section 1886(d)(12) of the Act provides for an additional payment 
to each qualifying low-volume hospital that is paid under IPPS 
beginning in FY 2005, and the low-volume hospital payment policy is set 
forth in the regulations 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. Specifically, the 
provisions of the Affordable Care Act amended the qualifying criteria 
for low-volume hospitals to specify, for FYs 2011 and 2012, 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 
discharges of individuals entitled to, or enrolled for, benefits under 
Medicare Part A during the fiscal year. In addition, the statute as 
amended by the Affordable Care Act, provides that the low-volume 
hospital payment adjustment (that is, the percentage increase) is 
determined using a continuous linear sliding scale ranging from 25 
percent for low-volume hospitals with 200 or fewer discharges of 
individuals entitled to, or enrolled for, benefits under Medicare Part 
A in the fiscal year to 0 percent for low-volume hospitals with greater 
than 1,600 discharges of such individuals in the fiscal year. We 
revised the regulations governing the low-volume hospital payment 
adjustment policy at Sec.  412.101 to reflect the changes to the 
qualifying criteria and the calculation of the payment adjustment for 
low-volume hospitals according to the provisions of the Affordable Care 
Act in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 
and 50414).
    The temporary changes to the low-volume hospital qualifying 
criteria and the payment adjustment originally provided for by the 
Affordable Care Act have been extended by subsequent legislation as 
follows: Through FY 2013, by the American Taxpayer Relief Act of 2012 
(ATRA), Public Law 112-240; through March 31, 2014, by the Pathway for 
SGR Reform Act of 2013, Public Law 113- 167; through March 31, 2015, by 
the Protecting Access to Medicare Act of 2014 (PAMA), Public Law 113-
93; and most recently through FY 2017, by the Medicare Access and CHIP 
Reauthorization Act of 2015 (MACRA), Public Law 114-10. For additional 
details on the implementation of the previous extensions of the 
temporary changes to the low-volume hospital qualifying criteria and 
payment adjustment originally provided for by the Affordable Care Act, 
we refer readers to the following Federal Register documents: The FY 
2013 IPPS notice (78 FR 14689 through 14691); the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50611 through 50612); the FY 2014 IPPS interim final 
rule with comment period (79 FR 15022 through 15025); the FY 2014 IPPS 
notice (79 FR 34444 through 34446); the FY 2015 IPPS/LTCH PPS final 
rule (79 FR 49998 through 50001); and the FY 2016 IPPS interim final 
rule with comment period (80 FR 49594 through 49595).
2. Proposed Low-Volume Hospital Definition and Payment Adjustment for 
FY 2017
    Under section 1886(d)(12) of the Act, as amended by section 204 of 
the MACRA, the temporary changes in the low-volume hospital payment 
policy originally provided by the Affordable Care Act and extended 
through subsequent legislation, are effective through FY 2017. In this 
proposed rule, consistent with our historical approach, we are 
proposing to update the discharge data source used to identify 
qualifying low-volume hospitals and calculate the payment adjustment 
(percentage increase) for FY 2017. Under 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 and to determine the 
applicable low-volume percentage increase for qualifying hospitals. The 
applicable low-volume percentage increase for FY 2017 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 2017, consistent with our historical 
policy, we are proposing that qualifying low-volume hospitals and their 
payment adjustment would be determined using the most recently 
available Medicare discharge data from the December 2015 update of the 
FY 2015 MedPAR file, as these data are the most recent data available. 
Table 14 listed in the Addendum of this proposed rule (which is 
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) 
lists the ``subsection (d)'' hospitals with fewer than 1,600 Medicare 
discharges based on the claims data from the December 2015 update of 
the FY 2015 MedPAR file and their potential proposed low-volume payment 
adjustment for FY 2017. Consistent with past practice, we note that 
this 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 2017 also is dependent upon meeting the mileage criterion 
specified at Sec.  412.101(b)(2)(ii); that is, the hospital must be 
located more than 15 road miles from any other IPPS hospital. In other 
words, eligibility for the low-volume hospital payment adjustment for 
FY 2017 also is dependent upon meeting (in the case of a hospital that 
did not qualify for the low-volume hospital payment adjustment in FY 
2016) or continuing to meet (in the case of a hospital that did qualify 
for the low-volume hospital payment adjustment in FY 2016) the mileage 
criterion specified at Sec.  412.101(b)(2)(ii). Consistent with 
historical practice, we are proposing that if more recent Medicare 
discharge data become available, we would use that updated data to 
determine qualifying low-volume hospitals and their payment adjustment 
in the final rule, and update Table 14 to reflect that updated data.
    In order to receive a low-volume hospital payment adjustment under 
Sec.  412.101 for FY 2017, consistent with our previously established 
procedure, we are proposing that a hospital must notify and provide 
documentation to its MAC that it meets the discharge and mileage 
criteria under Sec.  412.101(b)(2)(ii). Specifically, for FY 2017, we 
are proposing that a hospital must make a written request for low-
volume hospital status that is received by its MAC no later than 
September 1, 2016, in order for the applicable low-volume hospital 
payment adjustment to be applied to payments for its FY 2017 discharges 
occurring on or after October 1, 2016. Under this procedure, a hospital 
that qualified for the low-volume hospital payment adjustment in FY 
2016 may continue to receive a low-volume hospital payment adjustment 
for FY 2017 without reapplying if it continues to meet the Medicare 
discharge criterion established for FY 2017 and the mileage criterion. 
However, the hospital must send written verification that is received 
by its MAC no later than September 1, 2016, stating that it continues 
to be located more than 15 miles from any

[[Page 25081]]

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 mileage criterion as documented in a prior low-
volume hospital status request. We also are proposing that if a 
hospital's written request for low-volume hospital status for FY 2017 
is received after September 1, 2016, 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 2017 discharges 
effective prospectively within 30 days of the date of its low-volume 
hospital status determination, consistent with past practice. (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) and the FY 2015 IPPS/LTCH PPS final rule 
(79 FR 50000 through 50001).)
    We note that, in the FY 2016 IPPS interim final rule with comment 
period (80 FR 49595), we revised the regulations at Sec.  412.101 to 
conform the text to the provisions of section 204 of the MACRA, which 
extended the changes to the qualifying criteria and the payment 
adjustment methodology for low-volume hospitals through FY 2017 (that 
is, through September 30, 2017). We intend to finalize the low-volume 
hospital provisions (as well as the Medicare-dependent small rural 
hospital (MDH) provisions at Sec.  412.108) included in that FY 2016 
interim final rule with comment period in the FY 2017 IPPS/LTCH PPS 
final rule.

E. Indirect Medical Education (IME) Payment Adjustment Factor for FY 
2017 (Sec.  412.105)

1. IME Adjustment for FY 2017
    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)(ii)(XII) of the Act provides that, for discharges 
occurring during FY 2008 and fiscal years thereafter, the IME formula 
multiplier is 1.35. Accordingly, for discharges occurring during FY 
2017, the formula multiplier is 1.35. We estimate that application of 
this formula multiplier for the FY 2017 IME adjustment will result in 
an increase in IPPS payment of 5.5 percent for every approximately 10 
percent increase in the hospital's resident to bed ratio.
2. Other Proposed Policies Related to IME
    We refer readers to section IV.I. of the preamble of this proposed 
rule for a discussion of the proposed policy changes relating to 
medical residency training programs (or rural tracks) at urban 
hospitals that also affect payments for IME.

F. Proposed Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs) for FY 2017 and Subsequent Years (Sec.  412.106)

1. General Discussion
    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).
    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. (For purposes of this proposed 
rule, we refer to these provisions collectively as section 3133 of the 
Affordable Care Act.) 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

[[Page 25082]]

each subsequent fiscal year, a subsection (d) hospital that would 
otherwise receive DSH payments made under section 1886(d)(5)(F) of the 
Act 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 DSH payments, which represents the empirically justified 
amount for such payment, as determined by the MedPAC in its March 2007 
Report to the Congress. We refer to this payment as the ``empirically 
justified Medicare DSH payment.''
    In addition to this empirically justified Medicare DSH 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 section 
1886(d)(5)(F) of the Act if subsection (r) did not apply and the 
aggregate amount of payments that are made to subsection (d) hospitals 
under section 1886(r)(1) of the Act 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 were 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), and the percent 
of individuals who were uninsured in the most recent period for which 
data are available (as so calculated) minus 0.1 percentage point for FY 
2014, and minus 0.2 percentage point for FYs 2015 through 2017. For FYs 
2014 through 2017, the baseline for the estimate of the change in 
uninsurance is fixed by the most recent estimate of the Congressional 
Budget Office before the final vote on the Health Care and Education 
Reconciliation Act of 2010, which is contained in a March 20, 2010 
letter from the Director of the Congressional Budget Office to the 
Speaker of the House. (The March 20, 2010 letter is available for 
viewing on the following Web site: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.pdf.)
    For FY 2018 and subsequent fiscal 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 
were 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 were uninsured in the most recent period for 
which data are available (as so estimated and certified), minus 0.2 
percentage point for FYs 2018 and 2019. Therefore, for FY 2018 and 
subsequent fiscal years, the statute provides some greater flexibility 
in the choice of the data sources to be used for the estimate of the 
change in the percent of uninsured individuals.
    The third factor is a percent that, for each subsection (d) 
hospital, represents the quotient of the amount of uncompensated care 
for such hospital for a period selected by the Secretary (as estimated 
by the Secretary, based on appropriate data), including the use of 
alternative data where the Secretary determines that alternative data 
are available which are 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 section 1886(r) of the Act. 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 the 
applicable 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 Medicare 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 section 1886(r)(2) of the Act 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.
2. 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 DSH payment made under section 1886(d)(5)(F) 
of the Act. Therefore, hospitals must receive empirically justified 
Medicare DSH payments in a fiscal year in order to receive an 
additional Medicare uncompensated care payment for that year. 
Specifically, section 1886(r)(2) of the Act states that, in addition to 
the payment made to a subsection (d) hospital under section 1886(r)(1) 
of the Act, the Secretary shall pay to such subsection (d) hospitals an 
additional amount. Because section 1886(r)(1) of the Act refers to 
empirically justified Medicare DSH payments, the additional payment 
under section 1886(r)(2) of the Act 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

[[Page 25083]]

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 at 
cost report settlement for that payment year.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY 
2015 IPPS/LTCH PPS final rule (79 FR 50006), we specified our policies 
for several specific classes of hospitals within the scope of section 
1886(r) of the Act. We refer readers to those two final rules for a 
detailed discussion of our policies. In summary, we specified the 
following:
     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 (78 FR 50623 and 79 FR 50006).
     Maryland hospitals are not eligible to receive empirically 
justified Medicare DSH payments and uncompensated care payments under 
the payment methodology of section 1886(r) of the Act because they are 
not paid under the IPPS. As discussed in the FY 2015 IPPS/LTCH PPS 
final rule (79 FR 50007), 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 uncompensated care payments under section 1886(r) of the 
Act.
     SCHs that are paid under their hospital-specific rate are 
not eligible for Medicare DSH payments. SCHs that are paid under the 
IPPS Federal rate receive interim payments 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, and if they receive 
interim empirically justified Medicare DSH payments in a fiscal year, 
they also will 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 (78 FR 50624 and 79 FR 50007).
     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. Section 205 of the Medicare Access 
and CHIP Reauthorization Act of 2015 (MACRA), Public Law 114-10, 
enacted April 16, 2015, extended the MDH program for discharges on or 
after April 1, 2015, through September 30, 2017. Because MDHs are paid 
based on the IPPS Federal rate, for FY 2017, MDHs will continue to be 
eligible to receive empirically justified Medicare DSH payments and 
uncompensated care payments if their DPP is at least 15 percent. We 
will apply the same process to determine MDHs' eligibility for 
empirically justified Medicare DSH and uncompensated care payments, as 
we do for all other IPPS hospitals, through September 30, 2017. 
Moreover, we will continue to 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). Our final determination on 
the hospital's eligibility for uncompensated care payments will be 
based on the hospital's actual DSH status at cost report settlement for 
that payment year. In addition, as we do for all IPPS hospitals, we 
calculate a numerator for Factor 3 for all MDHs, regardless of whether 
they are projected to be eligible for Medicare DSH payments during the 
fiscal year, but the denominator for Factor 3 will be based on the 
uncompensated care data from the hospitals that we have projected to be 
eligible for Medicare DSH payments during the fiscal year.
     IPPS hospitals that have elected to participate in the 
Bundled Payments for Care Improvement initiative continue to be paid 
under the IPPS (77 FR 53342) and, therefore, are eligible to receive 
empirically justified Medicare DSH payments and uncompensated care 
payments (78 FR 50625 and 79 FR 50008).
     Hospitals participating in the Rural Community Hospital 
Demonstration Program under section 410A of the Medicare Modernization 
Act do not receive DSH payments and, therefore, are excluded from 
receiving empirically justified Medicare DSH payments and uncompensated 
care payments under the new DSH payment methodology (78 FR 50625 and 79 
FR 50008). There are 14 hospitals currently participating in the 
program; 10 will continue to participate through the end of FY 2016, 
and 4 will continue to participate through the scheduled end of the 
program on December 31, 2016. Once a hospital's participation in the 
demonstration program ends, the hospital will be treated like a 
subsection (d) hospital and subject to the IPPS. Therefore, once their 
participation ends, these hospitals could be eligible to receive 
empirically justified Medicare DSH payments and uncompensated care 
payments and, if so, will be treated accordingly for interim and final 
payments. We will apply the same process to determining their 
eligibility as we do for all other IPPS hospitals, and will make 
interim and final DSH and uncompensated care payments accordingly.
3. 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 Medicare 
DSH payment that would otherwise be made under section 1886(d)(5)(F) of 
the Act 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 was 
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 by advising MACs to simply 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 FY 2014 IPPS/
LTCH PPS final rule that are available on the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014-Transmittals-Items/R5P240.html.

[[Page 25084]]

4. 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 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 discuss the data sources and methodologies for computing each of 
these factors, our final policies for FYs 2014 through 2016, and our 
proposed policies for FY 2017.
a. Calculation of Proposed Factor 1 for FY 2017
    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 this factor is equal to the difference between (1) 
the aggregate amount of payments that would be made to subsection (d) 
hospitals under section 1886(d)(5)(F) of the Act if section 1886(r) of 
the Act did not apply for such fiscal year (as estimated by the 
Secretary); and (2) the aggregate amount of payments that are made to 
subsection (d) hospitals under section 1886(r)(1) of the Act for such 
fiscal year (as so estimated). Therefore, section 1886(r)(2)(A)(i) of 
the Act represents the estimated Medicare DSH payments that would have 
been made under section 1886(d)(5)(F) of the Act if section 1886(r) of 
the Act did not apply for such fiscal year. Under a prospective payment 
system, we would not know the precise aggregate Medicare DSH payment 
amount that would be paid for a Federal fiscal year until cost report 
settlement for all IPPS hospitals is completed, which occurs several 
years after the end of the Federal fiscal year. Therefore, section 
1886(r)(2)(A)(i) of the Act provides authority to estimate this amount, 
by specifying that, for each fiscal year to which the provision 
applies, such amount is to be estimated by the Secretary. Similarly, 
section 1886(r)(2)(A)(ii) of the Act represents the estimated 
empirically justified Medicare DSH payments to be made in a fiscal 
year, as prescribed under section 1886(r)(1) of the Act. Again, section 
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.
    As we did for FY 2016, in order to determine Factor 1 in the 
uncompensated care payment formula for FY 2017, we are proposing to 
continue the policy established 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) of determining Factor 1 by developing 
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 1886(r)(1) of the Act. These estimates will not be 
revised or updated after we know the final Medicare DSH payments for FY 
2017.
    Therefore, in order to determine the two elements of Factor 1 for 
FY 2017 (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 used the most 
recently available projections of Medicare DSH payments for the fiscal 
year, as calculated by CMS' Office of the Actuary using the most 
recently filed Medicare hospital cost report with Medicare DSH payment 
information and the most recent Medicare DSH patient percentages and 
Medicare DSH payment adjustments provided in the IPPS Impact File.
    For purposes of calculating Factor 1 and modeling the impact of 
this FY 2017 IPPS/LTCH PPS proposed rule, we used the Office of the 
Actuary's March 2016 Medicare DSH estimates, which are based on data 
from the December 2015 update of the Medicare Hospital Cost Report 
Information System (HCRIS) and the FY 2016 IPPS/LTCH PPS final rule 
IPPS Impact file, published in conjunction with the publication of the 
FY 2016 IPPS/LTCH PPS final rule. Because SCHs that are projected to be 
paid under their hospital-specific rate are excluded from the 
application of section 1886(r) of the Act, these hospitals also were 
excluded from the March 2016 Medicare DSH estimates. Furthermore, 
because section 1886(r) of the Act specifies that the uncompensated 
care payment is in addition to the empirically justified Medicare DSH 
payment (25 percent of DSH payments that would be made without regard 
to section 1886(r) of the Act), Maryland hospitals participating in the 
Maryland All-Payer Model that do not receive DSH payments are also 
excluded from the Office of the Actuary's Medicare DSH estimates. 
Because the Rural Community Hospital Demonstration program is scheduled 
to end on December 31, 2016, hospitals that are participating in the 
program are included in this estimate for FY 2017. However, we have 
excluded 25 percent of our estimate of DSH payments that would 
otherwise be made to the 4 hospitals whose participation in the program 
will continue through December 31, 2016, as these hospitals will be 
excluded from receiving DSH payments until that time. The estimate 
includes the total DSH payments that would be made to the 10 hospitals 
whose participation in the Rural Community Hospital Demonstration 
program will continue only through September 30, 2016.
    Using the data sources discussed above, the Office of the Actuary 
uses the most recently submitted Medicare cost report data to identify 
Medicare DSH payments and the most recent Medicare 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 
March 2016 Office of the Actuary estimate for Medicare DSH payments for 
FY 2017, without regard to the application of section 1886(r)(1) of the 
Act, is approximately $14.227 billion. This estimate excludes Maryland 
hospitals participating in the Maryland All-Payer Model, SCHs paid 
under their hospital-specific payment rate, and 25 percent of payments 
to the 4 hospitals whose participation in the Rural Community Hospital 
Demonstration program will continue through December 31, 2016. 
Therefore, based on the March 2016 estimate, the estimate for 
empirically justified Medicare DSH payments for FY 2017, with the 
application of section 1886(r)(1) of the Act, is approximately $3.556 
billion (or 25 percent of the total amount of estimated Medicare DSH 
payments for

[[Page 25085]]

FY 2017). 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 proposed rule, we are proposing that Factor 
1 for FY 2017 is $10,670,529,595.84, which is equal to 75 percent of 
the total amount of estimated Medicare DSH payments for FY 2017 
($14,227,372,794.46 minus $3,556,843,198.62).
    The Office of the Actuary's estimates for FY 2017 begin with a 
baseline of $12.154 billion in Medicare DSH expenditures for FY 2013. 
The following table shows the factors applied to update this baseline 
through the current estimate for FY 2017:

                          Factors Applied for FY 2014 Through FY 2017 To Estimate Medicare DSH Expenditures Using 2013 Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                           Estimated DSH
                           FY                                 Update         Discharge       Case-mix          Other           Total       payment  (in
                                                                                                                                             billions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014....................................................           1.009          0.9553           1.015         1.04795        1.025268         $12.461
2015....................................................           1.014          0.9894           1.005          1.0702        1.079048          13.446
2016....................................................           1.009          1.0078           1.005          0.9993        1.021239          13.732
2017....................................................          1.0005          1.0168           1.005          1.0134        1.036095          14.227
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In this table, the discharge column shows the increase in the 
number of Medicare FFS inpatient hospital discharges. The figures for 
FYs 2014 and 2015 are based on Medicare claims data that have been 
adjusted by a completion factor. The discharge figure for FY 2016 is 
based on preliminary data for 2016. The discharge figure for FY 2017 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 2014 and 2015 are based on actual data adjusted by a completion 
factor. The FY 2016 and FY 2017 increases are based on the 
recommendation of the 2010-2011 Medicare Technical Review Panel. The 
``other'' column shows the increase in other factors that 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 that have been 
included over the years but are not reflected in the other columns 
(such as the change in rates for the 2-midnight stay policy). In 
addition, the ``other'' column includes a factor for the Medicaid 
expansion due to the Affordable Care Act.
    The table below shows the factors that are included in the 
``Update'' column of the above table:

----------------------------------------------------------------------------------------------------------------
                                                    Affordable
                                   Market basket     Care Act       Multifactor    Documentation   Total update
               FY                   percentage        payment      productivity     and coding      percentage
                                                    reductions      adjustment
----------------------------------------------------------------------------------------------------------------
2014............................             2.5            -0.3            -0.5            -0.8             0.9
2015............................             2.9            -0.2            -0.5            -0.8             1.4
2016............................             2.4            -0.2            -0.5            -0.8             0.9
2017............................             2.8           -0.75            -0.5            -1.5            0.05
----------------------------------------------------------------------------------------------------------------
Note: All numbers are based on the FY 2017 President's Budget projections.

b. Calculation of Proposed Factor 2 for FY 2017
    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 that, for each of FYs 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 (1) who were 
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); and (2) who are 
uninsured in the most recent period for which data are available (as so 
calculated), minus 0.1 percentage point for FY 2014 and minus 0.2 
percentage point for each of FYs 2015, 2016, and 2017.
    Section 1886(r)(2)(B)(i)(I) of the Act further indicates that the 
percent of individuals under 65 without insurance in 2013 must be the 
percent of such individuals who were 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). 
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://

[[Page 25086]]

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 most recent period for which data 
are available 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 are available (as so 
calculated). In the FY 2014, FY 2015, and FY 2016 IPPS/LTCH PPS final 
rules (78 FR 50634, 79 FR 50014, and 80 FR 49522, respectively), 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, for this FY 
2017 IPPS/LTCH PPS proposed rule, we used the most recently available 
estimate of the uninsurance rate, which is based on the CBO's March 
2015 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 March 2015 estimate of individuals under the age of 65 with 
insurance in CY 2016 is 89 percent. Therefore, the CBO's most recent 
estimate of the rate of uninsurance in CY 2016 is 11 percent (that is, 
100 percent minus 89 percent). Similarly, the CBO's March 2015 estimate 
of individuals under the age of 65 with insurance in CY 2017 is 90 
percent. Therefore, the CBO's most recent estimate of the rate of 
uninsurance in CY 2017 available for this proposed rule is 10 percent 
(that is, 100 percent minus 90 percent).
    The calculation of the proposed Factor 2 for FY 2017, employing a 
weighted average of the CBO projections for CY 2016 and CY 2017, is as 
follows:
     CY 2016 rate of insurance coverage (March 2015 CBO 
estimate): 89 percent.
     CY 2017 rate of insurance coverage (March 2015 CBO 
estimate): 90 percent.
     FY 2016 rate of insurance coverage: (89 percent * .25) + 
(90 percent * .75) = 89.75 percent.
     Percent of individuals without insurance for 2013 (March 
2010 CBO estimate): 18 percent.
     Percent of individuals without insurance for FY 2017 
(weighted average): 10.25 percent.

1-[verbar]((0.1025-0.18)/0.18)[verbar] = 1 - 0.4306 = 0.5694 (56.94 
percent)
0.5694 (56.94 percent) - .002 (0.2 percentage points for FY 2017 under 
section 1886(r)(2)(B)(i) of the Act) = 0.5674 or 56.74 percent
0.5674 = Factor 2

    Therefore, the proposed Factor 2 for FY 2017 is 56.74 percent.
    The FY 2017 Proposed Uncompensated Care Amount is: 
$10,670,529,595.84 x 0.5674 = $6,054,458,492.68.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
FY 2017 Proposed Uncompensated Care Total              $6,054,458,492.68
 Available.....................................
------------------------------------------------------------------------

c. Calculation of Proposed Factor 3 for FY 2017
    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 (1) 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 are available that are a better proxy for 
the costs of subsection (d) hospitals for treating the uninsured, the 
use of such alternative data)); and (2) the aggregate amount of 
uncompensated care for all subsection (d) hospitals that receive a 
payment under section 1886(r) of the Act 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 Medicare DSH payments relative to the 
estimated uncompensated care amount for all hospitals estimated to 
receive Medicare 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 the denominator (that is, the 
estimated uncompensated care amount for all hospitals estimated to 
receive Medicare 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 Medicare 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

[[Page 25087]]

Secretary to use alternative data in the case where the Secretary 
determines that such alternative data are available that are a better 
proxy for the costs of subsection (d) hospitals for treating 
individuals who are uninsured.
    In the course of considering how to determine Factor 3 during the 
rulemaking process for FY 2014, we considered defining the amount of 
uncompensated care for a hospital as the uncompensated care costs of 
each hospital and determined that Worksheet S-10 of the Medicare cost 
report potentially provides the most complete data regarding 
uncompensated care costs for Medicare hospitals. However, because of 
concerns regarding variations in the data reported on the Worksheet S-
10 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 
for FY 2014, the first year this provision was in effect, or for FY 
2015 and FY 2016. We instead employed 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) of the regulations, 
respectively, to determine Factor 3. We believed 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. We also indicated that we were expecting reporting on the 
Worksheet S-10 to improve over time and 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. As discussed in section IV.F.3.d. of the preamble 
of this proposed rule, since the introduction of the uncompensated care 
payment in FY 2014, we believe that hospitals have been submitting more 
accurate and consistent data through Worksheet S-10 and that it is 
appropriate to begin incorporating Worksheet S-10 data for purposes of 
calculating Factor 3 starting in FY 2018. As discussed in greater 
detail in section IV.F.3.d. of the preamble of this proposed rule, we 
are proposing a methodology and timeline for incorporating Worksheet S-
10 data and invite public comments on such a proposal.
    For FY 2017, we believe it remains premature to propose the use of 
Worksheet S-10 data for purposes of determining Factor 3 because 
hospitals were not on notice that Worksheet S-10 would be used for 
purposes of computing uncompensated care payments prior to FY 2014, 
which could affect the accuracy and completeness of the information 
reported on Worksheet S-10. As described more fully below regarding the 
time period of the data used to calculate Factor 3, for FY 2017, we are 
using data from hospital cost reports that precede FY 2014 to determine 
Factor 3 of the uncompensated care payments methodology. Therefore, for 
FY 2017, we remain concerned about the accuracy and consistency of the 
data reported on Worksheet S-10 and are proposing to continue to employ 
the utilization of insured low-income patients (defined as inpatient 
days of Medicaid patients plus inpatient days of Medicare SSI patients 
as defined in Sec.  412.106(b)(4) and Sec.  412.106(b)(2)(i), 
respectively) to determine Factor 3. We also are proposing to continue 
the policies that were finalized in the FY 2015 IPPS/LTCH PPS final 
rule (79 FR 50020) to address several specific issues concerning the 
process and data to be employed in determining Factor 3 in the case of 
hospital mergers for FY 2017 and subsequent fiscal years.
    We also are proposing to make a change to the data that will be 
used to calculate Factor 3 for Puerto Rico hospitals. We received a 
comment in response to the FY 2016 IPPS/LTCH PPS proposed rule that 
requested CMS to create a proxy for the SSI days used in the Factor 3 
calculation for Puerto Rico hospitals (80 FR 49526). Specifically, 
commenters were concerned that residents of Puerto Rico are not 
eligible for SSI benefits. Although we did not have logical outgrowth 
to adopt any change for FY 2016, we indicated that we planned to 
address this issue in the FY 2017 IPPS/LTCH PPS proposed rule if we 
also proposed to continue using inpatient days of Medicare SSI patients 
as a proxy for uncompensated care in FY 2017. Because we are proposing 
to continue using insured low-income patient days as a proxy for 
uncompensated care in FY 2017, we believe it is important to consider 
the commenter's request regarding the data used to calculate Factor 3 
for Puerto Rico hospitals. Accordingly, we are proposing to create a 
proxy for SSI days for Puerto Rico hospitals for use in the Factor 3 
calculation. The commenter specifically mentioned the use of inpatient 
days for Medicare beneficiaries receiving Medicaid as this proxy. We 
have examined this concept and have been unable to identify a 
systematic source for these data for Puerto Rico hospitals. 
Specifically, we note that inpatient utilization for Medicare 
beneficiaries entitled to Medicaid is not reported by hospitals on the 
Medicare cost report. Therefore, we sought an alternative method using 
publicly available Medicare data for determining a proxy to account for 
the fact that residents of Puerto Rico are not eligible for SSI, and 
therefore Puerto Rico hospitals have a relatively low number of 
Medicare SSI days in the Factor 3 computation. We believe it is 
appropriate to use data from the Medicare cost report to develop a 
Puerto Rico Medicare SSI days proxy because they are publicly 
available, used for payment purposes, and subject to audit. However, we 
acknowledge that there are other data sources that could be included to 
develop such a proxy, in particular the SSI ratios posted on the 
Medicare DSH Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html, and therefore are 
soliciting public comment on their use.
    To develop a Puerto Rico Medicare SSI days proxy using data from 
the Medicare cost report, our Office of the Actuary examined data from 
2013 cost reports and analyzed the relationship between Medicare SSI 
days (estimated using SSI ratios on the cost report and Medicare days 
from the same cost report) and Medicaid days (reported by the hospitals 
in accordance with Sec.  412.106(b)(4)). Nationally, excluding Puerto 
Rico, the Office of the Actuary found that, on average and across 
States, for every 100 Medicaid inpatient days, hospitals had 14 
Medicare SSI days. In other words, the relationship between Medicare 
SSI days and Medicaid days reported by hospitals in States, excluding 
Puerto Rico, was approximately 14 percent. We believe it would be 
appropriate to extrapolate this relationship to Puerto Rico hospitals 
to approximate how many patient days for these hospitals would be 
Medicare SSI days if Puerto Rico residents were eligible to receive 
SSI. Therefore, to calculate Factor 3 for FY 2017, we are proposing to 
use a proxy for Medicare SSI days for each Puerto Rico hospital equal 
to 14 percent (or 0.14) of its Medicaid days. In other words, for each 
Puerto Rico hospital, we would compute a value that is equal to 14 
percent of its Medicaid days, where Medicaid days are determined in 
accordance with Sec.  412.106(b)(4). Because this is a proposed proxy 
for the Puerto Rico hospital's Medicare SSI days, this value would 
replace whatever value would otherwise be computed for the hospital 
under Sec.  412.106(b)(2)(i). Specifically, we would first remove any 
Medicare SSI days that a Puerto Rico hospital has from our calculation 
for

[[Page 25088]]

purposes of determining the numerator of Factor 3 for the hospital and, 
if the hospital is projected to be eligible for DSH payments in FY 
2017, the denominator of Factor 3. Second, we would add the proxy to 
the hospital's Medicaid days for purposes of determining the numerator 
of Factor 3 for the hospital and, if the hospital is projected to be 
eligible for DSH payments in FY 2017, the denominator of Factor 3. We 
note that we continue to encourage Puerto Rico hospitals to report 
uncompensated care costs on Worksheet S-10 of the Medicare cost report 
completely and accurately in light of our proposal to begin 
incorporating data from Worksheet S-10 in the computation of hospitals' 
uncompensated care payments starting in FY 2018, as described in more 
detail in section IV.F.3.d. of the preamble of this proposed rule.
    In summary, we are inviting public comments on these proposals to 
continue to use insured low-income days (that is, to use data for 
Medicaid and Medicare SSI patient days determined in accordance with 
Sec.  412.106(b)(2)(i) and (b)(4) as a proxy for uncompensated care, as 
permitted by statute, including a proxy for Medicare SSI days for 
Puerto Rico hospitals), to determine Factor 3 for FY 2017. These 
proposals would be codified in our regulations at Sec.  
412.106(g)(1)(iii)(C). We also are inviting public comments on our 
proposal to continue the policies concerning the process and data to be 
employed in determining Factor 3 in the case of hospital mergers.
    As we have done for every proposed rule beginning in FY 2014, for 
this FY 2017 IPPS/LTCH PPS proposed rule, we are publishing on the CMS 
Web site a table listing Factor 3 for all hospitals that we estimate 
would receive empirically justified Medicare DSH payments in FY 2017 
(that is, hospitals that we project would receive interim uncompensated 
care payments during the fiscal year), and for the remaining subsection 
(d) hospitals and subsection (d) Puerto Rico hospitals that have the 
potential of receiving a Medicare DSH payment in the event that they 
receive an empirically justified Medicare DSH payment for the fiscal 
year as determined at cost report settlement. This table also contains 
a list of the mergers that we are aware of and the computed 
uncompensated care payment for each merged hospital. Hospitals have 60 
days from the date of public display of this FY 2017 IPPS/LTCH PPS 
proposed rule to review this table and notify CMS in writing of any 
inaccuracies. Comments can be submitted to the CMS inbox at 
[email protected]. After the publication of the FY 2017 IPPS/
LTCH final rule, hospitals will have until August 31, 2016, to review 
and submit comments on the accuracy of the table published in 
conjunction with the final rule. Comments can be submitted to the CMS 
inbox at [email protected] through August 31, 2016, and any 
changes to Factor 3 will be posted on the CMS Web site prior to October 
1, 2016.
    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. 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 section 
1886(r) of the Act for such period. In the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50638), we adopted a process of making interim payments 
with final cost report settlement for both the empirically justified 
Medicare DSH payments and the uncompensated care payments required by 
section 3133 of the Affordable Care Act. Consistent with that process, 
we also determined the time period from which to calculate the 
numerator and denominator of the Factor 3 quotient in a way that would 
be consistent with making interim and final payments. Specifically, we 
must have Factor 3 values available for hospitals that we estimate will 
qualify for Medicare DSH payments 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) and the FY 
2015 IPPS/LTCH PPS final rule (79 FR 50018), we finalized a policy of 
using the most recent available full year of Medicare cost report data 
for determining Medicaid days and the most recently available SSI 
ratios to calculate Factor 3. In the FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49528), we held constant the cost reporting years used to 
determine Medicaid days in the calculation of Factor 3. That is, 
instead of calculating the numerator and the denominator of Factor 3 
for hospitals based on the most recently available full year of 
Medicare cost report data with respect to a Federal fiscal year, we 
used data from the more recent of the cost report years (2012/2011) 
used to determine Medicaid days in FY 2015. We made this change in 
order to refine the balance between the recency and accuracy of the 
data used in the Factor 3 calculation. Because we make prospective 
determinations of the uncompensated care payment without 
reconciliation, we believed this change would increase the accuracy of 
the data used to determine Factor 3, and accordingly each eligible 
hospital's allocation of the overall uncompensated care amount by 
providing hospitals with more time to submit these data before they are 
used in the computation of Factor 3. As in prior years, if the more 
recent of the two cost reporting periods did not reflect data for a 12-
month period, we used data from the earlier of the two periods so long 
as that earlier period reflected data for a period of 12 months. If 
neither of the two periods reflected 12 months, we used the period that 
reflected a longer amount of time. We also finalized a proposal to 
continue to extract Medicaid days from the most recent HCRIS database 
update and to use Medicare SSI days from the most recent SSI ratios 
available to us during the time of rulemaking to calculate Factor 3. We 
stated that, for subsequent fiscal years, if we propose and finalize a 
policy of using insured low-income days in computing Factor 3, we would 
continue to use the most recent HCRIS database extract at the time of 
the annual rulemaking cycle, and to use the subsequent year of cost 
reports (that is, to advance the 12-month cost reports by 1 year). In 
addition, for any subsequent fiscal years in which we finalize a policy 
to use insured low-income days to compute Factor 3, our intention would 
be to continue to use the most recently available SSI ratio data at the 
time of annual rulemaking to calculate Factor 3. We believed that it 
was appropriate to state our intentions regarding the specific data we 
would use in the event Factor 3 was determined on the basis of low-
income insured days for subsequent years to provide hospitals with as 
much guidance as possible so they may best consider how and when to 
submit cost report information in the future. We noted that we would 
make proposals with regard to our methodology for calculating Factor 3 
for subsequent fiscal years through notice-and-comment rulemaking.
    Since the publication of the FY 2016 IPPS/LTCH PPS final rule, we 
have learned that some members of the hospital community have been 
disadvantaged by our policy of using only one cost reporting period to

[[Page 25089]]

determine their share of uncompensated care. Specifically, many 
hospitals have reported unpredictable swings and anomalies in their 
low-income insured days between cost reporting periods. These hospitals 
expressed concern that the use of only one cost reporting period is a 
poor predictor of their future uncompensated care burden and results in 
inadequate payments. Because the data used to make uncompensated care 
payment determinations are not subject to reconciliation after the end 
of the fiscal year, we believe that it would be appropriate to expand 
the time period for the data used to calculate Factor 3 from one cost 
reporting period to three cost reporting periods. Using data from more 
than one cost reporting period would mitigate undue fluctuations in the 
amount of uncompensated care payments to hospitals from year to year 
and smooth over anomalies between cost reporting periods. Moreover, 
this policy would have the benefit of supplementing the data of 
hospitals that filed cost reports that are less than 12 months, such 
that the basis of their uncompensated care payments and those of 
hospitals that filed full-year 12-month cost reports would be more 
equitable. We believe that computing Factor 3 using data from three 
cost reporting periods would best stabilize hospitals' uncompensated 
care payments while maintaining the recency of the data used in the 
Factor 3 calculation. We believe that using data from two cost 
reporting periods would not be as stable while using data from more 
than three cost reporting periods could result in using overly dated 
information.
    Therefore, for FY 2017, we are proposing to use an average of data 
derived from three cost reporting periods instead of one cost reporting 
period to compute Factor 3. That is, we would calculate a Factor 3 for 
each cost reporting period and calculate the average. We would 
calculate their average by adding these amounts together, and dividing 
the sum by three, in order to calculate Factor 3 for FY 2017. 
Consistent with the policy adopted in the FY 2016 IPPS/LTCH PPS final 
rule, we would advance the most recent cost report years used to obtain 
Medicaid days and Medicare SSI days in FY 2017 by one year and continue 
to extract Medicaid days data from the most recent update of HCRIS, 
which for FY 2017 would be the March 2015 update of HCRIS. If the 
hospital does not have data for one or more of the three cost reporting 
periods, we compute Factor 3 for the periods available and average 
those. In other words, we would divide the sum of the individual Factor 
3s by the number of cost reporting periods for which there are data. If 
a hospital has merged, we would combine data from both hospitals for 
the cost reporting periods in which the merger is not reflected in the 
surviving hospital's cost report data to compute Factor 3 for the 
surviving hospital. Moreover, to further reduce undue fluctuations in a 
hospital's uncompensated care payments, if a hospital filed multiple 
cost reports beginning in the same fiscal year, we are proposing to 
combine data from the multiple cost reports so that a hospital may have 
a Factor 3 calculated using more than one cost report within a cost 
reporting period. We are proposing to codify these changes for FY 2017 
by amending the regulations at Sec.  412.106(g)(1)(iii)(C). We are 
inviting public comments on this proposal, which we describe more fully 
below.
    For the FY 2016 IPPS/LTCH PPS final rule, we used the most recent 
of hospitals' 12-month 2012 or 2011 cost reports and 2012 cost report 
data submitted to CMS by IHS hospitals to obtain the Medicaid days to 
calculate Factor 3. In addition, we used Medicare SSI days from the FY 
2013 SSI ratios published on the following CMS Web site to calculate 
Factor 3: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html.
    Under our proposal to calculate Factor 3 for FY 2017 using data 
from three cost reporting periods, we would use data from hospitals' FY 
2011, FY 2012, and FY 2013 cost reporting periods extracted from the 
most recent update of the hospital cost report data in the HCRIS 
database and the FY 2011 and FY 2012 cost report data submitted to CMS 
by IHS hospitals to obtain the Medicaid days to calculate Factor 3. (We 
note that, starting with the FY 2013 cost reports, data for IHS 
hospitals will be included in the HCRIS database and will no longer be 
submitted separately.) In addition, to calculate Factor 3 for FY 2017, 
we anticipate that, under our proposal discussed earlier to use the 
most recent available 3 years of data on Medicare SSI utilization, we 
would obtain Medicare SSI days from the FY 2012, FY 2013, and FY 2014 
SSI ratios (or, for Puerto Rico hospitals, substitute Medicare SSI days 
with a proxy as described earlier). We expect the FY 2014 SSI ratios to 
be published on the CMS Web site when available at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html. 
Under this proposal, we would calculate Factor 3 as follows:

    Step 1: Calculate Factor 3 for FY 2011 by summing a hospital's 
FY 2011 Medicaid days and FY 2012 SSI days and dividing by all DSH 
eligible hospitals' FY 2011 Medicaid days and FY 2012 SSI days.
    Step 2: Calculate Factor 3 for FY 2012 by summing a hospital's 
FY 2012 Medicaid days and FY 2013 SSI days and dividing by all DSH 
eligible hospitals' FY 2012 Medicaid days and FY 2013 SSI days.
    Step 3: Calculate Factor 3 for FY 2013 by summing a hospital's 
FY 2013 Medicaid days and FY 2014 SSI days and dividing by all DSH 
eligible hospitals' FY 2013 Medicaid days and FY 2014 SSI days.
    Step 4: Sum the Factor 3 calculated for FY 2011, FY 2012, and FY 
2013 and divide by the number of cost reporting periods with data to 
compute an average Factor 3.

    For illustration purposes, in Table 18 associated with the FY 2017 
proposed rule (which is available via the Internet on the CMS Web 
site), we compute Factor 3 using hospitals' FY 2011, FY 2012, and FY 
2013 cost reports from the December 2015 update of HCRIS to obtain 
Medicaid days and the FY 2012 and FY 2013 SSI ratios published on the 
following CMS Web site to determine Medicare SSI days: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html. Because the FY 2014 SSI ratios are not yet 
available, for purposes of this proposed rule, we computed Factor 3 for 
FY 2013 using FY 2013 Medicaid days and FY 2013 SSI days. However, we 
expect that the FY 2014 SSI ratios will be available to calculate 
Factor 3 for the FY 2017 IPPS/LTCH PPS final rule.
    For subsequent years, we are proposing to continue to use the most 
recent HCRIS database extract at the time of the annual rulemaking 
cycle and to advance the three cost reporting periods used to determine 
Factor 3 by 1 year as appropriate. For instance, if we were to finalize 
a proposal to continue using the proxy in FY 2018, we would use FY 
2012, FY 2013, and FY 2014 cost reports from the most recent available 
extract of HCRIS for Medicaid days and FY 2013, FY 2014, and FY 2015 
SSI ratios to obtain the Medicare SSI days and follow the same 
methodology outlined earlier to determine Factor 3. However, as 
discussed earlier, we believe that it is possible to begin 
incorporating data from Worksheet S-10 into the computation of Factor 3 
starting in FY 2018 and outline a proposal for doing so using data from 
three cost reporting periods in the following section.
d. Proposed Calculation of Factor 3 for FY 2018 and Subsequent Years
(1) Background
    In response to commenters' requests for a timeline and transition 
for

[[Page 25090]]

introducing Worksheet S-10 data into the calculation of Factor 3, in 
this section, we discuss our proposed plans on how to begin 
incorporating hospitals' Worksheet S-10 data into the calculation of 
Factor 3, in order to allocate payments based on a hospital's share of 
overall uncompensated care costs reported on Worksheet S-10. When we 
first discussed using Worksheet S-10 to allocate hospitals' shares of 
uncompensated care costs in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50638), we explained why we believed that it was premature to use 
uncompensated care costs reported on Worksheet S-10 for FY 2014. 
Specifically, at that time, the most recent available cost reports 
would have been from FYs 2010 and 2011, which were submitted on or 
after May 1, 2010, when the new Worksheet S-10 went into effect. We 
believed that ``[c]oncerns about the standardization and completeness 
of the Worksheet S-10 data could be more acute for data collected in 
the first year of the Worksheet's use'' (78 FR 50635). In addition, we 
believed that it would be most appropriate to use data elements that 
have been historically publicly available, subject to audit, and used 
for payment purposes (or that the public understands will be used for 
payment purposes) to determine the amount of uncompensated care for 
purposes of Factor 3 (78 FR 50635). At the time we issued the FY 2014 
IPPS/LTCH PPS final rule, we did not believe that the available data 
regarding uncompensated care from Worksheet S-10 met these criteria 
and, therefore, we believed they were not reliable enough to use for 
determining FY 2014 uncompensated care payments. Accordingly, for FY 
2014, we concluded that utilization of insured low-income patients 
would be a better proxy for the costs of hospitals in treating the 
uninsured. For FYs 2015, 2016, and 2017, the cost reports used for 
calculating uncompensated care payments (that is, FYs 2011, 2012, and 
2013) were also submitted prior to the time that hospitals were on 
notice that Worksheet S-10 could be the data source for calculating 
uncompensated care payments. Therefore, we believe it is also 
appropriate to use proxy data to calculate Factor 3 for these years.
    We believe that, for FY 2018, many of these concerns would no 
longer be relevant. That is, as described more fully below regarding 
the use of Worksheet S-10 from FY 2014, hospitals were on notice as of 
FY 2014 that Worksheet S-10 could eventually become the data source for 
CMS to calculate uncompensated care payments. Hospitals' cost reports 
from FY 2014 have been publically available for some time now. 
Furthermore, MedPAC has provided analyses that found that current 
Worksheet S-10 data are a better proxy for predicting audited 
uncompensated care costs than Medicaid/Medicare SSI days. Specifically, 
MedPAC submitted a public comment discussed in the FY 2016 IPPS/LTCH 
PPS final rule that cited its 2007 analysis of data from the Government 
Accountability Office (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 (80 FR 
49525). Analysis performed by MedPAC showed that the correlation 
between audited uncompensated care data from 2009 and the data from FY 
2011 Worksheet S-10 was over 0.80, as compared to a correlation of 
approximately 0.50 for 2011 Medicare SSI and Medicaid days. MedPAC 
concluded that use of Worksheet S-10 data was already better than using 
Medicare SSI and Medicaid days as a proxy for uncompensated care costs, 
and that the data on Worksheet S-10 would improve over time as the data 
are actually used to make payments.
    We also have undertaken an extensive analysis of the Worksheet S-10 
data, benchmarking it against the data on uncompensated care costs 
reported to the Internal Revenue Service (IRS) on Form 990 by not-for-
profit hospitals. The purpose of this analysis, performed by Dobson 
DaVanzo & Associates, LLC, under contract to CMS, was to determine if 
Worksheet S-10 uncompensated care data are becoming more stable over 
time. (This analysis, included in a report entitled ``Improvements to 
Medicare Disproportionate Share Hospital (DSH) Payments Report: 
Benchmarking S-10 Data Using IRS Form 990 Data and Worksheet S-10 Trend 
Analyses,'' is available on the CMS Web site at: https://www.cms/gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html 
under the Downloads section.) Although we acknowledge that the analysis 
was limited to not-for-profit hospitals, we believe it is relevant to 
our assessment of the overall quality of the data reported on Worksheet 
S-10. Because many not-for-profit hospitals are eligible for 
empirically justified Medicare DSH payments and, therefore, 
uncompensated care payments, they represent a suitable standard of 
comparison. We conducted an analysis of 2010, 2011, and 2012 Worksheet 
S-10 data and IRS Form 990 data from the same years. Using IRS Form 990 
data for tax years 2010, 2011, and 2012 (the latest available years) as 
a benchmark, we compared key variables derived from Worksheet S-10 and 
IRS Form 990 data, such as charity care and bad debt. The analysis was 
completed using data from hospitals that had completed both Worksheet 
S-10 and IRS Form 990 across all study years, yielding a sample of 788 
not-for-profit hospitals (representing 668 unique Taxpayer 
Identification Numbers). Because Factor 3 is used to determine the 
Medicare uncompensated care payment amount for each hospital, we 
calculated the amounts for Factor 3 for the matched hospitals using 
charity care and bad debt, and compared the Factor 3 distributions 
calculated using data from IRS Form 990 and Worksheet S-10. Key 
findings indicate that the amounts for Factor 3 derived using the IRS 
Form 990 and Worksheet S-10 data are highly correlated. In addition, 
the correlation coefficient between the amounts for Factor 3 calculated 
from the IRS Form 990 and Worksheet S-10 has increased over time, from 
0.71 in 2010 to 0.80 in 2012, suggesting some convergence in the data 
sources over time. This strong correlation indicates that Worksheet S-
10 data would be a statistically valid source to use as part of the 
calculation of the uncompensated care payments in FY 2018.
    Accordingly, because hospitals have been on notice since the FY 
2014 rulemaking that CMS intended eventually to use Worksheet S-10 as 
the data source for calculating uncompensated care payments, and in 
light of growing evidence that Worksheet S-10 data are improving over 
time, we believe it would be appropriate to use Worksheet S-10 as a 
data source for determining Factor 3 starting in FY 2018. We discuss 
our proposed methodology below for how we would begin to incorporate 
Worksheet S-10 data into the calculation of Factor 3 of the 
uncompensated care payment methodology.
(2) Proposed Data Source and Time Period for FY 2018 and Subsequent 
Years, Including Methodology for Incorporating Worksheet S-10 Data
    For the reasons explained earlier, we believe that, starting with 
Worksheet S-10 data reported for FY 2014, it is appropriate to begin to 
incorporate Worksheet S-10 data into the computation of Factor 3 and 
the allocation of uncompensated care payments. Specifically, we are 
proposing to continue to use low-income insured patient days as a proxy

[[Page 25091]]

for uncompensated care for cost reporting periods before FY 2014 and to 
use Worksheet S-10 data for FY 2014 and subsequent fiscal years to 
calculate uncompensated care payments for FY 2018 and subsequent fiscal 
years, which, when combined with our proposal to use data from three 
cost reporting periods to calculate Factor 3, would have the effect of 
transitioning toward exclusive use of Worksheet S-10 data. Under this 
proposed approach, we would use only Worksheet S-10 data to calculate 
Factor 3 for FY 2020 and subsequent fiscal years.
    As discussed previously, for FY 2017, we are proposing to calculate 
a hospital's share of uncompensated care based on the proxy of its 
share of low-income insured days using a time period that includes 
three cost reports (that is, FY 2011, FY 2012, and FY 2013 cost 
reports). For the reasons we described earlier, we believe it would not 
be appropriate to use Worksheet S-10 data for periods prior to FY 2014. 
For cost reporting periods prior to FY 2014, we believe it would be 
appropriate to continue to use low-income insured days for the reasons 
we have previously described. Accordingly, with a time period that 
includes three cost reporting periods consisting of FY 2014 and two 
preceding periods, we are proposing to use Worksheet S-10 data for the 
FY 2014 cost reporting period and the low-income insured day proxy data 
for the two earlier cost reporting periods, drawing three sets of data 
from the most recently available HCRIS extract. That is, for FY 2018, 
to compute Factor 3, we are proposing to continue to advance the 3-year 
time period we are using by 1 year and therefore to use FY 2012, FY 
2013, and FY 2014 cost report data from the most recent update of 
HCRIS. In addition, for FY 2018, we are proposing to use Medicaid days 
from FY 2012 and FY 2013 cost reports and FY 2014 and FY 2015 SSI 
ratios. We believe this approach would have a transitioning effect of 
incorporating data from Worksheet S-10 into the calculation of Factor 3 
starting in FY 2018.
    Consistent with our proposal to determine Factor 3 using data over 
a period of 3 cost reporting periods, we are proposing to calculate a 
Factor 3 for each of the three cost reporting periods. Specifically, we 
are proposing to calculate Factor 3 for FY 2018 based on an average of 
Factor 3 calculated using low-income insured days (proxy data) 
determined using Medicaid days from FY 2012 and FY 2013 cost reports 
and FY 2014 and FY 2015 SSI ratios, and Factor 3 calculated using 
uncompensated care data based on FY 2014 Worksheet S-10. We are 
proposing to compute this average for each hospital by--
     Step 1: Calculating Factor 3 using the low-income insured 
days proxy based on FY 2012 cost report data and the FY 2014 SSI ratio;
     Step 2: Calculating Factor 3 using the insured low-income 
days proxy based on FY 2013 cost report data and the FY 2015 SSI ratio;
     Step 3: Calculating Factor 3 based on the FY 2014 
Worksheet S-10 data; and
     Step 4: Averaging the Factor 3 values that are computed in 
Steps 1, 2, and 3; that is, adding the Factor 3 values from FY 2012, FY 
2013, and FY 2014 for each hospital, and dividing that amount by the 
number of cost reporting periods with data to compute an average Factor 
3.
    The denominator would be the sum of the averages of the FY 2012, FY 
2013, and FY 2014 amounts from Step 4 for each hospital that is 
estimated to be eligible for Medicare DSH payments in FY 2018. For 
example, assuming there are only three hospitals in the IPPS and 
Hospitals A and B are estimated to be eligible for Medicare DSH 
payments in FY 2018, while Hospital C is estimated as ineligible for 
Medicare DSH payments in FY 2018, each hospital's proposed share of the 
overall amount available for uncompensated care payments would be 
calculated as follows:

[(Hospital A FY 2012 Factor 3 proxy) + (Hospital A FY 2013 Factor 3 
proxy) + (Hospital A FY 2014 Factor 3 S-10)] / 3 = X
[(Hospital B FY 2012 Factor 3 proxy) + (Hospital B FY 2013 Factor 3 
proxy) + (Hospital B FY 2014 Factor 3 S-10)] / 3 = Y
[(Hospital C FY 2012 Factor 3 proxy) + (Hospital C FY 2013 Factor 3 
proxy) + (Hospital C FY 2014 Factor 3 S-10)] / 3 = Z
Hospital A's Factor 3 or proposed share of the overall uncompensated 
care amount in FY 2018 would be equal to (X) / (X+Y).
Hospital B's Factor 3 or proposed share of the overall uncompensated 
care amount in FY 2018 would be equal to (Y) / (X+Y).
Hospital C's Factor 3 or proposed share of the overall uncompensated 
care amount in FY 2018 would be equal to (Z) / (X+Y).

    We note that, under this proposal, the methodology for calculating 
Factor 3 for each subsequent year would remain unchanged (such as using 
all cost reports for eligible hospitals that begin during the relevant 
cost reporting years, including cost reporting periods that are not 12 
months in length, and using a proxy for Medicare SSI days for hospitals 
in Puerto Rico, as described earlier for the calculation of Factor 3 
for FY 2017). With regard to FY 2019 and subsequent years, we believe 
it would continue to be appropriate to advance the 3-year time period 
we are using by 1 year to compute Factor 3. Accordingly, we are 
proposing to use FY 2013, FY 2014, and FY 2015 cost report data from 
the most recent available update of HCRIS to compute Factor 3 and 
allocate uncompensated care payments for FY 2019. As we stated earlier, 
with regard to the data used to compute Factor 3, we believe that it 
would be appropriate to use Worksheet S-10 data from FY 2014 and 
subsequent periods to calculate Factor 3 and hospitals' uncompensated 
care payments for FY 2018 and subsequent fiscal years. Because we are 
proposing to use FY 2013, FY 2014, and FY 2015 cost reports to 
determine Factor 3 for FY 2019, we are proposing to calculate Factor 3 
with a proxy calculated based on FY 2013 cost report data and FY 2015 
SSI ratios and based on Worksheet S-10 uncompensated care costs from FY 
2014 and FY 2015 cost reports. We are proposing to calculate Factor 3 
for FY 2019 based on an average of Factor 3 amounts calculated using 
data from the three cost reporting periods in the manner described 
earlier for FY 2018. For FY 2020, we are proposing to continue to 
advance the three cost reports used by 1 year, and we are proposing to 
calculate Factor 3 using only data from the Worksheet S-10, from cost 
reports from FY 2014, FY 2015, and FY 2016. For FY 2021 and subsequent 
fiscal years, we would continue to base our estimates of the amount of 
hospital uncompensated care on uncompensated care costs, using three 
cost reporting periods from the most recently available HCRIS database, 
and in each fiscal year, the cost reporting periods would be advanced 
forward by 1 year (for example, for FY 2021, FY 2015, FY 2016, and FY 
2017 cost reports would be used). We are soliciting comments on the 
proposed data sources, time periods, and method for calculating 
uncompensated care costs in FY 2018 and subsequent years.
    Although our proposal for FY 2018 is to calculate Factor 3 based on 
an average of the Factor 3 amounts calculated using 2 years of proxy 
data and 1 year of data from the FY 2014 Worksheet S-10, readers may 
find it useful to review a file posted on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html

[[Page 25092]]

under the Downloads section, which shows preliminary uncompensated care 
costs calculated by hospital using only Worksheet S-10 data from FY 
2014 cost reports extracted from the December 2015 update of HCRIS. To 
the extent that hospitals have either not submitted a Worksheet S-10 
with their FY 2014 cost report or find errors on a submitted Worksheet 
S-10, we encourage hospitals to work with MACs to complete and revise, 
as appropriate, their FY 2014 Worksheet S-10 as soon as possible.
(3) Proposed Definition of Uncompensated Care for FY 2018 and 
Subsequent Fiscal Years
    In the FY 2014 IPPS/LTCH PPS rulemaking, we considered three 
potential definitions of uncompensated care: Charity care; charity care 
+ bad debt; and charity care + bad debt + Medicaid shortfalls. As we 
explained in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50634), we 
considered proposing to define the amount of uncompensated care for a 
hospital as the uncompensated care costs of that hospital and 
considered potential data sources for those costs. We examined the 
literature on uncompensated care and the concepts of uncompensated care 
used in various public and private programs, and considered input from 
stakeholders and public comments in various forums, including the 
national provider call that we held in January 2013. Our review of the 
information from these sources indicated that there is some variation 
in how different States, provider organizations, and Federal programs 
define ``uncompensated care.'' However, a common theme of almost all 
these definitions is that they include both ``charity care'' and ``bad 
debt'' as components of ``uncompensated care.'' Therefore, a definition 
that incorporates the most commonly used factors within uncompensated 
care as reported by stakeholders would include charity care costs and 
bad debt costs. Worksheet S-10 employs the definition of charity care 
plus non-Medicare bad debt. Specifically:
[GRAPHIC] [TIFF OMITTED] TP27AP16.003

Where:

 Cost of charity care = Cost of initial obligation of 
patients approved for charity care (line 21) minus partial payment 
by patients approved for charity care (line 22).
 Cost of non-Medicare bad debt expense = Cost to charge 
ratio (line 1) times non-Medicare and nonreimbursable bad debt 
expense (line 28).

    We believe a definition that incorporates the most commonly used 
factors within uncompensated care as reported by stakeholders would 
include charity care costs and non-Medicare bad debt costs which 
correlates to line 30 of Worksheet S-10. Therefore, we are proposing 
that, for purposes of calculating Factor 3 and uncompensated care costs 
beginning in FY 2018, ``uncompensated care'' would be defined as the 
amount on line 30 of Worksheet S-10, which is the cost of charity care 
and the cost of non-Medicare bad debt.
    We have received many comments and questions from hospitals and 
hospital associations regarding whether Medicaid payment shortfalls 
should be included in the definition of uncompensated care. Some 
stakeholders argue that such payment shortfalls are unreimbursed care 
for low-income patients and that the definition of uncompensated care 
should be consistent across Medicare and Medicaid (where the 
longstanding Medicaid definition of uncompensated care used for 
Medicaid hospital-specific DSH limits includes Medicaid payment 
shortfalls). Proponents of including Medicare shortfalls advance two 
arguments:
     Medicaid payment shortfalls represent non-covered care; 
therefore, hospitals have unmet costs when treating these patients.
     The goal of Medicare DSH payments is to provide partial 
relief from charity care that is provided to (primarily) low-income 
patients. Because Medicaid enrollees are low-income persons, the 
underpayments associated with their care are a form of charity care.
    In contrast, there are several arguments to support excluding 
Medicaid shortfalls from the definition of uncompensated care:
     Several government agencies and key stakeholders define 
uncompensated care as bad debt plus charity care, without consideration 
for Medicaid payment shortfalls. Specifically, MedPAC, GAO, and the AHA 
exclude Medicaid underpayments from the definition of uncompensated 
care.
     Including Medicaid shortfalls in the calculation of 
Medicare uncompensated care payments would represent a form of cross-
subsidization from Medicare to cover Medicaid costs. In the past, CMS 
and MedPAC have not supported such action.
     Excluding Medicaid shortfalls from the uncompensated care 
definition allows Medicare DSH payments to better target hospitals with 
a disproportionate share of uncompensated care for patients with no 
insurance coverage.
    We believe these arguments for excluding Medicare shortfalls from 
the definition of uncompensated care are compelling. In addition, we 
believe that it is advisable to adopt a definition that is used by 
several government agencies and key stakeholders. Therefore, we are 
proposing that, for purposes of calculating Factor 3 and the amount of 
uncompensated care for a hospital beginning in FY 2018, ``uncompensated 
care'' would be defined as the cost of charity care and the cost of 
non-Medicare bad debt. We also are proposing to exclude Medicaid 
shortfalls reported on Worksheet S-10 from the definition of 
uncompensated care for purposes of calculating Factor 3. We are 
proposing to codify this definition in the regulation at Sec.  
412.106(g)(1)(iii)(C) and are inviting public comment on our proposed 
definition. We believe that uncompensated care costs as reported on 
line 30 of Worksheet S-10 best reflect our proposed definition of 
uncompensated care at this time, but we welcome public input on this 
issue.
(4) Other Methodological Considerations for FY 2018 and Subsequent 
Fiscal Years
    In the past several years, we also have received technical comments 
from stakeholders regarding the timing of reporting charity care and 
the CCRs used in determining uncompensated care costs. We discuss these 
issues and

[[Page 25093]]

how we are proposing to incorporate them into the calculation of 
uncompensated care costs for purposes of determining uncompensated care 
payments for FY 2018 and subsequent fiscal years below.
     Timing of Reporting Charity Care. The determination and 
write-off of charity care often happens outside of the hospital fiscal 
year in which the services are provided. Some commenters have requested 
that the charity care captured on Line 20 of Worksheet S-10 include 
only the charity care that was written off in the particular cost 
reporting year, regardless of when the services were provided, 
consistent with charity write-offs that hospitals report in accordance 
with GAAP. In addition, hospitals currently report non-Medicare bad 
debt without regard to when the services were provided. The current 
Worksheet S-10 does not follow this hospital practice, and specifies 
that charity care provided (not necessarily written off) during the 
period should to be recorded on Line 20. (Instructions for Line 20 of 
Worksheet S-10 of the Medicare cost report CMS-Form-2552-10, ``Enter 
the total initial payment obligation of patients who are given a full 
or partial discount based on the hospital's charity care criteria 
(measured at full charges), for care delivered during this cost 
reporting period for the entire facility . . .'' (emphasis added) are 
included in CMS Pub. 15-2, Chapter 40, Section 4012).) While these 
differences in reporting should average out over time for a hospital, 
consistency in reporting has been requested by some stakeholders. We 
acknowledge these concerns, and we intend to revise the current 
Worksheet S-10 cost report instructions for Line 20 concerning the 
timing of reporting charity care, such that charity care will be 
reported based on date of write-off, and not based on date of service.
     Revisions to the CCR on Line 1 of Worksheet S-10. Many 
commenters have requested that the CCR used to convert charges to costs 
should include the cost of training residents (direct GME costs). The 
CCR on line 1 of Worksheet S-10 currently does not include GME costs, 
while the charges of teaching hospitals do include charges for GME. 
Thus, the CCR excludes GME costs in the cost component (or numerator), 
but includes GME costs in the charge component (or denominator). 
Commenters have requested that CMS consider using the GME costs 
reported in Worksheet B Part I (column 24, line 118) to capture these 
additional costs. Unless these GME costs are included, commenters 
maintained that the CCRs of teaching hospitals are artificially low, 
not capturing true uncompensated care costs, thereby disadvantaging 
teaching hospitals in the calculation of their uncompensated care 
costs.
    Using data from FY 2011 and 2012 cost reports, we analyzed the 
effect on all hospitals' uncompensated care costs when GME costs are 
included in the numerator. Specifically, instead of calculating the 
CCRs as specified currently on line 1 of Worksheet S-10 (which pulls 
the CCR from Worksheet C, Part I, column 3, line 202/Worksheet C, 
column 8, line 202), we calculated the CCRs using Worksheet B, Part I, 
column 24, line 118/Worksheet C, Part I, column 8, line 202. As can be 
seen on the file posted on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html 
under the Downloads section, and as expected, including GME costs in 
the numerator of the CCR results in an increased share of uncompensated 
care payments being made to teaching hospitals. Of the more than 1,000 
teaching hospitals included in the analysis, the CCRs of 830 hospitals 
increase by less than 5 percent, 178 hospitals' CCRs increase by more 
than 5 percent but less than 10 percent, and 71 hospitals' CCRs 
increase by 10 percent or more. Thirty-three hospitals experience a 
decrease in their CCRs, with 32 hospitals experiencing a decrease of 
less than 5 percent, and 1 hospital experiencing a decrease of more 
than 5 percent, but less than 10 percent. As we have stated previously 
in response to this issue, we believe that the purpose of uncompensated 
care payments is to provide additional payment to hospitals for 
treating the uninsured, not for the costs incurred in training 
residents. In addition, because the CCR on line 1 of Worksheet S-10 
pulled from Worksheet C, Part I, is also used in other IPPS ratesetting 
contexts (such as high-cost outliers and the calculation of the MS-DRG 
relative weights) from which it is appropriate to exclude GME because 
GME is paid separately from the IPPS, we hesitate to adjust the CCRs in 
the narrower context of calculating uncompensated care costs. 
Therefore, at this time, we do not believe it is appropriate to modify 
the calculation of the CCR on line 1 of Worksheet S-10 to include GME 
costs in the numerator.
     Trims to Apply to CCRs on Line 1 of Worksheet S-10. 
Commenters also have suggested that uncompensated care costs reported 
on Worksheet S-10 should be audited due to extremely high values 
consistently reported by some hospitals. We believe that, just as we 
apply trims to hospitals' CCRs used to calculate high-cost outlier 
payments to eliminate anomalies in payment determinations (Sec.  
412.84(h)(3)(ii)), it is appropriate to apply statistical trims to the 
CCRs that are considered anomalies on Worksheet S-10, Line 1. 
Specifically, Sec.  412.84(h)(3)(ii) states that the Medicare 
contractor may use a statewide CCR for hospitals whose operating or 
capital CCR is in excess of 3 standard deviations above the 
corresponding national geometric mean (that is, the CCR ``ceiling''). 
This mean is recalculated annually by CMS and published in the proposed 
and final IPPS rules each year. To control for data anomalies, we are 
considering proposals which would trim hospitals' CCRs to ensure 
reasonable CCRs are used to convert charges to costs for purposes of 
determining uncompensated care costs.
    One approach we are considering as a possible proposal for FY 2018 
and subsequent years would be a ``double trim'' methodology as follows:
First Trim
    Step 1: Prior to calculating the statewide average CCRs, all 
hospitals with a CCR reported on Worksheet S-10, line 1, of greater 
than the corresponding CCR ``ceiling'' (that is, the CCR ``ceiling'' 
published in the final rule of the fiscal year that is contemporaneous 
to the particular Worksheet S-10 data) would be removed from the 
calculation. We are proposing to remove the hospitals with a CCR of 
greater than 3 standard deviations above the corresponding national 
geometric mean in order to calculate the statewide average CCRs so that 
these aberrant CCRs do not skew the statewide average CCR.
    Step 2: Using the CCRs for the remaining hospitals in Step 1, 
determine the statewide average CCRs using line 1 of Worksheet S-10 for 
hospitals within each State (including non-DSH eligible hospitals).
    Step 3: Calculate the simple average CCR (not weighted by hospital 
size) for each State.
    Step 4: First CCR Trim--Assign the statewide average CCR calculated 
in Step 3 to all hospitals with a CCR greater than 3 standard 
deviations above the corresponding national geometric mean (that is, 
the CCR ``ceiling'').
Second Trim
    Step 5: Calculate the natural logarithm of the CCR for all 
hospitals (including those with replaced CCRs and those not eligible 
for Medicare DSH payments).
    Step 6: Calculate the geometric mean and standard deviation of the 
log values

[[Page 25094]]

across all hospitals (including those not eligible for Medicare DSH 
payments).
    Step 7: Second CCR Trim--Assign the statewide average CCR 
calculated in Step 3 to each Medicare DSH eligible hospital with a CCR 
greater than 3.0 standard deviations above the geometric mean. All 
hospitals not eligible for Medicare DSH payments should be excluded 
from further analyses.
    Analysis we performed under this ``double trim'' approach was based 
on CCRs from FY 2012 Worksheet S-10, Line 1. Under Step 1, we used the 
FY 2013 CCR ``ceiling'' of 1.146 published in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53697). (We used the FY 2013 CCR ``ceiling'' because 
it was computed from the March 2012 update of the Provider Specific 
File, which contained CCRs that are relatively contemporaneous to the 
CCRs in the FY 2012 cost reports.) Our analysis shows that 27 hospitals 
would receive their respective statewide average CCR. (We refer readers 
to our analysis posted on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Servie-Payment/AcuteInpatientPPS/dsh.html 
under the Downloads section.)
    Alternatively, we are considering proposing for FY 2018 and 
subsequent years to use the same trim process that is used for high-
cost outliers under Sec.  412.84(i), under which we calculate separate 
urban and rural average CCRs for each state. Thus, the CCR of an urban 
or rural hospital above the applicable CCR ``ceiling'' for a given 
fiscal year would be replaced by its respective urban or rural 
statewide average CCR. As a reference, the FY 2013 IPPS statewide 
average urban and rural CCRs are in Table 8A included on the CMS Web 
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/FY2013-FinalRule-CorrectionNotice-Files.html.
    After applying the applicable trims to a hospital's CCR as 
appropriate, we would calculate a hospital's uncompensated care costs 
as being equal to line 30, which is the sum of line 23 and line 29, as 
follows:

Hospital Uncompensated Care Costs = line 30 (=line 23 + line 29), which 
is equal to--
[(Line 1 CCR adjusted by trim if applicable x charity care line 20) - 
(Payments received for charity care line 22)]
+
[(Line 1 CCR adjusted by trim if applicable x Non-Medicare and non-
reimbursable Bad Debt line 28)].

    We are inviting public comments on these methodological 
considerations.

G. Hospital Readmissions Reduction Program: Proposed Updates and 
Changes (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 section 1886(q) to the Act, 
which establishes the ``Hospital Readmissions Reduction Program'' 
effective for discharges from ``applicable hospitals'' beginning on or 
after October 1, 2012. Under the Hospital Readmissions Reduction 
Program, payments to applicable hospitals may be reduced to account for 
certain excess readmissions. We refer readers to section IV.E.1. of the 
FY 2016 IPPS/LTCH PPS final rule (80 FR 49530 through 49531) for a 
detailed discussion and additional information on of the statutory 
history of the Hospital Readmissions Reduction Program.
2. Regulatory Background
    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'' for 
FY 2015 and subsequent fiscal years, 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.
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50024 through 
50048), we made refinements to the readmissions measures and related 
methodology for applicable conditions for FY 2015 and subsequent fiscal 
years, discussed the maintenance of technical specifications for 
quality measures, and described a waiver from the Hospital Readmissions 
Reduction Program for hospitals formerly paid under section 1814(b)(3) 
of the Act (Sec.  412.154(d)). We also specified the ``applicable 
period'' for FY 2015 and made changes to the calculation of the 
aggregate payments for excess readmissions so as to include two 
additional applicable conditions for the FY 2015 payment determination. 
Finally, we expanded the list of applicable conditions for the FY 2017 
payment determination to include the Hospital-Level, 30-Day, All-Cause, 
Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) 
Surgery measure.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49530 through 
49543), we made a refinement to the pneumonia readmissions measure that 
expanded the measure cohort for the FY 2017 payment determination and 
subsequent years (80 FR 49532 through 49536); adopted an extraordinary 
circumstance exception policy to address hospitals that experience a 
disaster or other extraordinary circumstance beginning in FY 2016 and 
for subsequent years (80 FR 49542 through 49543); specified the 
adjustment factor floor for FY 2016 (80 FR 49537); and specified the 
calculation of aggregate payments for excess readmissions for FY 2016 
(80 FR 49537 through 49542).
3. Proposed Policies for the FY 2017 Hospital Readmissions Reduction 
Program
    In this proposed rule, we are proposing to--

[[Page 25095]]

     Clarify that public reporting of excess readmission ratios 
will be posted on an annual basis to the Hospital Compare Web site as 
soon as is feasible following the preview period.
     Discuss the proposed methodology to include the addition 
of the CABG applicable condition in the calculation of the readmissions 
payment adjustment for FY 2017.
4. Maintenance of Technical Specifications for Quality Measures
    We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 
50039) for a discussion of the maintenance of technical specifications 
for quality measures for the Hospital Readmissions Reduction Program. 
Technical specifications of the readmission measures are provided on 
our Web site in the Measure Methodology Reports 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 are on the QualityNet Web site on the Resources page at: 
http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772412995.
    We want to remind readers that, in the FY 2016 IPPS/LTCH PPS final 
rule (80 FR 49532), we discussed our policies regarding the use of 
sociodemographic factors in quality measures. We understand the 
important role that sociodemographic status plays in the care of 
patients. However, we continue to have concerns about holding hospitals 
to different standards for the outcomes of their patients of diverse 
sociodemographic status because we do not want to mask potential 
disparities or minimize incentives to improve the outcomes of 
disadvantaged populations. We routinely monitor the impact of 
sociodemographic status on hospitals' results on our measures.
    The NQF is currently undertaking a 2-year trial period in which new 
measures and measures undergoing maintenance review will be assessed to 
determine if risk-adjusting for sociodemographic factors is 
appropriate. For 2 years, NQF will conduct a trial of temporarily 
allowing inclusion of sociodemographic factors in the risk-adjustment 
approach for some performance measures. At the conclusion of the trial, 
NQF will issue recommendations on future permanent inclusion of 
sociodemographic factors. During the trial, measure developers are 
encouraged to submit information such as analyses and interpretations 
as well as performance scores with and without sociodemographic factors 
in the risk adjustment model.
    Furthermore, the Office of the Assistant Secretary for Planning and 
Evaluation (ASPE) is conducting research to examine the impact of 
sociodemographic status on quality measures, resource use, and other 
measures under the Medicare program as directed by the IMPACT Act. We 
will closely examine the findings of the ASPE reports and related 
Secretarial recommendations and consider how they apply to our quality 
programs at such time as they are available.
5. Proposed Applicable Period for FY 2017
    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. In the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51671), we finalized our policy to use 
3 years of claims data to calculate the readmission measures. 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.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49537), for FY 2016, 
consistent with the definition specified at Sec.  412.152, we 
established an ``applicable period'' for the Hospital Readmissions 
Reduction Program of the 3-year period from July 1, 2011 through June 
30, 2014. In other words, the excess readmissions ratios and the 
payment adjustment (including aggregate payments for excess 
readmissions and aggregate payments for all discharges) for FY 2016 
were determined using data from the 3-year time period of July 1, 2011 
through June 30, 2014.
    In this proposed rule, for FY 2017, consistent with the definition 
specified at Sec.  412.152, we are proposing that the ``applicable 
period'' for the Hospital Readmissions Reduction Program will be the 3-
year period from July 1, 2012 through June 30, 2015. In other words, we 
are proposing that the excess readmissions ratios and the payment 
adjustment (including aggregate payments for excess readmissions and 
aggregate payments for all discharges) for FY 2017 would be calculated 
using data from the 3-year time period of July 1, 2012 through June 30, 
2015.
6. Proposed Calculation of Aggregate Payments for Excess Readmissions 
for FY 2017
    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).
    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 and Sec.  412.152 of our 
regulations 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.
    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. We refer readers to the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51673) for additional information on the methodology 
for the calculation of the excess readmissions ratio. ``Aggregate 
payments for excess readmissions'' is the numerator of the ratio used 
to calculate the adjustment factor under the Hospital Readmissions 
Reduction Program.
    The term ``aggregate payments for all discharges'' is defined at 
section 1886(q)(4)(B) of the Act as for a hospital for an applicable 
period, the sum of the base operating DRG payment amounts

[[Page 25096]]

for all discharges for all conditions from such hospital for such 
applicable period. We codified this definition of ``aggregate payments 
for all discharges'' under the regulations at Sec.  412.152. 
``Aggregate payments for all discharges'' is the denominator of the 
ratio used to calculate the adjustment factor under the Hospital 
Readmissions Reduction Program.
    The Hospital Readmissions Reduction Program currently includes the 
following five applicable conditions: acute myocardial infarction 
(AMI), heart failure (HF), pneumonia (PN), total hip arthroplasty/total 
knee arthroplasty (THA/TKA), and chronic obstructive pulmonary disease 
(COPD). In the FY 2015 IPPS/LTCH PPS final rule effective for FY 2017 
(79 FR 50033 through 50039), we finalized the inclusion of an 
additional applicable condition, Hospital-Level, 30-Day, All-Cause, 
Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) 
Surgery.
    In this section, we discuss the proposed methodology to include 
this additional measure in the calculation of the readmissions payment 
adjustment for FY 2017. Specifically, we are proposing how the addition 
of CABG applicable conditions would be included in the calculation of 
the aggregate payments for excess readmissions (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.
    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 2017, we are proposing to use MedPAR claims with discharge 
dates that are on or after July 1, 2012, and no later than June 30, 
2015, consistent with our historical use of a 3-year applicable period. 
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 2012 through FY 2015 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 detailed 
instructions for how to order the data sets.
    In this proposed rule, for FY 2017, we are proposing to determine 
aggregate payments for excess readmissions and aggregate payments for 
all discharges using data from MedPAR claims with discharge dates that 
are on or after July 1, 2012, and no later than June 30, 2015. However, 
we note that, for the purpose of modeling the proposed FY 2017 
readmissions payment adjustment factors for this proposed rule, we use 
excess readmissions ratios for applicable hospitals from the FY 2016 
Hospital Readmissions Reduction Program applicable period. For the FY 
2017 final rule, applicable hospitals will have had the opportunity to 
review and correct data from the proposed FY 2017 applicable period of 
July 1, 2012 to June 30, 2015, before they are made public under our 
policy regarding the preview and reporting of hospital-specific 
information, which we discussed in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53374 through 53401).
    In this proposed rule, for FY 2017, we are proposing to use MedPAR 
data from July 1, 2012 through June 30, 2015. Specifically, for this 
proposed rule, we are using the March 2013 update of the FY 2012 MedPAR 
file to identify claims within FY 2012 with discharges dates that are 
on or after July 1, 2012, the March 2014 update of the FY 2013 MedPAR 
file to identify claims within FY 2013, the March 2015 update of the FY 
2014 MedPAR file to identify claims within FY 2014, and the December 
2015 update of the FY 2015 MedPAR file to identify claims within FY 
2015 with discharge dates no later than June 30, 2015. For the final 
rule, we are proposing to use the same MedPAR files as listed above for 
claims within FY 2012, FY 2013 and FY 2014, and for claims within FY 
2015, we are proposing to use the March 2016 update of the FY 2015 
MedPAR file.
    For a discussion of how we identified the applicable conditions to 
calculate the aggregate payments for excess readmissions for FY 2016, 
we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49538 
through 49541). For FY 2017, with the addition of the CABG measure to 
the applicable conditions under the Hospital Readmissions Reduction 
Program, we are proposing to follow this same approach.
    In this proposed rule, for FY 2017, we are proposing to continue to 
apply the same exclusions to the claims in the MedPAR file as we 
applied for FY 2016 for the AMI, HF, PN, THA/TKA, and COPD applicable 
conditions. We refer readers to the FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49539) for a list of these exclusions. Updates to these 
exclusions will be posted on the QualityNet Web site at: http://www.QualityNet.org > Hospital-Inpatient > Claims-Based Measures > 
Readmission Measures > Measure Methodology.
    In addition to the exclusions described above, for FY 2017, we are 
proposing the following steps to identify admissions specifically for 
CABG for the purposes of calculating aggregate payments for excess 
readmissions. These exclusions were previously finalized in the FY 2015 
IPPS/LTCH PPS final rule (79 FR 50037):
     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);
     Admissions for patients who die during the initial 
hospitalization (these patients are not eligible for readmission);
     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
     Admissions for patients without at least 30 days post-
discharge enrollment in Medicare FFS (excluded because the

[[Page 25097]]

30-day readmission outcome cannot be assessed in this group).
    As noted previously, these exclusions are consistent with our 
current methodology, and any updates to these exclusions will be posted 
on the QualityNet Web site at: http://www.QualityNet.org > Hospital-
Inpatient > Claims-Based Measures > Readmission Measures > Measure 
Methodology.
    Furthermore, we would 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 2017, we would 
exclude admissions for patients enrolled in Medicare Advantage as 
identified in the Medicare Enrollment Database. This policy is 
consistent with how admissions for Medicare Advantage patients are 
identified in the calculation of the excess readmissions ratios under 
our established methodology.
    In order to identify the admissions for each applicable condition 
for FY 2017 to calculate the aggregate payments for excess readmissions 
for an individual hospital, we are proposing to identify each 
applicable condition, including the CABG condition, using the 
appropriate ICD-9-CM codes. (Although the compliance date for the ICD-
10-CM and ICD-10-PCS code sets was October 1, 2015, these proposed 
policies apply to data submitted prior to this compliance date.) 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. The ICD-9-CM codes for the AMI, HF, PN, THA/TKA, COPD, 
and CABG applicable conditions can be found on the QualityNet Web site 
at: http://www.QualityNet.org > Hospital-Inpatient > Claims-Based 
Measures > Readmission Measures > Measure Methodology. Consistent with 
our established policy (76 FR 51673 through 51676), we are proposing to 
use the ICD-9-CM codes to identify the applicable conditions in 
calculation of the excess readmissions ratios, which are provided in 
the measure methodology reports on the QualityNet Web site, to identify 
each applicable condition to calculate the aggregate payments for the 
excess readmissions ratios for FY 2017. For a complete list of the ICD-
9-CM codes we are proposing to use to identify the applicable 
conditions, we refer readers to the following tables of those reports:
     2015 Measure Updates: AMI, HF, Pneumonia, COPD, Stroke 
Readmission (AMI-Version 8.0, HF-Version 8.0, Pneumonia-Version 8.0, 
COPD-Version 4.0, and Stroke-Version 4.0: 2015 Condition-Specific 
Readmission Measures Updates and Specifications Report)--
    ++ Table D.1.1--ICD-9-CM Codes for AMI Cohort (page 74).
    ++ Table D.2.1--ICD-9-CM Codes for HF Cohort (page 78).
    ++ Table D.3.1--ICD-9-CM Codes for Pneumonia Cohort (page 82).
    ++ Table D.4.1--ICD-9-CM Codes for COPD Cohort (page 87).
     2015 Measure Updates: THA/TKA and CABG Readmission (THA 
and/or TKA-Version 4.0, CABG-Version 2.0: 2015 Procedure-Specific 
Readmission Measures Updates and Specifications Report,)--
    ++ Table D.1.1--ICD-9-CM Codes Used to Identify Eligible THA/TKA 
Procedures (page 45).
    ++ Table D.2.1--ICD-9-CM Codes Used to Identify Eligible CABG 
Procedures (page 53).
    For FY 2017, we are proposing to calculate aggregate payments for 
excess readmissions, using MedPAR claims from July 1, 2012 to June 30, 
2015, 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 (as 
previously discussed). To calculate aggregate payments for excess 
readmissions for each hospital, we are proposing to calculate the base 
operating DRG payment amounts for all claims in the 3-year applicable 
period for each applicable condition (AMI, HF, PN, COPD, THA/TKA, and 
CABG) 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 six applicable conditions, we are proposing to sum the base 
operating DRG payments amounts by each condition, resulting in six 
summed amounts, one amount for each of the six applicable conditions. 
We are proposing to then multiply the amount for each condition by the 
respective excess readmissions ratio minus 1 when that excess 
readmissions ratio is greater than 1, which indicates that a hospital 
has performed, with respect to readmissions for that applicable 
condition, worse than the average hospital with similar patients. Each 
product in this computation represents the payments for excess 
readmissions for that condition. We are proposing to then sum the 
resulting products which represent a hospital's proposed ``aggregate 
payments for excess readmissions'' (the numerator of the ratio). 
Because this calculation is performed separately for each of the six 
conditions, a hospital's excess readmissions ratio must be less than or 
equal to 1 on each measure to avoid CMS' determination that there were 
payments made by CMS for excess readmissions (resulting in a payment 
reduction under the Hospital Readmissions Reduction Program). In other 
words, in order to avoid a payment reduction a hospital's excess 
readmissions ratio must be less than or equal to 1 on each measure. We 
note that we are not proposing any changes to our existing methodology 
to calculate ``aggregate payments for all discharges'' (the denominator 
of the ratio).
    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 and the floor adjustment factor is 
codified at Sec.  412.154(c)(2) of the regulations. Section 
1886(q)(3)(C) of the Act specifies the floor adjustment factor at 0.97 
for FY 2015 and subsequent fiscal years.
    Consistent with section 1886(q)(3) of the Act, codified at Sec.  
412.154(c)(2), for FY 2017, the adjustment factor is either the greater 
of the ratio or the floor adjustment factor of 0.97. Under our 
established policy, the ratio is rounded to the fourth decimal place. 
In other words, for FY 2017, 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).
    We are proposing the following methodology for FY 2017 as displayed 
in the chart below.

[[Page 25098]]



  Formulas to Calculate the Readmissions Adjustment Factor for FY 2017
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
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)] +
 [sum of base operating DRG payments for CABG x (Excess Readmissions
 Ratio for CABG-1)].
* We note that if a hospital's excess readmissions ratio for a condition
 is less than/equal to 1, 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 2017 is the higher of the
 ratio or 0.9700.
* Based on claims data from July 1, 2012 to June 30, 2015 for FY 2017.
------------------------------------------------------------------------

    We are inviting public comment on these proposals.
7. Extraordinary Circumstance Exception Policy
    We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49542 through 49543) for a detailed discussion of our Extraordinary 
Circumstance Exception policy for the Hospital Readmissions Reduction 
Program.
    During the review of a hospital's request for an extraordinary 
circumstance exception, we maintain the general principle that 
providing high quality of care and ensuring patient safety is of 
paramount importance. We intend to provide relief only for hospitals 
whose ability to accurately or timely submit all of their claims (from 
which readmission measures data are derived) has been negatively 
impacted as a direct result of experiencing a significant disaster or 
other extraordinary circumstance beyond the control of the hospital. In 
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49542 through 49543) we 
finalized that the request process for an extraordinary circumstance 
exception begins with the submission of an extraordinary circumstance 
exception request form by a hospital within 90 calendar days of the 
natural disaster or other extraordinary circumstance. Under this 
policy, a hospital is able to request a Hospital Readmissions Reduction 
Program extraordinary circumstance exception at the same time it may 
request a similar exception under the Hospital IQR Program, the 
Hospital VBP Program, and the HAC Reduction Program. The extraordinary 
circumstance exception request form is available on the QualityNet Web 
site.
    The following information is required to submit the request:
     Hospital CCN;
     Hospital name;
     Hospital Chief Executive Officer (CEO) and any other 
designated personnel contact information, including name, email 
address, telephone number, and mailing address (must include a physical 
address; a post office box address is not acceptable);
     Hospital's reason for requesting an exception, including:
    ++ CMS program name (for example, the Hospital Readmissions 
Reduction Program, the Hospital VBP Program, or the Hospital IQR 
Program);
    ++ The measure(s) and submission quarters affected by the 
extraordinary circumstance that the hospital is seeking an exception 
for should be accompanied with the specific reasons why the exception 
is being sought; and
    ++ How the extraordinary circumstance negatively impacted 
performance on the measure(s) for which an exception is being sought;
     Evidence of the impact of the extraordinary circumstances, 
including but not limited to, photographs, newspaper, and other media 
articles; and
     The request form must be signed by the hospital's CEO or 
designated non-CEO contact and submitted to CMS.
    The same set of information is currently required under the 
Hospital IQR Program and the Hospital VBP Program on the request form 
from a hospital seeking an extraordinary circumstance exception with 
respect to these programs. The specific list of required information is 
subject to change from time to time at the discretion of CMS.
    Following receipt of the request form, CMS will: (1) Provide a 
written acknowledgement of receipt of the request using the contact 
information provided in the request form to the CEO and any additional 
designated hospital personnel; and (2) provide a formal response to the 
CEO and any additional designated hospital personnel using the contact 
information provided in the request notifying them of our decision. We 
review each request for an extraordinary circumstance exception on a 
case-by-case basis at our discretion. To the extent feasible, we also 
review requests in conjunction with any similar requests made under 
other IPPS quality reporting and payment programs, such as the Hospital 
IQR Program and the Hospital VBP Program.
    This policy does not preclude CMS from granting extraordinary 
circumstance exceptions to hospitals that do not request them if we 
determine at our discretion that a disaster or other extraordinary 
circumstance has affected an entire region or locale. If CMS makes such 
a determination to grant an extraordinary circumstance exception to 
hospitals in an affected region or locale, we would convey this 
decision through routine communication channels to hospitals, vendors, 
and QIOs, including, but not limited to, issuing memos, emails, and 
notices on the QualityNet Web site. This provision aligns with the 
Hospital IQR Program's extraordinary circumstances extensions or 
exemptions policy.
8. Timeline for Public Reporting of Excess Readmission Ratios on 
Hospital Compare for the FY 2017 Payment Determination
    Section 1886(q)(6) of the Act requires the Secretary to make 
information available to the public regarding readmission rates of each 
subsection (d) hospital under the program, and states that such 
information shall be posted on the Hospital Compare Internet Web site 
in an easily understandable format. Accordingly, in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53401), we indicated that public reporting 
for excess readmission ratios could be available on the Hospital 
Compare Web site as early as mid-October. In this proposed rule, we are 
clarifying that public reporting of excess readmission ratios will be 
posted on an annual basis to the Hospital Compare Web site as soon as 
is feasible following the review period. This may occur as early as 
October, but it could occur later for a particular year in order to 
streamline reporting and align with other hospital quality reporting 
and performance programs.

[[Page 25099]]

H. Hospital Value-Based Purchasing (VBP) Program: Proposed Policy 
Changes for the FY 2018 Program Year and Subsequent Years

1. Background
a. Statutory Background and Overview of Past Program Years
    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 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.
    For more of the statutory background and descriptions of our 
current policies for the Hospital VBP Program, we refer readers to the 
Hospital Inpatient VBP Program final rule (76 FR 26490 through 26547); 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51653 through 51660); 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 50676 through 
50707); the CY 2014 OPPS/ASC final rule (78 FR 75120 through 75121); 
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50048 through 50087); and 
the FY 2016 IPPS/LTCH PPS final rule with comment period (80 FR 49544 
through 49570).
    We also have codified certain requirements for the Hospital VBP 
Program at 42 CFR 412.160 through 412.167.
b. FY 2017 Program Year Payment Details
    Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce 
the base operating DRG payment amount for a hospital for each discharge 
in a fiscal year by an applicable percent. Under section 1886(o)(7)(A) 
of the Act, the sum total of these reductions in a fiscal year must 
equal the total amount available for value-based incentive payments for 
all eligible hospitals for the fiscal year, as estimated by the 
Secretary. We finalized details on how we would implement these 
provisions in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 
53573) and refer readers to that rule for further details.
    Under section 1886(o)(7)(C)(iv) of the Act, the applicable percent 
for the FY 2017 program year is 2.00 percent. Using the methodology we 
adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 
53573), we estimate that the total amount available for value-based 
incentive payments for FY 2017 is approximately $1.7 billion, based on 
the December 2015 update of the FY 2015 MedPAR file. We intend to 
update this estimate for the FY 2017 IPPS/LTCH PPS final rule, using 
the March 2016 update of the FY 2015 MedPAR file.
    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 Total Performance Score (TPS) (77 FR 53573 
through 53576). 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 2017, on a per-claim 
basis. We are publishing proxy value-based incentive payment adjustment 
factors in Table 16 associated with this proposed rule (which is 
available via the Internet on the CMS Web site). The proxy factors are 
based on the TPSs from the FY 2016 program year. These FY 2016 
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 is 2.7714997322. This 
slope, along with the estimated amount available for value-based 
incentive payments, is also published in Table 16.
    We intend to update this table as Table 16A in the final rule 
(which will be available via the Internet on the CMS Web site) to 
reflect changes based on the March 2016 update to the FY 2015 MedPAR 
file. We also intend to update the slope of the linear exchange 
function used to calculate those updated proxy value-based incentive 
payment adjustment factors. The updated proxy value-based incentive 
payment adjustment factors for FY 2017 will continue to be based on 
historic FY 2016 program year TPSs because hospitals will not have been 
given the opportunity to review and correct their actual TPSs for the 
FY 2017 program year until after the FY 2017 IPPS/LTCH PPS final rule 
is published. After hospitals have been given an opportunity to review 
and correct their actual TPSs for FY 2017, 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 2017 program 
year. We expect that Table 16B will be posted on the CMS Web site in 
October 2016.
2. PSI 90 Measure in the FY 2018 Program and Future Program Years
a. Proposed PSI 90 Measure Performance Period Change for the FY 2018 
Program Year
    We previously finalized the performance period for the PSI 90: 
Patient Safety for Selected Indicators (Composite Measure) (then 
referred to as both the ``PSI-90 measure'' and the ``AHRQ PSI Composite 
Measure'') for the FY 2018 program year (78 FR 50694). We have 
calculated and finalized performance standards for the FY 2018 program 
year based on a baseline period that uses ICD-9-CM claims data. The 
previously finalized performance period for the FY 2018 program year 
runs from July 1, 2014 through June 30, 2016. Because hospitals began 
ICD-10-CM/PCS implementation on October 1, 2015, the performance period 
as currently finalized for the FY 2018 program year would necessitate 
using both ICD-9 and ICD-10 claims data to calculate performance 
standards for the PSI 90 measure.
    Since the ICD-10 transition was implemented on October 1, 2015, we 
have been monitoring our systems, and claims are processing normally. 
Currently, the measure steward, AHRQ, is reviewing any potential issues 
related to ICD-10 conversion of coded operating room procedures 
(https://www.cms.gov/icd10manual/fullcode_cms/P1616.html), which 
directly impact the AHRQ PSI 90 component indicators. Nevertheless, 
given the complexity of converting the PSI 90 component indicators from 
ICD-9 to ICD-10 and considering that there are approximately 70,000 
\22\ ICD-10 codes, the measure steward has recommended against 
combining measure performance data that use both ICD-9 and ICD-10 data 
at this time. In addition, to meet program requirements and 
implementation schedules, our system requires an ICD-10 risk-adjusted 
version of the AHRQ QI PSI software \23\ by December 2016 for use in 
the FY 2018 payment year. At this time, a risk adjusted ICD-10 version

[[Page 25100]]

of the PSI 90 software is not expected to be available until late CY 
2017.
---------------------------------------------------------------------------

    \22\ International Classification of Diseases (ICD-10-CM/PCS) 
Transition--Background. Available at: http://www.cdc.gov/nchs/icd/icd10cm_pcs_background.htm.
    \23\ The AHRQ QI Software is the software used to calculate PSIs 
and the composite measure. More information is available at: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf.
---------------------------------------------------------------------------

    To address the above issues, we are proposing to shorten the 
performance period for the FY 2018 program year. We are proposing to 
use a 15-month performance period from July 1, 2014 through September 
30, 2015 for the FY 2018 program year. The 15-month performance period 
would only apply to the FY 2018 program year and would only use ICD-9 
data. For the FY 2018 program year, the performance standards that were 
previously established and announced in past rules would not change 
because they were calculated based on the baseline period of July 1, 
2010 through June 30, 2012, which would remain the same. In order to 
align the use of this measure with other hospital quality programs, we 
are proposing similar modifications to the FY 2018 reporting period for 
the PSI 90 measure for the HAC Reduction Program, as set forth in 
section IV.I. of the preamble of this proposed rule, and for the 
Hospital IQR Program, as set forth in section VIII.A. of the preamble 
of this proposed rule.
    We are aware that the FY 2019 program year also has a performance 
period that contains ICD-9 and ICD-10 data (79 FR 50072 through 50073). 
We will continue to review our options for calculating the performance 
period for the FY 2019 program year and further address this in next 
year's rulemaking. Therefore, we are not proposing to make any changes 
to the FY 2019 program year, which runs from July 1, 2015 through June 
30, 2017.
    We note that in proposing a shortened performance period for the 
PSI 90 measure, a prior reliability analysis of the PSI 90 measure 
shows that the majority of hospitals attain a moderate or high level of 
reliability for the PSI 90 measure after a 12-month period.\24\ We do 
not anticipate any delay for hospitals to review their TPS for the FY 
2018 program year during the review and correction period.
---------------------------------------------------------------------------

    \24\ Mathematica Policy Research (November 2011). Reporting 
period and reliability of AHRQ, CMS 30-day and HAC Quality 
Measures--Revised. Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf.
---------------------------------------------------------------------------

    Prior to deciding to propose an abbreviated performance period for 
the FY 2018 program year, we took several factors into consideration, 
including the recommendations of the measure steward, the feasibility 
of using a combination of ICD-9 and ICD-10 data without the 
availability of the appropriate measure software, minimizing provider 
burden, program implementation timelines, and the reliability of using 
shortened performance periods, as well as the importance of continuing 
to publicly report this measure. We believe that using a 15-month 
performance period for FY 2018 best serves the need to provide 
important information on hospital patient safety and adverse events by 
allowing sufficient time to process the claims data and calculate the 
measures, while minimizing the reporting burden and program disruption.
    Furthermore, we plan to propose to adopt the modified PSI 90 
measure, which includes several substantive measure updates, for the 
Hospital VBP Program in subsequent rulemaking, as soon as it is 
feasible. We discuss this future proposed adoption in section IV.H.2.b. 
of the preamble of this proposed rule.
    We are inviting public comments on this proposed plan to shorten 
the performance period for the PSI 90 measure for the FY 2018 program 
year.
b. Intent To Propose in Future Rulemaking To Adopt the Modified PSI 90 
Measure
    The PSI 90 measure underwent NQF maintenance review in 2014. The 
2014 NQF maintenance review process has been completed and has led to 
several changes to the measure.\25\ Due to statutory requirements \26\ 
in the Hospital VBP Program, we would not be able to adopt the NQF-
endorsed modified PSI 90 measure, now known as Patient Safety and 
Adverse Events Composite, until a future program year. We refer readers 
to section VIII.A. of the preamble of this proposed rule relating to 
the Hospital IQR Program for a discussion of the modified PSI 90 
measure update.
---------------------------------------------------------------------------

    \25\ National Quality Forum QPS Measure Description for 
``Patient Safety for Selected Indicators (modified version of PSI90) 
(Composite Measure)'' found at https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3.
    \26\ First, section 1886(o)(2)(A) of the Act requires the 
Program to select measures that have been specified for the Hospital 
IQR Program. Second, section 1886(o)(2)(C)(i) of the Act requires 
the Hospital VBP Program to refrain from beginning the performance 
period for a new measure until data on the measure have been posted 
on Hospital Compare for at least one year. Finally, section 
1886(o)(3)(C) of the Act requires that the Hospital VBP Program 
establish performance standards for each measure not later than 60 
days prior to the beginning of the performance period.
---------------------------------------------------------------------------

3. Retention Policy, Domain Name Proposal, and Updating of Quality 
Measures for the FY 2019 Program Year
a. Retention of Previously Adopted Hospital VBP Program Measures
    Since the FY 2013 IPPS/LTCH PPS final rule (77 FR 53592), we have 
retained measures from prior program years for each successive program 
year, unless otherwise proposed and finalized. We are not proposing any 
changes to this policy.
b. Proposed Domain Name Change
    We strive to align quality measurement and value-based purchasing 
programs with the NQS priority and the CMS Quality Strategy. Value-
based purchasing programs in particular allow us to link the CMS 
Quality Strategy with Medicare payments to providers and suppliers on a 
national scale. Given this objective, as well as our objective to focus 
quality measurement on the patient-centered outcome of interest to the 
extent possible, we proposed to reclassify the Hospital VBP Program 
measures into domains based on the six priorities of the CMS Quality 
Strategy. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50702), we 
proposed to combine the priorities of Care Coordination and Patient- 
and Caregiver-Centered Experience of Care into one domain for purposes 
of aligning the Hospital VBP Program domains with the CMS Quality 
Strategy. The domain name is often shortened to say PCCEC/CC. The 
HCAHPS measure, which includes the care transitions measure (CTM-3), 
currently comprises the Patient- and Caregiver-Centered Experience of 
Care/Care Coordination domain.
    This domain name has proven to be long and unwieldy. Therefore, we 
are proposing to change the domain name from Patient- and Caregiver-
Centered Experience of Care/Care Coordination to, more simply, Person 
and Community Engagement beginning with the FY 2019 program year. We 
believe that this domain name captures two goals of the CMS Quality 
Strategy, as shown in the table below:

------------------------------------------------------------------------
      Hospital VBP program domain           CMS Quality strategy goal
------------------------------------------------------------------------
Safety.................................  Make Care Safer by Reducing
                                          Harm Caused in the Delivery of
                                          Care.

[[Page 25101]]

 
Efficiency and Cost Reduction..........  Make Care Affordable.
Clinical Care..........................  Promote Effective Prevention
                                          and Treatment of Chronic
                                          Disease.
Person and Community Engagement........  Promote Effective Communication
                                          and Coordination of Care.
                                         Strengthen Persons and Their
                                          Families as Partners in Their
                                          Care.
N/A....................................  Work with Communities to
                                          Promote Best Practices of
                                          Healthy Living.
------------------------------------------------------------------------

    We are inviting public comments on this proposal.
c. Proposed Inclusion of Selected Ward Non-Intensive Care Unit (ICU) 
Locations in Certain NHSN Measures Beginning With the FY 2019 Program 
Year
    The Hospital VBP Program has used the CLABSI measure since the FY 
2015 program year and has used the CAUTI measure since the FY 2016 
program year. Both measures use adult, pediatric, and neonatal 
intensive care unit (ICU) data to calculate performance standards and 
measure scores (79 FR 50061). In the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50787), we expanded the CAUTI and CLABSI measures to selected 
ward (non-ICU) settings for the Hospital IQR Program, effective January 
1, 2015 (78 FR 50787). Data were first posted on Hospital Compare in 
December 2015. Selected ward (non-ICU) locations are defined as adult 
or pediatric medical, surgical, and medical/surgical wards (78 FR 
50787; 79 FR 50061). More information on the CLABSI and CAUTI measures 
can be found at: http://www.cdc.gov/nhsn/pdfs/pscmanual/4psc_clabscurrent.pdf and http://www.cdc.gov/nhsn/pdfs/pscmanual/7psccauticurrent.pdf, respectively.
    In the FY 2015 and FY 2016 IPPS/LTCH PPS final rules, we discussed 
our intent to consider using data from selected ward (non-ICU) 
locations for the Hospital VBP Program beginning in the FY 2019 program 
year for purposes of calculating performance standards for the CAUTI 
and CLABSI measures (79 FR 50061; 80 FR 49556). Several public 
commenters supported our proposal to include performance data from non-
ICU locations in the CLABSI and CAUTI measures beginning in the FY 2019 
program year, noting that CLABSI and CAUTI measures are important 
targets for dedicated surveillance and prevention efforts outside the 
ICU setting (80 FR 49566).
    Based on the public comments we have received in prior rulemaking, 
we are proposing to include the selected ward (non-ICU) locations in 
the CAUTI and CLABSI measures for the Hospital VBP Program beginning 
with the FY 2019 program year, with a baseline period of January 1, 
2015 through December 31, 2015 and a performance period of January 1, 
2017 through December 31, 2017. This expansion of the CAUTI and CLABSI 
measures aligns with the Hospital IQR Program. It also aligns with the 
HAC Reduction Program, which adopted the expansion of the CAUTI and 
CLABSI measures beginning with its FY 2018 program year (80 FR 49576 
through 49578). This expansion is also consistent with the NQF 
reendorsement update to these measures, which allows application of the 
measures beyond ICU locations (78 FR 50787). The MAP conditionally 
supported the expansion of the CAUTI (MUC-S0138) and CLABSI (MUC-S0139) 
measures for the Hospital VBP Program on the condition of gaining 
experience publicly reporting these measure data, as detailed in the 
``Spreadsheet of MAP 2015 Final Recommendations.'' \27\ We continue to 
believe this expansion of the measures would allow all hospitals, 
including hospitals that do not have ICU locations, to use the tools 
and resources of the NHSN for quality improvement and public reporting 
efforts.
---------------------------------------------------------------------------

    \27\ ``Spreadsheet of MAP 2015 Final Recommendations'' available 
at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=78711 and ``Process and 
Approach for MAP Pre-Rulemaking Deliberations 2015'' available at: 
http://www.qualityforum.org/Publications/2015/01/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations_2015.aspx.
---------------------------------------------------------------------------

    We are inviting public comments on this proposal.
d. Summary of Previously Adopted Measures and Newly Proposed Measure 
Refinements for the FY 2019 Program Year
    In summary, for the FY 2019 program year, we have finalized the 
following measure set and are proposing the refinement of certain NHSN 
measures, as indicated:

  Previously Adopted Measures and Newly Proposed Measure Refinements for the FY 2019 Program Year 
----------------------------------------------------------------------------------------------------------------
                  Short name                                   Domain/Measure name                     NQF #
----------------------------------------------------------------------------------------------------------------
                                    Person and Community Engagement Domain *
----------------------------------------------------------------------------------------------------------------
HCAHPS........................................  HCAHPS + 3-Item Care Transition Measure.........            0166
                                                                                                            0228
----------------------------------------------------------------------------------------------------------------
                                              Clinical Care Domain
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI...................................  Hospital 30-Day, All-Cause, Risk-Standardized               0230
                                                 Mortality Rate (RSMR) Following Acute
                                                 Myocardial Infarction (AMI) Hospitalization.
MORT-30-HF....................................  Hospital 30-Day, All-Cause, Risk-Standardized               0229
                                                 Mortality Rate (RSMR) Following Heart Failure
                                                 (HF) Hospitalization.
MORT-30-PN....................................  Hospital 30-Day, All-Cause, Risk-Standardized               0468
                                                 Mortality Rate (RSMR) Following Pneumonia
                                                 Hospitalization.
THA/TKA.......................................  Hospital-Level Risk-Standardized Complication               1550
                                                 Rate (RSCR) Following Elective Primary Total
                                                 Hip Arthroplasty (THA) and/or Total Knee
                                                 Arthroplasty (TKA).
----------------------------------------------------------------------------------------------------------------
                                                  Safety Domain
----------------------------------------------------------------------------------------------------------------
CAUTI **......................................  National Healthcare Safety Network (NHSN)                   0138
                                                 Catheter[dash]Associated Urinary Tract
                                                 Infection (CAUTI) Outcome Measure.

[[Page 25102]]

 
CLABSI **.....................................  National Healthcare Safety Network (NHSN)                   0139
                                                 Central Line[dash]Associated Bloodstream
                                                 Infection (CLABSI) Outcome Measure.
Colon and Abdominal Hysterectomy SSI..........  American College of Surgeons--Centers for                   0753
                                                 Disease Control and Prevention (ACS-CDC)
                                                 Harmonized Procedure Specific Surgical Site
                                                 Infection (SSI) Outcome Measure.
MRSA Bacteremia...............................  National Healthcare Safety Network (NHSN)                   1716
                                                 Facility-wide Inpatient Hospital-onset
                                                 Methicillin-resistant Staphylococcus aureus
                                                 (MRSA) Bacteremia Outcome Measure.
CDI...........................................  National Healthcare Safety Network (NHSN)                   1717
                                                 Facility[dash]wide Inpatient Hospital-onset
                                                 Clostridium difficile Infection (CDI) Outcome
                                                 Measure.
PSI 90........................................  Patient Safety for Selected Indicators                      0531
                                                 (Composite Measure).
PC-01.........................................  Elective Delivery...............................            0469
----------------------------------------------------------------------------------------------------------------
                                      Efficiency and Cost Reduction Domain
----------------------------------------------------------------------------------------------------------------
MSPB..........................................  Payment-Standardized Medicare Spending Per                  2158
                                                 Beneficiary (MSBP).
----------------------------------------------------------------------------------------------------------------
 We are changing some of the short names for measures from previous years' rulemakings to align
  these names with the usage in the Hospital IQR Program, and we are changing some measure names from previous
  years' rulemakings to use complete NQF-endorsed measure names.
* We are proposing, in section IV.H.3.b. of the preamble of this proposed rule, to change the name of this
  domain from Patient- and Caregiver-Centered Experience of Care/Care Coordination domain to Person and
  Community Engagement domain beginning with the FY 2019 program year.
** Proposed to include selected ward (non-ICU) locations in the measure as discussed in section IV.H.3.c. of the
  preamble of this proposed rule.

4. Newly Proposed Measures and Measure Refinements for the FY 2021 
Program Year and Subsequent Years
    We consider measures for adoption based on the statutory 
requirements, including specification under the Hospital IQR Program, 
posting dates on the Hospital Compare Web site, and our priorities for 
quality improvement as outlined in the current CMS Quality Strategy, 
available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html.
    Due to the time necessary to adopt measures, we often adopt 
policies for the Hospital VBP Program well in advance of the program 
year for which they will be applicable (for example, 76 FR 26490 
through 26547; 76 FR 51653 through 51660; 76 FR 74527 through 74547; 77 
FR 53567 through 53614; 78 FR 50676 through 50707; 78 FR 75120 through 
75121; 79 FR 50048 through 50087; 80 FR 49556 through 49559).
a. Condition-Specific Hospital Level, Risk-Standardized Payment 
Measures
    Providing high-value care is an essential part of our mission to 
provide better health care for individuals, better health for 
populations, and lower healthcare costs. Our aim is 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. In order to incentivize 
innovation that promotes high-quality care at high value, we believe it 
is critical to examine measures of resource use, efficiency, and cost 
reduction.
    In prior rules we have discussed our interest in expanding the 
Hospital VBP Program's Efficiency and Cost Reduction domain to include 
condition-specific or treatment-specific Medicare payment measures, and 
we have sought public comments (78 FR 50688; 79 FR 50066). In response 
to comments, we have stated that risk-adjusted standardized Medicare 
payments, viewed in light of other quality measures in a program, are 
an appropriate indicator of efficiency because they allow us to compare 
hospitals without regard to factors such 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. In addition, we have 
stated that the granularity of condition-specific or treatment-specific 
payment measures may provide specific actionable feedback to hospitals 
to implement targeted improvements. The observed differences in episode 
payments revealed by these measures may also encourage hospitals to 
assess local, postacute health care services (for example, SNF and home 
health services) to ensure that efficient services are available to all 
patients. Given these factors, we believe that the addition of 
condition-specific or treatment-specific payment measures to the 
Hospital VBP Program is necessary not only to facilitate a better 
understanding of service utilization and costs associated with 
conditions or treatments, but also as an important next step in the 
evolution of value-based purchasing to transform how Medicare pays for 
care and services.
    We recognize that high or low payments to hospitals are difficult 
to interpret in isolation. Some high payment hospitals may produce 
better clinical outcomes when compared with low payment hospitals, 
while other high payment hospitals may not produce better outcomes. For 
this reason, payment measure results viewed in isolation are not 
necessarily an indication of quality. However, by viewing such 
information along with quality measure results, we believe that 
consumers, payers, and providers would be able to better assess the 
value of care. We believe that adopting condition-specific or 
treatment-specific payment measures for the Hospital VBP Program that 
can be more directly paired with clinical outcome measures, aligned by 
comparable populations, performance periods, or risk-adjustment 
methodologies, help move toward achievement of this goal. We also 
believe that adopting condition-specific or treatment-specific payment 
measures would create stronger incentives for appropriately reducing 
practice pattern variation to achieve the aim of lowering the cost of 
care and creating better coordinated care for Medicare beneficiaries.
    In the Hospital VBP Program, we adopted the Medicare Spending per 
Beneficiary (MSPB) measure beginning with the FY 2015 program year to 
incentivize hospitals to redesign care systems in order to provide 
coordinated,

[[Page 25103]]

high-quality, and cost-efficient care (77 FR 53590). Currently, the 
Hospital VBP Program measures efficiency by weighting and combining the 
MSPB measure with other quality measures in order to calculate each 
hospital's TPS. However, we have previously expressed our interest in 
expanding the Efficiency and Cost Reduction domain and continue to 
believe that additional supplemental measures would create incentives 
for greater coordination between hospitals and physicians to optimize 
the care they provide to Medicare beneficiaries (78 FR 50688; 79 FR 
50066).
    We believe that when examining variation in payments, an 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 postdischarge 
period. Second, attributing payments for a continuous episode-of-care 
to admitting hospitals may reveal variations in care decision-making 
and resource utilization. Third, an episode-of-care with a specified 
time period (30 days in the case of the measures proposed below) 
provides a standard observation period by which to compare all 
hospitals. For all of the reasons described above, we are proposing to 
add two condition-specific payment measures in the Hospital VBP Program 
that can be directly paired with existing clinical outcome measures in 
the program.
    We are inviting public comments on the proposed measures as 
detailed below. We are further inviting public comment on the addition 
of other condition-specific or treatment-specific payment measures that 
are directly paired with quality measures, as well as episode-based 
payment measures not directly paired with quality measures, for future 
program years.
(1) Proposed New Measure for the FY 2021 Program Year: Hospital-Level, 
Risk-Standardized Payment Associated With a 30-Day Episode-of-Care for 
Acute Myocardial Infarction (AMI) (NQF #2431)
    Hospital-Level, Risk-Standardized Payment Associated with a 30-Day 
Episode-of-Care for AMI (NQF #2431) (AMI Payment) is an NQF-endorsed 
measure assessing hospital risk-standardized payment associated with a 
30-day episode-of-care for AMI. We adopted this measure in the Hospital 
IQR Program in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50802 
through 50805). The measure includes Medicare FFS patients aged 65 or 
older admitted for an AMI and calculates payments for these patients 
over a 30-day episode-of-care, beginning with the index admission, 
using administrative claims data. In general, the measure uses the same 
approach to risk-adjustment as our 30-day outcome measures previously 
adopted for the Hospital VBP Program, including the AMI mortality 
measure. Initial measure data were posted on Hospital Compare in 
December 2014 and the full measure specifications are available at: 
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    AMI remains a high-volume condition that is one of the top 20 
conditions contributing to Medicare costs.\28\ There is evidence of 
variation in payment for AMI patients among hospitals; median 30-day 
risk-standardized payment (in 2013 dollars) for AMI was $21,620 and 
ranged from $12,862 to $29,802 for the July 2011 through June 2014 
reporting period in the Hospital IQR Program.\29\ This variation in 
payment suggests there is opportunity for improvement.
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    \28\ Torio, C.M. and Andrews, R.M., 2013. National inpatient 
hospital costs: The most expensive conditions by payer, 2011. In 
Agency for Healthcare Research and Quality, Healthcare Cost and 
Utilization Project Statistical Brief# 160. Available at: https://www.hcup-us.ahrq.gov/reports/statbriefs/sb160.pdf.
    \29\ 2015 Condition-Specific Measure Updates and Specifications 
Report Hospital-Level 30-Day Risk Standardized Payment Measures. 
AMI, HF, PN Payment Updates (zip file). Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
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    We believe it is important to adopt the AMI Payment measure because 
variation in payment may reflect differences in care decision-making 
and resource utilization (for example, treatment, supplies, or 
services) for patients with AMI both during hospitalization and 
immediately post-discharge. The AMI Payment measure also addresses the 
NQS priority and CMS Quality Strategy goal to make quality care more 
affordable. Lastly, the AMI Payment measure is intended to be paired 
with our 30-day AMI mortality measure, MORT-30-AMI, thereby directly 
linking payment to quality by the alignment of comparable populations 
and risk-adjustment methodologies to facilitate the assessment of 
efficiency and value of care.
    We are proposing the AMI Payment measure beginning with the FY 2021 
program year. The AMI Payment measure would be added to the Efficiency 
and Cost Reduction domain. The proposed measure fulfills all statutory 
requirements for the Hospital VBP Program based on our adoption of the 
measure in the Hospital IQR Program, and our posting of measure data on 
Hospital Compare for at least one year before the beginning of the 
performance period. The AMI Payment measure (MUC15-369) was reviewed by 
the MAP in December 2015 and did not receive support for adoption into 
the Hospital VBP Program.\30\ The result of the MAP vote was 27 percent 
support, 15 percent conditional support, and 58 percent do not support. 
MAP members expressed concern that treatment-specific or condition-
specific payment measures may overlap and double count services that 
are already captured in the MSPB measure. In addition, stakeholders 
expressed a desire to have more experience with the measure in the 
Hospital IQR Program to understand whether there may be unintended 
consequences or a need to adjust for sociodemographic status (SDS).
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    \30\ ``Spreadsheet of MAP 2015-2016 Final Recommendations'' 
available at: http://www.qualityforum.org/map/ and ``Process and 
Approach for MAP Pre-Rulemaking Deliberations 2016'' found at: 
http://www.qualityforum.org/Publications/2016/02/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations.aspx.
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    With respect to MAP stakeholder concerns that treatment-specific or 
condition-specific payment measures may overlap and double count 
services, we note that these measures cover topics of critical 
importance to quality improvement in the inpatient hospital setting. As 
discussed above, we selected these measures because we believe that it 
is appropriate to provide stronger incentives for hospitals to provide 
high-value and efficient care. We believe that even if some services 
were double counted, hospitals that offer quality service and maintain 
better results on the MSPB and condition-specific payment measures 
relative to other hospitals in the Hospital VBP Program could receive 
an increased benefit by performing well on both quality measures and 
payment measures. Furthermore, because hospitals would have bigger 
financial incentives, they would strive to perform better, which would 
lead to better quality. At the same time, however, we are proposing 
that the Efficiency and Cost Reduction domain remain weighted at 25 
percent of the TPS even as additional payment measures may be adopted 
for this domain in the FY 2021 program year; therefore, the impact of 
poor performance on the MSPB measure or on any other particular payment 
measure would be reduced.

[[Page 25104]]

    In regard to MAP stakeholder concerns regarding the need to adjust 
for SDS, we note that the AMI Payment measure already incorporates a 
risk-adjustment methodology that accounts for age and comorbidities. We 
understand the important role that sociodemographic status plays in the 
care of patients. However, we continue to have concerns about holding 
hospitals to different standards for the outcomes of their patients of 
diverse sociodemographic status because we do not want to mask 
potential disparities or minimize incentives to improve the outcomes of 
disadvantaged populations. We routinely monitor the impact of 
sociodemographic status on hospitals' results on our measures.
    NQF is currently undertaking a 2-year trial period in which new 
measures and measures undergoing maintenance review will be assessed to 
determine if risk-adjusting for sociodemographic factors is 
appropriate. For 2 years, NQF will conduct a trial of temporarily 
allowing inclusion of sociodemographic factors in the risk-adjustment 
approach for some performance measures. At the conclusion of the trial, 
NQF will issue recommendations on future permanent inclusion of 
sociodemographic factors. During the trial, measure developers are 
expected to submit information such as analyses and interpretations as 
well as performance scores with and without sociodemographic factors in 
the risk-adjustment model.
    Furthermore, ASPE is conducting research to examine the impact of 
sociodemographic status on quality measures, resource use, and other 
measures under the Medicare program as directed by the IMPACT Act. We 
will closely examine the findings of the ASPE reports and related 
Secretarial recommendations and consider how they apply to our quality 
programs at such time as they are available.
    Finally, we note that some MAP members did express support for the 
AMI Payment measure and other condition-specific payment measures. 
Members agreed that the increased granularity provided by condition-
specific payment measures will provide valuable feedback to hospitals 
for targeted improvement. A recent NQF-commissioned white paper also 
supports the position that cost or payment measures should be 
interpreted in the context of quality measures and that measures that 
link cost and quality are the preferred method of assessing hospital 
efficiency.\31\ We believe that the condition-specific payment measures 
we are proposing, which directly pair with clinical outcome measures 
already in the Hospital VBP Program, follow this recommended approach. 
Based on our analysis of the issues surrounding condition-specific 
payment measures, we believe that the benefits of adopting this measure 
into the Hospital VBP Program outweigh any potential risks; however, we 
remain committed to monitoring for unintended consequences.
---------------------------------------------------------------------------

    \31\ Ryan A.M., Tompkins C.P. Efficiency and Value in 
Healthcare: Linking Cost and Quality Measures. Washington, DC: NQF; 
2014.
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    We are inviting public comments on this proposal.
(2) Proposed New Measure for the FY 2021 Program Year: Hospital-Level, 
Risk-Standardized Payment Associated With a 30-Day Episode-of-Care for 
Heart Failure (HF) (NQF #2436)
    Hospital-Level, Risk-Standardized Payment Associated with a 30-Day 
Episode-of-Care for HF (NQF #2436) (HF Payment) is an NQF-endorsed 
measure assessing hospital risk-standardized Medicare payment 
associated with a 30-day episode-of-care for heart failure. 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, using 
administrative claims data. In general, the measure uses the same 
approach to risk-adjustment as our 30-day outcome measures previously 
adopted for the Hospital VBP Program, including the HF mortality 
measure. We adopted this measure in the Hospital IQR Program in the FY 
2015 IPPS/LTCH PPS final rule (79 FR 50231 through 50235). Initial 
measure data were posted on Hospital Compare in July 2015 and the full 
measure specifications are available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    Heart failure is one of the leading causes of hospitalization for 
Americans 65 and over and costs roughly $34 billion 
annually.32 33 There is evidence of variation in Medicare 
payments at hospitals for heart failure patients; median 30-day risk-
standardized payment (in 2013 dollars) among Medicare FFS patients aged 
65 or older was $15,139, and ranged from $11,086 to $21,867 for the 
July 2011 through June 2014 reporting period in the Hospital IQR 
Program.\34\ This variation in payment suggests there is opportunity 
for improvement.
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    \32\ Russo C.A., Elixhauser, A. Hospitalizations in the Elderly 
Population, 2003. Agency for Healthcare Research and Quality. 2006.
    \33\ Heidenriech P.A., Trogdon J.G., Khavjou O.A., Butler J, 
Dracup K., Ezekowitz M.D., 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.
    \34\ 2015 Condition-Specific Measure Updates and Specifications 
Report Hospital-Level 30-Day Risk-Standardized Payment Measures. 
AMI, HF, PN Payment Updates (zip file). Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
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    We believe it is important to adopt the HF Payment measure because 
variation in payment may reflect differences in care decision making 
and resource utilization (for example, treatment, supplies, or 
services) for patients with heart failure both during hospitalization 
and immediately post-discharge. The HF Payment measure also addresses 
the NQS priority and CMS Quality Strategy goal to make quality care 
more affordable. Lastly, the HF Payment measure is intended to be 
paired with our 30-day HF mortality measure, MORT-30-HF, thereby 
directly linking payment to quality by the alignment of comparable 
populations and risk-adjustment methodologies to facilitate the 
assessment of efficiency and value of care.
    We are proposing the HF Payment measure beginning with the FY 2021 
program year. The HF Payment measure would be added to the Efficiency 
and Cost Reduction domain. The measure fulfills all statutory 
requirements for the Hospital VBP Program based on our adoption of the 
measure in the Hospital IQR Program and our posting of measure data on 
Hospital Compare for at least one year before the beginning of the 
performance period for this measure. The HF Payment measure (MUC15-322) 
was reviewed by the MAP in December 2015 and did not receive support 
for adoption into the Hospital VBP Program, due to the same concerns 
that we noted in our discussion of the AMI Payment measure.\35\ The 
result of the MAP vote was 27 percent support, 8 percent conditional 
support, and 65 percent do not support. Although the final MAP decision 
was ``do not support,'' we continue to believe that the NQF-endorsed HF 
Payment measure provides beneficiaries and hospitals with valuable 
information about relative value for an episode-of-care. We support

[[Page 25105]]

the HF Payment measure for the same reasons that we noted in our 
general discussion of condition-specific payment measures in section 
IV.H.4.a. of the preamble of this proposed rule and in our discussion 
of the AMI Payment measure in section IV.H.4.a.(2) of the preamble of 
this proposed rule.
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    \35\ ``Spreadsheet of MAP 2015-2016 Final Recommendations'' 
available at: http://www.qualityforum.org/map/ and ``Process and 
Approach for MAP Pre-Rulemaking Deliberations 2016'' found at: 
http://www.qualityforum.org/Publications/2016/02/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations.aspx.
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    We note that some MAP members did express support for the HF 
Payment measure and other condition-specific payment measures. Members 
agreed that the increased granularity provided by condition-specific 
payment measures will provide valuable feedback to hospitals for 
targeted improvement. In addition, we believe that the condition-
specific payment measures we are proposing, which directly pair with 
clinical outcome measures already in the Hospital VBP Program, follow 
the recommended approach outlined in the NQF white paper on how best to 
measure efficiency.\36\ Based on our analysis of the issues surrounding 
condition-specific payment measures, we believe that the benefits of 
adopting this measure into the Hospital VBP program outweigh any 
potential risks. However, we remain committed to monitoring for 
unintended consequences.
---------------------------------------------------------------------------

    \36\ Ryan A.M., Tompkins C.P. Efficiency and Value in 
Healthcare: Linking Cost and Quality Measures. Washington, DC: NQF; 
2014.
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    We are inviting public comments on this proposal.
(3) Proposed Scoring Methodology for the Proposed AMI Payment and HF 
Payment Measures
    We are proposing to score the proposed AMI Payment and HF Payment 
measures using the same methodology we use to score the MSPB measure, 
so that all measures in the Efficiency and Cost Reduction domain are 
scored in the same manner and have the same case minimum threshold.
    For achievement points, we are proposing to calculate a spending 
ratio of AMI spending and HF spending for each hospital to the median 
AMI spending and median HF spending, respectively, across all hospitals 
during the performance period. We would then use each hospital's AMI 
spending ratio and HF spending ratio to calculate between 0 and 10 
achievement points. We are proposing to set the achievement thresholds 
at the median AMI spending ratio and HF spending ratio across all 
hospitals during the performance period. We are proposing to set the 
benchmarks at the mean of the lowest decile of the AMI spending ratios 
and the HF spending ratios during the performance period. Therefore, a 
hospital whose individual AMI spending or HF spending ratios fall above 
the achievement threshold would score 0 achievement points on the 
measure. A hospital for which individual AMI spending or HF spending 
ratios fall at or below the benchmark would score the maximum 10 
achievement points on the measure. A hospital for which individual AMI 
spending or HF spending ratios fall at or below the achievement 
threshold but above the benchmark would score between 1 and 9 points 
according to the following formula:

[9 * ((achievement threshold-Hospital's performance period ratio)/
(achievement threshold-benchmark))] + 0.5

    For improvement points, we are proposing to calculate a spending 
ratio of AMI spending and HF spending for each hospital to the median 
AMI spending and median HF spending, respectively, across all hospitals 
during the performance period. We would then use each hospital's AMI 
spending ratio and the HF spending ratio to calculate between 0 and 9 
improvement points by comparing each hospital's ratio to its own 
performance during the baseline period. We are proposing to set the 
improvement benchmark as the mean of the lowest decile of AMI spending 
and HF spending ratios across all hospitals. Therefore, a hospital for 
which AMI spending or HF spending ratios are equal to or higher than 
its baseline period ratios would score 0 improvement points on the 
measure. If a hospital's score on the measure during the performance 
period is less than its baseline period score but above the benchmark, 
the hospital would receive a score of 0 to 9 according to the following 
formula:

[10 * ((Hospital baseline period ratio-Hospital performance period 
ratio)/(Hospital baseline period ratio-benchmark))] -0.5

    For more information about the proposed scoring methodology for the 
AMI Payment and HF Payment measures, we refer readers to the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51654 through 51656) and to 42 CFR 
412.160 where we discuss the MSPB measure's identical scoring 
methodology in detail.
    In order to codify this scoring methodology for the proposed 
payment measures, we are proposing to amend our regulations at 42 CFR 
412.160 to revise the definitions of ``Achievement threshold'' and 
``Benchmark'' to reflect this methodology, not just for the MSPB 
measure, but more generally for all measures in the Efficiency and Cost 
Reduction domain.
    We also considered and seek public feedback on scoring the AMI 
Payment and HF Payment measures using the same methodology that we use 
to score most other measures, including the MORT-30-AMI and MORT-30-HF 
measures. Under that scoring methodology, hospitals receive achievement 
points along an achievement range, which is a scale between the 
achievement threshold (the minimum level of hospital performance 
required to receive achievement points) and the benchmark (the mean of 
the top decile of hospital performance during the baseline period). A 
hospital receives improvement points for a measure if the hospital 
improves upon its measure score from its own baseline period measure 
score (76 FR 26514). We decided to propose the scoring methodology that 
more closely aligns with the MSPB measure because we believe it would 
be helpful for hospitals to be compared against performance standards 
constructed from more current performance period data, given potential 
changes in Medicare payment policy, changes in market forces, and 
changes in utilization practices.
    We are inviting public comment on the proposed scoring methodology 
in the calculation of achievement and improvement points for the AMI 
Payment and HF Payment measures beginning with the FY 2021 program 
year.
    In addition, we are considering adopting a scoring methodology for 
a future program year that would assess quality measures and efficiency 
measures in tandem to produce a composite score reflective of value. To 
support the goals of value-based purchasing and to provide consumers 
and purchasers with information about value of care provided by 
hospitals, we are soliciting public comments on ways we can incorporate 
scoring value into the Hospital VBP Program. The concept of value 
reflects highest quality achieved with most efficiency or least costs. 
Currently, the Hospital VBP Program assesses quality and efficiency 
separately through distinct performance measures and domains. Because 
each domain is weighted and combined to determine each hospital's TPS, 
a hospital could earn a higher payment adjustment relative to other 
hospitals by performing well on the quality-related domains but without 
performing well in the Efficiency and Cost Reduction domain, or vice 
versa. Without a measure or score for value that reflects both quality 
and costs, our ability to assess value is limited.

[[Page 25106]]

    There are various different ways value could be incorporated into 
the Hospital VBP Program. We are seeking public comments on two general 
approaches. First, specific measures of value could be developed by 
measure developers and incorporated into the Hospital IQR Program and 
then the Hospital VBP Program through the measure development process. 
This may be a lengthy process and will depend upon interest from 
measure developers. However, specific measures of value could be more 
interpretable by consumers, and would have rates that could be trended, 
benchmarked, and scored using the current Hospital VBP Program scoring 
methodology for assessing achievement and improvement.
    A second potential approach is for the Hospital VBP Program to use 
the Program's scoring methodology to incorporate value based on the 
performance of hospitals by either: (a) Comparing scores on specific 
quality and cost measures; or (b) comparing quality and efficiency 
domain scores. First, the measure-specific approach could target high-
cost, high clinical-impact conditions by pairing condition-specific 
quality and cost measures, such as by assessing a ratio of a hospital's 
reported quality over costs. A value score based on the paired clinical 
outcome and cost measures could be incorporated into the existing 
Efficiency and Cost Reduction domain (or Clinical Care or Safety 
domains) or included in a separate new `Value' domain. Alternatively, a 
domain-based value scoring approach could be similar to the current 
quality/cost tiering approach in the Physician Value-Based Modifier 
Program, which tiers providers into nine high, average, or low cost and 
quality (or ``value'') categories to determine payments. The domain-
based value score could be weighted and incorporated into the 
calculation of a hospital's overall Hospital VBP Program TPS along with 
the other existing domains, or potentially as a multiplier or adjuster 
to additionally reward higher value hospitals.
    We welcome the public's feedback and suggestions on how to 
appropriately incorporate the concept of value in the Hospital VBP 
Program, and we are inviting specific suggestions on how to measure or 
score value that will be meaningful to consumers, purchasers, and 
providers.
b. Proposed Update to an Existing Measure for the FY 2021 Program Year: 
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) 
Following Pneumonia Hospitalization (NQF #0468) (Updated Cohort)
    The Hospital 30-Day, All-Cause, RSMR Following Pneumonia 
Hospitalization (NQF #0468) (MORT-30-PN (updated cohort)) measure is a 
risk-adjusted, NQF-endorsed mortality measure monitoring mortality 
rates following PN hospitalizations. As part of the CMS measure 
reevaluation process, the MORT-30-PN measure underwent a substantive 
revision, which expanded the measure cohort to include: (1) Patients 
with a principal discharge diagnosis of pneumonia (the current reported 
cohort); (2) patients with a principal discharge diagnosis of 
aspiration pneumonia; and (3) patients with a principal discharge 
diagnosis of sepsis (excluding severe sepsis) with a secondary 
diagnosis of pneumonia coded as present on admission. For the purposes 
of describing the refinement of this measure, we note that ``cohort'' 
is defined as the hospitalizations, or ``index admissions,'' that are 
included in the measure and evaluated to ascertain whether the patient 
subsequently died within 30 days of the index admission. This cohort is 
the set of hospitalizations that meet all of the inclusion and 
exclusion criteria.
    The Hospital IQR Program adopted this measure refinement of MORT-
30-PN (updated cohort) in the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49653 through 49660), with initial MORT-30-PN (updated cohort) data to 
be posted on Hospital Compare on or around July 21, 2016. The MORT-30-
PN (updated cohort) measure (MUC-E0468) was included on the ``List of 
Measures Under Consideration for December 1, 2014'' and received 
conditional support from the MAP, pending NQF endorsement of the 
updated cohort as detailed in the ``Spreadsheet of MAP 2015 Final 
Recommendations.'' \37\ The full measure specifications are available 
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
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    \37\ ``Spreadsheet of MAP 2015 Final Recommendations'' available 
at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=78711 and ``Process and 
Approach for MAP Pre-Rulemaking Deliberations 2015'' available at: 
http://www.qualityforum.org/Publications/2015/01/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations_2015.aspx.
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    This refinement to the MORT-30-PN measure was adopted to more 
accurately reflect quality and outcomes for patients with pneumonia. 
Recent evidence has shown an increase in the use of sepsis as a 
principal diagnosis code among patients hospitalized with 
pneumonia.\38\ In response to this emerging evidence, we examined 
coding patterns across hospitals caring for Medicare patients and 
sought to forecast the impact of enhancing or broadening the measure 
cohort to include the complete patient population, at each hospital, 
who are receiving clinical management and treatment for pneumonia. Our 
findings were consistent with a published study.\39\ That is, our 
results suggested that there is: (1) An increasing use of sepsis as a 
principal discharge diagnoses for pneumonia patients; and (2) wide 
variation across hospitals in the use of these codes. These published 
studies and CMS analyses also show that hospitals that use sepsis codes 
for the principal diagnosis frequently have better performance on the 
currently adopted MORT-30-PN measure. This coding practice improves 
performance on the measure because patients with greatest severity of 
illness (for example, those with sepsis) are systematically excluded 
from the measure under current measure specifications, leaving only 
patients with less severity of illness in the cohort.
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    \38\ Lindenauer P.K., Lagu T., Shieh M.S., Pekow P.S., Rothberg 
M.B. Association of diagnostic coding with trends in 
hospitalizations and mortality of patients with pneumonia, 2003-
2009. Journal of the American Medical Association. Apr 4 
2012;307(13):1405-1413.
    \39\ Rothberg M.B., Pekow P.S., Priya A., Lindenauer P.K. 
Variation in diagnostic coding of patients with pneumonia and its 
association with hospital risk-standardized mortality rates: A 
cross-sectional analysis. Annals of Internal Medicine. Mar 18 
2014;160(6):380-388.
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    In addition to assessing the use of the principal diagnosis codes 
of sepsis, we also analyzed coding patterns and the impact of expanding 
the pneumonia measure to include patients with the principal diagnosis 
of aspiration pneumonia. We noted after our analyses that aspiration 
pneumonia: (1) Is a common reason for pneumonia hospitalization, 
particularly among the elderly; (2) is currently not included in the 
CMS hospital outcome measure specifications for pneumonia patients; and 
(3) appears to be similarly subject to variation in diagnosis, 
documentation, and coding. The findings of published studies and CMS 
analyses suggested that a MORT-30-PN measure with an enhanced or 
broader cohort would ensure that the population of patients with 
pneumonia is more complete and comparable across hospitals.
    We are proposing this measure refinement for the Hospital VBP

[[Page 25107]]

Program based on our adoption of the measure refinement in the Hospital 
IQR Program, and our posting of measure data on Hospital Compare for at 
least 1 year prior to the start of the measure performance period. In 
addition, the MORT-30-PN (updated cohort) measure addresses a high 
volume, high cost condition. The measure aligns with the NQS priority 
and CMS Quality Strategy Goal of ``Effective Prevention and Treatment 
of Chronic Disease.'' Based on the continued high risk of mortality 
after pneumonia hospitalizations, we are proposing to add it to the 
Clinical Care domain beginning with the FY 2021 program year.
    We are inviting public comments on this proposal.
5. Proposed New Measure for the FY 2022 Program Year: Hospital 30-Day, 
All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Coronary 
Artery Bypass Graft (CABG) Surgery (NQF #2558)
    The Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 
(RSMR) Following CABG Surgery (NQF #2558) (MORT-30-CABG) measure is a 
risk-adjusted, NQF-endorsed mortality measure monitoring mortality 
rates following CABG hospitalizations. This measure includes Medicare 
FFS patients aged 65 or older who receive a qualifying CABG procedure 
and assesses hospitals' 30-day, all-cause risk-standardized rate of 
mortality, beginning with the date of the index procedure. The measure 
is calculated using administrative claims data. In general, the measure 
uses the same approach to risk adjustment as our 30-day outcome 
measures previously adopted for the Hospital VBP Program. We adopted 
this measure in the Hospital IQR Program in the FY 2015 IPPS/LTCH PPS 
final rule (79 FR 50224 through 50227). Initial measure data were 
posted on Hospital Compare in July 2015 and the full measure 
specifications are available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    CABG is a priority area because it is a common procedure associated 
with considerable morbidity, mortality, and healthcare spending. In the 
United States, over 200,000 CABG procedures are performed annually, and 
the majority of procedures are performed on Medicare beneficiaries.\40\ 
In 2012, Medicare beneficiaries had 121,744 CABG surgery admissions, 
with or without percutaneous coronary intervention or valve 
surgery.\41\ CABG surgeries are costly procedures that account for a 
large percentage of cardiac surgeries performed nationally. For 
example, isolated CABG surgeries accounted for almost half (40.02 
percent) of all cardiac surgery hospital admissions in Massachusetts in 
FY 2012.\42\ This provides an example of the frequency in which a CABG 
is performed for a patient admitted for cardiac surgery. The average 
Medicare payment was $32,564 for CABG without valve and $48,461 for 
CABG plus valve surgeries in 2011.\43\
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    \40\ Fingar, K.R., Stocks, C., Weiss, A.J. and Steiner, C.A., 
2014. Most frequent operating room procedures performed in U.S. 
hospitals, 2003-2012. In Agency for Healthcare Research and Quality, 
Healthcare Cost and Utilization Project Statistical Brief #186. 
Available at: https://www.hcup-us.ahrq.gov/reports/statbriefs/sb186-Operating-Room-Procedures-United-States-2012.pdf.
    \41\ Culler S.D., Kugelmass A.D., Brown P.P., Reynolds M.R., 
Simon A.W. Trends in coronary revascularization procedures among 
Medicare beneficiaries between 2008 and 2012. Circulation. 2014 Dec 
22: CIRCULATIONAHA-114.
    \42\ Massachusetts Data Analysis Center. Adult Coronary Artery 
Bypass Graft Surgery in the Commonwealth of Massachusetts: Hospital 
and Surgeons Risk-Standardized 30-Day Mortality Rates. Fiscal Year 
2012 Report. Available at: http://www.massdac.org/wp-content/uploads/CABG-FY2012-Update.pdf.
    \43\ Pennsylvania Health Care Cost Containment Council. Cardiac 
Surgery in Pennsylvania 2011-2013. Harrisburg; 2013:60.
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    Mortality rates following CABG surgery are not insignificant and 
vary across hospitals. For the July 2011 through June 2014 Hospital IQR 
Program reporting period, the median hospital-level risk-standardized 
mortality rate after CABG was 3.1 percent and ranged from 1.6 percent 
to 9.2 percent.\44\ Variation in mortality rates following CABG surgery 
can be seen not only nationally, but also within a single State. Within 
the State of New York, the risk-adjusted mortality rate among patients 
who were discharged after CABG surgery (without any other major heart 
surgery earlier in the hospital stay) ranged from 0.0 percent to 4.58 
percent in 2011.\45\ Variation in risk-standardized mortality rates 
among U.S. hospitals suggests that there is room for improvement.
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    \44\ September 2015 Medicare Hospital Performance Report on 
Outcome Measures: Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/OutcomeMeasures.html.
    \45\ New York State Department of Health. Adult Cardiac Surgery 
in New York State 2009-2011. Available at: https://www.health.ny.gov/statistics/diseases/cardiovascular/heart_disease/docs/2009-2011_adult_cardiac_surgery.pdf.
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    An all-cause, risk-adjusted mortality measure for patients who 
undergo CABG surgery would 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, CABG mortality in California declined from 2.9 percent in 
2003, the first year that the State implemented a mandatory CABG 
mortality reporting measure, to 2.1 percent in 2012.\46\
---------------------------------------------------------------------------

    \46\ California Office of Statewide Health Planning and 
Development. CABG Outcomes Reporting Program. The California Report 
on Coronary Artery Bypass Graft Surgery: 2003-2012 Trendlines. 
Available at: http://www.oshpd.ca.gov/hid/Products/Clinical_Data/CABG/03-12_Trends.html or http://www.oshpd.ca.gov/HID/Products/Clinical_Data/CABG/2012/ExecutiveSummary.pdf.
---------------------------------------------------------------------------

    We are proposing the MORT-30-CABG measure for the Hospital VBP 
Program beginning with the FY 2022 program year because it addresses a 
high-volume, high-cost procedure with variation in performance. The 
measure also aligns with the CMS Quality Strategy Goal of Effective 
Prevention and Treatment of Chronic Disease. The measure fulfills all 
statutory requirements for the Hospital VBP Program based on our 
adoption of the measure in the Hospital IQR Program and our posting of 
measure data on Hospital Compare for at least one year before the 
beginning of the measure performance period. The MAP supported the 
inclusion of the MORT-30-CABG measure (MUC15-395) in the Hospital VBP 
Program as detailed in the ``Spreadsheet of MAP 2016 Final 
Recommendations.'' \47\ Based on the continued high risk of mortality 
after CABG hospitalizations, we are proposing to add this measure to 
the Clinical Care domain beginning with the FY 2022 program year.
---------------------------------------------------------------------------

    \47\ ``Spreadsheet of MAP 2015-2016 Final Recommendations'' 
available at: http://www.qualityforum.org/map/ and ``Process and 
Approach for MAP Pre-Rulemaking Deliberations 2016'' found at http://www.qualityforum.org/Publications/2016/02/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations.aspx.
---------------------------------------------------------------------------

    We are inviting public comments on this proposal.
6. Previously Adopted and Newly Proposed Baseline and Performance 
Periods
a. Background
    Section 1886(o)(4) of the Act requires the Secretary to establish a 
performance period for the Hospital VBP Program that begins and ends 
prior to the beginning of such fiscal year. We refer readers to the FY 
2016 IPPS/LTCH PPS final rule (80 FR 49561 through 49562) for the 
baseline and performance periods for the Clinical Care, Person and 
Community Engagement, Safety, and

[[Page 25108]]

Efficiency and Cost Reduction domains that we have adopted for the FY 
2018 program year. In past final rules, we have proposed and adopted a 
new baseline and performance period for each program year for each 
domain in each final rule. This year, we are proposing to adopt the 
following baseline and performance periods for all future program 
years, unless otherwise noted in future rulemaking.
b. Patient- and Caregiver-Centered Experience of Care/Care Coordination 
Domain (Proposed Person and Community Engagement Domain)
    Since the FY 2015 program year, we have adopted a 12-month baseline 
period and a 12-month performance period for measures in the proposed 
Person and Community Engagement domain (currently referred to as the 
Patient- and Caregiver-Centered Experience of Care/Care Coordination 
domain) (77 FR 53598; 78 FR 50692; 79 FR 50072; 80 FR 49561). We 
continue to believe that a 12-month period provides us sufficient data 
on which to score hospital performance.
    Therefore, we are proposing to adopt this baseline and performance 
period length for the FY 2019 program year and all future program 
years, unless otherwise noted in future rulemaking. Therefore, for the 
FY 2019 program year and future program years, we are proposing to 
adopt a performance period that runs on the calendar year 2 years prior 
to the applicable program year. We are proposing to adopt a baseline 
period that runs on the calendar year 4 years prior to the applicable 
program year. Applying these proposed new policies, for the FY 2019 
program year, the baseline period for the Person and Community 
Engagement domain (proposed name change) would run from January 1, 2015 
through December 31, 2015. The performance period would run from 
January 1, 2017 through December 31, 2017.
c. Efficiency and Cost Reduction Domain
(1) MSPB Measure
    Since the FY 2016 program year, we have adopted a 12-month baseline 
period and a 12-month performance period for the MSPB measure in the 
Efficiency and Cost Reduction domain (78 FR 50692; 79 FR 50072; 80 FR 
49562). We continue to believe that a 12-month period for this measure 
provides sufficient data on which to score hospital performance. We are 
proposing to adopt this baseline and performance period length for the 
FY 2019 program year and all future program years, unless otherwise 
noted in future rulemaking. Therefore, for the FY 2019 program year and 
future program years, we are proposing to adopt a performance period 
that runs on the calendar year 2 years prior to the applicable program 
year. We are proposing to adopt a baseline period that runs on the 
calendar year 4 years prior to the applicable program year. Applying 
these proposed new policies, for the FY 2019 program year, the baseline 
period for the MSPB measure would run from January 1, 2015 through 
December 31, 2015. The performance period would run from January 1, 
2017 through December 31, 2017.
(2) AMI Payment and HF Payment Measures in the FY 2021 Program Year
    We are also proposing to adopt the AMI Payment and HF Payment 
measures as two new measures for the Efficiency and Cost Reduction 
domain beginning in the FY 2021 program year. In order to adopt the 
measures as early as feasible into the Hospital VBP Program, we are 
proposing to adopt a 36-month baseline period and a 24-month 
performance period. Therefore, for the FY 2021 program year, we are 
proposing to adopt a 24-month performance period that runs from July 1, 
2017 to June 30, 2019. We are proposing to adopt a 36-month baseline 
period that runs from July 1, 2012 to June 30, 2015.
    We believe that using a 24-month performance period for the AMI 
Payment and HF Payment measures, rather than a 36-month performance 
period, in the FY 2021 program year would accurately assess the quality 
of care provided by hospitals and would not substantially change 
hospitals' performance on the measure. To determine the viability of 
using a 24-month performance period to calculate the AMI Payment and HF 
Payment measures' scores, we compared the measure score reliability for 
a 24-month and 36-month performance period. We calculated the 
Intraclass Correlation Coefficient (ICC) to determine the extent to 
which assessments of a hospital using different but randomly selected 
subsets of patients produces similar measures of hospital 
performance.\48\ We calculated the risk-standardized payment (RSP) 
using a random split-sample of a 36-month performance period (we used 
July 1, 2012 through June 30, 2015).
---------------------------------------------------------------------------

    \48\ Shrout P., Fleiss J. Intraclass Correlations: Uses in 
Assessing Rater Reliability. Pyschol Bull. Mar 1979;86(2):420-428.
---------------------------------------------------------------------------

    For both the 36-month and the 24-month performance periods, we 
obtained two RSPs for each hospital, using an entirely distinct set of 
patients from the same time period. If the RSPs for both the 36-month 
and the 24-month performance periods agree, we can demonstrate that the 
measure assesses the quality of the hospital rather than the types of 
patients treated. To calculate agreement between these measure subsets, 
we calculated the ICC (2,1) \49\ for both the 36-month and 24-month 
performance periods.
---------------------------------------------------------------------------

    \49\ Shrout P., Fleiss J. Intraclass Correlations: Uses in 
Assessing Rater Reliability. Pyschol Bull. Mar 1979;86(2):420-428.
---------------------------------------------------------------------------

    For the AMI Payment measure, there were 459,874 index admissions 
and 2,342 hospitals that met the minimum threshold for reporting a 
measure result (at least 25 cases) in the 36-month performance period. 
We also calculated the RSP using a random split-sample of the combined 
24-month performance period (we used July 1, 2012 through June 30, 
2014). There were 309,067 index admissions and 2,141 hospitals that met 
the minimum threshold for reporting a measure result in the 24-month 
performance period.
    For the 36-month performance period, the ICC for the two 
independent assessments of each hospital was 0.775. For the 24-month 
performance period, the ICC for the two independent assessments of each 
hospital was 0.742. Therefore, the data subsets showcase 
``substantial'' agreement of hospital performance, and we can 
demonstrate that, even with a 24-month performance period, the measure 
assesses the quality of care provided at the hospital rather than the 
types of patients that these hospitals treat.\50\
---------------------------------------------------------------------------

    \50\ Landis J, Koch G. The Measurement of Observer Agreement for 
Categorical Data. Biometrics. Mar 1997 1977;33(1):159-174.
---------------------------------------------------------------------------

    To assess whether using 24 months of data instead of 36 months of 
data changes the performance in the same hospital, we compared the 
percent change in a hospital's predicted/expected (P/E) ratio. For 
hospitals that met the minimum case threshold in the 24-month 
performance period, the median percent change was -0.06 percent (with 
an interquartile range of -1.7 percent to 1.5 percent). These results 
suggest minimal difference in same-hospital performance when using a 
24-month measurement period.
    To determine the viability of using a 24-month performance period 
for the HF Payment measure, we assessed reliability and change in 
hospital performance for a 24-month and 36-month performance period 
using the same process as the AMI Payment measure. For the HF Payment 
measure, there were 877,856 index admissions and 2,981 hospitals that 
met the

[[Page 25109]]

minimum threshold for reporting a measure result (at least 25 cases) in 
the 36-month performance period. We also calculated the RSP using a 
random split-sample of a 24-month performance period (we used July 1, 
2012 through June 30, 2014). There were 580,741 index admissions and 
2,883 hospitals that met the minimum threshold for reporting a measure 
result in the 24-month performance period.
    For the 36-month performance period, the ICC for the two 
independent assessments of each hospital was 0.83. For the 24-month 
performance period, the ICC for the two independent assessments of each 
hospital was 0.81. Therefore, the data subsets showcase ``almost 
perfect'' agreement of hospital performance, and we can demonstrate 
that, even with a 24-month performance period, the measure assesses the 
quality of care provided at the hospital rather than the types of 
patients that these hospitals treat.\51\
---------------------------------------------------------------------------

    \51\ Landis J., Koch G. The Measurement of Observer Agreement 
for Categorical Data. Biometrics. Mar 1997 1977;33(1):159-174.
---------------------------------------------------------------------------

    To assess whether using a 24-month performance period instead of a 
36-month performance period changes the performance in the same 
hospital, we compared the percent change in a hospital's P/E ratio. For 
hospitals that met the minimum case threshold in the 24-month 
performance period, the median percent change for hospitals' P/E ratio 
using 24-month performance periods compared with 36-month performance 
periods was -0.02 percent (with an interquartile range of -1.9 percent 
to 1.8 percent). These results suggest minimal difference in same-
hospital performance when using a 24-month measurement period.
    Therefore, we believe that using a 24-month performance period 
rather than a 36-month performance period would not substantially 
change hospitals' performance on the AMI Payment and HF Payment 
measures. In sum, based on the analyses described earlier, we believe 
that using 24-month performance periods, rather than 36-month 
performance periods, for the initial performance period for this 
measure would accurately assess the quality of care provided by that 
hospital and would not substantially change that hospital's performance 
on the measure.
(3) AMI Payment and HF Payment Measures in the FY 2022 Program Year
    For the FY 2022 program year, we are proposing to adopt a 36-month 
performance period and a 36-month baseline period for the AMI Payment 
and HF Payment measures. We have stated in past rules that we would 
strive to adopt 36-month performance periods and baseline periods when 
possible to accommodate the time needed to process measure data and to 
ensure that we collect enough measure data for reliable performance 
scoring for all mortality measures (80 FR 49588; 79 FR 50057; 78 FR 
50074). Therefore, for the FY 2022 program year, we are proposing to 
adopt a 36-month performance period that runs from July 1, 2017 to June 
30, 2020. We are proposing to adopt a 36-month baseline period that 
runs from July 1, 2012 to June 30, 2015.
d. Safety Domain
    Since the FY 2016 program year, we have adopted a 12-month baseline 
period and 12-month performance period for all measures in the Safety 
domain, with the exception of the PSI 90 measure (78 FR 50692; 79 FR 
50071; 80 FR 49562). We continue to believe that a 12-month period for 
these measures provides us sufficient data on which to score hospital 
performance.
    Therefore, we are proposing to adopt a 12-month baseline period and 
a 12-month performance period for all measures in the Safety domain, 
with the exception of the PSI 90 measure for the FY 2019 program year 
and all future program years, unless otherwise noted in future 
rulemaking. Under this proposed policy, for the FY 2019 program year 
and future program years, we are proposing to adopt a performance 
period that runs on the calendar year 2 years prior to the applicable 
program year. We are proposing to adopt a baseline period that runs on 
the calendar year 4 years prior to the applicable program year. 
Applying these proposed new policies, for the FY 2019 program year, the 
baseline period for all measures in the Safety domain except for the 
PSI 90 measure would run from January 1, 2015 through December 31, 
2015. The performance period would run from January 1, 2017 through 
December 31, 2017.
    As discussed in section IV.H.2.a. of the preamble of this proposed 
rule, we are proposing to shorten the performance period for the PSI 90 
measure in the FY 2018 program year. Under this proposal, the 
performance period for the PSI 90 measure for the FY 2018 program year 
would be July 1, 2014 through September 30, 2015. As stated earlier, 
the baseline period for the measure for FY 2018 that we previously 
established would not change.
e. Clinical Care Domain
(1) Currently Adopted Measures in the Clinical Care Domain
    For the FY 2019, FY 2020, and FY 2021 program years, we have 
adopted a 36-month baseline period and a 36-month performance period 
for currently adopted measures in the Clinical Care domain (78 FR 50692 
through 50694; 79 FR 50073; 80 FR 49563).\52\ For the FY 2022 program 
year, we are proposing to adopt a 36-month performance period and a 36-
month baseline period for each of the other measures in the Clinical 
Care domain, the MORT-30-AMI, MORT-30-HF, and MORT-30-COPD measures, as 
well as the newly proposed MORT-30-CABG measure. The performance 
periods for these measures would run for 36-months from July 1, 2017 
through June 30, 2020. The baseline period would run from July 1, 2012 
through June 30, 2015. We are proposing that the THA/TKA measure 
performance period would run from April 1, 2017 through March 31, 2020. 
The baseline period would run from April 1, 2012 through March 31, 
2015.
---------------------------------------------------------------------------

    \52\ The currently adopted measures in the Clinical Care domain 
include: MORT-30-AMI, MORT-30-HF, MORT-30-PN, and THA/TKA. The THA/
TKA measure was added for the FY 2019 program year with a 36-month 
baseline period and a 24-month performance period (79 FR 50072), but 
we have since adopted 36-month baseline and performance periods for 
the FY 2021 program year (80 FR 49563). We intend to continue having 
36-month baseline periods and 36-month performance periods in the 
future for all measures in the Clinical Care domain.
---------------------------------------------------------------------------

(2) MORT-30-PN (Updated Cohort) Measure in the FY 2021 Program Year
    In order to adopt the newly proposed MORT-30-PN (updated cohort) 
measure into the Hospital VBP Program as early as feasible, we are 
proposing to adopt a 36-month baseline period and a 23-month 
performance period for the FY 2021 program year. We are proposing to 
adopt a 23-month performance period because the measure will not be 
posted on Hospital Compare for one year until July 21, 2017. We are 
proposing to begin the performance period on August 1, 2017 to 
accommodate this statutory requirement.
    We believe that using a 23-month performance period for the MORT-
30-PN (updated cohort) measure, rather than a 36-month performance 
period, in the FY 2021 program year would accurately assess the quality 
of care provided by hospitals and would not substantially change 
hospitals' performance on the measure. To determine the viability of 
using a 23-month performance period to calculate the MORT-30-PN 
(updated cohort)

[[Page 25110]]

measure score, we compared the measure score reliability for a 23-month 
and a 36-month performance period. We calculated the ICC to determine 
the extent to which assessments of a hospital using different but 
randomly selected subsets of patients produces similar measures of 
hospital performance. We calculated the RSMR using a random split-
sample of the combined 36-month performance period (we used July 1, 
2012 through June 30, 2015). There were 1,292,701 index admissions and 
3,103 hospitals that met the minimum threshold for reporting a measure 
result (at least 25 cases) in the 36-month performance period. We also 
calculated the RSMR using a random split-sample of the combined 23-
month performance period (we used July 1, 2012 through May 31, 2014). 
There were 798,746 index admissions and 3,043 hospitals that met the 
minimum threshold for reporting a measure result in the 23-month 
performance period.
    For both the 36-month data and the 23-month performance periods, we 
obtained two RSMRs for each hospital, using an entirely distinct set of 
patients from the same time period. If the RSMRs for both the 36-month 
subset and the 23-month performance periods agree, we can demonstrate 
that the measure assesses the quality of the hospital rather than the 
types of patients treated. To calculate agreement between these measure 
subsets, we calculated the ICC for both the 36-month and 23-month 
performance periods.
    For the 36-month data performance period, the agreement between the 
two independent assessments of each hospital was 0.69. For the 23-month 
data performance period, the agreement between the two independent 
assessments of each hospital was 0.58. Therefore, the data subsets 
showcase ``moderate'' agreement of hospital performance, and we can 
demonstrate that, even with a 23-month performance period, the measure 
moderately assesses the quality of care provided at the hospital rather 
than the types of patients that these hospitals treat.\53\
---------------------------------------------------------------------------

    \53\ Landis J, Koch G. The Measurement of Observer Agreement for 
Categorical Data. Biometrics. Mar 1997 1977;33(1):159-174.
---------------------------------------------------------------------------

    To assess whether using a 23-month performance period instead of a 
36-month performance period changes the performance in the same 
hospital, we compared the percent change in a hospital's RSMR. In some 
cases, changing the performance period from 36 months to 23 months 
resulted in hospitals failing to meet the case threshold to report a 
measure score; therefore, these hospitals were removed from the 
measure. For the remaining hospitals, the median percent change was 
1.52 percent (with an interquartile range of 2.32 percent to 5.32 
percent). These results suggest minimal difference in hospital 
performance when using a 23-month measurement period.
    Therefore, we believe that using 23 months of data rather than 36 
months of data would not substantially change hospitals' performance on 
this measure. In summary, based on the analyses further described 
earlier, we believe that using 23 months of data, rather than 36 months 
of data, for the initial performance period for this measure would, 
with moderate accuracy, assess the quality of care provided by that 
hospital. In addition, it would not substantially change that 
hospital's performance on the measure.
    Further, adopting this proposed performance period would enable us 
to include the updated measure cohort in the FY 2021 Hospital VBP 
Program, which would ensure that MORT-30-PN more accurately reflects 
quality and outcomes for patients with pneumonia. Therefore, for the 
MORT-30-PN (updated cohort) measure, we are proposing a performance 
period that would run from August 1, 2017 through June 30, 2019 for the 
FY 2021 program year. The baseline period would run from July 1, 2012 
through June 30, 2015.
(3) MORT-30-PN (Updated Cohort) Measure in the FY 2022 Program Year
    For the FY 2022 program year and subsequent years, we are proposing 
to lengthen the MORT-30-PN (updated cohort) performance period to 
nearly a 36-month performance period (35 months) and continue to adopt 
a 36-month baseline period. For the FY 2022 program year, we are 
proposing a performance period that would run from August 1, 2017 
through June 30, 2020. The baseline period would run from July 1, 2012 
through June 30, 2015.
f. Summary of Previously Adopted and Newly Proposed Baseline and 
Performance Periods for the FY 2018, FY 2019, FY 2020, FY 2021, and FY 
2022 Program Years
    The tables below summarize the baseline and performance periods 
that we are proposing to adopt (and include previously adopted baseline 
and performance periods for the Clinical Care domain).

 Newly Proposed Baseline and Performance Periods for the FY 2018 Program
                                  Year
------------------------------------------------------------------------
             Domain                 Baseline period   Performance period
------------------------------------------------------------------------
Safety:
     PSI 90 *...........  July 1, 2010-June   July 1, 2014-
                                   30, 2012.           September 30,
                                                       2015.
------------------------------------------------------------------------
* We are proposing to shorten the performance period for the PSI 90
  measure for the FY 2018 program year as discussed in section IV.H.2.a.
  of the preamble of this proposed rule.


 Previously Adopted and Newly Proposed Baseline and Performance Periods
                      for the FY 2019 Program Year
------------------------------------------------------------------------
             Domain                 Baseline period   Performance period
------------------------------------------------------------------------
Person and Community Engagement:
     HCAHPS + 3-Item      January 1, 2015-    January 1, 2017-
     Care Transition.              December 31, 2015.  December 31,
                                                       2017.
Clinical Care:
     Mortality (MORT-30-   July 1,     July 1,
     AMI, MORT-30-HF, MORT-30-     2009-June 30,       2014-June 30,
     PN) *.                        2012.               2017.
     THA/TKA *..........   July 1,     January
                                   2010-June 30,       1, 2015-June 30,
                                   2013.               2017.
Safety:

[[Page 25111]]

 
     PSI 90.............   July 1,     July 1,
                                   2011-June 30,       2015 through June
                                   2013.               30, 2017.
     PC-01 and NHSN        January     January
     measures (CAUTI, CLABSI,      1, 2015-December    1, 2017-December
     SSI, CDI, MRSA).              31, 2015.           31, 2017.
Efficiency and Cost Reduction:
     MSPB...............  January 1, 2015-    January 1, 2017-
                                   December 31, 2015.  December 31,
                                                       2017.
------------------------------------------------------------------------
* Previously adopted baseline and performance periods that remain
  unchanged (80 FR 49562 through 49563).


   Previously Adopted Baseline and Performance Periods for the FY 2020
                              Program Year
------------------------------------------------------------------------
             Domain                 Baseline period   Performance period
------------------------------------------------------------------------
Clinical Care:
     Mortality (MORT-30-   July 1,     July 1,
     AMI, MORT-30-HF, MORT-30-     2010-June 30,       2015-June 30,
     PN) *.                        2013.               2018.
     THA/TKA *..........   July 1,     July 1,
                                   2010-June 30,       2015-June 30,
                                   2013.               2018.
Safety:
     PSI 90 *...........  July 1, 2012-June   July 1, 2016-June
                                   30, 2014.           30, 2018.
------------------------------------------------------------------------
* Previously adopted baseline and performance periods that remain
  unchanged (80 FR 49562 through 49563).


 Previously Adopted and Newly Proposed Baseline and Performance Periods
                      for the FY 2021 Program Year
------------------------------------------------------------------------
             Domain                 Baseline period   Performance period
------------------------------------------------------------------------
Clinical Care:
     Mortality (MORT-30-   July 1,     July 1,
     AMI, MORT-30-HF, MORT-30-     2011-June 30,       2016-June 30,
     COPD) *.                      2014.               2019.
     THA/TKA *..........   April 1,    April 1,
                                   2011-March 31,      2016-March 31,
                                   2014.               2019.
     MORT-30-PN (updated   July 1,     August 1,
     cohort).                      2012-June 30,       2017-June 30,
                                   2015.               2019.
Efficiency and Cost Reduction:
     Payment (AMI         July 1, 2012 to     July 1, 2017 to
     Payment and HF Payment).      June 30, 2015.      June 30, 2019.
------------------------------------------------------------------------
* Previously adopted baseline and performance periods that remain
  unchanged (80 FR 49562 through 49563).


 Newly Proposed Baseline and Performance Periods for the FY 2022 Program
                                  Year
------------------------------------------------------------------------
             Domain                 Baseline period   Performance period
------------------------------------------------------------------------
Clinical Care:
     Mortality (MORT-30-   July 1,     July 1,
     AMI, MORT-30-HF, MORT-30-     2012-June 30,       2017-June 30,
     COPD, MORT-30-CABG).          2015.               2020.
     THA/TKA............   April 1,    April 1,
                                   2012-March 31,      2017-March 31,
                                   2015.               2020.
     MORT-30-PN (updated   July 1,     August 1,
     cohort).                      2012-June 30,       2017-June 30,
                                   2015.               2020.
Efficiency and Cost Reduction:
     Payment (AMI         July 1, 2012-June   July 1, 2017-June
     Payment, HF Payment).         30, 2015.           30, 2020.
------------------------------------------------------------------------

    We are inviting public comments on these proposals.
7. Proposed Immediate Jeopardy Policy Changes
a. Background
    Section 1886(o)(1)(C) of the Act states that the Hospital VBP 
Program applies to subsection (d) hospitals (as defined in section 
1886(d)(1)(B) of the Act), but excludes from the definition of the term 
``hospital'' with respect to a fiscal year a hospital ``for which, 
during the performance period for such fiscal year, the Secretary has 
cited deficiencies that pose immediate jeopardy to the health or safety 
of patients.''
    In 42 CFR 412.160 of our Hospital VBP Program regulations, we 
define the term ``Cited for deficiencies that pose immediate jeopardy'' 
to mean that ``during the applicable performance period, the Secretary 
cited the hospital for immediate jeopardy on at least two surveys using 
the Form CMS-2567, Statement of Deficiencies and Plan of Correction'' 
(OMB Control Number 0938-0391). In 42 CFR 412.160, we also adopted the 
definition of ``immediate jeopardy'' found in 42 CFR 489.3 of our 
regulations.
    Our current interpretation of the Hospital VBP Program's statute is 
that a hospital cited for deficiencies that pose immediate jeopardy 
during any part of the finalized performance period for the applicable 
program year does not meet the definition of the term ``hospital,'' and 
thus is excluded from the Hospital VBP Program for that program year. 
Because the Hospital VBP Program currently uses measures with 12-month, 
24-month, and 36-month performance periods, a hospital's immediate 
jeopardy citations could result in its exclusion from the Hospital VBP 
Program for multiple program years.
b. Proposed Increase of Immediate Jeopardy Citations From Two to Three 
Surveys
    We are proposing to amend our regulations at 42 CFR 412.160 to 
change the definition of the term ``Cited for

[[Page 25112]]

deficiencies that pose immediate jeopardy'' to increase the number of 
surveys on which a hospital must be cited for immediate jeopardy before 
being excluded from the Hospital VBP Program pursuant to section 
1886(o)(1)(C) of the Act from two to three. In other words, we are 
proposing that a hospital must be cited on Form CMS-2567, Statement of 
Deficiencies and Plan of Correction, for immediate jeopardy on at least 
three surveys during the performance period in order to meet the 
standard for exclusion from the Hospital VBP Program under section 
1886(o)(1)(C)(ii)(II) of the Act. Beginning on the effective date of 
this change, hospitals would be excluded from the Hospital VBP Program 
for a particular program year if, during the performance period for 
that fiscal year, they were cited three times by the Secretary for 
deficiencies that pose immediate jeopardy to the health or safety of 
patients.
    Because we expect that the effective date of this change will be 
October 1, 2016 (the first day of the FY 2017 Hospital VBP program 
year), only hospitals that were cited three times during the 
performance period that applies to the FY 2017 program year would be 
excluded from the Hospital VBP Program. Hospitals that were, as of 
October 1, 2016, cited for immediate jeopardy on two surveys during the 
performance period that applies to the FY 2017 program year could 
participate in the Hospital VBP Program for the FY 2017 program year.
    We are proposing this change to be more inclusive of hospitals and 
to ensure that we are not too quickly excluding a hospital from 
participation in the Hospital VBP Program. After reviewing the survey 
and certification data, we have determined that limiting exclusion to 
those hospitals that have been cited for immediate jeopardy three or 
more times during the applicable performance period, rather than two, 
would continue to appropriately exclude hospitals that are cited for 
jeopardizing patient safety while allowing hospitals with a lower 
number of immediate jeopardy citations over significantly longer 
performance periods to continue to participate in the Hospital VBP 
Program. Many immediate jeopardy citations involve systematic issues of 
patient safety, and we believe that hospitals that are, during the 
performance period, cited by the Secretary for three or more 
deficiencies that pose immediate jeopardy should be excluded from the 
Hospital VBP Program. This proposal would ensure that we continue to 
assure high quality care while being as inclusive of hospitals as 
possible.
c. EMTALA-Related Immediate Jeopardy Citations
    Hospitals are often alerted to immediate jeopardy situations when a 
surveyor or team of surveyors is in the process of conducting a survey 
of compliance with the Medicare condition of participation (CoPs) at 
the hospital and identifies those situations that immediately 
jeopardize the health and safety of patients (77 FR 53610). Following 
the survey, the Form CMS-2567, Statement of Deficiencies and Plan of 
Correction, is sent to the hospital, which contains the survey 
findings, including any immediate jeopardy situations. For EMTALA-
related immediate jeopardy situations, however, the CMS Regional Office 
determines whether there was an EMTALA violation after reviewing the 
State Survey Agency's report and an expert physician review's findings, 
and, if so, whether it constituted an immediate jeopardy (77 FR 53610). 
The CMS Regional Office then sends the Form CMS-2567 to the hospital. 
Currently, the Automated Survey Processing Environment (ASPEN) system, 
an electronic system that supports our survey and certification 
activity, catalogs deficient practices (that is, noncompliance) 
identified during a survey and generates the Form CMS-2567 that is sent 
to the hospital after the survey. The survey end date generated in 
ASPEN is currently used as the date for assignment of the immediate 
jeopardy citation to a particular performance period (77 FR 53613). The 
additional processes for EMTALA-related immediate jeopardy citations 
can result in significant notification delays to hospitals (often 
several months or longer).
    In the case of EMTALA-related immediate jeopardy citations only, we 
are proposing to change our policy regarding the date of the immediate 
jeopardy citation for possible exclusion from the Hospital VBP Program 
from the survey end date generated in ASPEN to the date of CMS' final 
issuance of Form CMS-2567 to the hospital. Form CMS-2567 is not 
considered final until it is transmitted to the healthcare facility, 
either by the State Survey Agency, or, in all EMTALA cases and certain 
other cases, by the CMS Regional Office. The date of final issuance is 
also tracked in ASPEN. The date the Form CMS-2567 is sent by the CMS 
Regional Office to the hospital (via mail, electronically, or both) is 
the date of final issuance recorded in ASPEN. We believe this change 
would accurately reflect the date hospitals receive official 
notification of an immediate jeopardy citation based on the issuance 
date of Form CMS-2567 as this date will be weeks, if not months, after 
the survey end date. Hospitals may continue to receive preliminary 
notice during the onsite EMTALA investigation survey that they may 
receive an immediate jeopardy citation based on survey findings. 
However, because the decision-making responsibility in EMTALA 
investigations always rests with the CMS Regional Office, the final 
determination and notification of immediate jeopardy citations will 
always be delayed. The Form CMS-2567 constitutes the official notice to 
a healthcare facility of the survey findings.
    Finally, in instances where one onsite hospital survey resulted in 
both hospital CoP immediate jeopardy citation(s) as well as EMTALA 
immediate jeopardy citation(s), the survey end date would be the 
default date for potential exclusion from the Hospital VBP Program. CMS 
recognizes the hospital will receive notification of the EMTALA 
immediate jeopardy citation(s) at a later date than the CoP immediate 
jeopardy citation(s). However, because the hospital was notified of the 
CoP immediate jeopardy citation(s) at the time of survey, this date 
will be used for the performance period for potential exclusion from 
the Hospital VBP Program. Even though there may be separate enforcement 
actions resulting from the same survey, we will consider each Form CMS-
2567 with immediate jeopardy findings to be one citation for purposes 
of the Hospital VBP Program (77 FR 53613).
    We are proposing to revise our regulations at 42 CFR 412.160 to 
reflect the above proposal and specify use of the date of CMS' issuance 
of Form CMS-2567 to the hospital for EMTALA immediate jeopardy 
citation(s). We also specify that in instances where one onsite 
hospital survey resulted in both hospital CoP immediate jeopardy 
citation(s) as well as EMTALA immediate jeopardy citation(s), the 
survey end date would be the date we use for purposes of assigning the 
citations to a performance period to determine whether the hospital 
should be excluded from the Hospital VBP Program for a particular 
program year.
    We are inviting public comments on this proposal.

[[Page 25113]]

8. Proposed Performance Standards for the Hospital VBP Program
a. Background
    Section 1886(o)(3)(A) of the Act requires the Secretary to 
establish performance standards for the measures selected under the 
Hospital VBP Program for a performance period for the applicable fiscal 
year. The performance standards must include levels of achievement and 
improvement, as required by section 1886(o)(3)(B) of the Act, and must 
be established no later than 60 days before the beginning of the 
performance period for the fiscal year involved, as required by section 
1886(o)(3)(C) of the Act. We refer readers to the Hospital Inpatient 
VBP Program final rule (76 FR 26511 through 26513) for further 
discussion of achievement and improvement standards under the Hospital 
VBP Program.
    In addition, when establishing the performance standards, section 
1886(o)(3)(D) of the Act requires the Secretary to consider appropriate 
factors, such as: (1) Practical experience with the measures, including 
whether a significant proportion of hospitals failed to meet the 
performance standard during previous performance periods; (2) 
historical performance standards; (3) improvement rates; and (4) the 
opportunity for continued improvement.
    We refer readers to the FY 2013, FY 2014, and FY 2015 IPPS/LTCH PPS 
final rules (77 FR 53604 through 53605; 78 FR 50694 through 50698; and 
79 FR 50077 through 50079) for a more detailed discussion of the 
general scoring methodology used in the Hospital VBP Program.
    We note that the performance standards for the following measures 
are calculated with lower values representing better performance:
     The NHSN measures (the CLABSI, CAUTI, CDI and MRSA 
Bacteremia measures);
     The PSI 90 measure;
     The Colon and Abdominal Hysterectomy SSI measure;
     The THA/TKA measure;
     The MSPB measure; and,
     The proposed HF and AMI Payment measures.
    This distinction is made in contrast to other measures for 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 the Colon and Abdominal Hysterectomy SSI measure are 
computed separately for each procedure stratum, and we will first award 
achievement and improvement points to each stratum separately, then 
compute a weighted average of the points awarded to each stratum by 
predicted infections.
b. Previously Adopted and Newly Proposed Performance Standards for the 
FY 2019 Program Year
    In accordance with our finalized methodology for calculating 
performance standards (discussed more fully in the Hospital Inpatient 
VBP Program final rule (76 FR 26511 through 26513)), we are proposing 
to adopt the following additional performance standards for the FY 2019 
program year. 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 2017 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.

Previously Adopted and Newly Proposed Performance Standards for the FY 2019 Program Year: Safety, Clinical Care,
                                   and Efficiency and Cost Reduction Measures
----------------------------------------------------------------------------------------------------------------
             Measure ID                      Description           Achievement threshold         Benchmark
----------------------------------------------------------------------------------------------------------------
                                                 Safety Measures
----------------------------------------------------------------------------------------------------------------
CAUTI *............................  National Healthcare Safety   0.438000..............  0.000000.
                                      Network (NHSN) Catheter-
                                      associated Urinary Tract
                                      Infection (CAUTI) Outcome
                                      Measure.
CLABSI *...........................  National Healthcare Safety   0.465000..............  0.000000.
                                      Network (NHSN) Central
                                      line-associated
                                      Bloodstream Infection
                                      (CLABSI) Outcome Measure.
CDI *..............................  National Healthcare Safety   0.823000..............  0.013000.
                                      Network (NHSN) Facility-
                                      wide Inpatient Hospital-
                                      onset Clostridium
                                      difficile Infection (CDI)
                                      Outcome Measure.
MRSA Bacteremia *..................  National Healthcare Safety   0.812000..............  0.000000.
                                      Network (NHSN) Facility-
                                      wide Inpatient Hospital-
                                      onset Methicillin-
                                      resistant Staphylococcus
                                      aureus (MRSA) Bacteremia
                                      Outcome Measure.
PSI 90 * ..............  Patient Safety for Selected  0.084034..............  0.058946.
                                      Indicators (Composite
                                      Measure).
Colon and Abdominal Hysterectomy     American College of           0.856000.....   0.000000.
 SSI *.                               Surgeons--Centers for        0.682000.....   0.000000.
                                      Disease Control and
                                      Prevention (ACS-CDC)
                                      Harmonized Procedure
                                      Specific Surgical Site
                                      Infection (SSI) Outcome
                                      Measure.
PC-01..............................  Elective Delivery..........  0.012384..............  0.000000.
----------------------------------------------------------------------------------------------------------------
                                             Clinical Care Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI ...........  Hospital 30-Day, All-Cause,  0.850671..............  0.873263.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Acute Myocardial
                                      Infarction (AMI)
                                      Hospitalization.
MORT-30-HF ............  Hospital 30-Day, All-Cause,  0.883472..............  0.908094.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Heart Failure
                                      (HF) Hospitalization.
MORT-30-PN ............  Hospital 30-Day, All-Cause,  0.882334..............  0.907906.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Pneumonia
                                      Hospitalization.

[[Page 25114]]

 
THA/TKA * .............  Hospital-Level               0.032229..............  0.023178.
                                      Risk[dash]Standardized
                                      Complication Rate (RSMR)
                                      Following Elective Primary
                                      Total Hip Arthroplasty
                                      (THA) and/or Total Knee
                                      Arthroplasty (TKA).
----------------------------------------------------------------------------------------------------------------
                                      Efficiency and Cost Reduction Measure
----------------------------------------------------------------------------------------------------------------
MSPB *.............................  Payment-Standardized         Median Medicare         Mean of the lowest
                                      Medicare Spending Per        Spending per            decile Medicare
                                      Beneficiary (MSPB).          Beneficiary ratio       Spending per
                                                                   across all hospitals    Beneficiary ratios
                                                                   during the              across all hospitals
                                                                   performance period.     during the
                                                                                           performance period.
----------------------------------------------------------------------------------------------------------------
* Lower values represent better performance.
 Previously adopted performance standards.

    In the past, we have used the ``normalization'' approach to scoring 
the Patient- and Caregiver-Centered Experience of Care/Care 
Coordination domain (which we are proposing, in section IV.H.3.b. of 
the preamble of this proposed rule, to rename the Person and Community 
Engagement domain beginning with the FY 2019 program year). The nine 
dimensions of the HCAHPS measure, one of which is the CTM-3 measure, 
are calculated to generate the HCAHPS Base Score. For each of the nine 
dimensions, Achievement Points (0-10 points) and Improvement Points (0-
9 points) are calculated, the larger of which is summed across the nine 
dimensions to create a prenormalized HCAHPS Base Score (0-90 points). 
The prenormalized HCAHPS Base Score is then 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 is of equal weight, so 
that the normalized HCAHPS Base Score would range from 0 to 80 points. 
HCAHPS Consistency Points are then calculated and range from 0 to 20 
points. The Consistency Points now consider scores across all nine of 
the Person and Community Engagement dimensions. The final element of 
the scoring formula is the sum of the HCAHPS Base Score and the HCAHPS 
Consistency Points and will range from 0 to 100 points.

  Proposed Performance Standards for the FY 2019 Program Year Proposed Person and Community Engagement Domain *
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                     HCAHPS survey dimension                           Floor         threshold       Benchmark
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses.......................................           16.32           78.59           86.81
Communication with Doctors......................................           22.56           80.33           88.55
Responsiveness of Hospital Staff................................           21.91           65.00           80.27
Pain Management.................................................           16.02           70.04           78.60
Communication about Medicines...................................            6.19           63.18           73.51
Hospital Cleanliness & Quietness................................           13.78           65.64           79.12
Discharge Information...........................................           60.58           86.88           91.73
3-Item Care Transition..........................................            4.26           51.35           62.73
Overall Rating of Hospital......................................           30.52           70.58           84.68
----------------------------------------------------------------------------------------------------------------
* We are proposing, in section IV.H.3.b. of the preamble of this proposed rule, to change the name of this
  domain from Patient- and Caregiver-Centered Experience of Care/Care Coordination domain to Person and
  Community Engagement domain beginning with the FY 2019 program year.

    We are inviting public comments on these proposed performance 
standards.
c. Previously Adopted Performance Standards for Certain Measures for 
the FY 2020 Program Year
    As discussed above, we have adopted certain Safety and Clinical 
Care domain measures for future program years in order to ensure that 
we can adopt baseline and performance periods of sufficient length for 
performance scoring purposes. In the FY 2015 IPPS/LTCH PPS final rule 
(79 FR 50062 through 50065), we adopted the PSI 90 measure in the 
Safety domain and the THA/TKA measure in the Clinical Care domain for 
the FY 2019 program year and subsequent years. In the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 50077), we adopted performance standards for the 
MORT-30-AMI, MORT-30-HF, MORT-30-PN, and THA/TKA for the FY 2020 
program year. In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49566), we 
also adopted performance standards for the PSI-90 measure.

[[Page 25115]]



 Previously Adopted Performance Standards for Certain Clinical Care Domain and Safety Domain Measures for the FY
                                                2020 Program Year
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                 Measure ID                              Description                 threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                  Safety Domain
----------------------------------------------------------------------------------------------------------------
PSI 90 *...................................  Patient Safety for Selected                0.778761        0.545903
                                              Indicators (Composite Measure).
----------------------------------------------------------------------------------------------------------------
                                              Clinical Care Domain
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................  Hospital 30-Day, All-Cause, Risk-          0.853715        0.875869
                                              Standardized Mortality Rate (RSMR)
                                              Following Acute Myocardial
                                              Infarction (AMI) Hospitalization.
MORT-30-HF.................................  Hospital 30-Day, All-Cause, Risk-          0.881090        0.906068
                                              Standardized Mortality Rate (RSMR)
                                              Following Heart Failure (HF)
                                              Hospitalization.
MORT-30-PN.................................  Hospital 30-Day, All-Cause, Risk-          0.882266        0.909532
                                              Standardized Mortality Rate (RSMR)
                                              Following Pneumonia
                                              Hospitalization.
THA/TKA *..................................  Hospital-Level Risk-Standardized           0.032229        0.023178
                                              Complication Rate (RSCR) Following
                                              Elective Primary Total Hip
                                              Arthroplasty (THA) and/or Total
                                              Knee Arthroplasty (TKA).
----------------------------------------------------------------------------------------------------------------
* Lower values represent better performance.

d. Previously Adopted and Newly Proposed Performance Standards for 
Certain Measures for the FY 2021 Program Year
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49567), we adopted 
performance standards for the FY 2021 program year for the Clinical 
Care domain measures (THA/TKA, MORT-30-HF, MORT-30-AMI, MORT-30-PN, and 
MORT-30-COPD). We are proposing to add two measures, AMI Payment and HF 
Payment, beginning with the FY 2021 program year. The previously 
adopted and proposed performance standards for these measures are set 
out below.

               Previously Adopted and Proposed Performance Standards for the FY 2021 Program Year
----------------------------------------------------------------------------------------------------------------
             Measure ID                      Description           Achievement threshold         Benchmark
----------------------------------------------------------------------------------------------------------------
                                             Clinical Care Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI ...........  Hospital 30-Day, All-Cause,  0.860355..............  0.879714.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Acute Myocardial
                                      Infarction (AMI)
                                      Hospitalization.
MORT-30-HF ............  Hospital 30-Day, All-Cause,  0.883803..............  0.906144.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Heart Failure
                                      (HF) Hospitalization.
MORT-30-PN ............  Hospital 30-Day, All-Cause,  0.886443..............  0.910670.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Pneumonia
                                      Hospitalization.
MORT-30-COPD ..........  Hospital 30-Day, All-Cause,  0.923253..............  0.938664.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Chronic
                                      Obstructive Pulmonary
                                      Disease (COPD)
                                      Hospitalization.
THA/TKA * .............  Hospital-Level Risk-         0.030890..............  0.022304.
                                      Standardized Complication
                                      Rate (RSCR) Following
                                      Elective Primary Total Hip
                                      Arthroplasty (THA) and/or
                                      Total Knee Arthroplasty
                                      (TKA).
----------------------------------------------------------------------------------------------------------------
                                     Efficiency and Cost Reduction Measures
----------------------------------------------------------------------------------------------------------------
AMI Payment *.....................  Hospital-Level, Risk-        Median Hospital-Level,  Mean of the lowest
                                      Standardized Payment         Risk-Standardized       decile Hospital-
                                      Associated with a 30-Day     Payment Associated      Level, Risk-
                                      Episode-of-Care for Acute    with a 30[dash]Day      Standardized Payment
                                      Myocardial Infarction        Episode-of-Care         Associated with a 30-
                                      (AMI).                       across all hospitals    Day Episode-of-Care
                                                                   during the              across all hospitals
                                                                   performance period.     during the
                                                                                           performance period.
HF Payment *......................  Hospital-Level, Risk-        Median Hospital-Level,  Mean of the lowest
                                      Standardized Payment         Risk-Standardized       decile Hospital-
                                      Associated with a 30-Day     Payment Associated      Level, Risk-
                                      Episode-of-Care for Heart    with a 30-Day Episode-  Standardized Payment
                                      Failure (HF).                of-Care across all      Associated with a 30-
                                                                   hospitals during the    Day Episode-of-Care
                                                                   performance period.     across all hospitals
                                                                                           during the
                                                                                           performance period.
----------------------------------------------------------------------------------------------------------------
 Previously adopted performance standards.

[[Page 25116]]

 
* Lower values represent better performance.
 Proposed to be scored the same as the MSPB measure.

e. Proposed Performance Standards for Certain Measures for the FY 2022 
Program Year
    We are proposing the following performance standards for the FY 
2022 program year for the Clinical Care domain measures (THA/TKA, MORT-
30-AMI, MORT-30-HF, MORT-30-PN, MORT-30-COPD), and the newly proposed 
MORT-30-CABG:

                           Proposed Performance Standards for the FY 2022 Program Year
----------------------------------------------------------------------------------------------------------------
             Measure ID                      Description           Achievement threshold         Benchmark
----------------------------------------------------------------------------------------------------------------
                                             Clinical Care Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI........................  Hospital 30-Day, All-Cause,  0.861793..............  0. 881305.
                                      Risk-Standardized
                                      Mortality Rate Following
                                      (RSMR) Acute Myocardial
                                      Infarction (AMI)
                                      Hospitalization.
MORT-30-HF.........................  Hospital 30-Day, All-Cause,  0.879869..............  0.903608.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Heart Failure
                                      (HF) Hospitalization.
MORT-30-PN (updated cohort)........  Hospital 30-Day, All-Cause,  0.836122..............  0.870506.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Pneumonia
                                      Hospitalization.
MORT-30-COPD.......................  Hospital 30-Day, All-Cause,  0.920058..............  0.936962.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Chronic
                                      Obstructive Pulmonary
                                      Disease (COPD)
                                      Hospitalization.
THA/TKA *..........................  Hospital-Level Risk-         0.029599..............  0.021439.
                                      Standardized Complication
                                      Rate (RSCR) Following
                                      Elective Primary Total Hip
                                      Arthroplasty (THA) and/or
                                      Total Knee Arthroplasty
                                      (TKA).
MORT-30-CABG.......................  Hospital 30-Day, All-Cause,  0.979000..............  0.968210.
                                      Risk-Standardized
                                      Mortality Rate (RSMR)
                                      Following Coronary Artery
                                      Bypass Graft (CABG)
                                      Surgery.
----------------------------------------------------------------------------------------------------------------
                                     Efficiency and Cost Reduction Measures
----------------------------------------------------------------------------------------------------------------
AMI Payment * ....................  Hospital-Level, Risk-        Median Hospital-Level,  Mean of the lowest
                                      Standardized Payment         Risk-Standardized       decile Hospital-
                                      Associated with a 30-Day     Payment Associated      Level, Risk-
                                      Episode-of-Care for Acute    with a 30-Day Episode-  Standardized Payment
                                      Myocardial Infarction        of-Care across all      Associated with a 30-
                                      (AMI).                       hospitals during the    Day Episode-of-Care
                                                                   performance period..    across all hospitals
                                                                                           during the
                                                                                           performance period
HF Payment * .....................  Hospital-Level, Risk-        Median Hospital-Level,  Mean of the lowest
                                      Standardized Payment         Risk-Standardized       decile Hospital-
                                      Associated with a 30-Day     Payment Associated      Level, Risk-
                                      Episode-of-Care for Heart    with a 30-Day Episode-  Standardized Payment
                                      Failure (HF).                of-Care across all      Associated with a 30-
                                                                   hospitals during the    Day Episode-of-Care
                                                                   performance period.     across all hospitals
                                                                                           during the
                                                                                           performance period.
----------------------------------------------------------------------------------------------------------------
* Lower values represent better performance.
 Proposed to be scored the same as the MSPB measure.


[[Page 25117]]

9. FY 2019 Program Year Scoring Methodology
a. Domain Weighting for the FY 2019 Program Year for Hospitals That 
Receive a Score on All Domains
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49568 through 
49570), we adopted equal weight of 25 percent for each of the four 
domains in the FY 2018 program year for hospitals that receive a score 
in all domains. For the FY 2019 program year, we are not proposing to 
remove any measures nor are we proposing to adopt any new measures. We 
also are not proposing any changes to the domain weighting for 
hospitals receiving a score on all domains.

  Domain Weights for the FY 2019 Program Year for Hospitals Receiving a
                          Score on All Domains
------------------------------------------------------------------------
                                                                Weight
                           Domain                              (percent)
------------------------------------------------------------------------
Safety......................................................          25
Clinical Care...............................................          25
Efficiency and Cost Reduction...............................          25
Person and Community Engagement *...........................         25
------------------------------------------------------------------------
* We are proposing, in section IV.H.3.b. of the preamble of this
  proposed rule, to change the name of this domain from Patient- and
  Caregiver-Centered Experience of Care/Care Coordination domain to
  Person and Community Engagement domain beginning with the FY 2019
  program year.

b. Domain Weighting for the FY 2019 Program Year and Future Years for 
Hospitals Receiving Scores on Fewer Than Four Domains
    For the FY 2017 program year and subsequent years, we adopted a 
policy that hospitals must receive domain scores on at least three of 
four quality domains in order to receive a TPS, and hospitals with 
sufficient data on only three domains will have their TPSs 
proportionately reweighted (79 FR 50084 through 50085).
    Under these policies, in order to receive a TPS for the FY 2019 
program year and future years:
     Hospitals must report a minimum number of 100 completed 
HCAHPS surveys for a hospital to receive a Patient- and Caregiver-
Centered Experience of Care/Care Coordination domain (which we are 
proposing, in section IV.H.3.b. of the preamble of this proposed rule, 
to rename the Person and Community Engagement domain beginning with the 
FY 2019 program year) score.
     Hospitals must meet the requirements to receive a MSPB 
measure score in order to receive an Efficiency and Cost Reduction 
domain score. Hospitals must report a minimum number of 25 cases for 
the MSPB measure (77 FR 53609 through 53610) and the AMI Payment and HF 
Payment measures.
     Hospitals must receive a minimum of two measure scores 
within the Clinical Care domain. Hospitals must report a minimum number 
of 25 cases for each of the mortality measures (77 FR 53609 through 
53610) and the THA/TKA measure.
     Hospitals must receive a minimum of three measure scores 
within the Safety domain.
    ++ Hospitals must report 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).
    ++ Hospitals must report a minimum of one predicted infection for 
NHSN-based surveillance measures based on CDC's minimum case criteria 
(77 FR 53608 through 53609).
    ++ Hospitals must report a minimum of 10 cases for the PC-01 
measure (76 FR 26530).
    We are not proposing any changes to the minimum numbers of domain 
scores, cases, and measures outlined above. We continue to believe that 
these requirements appropriately balance our desire to enable as many 
hospitals as possible to participate in the Hospital VBP Program and 
the need for TPSs to be sufficiently reliable to provide meaningful 
distinctions between hospitals' performance on quality measures. We are 
inviting public comment on these proposals.

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

1. Background
    We refer readers to section V.I.1.a. of the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50707 through 50708) for a general overview of the 
HAC Reduction Program.
2. Statutory Basis for the HAC Reduction Program
    We refer readers to section V.I.2. of the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50708 through 50709) for a detailed discussion of the 
statutory basis of the HAC Reduction Program.
3. Overview of Previous HAC Reduction Program Rulemaking
    For a further description of our policies for the HAC Reduction 
Program, we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50707 through 50729), the FY 2015 IPPS/LTCH PPS final rule (79 FR 
50087 through 50104) and the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49570 through 49581). These policies describe the general framework for 
implementation of the HAC Reduction Program, including: (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.
    We also have codified certain requirements of the HAC Reduction 
Program at 42 CFR 412.170 through 412.172.
4. Implementation of the HAC Reduction Program for FY 2017
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we finalized 
the following measures for use in the FY 2017 Program: PSI 90 measure 
for Domain 1 and the CDC NHSN measures CLABSI, CAUTI, Colon and 
Abdominal Hysterectomy SSI, MRSA Bacteremia, and CDI for Domain 2. We 
are not proposing any changes to this measure set for FY 2017. We also 
are not proposing to make any changes to the measures that were 
finalized for use in the FY 2016 program (CAUTI, CLABSI, and Colon and 
Abdominal Hysterectomy SSI) or the FY 2017 program (MRSA Bacteremia and 
CDI).

               HAC Reduction Program Measures for FY 2017
------------------------------------------------------------------------
           Short name                  Measure name           NQF No.
------------------------------------------------------------------------
                                Domain 1
------------------------------------------------------------------------
PSI 90.........................  Patient Safety for                 0531
                                  Selected Indicators
                                  (Composite Measure).
------------------------------------------------------------------------

[[Page 25118]]

 
                                Domain 2
------------------------------------------------------------------------
CAUTI..........................  National Healthcare                0138
                                  Safety Network (NHSN)
                                  Catheter-associated
                                  Urinary Tract
                                  Infection (CAUTI)
                                  Outcome Measure.
CDI............................  National Healthcare                1717
                                  Safety Network (NHSN)
                                  Facility-wide
                                  Inpatient Hospital-
                                  onset Clostridium
                                  difficile Infection
                                  (CDI) Outcome Measure.
CLABSI.........................  National Healthcare                0139
                                  Safety Network (NHSN)
                                  Central Line-
                                  Associated Bloodstream
                                  Infection (CLABSI)
                                  Outcome Measure.
Colon and Abdominal              American College of                0753
 Hysterectomy SSI.                Surgeons--Centers for
                                  Disease Control and
                                  Prevention (ACS-CDC)
                                  Harmonized Procedure
                                  Specific Surgical Site
                                  Infection (SSI)
                                  Outcome Measure.
MRSA Bacteremia................  National Healthcare                1716
                                  Safety Network (NHSN)
                                  Facility-wide
                                  Inpatient Hospital-
                                  onset Methicillin-
                                  resistant
                                  Staphylococcus aureus
                                  (MRSA) Bacteremia
                                  Outcome Measure.
------------------------------------------------------------------------

    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we finalized 
and codified at 42 CFR 412.170 a 2-year period during which we collect 
data used to calculate the Total HAC Score. In the FY 2016 IPPS/LTCH 
PPS final rule (80 FR 49574), we finalized the 2-year time periods for 
the calculation of HAC Reduction Program measure results for FY 2017. 
For the Domain 1 measure (PSI 90 measure), we will use the 24-month 
period from July 1, 2013 through June 30, 2015. The claims for all 
Medicare FFS beneficiaries discharged during this period would be 
included in the calculations of measure results for FY 2017. For the 
CDC NHSN measures previously finalized for use in the FY 2017 HAC 
Reduction Program (CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI, 
MRSA Bacteremia, and CDI), we will use data from CYs 2014 and 2015.
    We also note that we anticipate we will be able to provide 
hospitals with their confidential hospital-specific reports and 
discharge level information used in the calculation of their FY 2017 
Total HAC Score in late summer 2016 via the QualityNet Secure 
Portal.\54\ In order to access their hospital-specific reports, 
hospitals must register for a QualityNet Secure Portal account. We did 
not make any changes to the review and correction policies for FY 2016. 
Hospitals have a period of 30 days after the information is posted to 
the QualityNet Secure Portal to review and submit corrections for the 
calculation of their HAC Reduction Program measure scores, domain 
scores, and Total HAC Score for the fiscal year.
---------------------------------------------------------------------------

    \54\ Available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetBasic&cid=1228773343598.
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    For FY 2017, we are proposing updates to the following HAC 
Reduction Program policies: (1) A proposal to clarify data requirements 
for Domain 1; and (2) a proposal for NHSN CDC HAI data submission 
requirements for newly opened hospitals. Each policy is described in 
more detail below.
a. Clarification of Complete Data Requirements for Domain 1
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50722) we finalized 
our plan to use the PSI 90 measure for Domain 1. Because hospitals may 
not have complete data for every AHRQ indicator in the PSI 90 measure, 
we decided to use 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 1 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. For Domain 1, we defined ``complete data'' as whether a 
hospital has enough eligible discharges to calculate a rate for a 
measure. In order to have complete data for the PSI 90 measure, a 
hospital must have three or more eligible discharges for at least one 
component indicator.
    In establishing the performance period for the PSI 90 measure, we 
relied upon an analysis by Mathematica Policy Research, a CMS 
contractor, which found the measure was most reliable with a 24-month 
performance period. This analysis also indicated the measure was 
unreliable with a performance period of less than 12 months.\55\ We 
have since determined that the current definition for ``complete data'' 
may result in facilities with less than 12 months of data being 
eligible to receive a score on the PSI 90 measure, and that the 
resulting score may not be reflective of the hospital's clinical 
performance. While the PSI 90 measure continues to play a vital role in 
patient safety and is an integral part of the HAC Reduction Program, we 
believe that reliable data is a critical component of accurately 
assessing hospital performance.
---------------------------------------------------------------------------

    \55\ Mathematica Policy Research (November 2011). Reporting 
period and reliability of AHRQ, CMS 30-day and HAC Quality 
Measures--Revised. Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf.
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    To address this concern, we are proposing to clarify the term 
``complete data'' for the PSI 90 measure within Domain 1 to require 
that hospitals have three or more eligible discharges for at least one 
component indicator and 12 months or more of data to receive a Domain 1 
score. Under this proposal, hospitals with less than 12 months of PSI 
90 data would not receive a Domain 1 score, regardless of the number of 
eligible discharges at the hospital. If a hospital has 12 months or 
more of PSI 90 data, the hospital would have to have three or more 
eligible discharges for at least one component indicator to receive a 
Domain 1 score. We believe this is the most favorable method for 
scoring measure results for hospitals.
    We believe, after weighing the considerations, that this additional 
policy should be incorporated into the HAC Reduction Program for FY 
2017 and subsequent years, primarily because this approach greatly 
improves the measure's assessment of quality and, therefore, its 
implementation should not be unnecessarily delayed. This clarification 
would be a change to the Domain 1 criteria and would not change our 
current scoring policy for Domain 2. As previously finalized in the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50722 through 50723), if a 
hospital does not have enough data to calculate the PSI 90 measure 
score for Domain 1 but 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 measure

[[Page 25119]]

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 a hospital does 
not have ``complete data'' to calculate the PSI 90 measure score for 
Domain 1 or any of the measures in Domain 2, we will not calculate a 
Total HAC Score for this hospital. We refer readers to the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50722 through 50723) for a detailed 
discussion of Domain 2 scoring.
    We are inviting public comments on our proposal to require that 
hospitals have three or more eligible discharges for at least one 
component indicator and 12 months or more of data to receive a Domain 1 
score beginning in the FY 2017 HAC Reduction Program.
b. Clarification of NHSN CDC HAI Data Submission Requirements for Newly 
Opened Hospitals
    We have encountered issues with some newly opened hospitals that do 
not appear to understand that they must submit CDC NHSN HAI data for 
the HAC Reduction Program, even when they may not be required to report 
under the Hospital IQR Program. As set forth in the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 50098), a hospital that does not have an ICU 
waiver or other waiver for the CDC NHSN HAI measures and does not 
submit data will receive the maximum of 10 points for that measure. We 
noted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50723) that, for 
Domain 2, we will obtain measure results that hospitals submitted to 
the CDC NHSN from the Hospital IQR Program.\56\ However, we note that 
participation in the Hospital IQR Program is voluntary, while 
participation in the HAC Reduction Program is mandatory for almost all 
IPPS hospitals (we refer readers to section 1886(d)(1)(B) of the Act; 
42 CFR 412.170 (definition of the term ``applicable hospital''); and 42 
CFR 412.172(e)). The HAC Reduction Program does not apply to hospitals 
and hospital units that are excluded from the IPPS, such as LTCHs, 
cancer hospitals, children's hospitals, IRFs, IPFs, CAHs, and Puerto 
Rico hospitals (79 FR 50087 through 50088).
---------------------------------------------------------------------------

    \56\ For a further discussion of CDC NHSN HAI Data submission 
requirements for the Hospital IQR Program, we refer readers to the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53536) and 42 CFR 
412.140(a)(3)(i) and 412.140(b).
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    We believe that it is important to establish data submission 
requirements for all applicable hospitals under the HAC Reduction 
Program. We are proposing the following requirements for newly opened 
hospitals for CDC NHSN HAI data submissions. We note that these 
requirements do not affect any requirements for facilities in States 
that are required by law to report HAI data to NHSN.
     If a hospital files a notice of participation (NOP) with 
the Hospital IQR Program within 6 months of opening, the hospital would 
be required to begin submitting data for the CDC NHSN HAI measures no 
later than the first day of the quarter following the NOP.
     If a hospital does not file a NOP with the Hospital IQR 
Program within 6 months of opening, the hospital would be required to 
begin submitting data for the CDC NHSN HAI measures on the first day of 
the quarter following the end of the 6-month period to file the NOP.
    For example, if a subsection (d) hospital opens on January 1 and it 
intends to participate in the Hospital IQR Program, the hospital would 
be required to file a Hospital IQR Program NOP no later than July 1, 
and begin submitting data to NHSN no later than October 1. If a 
subsection (d) hospital opens on January 1 and it does not intend to 
participate in the Hospital IQR Program (that is, no NOP is filed), it 
must begin submitting data to NHSN no later than July 1 of that year. 
We believe that these data submission requirements are clear, align 
with the Hospital IQR Program, and are fair and equitable for all newly 
opened hospitals. Hospitals that are not required to submit data within 
the respective HAC Reduction Program year will not receive a score. 
These hospitals will receive a designation of ``NEW,'' and will not 
receive any points for CDC NHSN HAI measures.
    We further note that this clarification does not affect the 
narrative rules used in calculation of the Domain 2 Score. We will 
continue to follow all Domain 2 scoring procedures as previously 
finalized, and we refer readers to the FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49575) for further discussion of the narrative rules used in 
calculation of the Domain 2 Score. We believe that this proposal should 
be incorporated into the HAC Reduction Program for FY 2017 and 
subsequent years.
    We are inviting public comments on our proposal to adopt these 
policies related to the data submission requirements beginning in the 
FY 2017 HAC Reduction Program.
5. Implementation of the HAC Reduction Program for FY 2018
    For FY 2018, we are proposing the following HAC Reduction Program 
policies: (1) Adoption of the modified version of the NQF-endorsed PSI 
90: Patient Safety and Adverse Events Composite; (2) defining the 
applicable time periods for the FY 2018 HAC Reduction Program and the 
FY 2019 HAC Reduction Program; (3) changes to the scoring methodology; 
and (4) a request for comments on additional measures for potential 
future adoption.
a. Proposed Adoption of Modified PSI 90: Patient Safety and Adverse 
Events Composite (NQF #0531)
(1) Background
    We are proposing to adopt refinements to the Agency for Healthcare 
Research and Quality (AHRQ) Patient Safety and Adverse Events Composite 
(NQF #0531) for the HAC Reduction Program beginning with the FY 2018 
payment determination and subsequent years. In summary, the PSI 90 
measure was refined to reflect the relative importance and harm 
associated with each component indicator to provide a more reliable and 
valid signal of patient safety events. We believe refining PSI 90 will 
provide strong incentives for hospitals to ensure that patients are not 
harmed by the medical care they receive, a critical consideration in 
quality improvement.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50712 through 
50717), we adopted the PSI 90 measure (NQF #0531) in the HAC Reduction 
Program as an important measure of patient safety and adverse events. 
As previously adopted, PSI 90 consisted of eight component indicators: 
(1) PSI 3 Pressure Ulcer Rate; (2) PSI 6 Iatrogenic Pneumothorax Rate; 
(3) PSI 7 Central Venous Catheter-Related Blood Stream Infections Rate; 
(4) PSI 8 Postoperative Hip Fracture Rate; (5) PSI 12 Perioperative 
Pulmonary Embolism/Deep Vein Thrombosis Rate; (6) PSI 13 Postoperative 
Sepsis Rate; (7) PSI 14 Postoperative Wound Dehiscence Rate; and (8) 
PSI 15 Accidental Puncture and Laceration Rate.\57\
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    \57\ NQF-Endorsed Measures for Patient Safety, Final Report. 
Available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety_Final_Report.aspx.
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    The currently adopted eight-indicator version of the measure 
underwent extended NQF maintenance reendorsement in the 2014 NQF 
Patient Safety Committee due to concerns with the underlying component 
indicators and their composite weights. In the NQF-Endorsed Measures 
for Patient Safety, Final Report,\58\ the NQF Patient Safety Committee 
deferred its final decision for the PSI 90 measure until

[[Page 25120]]

the following measure evaluation cycle. In the meantime, AHRQ worked to 
address many of the NQF stakeholders' concerns about PSI 90, which 
subsequently completed NQF maintenance re-review and received 
reendorsement on December 10, 2015.
---------------------------------------------------------------------------

    \58\ NQF-Endorsed Measures for Patient Safety, Final Report 
available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.
---------------------------------------------------------------------------

    The PSI 90 measure's extended NQF reendorsement led to several 
changes to the measure.\59\ First, the name of the PSI 90 measure has 
changed to ``Patient Safety and Adverse Events Composite'' (NQF #0531) 
(herein referred to as the ``modified PSI 90''). Second, the modified 
PSI 90 measure includes the addition of three indicators: (1) PSI 09 
Perioperative Hemorrhage or Hematoma Rate; (2) PSI 10 Physiologic and 
Metabolic Derangement Rate; and (3) PSI 11 Postoperative Respiratory 
Failure Rate. Third, PSI 12 Perioperative Pulmonary Embolism (PE) or 
Deep Vein Thrombosis (DVT) Rate and PSI 15 Accidental Puncture or 
Laceration Rate have been respecified in the modified PSI 90. Fourth, 
PSI 07 Central Venous Catheter-Related Blood Stream Infection Rate has 
been removed in the modified PSI 90. Fifth, the weighting of component 
indicators in the modified PSI 90 is based not only on the volume of 
each of the patient safety and adverse events, but also the harms 
associated with the events.
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    \59\ National Quality Forum QPS Measure Description for 
``Patient Safety for Selected Indicators (modified version of PSI90) 
(Composite measure)'' found at: https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3.
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    We consider these changes to the modified PSI 90 to be substantive 
changes to the measure. Therefore, we are proposing to adopt the 
modified PSI 90 for the HAC Reduction Program beginning with the FY 
2018 payment determination and subsequent years. We explain the 
modified PSI 90 more fully below, and also refer readers to the measure 
description on the NQF Web site at: https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3.
    We note that the proposed modified PSI 90 (MUC15-604) was included 
on a publicly available document entitled ``2015 Measures Under 
Consideration for December 1, 2015'' \60\ in compliance with section 
1890A(a)(2) of the Act, and was reviewed by the MAP. The MAP supported 
this measure, stating that ``the PSI measures were developed to 
identify harmful healthcare related events that are potentially 
preventable. Three additional PSIs have been added to this updated 
version of the measure. PSIs were better linked to important changes in 
clinical status with `harm weights' that are based on diagnoses that 
were assigned after the complication. This is intended to allow the 
measure to more accurately reflect the impact of the events.'' \61\ The 
measure received support for inclusion in the HAC Reduction Program as 
referenced in the MAP Final Recommendations Report.\62\
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    \60\ 2015 Measures Under Consideration List available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
    \61\ MAP Final Recommendations available at: http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_Hospitals.aspx.
    \62\ Ibid.
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(2) Overview of the Measure Changes
    First, the name of the PSI 90 measure has changed from the 
``Patient Safety for Selected Indicators Composite Measure'' to the 
``Patient Safety and Adverse Events Composite'' (NQF #0531) to more 
accurately capture the indicators included in the measure.
    Second, the PSI 90 measure has expanded from 8 to 10 component 
indicators. The modified PSI 90 is a weighted average of the following 
10 risk-adjusted and reliability-adjusted individual component PSI 
rates:
     PSI 03 Pressure Ulcer Rate;
     PSI 06 Iatrogenic Pneumothorax Rate;
     PSI 08 Postoperative Hip Fracture Rate;
     PSI 09 Postoperative Hemorrhage or Hematoma Rate;*
     PSI 10 Physiologic and Metabolic Derangement Rate;*
     PSI 11 Postoperative Respiratory Failure Rate;*
     PSI 12 Perioperative Pulmonary Embolism (PE) or Deep Vein 
Thrombosis (DVT) Rate;
     PSI 13 Postoperative Sepsis Rate,
     PSI 14 Postoperative Wound Dehiscence Rate; and
     PSI 15 Accidental Puncture or Laceration Rate.\63\
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    \63\ http://www.qualityforum.org/QPS/0531.
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    (* Denotes new component for the modified PSI 90 measure.)
    As stated above, the modified PSI 90 measure also removed PSI 07, 
Central Venous Catheter-Related Blood Stream Infection Rate, because of 
potential overlap with the CLABSI measure (NQF #0139) which has been 
included in the Hospital IQR Program since the FY 2011 IPPS/LTCH PPS 
final rule (75 FR 50201 through 50202), the HAC Reduction Program since 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), and the Hospital 
VBP Program since the FY 2013 IPPS/LTCH PPS final rule (77 FR 53597 
through 53598).
    In response to stakeholder concerns, highlighted in the NQF 2014 
Patient Safety Report,\64\ the modified PSI 90 also respecified two 
component indicators, PSI 12 and PSI 15. Specifically, for PSI 12 
Perioperative PE or DVT rate, the NQF received public comments 
concerning the inclusion of: (1) Extracorporeal membrane oxygenation 
(ECMO) procedures in the denominator; and (2) intra-hospital 
variability in the documentation of calf vein thromboses (which have 
uncertain clinical significance). As such, the revised PSI 12 component 
indicator no longer includes ECMO procedures in the denominator or 
isolated deep vein thrombosis of the calf veins in the numerator. PSI 
15 was also respecified further to focus on the most serious 
intraoperative injuries--those that were unrecognized until they 
required a subsequent reparative procedure. The modified denominator of 
PSI 15 now is limited to discharges with an abdominal/pelvic operation, 
rather than including all medical and surgical discharges. In addition, 
to identify events that are more likely to be clinically significant 
and preventable, the PSI 15 numerator was modified to require both: (1) 
A diagnosis of an accidental puncture and/or laceration; and (2) an 
abdominal/pelvic reoperation one or more days after the index surgery.
---------------------------------------------------------------------------

    \64\ NQF Endorsed Measures for Patient Safety, Final Report. 
Available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.
---------------------------------------------------------------------------

    Finally, the NQF Patient Safety Review Committee raised concerns 
about the weighting scheme of the component indicators. In prior 
versions of the measure, the weights of each component PSI were based 
solely on volume (numerator rates). In the modified PSI 90, the rates 
of each component PSI are weighted based on statistical and empirical 
analyses of volume, excess clinical harm associated with the PSI, and 
disutility (individual preference for a health state linked to a harm, 
such as death or disability). The final weight for each component 
indicator is the product of harm weights and volume weights (numerator 
weights). Harm weights are calculated by multiplying empirical 
estimates of excess harms associated with the patient safety event by 
utility weights linked to each of the harms. Excess harms are estimated 
using statistical models comparing patients with a safety event to 
those without a safety event in a Medicare FFS sample. Volume weights 
are calculated based on the number of safety events for the component

[[Page 25121]]

indicators in an all-payer reference population.
    For more information on the modified PSI 90 measure and component 
indicators, we refer readers to the Quality Indicator Empirical Methods 
available online at: www.qualityindicators.ahrq.gov.
(3) Risk Adjustment
    The risk adjustment and statistical modeling approaches of the 
models remain unchanged in the modified PSI 90. In summary, the 
predicted value for each case is computed using a modeling approach 
that includes, but is not limited to, applying a Generalized Estimating 
Equation (GEE) hierarchical model (logistic regression with hospital 
random effect) and covariates for gender, age, Modified MS-DRG (MDRG), 
Major Diagnostic Category, transfer in, point of origin not available, 
procedure days not available, and AHRQ comorbidity (COMORB).
    The expected rate for each of the indicators is computed as the sum 
of the predicted value for each case divided by the number of cases for 
the unit of analysis of interest (that is, hospital). The risk-adjusted 
rate for each of the indicators is computed using indirect 
standardization as the observed rate divided by the expected rate, 
multiplied by the reference population rate. For more details about 
risk adjustment, we refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf.
(4) Adoption of the NQF-Endorsed Version of the Modified PSI 90
    In summary, the PSI 90 measure was revised to reflect the relative 
importance and harm associated with each component indicator to provide 
a more reliable and valid signal of patient safety events. We believe 
that adopting the modified PSI 90 would continue to provide 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. We are proposing to adopt the modified PSI 90 for the HAC 
Reduction Program for FY 2018 and subsequent years. We will continue to 
use the currently adopted eight-indicator version of the PSI 90 measure 
for the HAC Reduction Program for FY 2017. We are inviting public 
comment on our proposal to adopt the modified PSI 90 measure (NQF 
#0531) for the HAC Reduction Program for FY 2018.
b. Applicable Time Periods for the FY 2018 HAC Reduction Program and 
the FY 2019 HAC Reduction Program
    Section 1886(p)(4) of the Act gives the Secretary the statutory 
authority to determine the applicable period for the HAC Reduction 
Program. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we 
finalized and codified at 42 CFR 412.170 that we would use a 2-year 
time period of performance data to calculate the Total HAC Score. We 
believe the 24-month performance period provides hospitals and the 
public with the most current data available, while allowing sufficient 
time to complete the complex calculation process for these measures. 
The 24-month performance period was chosen because it tended to show 
that between 50 to 90 percent of hospitals attained a moderate or high 
level of reliability for AHRQ measures (78 FR 50717). Although we 
believe the 24-month time is the preferred length of time for 
performance data, there may be situations, discussed in more detail 
below, where the collection of 24 months of data is not operationally 
feasible.
    Therefore, we are proposing, beginning in FY 2017 and for 
subsequent years, to permit flexibility to use a period other the 2 
years from which data are collected in order to calculate the Total HAC 
Score under the HAC Reduction Program. We also are proposing to change 
the definition of ``applicable period,'' in 42 CFR 412.170, to reflect 
this proposed change.
    Since the ICD-10 transition was implemented on October 1, 2015, we 
have been monitoring our systems and so far claims are processing 
normally. The measure steward, AHRQ, has been reviewing the measure for 
any potential issues related to the conversion of approximately 70,000 
ICD-10 coded operating room procedures \65\ (https://www.cms.gov/icd10manual/fullcode_cms/P1616.html), which could directly affect the 
modified PSI 90 component indicators. In addition, to meet program 
requirements and implementation schedules, our system would require an 
ICD-10 risk-adjusted version of the AHRQ QI PSI software \66\ by 
December 2016 for the FY 2018 payment determination year. At this time, 
a risk-adjusted ICD-10 version of the PSI 90 Patient Safety and Adverse 
Events Composite software is not expected to be available until late CY 
2017.
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    \65\ International Classification of Diseases, (ICD-10-CM/PCS) 
Transition--Background. Available at: http://www.cdc.gov/nchs/icd/icd10cm_pcs_background.htm.
    \66\ The AHRQ QI Software is the software used to calculate PSIs 
and the composite measure. More information is available at: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf.
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    To address these issues, for the current Domain 1 measure (PSI 90 
Patient Safety and Adverse Events Composite), we are proposing to use 
the 15-month performance period from July 1, 2014 through September 30, 
2015, for the FY 2018 HAC Reduction Program. This 15-month performance 
period would utilize only ICD-9-CM data and only apply to the FY 2018 
payment year. The claims for all Medicare FFS beneficiaries discharged 
during this period would be included in the calculations of measure 
results for FY 2018. For the FY 2019 HAC Reduction Program, we are 
proposing to use the 21-month performance period from October 1, 2015 
through September 30, 2017. This 21-month performance period would 
utilize only ICD-10 data and only apply to the FY 2019 payment year. 
The claims for all Medicare FFS beneficiaries discharged during this 
period would be included in the calculations of measure results for FY 
2019.
    Prior to deciding to propose abbreviated data collection periods 
for the FY 2018 and the FY 2019 payment determinations, we took several 
factors into consideration. These included the recommendations of the 
measure steward, the feasibility of using a combination of ICD-9 and 
ICD-10 data, minimizing provider burden, program implementation 
timelines, and the reliability of using shortened data collection 
periods, as well as the importance of continuing to publicly report 
this measure. We believe that using a 15-month data collection period 
for FY 2018 and a 21-month data collection period for FY 2019 best 
serve the need to provide important information on hospital patient 
safety and adverse events by allowing sufficient time to process the 
claims data and calculate the measures, while minimizing reporting 
burden and program disruption.
    Because this issue only impacts the PSI 90 Patient Safety and 
Adverse Events Composite in Domain 1, for the CDC NHSN measures 
previously finalized for use in the FY 2017 HAC Reduction Program 
(CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI, MRSA Bacteremia, 
and CDI), we would use the 24-month performance period from January 1, 
2015 through December 31, 2016 (CYs 2015 and 2016) for the FY 2018 HAC 
Reduction Program. For the FY 2019 HAC Reduction Program, we are 
proposing to use the 24-month performance period

[[Page 25122]]

from January 1, 2016 through December 31, 2017 (CYs 2016 and 2017).
    We believe that using a 15-month period and a 21-month performance 
period for Domain 1 and a 24-month performance period for Domain 2 
balance the needs of the HAC Reduction Program and allow sufficient 
time to process the claims data and calculate the measures. We will 
continue to test ICD-10 data that are submitted in order to ensure the 
accuracy of measure calculations and to monitor and assess the 
translation of measure specifications to ICD-10, potential coding 
variation, and impacts on measure performance and payment incentive 
programs.
    We are inviting public comment on the proposals to update the 
definition of ``applicable period'' codified at 42 CFR 412.170 for FY 
2017 and subsequent years and to use these updated performance periods 
for calculation of measure results for the FY 2018 and the FY 2019 HAC 
Reduction Programs.
c. Proposed Changes to the HAC Reduction Program Scoring Methodology
(1) Current Scoring Policy
    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 in the Hospital VBP Program. Our intent was 
to reduce confusion associated with multiple scoring methodologies by 
aligning the scoring for the Hospital VBP Program and the HAC Reduction 
Program. We note that alignment benefits the hospital stakeholders who 
have prior experience with the Hospital VBP Program. Accordingly, we 
implemented a methodology for assessing the top quartile of applicable 
hospitals for HACs based on performance standards.
    We indicated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50720 
through 50725) that points will be assigned to hospitals' performance 
for each measure. We finalized a decile-based methodology for assigning 
points, depending on the specific measures.
     For Domain 1, point assignment is based on a hospital's 
score for the PSI 90 measure.
     For the Domain 1 score, 1 to 10 points are assigned to the 
hospital.
     For the measures in Domain 2, point assignment for each 
measure is based on the SIR for that measure.
     For each SIR, 1 to 10 points are assigned to the hospital 
for each measure.
     The Domain 2 score consists of the average of points 
assigned to each measure.
    To calculate a Total HAC Score for each hospital, we multiply each 
domain score by a weighting and add together 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 that are subject to the payment adjustment beginning with 
discharges on or after October 1, 2014.
(2) Program Evaluation Efforts
    As part of our ongoing efforts to evaluate the HAC Reduction 
Program, we recently conducted a review of our scoring methodology and 
assessed opportunities to strengthen the program. As part of that 
review, our Hospital Quality Reporting Program Support (HQRPS) 
contractors convened a technical expert panel (TEP) on October 19-20, 
2015, with a follow-up call on December 11, 2015. The TEP examined 
multiple areas of the HAC Reduction Program and focused on identifying 
a scoring methodology that provides an incentive to hospitals to reduce 
HACs and distinguishes top performers from low performers. The TEP 
identified concerns with the current decile-based scoring methodology 
that included: Ties at the penalty threshold; hospitals with a limited 
amount of data being identified as poor performers; and situations in 
which hospitals with no adverse events and no Domain 2 data nonetheless 
become eligible for penalty.
    During the FY 2016 HAC Reduction Program, a small subset of 
hospitals that had zero adverse events in Domain 1 and no Domain 2 
score were identified as part of the worst-performing quartile. These 
hospitals received Domain 1 scores of 7.0, meaning they were in the 7th 
decile of hospitals for the PSI 90 measure despite being close to the 
PSI 90 measure mean value. As this subset of hospitals had no Domain 2 
scores, they received a Total HAC Score equal to their Domain 1 score 
of 7.0. This Total HAC Score was greater than the 75th percentile 
cutoff for penalty determination of 6.75. CMS waived the penalty for 
these zero adverse event hospitals so they would not be treated as poor 
performers. These hospitals were potentially disadvantaged because 
their Total HAC Scores were determined solely on their Domain 1 Score. 
Because Domain 2 scores tend to be lower on average than Domain 1 
scores,\67\ other hospitals without Domain 2 scores are potentially 
treated the same as low performers in the same decile.
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    \67\ This is because hospitals are assigned the minimum of one 
point for any measure for which they have a measure result of zero. 
For example, for the CAUTI measure, if 13 percent of hospitals have 
an SIR of zero, one point is assigned to each of these hospitals, 
even though the decile approach is intended to assign 10 percent of 
hospitals to each decile. Two points would be assigned to the 
remaining seven percent of hospitals that would fall in the second 
decile. This phenomenon does not affect Domain 1 scores, since the 
reliability-adjusted PSI 90 measure result is not equal to zero in 
any hospital.
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    In addition, scoring using deciles can make it more difficult to 
distinguish top performers from low performers by creating a large 
number of ties on measure scores. For example, two hospitals with 
meaningfully different measure results may fall into the same decile 
bin and therefore be ultimately indistinguishable under the current 
scoring methodology. Conversely, two hospitals with performance that is 
not statistically distinguishable may fall into different decile bins. 
Furthermore, ties at the penalty threshold complicate the adjudication 
of payment adjustments; in both the FY 2015 and FY 2016 programs, less 
than 25 percent of all hospitals had Total HAC Scores above the 
threshold for penalties. Specifically, only 21.9 percent of hospitals 
in FY 2015 and 23.7 percent of hospitals in FY 2016 were subject to a 
payment adjustment.
    To address stakeholder concerns regarding the current scoring 
methodology, we evaluated a number of alternatives and recommendations 
from the TEP. We refer readers to the Project Title: Hospital-Acquired 
Condition (HAC) Reduction Program Scoring Methodology Reevaluation 
located at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/TechnicalExpertPanels.html for a summary of 
the TEP's discussion. These alternatives included replacement of the 
current decile-based scoring approach with the use of Winsorized \68\ 
z-scores.
---------------------------------------------------------------------------

    \68\ Winsorized measure results are truncated to the 5th and 
95th percentiles, replacing values between the minimum and the 5th 
percentile with the 5th percentile value and replacing values 
between the 95th percentile and the maximum with the 95th percentile 
value. Z-scores are then calculated based on these values.
---------------------------------------------------------------------------

(3) Winsorized Z-Score Method
    The Winsorized z-score method (z-score) uses a continuous measure 
score rather than forcing measure results into deciles. Z-scores 
represent a hospital's distance from the national mean for a measure in 
units of standard deviations. Under the z-score approach, poor-
performing hospitals earn a positive z-score, reflecting measure values 
above the national mean, and better-performing hospitals earn a 
negative z-score, reflecting measure values below the national mean. 
For each measure, a

[[Page 25123]]

hospital's z-score is based on the following equation that expresses 
the hospital's measure value minus the average value for that measure, 
divided by the standard deviation of the measure values across all 
hospitals:
[GRAPHIC] [TIFF OMITTED] TP27AP16.000

    To form the Total HAC Score, we would use the z-scores as 
hospitals' measure scores. In accordance with the current scoring 
methodology, we would then average the z-scores across measures within 
Domain 2 and assign the z-score for PSI 90 for Domain 1 to determine 
the domain scores. We would then multiply each domain score by the 
appropriate weighting and add together the weighted domain scores to 
determine the Total HAC Score. We would use each hospital's Total HAC 
Score to determine the top quartile of subsection (d) hospitals that 
are subject to the payment adjustment.
(4) Impact and Implementation
    This z-score approach is straightforward to implement, easily 
adapted as measures are added or removed from the HAC Reduction 
Program, transparent, and familiar to a wide range of stakeholders. 
Continuous values address the limitations of decile scoring and 
preserve the magnitude of differences among hospitals' measure results. 
Thus, hospitals that differ meaningfully on their measure results will 
also differ meaningfully on their Total HAC Scores. Unlike the decile 
approach, continuous measure scores would substantially reduce ties of 
Total HAC Scores, which have prevented CMS from penalizing exactly 25 
percent of hospitals in previous program years. The use of z-scores 
also improves alignment between Domains 1 and 2 and creates a more 
level playing field for hospitals with data in only Domain 1.
    Based on FY 2016 data supplemented with MRSA Bacteremia and CDI 
results,\69\ the z-score approach affects the penalty status of 
slightly more than 200 hospitals, relative to the decile approach. This 
approach brings 114 hospitals into the penalty zone and 103 hospitals 
out of the penalty zone and reduces the HAC Reduction Program's impact 
on the largest and smallest hospitals. Most importantly, because of the 
improvements in precision and standardization gained by implementing 
this approach, there is no penalization of hospitals that had zero 
adverse events and no Domain 2 score in either the actual results from 
FY 2016 or in the results based on the FY 2016 data supplemented with 
MRSA Bacteremia and CDI results.
---------------------------------------------------------------------------

    \69\ Results are a based on actual FY 2016 measure data with the 
addition of MRSA Bacteremia and CDI data for the reporting period 
spanning October 2012 through December 2014.
---------------------------------------------------------------------------

    Among the 184 hospitals with fewer than 25 beds, the proportion of 
hospitals penalized would fall from 33 percent to 18 percent. Among the 
213 hospitals with more than 500 beds, the proportion of hospitals 
penalized would fall from 50 percent to 42 percent. The approach leaves 
the proportion of teaching, urban, and high-DSH hospitals penalized 
largely unchanged, with one exception. The z-score approach slightly 
increases the penalization rate among moderately high (50 to 64 
percent) DSH hospitals, from 28 percent to 35 percent. Only 172 
hospitals fall into this group; therefore, the increase reflects only 
11 additional hospitals in that group being penalized.
    We believe that differences in performance scores must reflect true 
differences in performance. In addition, hospitals must be able to 
clearly understand performance scoring methods and performance 
expectations to maximize their quality improvement efforts. Therefore, 
we are inviting public comments on our proposal to adopt the z-score 
method for calculating measure results beginning in the FY 2018 HAC 
Reduction Program.
6. Request for Comments on Additional Measures for Potential Future 
Adoption
    We view the addition of other quality measures as a critical 
component of value-based purchasing, and we are seeking public comments 
on what additional measures we should consider adopting in the future. 
We believe that our continued efforts to reduce HACs are vital to 
improving patients' quality of care and reducing complications and 
mortality, while simultaneously decreasing costs. The reduction of HACs 
is an important marker of quality of care and has a positive impact on 
both patient outcomes and cost of care. Our goal for the HAC Reduction 
Program is to heighten the awareness of HACs and reduce the number of 
incidences that occur. We seek to adopt measures for the HAC Reduction 
Program that promote better, safer, and more efficient care. Our 
overarching purpose is to support the NQS' three-part aim of better 
health care for individuals, better health for populations, and lower 
costs for health care.
    To the extent practicable, all HAC Reduction Program measures 
should be nationally endorsed by a multi-stakeholder organization. 
Measures should be aligned with best practices among other payers and 
the needs of the end users of the measures. Measures should take into 
account widely accepted criteria established in medical literature. We 
note that all measures proposed for the HAC Reduction Program should 
follow the criteria established by the DRA of 2005 in that they consist 
of high-volume or high-cost conditions that could be prevented by the 
use of evidence-based guidelines.
    We welcome public comment and suggestions for additional HAC 
Reduction Program measures that will help achieve the Program goals in 
these or other measurement areas.
7. Maintenance of Technical Specifications for Quality Measures
    Technical specifications for AHRQ's PSI-90 measure 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 
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.
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50100), we described 
a policy under which we use a subregulatory process to make 
nonsubstantive updates to measures used for the HAC Reduction Program. 
We are not proposing any changes to this policy at this time.
8. Extraordinary Circumstance Exception Policy for the HAC Reduction 
Program Beginning in FY 2016 and for Subsequent Years
    We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49579 through 49581) for a detailed discussion of the exception policy 
for hospitals located in areas that experience disasters or other 
extraordinary circumstances for the HAC Reduction

[[Page 25124]]

Program. We are not proposing any changes to this policy for FY 2017.

J. Payment for Graduate Medical Education (GME) and Indirect Medical 
Education (IME) Costs (Sec. Sec.  412.105, 413.75 Through 413.83)

1. Background
    Section 1886(h) of the Act, as added by section 9202 of the 
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 
99-272) and as currently implemented in the regulations at 42 CFR 
413.75 through 413.83, establishes a methodology for determining 
payments to hospitals for the direct costs of approved graduate medical 
education (GME) programs. Section 1886(h)(2) of the Act sets forth a 
methodology for the determination of a hospital-specific base-period 
per resident amount (PRA) that is calculated by dividing a hospital's 
allowable direct costs of GME in a base period by its number of full-
time equivalent (FTE) residents in the base period. The base period is, 
for most hospitals, the hospital's cost reporting period beginning in 
FY 1984 (that is, October 1, 1983 through September 30, 1984). The base 
year PRA is updated annually for inflation. In general, Medicare direct 
GME payments are calculated by multiplying the hospital's updated PRA 
by the weighted number of FTE residents working in all areas of the 
hospital complex (and at nonprovider sites, when applicable), and the 
hospital's Medicare share of total inpatient days.
    Section 1886(d)(5)(B) of the Act provides for a payment adjustment 
known as the indirect medical education (IME) adjustment under the 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 payments and the IME payment 
adjustment is affected by the number of FTE residents that a hospital 
is allowed to count. Generally, the greater the number of FTE residents 
a hospital counts, the greater the amount of Medicare direct GME and 
IME payments the hospital will receive. In an attempt to end the 
implicit incentive for hospitals to increase the number of FTE 
residents, Congress, through the Balanced Budget Act of 1997 (Pub. L. 
105-33), established a limit on the number of allopathic and 
osteopathic residents that a hospital may include in its FTE resident 
count for direct GME and IME payment purposes. Under section 
1886(h)(4)(F) of the Act, for cost reporting periods beginning on or 
after October 1, 1997, a hospital's unweighted FTE count of residents 
for purposes of direct GME may not exceed the hospital's unweighted FTE 
count for direct GME in its most recent cost reporting period ending on 
or before December 31, 1996. Under section 1886(d)(5)(B)(v) of the Act, 
a similar limit based on the FTE count for IME during that cost 
reporting period is applied, effective for discharges occurring on or 
after October 1, 1997. Dental and podiatric residents are not included 
in this statutorily mandated cap.
    The Affordable Care Act made a number of statutory changes relating 
to the determination of a hospital's FTE resident limit for direct GME 
and IME payment purposes and the manner in which FTE resident limits 
are calculated and applied to hospitals under certain circumstances.
    Section 5503(a)(4) of the Affordable Care Act added a new section 
1886(h)(8) to the Act to provide for the reduction in FTE resident caps 
for direct GME under Medicare for certain hospitals training fewer 
residents than their caps, and to authorize the redistribution of the 
estimated number of excess FTE resident slots to other qualified 
hospitals. In addition, section 5503(b) amended section 
1886(d)(5)(B)(v) of the Act to require the application of the section 
1886(h)(8) of the Act provisions in the same manner to the IME FTE 
resident caps. The policy implementing section 5503 of the Affordable 
Care Act was included in the November 24, 2010 final rule with comment 
period (75 FR 72147 through 72212) and the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53424 through 53434). Section 5506(a) 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 policy implementing section 5506 of the Affordable Care Act 
was included in 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).
2. Change in New Program Growth From 3 Years to 5 Years
a. Urban and Rural Hospitals
    Section 1886(h)(4)(H)(i) of the Act requires CMS to establish rules 
for calculating the direct GME caps of teaching hospitals training 
residents in new programs established on or after January 1, 1995. 
Under section 1886(d)(5)(B)(viii) of the Act, these rules also apply to 
the establishment of a hospital's IME cap. CMS implemented these 
statutory requirements in the August 29, 1997 Federal Register (62 FR 
46005) and in the May 12, 1998 Federal Register (63 FR 26333). 
Generally, when CMS (then HCFA) implemented the regulations at 42 CFR 
413.79(e)(1) and 42 CFR 412.105(f)(1)(vii), these regulations provided 
that 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 residency 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, for each new residency 
training program established during that 3-year period, and the minimum 
accredited length for each type of program. This 3-year period, which 
we will refer to as the ``3-year window'' for ease of reference in this 
proposed rule, started when a new program began, and the teaching 
hospital first began to train residents for the first time in that new 
program, typically on July 1, and ending when the third program year of 
that first new program ends.
    Prior to development of the FY 2013 IPPS/LTCH PPS proposed rule, 
the teaching hospital community expressed concerns that 3 years do not 
provide for a sufficient amount of time for a hospital to ``grow'' its 
new residency programs and to establish FTE resident caps that are 
properly reflective of the number of FTE residents that it will 
actually train, once the programs are fully grown. Hospitals explained 
that 3 years is an insufficient amount of time primarily because a 
period of 3 years is not compatible with program accreditation 
requirements, particularly in instances where the qualifying teaching 
hospital wishes to start more than one new program. Therefore, in the 
FY 2013 IPPS/LTCH PPS proposed rule

[[Page 25125]]

and final rule, we proposed and finalized changes to the regulations at 
42 CFR 413.79(e) for direct GME and at 42 CFR 412.105(f)(1)(vii) for 
IME that revised the ``3-year window'' to a ``5-year window,'' for a 
new teaching hospital to establish and grow a new program, and thus 
begin training residents for the first time in new programs that are 
started on or after October 1, 2012. Thus, for urban hospitals that 
begin to train residents in a new medical residency training program 
for the first time on or after October 1, 2012, the cap will not be 
adjusted for new programs established more than 5 years after residents 
begin training in the first new program. However, rural hospitals are 
permitted to receive new cap adjustments for participating in training 
residents in new medical residency training programs at any time, and 
therefore, under Sec.  413.79(e)(3), if a rural hospital participates 
in new medical residency training programs on or after October 1, 2012, 
the hospital's cap is adjusted for each new program based on a 5-year 
growth window. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 
for more details on this change in the regulations regarding the 5-year 
window for urban hospitals training residents in new medical residency 
training programs for the first time and for rural hospitals 
participating in new medical residency training programs (77 FR 53416 
through 53424).
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50111), we changed 
our policy regarding implementation of the FTE resident caps for new 
programs to be effective with 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 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 rural hospitals 
for which the FTE cap may be adjusted in accordance with Sec.  
413.79(e)(3). In the same final rule, we also made the effective dates 
of the 3-year rolling average and IME IRB ratio cap consistent with the 
effective date of the new program FTE resident caps. That is, 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 rural 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.
b. Proposed Policy Changes Relating to Rural Training Tracks at Urban 
Hospitals
    To encourage the training of residents in rural areas, section 
407(c) of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 (Pub. L. 106-113) amended section 1886(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 
subsection (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 for establishing rural track FTE limitations 
are located at 42 CFR 413.79(k) for direct GME and at 42 CFR 
412.105(f)(1)(x) for IME.
    In the August 1, 2003 IPPS final rule (68 FR 45456 through 45457), 
we clarified our existing policy that although the rural track 
provision allows an increase to the urban hospital's FTE cap, sections 
1886(h)(4)(H)(iv) and 1886(d)(5)(B) of the Act do not provide for an 
exclusion from the rolling average for the urban hospital for those FTE 
residents training in a rural track. These provisions are interpreted 
to mean that, except for new rural track programs begun by urban 
teaching hospitals that are establishing an FTE cap for the first time, 
when an urban hospital with an FTE resident cap establishes a new rural 
track program or expands an existing rural track program, FTE residents 
in the rural track that are counted by the urban hospital are included 
in the hospital's rolling average calculation immediately. This policy 
is reflected in the regulation at Sec.  412.105(f)(1)(v)(F) for IME and 
Sec.  413.79(d)(7) for direct GME, and applies for IME and direct GME 
to cost reporting periods beginning on or after April 1, 2000.
    We received questions asking whether the change in the 3-year 
window to the 5-year window for new programs also applies to the 
establishment of rural training tracks. In the FY 2013 IPPS/LTCH PPS 
final rule, when we amended the regulations to provide for a 5-year new 
program growth window at Sec.  413.79(e) for direct GME and at Sec.  
412.105(f)(1)(vii) for IME, and in the FY 2015 IPPS/LTCH PPS final rule 
when we made the FTE resident caps of new programs to be effective with 
the applicable hospital's cost reporting period that coincides with or 
follows the start of the sixth program year, we inadvertently did not 
also change the growth window and effective date of FTE limitations for 
rural training tracks, which, under existing Sec.  413.79(k) for direct 
GME and Sec.  412.105(f)(1)(x) for IME, is 3 program years, and is 
effective after 3 program years, respectively.
    In this FY 2017 IPPS/LTCH PPS proposed rule, we are proposing to 
revise the regulations at Sec.  413.79(k) (and which, in turn, would 
affect IME adjustments under Sec.  412.105(f)(1)(x)) to permit that, in 
the first 5 program years (rather than the first 3 program years) of 
the rural track's existence, the rural track FTE limitation for each 
urban hospital will be the actual number of FTE residents training in 
the rural training track at the urban hospital, and beginning with the 
urban hospital's cost reporting period that coincides with or follows 
the start of the sixth program year of the rural training track's 
existence, the rural track FTE limitation would take effect. This 
proposed change addresses concerns expressed by the hospital community 
that rural training tracks, like any program, should have a sufficient 
amount of time for a hospital to ``grow'' and to establish a rural 
track FTE limitation that reflects the number of FTE residents that it 
will actually train, once the program is fully grown.
    However, as stated above, due to the statutory language at sections 
1886(d)(5)(B) and 1886(h)(4)(H)(iv) of the Act as implemented in our 
regulations at Sec. Sec.  412.105(f)(1)(v)(F) and 413.79(d)(7), except 
for new rural track programs begun by urban teaching hospitals that are 
establishing an FTE cap for the first time, FTE residents in a rural 
track training program at the

[[Page 25126]]

urban hospital are subject immediately to the 3-year rolling average 
for direct GME and IME. In addition, under the regulations at Sec.  
412.105(a)(1)(i), no exception to the IME intern- and resident-to-bed 
(IRB) ratio cap is provided for residents in a rural track training 
program (except for new rural track programs begun by urban teaching 
hospitals that are establishing an FTE cap for the first time). 
Accordingly, while we are proposing that the urban hospital's rural 
track FTE limitation would first be effective beginning with the urban 
hospital's cost reporting period that coincides with or follows the 
start of the sixth program year of the rural track training program's 
existence, the rural track training program's FTEs are included in the 
3-year rolling average and are subject to the IME IRB ratio cap for 
hospitals with established FTE caps, even within the first 5 program 
years prior to the beginning of the urban hospital's cost reporting 
period that coincides with or follows the start of the sixth program 
year of the rural track training program's existence.
    We note that, for programs with cost reporting periods beginning on 
or after October 1, 2003, our regulations at Sec. Sec.  413.79(k)(1) 
through (k)(4) are divided between rural track FTE limitation 
adjustments for urban hospitals where the residents rotate to a rural 
area for more than one half of the duration of the program (Sec. Sec.  
413.79(k)(1) and (k)(2)), and where the residents rotate to a rural 
area for less than one-half of the duration of the program (Sec. Sec.  
413.79(k)(3) and (k)(4)). As we explained in the August 1, 2003 IPPS 
final rule (68 FR 45456 through 45458), ``duration of the program'' 
refers to the minimum accredited length of the particular specialty of 
the rural track training program. We are clarifying under this proposal 
that, although the urban hospital's rural track FTE limitation would 
not be effective until the beginning of the urban hospital's cost 
reporting period that coincides with or follows the start of the sixth 
program year of the rural track training program's existence, the rural 
track FTE limitation that would be provided, if any, is still subject 
to whether or not the urban hospital rotates the residents in the rural 
track training program to a rural area(s) for more than one-half of the 
``duration of the program,'' and whether or not the urban hospital 
complies with existing Sec. Sec.  413.79(k)(5) and (k)(6), and the 
proposed revised Sec.  413.79(k)(7). We are proposing to revise Sec.  
413.79(k)(7), which specifies the effect on rural track FTE limitations 
when previously rural statistical areas become urban statistical areas 
due to updates in the OMB standards for delineating urban and rural 
statistical areas, because the existing paragraphs under Sec.  
413.79(k)(7) discuss the ``3-year'' growth period. Consequently, we 
need to make conforming changes by revising paragraphs (k)(7)(ii) and 
(iii) to account for rural track training programs started prior to 
October 1, 2012. (For more information regarding the effect on rural 
track FTE limitations when OMB makes changes to its standards for 
delineating statistical areas, we refer readers to the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50113 through 50117).)
c. Proposed Effective Date
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50111), when we 
provided that 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 would be 
effective 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 stated that this policy 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 
finalized this as the effective date because the policy providing a 5-
year growth period for establishing the FTE resident caps (Sec. Sec.  
413.79(e)(1) and (e)(3)) was also effective for new programs started on 
or after October 1, 2012. Because we inadvertently did not also amend 
the separate regulations at Sec.  412.105(f)(1)(x) and Sec.  413.79(k) 
regarding the growth window and effective date of FTE limitations for 
rural track training programs when we amended the regulations regarding 
the 5-year growth window in the FY 2013 IPPS/LTCH PPS final rule and 
regarding the additional changes we made in the FY 2015 IPPS/LTCH PPS 
final rule, we are proposing that the effective date regarding the 
change in the growth window for rural track training programs from 3 
years to 5 years also be effective for rural track training programs 
started on or after October 1, 2012. We acknowledge that there could be 
urban hospitals that started a rural track training program after 
October 1, 2012 (likely on July 1, 2013) for which rural track FTE 
limitations would become effective under current policy after 3 years 
(likely on July 1, 2016). We are proposing that, if our proposal is 
finalized, we would not actually apply the rural track FTE limitations 
that would have become effective for these hospitals after 3 program 
years. Instead, the rural track FTE limitations for these hospitals 
would be the actual number of FTE residents training in the rural track 
(subject to the rolling average at Sec.  413.79(d)(7) and the IME IRB 
ratio cap at Sec.  412.105(a)(1)(i), if applicable) for an additional 2 
years (from July 1, 2016 through June 30, 2018), and the rural track 
FTE limitations would become effective with the cost reporting period 
that coincides with or follows the start of the sixth program year, 
which in this example would be July 1, 2018.
    In summary, we are proposing to revise the direct GME regulations 
at Sec.  413.79(k) (and which, in turn, would affect IME adjustments 
under Sec.  412.105(f)(1)(x)) to permit that, effective with rural 
track training programs started on or after October 1, 2012, in the 
first 5 program years of the rural track's existence, the rural track 
FTE limitation for each urban hospital will be the actual number of FTE 
residents (subject to the rolling average at Sec.  413.79(d)(7) and the 
IME IRB ratio cap at Sec.  412.105(a)(1)(i), if applicable), training 
in the rural track training program at the urban hospital, and the 
rural track FTE limitation would take effect beginning with the urban 
hospital's cost reporting period that coincides with or follows the 
start of the sixth program year of the rural track training program's 
existence.
    We are inviting public comment on this proposal.

K. Rural Community Hospital Demonstration Program

1. Background
    Section 410A(a) of Public Law 108-173 required the Secretary to 
establish a demonstration program to test the feasibility and 
advisability of establishing ``rural community'' hospitals to furnish 
covered inpatient hospital services to Medicare beneficiaries. The 
demonstration pays rural community hospitals under a reasonable cost-
based methodology for Medicare payment purposes for covered inpatient 
hospital services furnished to Medicare beneficiaries. A rural 
community hospital, as defined in section 410A(f)(1), is a hospital 
that--
     Is located in a rural area (as defined in section 
1886(d)(2)(D) of the Act) or is treated as being located in a rural 
area under section 1886(d)(8)(E) of the Act;
     Has fewer than 51 beds (excluding beds in a distinct part 
psychiatric or rehabilitation unit) as reported in its most recent cost 
report;
     Provides 24-hour emergency care services; and

[[Page 25127]]

     Is not designated or eligible for designation as a CAH 
under section 1820 of the Act.
    Section 410A(a)(4) of Public Law 108-173 specified that the 
Secretary was to select for participation no more than 15 rural 
community hospitals in rural areas of States that the Secretary 
identified as having low population densities. Using 2002 data from the 
U.S Census Bureau, we identified the 10 States with the lowest 
population density in which rural community hospitals were to be 
located in order to participate in the demonstration: Alaska, Idaho, 
Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, 
Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of 
the United States: 2003.)
    CMS originally solicited applicants for the demonstration in May 
2004; 13 hospitals began participation with cost reporting periods 
beginning on or after October 1, 2004. In 2005, 4 of these 13 hospitals 
withdrew from the program and converted to CAH status. This left 9 
hospitals participating at that time. In 2008, we announced a 
solicitation for up to 6 additional hospitals to participate in the 
demonstration program. Four additional hospitals were selected to 
participate under this solicitation. These 4 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, changing 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, to begin 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 period, unless the hospital makes an 
election to discontinue participation.
    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. 
Further, 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. 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.
    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, effective July 1, 2013. In October 2015, another 
hospital among those selected in 2011 closed, leaving 14 among this 
cohort still participating. (By this date, as described below, the 7 
hospitals that were selected in either 2004 or 2008 had completed the 
5-year extension period mandated by the Affordable Care Act).
    Section 410A(c)(2) of Public Law 108-173 required that, in 
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 12 IPPS final rules, 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

[[Page 25128]]

for the added costs of this demonstration program, thus applying budget 
neutrality across the payment system as a whole rather than merely 
across the participants in the demonstration program. As we discussed 
in the FYs 2005 through 2016 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, 78 FR 50740, 77 FR 50145, and 80 FR 49585, 
respectively), we believe that the language of the statutory budget 
neutrality requirements permits the agency to implement the budget 
neutrality provision in this manner.
2. Budget Neutrality Offset Adjustments: Fiscal Years 2005 Through 2016
a. Fiscal Years 2005 Through 2013
    In general terms, in each of these previous years from FYs 2005 
through 2016, we used available cost reports for the participating 
hospitals to derive an estimate of the additional costs attributable 
for the demonstration. For FYs 2005 through 2012, we used finalized, or 
settled, cost reports, as available, and ``as submitted'' cost reports 
for hospitals for which finalized cost reports were not available to 
derive this estimate of the additional costs attributable to the 
demonstration. 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 cost amounts 
obtained from these cost reports. In the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53452), we initiated two general changes to the methodology 
for estimating the costs of the demonstration (which we have continued 
to apply through FY 2016). First, we used ``as submitted'' cost reports 
for each hospital participating in the demonstration in estimating the 
costs of the demonstration (for FY 2013, we used cost reports for cost 
reporting periods ending in CY 2010). Second, 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. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53449 through 53453) for a detailed discussion of the 
methodology initiated in FY 2013.
    In each of these fiscal 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 to update the estimated 
costs. 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 through 2016, 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 2013, 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 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 finalized or ``as 
submitted'' cost reports as discussed earlier.) For FYs 2005 through 
2012, we then updated the estimated costs described earlier to the 
upcoming year by multiplying them by the market basket percentage 
increases applicable to the years involved and the applicable annual 
volume adjustment. Beginning in FY 2013, as discussed earlier, we began 
incorporating different update factors--we used the IPPS market basket 
percentage increases applicable to the years involved to update the 
estimated amount that would be paid under the demonstration under the 
reasonable cost-based methodology, and the applicable percentage 
increases applicable to the years involved to update the amounts that 
would otherwise be paid without the demonstration. We continued to 
apply the annual volume adjustment as discussed earlier.
    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 an additional amount in the budget neutrality 
offset amount 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.
    In the final rules for FYs 2011 through 2013, we continued to use a 
methodology for calculating the budget neutrality offset amount 
consisting of two components: (1) The estimated demonstration costs in 
the upcoming fiscal year; and (2) the 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 an earlier 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.
b. Fiscal Years 2014 and 2015
    In the final rules for FYs 2014 and 2015, we continued to apply the 
general methodology discussed earlier (with the modifications initiated 
in FY 2013) in estimating the costs of the demonstration for the 
specific fiscal year, using the set of ``as submitted'' cost reports 
from the most recent calendar year for which they are available (cost 
reporting periods ending in 2011 and 2012, respectively), and updating 
the cost amounts according to the factors discussed earlier. In 
addition, in these final rules, because finalized cost reports for FYs 
2007 and 2008 had become available, we were able to include in the 
budget neutrality offset adjustment the amount by which the actual 
demonstration costs in each of those years exceeded the budget 
neutrality offset amounts finalized in the IPPS final rules for these 
years.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 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

[[Page 25129]]

amount was comprised of the two distinct components identified earlier: 
(1) The final resulting difference between the total estimated FY 2014 
reasonable cost amount to be paid under the demonstration to the 22 
participating hospitals for covered inpatient hospital services, and 
the total estimated amount that would otherwise be paid to such 
hospitals without the demonstration (this amount was $46,549, 861); and 
(2) the amount by which the actual costs for the demonstration for FY 
2007 (as shown in the finalized cost reports for cost reporting periods 
beginning in FY 2007 for the nine 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 
was $6,039,880).
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50141 through 
50145), we determined the final budget neutrality offset amount to be 
applied to the FY 2015 IPPS rates to be $64,566,915. This amount was 
also comprised of the two earlier referenced components: (1) The final 
resulting 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 such hospitals in FY 
2015 without the demonstration (this amount was $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 the hospitals that 
participated in the demonstration during FY 2008) exceeded the budget 
neutrality offset amount that was finalized in the FY 2008 IPPS final 
rule (this amount was $10,389,771).
c. Fiscal Year 2016
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49586 through 
49591), we continued to apply the general methodology discussed earlier 
for FYs 2014 and 2015 in estimating the costs of the demonstration for 
FY 2016, with some modifications. For FY 2016, we used the set of ``as 
submitted'' cost reports from the most recent calendar year for which 
they were available (cost reporting periods ending in CY 2013), and 
updated the cost amounts using the IPPS market basket percentage 
increase and applicable percentage increase applicable to the years 
involved as discussed earlier. Although the methodology for FY 2016 was 
similar to that for the previous several rules, because the 
demonstration began to phase out prior to the beginning of FY 2016, 
appropriate changes to the calculations were made. The 7 ``originally 
participating hospitals,'' that is, those hospitals that were selected 
for the demonstration in either 2005 or 2008, were scheduled to end 
their participation in the 5-year extension period authorized by the 
Affordable Care Act prior to the start of FY 2016. Therefore, we did 
not include the financial experience of these hospitals in the 
calculation of either the estimated reasonable cost amount or the 
estimated amount that otherwise would be paid without the demonstration 
for FY 2016. In addition, 8 hospitals that entered the demonstration in 
2011 and 2012 through the solicitation that followed the Affordable 
Care Act amendments expanding the demonstration, and that were still 
participating in the demonstration at the time of the FY 2016 IPPS/LTCH 
PPS final rule, were scheduled to end their participation on a rolling 
basis before September 30, 2016. As discussed in the FY 2016 IPPS/LTCH 
PPS final rule, for these 8 hospitals, the estimated reasonable cost 
amount and the estimated amount that would otherwise be paid without 
the demonstration were prorated according to the ratio of the number of 
months between October 1, 2015, and the end of the hospital's cost 
reporting period in relation to the entire 12-month period. We refer 
readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49586 through 
49588) for a discussion of these additional calculations.
    The resulting estimate of costs of the demonstration for FY 2016 
for the 15 hospitals participating in the demonstration for FY 2016 was 
$26,044,620.
    In addition, in the FY 2016 IPPS/LTCH PPS final rule, we were able 
to finalize the amounts by which the actual demonstration costs for FYs 
2009 and 2010 differed from the budget neutrality offset amount 
finalized in the corresponding final rules for these years using the 
following approach:
    We identified the difference between the actual cost of the 
demonstration for FY 2009 as indicated in the finalized cost reports 
for hospitals that participated in FY 2009 and that had cost reporting 
periods beginning in FY 2009 (this amount was $14,332,936), and the 
budget neutrality offset amount that was identified in the FY 2009 IPPS 
final rule (73 FR 48671) (this amount was $22,790,388). Analysis of 
this set of cost reports showed that the budget neutrality offset 
amount that was finalized to account for the demonstration costs in FY 
2009 (as set forth in the FY 2009 IPPS final rule) exceeded the actual 
cost of the demonstration for FY 2009 by $8,457,452.
    We included the amount by which the actual costs of the 
demonstration for FY 2010 (as shown in the finalized cost reports for 
the nine hospitals that completed a cost reporting period beginning in 
FY 2010) ($16,817,922) differed from the amount that was finalized as 
the costs of the demonstration for FY 2010 as set forth in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule and the FY 2011 IPPS/LTCH PPS final 
rule ($21,569,472). Analysis of this set of cost reports showed that 
the budget neutrality offset amount that was finalized to account for 
the demonstration costs in FY 2010 (as set forth in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule and the FY 2011 IPPS/LTCH PPS final rule) 
exceeded the actual cost of the demonstration for FY 2010 by 
$4,751,550.
    Unlike in previous years, because the budget neutrality offset 
amount identified in the corresponding final rules for each of FYs 2009 
and 2010 exceeded the actual costs of the demonstration, we subtracted 
the differences between these amounts for each fiscal year (that is, 
$8,457,452 applicable to FY 2009 and $4,751,550 applicable to FY 2010) 
from the estimated amount of the costs of the demonstration for FY 2016 
(that is, $26,044,620). Thus, the final budget neutrality offset amount 
for which the adjustment to the national IPPS rates was calculated was 
$12,835,618.
3. Proposed Budget Neutrality Methodology for FY 2017
    As described earlier, we have generally incorporated two components 
into the budget neutrality offset amounts identified in the final IPPS 
rules in previous years. First, we have estimated the costs of the 
demonstration for the upcoming fiscal year, generally determined from 
historical, ``as submitted'' cost reports for the hospitals 
participating in that year. Update factors representing nationwide 
trends in cost and volume increases have been incorporated into these 
estimates, as specified in the methodology described in the final rule 
for each fiscal year. Second, as finalized cost reports have become 
available, we have determined the amount by which the actual costs of 
the demonstration for an earlier, given year differed from the 
estimated costs for the demonstration set forth in the final IPPS rule 
for the corresponding fiscal year, and we incorporated that amount into 
the budget neutrality offset amount for the upcoming fiscal year. If 
the actual costs for the demonstration

[[Page 25130]]

for the earlier fiscal year exceeded the estimated costs of the 
demonstration identified in the final rule for that year, this 
difference was added to the estimated costs of the demonstration for 
the upcoming fiscal year when determining the budget neutrality 
adjustment for the upcoming fiscal year. Conversely, if the estimated 
costs of the demonstration set forth in the final rule for a prior 
fiscal year exceeded the actual costs of the demonstration for that 
year, this difference was subtracted from the estimated cost of the 
demonstration for the upcoming fiscal year when determining the budget 
neutrality adjustment for the upcoming fiscal year. We note that we 
have calculated this difference between the actual costs of the 
demonstration for FYs 2005 through 2010, as determined from finalized 
cost reports once available, and estimated costs of the demonstration 
as identified in the applicable IPPS final rules for these years.
    In this FY 2017 proposed rule, we are proposing a different 
methodology as compared to previous years for analyzing the costs 
attributable to the demonstration for FY 2017. We note that the 
demonstration will have substantially phased out by the beginning of FY 
2017. The 7 ``originally participating hospitals,'' that is, those that 
were selected for the demonstration in 2004 and 2008, ended their 
participation in the 5-year extension period authorized by the 
Affordable Care Act prior to the start of FY 2016. In addition, the 
participation period for the 14 hospitals that entered the 
demonstration following upon the mandate of the Affordable Care Act and 
that are still participating will end on a rolling basis according to 
the end dates of the hospitals' cost report periods, respectively, from 
April 30, 2016 through December 31, 2016. (As noted earlier, 1 hospital 
among this cohort closed in October 2015). Of these 14 hospitals, 10 
will end participation on or before September 30, 2016, leaving 4 
hospitals participating for the last 3 months of CY 2016 (that is, the 
first 3 months of FY 2017). We believe that, given the small number of 
participating hospitals and the limited time of participation for such 
hospitals during FY 2017, a revised methodology is appropriate for 
determining the costs of the demonstration during this period as 
discussed below.
    We note that estimating the costs of the demonstration for these 4 
hospitals for their extent of participation in the demonstration in FY 
2017 would entail a prorating calculation if we followed the 
methodology we used for FY 2016 as described earlier, as well as 
application of update factors to project increases in cost. We further 
note that, for the 4 hospitals that will end their participation in the 
demonstration effective December 31, 2016, the financial experience of 
the last 3 months of the calendar year (that is, the first 3 months of 
FY 2017) will be included in the finalized cost reports for FY 2016. 
(Consistent with the methodology used for the final rules for previous 
years, a hospital's cost report is included in the analysis of a given 
fiscal year if the cost reporting period begins in that fiscal year). 
We believe that examining the finalized cost reports for FY 2016 for 
these hospitals would lead to a more accurate and administratively 
feasible calculation of budget neutrality for the demonstration in FY 
2017 than conducting an estimate of the costs of the demonstration for 
this 3-month period based on ``as submitted cost reports'' (as would 
occur according to the budget neutrality methodology currently in 
effect).
    In addition, given that the extent of covered services for FY 2017 
subject to the payment methodology under the demonstration is a small 
fraction of that in previous fiscal years, we believe that it is 
appropriate to forego the process of estimating the costs attributable 
to the demonstration for 2017 and to instead analyze the set of 
finalized cost reports for cost reporting periods beginning in FY 2016, 
which will reflect the actual cost of the demonstration, when they 
become available. Such an approach also would eliminate the need to 
perform for FY 2017 the second component of the budget neutrality 
methodology discussed earlier (that is, determining the amount by which 
the actual costs of the demonstration for the fiscal year, as 
determined in finalized cost reports once available, differed from the 
estimated costs for the demonstration set forth in the final IPPS rule 
for the corresponding fiscal year). Thus, for the reasons discussed 
earlier, we are proposing to calculate the costs of the demonstration 
and the resulting budget neutrality adjustment factor for the 
demonstration for FY 2017 once the finalized cost reports for cost 
reporting periods beginning in FY 2016 become available. We are 
inviting public comments on this proposal.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49591), we stated 
that we intended to discuss in this FY 2017 IPPS/LTCH PPS proposed rule 
how we would reconcile the budget neutrality offset amounts identified 
in the IPPS final rules for FYs 2011 through 2016 with the actual costs 
of the demonstration for those years, considering the fact that the 
demonstration will end December 31, 2016. We believe it would be 
appropriate to conduct this analysis for FYs 2011 through 2016 at one 
time, when all of the finalized cost reports for cost reporting periods 
beginning in FYs 2011 through 2016 are available. Such an aggregate 
analysis encompassing the cost experience through the end of the period 
of performance of the demonstration represents an administratively 
streamlined method, allowing for the determination of any appropriate 
adjustment to the IPPS rates and obviating the need for multiple 
fiscal-year-specific calculations and regulatory actions. Given the 
general lag of 3 years in finalizing cost reports, we expect any such 
analysis to be conducted in FY 2020.
    We also note that, in the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49591), we indicated that we were considering whether to propose in 
future rulemaking that the calculation of the final costs of the 
demonstration for a fiscal year reflect that some of the participating 
hospitals would otherwise have been eligible for the payment adjustment 
for low-volume hospitals in that fiscal year if they had not 
participated in the demonstration. Our policy under the demonstration 
is that hospitals participating in the demonstration are not able to 
receive the low-volume adjustment in addition to the reasonable cost-
based payment authorized by section 410A of Public Law 108-173. We 
refer readers to Change Request 7505 dated July 22, 2011, available on 
the CMS Web site at: http://www.cms.gov. Section 1886(d)(12) of the Act 
provides for a payment adjustment to account for the higher costs per 
discharge for low-volume hospitals under the IPPS, effective FY 2005 
(69 FR 49099 through 49102). We note that sections 3125 and 10314 of 
the Affordable Care Act provided for temporary changes in the 
qualifying criteria and payment adjustment for low-volume hospitals for 
FYs 2011 and 2012, which have been extended through subsequent 
legislation: Through FY 2013, by the American Taxpayer Relief Act of 
2012 (ATRA) (Pub. L. 112-240) (78 FR 50610 through 50613), through 
March 31, 2014, by the Pathway for SGR Reform Act (Pub. L. 113-67) (79 
FR 15022 through 15025); through March 21, 2015, by the Protecting 
Access to Medicare Act of 2014 (Pub. L. 113-93) (79 FR 49998 through 
50001); and most recently through September 30, 2017, by section 204 of 
the Medicare Access and CHIP Reauthorization Act of 2015 (Pub.

[[Page 25131]]

L. 114-110). These temporary changes have increased the number of 
hospitals that are eligible to receive the low-volume hospital payment 
adjustment.
    We further stated in the FY 2016 IPPS/LTCH PPS final rule that 
taking the low-volume hospital payment adjustment into account in 
determining the costs of the demonstration would require detailed 
consideration of the data sources and methodology that would be used to 
determine which among the demonstration hospitals would have otherwise 
been eligible for the low-volume payment adjustment and to estimate the 
amount of the adjustment. In the FY 2016 IPPS/LTCH PPS final rule (80 
FR 24521), we invited public comments on this issue.
    We are continuing to examine this issue and are considering whether 
to incorporate the low-volume payment adjustment amounts that would 
have otherwise been made into the calculation of the difference between 
the actual costs of the demonstration and budget neutrality offset 
amounts for FYs 2011 through 2016. We note that applying such a 
methodology may lower the calculated amounts of the actual costs of the 
demonstration compared to not applying such a methodology, making it 
more likely that the actual costs of the demonstration for a year will 
not exceed the estimated costs of the demonstration identified in the 
final rule for that year. We again are inviting public comments on this 
issue.

L. Proposed Hospital and CAH Notification Procedures for Outpatients 
Receiving Observation Services

1. Background
a. Statutory Authority
    On August 6, 2015, the Notice of Observation Treatment and 
Implication for Care Eligibility Act (the NOTICE Act), Public Law 114-
42 was enacted. Section 2 of the NOTICE Act amended section 1866(a)(1) 
of the Act by adding new subparagraph (Y) that requires hospitals and 
critical access hospitals (CAHs) to provide written notification and an 
oral explanation of such notification to individuals receiving 
observation services as outpatients for more than 24 hours at the 
hospitals or CAHs. Section 1866(a)(1) of the Act lists requirements for 
providers of services to participate in the Medicare program and be 
eligible for payments under Medicare pursuant to provider agreements.
    Section 1866(a)(1)(Y) of the Act, as added by section 2 of the 
NOTICE Act, specifies that the notification process must consist of a 
written notification as specified by the Secretary through rulemaking 
and containing such language as the Secretary prescribes consistent 
with the statutory provision, and an oral explanation of the written 
notification and documentation of the provision of the explanation, as 
the Secretary determines to be appropriate. Notification to each 
individual who receives observation services as an outpatient for more 
than 24 hours must be provided no later than 36 hours after observation 
services are initiated (or sooner, if upon release from the hospital or 
CAH). Section 1866(a)(1)(Y)(ii) of the Act provides that the written 
notice must explain that the individual is an outpatient receiving 
observation services, and is not an inpatient of a hospital or CAH. In 
addition, the written notice must include the reason(s) the individual 
is an outpatient receiving observation services and must explain the 
implications of being an outpatient receiving observation services, 
such as cost-sharing requirements and post-hospitalization eligibility 
for coverage of skilled nursing facility (SNF) services under Medicare. 
The written notification also must include any additional information 
as deemed appropriate by the Secretary. Moreover, the written 
notification must either be signed by the individual receiving 
observation services as an outpatient, or a person acting on the 
individual's behalf, to acknowledge receipt of the notification. In 
cases where a signature by the individual or the person acting on the 
individual's behalf is refused, section 1866(a)(1)(Y)(ii)(IV)(bb) of 
the Act stipulates that the notification be signed by the staff member 
of the hospital or CAH who presented the written notification and 
include the name and title of the staff member, a certification 
statement that the notification was presented, and the date and time 
that the notification was presented. Finally, section 
1866(a)(1)(Y)(ii)(V) of the Act provides that the notification be 
written and formatted using plain language and is made available in 
appropriate languages as determined by the Secretary.
b. Proposed Effective Date
    Section 2 of the NOTICE ACT provides the effective date for this 
notification requirement as effective beginning 12 months after the 
date of enactment of the NOTICE Act; that is, effective on August 6, 
2016. Since the date the NOTICE Act was enacted, CMS has been working 
to implement the statutory requirement in a timely manner. On December 
14, 2015, CMS released an electronic mailbox address for individuals 
who wished to submit email comments on the provisions of the NOTICE 
Act. In addition, CMS announced a December 21, 2015 listening session 
to provide individuals further opportunity to provide comment on the 
NOTICE Act. We thank those individuals who shared their input. The 
agency reviewed all comments submitted by email as well as those 
comments provided during the public listening session in developing the 
provisions of this proposed rule.
2. Proposed Implementation of the NOTICE Act Provisions
a. Proposed Notice Process
    In this proposed rule, we are proposing to implement section 
1866(a)(1)(Y) of the Act by revising the requirements that providers 
agree to as part of participating in Medicare under a provider 
agreement by establishing regulations (at proposed 42 CFR 489.20(y)) 
that would specify a process for hospitals and CAHs to notify an 
individual, orally and in writing, regarding the individual's receipt 
of observation services as an outpatient and the implications of 
receiving such services as set forth below. Under this proposed 
process, hospitals and CAHs would be required to furnish notice to such 
an individual entitled to Medicare benefits if the individual receives 
observation services as an outpatient for more than 24 hours. We are 
proposing the use of a standardized notice, referred to as the Medicare 
Outpatient Observation Notice (MOON), to be used by all applicable 
hospitals and CAHs. The MOON would include all of the informational 
elements required by section 1866(a)(1)(Y)(ii) of the Act to fulfill 
the written notice requirement of the NOTICE Act.
b. Proposed Notification Recipients
    Section 1866(a)(1)(Y) of the Act requires hospitals or CAHs to 
furnish notice to each individual who receives observation services as 
an outpatient at such hospital or CAH for more than 24 hours. 
Throughout section 1866 of the Act, ``individual'' generally refers to 
a person entitled to have payment made for services under Title XVIII 
of the Act, or a person not entitled to have payment made for services 
under Title XVIII if certain conditions are met. The provisions of the 
NOTICE Act specify that notice must be provided to individuals 
receiving observation services as an outpatient for more than 24 hours; 
the provisions do not specify qualifications related to payment for 
such services as a condition of notice. Accordingly, we are proposing 
under the new Sec.  489.20(y) that the notification required by section 
1866(a)(1)(Y) of the

[[Page 25132]]

Act must be provided to individuals entitled to benefits under Title 
XVIII of the Act, whether or not the services furnished are payable 
under Title XVIII, when individuals receive observation services as an 
outpatient for more than 24 hours. For example, an individual receiving 
Medicare Part A benefits who has not enrolled in Part B would still 
receive notice even though the observation services the individual 
receives as an outpatient would not be covered under Medicare for him 
or her, as such observation services received as an outpatient would 
fall under the Part B benefit and would be subject to payment under 
Medicare Part B.
    A beneficiary enrolled in a Medicare Advantage or other Medicare 
health plan would receive the required notice under the existing rules 
that apply to hospitals and CAHs under a provider agreement governed by 
the provisions of section 1866(a)(1)(Y) of the Act. The Medicare 
Advantage regulations related to selection and credentialing of 
contract providers at 42 CFR 422.204(b)(3) require that, with respect 
to providers that meet the definition of ``provider of services'' as 
defined in section 1861(u) of the Act, basic benefits may only be 
provided by these providers if they have a provider agreement with CMS 
permitting them to provide services under original Medicare. Under 
section 1861(u) of the Act, the term ``provider of services'' means a 
hospital, critical access hospital, skilled nursing facility, 
comprehensive outpatient rehabilitation facility, home health agency, 
hospice program, or, for purposes of section 1814(g) and section 
1835(e) of the Act, a fund.
    Observation services are always provided under a physician's order 
that specifies the initiation of observation services. As a general 
matter, hospital observation services are defined in the Medicare 
Benefits Policy Manual (Pub. 100-02), Chapter 6, Section 20.6, as 
services that are medically reasonable and necessary, specifically 
ordered by a physician or other nonphysician practitioner authorized by 
State licensure law and hospital staff bylaws to admit patients to the 
hospital or to order outpatient services, and meet other published 
Medicare criteria for payment. The term ``physician'' will encompass 
these authorized qualified nonphysician practitioners for the purposes 
of this proposed rule. Individuals receiving observation services will 
always be registered as outpatients; however, not all outpatients 
receive observation services. ``Outpatient,'' as defined in the 
Medicare Claims Processing Manual (Pub. 100-04), Chapter 1, Section 
50.3.1, means ``a person who has not been admitted as an inpatient but 
who is registered on the hospital or critical access hospital (CAH) 
records as an outpatient and receives services (rather than supplies 
alone) directly from the hospital or CAH.'' We are proposing that the 
provisions in this proposed rule would apply to the subset of 
individuals entitled to benefits under Title XVIII of the Act who are 
receiving treatment as outpatients and are receiving observation 
services for more than 24 hours. For outpatients who are not receiving 
observation services, or who are receiving observation services but not 
for more than 24 hours, hospitals and CAHs would not be required to 
deliver notice.
c. Proposed Timing of Notice Delivery
    As provided at section 1866(a)(1)(Y) of the Act, we are proposing 
under proposed new Sec.  489.20(y) that hospitals and CAHs must provide 
notice to an individual who receives observation services as an 
outpatient for more than 24 hours and that such notice must be 
furnished no later than 36 hours after observation services are 
initiated, or sooner if the individual is transferred, discharged, or 
admitted as an inpatient.
    For purposes of this proposed rule, consistent with existing 
billing rules, observation services are initiated when a physician 
orders such services. According to the Medicare Claims Processing 
Manual (Pub. 100-04), Chapter 4, Section 290.2.2, hospital reporting 
for observation services ``begins at the clock time documented in the 
patient's medical record, which coincides with the time that 
observation services are initiated in accordance with a physician's 
order.'' Because valid medical documentation for observation services 
will always contain the time when observation services are initiated, 
we believe hospitals and CAHs will be able to readily determine the 
timeframe within which the notice must be delivered. We expect that 
there will be cases where an individual receives more than 24 hours of 
observation services and has not yet received the MOON, but there are 
imminent plans for discharge to home or another facility, transfer to 
another unit or facility to receive care that does not include 
observation services, or admission to the hospital or another facility 
as an inpatient. In these cases, pursuant to section 1866(a)(1)(Y) of 
the Act, which provides that notice be provided not later than 36 hours 
after the time such an individual begins receiving such services (or, 
if sooner, upon release), we are proposing that the MOON must be given 
sooner than the 36-hour time limit for delivery because the MOON must 
be delivered before the individual is discharged, transferred, or 
admitted. When there are no plans to transfer, discharge, or admit an 
individual who receives observation services for more than 24 hours, we 
are proposing that the MOON must be provided within 36 hours of the 
initiation of observation services.
    In rare circumstances where a physician initially orders inpatient 
services, but following internal utilization review (UR) performed 
while the patient is hospitalized, the hospital determines that the 
services do not meet its inpatient criteria and the physician concurs 
with UR, orders the discontinuation of inpatient services and 
initiation of outpatient observation services (that is, a Condition 
Code 44 situation), the MOON would be delivered as required by the 
NOTICE Act (when outpatient observation services have been ordered and 
furnished for more than 24 hours). If observation services are ordered 
when Condition Code 44 applies, the 24-hour time period for observation 
notification commences at the same time that observation services are 
initiated under a physician's order, consistent with existing policy 
for observation services furnished to outpatients. (We refer readers to 
the Medicare Claims Processing Manual, (Pub. 100-04), Chapter 1, 
Section 50.3.)
    As stated in the notice announcing CMS Ruling CMS-1455-R (78 FR 
16614), the Part B Inpatient Billing Ruling, in cases where CMS 
reviewers find that an inpatient admission was not medically reasonable 
and necessary after the beneficiary is discharged, and thus, not 
appropriate for payment under Medicare Part A, the beneficiary's 
patient status remains ``inpatient'' as of the time of the inpatient 
admission. The patient's status is not changed to outpatient because 
the beneficiary was formally admitted as an inpatient, and there is no 
provision to change a beneficiary's status after he or she is 
discharged from the hospital. Where CMS denies a claim after the 
beneficiary has been discharged because the inpatient admission was not 
medically reasonable and necessary, there would be no need to issue the 
MOON because the individual's status remains inpatient, despite the 
fact that the inpatient admission was improper. Similarly, where a 
hospital determines through UR after a beneficiary is discharged that 
his or her inpatient admission was not reasonable and necessary and the 
hospital bills the services that were provided on a Medicare Part B 
claim, the NOTICE Act

[[Page 25133]]

notification requirements would not apply for these individuals because 
their status would also remain inpatient.
d. Proposed Requirements for Written Notice
    We are proposing to implement section 1866(a)(1)(Y)(ii) of the Act, 
the requirement for written notification, under proposed new Sec.  
489.20(y)(1) by proposing the basic requirements for the written notice 
that hospitals and CAHs must use to notify individuals receiving 
outpatient observation services. Specifically, we are proposing that 
hospitals and CAHs would be required to use a proposed standardized 
notice (the MOON) for written notification to an individual who 
receives observation services as an outpatient under the appropriate 
circumstances. By requiring use of a standardized notice, hospitals and 
CAHs would be assured that they are providing all of the statutorily 
required elements in a manner that is understandable to individuals 
receiving the notice. As provided at section 1866(a)(1)(Y)(ii)(I) of 
the Act, we are proposing at Sec.  489.20(y)(1)(i) that the proposed 
MOON would explain to individuals that they are outpatients receiving 
observation services and not inpatients of the hospital or CAH, and the 
reason(s) for such status as an outpatient receiving observation 
services. By definition (as specified in the Medicare Benefits Policy 
Manual, (Pub. 100-02), Chapter 6, Section 20.6), the reason for 
ordering observation services will always be the result of a 
physician's decision that the individual does not currently require 
inpatient services and observation services are needed for the 
physician to make a decision regarding whether the individual needs 
further treatment as a hospital inpatient or if the individual is able 
to be discharged from the hospital. We are proposing at Sec.  
489.20(y)(1)(ii) that the proposed MOON also would provide an 
explanation of the implications of receiving observation services 
furnished by a hospital or CAH as an outpatient, including services 
furnished on an inpatient basis, such as those related to cost-sharing 
requirements for the patient under Medicare, and post-hospitalization 
eligibility for Medicare-covered SNF care, in standardized language to 
ensure that all Medicare eligible individuals receive accurate 
information. We are proposing the inclusion of a blank ``Additional 
Information'' section on the MOON so that hospitals and CAHs may 
include additional information. Finally, as required by section 
1866(a)(1)(Y)(ii)(V) of the Act, the proposed MOON would include this 
information in plain language written for beneficiary comprehension.
e. Outpatient Observation Services and Beneficiary Financial Liability
    Section 20.6, Chapter 6, of the Medicare Benefit Policy Manual 
(Pub. 100-2) specifies that observation services furnished by hospitals 
and CAHs are ``a well-defined set of specific, clinically appropriate 
services, which include ongoing short-term treatment, assessment, and 
reassessment before a decision can be made regarding whether patients 
will require further treatment as hospital inpatients or if they are 
able to be discharged from the hospital.'' Typically, observation 
services are ordered for individuals who present to the emergency 
department (ED) and who then require a significant period of treatment 
and monitoring to determine whether or not their condition warrants 
inpatient admission or discharge. Individuals also may receive 
outpatient observation services in other areas of a hospital or CAH 
when necessary. For example, a patient who receives a drug infusion in 
a hospital's outpatient infusion center and then experiences post-
infusion hypertension may require observation services. In the majority 
of cases, the decision whether to discharge a patient from the hospital 
following resolution of the reason for the observation care or to admit 
the patient as an inpatient can be made in less than 48 hours, usually 
in less than 24 hours. In only rare and exceptional cases do reasonable 
and necessary outpatient observation services span more than 48 hours. 
All hospital observation services, regardless of duration of care, that 
are medically reasonable and necessary are covered by Medicare.
    In some cases, Medicare beneficiaries receiving observation 
services while in a hospital or CAH may not be aware of their status as 
an inpatient or an outpatient, and thus may not be aware that there are 
significant differences in financial liability between inpatient status 
and outpatient status. CMS has published educational materials for 
Medicare beneficiaries to help inform them of financial and coverage 
liabilities associated with inpatient and outpatient services.\70\ As 
an outpatient receiving observation services, a beneficiary may incur 
financial liability for Medicare Part B copayments,\71\ the cost of 
self-administered drugs that are not covered under Part B, and the cost 
of post-hospital SNF care because section 1861(i) of the Act requires a 
prior 3-day hospital inpatient consecutive stay to be eligible for 
coverage of post-hospital SNF care under Medicare Part A. In contrast, 
as a hospital inpatient under Medicare Part A, a beneficiary pays an 
annual deductible ($1,288 in CY 2016) for all inpatient services 
provided during the first 60 days in the hospital of each benefit 
period for the year. Cost-sharing requirements for individuals enrolled 
in Medicare Part C, known as Medicare Advantage, health plans are 
dependent on the particular plan's policies. In addition, Medicare 
beneficiaries qualified through their State Medicaid program (QMBs) 
have different cost-sharing rules. For example, QMBs cannot be billed 
for Medicare Part A or Part B deductibles, coinsurance, and copayments 
and may have different rules regarding qualifying for SNF services. CMS 
has produced informational publications for beneficiaries that advise 
Medicare Advantage enrollees to check with their plans for information 
on coverage of observation services furnished to an outpatient.
---------------------------------------------------------------------------

    \70\ ``Are You a Hospital Inpatient or Outpatient? If You Have 
Medicare--Ask!'' CMS Product No. 11435. May 2014.
    \71\ A beneficiary who receives hospital outpatient services 
typically pays 20 percent of the Medicare payment amount for 
outpatient items and services after paying the annual Part B 
deductible ($166 in CY 2016). The coinsurance amount for an 
outpatient CAH service is based on 20 percent of charges. In most 
cases, the cost-sharing for each individual outpatient service 
should not be more than the inpatient deductible. However, Medicare 
beneficiaries who receive several outpatient services, or are 
treated for extended periods of time as hospital outpatients, may 
have greater cost-sharing liabilities as an outpatient under 
observation than they may have if they were admitted as an inpatient 
to the hospital.
---------------------------------------------------------------------------

    As mentioned earlier, a beneficiary's liability for medication 
costs also is likely affected by whether the individual is hospitalized 
as an inpatient or receiving care as an outpatient. When an individual 
is hospitalized under a covered Medicare Part A inpatient stay, payment 
for medically reasonable and necessary medications that are provided by 
the hospital are covered under Medicare Part A. Generally, Medicare 
Part B covers drugs that are usually not self-administered. Based on 
the statutory prohibition at section 1861(s)(2) of the Act and its 
implementing regulation at 42 CFR 410.29(a), Medicare Part B generally 
does not cover or pay for any drug or biological that can be self-
administered. ``Self-administered drugs'' are considered prescription 
and over-the-counter medications that beneficiaries routinely take on 
their own. For safety reasons, many hospitals do not allow patients to 
take medications brought from home.

[[Page 25134]]

Medicare prescription drug plans (Part D) may help pay for drugs 
provided by the hospital. Individuals with Medicare Part D will likely 
need to pay out-of-pocket costs to the hospital for these drugs and 
request reimbursement from their Part D plan.
    In addition, whether an individual is receiving treatment or care 
as an inpatient admitted to the hospital or is receiving observation 
services as an outpatient pursuant to a doctor's orders may impact 
Medicare coverage for post-hospital SNF services. Section 1861(i) of 
the Act requires a beneficiary to be an inpatient of a hospital for not 
less than 3 consecutive days before discharge from the hospital in 
order to be eligible for coverage of post-hospital extended care 
services in a SNF under Medicare. For purposes of Medicare SNF 
coverage, the time spent receiving observation services as an 
outpatient does not count towards the requirement of a 3-day hospital 
inpatient stay because these services are outpatient.
f. Delivering the Medicare Outpatient Observation Notice
    An English language version of the proposed MOON was submitted to 
OMB for approval. Once we receive OMB approval, a Spanish language 
version of the MOON will be made available. If the individual receiving 
the notice is unable to read its written contents and/or comprehend the 
required oral explanation, we expect hospitals and CAHs to employ their 
usual procedures to ensure notice comprehension. (We refer readers, for 
example, to the Medicare Claims Processing Manual (Pub. 100-4), Chapter 
30, Section 40.3.4.3., for similar existing procedures related to 
notice comprehension for the Advance Beneficiary Notice of Noncoverage 
(ABN).) Usual procedures may include, but are not limited to, the use 
of translators, interpreters, and assistive technologies. Hospitals and 
CAHs are reminded that recipients of Federal financial assistance have 
an independent obligation to provide language assistance services to 
individuals with limited English proficiency (LEP) consistent with 
section 1557 of the Affordable Care Act and Title VI of the Civil 
Rights Act of 1964. In addition, recipients of Federal financial 
assistance have an independent obligation to provide auxiliary aids and 
services to individuals with disabilities free of charge, subject to 
section 1557 of the Affordable Care Act and section 504 of the 
Rehabilitation Act of 1973.
g. Proposed Oral Notice
    Pursuant to the statutory requirement at section 1866(a)(1)(Y)(i) 
of the Act, we are proposing under proposed new Sec.  489.20(y)(2) that 
hospitals and CAHs provide an oral explanation of the written notice 
furnished to individuals who receive observation services as 
outpatients. We will provide guidance for oral notification in our 
forthcoming Medicare manual provisions. Hospitals and CAHs are familiar 
with providing oral explanations of written notices (for example, 
surgical and procedural consent notices and the Important Message from 
Medicare), and we expect that oral notification will occur in 
conjunction with delivery of the MOON. Again, hospitals and CAHs are 
reminded that recipients of Federal financial assistance have an 
independent obligation to provide language assistance services to 
individuals with LEP consistent with section 1557 of the Affordable 
Care Act and Title VI of the Civil Rights Act of 1964. In addition, 
recipients of Federal financial assistance have an independent 
obligation to provide auxiliary aids and services to individuals with 
disabilities free of charge, subject to section 1557 of the Affordable 
Care Act and section 504 of the Rehabilitation Act of 1973.
h. Proposed Signature Requirements
    As set forth at section 1866(a)(1)(Y)(ii)(IV) of the Act, the 
written notification must be either signed by the individual receiving 
observation services as an outpatient or a person acting on such 
individual's behalf to acknowledge receipt of notification. Moreover, 
the statute provides that if such individual or person refuses to 
provide a signature, the written notification is to be signed by the 
staff member of the hospital or CAH who presented the written 
notification and certain information needs to be included with such 
signature. Accordingly, we are proposing under proposed new Sec.  
489.20(y)(3), that the written notice be signed, as described above, in 
order to acknowledge receipt and understanding of the notice. The MOON 
would include a dedicated signature area for this purpose. In cases 
where the individual receiving the MOON refuses to sign the notice, we 
are proposing that the MOON must be signed by the staff member who 
presents the notice to the individual. The staff signature would 
include the staff member's name and title, a certification statement 
that the notice was presented, and the date and time that the notice 
was presented.
i. No Appeal Rights Under the NOTICE Act
    Section 1866(a)(1)(Y) of the Act, as added by the NOTICE Act, does 
not afford appeal rights to beneficiaries regarding the notice provided 
pursuant to that statutory provision. To provide clarity to this point, 
we are proposing to amend the regulations at 42 CFR 405.926 relating to 
actions that are not initial determinations, by adding new paragraph 
(u) to explain that issuance of the MOON by a hospital or CAH does not 
constitute an initial determination and therefore does not trigger 
appeal rights under 42 CFR part 405, subpart I.

M. Proposed Technical Changes and Correction of Typographical Errors in 
Certain Regulations Under 42 CFR Part 413 Relating to Costs to Related 
Organizations and Medicare Cost Reports

1. General Background
    As part of our ongoing review of the Medicare regulations, we have 
identified a number of technical changes or corrections of 
typographical errors in 42 CFR part 413 relating to costs to related 
organizations and Medicare cost reports that need to be made. Below we 
are summarizing these proposed changes or corrections.
2. Proposed Technical Change to Regulations at 42 CFR 413.17(d)(1) on 
Cost to Related Organizations
    Prior to the enactment of section 911(b) of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 
108-173), a provider had the right to nominate a fiscal intermediary 
(currently known as a Medicare Administrative Contractor (MAC) and 
referred to in this section as a ``contractor'') of its choice. Public 
Law 108-173 repealed the nomination provisions formerly found in 
section 1816 of the Act and added section 1874A (Contracts with 
Medicare Administrative Contractors). Currently, a provider will be 
assigned to the contractor that covers the geographic locale where the 
provider is located, as specified in the regulations at 42 CFR 
421.404(b).
    Because a provider is no longer permitted to select a contractor of 
its choice, and a contractor is now assigned to a provider, the 
parenthetical language of the regulation text at 42 CFR 413.17(d)(1) 
referring to a provider's nomination of a contractor is obsolete. 
Therefore, we are proposing to revise Sec.  413.17(d)(1) to remove the 
parenthetical reference to a provider's nomination of a contractor.

[[Page 25135]]

3. Proposed Changes to 42 CFR 413.24(f)(4)(i) Relating to Electronic 
Submission of Cost Reports
    In Sec.  413.24(f)(4)(i), we incorrectly refer to a ``Federally 
qualified health clinic.'' The correct entity title under section 
1861(aa) of the Act is ``Federally qualified health center.'' In this 
proposed rule, we are proposing to correct this error.
    In addition, Sec.  413.200(c)(1)(i) requires a histocompatibility 
laboratory to file a Medicare cost report in accordance with the 
regulations at Sec.  413.24(f). For cost reporting periods ending on or 
after March 31, 2005, organ procurement organizations (OPOs) and 
histocompatibility laboratories are required to submit Medicare cost 
reports in a standardized electronic format, but histocompatibility 
laboratories were inadvertently omitted from the list of providers in 
the regulations text at Sec.  413.24(f). As evidenced by the reference 
in the August 22, 2003 Federal Register document (68 FR 50720) to the 
Office of Management and Budget (OMB) approval number 0938-0102 of the 
Paperwork Reduction Act request for the cost reporting form entitled 
``Organ Procurement Agency/Laboratory Statement of Reimbursable 
Costs,'' histocompatibility laboratories were intended to be included 
in the regulation text. Both OPOs and histocompatibility laboratories 
have used that Medicare cost report form to report their statements of 
reimbursable costs since its approval by OMB for use for cost reporting 
periods ending on or after March 31, 2005. To correct this omission, we 
are proposing a technical change to Sec.  413.24(f)(4)(i) to add 
``histocompatibility laboratories'' to the list of providers required 
to submit cost reports in a standardized electronic format.
4. Proposed Technical Changes to 42 CFR 413.24(f)(4)(ii) Relating to 
Electronic Submission of Cost Reports and Due Dates
    In this proposed rule, we are proposing a technical correction in 
Sec.  413.24(f)(4)(ii) to the effective date for the submission of 
Medicare cost reports in a standardized electronic format for skilled 
nursing facilities (SNFs) and home health agencies (HHAs) from cost 
reporting periods ending on or after December 31, 1996 to cost 
reporting periods ending on or after February 1, 1997 to accurately 
reflect the regulation text finalized in the January 2, 1997 final 
rule, ``Medicare Program: Electronic Cost Reporting for Skilled Nursing 
Facilities and Home Health Agencies,'' published in Federal Register at 
62 FR 26 through 31.
    For the same reasons articulated in section IV.M.3. of the preamble 
of this proposed rule, we also are proposing to revise Sec.  
413.24(f)(4)(ii) by adding histocompatibility laboratories to the list 
of providers required to file electronic cost reports. To correct a 
typographic error, we are proposing to remove the duplicate word 
``contractor'' from the second sentence of this paragraph.
5. Proposed Technical Changes to 42 CFR 413.24(f)(4)(iv) Relating to 
Reporting Entities, Cost Report Certification Statement, Electronic 
Submission and Cost Reports Due Dates
    In this proposed rule, we are proposing to revise Sec.  
413.24(f)(4)(iv) to make a technical correction to the effective date 
for SNFs and HHAs to submit hard copies of a settlement summary, a 
statement of certain worksheet totals found within the electronic file, 
and a certifying statement signed by its administrator or chief 
financial officer, from cost reporting periods ending on or after 
December 31, 1996, to cost reporting periods ending on or after 
February 1, 1997, to accurately reflect the regulation text finalized 
in the January 2, 1997 final rule (62 FR 26 through 31).
    We are proposing to revise Sec.  413.24(f)(4)(iv) by adding 
histocompatibility laboratories to the list of providers required to 
file electronic cost reports for the same reasons provided in section 
IV.M.3. of the preamble of this proposed rule. In addition, we are 
proposing to add histocompatibility laboratories to the list of 
providers required to submit hard copies of a settlement summary, a 
statement of certain worksheet totals found within the electronic file, 
and a certifying statement signed by its administrator or chief 
financial officer, for cost reporting periods ending on or after March 
31, 2005, for the same reasons.
    We also are proposing to correct a typographical error that 
occurred in the Medicare cost report certification statement set forth 
in Sec.  413.24(f)(4)(iv) by adding the word ``and'' between the words 
``Sheet'' and ``Statement'' to denote the two separate financial 
documents required to be submitted with the cost report; that is, the 
Balance Sheet and the Statement of Revenue and Expenses. The cost 
report certification statement historically correctly denoted the two 
separate and distinct financial forms, the Balance Sheet and the 
Statement of Revenue and Expenses on Worksheet S (Form CMS-2552-92) of 
the Medicare cost report since the Worksheet S was first used in 1993. 
The Medicare cost report certification statement was later incorporated 
into Sec.  413.24(f)(4)(iv) in a final rule with comment period (59 FR 
26964 through 26965) issued in response to public comments received 
following the Uniform Electronic Cost Reporting System for Hospitals 
proposed rule (56 FR 41110). A typographical error excluding the word 
``and'' occurred during the incorporation of the certification 
statement into the regulations text at Sec.  413.24(f)(4)(iv).
6. Proposed Technical Correction to 42 CFR 413.200(c)(1)(i) Relating to 
Medicare Cost Report Due Dates for Organ Procurement Organizations and 
Histocompatibility Laboratories
    In this proposed rule, we are proposing to make a technical 
correction to the reference in Sec.  413.200(c)(1)(i) to the due date 
for the Medicare cost report for organ procurement organizations (OPOs) 
and histocompatibility laboratories from ``three months'' to ``5 
months'' after the end of the fiscal year. Section 413.200(c)(1)(i) 
requires independent OPOs and histocompatibility laboratories to file a 
cost report in accordance with Sec.  413.24(f). In the 1995 final rule 
(60 FR 33137), we revised Sec.  413.24(f) to extend the Medicare cost 
report due date for all providers required to file a cost report from 3 
months to 5 months after the end of a provider's fiscal year end, but 
inadvertently neglected to make a conforming change to Sec.  
413.200(c)(1)(i), which we are proposing to correct in this proposed 
rule.

N. Clarification Regarding the Medicare Utilization Requirement for 
Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec.  412.108)

1. Background
    Section 1886(d)(5)(G) of the Act provides special payment 
protections under the IPPS to Medicare-dependent, small rural hospitals 
(MDHs). (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

[[Page 25136]]

occurring before October 1, 2012). Under prior law, as specified in 
section 5003(a) of Public Law 109-171 (DRA 2005), the MDH program was 
to be in effect through the end of FY 2011 only.
    Since the extension of the MDH program through FY 2012 provided by 
section 3124 of the Affordable Care Act, the MDH program has been 
further extended multiple times. First, section 606 of the ATRA (Public 
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 (Public L. 113-67) extended the 
MDH program through the first half of FY 2014 (that is, for discharges 
occurring before April 1, 2014). Third, section 106 of the PAMA (Public 
L. 113-93) extended the MDH program through the first half of FY 2015 
(that is, for discharges occurring before April 1, 2015). Fourth and 
most recently, section 205 of the MACRA (Public L. 114-10) extended the 
MDH program through FY 2017 (that is, for discharges occurring before 
October 1, 2017). For additional information on the extensions of the 
MDH program after FY 2012, we refer readers to the following Federal 
Register documents: The FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 
through 53405 and 53413 through 53414); the FY 2013 IPPS notice (78 FR 
14689); the FY 2014 IPPS/LTCH PPS final rule (78 FR 50647 through 
50649); the FY 2014 IPPS interim final rule with comment period (79 FR 
15025 through 15027); the FY 2014 IPPS notice (79 FR 34446 through 
34449); the FY 2015 IPPS/LTCH PPS final rule (79 FR 50022 through 
50024); and the FY 2016 interim final rule with comment period (80 FR 
49596 through 49597).
2. Clarification of Medicare Utilization Criterion for MDH 
Classification
    Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital 
that is located in a rural area, has not more than 100 beds, is not an 
SCH, and has a high percentage of Medicare discharges (that is, not 
less than 60 percent of its inpatient days or discharges during the 
cost reporting period beginning in FY 1987 or two of the three most 
recently audited cost reporting periods for which the Secretary has a 
settled cost report were attributable to inpatients entitled to 
benefits under Part A). The regulations at 42 CFR 412.108 set forth the 
criteria that a hospital must meet to be classified as an MDH.
    The Medicare utilization requirement is set forth at section 
1886(d)(5)(G)(iv)(IV) of the Act and implemented by regulation at 42 
CFR 412.108(a)(1)(iii). Consistent with the policy noted in the FY 1991 
IPPS final rule (55 FR 35995) and further discussed in the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50287), in order to not disadvantage 
hospitals that receive payment from a Medicare Advantage (MA) 
organization under Medicare Part C for inpatient care provided to 
Medicare beneficiaries enrolled in Medicare Part C plans, we count the 
days and discharges for those stays toward the 60-percent Medicare 
utilization requirement for MDH classification.
    In accordance with the regulations at Sec.  412.108(b)(5), Medicare 
contractors (MACs) evaluate, on an ongoing basis, whether or not a 
hospital continues to qualify for MDH status. For hospitals that 
qualify for MDH status under Sec.  412.108(a)(1)(iii)(C) and in 
accordance with the regulations at Sec.  412.108(b)(5), at each cost 
report settlement, the MAC will determine whether the hospital has a 
Medicare utilization of at least 60 percent in at least two of the last 
three most recent audited cost reports for which the Secretary has a 
settled cost report by including the newly settled cost report in the 
evaluation.
    Medicare policy requires hospitals that receive certain additional 
payments such as IME, direct GME, and DSH, to submit claims for 
services furnished to individuals enrolled in a MA plan under Medicare 
Part C. Specifically, teaching hospitals that provide services to 
individuals enrolled in a MA plan under Medicare Part C must submit 
timely claims in order to receive the supplemental IME and direct GME 
payments for services provided to these individuals. Likewise, 
hospitals that operate nursing or allied health education programs and 
incur costs associated with individuals enrolled in a MA plan under 
Medicare Part C also must submit timely claims in order to receive the 
additional payment amount for those MA enrollees. In addition, 
hospitals that are eligible for DSH payments are required to submit 
claims in a timely manner for individuals enrolled in a MA plan under 
Medicare Part C in order for these days to be captured in the DSH 
calculation. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53409) for more information and background on the requirements 
for filing no pay bills for services furnished to individuals enrolled 
in a MA plan under Medicare Part C.
    Consistent with this policy, for a hospital that is eligible for 
IME, direct GME, or DSH payments, CMS only includes MA days or 
discharges as reported on the cost report and verified by the properly 
and timely submitted claims for the services furnished to individuals 
enrolled in a MA plan under Medicare Part C associated with those days 
or discharges in calculating Medicare utilization for MDH purposes. CMS 
verifies the accuracy of the MA days and discharges reported on the 
cost report using claims data; once verified, the cost report data can 
then be properly applied in the Medicare utilization calculation.
    For a hospital that is not eligible for IME, direct GME, or DSH 
payments and is not required to submit bills for services furnished to 
individuals enrolled in a MA plan under Medicare Part C, we are 
clarifying that CMS will include the MA days or discharges associated 
with those services in the Medicare utilization calculation, regardless 
of whether the hospital submitted claims for services associated with 
those days or discharges provided that the hospital submits proper 
documentation, such as provider logs, that allow the MAC to verify the 
MA days or discharges as reported on the hospital's cost report. 
However, we note that, while not required, timely submission of claims 
for the services furnished to individuals enrolled in a MA plan under 
Medicare Part C allows CMS to establish whether the hospital meets the 
MDH classification criteria in an expeditious and timely manner.

O. Adjustment to IPPS Rates Resulting From 2-Midnight Policy

    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50906 through 
50954), we adopted the 2-midnight policy, effective for dates of 
admission on or after October 1, 2013. Under the 2-midnight policy, an 
inpatient admission is generally appropriate for Medicare Part A 
payment if the physician (or other qualified practitioner) admits the 
patient as an inpatient based upon the reasonable expectation that the 
patient will need hospital care that crosses at least 2 midnights. In 
assessing the expected duration of necessary care, the physician (or 
other qualified practitioner) may take into account outpatient hospital 
care received prior to inpatient admission. If the patient is expected 
to need less than 2 midnights of care in the hospital, the services 
furnished should generally be billed as outpatient services. We note 
that revisions were made to this policy in the CY 2016 OPPS/ASC final 
rule with comment period (80 FR 70545). Our actuaries estimated that 
the 2-midnight policy would increase expenditures by approximately $220 
million in FY 2014 due to an expected net increase in inpatient 
encounters. We used our

[[Page 25137]]

authority under section 1886(d)(5)(I)(i) of the Act to make a reduction 
of 0.2 percent to the standardized amount, the Puerto Rico standardized 
amount, and the hospital-specific payment rates, and we used our 
authority under section 1886(g) of the Act to make a reduction of 0.2 
percent to the national capital Federal rate and the Puerto Rico-
specific capital rate, in order to offset this estimated $220 million 
in additional IPPS expenditures in FY 2014. We indicated that although 
our exceptions and adjustments authority should not be routinely used 
in the IPPS system, we believed that the systemic and widespread nature 
of this issue justified an overall adjustment to the IPPS rates and 
such an adjustment is authorized under section 1886(d)(5)(I)(i) of the 
Act.
    In Shands Jacksonville Medical Center, Inc. v. Burwell, No. 14-263 
(D.D.C.) and consolidated cases, hospitals challenged the 0.2 percent 
reduction in IPPS rates to account for the estimated $220 million in 
additional FY 2014 expenditures resulting from the 2-midnight policy. 
In its Memorandum Opinion, issued September 21, 2015, the Court found 
that the ``Secretary's interpretation of the exceptions and adjustments 
provision is a reasonable one'' for this purpose. However, the Court 
also ordered the 0.2 percent reduction remanded back to the Secretary, 
without vacating the rule, to correct certain procedural deficiencies 
in the promulgation of the 0.2 percent reduction and reconsider the 
adjustment. The Court did not believe it would be appropriate to vacate 
the rule because such action would, in effect, dictate a substantive 
outcome based on a procedural error and concluded that the disruptive 
consequences would be considerable.
    In accordance with the Court's order, we published a notice with 
comment period that appeared in the December 1, 2015 Federal Register 
(80 FR 75107), which discussed the basis for the 0.2 percent reduction 
and its underlying assumptions and invited comments on the same in 
order to facilitate our further consideration of the FY 2014 reduction. 
We received numerous public comments on the notice with comment period.
    In considering these public comments, and those on the same topic 
received in response to the CY 2016 OPPS/ASC proposed rule, we continue 
to recognize that the 0.2 percent reduction issue is unique in many 
ways. The underlying question of patient status, which resulted in the 
creation of the 2-midnight policy, is a complex one with a long 
history, including large improper payment rates in short-stay hospital 
inpatient claims, requests to provide additional guidance regarding the 
proper billing of those services, and concerns about increasingly long 
stays of Medicare beneficiaries as outpatients due to hospital 
uncertainties about payment. (For further discussion of this history, 
we refer readers to the FY 2014 IPPS/LTCH PPS proposed and final rules 
(78 FR 27644 through 27649 and 78 FR 50906 through 50954, 
respectively).)
    The 2-midnight policy itself and our implementation and enforcement 
of it have also evolved over time as a result of a combination of 
statutory, regulatory, and operational changes. For example, as part of 
our efforts to provide education to stakeholders on the new 2-midnight 
policy, CMS hosted numerous ``Open Door Forums,'' conducted national 
provider calls, and shared information and answers to frequently asked 
questions on the CMS Web site. In addition, we instructed MACs to 
conduct a ``Probe and Educate'' process for inpatient claims with dates 
of admission on or after October 1, 2013 through September 30, 2014, to 
assess provider understanding and compliance with the new 2-midnight 
policy. We also prohibited Recovery Auditor's post-payment medical 
reviews of inpatient hospital patient status for claims with dates of 
admission between October 1, 2013 and September 30, 2014.
    On April 1, 2014, the Protecting Access to Medicare Act of 2014 
(Pub. L. 113-93) was enacted. Section 111 of Public Law 113-93 
permitted CMS to continue medical review activities under the Inpatient 
Probe and Educate process through March 31, 2015. The same law also 
extended the prohibition on Recovery Auditor reviews of inpatient 
hospital patient status for claims with dates of admission through 
March 31, 2015, absent evidence of systematic gaming, fraud, abuse, or 
delays in the provision of care by a provider of services. On April 16, 
2015, the Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L. 
114-10) was enacted. Section 521 of Public Law 114-10 permitted CMS to 
further extend the medical review activities under the Inpatient Probe 
and Educate process for inpatient claims through September 30, 2015, 
and extended the prohibition of Recovery Auditor reviews of inpatient 
hospital patient status for claims with dates of admission through 
September 30, 2015. CMS then announced in August 2015 that it would not 
approve Recovery Auditors to conduct patient status reviews for dates 
of admission of October 1, 2015 through December 31, 2015.
    As we indicated in the CY 2016 OPPS/ASC final rule with comment 
period, throughout the Probe and Educate process, we saw positive 
effects and improved provider understanding of the 2-midnight policy. 
We also discussed in the CY 2016 OPPS/ASC final rule with comment 
period (80 FR 70545 through 70549) a number of additional changes we 
had made and were continuing to make to the Recovery Audit Program and 
changes to the medical review responsibilities for Quality Improvement 
Organizations (QIOs) in regard to short hospital stay claims.
    With respect to the 2-midnight policy itself, in light of 
stakeholder concerns and in our continued effort to develop the most 
appropriate and applicable framework for determining when payment under 
Medicare Part A is appropriate for inpatient admissions, in the CY 2016 
OPPS/ASC final rule with comment period (80 FR 70545), we modified the 
original ``rare and unusual'' exceptions policy under the 2-midnight 
policy to allow for Medicare Part A payment on a case-by-case basis for 
inpatient admissions that do not satisfy the 2-midnight benchmark, if 
the documentation in the medical record supports the admitting 
physician's determination that the patient requires inpatient hospital 
care despite an expected length of stay that is less than 2 midnights.
    We also recognized in reviewing the public comments we received on 
the 0.2 percent reduction in response to the December 1, 2015 notice 
with comment period and the CY 2016 OPPS/ASC proposed rule that, in 
addition to the long history of the question of patient status 
underlying the 2-midnight policy and the statutory, regulatory, and 
operational changes that have occurred since its initial 
implementation, the original estimate for the 0.2 percent reduction had 
a much greater degree of uncertainty than usual. As indicated in the 
Office of the Actuary's August 19, 2013 memorandum (which was included 
as Appendix A of the December 1, 2015 notice with comment period (80 FR 
75112 through 75114)), the estimate depended critically on the assumed 
utilization changes in the inpatient and outpatient hospital settings, 
relatively small changes would have a disproportionate effect on the 
estimated net costs, the estimate was subject to a much greater degree 
of uncertainty than usual, and the actual results could differ 
significantly from the estimate.
    Lastly, in reviewing the public comments we received on the 
December 1, 2015 notice with comment period, we

[[Page 25138]]

also considered the fact that our actuaries' most recent estimate of 
the impact of the 2-midnight policy varies between a savings and a cost 
over the FY 2014 to FY 2015 time period. The memorandum describing this 
new analysis is available on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
    We still believe the assumptions underlying the 0.2 percent 
reduction to the rates put in place beginning in FY 2014 were 
reasonable at the time we made them in 2013. Nevertheless, taking all 
the foregoing factors into account, in the context of this case, we 
believe it would be appropriate to use our authority under sections 
1886(d)(5)(I)(i) and 1886(g) of the Act to prospectively remove, 
beginning in FY 2017, the 0.2 percent reduction to the rates put in 
place beginning in FY 2014. The 0.2 percent reduction was implemented 
by including a factor of 0.988 in the calculation of the FY 2014 
standardized amount, the hospital-specific payment rates, and the 
national capital Federal rate, permanently reducing the rates for FY 
2014 and future years until the 0.988 is removed. We are proposing to 
permanently remove the 0.988 reduction beginning in FY 2017 by 
including a factor of (1/0.998) in the calculation of the FY 2017 
standardized amount, the hospital-specific payment rates, and the 
national capital Federal rate.
    In addition, taking all the foregoing factors into account, and 
given the unique nature of this situation in which the court has 
ordered us to further explain the assumptions underlying an adjustment 
applicable to past years, we believe it would be appropriate to use our 
authority under sections 1886(d)(5)(I)(i) and 1886(g) of the Act to 
temporarily increase the rates, only for FY 2017, to address the effect 
of the 0.2 percent reduction to the rates in effect for FY 2014, the 
0.2 reduction to the rates in effect for FY 2015 (recall the 0.988 
factor included in the calculation of the FY 2014 rates permanently 
reduced the rates for FY 2014 and future years until it is removed), 
and the 0.2 reduction to the rates in effect for FY 2016. We believe 
that the most transparent, expedient, and administratively feasible 
method to accomplish this is a temporary one-time prospective increase 
to the FY 2017 rates of 0.6 percent (= 0.2 percent + 0.2 percent + 0.2 
percent). Specifically, we are proposing to include a factor of 1.006 
in the calculation of the standardized amount, the hospital-specific 
payment rates, and the national capital Federal rate in FY 2017 and 
then remove this temporary one-time prospective increase by including a 
factor of (1/1.006) in the calculation of the rates for FY 2018. While 
we generally do not believe it is appropriate in a prospective system 
to retrospectively adjust rates even where we believe a prospective 
change in policy is warranted, we take this action in the specific 
context of this unique situation, in which we have been ordered by a 
Federal court to further explain the basis of an adjustment we have 
imposed for past years.
    In summary, for the reasons described above, we are proposing to 
include a permanent factor of (1/0.998) and a temporary one-time factor 
of (1.006) in the calculation of the FY 2017 standardized amount, the 
hospital-specific payment rates, and the national capital Federal rate. 
We also are proposing to include a factor of (1/1.006) in the 
calculation of the FY 2018 standardized amount, the hospital-specific 
payment rates, and the national capital Federal rate to remove the 
temporary one-time factor of 1.006.
    We are inviting public comments on all aspects these proposals. The 
foregoing discussion and proposals constitute the final notice required 
by the Court in the Shands Jacksonville Medical Center, Inc. v. 
Burwell, No. 14-263 (D.D.C.) and consolidated cases.

V. Proposed Changes to the IPPS for Capital-Related Costs

A. Overview

    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient acute hospital services in 
accordance with a prospective payment system established by the 
Secretary. Under the statute, the Secretary has broad authority in 
establishing and implementing the IPPS for acute care hospital 
inpatient capital-related costs. We initially implemented the IPPS for 
capital-related costs in the Federal fiscal year (FY) 1992 IPPS final 
rule (56 FR 43358). In that final rule, we established a 10-year 
transition period to change the payment methodology for Medicare 
hospital inpatient capital-related costs from a reasonable cost-based 
payment methodology to a prospective payment methodology (based fully 
on the Federal rate).
    FY 2001 was the last year of the 10-year transition period that was 
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 the regulations at 42 CFR 
412.312. For the purpose of calculating capital payments for each 
discharge, the standard Federal rate is adjusted as follows:
    (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment 
Factor (GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1 
+ Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if 
applicable).
    In addition, under Sec.  412.312(c), hospitals also may receive 
outlier payments under the capital IPPS for extraordinarily high-cost 
cases that qualify under the thresholds established for each fiscal 
year.

B. Additional Provisions

1. Exception Payments
    The regulations at 42 CFR 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, the regulations at 42 CFR 412.300(b) define 
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

[[Page 25139]]

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. Proposed Changes in Payments for Hospitals Located in Puerto Rico
    The regulations at 42 CFR 412.374 provide 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 currently 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. The capital-related payment 
rate for hospitals located in Puerto Rico is derived using only the 
costs of hospitals located in Puerto Rico, while the national Federal 
rate for capital-related costs is derived using the costs of all acute 
care hospitals participating in the IPPS (including hospitals located 
in Puerto Rico). 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. Historically, we have established 
a capital IPPS blended payment rate structure for hospitals located in 
Puerto Rico that parallels the statutory calculation of operating IPPS 
payments to hospitals located in Puerto Rico. Capital IPPS payments to 
hospitals located in Puerto Rico are currently 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).)
    As noted in section IV.A. of the preamble of this proposed rule, 
section 601 of the Consolidated Appropriations Act, 2016 (Public L. 
114-113) increased the applicable Federal percentage of the operating 
IPPS payment for hospitals located in Puerto Rico from 75 percent to 
100 percent and decreased the applicable Puerto Rico percentage of the 
operating IPPS payments for hospitals located in Puerto Rico from 25 
percent to zero percent, applicable to discharges occurring on or after 
January 1, 2016. Consistent with historical practice, under the broad 
authority of the Secretary granted under section 1886(g) of the Act, we 
are proposing to revise the calculation of capital IPPS payments to 
hospitals located in Puerto Rico to parallel the change in the 
statutory calculation of operating IPPS payments to hospitals located 
in Puerto Rico, beginning in FY 2017. Accordingly, we are proposing to 
revise Sec.  412.374 of the regulations to provide that, for discharges 
occurring on or after October 1, 2016, capital IPPS payments to 
hospitals located in Puerto Rico would be based on 100 percent of the 
capital Federal rate; that is, payments would no longer be derived from 
a blend of the capital Puerto Rico rate and the capital Federal rate. 
As discussed in section I.I. of Appendix A (Economic Analyses) of this 
proposed rule, this proposed change would result in a slight increase 
in capital IPPS payments to hospitals located in Puerto Rico because 
adjusted capital IPPS payments based on the capital Federal rate are 
generally higher than capital IPPS payments based on the capital Puerto 
Rico rate. In addition, we note that this proposed change is similar to 
the changes in capital IPPS payments to hospitals located in Puerto 
Rico beginning in FY 1998 and FY 2005 that paralleled the corresponding 
statutory changes in the blended payment amount calculation required 
for operating IPPS payments to hospitals located in Puerto Rico, as 
provided by section 4406 of Public Law 105-33 (62 FR 46048) and section 
504 of Public Law 108-173 (69 FR 49185), respectively.

C. Proposed Annual Update for FY 2017

    The proposed annual update to the capital PPS Federal rate, as 
provided for at Sec.  412.308(c), for FY 2017 is discussed in section 
III. of the Addendum to this proposed rule. Consistent with our 
proposal to revise the calculation of capital IPPS payments to 
hospitals located in Puerto Rico to be based on 100 percent of the 
capital Federal rate (and no longer based on a blend of the capital 
Puerto Rico rate and the capital Federal rate), we would discontinue 
use of the Puerto Rico capital rate in the calculation of capital IPPS 
payments to hospitals located in Puerto Rico.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50906 through 
50954), we adopted the 2-midnight policy effective for dates of 
admission on or after October 1, 2013, under which an inpatient 
admission is generally appropriate for Medicare Part A payment if the 
physician (or other qualified practitioner) admits the patient as an 
inpatient based upon the reasonable expectation that the patient will 
need hospital care that crosses at least 2 midnights. At that time, our 
actuaries estimated that the 2-midnight policy would increase 
expenditures by approximately $220 million in FY 2014 due to an 
expected net increase in inpatient encounters. In that same final rule, 
consistent with the approach taken for the operating IPPS standardized 
amount, the Puerto Rico-specific standardized amount, and the hospital-
specific payment rates, and using our authority under section 1886(g) 
of the Act, we made a reduction of 0.2 percent (an adjustment factor of 
0.998) to the national capital Federal rate and the Puerto Rico-
specific capital rate to offset the estimated increase in capital IPPS 
expenditures associated with the projected increase in inpatient 
encounters that was expected to result from the new inpatient admission 
guidelines (78 FR 50746 through 50747).
    As discussed in section IV.O. of the preamble of this proposed 
rule, in Shands Jacksonville Medical Center, Inc. v. Burwell, No. 14-
263 (D.D.C.) and consolidated cases, hospitals challenged the 0.2 
percent reduction in IPPS rates to account for the estimated $220 
million in additional FY 2014 expenditures resulting from the 2-
midnight policy. In accordance with the Court's order, we published a 
notice with comment period that appeared in the December 1, 2015 
Federal Register (80 FR 75107), which discussed the basis for the 0.2 
percent reduction and its underlying assumptions and invited comments 
on the same in order to facilitate our further consideration of the FY 
2014 reduction. In section IV.O. of the preamble of this proposed rule, 
we discuss that, in considering the public comments we received on that 
notice with comment period and those on the same topic we received in 
response to the CY 2016 OPPS/ASC proposed rule, we continue to 
recognize that the 0.2 percent reduction issue is unique in many ways. 
As we discuss in that section, the 2-midnight policy itself and our 
implementation and enforcement of it have also evolved over time as a 
result of a combination of statutory, regulatory, and operational 
changes. Finally, in reviewing the public comments received on the 
December 1, 2015 notice with comment period, we also considered the 
fact that our actuaries' most recent estimate of the impact of the 2-
midnight policy varies between a savings and a cost over the FY 2014 to 
FY 2015 time period. (For additional details, we refer readers to 
section IV.O. of the preamble of this proposed rule.)
    We still believe the assumptions underlying the 0.2 percent 
reduction to the rates put in place beginning in FY 2014 were 
reasonable at the time we

[[Page 25140]]

made them in 2013. Nevertheless, taking all of these factors into 
account and in the context of this case, as we discuss in more detail 
in section IV.O. of the preamble of this proposed rule, consistent with 
the approach proposed for the operating IPPS rates, we believe it would 
be appropriate to use our authority under section 1886(g) of the Act to 
permanently remove the 0.2 percent reduction to the capital IPPS rate 
beginning in FY 2017. (As explained previously, we are proposing to 
discontinue use of the Puerto Rico capital rate in the calculation of 
capital IPPS payments to hospitals located in Puerto Rico beginning in 
FY 2017.) Specifically, we are proposing to make an adjustment of (1/
0.998) to the national capital Federal rate to remove the 0.2 percent 
reduction, consistent with the proposed adjustment to the operating 
IPPS standardized amount and the hospital-specific payment rates. In 
addition, consistent with the approach proposed for the operating IPPS 
standardized amount and hospital-specific payment rates and for the 
reasons discussed in section IV.O. of the preamble of this proposed 
rule, we believe it would be appropriate to use our authority under 
section 1886(g) of the Act to adjust the FY 2017 capital IPPS rate to 
address the effects of the 0.2 percent reduction to the national 
capital Federal rates in effect for FY 2014, FY 2015, and FY 2016 by 
proposing a one-time prospective adjustment of 1.006 in FY 2017 to the 
national capital Federal rate. For FY 2018, we also are proposing to 
remove the effects of this one-time prospective adjustment through an 
adjustment of (1/1.006) to the national capital Federal rate, 
consistent with the approach proposed for the operating IPPS 
standardized amount and hospital-specific payment rates (as discussed 
in section IV.O. of the preamble of this proposed rule). We are 
inviting public comments on these proposals.
    We also note that, in section II.D. of the preamble of this 
proposed rule, we present a discussion of the MS-DRG documentation and 
coding adjustment, including previously finalized policies and 
historical adjustments, as well as the recoupment adjustment to the 
standardized amounts under section 1886(d) of the Act that we are 
proposing for FY 2017 in accordance with the amendments made to section 
7(b)(1)(B) of Public Law 110-90 by section 631 of the ATRA. Because 
section 631 of the ATRA requires us to make a recoupment adjustment 
only to the operating IPPS standardized amount, we are not proposing to 
make a similar adjustment to the capital IPPS rate (or to the operating 
IPPS hospital-specific rates). 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.

VI. Proposed Changes for Hospitals Excluded From the IPPS

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 
2017

    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 
previously.
    As explained in the FY 2006 IPPS final rule (70 FR 47396 through 
47398), beginning with FY 2006, we have used the percentage increase in 
the IPPS operating market basket to update the target amounts for 
children's hospitals, cancer hospitals, and RNHCIs. Consistent with 
Sec. Sec.  412.23(g), 413.40(a)(2)(ii)(A), and 413.40(c)(3)(viii), we 
also have used the percentage increase in the IPPS operating market 
basket to update the target amounts for short-term acute care hospitals 
located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, 
and American Samoa. As we finalized in the FY 2015 IPPS/LTCH PPS final 
rule (79 FR 50156 through 50157), for FY 2017, we will continue to use 
the percentage increase in the FY 2010-based 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. Accordingly, for FY 2017, 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 2017 percentage increase in the FY 2010-based IPPS 
operating market basket.
    For this FY 2017 proposed rule, based on IHS Global Insight, Inc.'s 
2016 first quarter forecast, we estimate that the FY 2010-based IPPS 
operating market basket update for FY 2017 is 2.8 percent (that is, the 
estimate of the market basket rate-of-increase). Therefore, the FY 2017 
rate-of-increase percentage that would be applied to the FY 2016 target 
amounts in order to calculate the FY 2017 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 2.8 percent, in accordance with 
the applicable regulations at 42 CFR 413.40. We are proposing that if 
more recent data become available for the final rule, we would use them 
to calculate the IPPS operating market basket update for FY 2017.

B. Critical Access Hospitals (CAHs)

1. Background
    Section 1820 of the Act provides for the establishment of Medicare 
Rural Hospital Flexibility Programs (MRHFPs), under which individual 
States may designate certain facilities as critical access hospitals 
(CAHs). Facilities that are so designated and meet the CAH conditions 
of participation under 42 CFR part 485, subpart F, will be certified as 
CAHs by CMS. Regulations governing payments to CAHs for services to 
Medicare beneficiaries are located in 42 CFR part 413.
2. Frontier Community Health Integration Project (FCHIP) Demonstration
    Section 123 of the Medicare Improvements for Patients and Providers 
Act of 2008 (Pub. L. 110-275), as amended by section 3126 of the 
Affordable Care Act of 2010, authorizes a demonstration project to 
allow eligible entities to develop and test new models for the delivery 
of health care services in eligible counties in order to improve access 
to and better integrate the delivery of acute care, extended care and 
other health care services to

[[Page 25141]]

Medicare beneficiaries. The demonstration is titled ``Demonstration 
Project on Community Health Integration Models in Certain Rural 
Counties,'' and is commonly known as the Frontier Community Health 
Integration Project (FCHIP) demonstration.
    The authorizing statute states the eligibility criteria for 
entities to be able to participate in the demonstration. An eligible 
entity, as defined in section 123(d)(1)(B) of Public Law 110-275, as 
amended, is an MRHFP grantee under section 1820(g) of the Act (that is, 
a CAH); and is located in a State in which at least 65 percent of the 
counties in the State are counties that have 6 or less residents per 
square mile.
    The authorizing statute stipulates several other requirements for 
the demonstration. Section 123(d)(2)(B) of Public. L. 110-275, as 
amended, limits participation in the demonstration to eligible entities 
in not more than 4 States. Section 123(f)(1) of Public. L. 110-275 
requires the demonstration project to be conducted for a 3-year period. 
In addition, section 123(g)(1)(B) of Public. L. 110-275 requires that 
the demonstration be budget neutral. Specifically, this provision 
states that in conducting the demonstration project, the Secretary 
shall ensure that the aggregate payments made by the Secretary do not 
exceed the amount which the Secretary estimates would have been paid if 
the demonstration project under the section were not implemented. 
Furthermore, section 123(i) of Public. L. 110-275 states that the 
Secretary may waive such requirements of titles XVIII and XIX of the 
Act as may be necessary and appropriate for the purpose of carrying out 
the demonstration project, thus allowing the waiver of Medicare payment 
rules encompassed in the demonstration.
    In January 2014, CMS released a request for applications (RFA) for 
the FCHIP demonstration. We refer readers to the RFA on the CMS Web 
site at: https://innovation.cms.gov/initiatives/Frontier-Community-Health-Integration-Project-Demonstration/. Using 2013 data from the 
U.S. Census Bureau, CMS identified Alaska, Montana, Nevada, North 
Dakota, and Wyoming as meeting the statutory eligibility requirement 
for participation in the demonstration. The RFA solicited CAHs in these 
five States to participate in the demonstration, stating that 
participation would be limited to CAHs in four of the States. To apply, 
CAHs were required to meet the eligibility requirements in the 
authorizing legislation, and, in addition, to describe a proposal to 
enhance health-related services that would complement those currently 
provided by the CAH and better serve the community's needs. In 
addition, in the RFA, CMS interpreted the eligible entity definition in 
the statute as meaning a CAH that receives funding through the Rural 
Hospital Flexibility Program. The RFA identified four intervention 
prongs, under which specific waivers of Medicare payment rules would 
allow for enhanced payment for telemedicine, nursing facility, 
ambulance, and home health services, respectively. These waivers were 
formulated with the goal of increasing access to care with no net 
increase in costs.
    Since the due date for applications on May 5, 2014, we have 
assessed the feasibility of the applying CAHs' service delivery 
proposals, as well as the potential impacts of the payment enhancement 
interventions on the overall expenditures for Medicare services. We are 
selecting CAHs to participate in the demonstration, with the period of 
performance for each CAH expected to start August 1, 2016.
    We have specified the payment enhancements for the demonstration, 
and are basing our selection of CAHs for participation, with the goal 
of maintaining the budget neutrality of the demonstration on its own 
terms (that is, the demonstration will produce savings from reduced 
transfers and admissions to other health care providers, thus 
offsetting any increase in payments resulting from the demonstration). 
However, because of the small size of this demonstration and 
uncertainty associated with projected Medicare utilization and costs, 
we are proposing a contingency plan to ensure that the budget 
neutrality requirement in section 123 of Public. L 110-275 is met. 
Accordingly, if analysis of claims data for Medicare beneficiaries 
receiving services at each of the participating CAHs, as well as of 
other data sources, including cost reports for these CAHs, shows that 
increases in Medicare payments under the demonstration during the 3-
year period are not sufficiently offset by reductions elsewhere, we 
will recoup the additional expenditures attributable to the 
demonstration through a reduction in payments to all CAHs nationwide. 
Because of the small scale of the demonstration, we do not believe it 
would be feasible to implement budget neutrality by reducing payments 
to only the participating CAHs. Therefore, in the event that this 
demonstration is found to result in aggregate payments in excess of the 
amount that would have been paid if this demonstration were not 
implemented, we are proposing to comply with the budget neutrality 
requirement by reducing payments to all CAHs, not just those 
participating in the demonstration. We believe it is appropriate to 
make any payment reductions across all CAHs because the FCHIP 
demonstration is specifically designed to test innovations that affect 
delivery of services by the CAH provider category. We believe that the 
language of the statutory budget neutrality requirement at section 
123(g)(1)(B) of Public. L. 110-275 permits the agency to implement the 
budget neutrality provision in this manner. The statutory language 
merely refers to ensuring that aggregate payments made by the Secretary 
do not exceed the amount which the Secretary estimates would have been 
paid if the demonstration project was not implemented, and does not 
identify the range across which aggregate payments must be held equal.
    Based on actuarial analysis using cost report settlements for FYs 
2013 and 2014, the demonstration is projected to satisfy the budget 
neutrality requirement and likely yield a total net savings. We 
estimate that the total impact of the payment recoupment would be no 
greater than 0.03 percent of CAHs' total Medicare payments within 1 
fiscal year (that is, Medicare Part A and Part B). For the FCHIP 
demonstration, the final budget neutrality estimates will be based on 
the demonstration period, which is August 1, 2016 through July 31, 
2019. The demonstration is projected to impact payments to 
participating CAHs under both Medicare Part A and Part B. Thus, in the 
event that we determine that aggregate payments under the demonstration 
exceed the payments that would otherwise have been made, we are 
proposing that CMS would recoup payments through reductions of Medicare 
payments to all CAHs under both Medicare Part A and Part B.
    Given the 3-year period of performance of the FCHIP demonstration 
and the time needed to conduct the budget neutrality analysis, we 
anticipate that, in the event the demonstration is found not to have 
been budget neutral, any excess costs would be recouped over a period 
of 3 cost reporting years, beginning in CY 2020. We are proposing a 3-
year period for recoupment to allow for a reasonable timeframe for the 
payment reduction and to minimize any impact on CAHs' operations.

[[Page 25142]]

VII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2017

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 an LTCH as a 
hospital which has an average inpatient length of stay (as determined 
by the Secretary) of greater than 25 days. Section 
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative 
definition of LTCHs: specifically, a hospital that first received 
payment under section 1886(d) of the Act in 1986 and has an average 
inpatient length of stay (as determined by the Secretary of Health and 
Human Services (the Secretary)) of greater than 20 days and has 80 
percent or more of its annual Medicare inpatient discharges with a 
principal diagnosis that reflects a finding of neoplastic disease in 
the 12-month cost reporting period ending in FY 1997.
    Section 123 of the BBRA requires the PPS for LTCHs to be a ``per 
discharge'' system with a diagnosis-related group (DRG) based patient 
classification system that reflects the differences in patient 
resources and costs in LTCHs.
    Section 307(b)(1) of the BIPA, among other things, mandates that 
the Secretary shall examine, and may provide for, adjustments to 
payments under the LTCH PPS, including adjustments to DRG weights, area 
wage adjustments, geographic reclassification, outliers, updates, and a 
disproportionate share adjustment.
    In the August 30, 2002 Federal Register, we issued a final rule 
that implemented the LTCH PPS authorized under the BBRA and BIPA (67 FR 
55954). For the initial implementation of the LTCH PPS (FYs 2003 
through FY 2007), the system used information from LTCH patient records 
to classify patients into distinct long-term care diagnosis-related 
groups (LTC-DRGs) based on clinical characteristics and expected 
resource needs. Beginning in FY 2008, we adopted the Medicare severity 
long-term care diagnosis-related groups (MS-LTC-DRGs) as the patient 
classification system used under the LTCH PPS. Payments are calculated 
for each MS-LTC-DRG and provisions are made for appropriate payment 
adjustments. Payment rates under the LTCH PPS are updated annually and 
published in the Federal Register.
    The LTCH PPS replaced the reasonable cost-based payment system 
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) 
(Pub. L. 97-248) for payments for inpatient services provided by an 
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 this section of the preamble of 
this proposed rule, when we refer to discharges, we describe Medicare 
discharges.) The August 30, 2002 final rule further details the payment 
policy under the TEFRA system (67 FR 55954).
    In the August 30, 2002 final rule, we provided for a 5-year 
transition period from payments under the TEFRA system to payments 
under the LTCH PPS. During this 5-year transition period, an 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 an 
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).
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 
49623), we implemented the provisions of the Pathway for Sustainable 
Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67), which mandated 
the application of the ``site neutral'' payment rate under the LTCH PPS 
for discharges that do not meet the statutory criteria for exclusion 
beginning in FY 2016. For cost reporting periods beginning on or after 
October 1, 2015, discharges that do not meet certain statutory criteria 
for exclusion are paid based on the site neutral payment rate. 
Discharges that do meet the statutory criteria continue to receive 
payment based on the LTCH PPS standard Federal payment rate. For more 
information on the statutory requirements of the Pathway for SGR Reform 
Act of 2013, we refer readers to the FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49601 through 49623).
    Section 231 of Consolidated Appropriations Act, 2016 (Pub. L. 114-
113), enacted December 18, 2015, provides for a temporary exception to 
the application of the site neutral payment rate for certain discharges 
representing severe wound care cases from specific LTCHs. We will 
address this statutory provision in a separate rulemaking.
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

[[Page 25143]]

that, for cost reporting periods beginning on or after August 5, 1997, 
a hospital that was first excluded from the PPS in 1986 and can 
demonstrate that at least 80 percent of its annual Medicare inpatient 
discharges in the 12-month cost reporting period ending in FY 1997 have 
a principal diagnosis that reflects a finding of neoplastic disease 
must have an average inpatient length of stay for all patients, 
including both Medicare and non-Medicare inpatients, of greater than 20 
days (referred to as ``subclause (II)'' LTCHs).
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). This discussion was further clarified in the RY 2005 
LTCH PPS final rule (69 FR 25676). In keeping with those discussions, 
if the Medicare payment to the LTCH is the full LTC-DRG payment amount, 
consistent with other established hospital prospective payment systems, 
Sec.  412.507 currently provides that an 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. If the 
Medicare payment was for a SSO case (Sec.  412.529), and that payment 
was less than the full LTC-DRG payment amount because the beneficiary 
had insufficient remaining Medicare days, the LTCH is currently also 
permitted to charge the beneficiary for services delivered on those 
uncovered days (Sec.  412.507). In the FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49623), we amended our regulations to limit the charges that may 
be imposed on beneficiaries whose discharges are paid at the site 
neutral payment rate under the LTCH PPS. In section VII.G. of the 
preamble of this proposed rule, we are proposing to amend the existing 
regulations relating to the limitation on charges to address 
beneficiary charges for LTCH services provided by subclause (II) LTCHs 
as part of our proposed refinement of the payment adjustment for 
subclause II LTCHs under Sec.  412.526. We also are proposing to amend 
the regulations under Sec.  412.507 to clarify our existing policy that 
blended payments made to an LTCH during its transitional period (that 
is, payment for discharges occurring in cost reporting periods 
beginning in FY 2016 or 2017) are considered to be a site neutral 
payment rate payment.
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 (HHS) 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 (https://www.healthit.gov/policy-researchers-implementers/2015-edition-final-rule) developed to support secure, 
interoperable, health information exchange. 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 enable the 
reporting of electronically specified clinical quality measures (eCQMs) 
(as described elsewhere in this proposed rule). In 2015, ONC released a 
document entitled ``Connecting Health and Care for the Nation: A Shared 
Nationwide Interoperability Roadmap'' (available at: https://www.healthit.gov/sites/default/files/hie-interoperability/nationwide-interoperability-roadmap-final-version-1.0.pdf). In the near term, the 
Roadmap focuses on actions that will enable individuals and providers 
across the care continuum to send, receive, find and use a common set 
of electronic clinical information at the nationwide level by the end 
of 2017. The Roadmap's goals also align with the Improving Medicare 
Post-Acute Care Transformation Act of 2014 (Pub. L. 113-185) (IMPACT 
Act), which requires assessment data to be standardized and 
interoperable to allow for exchange of the data. Moreover, the vision 
described in the Roadmap significantly expands the types of electronic 
health information, information sources, and information users well 
beyond clinical information derived from EHRs. The Roadmap identifies 
four critical pathways that health IT stakeholders should focus on now 
in order to create a foundation for long-term success: (1) Improve 
technical standards and implementation guidance for priority data 
domains and associated elements; (2) rapidly shift and align Federal, 
State, and commercial payment policies from fee-for-service to value-
based models to stimulate the demand for

[[Page 25144]]

interoperability; (3) clarify and align Federal and State privacy and 
security requirements that enable interoperability; and (4) align and 
promote the use of consistent policies and business practices that 
support interoperability and address those that impede 
interoperability, in coordination with stakeholders. To support of the 
goals of the Roadmap, ONC released the 2016 Interoperability Standards 
Advisory (available at: https://www.healthit.gov/standards-advisory/2016), which suggests some of the best available standards, 
terminology, and implementation guides as well as emerging standards to 
enable priority health information exchange functions. Providers, 
payers, and vendors are encouraged to take these ``best available 
standards'' into account as they implement interoperable health 
information exchange across the continuum of care.

B. Proposed Modifications to the Application of the Site Neutral 
Payment Rate (Sec.  412.522)

1. Background
    Section 1206 of Pathway for SGR Reform Act (Pub. L. 113-67) 
mandated significant changes to the LTCH PPS beginning with LTCH 
discharges occurring in cost reporting periods beginning on or after 
October 1, 2015. Specifically, section 1206 required the establishment 
of a site neutral payment rate (as an alternative to the LTCH PPS 
standard Federal payment rate) for Medicare inpatient discharges from 
an LTCH that fail to meet certain statutorily defined criteria. 
Discharges that meet the statutory criteria for exclusion from the site 
neutral payment rate continue to be paid based on the LTCH PPS standard 
Federal payment rate. Discharges that do not meet the statutory 
criteria for exclusion are paid based on the site neutral payment rate. 
We implemented the application of the site neutral payment rate in the 
FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623) and 
codified the requirements in the regulations at 42 CFR 412.522. The 
criteria for exclusion from the site neutral payment rate specified 
under section 1886(m)(6)(A)(ii) of the Act and as implemented at Sec.  
412.522(b) are as follows: (1) The discharge from the LTCH does not 
have a principal diagnosis relating to a psychiatric diagnosis or to 
rehabilitation; (2) admission to the LTCH was immediately preceded by 
discharge from a subsection (d) hospital; and (3) the immediately 
preceding stay in a subsection (d) hospital included at least 3 days in 
an intensive care unit (ICU) (referred to as the ICU criterion) or the 
discharge from the LTCH is assigned to a MS-LTC-DRG based on the 
patient's receipt of ventilator services of at least 96 hours (referred 
to as the ventilator criterion). (We note that, for the remainder of 
this section VII. of this preamble, the phrase ``LTCH PPS standard 
Federal payment rate case'' refers to an LTCH PPS case that meets the 
criteria for exclusion from the site neutral payment rate as specified 
under Sec.  412.522(a)(2), and the phrase ``site neutral payment rate 
case'' refers to an LTCH PPS case that does not meet the statutory 
patient-level criteria as specified under Sec.  412.522(a)(1) and, 
therefore, is paid the applicable site neutral payment rate.)
2. Technical Correction of Definition of ``Subsection (d) Hospital'' 
for the Site Neutral Payment Rate (Sec.  412.503)
    In the FY 2016 IPPS/LTCH PPS final rule, we implemented section 
1206(a) of Public Law 113-67, which established the new dual payment 
rate structure under the LTCH PPS that began with LTCH discharges 
occurring in cost reporting periods beginning on or after October 1, 
2015. Section 1206(a) required the establishment of a site neutral 
payment rate (as an alternate to the LTCH PPS standard Federal payment 
rate) under the LTCH PPS for Medicare inpatient LTCH discharges that 
fail to meet certain statutorily defined criteria for exclusion. 
Discharges that meet the statutory criteria for exclusion from the site 
neutral payment rate continue to be paid based on the LTCH PPS standard 
Federal payment rate. Discharges that do not meet the statutory 
criteria for exclusion are paid based on the new site neutral payment 
rate. In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 
49623), we codified the requirements for the application of the site 
neutral payment rate under the LTCH PPS under the regulations at Sec.  
412.522. The statutory criteria for exclusion from the site neutral 
payment rate include a criterion that requires that the admission to 
the LTCH was immediately preceded by discharge from a ``subsection (d) 
hospital.'' To implement this criterion for purposes of the application 
of the site neutral payment rate under Sec.  412.522, we added a 
definition of a ``subsection (d) hospital'' under Sec.  412.503 of the 
regulations. However, we made an inadvertent cross-reference error 
under Sec.  412.503 by referencing ``Sec.  412.526'' (payment 
provisions to a subclause II LTCH) instead of referencing ``Sec.  
412.522'' (application of site neutral payment) (80 FR 49767). That is, 
currently Sec.  412.503 specifies that a subsection (d) hospital means 
``for purposes of Sec.  412.526,'' when the language should have read 
``for purposes of Sec.  412.522''. Therefore, we are proposing to 
revise Sec.  412.503 to correct this cross-reference error.

C. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group 
(MS-LTC-DRG) Classifications and Relative Weights for FY 2017

1. Background
    Section 123 of the BBRA required that the Secretary implement a PPS 
for LTCHs to replace the cost-based payment system under TEFRA. 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 the LTCH PPS on the use of existing (or 
refined) hospital DRGs that have been modified to account for different 
resource use of LTCH patients.
    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 utilized at that time under the IPPS. As a 
component of the LTCH PPS, we refer to this patient classification 
system as the ``long-term care diagnosis-related groups (LTC-DRGs).'' 
Although the patient classification system used under both the LTCH PPS 
and the IPPS are the same, the relative weights are different. The 
established relative weight methodology and data used under the LTCH 
PPS result in relative weights under the LTCH PPS that reflect the 
differences in patient resource use of LTCH patients, consistent with 
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

[[Page 25145]]

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 758 MS-DRG 
groupings. For FY 2017, there are 757 MS-DRG groupings that we are 
proposing in conjunction with all of the changes discussed in section 
II.F. of the preamble of this proposed rule. Consistent with section 
123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and Sec.  
412.515 of the regulations, we use information derived from LTCH PPS 
patient records to classify LTCH discharges into distinct MS-LTC-DRGs 
based on clinical characteristics and estimated resource needs. We then 
assign an appropriate weight to the MS-LTC-DRGs to account for the 
difference in resource use by patients exhibiting the case complexity 
and multiple medical problems characteristic of LTCHs. In this section 
of the proposed rule, we provide a general summary of our existing 
methodology for determining the proposed FY 2017 MS-LTC-DRG relative 
weights under the LTCH PPS.
    In this proposed rule, in general, for FY 2017, we are using our 
existing methodology to determine the MS-LTC-DRG relative weights (as 
discussed in greater detail in section VII.C.3. of the preamble of this 
proposed rule). As we established when we implemented the dual rate 
LTCH PPS payment structure codified under Sec.  412.522, beginning with 
FY 2016, the annual recalibration of the MS-LTC-DRG relative weights 
are determined: (1) Using only data from available LTCH PPS claims that 
would have qualified for payment under the new LTCH PPS standard 
Federal payment rate if that rate were in effect when claims data from 
time periods before the dual rate LTCH PPS payment structure applies 
were used to calculate the relative weights; and (2) using only data 
from available LTCH PPS claims that qualify for payment under the new 
LTCH PPS standard Federal payment rate when claims data from time 
periods after the dual rate LTCH PPS payment structure applies are used 
to calculate the relative weights (80 FR 49624). That is, under our 
current methodology, the MS-LTC-DRG relative weights are not used to 
determine the LTCH PPS payment for cases paid at the site neutral 
payment rate under Sec.  412.522(c)(1) and data from cases paid at the 
site neutral payment rate or that would have been paid at the site 
neutral payment rate if the dual rate LTCH PPS payment structure had 
been in effect are not used to develop the relative weights. For the 
remainder of this discussion, we use the phrase ``applicable LTCH 
cases'' or ``applicable LTCH data'' when referring to the resulting 
claims data set used to calculate the relative weights (as described 
later in greater detail in section VII.C.3.c. of the preamble of this 
proposed rule). In addition, we are proposing to continue to exclude 
the data from all-inclusive rate providers and LTCHs paid in accordance 
with demonstration projects, as well as any Medicare Advantage claims 
from the MS-LTC-DRG relative weight calculations for the reasons 
discussed in section VII.C.3.c. of the preamble of this proposed rule.
    Furthermore, for FY 2017, in using data from applicable LTCH cases 
to establish proposed MS-LTC-DRG relative weights, we are proposing to 
continue to establish low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs with 
less than 25 cases) using our quintile methodology in determining the 
proposed MS-LTC-DRG relative weights because LTCHs do not typically 
treat the full range of diagnoses as do acute care hospitals. 
Therefore, for purposes of determining the proposed relative weights 
for the large number of low-volume MS-LTC-DRGs, we are proposing to 
group all of the low-volume MS-LTC-DRGs into five quintiles based on 
average charges per discharge. Then, under our existing methodology, we 
are proposing to account for adjustments made to LTCH PPS standard 
Federal 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), and we are proposing to make adjustments to account for 
nonmonotonically increasing weights, when necessary. The methodology is 
premised on more severe cases under the MS-LTC-DRG system requiring 
greater expenditure of medical care resources and 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 each of these components 
of our MS-LTC-DRG relative weight methodology in greater detail in 
section VII.C.3.g. of the preamble of this proposed rule.)
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 previously 
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-10-PCS 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.
    Currently, for claims submitted on the 5010 format, up to 25 
diagnosis codes and 25 procedure codes are considered for an MS-DRG 
assignment. This includes one principal diagnosis and up to 24 
secondary diagnoses for severity of illness determinations. (For 
additional information on the processing of up to 25 diagnosis codes 
and 25 procedure codes on hospital inpatient claims, we refer readers 
to section II.G.11.c. of the preamble of the FY 2011 IPPS/LTCH PPS 
final rule (75 FR 50127).)
    Under HIPAA transactions and code sets regulations at 45 CFR parts 
160 and

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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(c)).
    HIPAA requires covered entities to use the applicable medical data 
code set requirements when conducting HIPAA transactions (45 CFR 
162.1000). Currently, upon the discharge of the patient, the LTCH must 
assign appropriate diagnosis and procedure codes from the most current 
version of the Internal Classification of Diseases, 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, 
both of which became effective October 1, 2015 (45 CFR 162.1002(c)(2) 
and (3)). For additional information on the implementation of the ICD-
10 coding system, we refer readers to section II.F.1. of the preamble 
of this proposed rule. Additional coding instructions and examples are 
published in the AHA's Coding Clinic for ICD-10-CM/PCS.
    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).
    MACs enter the clinical and demographic information submitted by 
LTCHs into their claims processing systems and subject this information 
to a series of automated screening processes called the Medicare Code 
Editor (MCE). These screens are designed to identify cases that require 
further review before assignment into a MS-LTC-DRG can be made. During 
this process, certain cases are selected for further development (74 FR 
43949).
    After screening through the MCE, each claim is classified into the 
appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the 
basis of diagnosis and procedure codes and other demographic 
information (age, sex, and discharge status). The GROUPER software used 
under the LTCH PPS is the same GROUPER software program used under the 
IPPS. Following the MS-LTC-DRG assignment, the Medicare contractor 
determines the prospective payment amount by using the Medicare PRICER 
program, which accounts for hospital-specific adjustments. Under the 
LTCH PPS, we provide an opportunity for LTCHs to review the MS-LTC-DRG 
assignments made by the Medicare contractor and to submit additional 
information within a specified timeframe as provided in Sec.  
412.513(c).
    The GROUPER software is used both to classify past cases to measure 
relative hospital resource consumption to establish the MS-LTC-DRG 
relative weights and to classify current cases for purposes of 
determining payment. The records for all Medicare hospital inpatient 
discharges are maintained in the MedPAR file. The data in this file are 
used to evaluate possible MS-DRG and MS-LTC-DRG classification changes 
and to recalibrate the MS-DRG and MS-LTC-DRG relative weights during 
our annual update under both the IPPS (Sec.  412.60(e)) and the LTCH 
PPS (Sec.  412.517), respectively.
b. Proposed Changes to the MS-LTC-DRGs for FY 2017
    As specified by our regulations at Sec.  412.517(a), which require 
that the MS-LTC-DRG classifications and relative weights be updated 
annually, and consistent with our historical practice of using the same 
patient classification system under the LTCH PPS as is used under the 
IPPS, we are proposing to update the MS-LTC-DRG classifications 
effective October 1, 2016, through September 30, 2017 (FY 2017), 
consistent with the proposed changes to specific MS-DRG classifications 
presented in section II.F. of the preamble of this proposed rule. 
Accordingly, the proposed MS-LTC-DRGs for FY 2017 presented in this 
proposed rule are the same as the proposed MS-DRGs that would be used 
under the IPPS for FY 2017. In addition, because the proposed MS-LTC-
DRGs for FY 2017 are the same as the proposed MS-DRGs for FY 2017, the 
other proposed changes that affect proposed MS-DRG (and by extension 
proposed MS-LTC-DRG) assignments under GROUPER Version 34.0 as 
discussed in section II.G. of the preamble of this proposed rule, 
including the proposed changes to the MCE software and the ICD-10-CM/
PCS coding system, also would be applicable under the LTCH PPS for FY 
2017. (We note the GROUPER Version 34 is based on ICD-10-CM/PCS 
diagnoses and procedure codes, consistent with the requirement to use 
ICD-10 beginning October 1, 2015.)
3. Development of the Proposed FY 2017 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG Relative 
Weights
    One of the primary goals for the implementation of the LTCH PPS is 
to pay each LTCH an appropriate amount for the efficient delivery of 
medical care to Medicare patients. The system must be able to account 
adequately for each LTCH's case-mix in order to ensure both fair 
distribution of Medicare payments and access to adequate care for those 
Medicare patients whose care is more costly (67 FR 55984). To 
accomplish these goals, we have annually adjusted the LTCH PPS standard 
Federal prospective payment system rate by the applicable relative 
weight in determining payment to LTCHs for each case. In order to make 
these annual adjustments under the dual rate LTCH PPS payment 
structure, beginning with FY 2016, we recalibrate the MS-LTC-DRG 
relative weighting factors annually using data from applicable LTCH 
cases (80 FR 49614 through 49617). Under this policy, the resulting MS-
LTC-DRG relative weights would continue to be used to adjust the LTCH 
PPS standard Federal payment rate when calculating the payment for LTCH 
PPS standard Federal payment rate cases.
    The established methodology to develop the proposed MS-LTC-DRG 
relative weights is generally consistent with the methodology 
established when the LTCH PPS was implemented in the August 30, 2002 
LTCH PPS final rule (67 FR 55989 through 55991). However, there have 
been 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, along with the change 
made in conjunction with the implementation of the dual rate LTCH PPS 
payment structure beginning in FY 21016 to use LTCH claims data from 
only LTCH PPS standard Federal payment rate cases (or LTCH PPS cases 
that would have qualified for payment under the LTCH PPS standard 
Federal payment rate if

[[Page 25147]]

the dual rate LTCH PPS payment structure were in effect at the time of 
the discharge) that began in FY 2016. (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). For details on the 
change in our historical methodology to use LTCH claims data only from 
LTCH PPS standard Federal payment rate cases to determine the MS-LTC-
DRG relative weights, we refer readers to the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49614 through 49617). 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 an MS-
LTC-DRG with a relative weight of 2 would, on average, cost twice as 
much to treat as cases in an MS-LTC-DRG with a relative weight of 1.
b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2017
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49625 through 
49634), we presented our policies for the development of the MS-LTC-DRG 
relative weights for FY 2016.
    In this proposed rule, we are proposing to continue to use our 
current methodology to determine the MS-LTC-DRG relative weights for FY 
2017, including the application of established policies related to, 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, the steps for calculating the MS-LTC-
DRG relative weights with a budget neutrality factor, and only using 
data from applicable LTCH cases (which includes our policy of only 
using cases that would meet the criteria for exclusion from the site 
neutral payment rate (or, for discharges occurring prior to the 
implementation of the dual rate LTCH PPS payment structure, would have 
met the criteria for exclusion had those criteria been in effect at the 
time of the discharge)).
    In this section, we present our proposed methodology for 
determining the proposed MS-LTC-DRG relative weights for FY 2017, and 
we discuss the effects of our proposed policies concerning the data 
used to determine the proposed FY 2017 MS-LTC-DRG relative weights on 
the various components of our existing methodology in the discussion 
that follows.
c. Data
    For this proposed rule, to calculate the proposed MS-LTC-DRG 
relative weights for FY 2017, we obtained total charges from FY 2015 
Medicare LTCH claims data from the December 2015 update of the FY 2015 
MedPAR file, which are the best available data at this time, and we are 
proposing to use Version 34 of the GROUPER to classify LTCH cases. 
Consistent with our historical practice, we use those data and the 
proposed Version 34 of the MS-LTC-DRGs in establishing the proposed FY 
2017 MS-LTC-DRG relative weights in this proposed rule. To calculate 
the proposed FY 2017 MS-LTC-DRG relative weights under the dual rate 
LTCH PPS payment structure, we are proposing to continue to use 
applicable LTCH data, which includes our policy of only using cases 
that meet the criteria for exclusion from the site neutral payment rate 
(or would have met the criteria had they been in effect at the time of 
the discharge) (80 FR 49624). Specifically, we are proposing to begin 
by first evaluating the LTCH claims data in the December 2015 update of 
the FY 2015 MedPAR file to determine which LTCH cases would meet the 
criteria for exclusion from the site neutral payment rate under Sec.  
412.522(b) had the dual rate LTCH PPS payment structure been in effect 
at the time of discharge. We identified the FY 2015 LTCH cases that 
were not assigned to proposed MS-LTC-DRGs 876, 880, 881, 882, 883, 884, 
885, 886, 887, 894, 895, 896, 897, 945 and 946, which identify LTCH 
cases that do not have a principal diagnosis relating to a psychiatric 
diagnosis or to rehabilitation; and that either--
     The admission to the LTCH was ``immediately preceded'' by 
discharge from a subsection (d) hospital and the immediately preceding 
stay in that subsection (d) hospital included at least 3 days in an 
ICU, as we define under the ICU criterion; or
     The admission to the LTCH was ``immediately preceded'' by 
discharge from a subsection (d) hospital and the claim for the LTCH 
discharge includes the applicable procedure code that indicates at 
least 96 hours of ventilator services were provided during the LTCH 
stay, as we define under the ventilator criterion. Claims data from the 
FY 2015 MedPAR file that reported ICD-9-CM procedure code 96.72 were 
used to identify cases involving at least 96 hours of ventilator 
services in accordance with the ventilator criterion (as FY 2015 
discharges occurred prior to the adoption of ICD-10-CM/PCS). (We note 
that the corresponding ICD-10-PCS code for cases involving at least 94 
hours of ventilation services is 5A1955Z, effective October 1, 2016) 
(80 FR 49626 through 49627). We note that, for purposes of developing 
the proposed FY 2017 MS-LTC-DRG relative weights using our current 
methodology, we did not identify any cases that would have been 
excluded from the site neutral payment rate under the temporary 
statutory provision for certain wound care discharges from certain 
LTCHs provided by Public Law 114-113 had the dual rate LTCH PPS payment 
structure been in effect at the time of the discharge. At this time, it 
is uncertain how many LTCHs and how many cases in the claims data we 
are using for this proposed rule would have met the statutory criteria 
to be excluded from the site neutral payment rate under that statutory 
provision (had the dual rate LTCH PPS payment structure been in effect 
at the time of the discharge). Therefore, for the remainder of this 
section, when we refer to LTCH claims only from cases that meet the 
criteria for exclusion from the site neutral payment rate (or would 
meet the criteria had they been in effect at the time of the 
discharge), such data do not include any cases that would have been 
paid based on the LTCH PPS standard Federal payment rate under the 
provisions of section 231 of Public Law 114-113, had the dual rate LTCH 
PPS payment structure been in effect at the time of the discharge.
    Then, consistent with our historical methodology, we are proposing 
to exclude any claims in the resulting data set that were submitted by 
LTCHs that are all-inclusive rate providers and LTCHs that are 
reimbursed in accordance with demonstration projects authorized under 
section 402(a) of Public Law 90-248 or section 222(a) of Public Law 92-
603. In addition, consistent with our historical practice, we would 
exclude the Medicare Advantage (Part C) claims that were in the 
resulting data set based on the presence of a GHO Paid indicator value 
of ``1'' in the MedPAR files. The claims that remained after these 
three trims (that is, the applicable LTCH data) were then used to 
calculate the proposed MS-LTC-DRG relative weights for FY 2017.
    In summary, in general, in identifying the claims data for the 
development of

[[Page 25148]]

the proposed FY 2017 MS-LTC-DRG relative weights in this proposed rule, 
we are proposing to use claims data after we trim the claims data of 10 
all-inclusive rate providers reported in the December 2015 update of 
the FY 2015 MedPAR file, as well as any Medicare Advantage claims data 
for cases that would meet the criteria for exclusion from the site 
neutral payment rate under Sec.  412.522(b) if the dual rate LTCH PPS 
payment structure were in effect at the time of discharge. (We note 
that there were no data from any LTCHs that are paid in accordance with 
a demonstration project reported in the December 2015 update of the FY 
2015 MedPAR file. However, had there been we would trim the claims data 
from those LTCHs as well, in accordance with our established policy.) 
We would use the remaining data (that is, the applicable LTCH data) to 
calculate the proposed relative weights for FY 2017.

d. Hospital-Specific Relative Value (HSRV) Methodology

    By nature, LTCHs often specialize in certain areas, such as 
ventilator-dependent patients. Some case types (MS-LTC-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. To account for the fact that cases may not be randomly 
distributed across LTCHs, consistent with the methodology we have used 
since the implementation of the LTCH PPS, we are proposing to continue 
to use a hospital-specific relative value (HSRV) methodology to 
calculate the proposed MS-LTC-DRG relative weights for FY 2017. We 
believe that this method removes this hospital-specific source of bias 
in measuring LTCH average charges (67 FR 55985). Specifically, under 
this methodology, we are reducing the impact of the variation in 
charges across providers on any particular MS-LTC-DRG relative weight 
by converting each LTCH's charge for an applicable LTCH case to a 
relative value based on that LTCH's average charge for such cases.
    Under the HSRV methodology, we standardize charges for each LTCH by 
converting its charges for each applicable LTCH 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; therefore, 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 applicable LTCH cases it treats relative to the 
complexity of the applicable LTCH cases treated by all other LTCHs (the 
average LTCH PPS case-mix of all applicable LTCH cases across all 
LTCHs).
    In accordance with our established methodology, for FY 2017, we are 
proposing to continue to standardize charges for each applicable LTCH 
case by first dividing the adjusted charge for the case (adjusted for 
SSOs under Sec.  412.529 as described in section VII.C.3.g. (Step 3) of 
the preamble of this proposed rule) by the average adjusted charge for 
all applicable LTCH 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 would be 
multiplied by that LTCH's case-mix index to determine the standardized 
charge for the case.
    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. By standardizing charges in this manner, we count 
charges for a Medicare patient at a LTCH with high average charges as 
less resource intensive than they would be at a LTCH with low average 
charges. For example, a $10,000 charge for a case at a LTCH with an 
average adjusted charge of $17,500 reflects a higher level of relative 
resource use than a $10,000 charge for a case at a LTCH with the same 
case-mix, but an average adjusted charge of $35,000. We believe that 
the adjusted charge of an individual case more accurately reflects 
actual resource use for an individual LTCH because the variation in 
charges due to systematic differences in the markup of charges among 
LTCHs is taken into account.
e. Treatment of Severity Levels in Developing the Proposed MS-LTC-DRG 
Relative Weights
    For purposes of determining the proposed MS-LTC-DRG relative 
weights, under our historical methodology, there are three different 
categories of MS-DRGs based on volume of cases within specific MS-LTC-
DRGs: (1) MS-LTC-DRGs with at least 25 applicable LTCH cases in the 
data used to calculate the relative weight, which are each assigned a 
unique relative weight; (2) low-volume MS-LTC-DRGs (that is, MS-LTC-
DRGs that contain between 1 and 24 applicable LTCH cases that are 
grouped into quintiles (as described later in this section of the 
proposed rule) and assigned the relative weight of the quintile; and 
(3) no-volume MS-LTC-DRGs that 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). For 
FY 2017, we are proposing to continue to use applicable LTCH cases to 
establish the same volume-based categories to calculate the proposed FY 
2017 MS-LTC-DRG relative weights.
    In determining the proposed FY 2017 MS-LTC-DRG relative weights, 
when necessary, we are proposing to make adjustments to account for 
nonmonotonicity, as discussed in greater detail later in Step 6 of 
section VII.C.3.g. of the preamble of this proposed rule. We refer 
readers to the discussion in the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule for our rationale for including an adjustment for nonmonotonicity 
(74 FR 43953 through 43954).
f. Proposed Low-Volume MS-LTC-DRGs
    In order to account for MS-LTC-DRGs with low-volume (that is, with 
fewer than 25 applicable LTCH cases), consistent with our existing 
methodology, we are proposing to continue to employ the quintile 
methodology for proposed low-volume MS-LTC-DRGs, such that we grouped 
the ``low-volume MS-LTC-DRGs'' (that is, proposed MS-LTC-DRGs that 
contained between 1 and 24 applicable LTCH cases into one of five 
categories (quintiles) based on average charges (67 FR 55984 through 
55995; 72 FR 47283 through 47288; and 80 FR 49628). In cases where the 
initial assignment of a low-volume MS-LTC-DRG to a quintile resulted in 
nonmonotonicity within a base-DRG, we are proposing to make adjustments 
to the resulting low-volume

[[Page 25149]]

MS-LTC-DRGs to preserve monotonicity, as discussed in detail in section 
VII.C.3.g. (Step 6) of the preamble of this proposed rule.
    In this proposed rule, based on the best available data (that is, 
the December 2015 update of the FY 2015 MedPAR files), we identified 
259 proposed MS-LTC-DRGs that contained between 1 and 24 applicable 
LTCH cases. This list of proposed MS-LTC-DRGs was then divided into one 
of the 5 low-volume quintiles, each containing 51 proposed MS-LTC-DRGs 
(259/5 = 51, with a remainder of 4). We assigned the proposed low-
volume MS-LTC-DRGs to specific low-volume quintiles by sorting the 
proposed low-volume MS-LTC-DRGs in ascending order by average charge in 
accordance with our established methodology. Based on the data 
available for the proposed rule, the number of proposed MS-LTC-DRGs 
with less than 25 applicable LTCH cases is not evenly divisible by 5. 
Therefore, we are proposing to employ our historical methodology for 
determining which of the low-volume quintiles contain the additional 
proposed low-volume MS-LTC-DRG. Specifically for this proposed rule, 
after organizing the proposed MS-LTC-DRGs by ascending order by average 
charge, we assigned the first 51st (1st through 51st) of proposed low-
volume MS-LTC-DRGs (with the lowest average charge) into Quintile 1. 
The 51 proposed MS-LTC-DRGs with the highest average charge cases were 
assigned into Quintile 5. Because the average charge of the 52nd 
proposed low-volume MS-LTC-DRG in the sorted list was closer to the 
average charge of the 51st proposed low-volume MS-LTC-DRG (assigned to 
Quintile 1) than to the average charge of the 53rd proposed low-volume 
MS-LTC-DRG (assigned to Quintile 2), we assigned it to Quintile 1 (such 
that Quintile 1 contains 52 proposed low-volume MS-LTC-DRGs before any 
adjustments for nonmonotonicity, as discussed below). This results in 4 
of the 5 proposed low-volume quintiles containing 52 proposed MS-LTC-
DRGs (Quintiles 1, 2, 3 and 4) and one proposed low-volume quintile 
containing 51 proposed MS-LTC-DRGs (Quintile 5). Table 13A, listed in 
section VI. of the Addendum to this proposed rule and available via the 
Internet on the CMS Web site, lists the composition of the proposed 
low-volume quintiles for MS-LTC-DRGs for FY 2017.
    In order to determine the proposed FY 2017 relative weights for the 
proposed low-volume MS-LTC-DRGs, we are proposing to use the five 
proposed low-volume quintiles described previously. We determined a 
proposed relative weight and (geometric) average length of stay for 
each of the five proposed low-volume quintiles using the methodology 
described in section VII.C.3.g. of the preamble of this proposed rule. 
We are proposing to assign the same proposed relative weight and 
average length of stay to each of the proposed low-volume MS-LTC-DRGs 
that make up an individual 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 applicable LTCH cases would vary in 
the future. Furthermore, we note that we continue to monitor the volume 
(that is, the number of applicable 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 LTCH 
cases grouped to low-volume MS-LTC-DRGs and do not result in an 
unintended financial incentive for LTCHs to inappropriately admit these 
types of cases.
g. Steps for Determining the Proposed FY 2017 MS-LTC-DRG Relative 
Weights
    In this proposed rule, we are proposing to continue to use our 
current methodology to determine the proposed FY 2017 MS-LTC-DRG 
relative weights.
    In summary, to determine the proposed FY 2017 MS-LTC-DRG relative 
weights, we are proposing to group applicable LTCH cases to the 
appropriate proposed MS-LTC-DRG, while taking into account the proposed 
low-volume quintiles (as described above) and proposed cross-walked no-
volume MS-LTC-DRGs (as described later in this section). After 
establishing the appropriate proposed MS-LTC-DRG (or proposed low-
volume quintile), we calculate the proposed FY 2017 relative weights by 
first removing cases with a length of stay of 7 days or less and 
statistical outliers (Steps 1 and 2 below). Next, we adjust the number 
of applicable LTCH cases in each proposed MS-LTC-DRG (or proposed low-
volume quintile) for the effect of SSO cases (Step 3 below). After 
removing applicable LTCH cases with a length of stay of 7 days or less 
(Step 1 below) and statistical outliers (Step 2 below), which are the 
SSO-adjusted applicable LTCH cases and corresponding charges (step 3 
below), we calculate ``relative adjusted weights'' for each proposed 
MS-LTC-DRG (or low-volume quintile) using the HSRV method.
    Step 1--Remove cases with a length of stay of 7 days or less.
    The first step in our calculation of the proposed FY 2017 MS-LTC-
DRG relative weights would be to 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 proposed FY 2017 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 existing relative weight methodology, in 
determining the proposed FY 2017 MS-LTC-DRG relative weights, we are 
proposing to remove LTCH cases with a length of stay of 7 days or less 
from applicable LTCH cases. (For additional information on what is 
removed in this step of the relative weight methodology, we refer 
readers to 67 FR 55989 and 74 FR 43959.)
    Step 2--Remove statistical outliers.
    The next step in our calculation of the proposed FY 2017 MS-LTC-DRG 
relative weights would be to remove statistical outlier cases from the 
LTCH cases with a length of stay of at least 8 days. Consistent with 
our existing relative weight methodology, we are proposing to continue 
to define statistical outliers as cases that are outside of 3.0 
standard deviations from the mean of the log distribution of both 
charges per case and the charges per day for each MS-LTC-DRG. These 
statistical outliers are removed prior to calculating the relative 
weights because we believe that they may represent aberrations in the 
data that distort the measure of average resource use. Including those 
LTCH cases in the calculation of the relative weights could result in 
an inaccurate relative weight that does not truly reflect relative 
resource use among those MS-LTC-DRGs. (For additional information on 
what is removed in this step of the relative weight methodology, we 
refer readers to 67 FR 55989 and 74 FR 43959.) After removing cases 
with a length of stay of 7 days or less and statistical outliers, we 
are left with applicable LTCH cases that have a length of stay greater 
than or equal to 8 days. In this proposed rule, we refer to

[[Page 25150]]

these cases as ``trimmed applicable LTCH cases.''
    Step 3--Adjust charges for the effects of SSOs.
    As the next step in the calculation of the proposed FY 2017 MS-LTC-
DRG relative weights, consistent with our historical approach, we are 
proposing to adjust each LTCH's charges per discharge for those 
remaining cases (that is, trimmed applicable LTCH cases) for the 
effects of SSOs (as defined in Sec.  412.529(a) in conjunction with 
Sec.  412.503). Specifically, we are proposing to make this adjustment 
by counting an SSO case as a fraction of a discharge based on the ratio 
of the length of stay of the case to the average length of stay for the 
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 LTCH cases with no adjustment in 
determining the proposed FY 2017 MS-LTC-DRG relative weights would 
lower the proposed FY 2017 MS-LTC-DRG relative weight for affected 
proposed MS-LTC-DRGs because the relatively lower charges of the SSO 
cases would bring down the average charge for all cases within a 
proposed MS-LTC-DRG. This would result in an ``underpayment'' for non-
SSO cases and an ``overpayment'' for SSO cases. Therefore, we are 
proposing to continue to adjust for SSO cases under Sec.  412.529 in 
this manner because it would results in more appropriate payments for 
all LTCH PPS standard Federal payment rate cases. (For additional 
information on this step of the relative weight methodology, we refer 
readers to 67 FR 55989 and 74 FR 43959.)
    Step 4--Calculate the proposed FY 2017 MS-LTC-DRG relative weights 
on an iterative basis.
    Consistent with our historical relative weight methodology, we are 
proposing to calculate the proposed FY 2017 MS-LTC-DRG relative weights 
using the HSRV methodology, which is an iterative process. First, for 
each SSO-adjusted trimmed applicable LTCH case, we would calculate a 
hospital-specific relative charge value by dividing the charge per 
discharge after adjusting for SSOs of the LTCH case (from Step 3) by 
the average charge per SSO-adjusted discharge for the LTCH in which the 
case occurred. The resulting ratio was then would be multiplied by the 
LTCH's case-mix index to produce an adjusted hospital-specific relative 
charge value for the case. We use an initial case-mix index value of 
1.0 for each LTCH.
    For each proposed MS-LTC-DRG, we would calculate the proposed FY 
2017 relative weight by dividing the SSO-adjusted average of the 
hospital-specific relative charge values for applicable LTCH cases for 
the proposed MS-LTC-DRG (that is, the sum of the hospital-specific 
relative charge value from above divided by the sum of equivalent cases 
from Step 3 for each proposed MS-LTC-DRG) by the overall SSO-adjusted 
average hospital-specific relative charge value across all applicable 
LTCH cases for all LTCHs (that is, the sum of the hospital-specific 
relative charge value from above divided by the sum of equivalent 
applicable LTCH cases from Step 3 for each proposed MS-LTC-DRG). Using 
these recalculated MS-LTC-DRG relative weights, each LTCH's average 
relative weight for all of its SSO-adjusted trimmed applicable LTCH 
cases (that is, its case-mix) would be calculated by dividing the sum 
of all the LTCH's MS-LTC-DRG relative weights by its total number of 
SSO-adjusted trimmed applicable LTCH cases. The LTCHs' hospital-
specific relative charge values (from previous) were then multiplied by 
the hospital-specific case-mix indexes. The hospital-specific case-mix 
adjusted relative charge values would then be used to calculate a new 
set of MS-LTC-DRG relative weights across all LTCHs. This iterative 
process continues until there is convergence between the relative 
weights produced at adjacent steps, for example, when the maximum 
difference was less than 0.0001.
    Step 5--Determine a proposed FY 2017 relative weight for MS-LTC-
DRGs with no applicable LTCH cases.
    Using the trimmed applicable LTCH cases, we are proposing to 
identify the proposed MS-LTC-DRGs for which there were no claims in the 
December 2015 update of the FY 2015 MedPAR file and, therefore, for 
which no charge data was available for these proposed MS-LTC-DRGs. 
Because patients with a number of the diagnoses under those proposed 
MS-LTC-DRGs may be treated at LTCHs, consistent with our historical 
methodology, we would generally assign a proposed relative weight to 
each of the no-volume proposed MS-LTC-DRGs based on clinical similarity 
and relative costliness (with the exception of ``transplant'' proposed 
MS-LTC-DRGs, ``error'' proposed MS-LTC-DRGs, and proposed MS-LTC-DRGs 
that indicate a principal diagnosis related to a psychiatric diagnosis 
or rehabilitation (referred to as the ``psychiatric or rehabilitation'' 
MS-LTC-DRGs), as discussed later in this section of the proposed rule). 
(For additional information on this step of the relative weight 
methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through 
43960.)
    We are proposing to cross-walk each no-volume proposed MS-LTC-DRG 
to another proposed MS-LTC-DRG for which we would calculate a proposed 
relative weight (determined in accordance with the methodology 
described above). Then, the ``no-volume'' proposed MS-LTC-DRG would be 
assigned the same proposed relative weight (and average length of stay) 
of the proposed MS-LTC-DRG to which it was cross-walked (as described 
in greater detail in this section of the proposed rule).
    Of the 757 proposed MS-LTC-DRGs for FY 2017, we identified 358 
proposed MS-LTC-DRGs for which there are no trimmed applicable LTCH 
cases (the number identified includes the 8 ``transplant'' proposed MS-
LTC-DRGs, the 2 ``error'' proposed MS-LTC-DRGs, and the 15 
``psychiatric or rehabilitation'' proposed MS-LTC-DRGs, which are 
discussed below). We are proposing to assign proposed relative weights 
to each of the 333 no-volume proposed MS-LTC-DRGs that contained 
trimmed applicable LTCH cases based on clinical similarity and relative 
costliness to one of the remaining 399 (757-358 = 399) proposed MS-LTC-
DRGs for which we would calculate proposed relative weights based on 
the trimmed applicable LTCH cases in the FY 2015 MedPAR file data using 
the steps described previously. (For the remainder of this discussion, 
we refer to the ``cross-walked'' proposed MS-LTC-DRGs as the proposed 
MS-LTC-DRGs to which we cross-walked one of the 333 ``no volume'' 
proposed MS-LTC-DRGs.) Then, we generally assigned the 333 no-volume 
proposed MS-LTC-DRG the proposed relative weight of the cross-walked 
proposed MS-LTC-DRG. (As explained below in Step 6, when necessary, we 
made adjustments to account for nonmonotonicity.)
    We are proposing to cross-walk the no-volume proposed MS-LTC-DRG to 
a proposed MS-LTC-DRG for which we would calculate proposed relative 
weights based on the December 2015 update of the FY 2015 MedPAR file, 
and to which it is 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

[[Page 25151]]

approach (if applicable), length of time of surgical procedure, 
postoperative care, and length of stay. (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 proposed MS-LTC-DRGs in FY 2017, the proposed 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 clinical similarity and relative costliness, would be expected to 
generally require equivalent relative resource use.
    We are proposing to then assign the proposed relative weight of the 
cross-walked proposed MS-LTC-DRG as the proposed relative weight for 
the no-volume proposed MS-LTC-DRG such that both of these proposed MS-
LTC-DRGs (that is, the no-volume proposed MS-LTC-DRG and the cross-
walked proposed MS-LTC-DRG) have the same proposed relative weight (and 
average length of stay) for FY 2017. We note that, if the cross-walked 
proposed MS-LTC-DRG had 25 applicable LTCH cases or more, its proposed 
relative weight (calculated using the methodology described in Steps 1 
through 4 above) was assigned to the no-volume proposed MS-LTC-DRG as 
well. Similarly, if the proposed MS-LTC-DRG to which the no-volume 
proposed MS-LTC-DRG was cross-walked had 24 or less cases and, 
therefore, was designated to one of the proposed low-volume quintiles 
for purposes of determining the proposed relative weights, we assigned 
the proposed relative weight of the applicable proposed low-volume 
quintile to the no-volume proposed MS-LTC-DRG such that both of these 
proposed MS-LTC-DRGs (that is, the no-volume proposed MS-LTC-DRG and 
the proposed cross-walked MS-LTC-DRG) have the same proposed relative 
weight for FY 2017. (As we noted previously, in the infrequent case 
where nonmonotonicity involving a no-volume proposed MS-LTC-DRG 
resulted, additional adjustments as described in Step 6 are required in 
order to maintain monotonically increasing relative weights.)
    For this proposed rule, a list of the no-volume proposed MS-LTC-
DRGs and the proposed MS-LTC-DRGs to which each would cross-walk (that 
is, the cross-walked proposed MS-LTC-DRGs) for FY 2017 is shown in 
Table 13B, which is listed in section VI. of the Addendum to this 
proposed rule and is available via the Internet on the CMS Web site.
    To illustrate this methodology for determining the proposed 
relative weights for the FY 2017 proposed MS-LTC-DRGs with no 
applicable LTCH cases, we are providing the following example, which 
refers to the no-volume proposed MS-LTC-DRGs crosswalk information for 
FY 2017 provided in Table 13B.
    Example: There were no trimmed applicable LTCH cases in the FY 2015 
MedPAR file that we are using for this proposed rule for proposed MS-
LTC-DRG 61 (Acute Ischemic Stroke with Use of Thrombolytic Agent with 
MCC). We determined that proposed MS-LTC-DRG 70 (Nonspecific 
Cerebrovascular Disorders with MCC) is similar clinically and based on 
resource use to proposed MS-LTC-DRG 61. Therefore, we assigned the same 
proposed relative weight (and average length of stay) of proposed MS-
LTC-DRG 70 of 0.9156 for FY 2017 to proposed MS-LTC-DRG 61 (refer to 
Table 11, which is listed in section VI. of the Addendum to this final 
rule and is available via the Internet on the CMS Web site).
    Again, we note that, as this system is dynamic, it is entirely 
possible that the number of MS-LTC-DRGs with no volume would vary in 
the future. Consistent with our historical practice, we used the most 
recent available claims data to identify the trimmed applicable LTCH 
cases from which we determined the proposed relative weights in this 
proposed rule.
    For FY 2017, consistent with our historical relative weight 
methodology, we are proposing to establish a relative weight of 0.0000 
for the following transplant proposed 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 only covers 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 proposed 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 proposed MS-LTC-DRGs would be administratively 
burdensome. (For additional information regarding our treatment of 
transplant MS-LTC-DRGs, we refer readers to the RY 2010 LTCH PPS final 
rule (74 FR 43964).) In addition, consistent with our historical policy 
and we are proposing to establish a relative weight of 0.0000 for the 2 
``error'' proposed MS-LTC-DRGs (that is, MS-LTC-DRG 998 (Principal 
Diagnosis Invalid as Discharge Diagnosis) and MS-LTC-DRG 999 
(Ungroupable)) because applicable LTCH cases grouped to these proposed 
MS-LTC-DRGs cannot be properly assigned to an MS-LTC-DRG according to 
the grouping logic.
    In this proposed rule, for FY 2017, we are proposing to establish a 
proposed relative weight equal to the respective FY 2015 relative 
weight of the MS-LTC-DRGs for the following ``psychiatric or 
rehabilitation'' proposed MS-LTC-DRGs: MS-LTC-DRG 876 (O.R. Procedure 
with Principal Diagnoses of Mental Illness); MS-LTC-DRG 880 (Acute 
Adjustment Reaction & Psychosocial Dysfunction); MS-LTC-DRG 881 
(Depressive Neuroses); MS-LTC-DRG 882 (Neuroses Except Depressive); MS-
LTC-DRG 883 (Disorders of Personality & Impulse Control); MS-LTC-DRG 
884 (Organic Disturbances & Mental Retardation); MS-LTC-DRG 885 
(Psychoses); MS-LTC-DRG 886 (Behavioral & Developmental Disorders); MS-
LTC-DRG 887 (Other Mental Disorder Diagnoses); MS-LTC-DRG 894 (Alcohol/
Drug Abuse or Dependence, Left Ama); MS-LTC-DRG 895 (Alcohol/Drug Abuse 
or Dependence, with Rehabilitation Therapy); MS-LTC-DRG 896 (Alcohol/
Drug Abuse or Dependence, without Rehabilitation Therapy with MCC); MS-
LTC-DRG 897 (Alcohol/Drug Abuse or Dependence, without Rehabilitation 
Therapy without MCC); MS-LTC-DRG 945 (Rehabilitation with CC/MCC); and 
MS-LTC-DRG 946 (Rehabilitation without CC/MCC). As we discussed when we 
implemented the dual rate LTCH PPS payment structure, LTCH discharges 
that are grouped to these 15 ``psychiatric and rehabilitation'' MS-LTC-
DRGs do not meet the criteria for exclusion from the site neutral 
payment rate. As such, under the criterion for a principal diagnosis 
relating to a psychiatric diagnosis or to rehabilitation, there are no 
applicable LTCH cases to use in calculating a relative weight for the 
``psychiatric and rehabilitation'' proposed MS-LTC-DRGs. In other 
words, any LTCH PPS discharges grouped to any of the 15 ``psychiatric

[[Page 25152]]

and rehabilitation'' proposed MS-LTC-DRGs will always be paid at the 
site neutral payment rate, and, therefore, those proposed MS-LTC-DRGs 
will never include any LTCH cases that meet the criteria for exclusion 
from the site neutral payment rate. However, section 1886(m)(6)(B) of 
the Act establishes a transitional payment method for cases that would 
be paid at the site neutral payment rate for LTCH discharges occurring 
in cost reporting periods beginning during FY 2016 or FY 2017. Under 
the transitional payment method for site neutral payment rate cases, 
for LTCH discharges occurring in cost reporting periods beginning on or 
after October 1, 2016, and on or before September 30, 2017, site 
neutral payment rate cases are paid a blended payment rate, calculated 
as 50 percent of the applicable site neutral payment rate amount for 
the discharge and 50 percent of the applicable LTCH PPS standard 
Federal payment rate. Because the LTCH PPS standard Federal payment 
rate is based on the relative weight of the MS-LTC-DRG, in order to 
determine the transitional blended payment for site neutral payment 
rate cases grouped to one of the ``psychiatric or rehabilitation'' 
proposed MS-LTC-DRGs in FY 2017, we are proposing to assign a proposed 
relative weight to these proposed MS-LTC-DRGs for FY 2017, that would 
be the same as the FY 2015 relative weight (which is also the same as 
the FY 2016 relative weight). We believe that using the respective FY 
2015 relative weight for each of the ``psychiatric or rehabilitation'' 
proposed MS-LTC-DRGs results in appropriate payments for LTCH cases 
that are paid at the site neutral payment rate under the transition 
policy provided by the statute because there are no clinically similar 
MS-LTC-DRGs for which we were able to determine relative weights based 
on applicable LTCH cases in the FY 2015 MedPAR file data using the 
steps described above. Furthermore, we believe that it would be 
administratively burdensome and introduce unnecessary complexity to the 
MS-LTC-DRG relative weight calculation to use the LTCH discharges in 
the MedPAR file data to calculate a relative weight for those 15 
``psychiatric and rehabilitation'' proposed MS-LTC-DRGs to be used for 
the sole purpose of determining half of the transitional blended 
payment for site neutral payment rate cases during the transition 
period. (80 FR 49631 through 49632)
    In summary, for FY 2017, we are proposing to establish a proposed 
relative weight (and average length of stay thresholds) equal to the 
respective FY 2015 relative weight of the proposed MS-LTC-DRGs for the 
15 ``psychiatric or rehabilitation'' proposed MS-LTC-DRGs listed 
previously (that is, MS-LTC-DRGs 876, 880, 881, 882, 883, 884, 885, 
886, 887, 894, 895, 896, 897, 945, and 946). Table 11, which is listed 
in section VI. of the Addendum to this proposed rule and is available 
via the Internet on the CMS Web site, reflects this proposal.
    Step 6--Adjust the proposed FY 2017 MS-LTC-DRG relative weights to 
account for nonmonotonically increasing relative weights.
    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 
would 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 proposed FY 2017 MS-LTC-DRG 
relative weights, consistent with our historical methodology, we are 
proposing to continue to combine MS-LTC-DRG severity levels within a 
base MS-LTC-DRG for the purpose of computing a proposed relative weight 
when necessary to ensure that monotonicity is maintained. For a 
comprehensive description of our existing methodology to adjust for 
nonmonotonicity, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 43964 through 43966). Any adjustments for 
nonmonotonicity that were made in determining the proposed FY 2017 MS-
LTC-DRG relative weights in this proposed rule by applying this 
methodology are denoted in Table 11, which is listed in section VI. of 
the Addendum to this proposed rule and is available via the Internet on 
the CMS Web site.
    Step 7--Calculate the proposed FY 2017 MS-LTC-DRG reclassification 
and recalibration 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). To achieve the budget neutrality requirement at 
Sec.  412.517(b), under our established methodology, for each annual 
update, the MS-LTC-DRG relative weights are uniformly adjusted to 
ensure that estimated aggregate payments under the LTCH PPS would not 
be affected (that is, decreased or increased). Consistent with that 
provision, we are proposing to update the MS-LTC-DRG classifications 
and

[[Page 25153]]

relative weights for FY 2017 based on the most recent available LTCH 
data for applicable LTCH cases, and to continue to apply a budget 
neutrality adjustment in determining the FY 2017 MS-LTC-DRG relative 
weights.
    To ensure budget neutrality in the update to the MS-LTC-DRG 
classifications and relative weights under Sec.  412.517(b), we are 
proposing to continuing to use our established two-step budget 
neutrality methodology. Therefore, in this proposed rule, in the first 
step of our MS-LTC-DRG budget neutrality methodology, for FY 2017, we 
are proposing to calculate and apply a normalization factor to the 
recalibrated relative weights (the result of Steps 1 through 6 
discussed previously) to ensure that estimated payments are not 
affected by changes in the composition of case types or the changes to 
the classification system. That is, the proposed normalization 
adjustment is intended to ensure that the recalibration of the MS-LTC-
DRG relative weights (that is, the process itself) neither increases 
nor decreases the average case-mix index.
    To calculate the proposed normalization factor for FY 2017 (the 
first step of our budget neutrality methodology), we used the following 
three steps: (1.a.) Use the most recent available applicable LTCH cases 
from the most recent available data (that is, LTCH discharges from the 
FY 2015 MedPAR file) and grouped them using the proposed FY 2017 
GROUPER (that is, proposed Version 34 for FY 2017) and the recalibrated 
FY 2017 MS-LTC-DRG relative weights (determined in Steps 1 through 6 
above) to calculate the average case-mix index; (1.b.) group the same 
applicable LTCH cases (as are used in Step 1.a.) using the FY 2016 
GROUPER (Version 33) and FY 2016 MS-LTC-DRG relative weights and 
calculated the average case-mix index; and (1.c.) compute the ratio of 
these average case-mix indexes by dividing the average CMI for FY 2016 
(determined in Step 1.b.) by the average case-mix index for FY 2017 
(determined in Step 1.a.). As a result, in determining the proposed MS-
LTC-DRG relative weights for FY 2017, each recalibrated MS-LTC-DRG 
relative weight is multiplied by the proposed normalization factor of 
1.28094 (determined in Step 1.c.) in the first step of the budget 
neutrality methodology, which produces ``normalized relative weights.''
    In the second step of our MS-LTC-DRG budget neutrality methodology, 
we are proposing to calculate a second budget neutrality factor 
consisting of the ratio of estimated aggregate FY 2017 LTCH PPS 
standard Federal payment rate payments for applicable LTCH cases (the 
sum of all calculations under Step 1.a. mentioned previously) after 
reclassification and recalibration to estimated aggregate payments for 
FY 2017 LTCH PPS standard Federal payment rate payments for applicable 
LTCH cases before reclassification and recalibration (that is, the sum 
of all calculations under Step 1.b. mentioned previously).
    That is, for this proposed rule, for FY 2017, under the second step 
of the budget neutrality methodology, we determined the budget 
neutrality adjustment factor using the following three steps: (2.a.) 
Simulate estimated total FY 2017 LTCH PPS standard Federal payment rate 
payments for applicable LTCH cases using the normalized relative 
weights for FY 2017 and proposed GROUPER Version 34 (as described 
above); (2.b.) simulate estimated total FY 2016 LTCH PPS standard 
Federal payment rate payments for applicable LTCH cases using the FY 
2016 GROUPER (Version 33) and the FY 2016 MS-LTC-DRG relative weights 
in Table 11 of the FY 2016 IPPS/LTCH PPS final rule available on the 
Internet, as described in section VI. of the Addendum of that final 
rule; and (2.c.) calculate the ratio of these estimated total payments 
by dividing the value determined in Step 2.b. by the value determined 
in Step 2.a. In determining the proposed FY 2017 MS-LTC-DRG relative 
weights, each proposed normalized relative weight was then multiplied 
by a proposed budget neutrality factor of 0.998723 (the value 
determined in Step 2.c.) in the second step of the budget neutrality 
methodology to achieve the budget neutrality requirement at Sec.  
412.517(b).
    Accordingly, in determining the proposed FY 2017 MS-LTC-DRG 
relative weights in this proposed rule, consistent with our existing 
methodology, we are proposing to apply a proposed normalization factor 
of 1.28094 and a proposed budget neutrality factor of 0.998723. Table 
11, which is listed in section VI. of the Addendum to this proposed 
rule and is available via the Internet on the CMS Web site, lists the 
proposed MS-LTC-DRGs and their respective proposed relative weights, 
geometric mean length of stay, five-sixths of the geometric mean length 
of stay (used to identify SSO cases under Sec.  412.529(a)), and the 
``IPPS Comparable Thresholds'' (used in determining SSO payments under 
Sec.  412.529(c)(3)), for FY 2017.

D. Proposed Rebasing of the LTCH Market Basket

1. Background
    The input price index (that is, the market basket) that was used to 
develop the LTCH PPS for FY 2003 was the ``excluded hospital with 
capital'' market basket. That market basket was based on 1997 Medicare 
cost report data and included data for Medicare-participating IRFs, 
IPFs, LTCHs, cancer hospitals, and children's hospitals. Although the 
term ``market basket'' technically describes the mix of goods and 
services used in providing hospital care, this term is also commonly 
used to denote the input price index (that is, cost category weights 
and price proxies combined) derived from that mix. Accordingly, the 
term ``market basket,'' as used in this section, refers to an input 
price index.
    Beginning with RY 2007, LTCH PPS payments were updated using a 
2002-based market basket reflecting the operating and capital cost 
structures for IRFs, IPFs, and LTCHs (hereafter referred to as the 
rehabilitation, psychiatric, and long-term care (RPL) market basket). 
We excluded cancer and children's hospitals from the RPL market basket 
because their payments are based entirely on reasonable costs subject 
to rate-of-increase limits established under the authority of section 
1886(b) of the Act, which are implemented in regulations at 42 CFR 
413.40. Those types of hospitals are not paid under a PPS. Also, the 
2002 cost structures for cancer and children's hospitals are noticeably 
different from the cost structures for freestanding IRFs, freestanding 
IPFs, and LTCHs. A complete discussion of the 2002-based RPL market 
basket can be found in the RY 2007 LTCH PPS final rule (71 FR 27810 
through 27817).
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51756), we finalized 
the rebasing and revising of the 2002-based RPL market basket by 
creating and implementing a 2008-based RPL market basket. We also 
discussed the creation of a stand-alone LTCH market basket and received 
several public comments, all of which supported deriving a stand-alone 
LTCH market basket (76 FR 51756 through 51757). In the FY 2013 IPPS/
LTCH PPS final rule, we finalized the adoption of a stand-alone 2009-
based LTCH-specific market basket that reflects the cost structures of 
LTCHs only (77 FR 53467 through 53479).
    For this FY 2017 proposed rule, we are proposing to rebase and 
revise the 2009-based LTCH-specific market basket. The proposed LTCH 
market basket is primarily based on Medicare cost report data for LTCHs 
for 2013,

[[Page 25154]]

which are for cost reporting periods beginning on and after October 1, 
2012, and before October 1, 2013. We are proposing to use data from 
cost reports beginning in FY 2013 because these data are the latest 
available complete data for purposes of calculating cost weights for 
the market basket. In the following discussion, we provide an overview 
of the proposed LTCH market basket and describe the methodologies we 
are proposing to use for determining the operating and capital portions 
of the proposed 2013-based LTCH market basket.
2. Overview of the Proposed 2013-Based LTCH Market Basket
    Similar to the 2009-based LTCH-specific market basket, the proposed 
2013-based LTCH market basket is a fixed-weight, Laspeyres-type price 
index. A Laspeyres price index measures the change in price, over time, 
of the same mix of goods and services purchased in the base period. Any 
changes in the quantity or mix (that is, intensity) of goods and 
services purchased over time are not measured.
    The index itself is constructed using three steps. First, a base 
period is selected (in this proposed rule, we are proposing to use 2013 
as the base period) and total base period expenditures are estimated 
for a set of mutually exclusive and exhaustive spending categories, 
with the proportion of total costs that each category represents being 
calculated. These proportions are called ``cost weights'' or 
``expenditure weights.'' Second, each expenditure category is matched 
to an appropriate price or wage variable, referred to as a ``price 
proxy.'' In almost every instance, these price proxies are derived from 
publicly available statistical series that are published on a 
consistent schedule (preferably at least on a quarterly basis). 
Finally, the expenditure weight for each cost category is multiplied by 
the level of its respective price proxy. The sum of these products 
(that is, the expenditure weights multiplied by their price levels) for 
all cost categories yields the composite index level of the market 
basket in a given period. Repeating this step for other periods 
produces a series of market basket levels over time. Dividing an index 
level for a given period by an index level for an earlier period 
produces a rate of growth in the input price index over that timeframe.
    As noted above, the market basket is described as a fixed-weight 
index because it represents the change in price over time of a constant 
mix (quantity and intensity) of goods and services needed to furnish 
hospital services. The effects on total expenditures resulting from 
changes in the mix of goods and services purchased subsequent to the 
base period are not measured. For example, a hospital hiring more 
nurses to accommodate the needs of patients would increase the volume 
of goods and services purchased by the hospital, but would not be 
factored into the price change measured by a fixed-weight hospital 
market basket. Only when the index is rebased would changes in the 
quantity and intensity be captured, with those changes being reflected 
in the cost weights. Therefore, we rebase the market basket 
periodically so that the cost weights reflect a recent mix of goods and 
services that hospitals purchase (hospital inputs) to furnish inpatient 
care.
3. Development of the Proposed 2013-Based LTCH Market Basket Cost 
Categories and Weights
    We are inviting public comments on our proposed methodology, 
discussed below, for deriving the proposed 2013-based LTCH market 
basket.
a. Use of Medicare Cost Report Data
    The proposed 2013-based LTCH market basket consists of six major 
cost categories derived from the 2013 LTCH Medicare cost reports (CMS 
Form 2552-10), including wages and salaries, employee benefits, 
contract labor, pharmaceuticals, professional liability insurance, and 
capital. After we calculate these cost categories, we are left with a 
residual cost category, which reflects all other input costs other than 
those captured in the six cost categories above. This is the same 
number of cost categories derived for the 2009-based LTCH-specific 
market basket using the 2009 Medicare cost report data (CMS Form 2552-
96). These 2013 Medicare cost reports include data for cost reporting 
periods beginning on and after October 1, 2012, and before October 1, 
2013. We are proposing to use 2013 as the base year because we believe 
that the 2013 Medicare cost reports represent the most recent, complete 
set of Medicare cost report data available to develop cost weights for 
an LTCH market basket. Medicare cost report data include costs for all 
patients, including Medicare, Medicaid, and private payer.
    Because our goal is to measure cost shares for facilities that 
serve Medicare beneficiaries, and are reflective of case-mix and 
practice patterns associated with providing services to Medicare 
beneficiaries in LTCHs, we are proposing to limit our selection of 
Medicare cost reports to those from LTCHs that have a Medicare average 
length of stay (LOS) that is within a comparable range of their total 
facility average LOS. We define the Medicare average LOS based on data 
reported on the Medicare cost report (CMS Form 2552-10) Worksheet S-3, 
Part I, Line 14. We believe that applying the LOS edit results in a 
more accurate reflection of the structure of costs for Medicare covered 
days. For the 2009-based LTCH-specific market basket, we used the cost 
reports submitted by LTCHs with Medicare average LOS within 15 percent 
(that is, 15 percent higher or lower) of the total facility average LOS 
for the hospital.
    Based on our analysis of the 2013 Medicare cost reports, for the 
proposed 2013-based LTCH market basket, we are proposing to use the 
cost reports submitted by LTCHs with Medicare average LOS within 25 
percent (that is, 25 percent higher or lower) of the total facility 
average LOS for the hospital (this edit excludes 6 percent of LTCH 
providers). Applying the proposed trim results in a subset of LTCH 
Medicare cost reports with an average Medicare LOS of 27 days, average 
facility LOS of 28 days, and aggregate Medicare utilization (as 
measured by Medicare inpatient LTCH days as a percentage of total 
facility inpatient LTCH days) of 66 percent. If we were to apply the 
same trim as was applied for the 2009-based LTCH-specific market 
basket, we would exclude 11 percent of LTCH providers, but the results 
would be very similar with an average Medicare LOS of 27 days, average 
facility LOS of 27 days, and aggregate Medicare utilization of 66 
percent. The 6 percent of providers that are excluded from the proposed 
2013-based LTCH market basket have an average Medicare LOS of 29 days, 
average facility LOS of 77 days, and aggregate Medicare utilization of 
12 percent. We believe that the use of this proposed trim, instead of 
the trim used to develop the 2009-based LTCH-specific market basket, is 
a technical improvement because data from more LTCHs are used while 
still being reflective of case-mix and practice patterns associated 
with providing services to Medicare beneficiaries.
    Using the resulting set of Medicare cost reports, we are proposing 
to calculate cost weights for seven major cost categories of the 
proposed 2013-based LTCH market basket (wages and salaries, employee 
benefits, contract labor, professional liability insurance, 
pharmaceuticals, capital, and an ``all other'' residual cost category). 
The methodology used to develop the proposed 2013-based LTCH market 
basket cost weights is generally the same methodology used to develop 
the 2009-based LTCH-specific market basket

[[Page 25155]]

cost weights. We describe the detailed methodology for obtaining costs 
for each of these seven cost categories below.
(1) Wages and Salaries Costs
    We are proposing to derive wages and salaries costs as the sum of 
inpatient salaries, ancillary salaries, and a proportion of overhead 
(or general service cost center) salaries as reported on Worksheet A, 
Column 1. Because overhead salary costs are attributable to the entire 
LTCH, we are proposing to only include the proportion attributable to 
the Medicare allowable cost centers. Similar to the 2009-based LTCH-
specific market basket major cost weights, we define Medicare allowable 
total costs (routine, ancillary and capital) as costs that are eligible 
for payment through the LTCH PPS. We are proposing to estimate the 
proportion of overhead salaries that are attributed to Medicare 
allowable costs centers by multiplying the ratio of Medicare allowable 
cost centers' salaries to total salaries (Worksheet A, Column 1, Line 
200) by total overhead salaries. A similar methodology was used to 
derive wages and salaries costs in the 2009-based LTCH-specific market 
basket.
(2) Employee Benefit Costs
    Similar to the 2009-based LTCH-specific market basket, we are 
proposing to calculate employee benefit costs using Worksheet S3, Part 
II. The completion of Worksheet S-3, Part II is only required for IPPS 
hospitals. However, for 2013, we found that roughly 35 percent of all 
LTCHs voluntarily reported these data (similar to prior years). We note 
that this worksheet is only required to be completed by IPPS hospitals. 
Our analysis of the Worksheet S-3, Part II data submitted by these 
LTCHs indicates that we had a large enough sample to enable us to 
produce a reasonable employee benefits cost weight. Specifically, we 
found that when we recalculated the cost weight after weighting to 
reflect the characteristics of the universe of LTCHs (type of control 
(nonprofit, for-profit, and government) and by region), the 
recalculation did not have a material effect on the resulting cost 
weight. Therefore, we are proposing to use Worksheet S-3, Part II data 
(as was done for the 2009-based LTCH-specific market basket) to 
calculate the employee benefit cost weight in the proposed 2013-based 
LTCH market basket.
    We note that, effective with the implementation of CMS Form 2552-10 
for cost reporting periods beginning on or after May 1, 2010, CMS began 
collecting employee benefits and contract labor data on Worksheet S-3, 
Part V, which is applicable to LTCHs. Only a few LTCHs reported these 
data and, therefore, we were unable to use such a small sample to 
accurately reflect these costs. Therefore, we encourage all LTCHs to 
report employee benefit and contract labor costs on Worksheet S-3, Part 
V.
(3) Contract Labor Costs
    Contract labor costs are primarily associated with direct patient 
care services. Contract labor costs for services such as accounting, 
billing, and legal are estimated using other government data sources as 
described below. As was done for the 2009-based LTCH-specific market 
basket, we are proposing to derive the contract labor cost weight for 
the proposed 2013-based LTCH market basket using voluntarily reported 
data from Worksheet S-3, Part II. Approximately 48 percent of LTCHs 
voluntarily reported contract labor cost on the Worksheet S-3, Part II. 
Our analysis of these data indicates that we have a large enough sample 
to enable us to produce a reasonable contract labor cost weight. 
Specifically, we found that when we recalculated the cost weight after 
weighting to reflect the characteristics of the universe of LTCHs (type 
of control (nonprofit, for-profit, and government) and by region), the 
recalculation did not have a material effect on the resulting cost 
weight. Therefore, as was done for the 2009-based LTCH-specific market 
basket, we are proposing to use Worksheet S-3, Part II to calculate the 
contract labor cost weight in the proposed 2013-based LTCH market 
basket.
(4) Pharmaceutical Costs
    We are proposing to calculate pharmaceutical costs using nonsalary 
costs reported on Worksheet A, Column 7, minus the amount on Worksheet 
A, Column 1, for the pharmacy cost center (Line 15) and drugs charged 
to patients cost center (Line 73). A similar methodology was used for 
the 2009-based LTCH-specific market basket using the CMS Form 2552-96.
(5) Professional Liability Insurance Costs
    We are proposing that professional liability insurance (PLI) costs 
(often referred to as malpractice costs) be equal to premiums, paid 
losses and self-insurance costs reported on Worksheet S2, Part I, Line 
118, Columns 1 through 3. A similar methodology was used for the 2009-
based LTCH-specific market basket using the CMS Form 2552-96.
(6) Capital Costs
    We are proposing that capital costs be equal to Medicare allowable 
capital costs as reported on Worksheet B, Part II, Column 26. We are 
proposing to define Medicare allowable costs as cost centers: 30 
through 35, 50 through 76 (excluding 52, 61, and 75), 90 through 91 and 
93. A similar methodology was used for the 2009-based LTCH-specific 
market basket using the CMS Form 2552-96.
b. Final Major Cost Category Computation
    In addition to our proposals to derive costs for the major cost 
categories for each provider using the Medicare cost report data as 
previously described, we are proposing to address outlier cases using 
the following steps. First, for each provider, we are proposing to 
divide the costs for each of the six categories by the total Medicare 
allowable costs to obtain cost weights for the universe of LTCH 
providers. We are proposing to define total Medicare allowable costs 
reported on Worksheet B, Part I, Column 26 for cost centers: 30 Through 
35, 50 through 76 (excluding 52, 61, and 75), 90 through 91 and 93.
    We then are proposing to remove those providers whose derived cost 
weights fall in the top and bottom 5 percent of provider-specific 
derived cost weights to ensure the removal of costs for outlier cases. 
After the costs for outlier cases have been removed in this manner, we 
are proposing to sum the costs for each category across all remaining 
providers, and then divide this by the sum of total Medicare allowable 
costs across all remaining providers to obtain a cost weight for the 
proposed 2013-based LTCH market basket for the given category. Finally, 
we are proposing to calculate a seventh major cost weight--the residual 
``All Other'' cost weight to reflect all remaining costs that are not 
captured in the previous six cost categories listed. We refer readers 
to Table VII-1 below for the resulting proposed cost weights for these 
major cost categories.

[[Page 25156]]



 Table VII-1--Major Cost Categories and Their Respective Cost Weights as
                  Calculated From Medicare Cost Reports
------------------------------------------------------------------------
                                      Proposed 2013-
                                        based LTCH      2009-based LTCH-
                                      market basket     specific market
       Major cost categories           cost weight        basket cost
                                    (percent of total   weight  (percent
                                          costs)        of total costs)
------------------------------------------------------------------------
Wages and Salaries................               41.5               40.4
Employee Benefits.................                6.5                7.0
Contract Labor....................                5.9                6.9
Professional Liability Insurance                  0.9                0.8
 (Malpractice)....................
Pharmaceuticals...................                7.6                8.9
Capital...........................                9.7                9.8
All Other.........................               27.8               26.1
------------------------------------------------------------------------

    The wages and salaries cost weight calculated from the Medicare 
cost reports for the proposed 2013-based LTCH market basket is 
approximately 1 percentage point higher than the wages and salaries 
cost weight for the 2009-based LTCH-specific market basket, while the 
contract labor cost weight is approximately 1 percentage point lower. 
The proposed 2013-based pharmaceuticals cost weight also is roughly 1 
percentage point lower than the cost weight for the 2009-based LTCH-
specific market basket.
    As we did for the 2009-based LTCH market basket, we are proposing 
to allocate the contract labor cost weight to the wages and salaries 
and employee benefits cost weights based on their relative proportions 
under the assumption that contract labor costs are comprised of both 
wages and salaries and employee benefits. The contract labor allocation 
proportion for wages and salaries is equal to the wages and salaries 
cost weight as a percent of the sum of the wages and salaries cost 
weight and the employee benefits cost weight. This rounded percentage 
is 86 percent. Therefore, we are proposing to allocate 86 percent of 
the contract labor cost weight to the wages and salaries cost weight 
and 14 percent to the employee benefits cost weight. We refer readers 
to Table VII-2 below that shows the proposed wages and salaries and 
employee benefit cost weights after contract labor cost weight 
allocation for both the proposed 2013-based LTCH market basket and the 
2009-based LTCH-specific market basket.

Table VII-2--Wages and Salaries and Employee Benefits Cost Weights After
                        Contract Labor Allocation
------------------------------------------------------------------------
                                      Proposed 2013-    2009-based LTCH-
                                     based LTCH cost     specific cost
       Major cost categories         weight (percent    weight (percent
                                     of total costs)    of total costs)
------------------------------------------------------------------------
Wages and Salaries................               46.6               46.3
Employee Benefits.................                7.3                8.0
Compensation......................               53.9               54.3
------------------------------------------------------------------------

    After the allocation of the contract labor cost weight, the 
proposed 2013-based wages and salaries cost weight is 0.3 percentage 
point higher, while the employee benefit cost weight is 0.7 percentage 
point lower, relative to the respective cost weights for the 2009-based 
LTCH-specific market basket. As a result, in the proposed 2013-based 
LTCH market basket, the compensation cost weight is 0.4 percentage 
point lower than the compensation cost weight for the 2009-based LTCH-
specific market basket.
c. Derivation of the Detailed Operating Cost Weights
    To further divide the ``All Other'' residual cost weight estimated 
from the 2013 Medicare cost report data into more detailed cost 
categories, we are proposing to use the 2007 Benchmark Input-Output (I-
O) ``Use Tables/Before Redefinitions/Purchaser Value'' for NAICS 
622000, Hospitals, published by the Bureau of Economic Analysis (BEA). 
These data are publicly available at the following Web site: http://www.bea.gov/industry/io_annual.htm.
    The BEA Benchmark I-O data are scheduled for publication every 5 
years with the most recent data available for 2007. The 2007 Benchmark 
I-O data are derived from the 2007 Economic Census and are the building 
blocks for BEA's economic accounts. Therefore, they represent the most 
comprehensive and complete set of data on the economic processes or 
mechanisms by which output is produced and distributed.\72\ BEA also 
produces Annual I-O estimates. However, while based on a similar 
methodology, these estimates reflect less comprehensive and less 
detailed data sources and are subject to revision when benchmark data 
becomes available. Instead of using the less detailed Annual I-O data, 
we are proposing to inflate the 2007 Benchmark I-O data forward to 2013 
by applying the annual price changes from the respective price proxies 
to the appropriate market basket cost categories that are obtained from 
the 2007 Benchmark I-O data. We repeated this practice for each year. 
We then calculated the cost shares that each cost category represents 
of the 2007 data inflated to 2013. These resulting 2013 cost shares 
were applied to the ``All Other'' residual cost weight to obtain the 
detailed cost weights for the proposed 2013-based LTCH market basket. 
For example, the cost for Food: Direct Purchases represents 6.5 percent 
of the sum of the ``All Other'' 2007 Benchmark I-O Hospital 
Expenditures inflated to 2013. Therefore, the Food: Direct Purchases 
cost weight represents

[[Page 25157]]

6.5 percent of the proposed 2013-based LTCH market basket's ``All 
Other'' cost category (27.8 percent), yielding a ``final'' Food: Direct 
Purchases proposed cost weight of 1.8 percent in the proposed 2013-
based LTCH market basket (0.065 x 27.8 percent = 1.8 percent).
---------------------------------------------------------------------------

    \72\ http://www.bea.gov/papers/pdf/IOmanual_092906.pdf.
---------------------------------------------------------------------------

    Using this methodology, we are proposing to derive 18 detailed LTCH 
market basket cost category weights from the proposed 2013-based LTCH 
market basket residual cost weight (27.8 percent). These categories 
are: (1) Electricity; (2) Fuel, Oil, and Gasoline; (3) Water and 
Sewerage; (4) Food: Direct Purchases; (5) Food: Contract Services; (6) 
Chemicals; (7) Medical Instruments; (8) Rubber and Plastics; (9) Paper 
and Printing Products; (10) Miscellaneous Products; (11) Professional 
Fees: Labor-Related; (12) Administrative and Facilities Support 
Services; (13) Installation, Maintenance, and Repair Services; (14) All 
Other Labor-Related Services; (15) Professional Fees: Nonlabor-Related; 
(16) Financial Services; (17) Telephone Services; and (18) All Other 
Nonlabor-Related Services.
d. Derivation of the Detailed Capital Cost Weights
    As described in section VII.D.3.b. of the preamble of this proposed 
rule, we are proposing a capital-related cost weight of 9.7 percent as 
calculated from the 2013 Medicare cost reports for LTCHs after applying 
the proposed trims described above. We are proposing to then separate 
this total capital-related cost weight into more detailed cost 
categories.
    Using 2013 Medicare cost reports, we are able to group capital-
related costs into the following categories: Depreciation, Interest, 
Lease, and Other Capital-Related costs. For each of these categories, 
we are proposing to determine what proportion of total capital-related 
costs the category represents using the data reported by the LTCH on 
Worksheet A-7, which is the same methodology used for the 2009-based 
LTCH-specific market basket.
    We also are proposing to allocate lease costs across each of the 
remaining detailed capital-related cost categories as was done in the 
2009-based LTCH-specific market basket. This would result in three 
primary capital-related cost categories in the proposed 2013-based LTCH 
market basket: Depreciation, Interest, and Other Capital-Related costs. 
Lease costs are unique in that they are not broken out as a separate 
cost category in the proposed 2013-based LTCH market basket. Rather, we 
are proposing to proportionally distribute these costs among the cost 
categories of Depreciation, Interest, and Other Capital-Related, 
reflecting the assumption that the underlying cost structure of leases 
is similar to that of capital-related costs in general. As was done for 
the 2009-based LTCH-specific market basket, we are proposing to assume 
that 10 percent of the lease costs as a proportion of total capital-
related costs (62.3 percent) represents overhead and to assign those 
costs to the Other Capital-Related cost category accordingly. 
Therefore, we are assuming that approximately 6.2 percent (62.3 percent 
x 0.1) of total capital-related costs represent lease costs 
attributable to overhead, and we are proposing to add this 6.2 percent 
to the 5.9 percent Other Capital-Related cost category weight. We are 
then proposing to distribute the remaining lease costs (56.1 percent, 
or 62.3 percent-6.2 percent) proportionally across the three cost 
categories (Depreciation, Interest, and Other Capital-Related) based on 
the proportion that these categories comprise of the sum of the 
Depreciation, Interest, and Other Capital-Related cost categories 
(excluding lease expenses). For example, the Other Capital-Related 
capital cost category represented 15.5 percent of all three cost 
categories (Depreciation, Interest, and Other Capital-Related) prior to 
any lease expenses being allocated. This 15.5 percent is applied to the 
56.1 percent of remaining lease expenses so that another 8.7 percent of 
lease expenses as a percent of total capital-related costs is allocated 
to the Other Capital-Related cost category. Therefore, the resulting 
proposed Other Capital-Related cost weight is 20.8 percent (5.9 percent 
+ 6.2 percent + 8.7 percent). This is the same methodology used for the 
2009-based LTCH-specific market basket. The proposed allocation of 
these lease expenses are shown in Table VII-3.
    Finally, we are proposing to further divide the Depreciation and 
Interest cost categories. We are proposing to separate Depreciation 
cost category into the following two categories: (1) Building and Fixed 
Equipment and (2) Movable Equipment. We also are proposing to separate 
the Interest cost category into the following two categories: (1) 
Government/Nonprofit; and (2) For-profit.
    To disaggregate the depreciation cost weight, we needed to 
determine the percent of total depreciation costs for LTCHs (after the 
allocation of lease costs) that are attributable to building and fixed 
equipment, which we hereafter refer to as the ``fixed percentage.'' We 
are proposing to use depreciation and lease data from Worksheet A-7 of 
the 2013 Medicare cost reports, which is the same methodology used for 
the 2009-based LTCH-specific market basket. Based on the 2013 LTCH 
Medicare cost report data, we have determined that depreciation costs 
for building and fixed equipment account for 39 percent of total 
depreciation costs, while depreciation costs for movable equipment 
account for 61 percent of total depreciation costs. As mentioned above, 
we are proposing to allocate lease expenses among the Depreciation, 
Interest, and Other Capital cost categories. We determined that leasing 
building and fixed equipment expenses account for 86 percent of total 
leasing expenses, while leasing movable equipment expenses account for 
14 percent of total leasing expenses. We are proposing to sum the 
depreciation and leasing expenses for building and fixed equipment, as 
well as sum the depreciation and leasing expenses for movable 
equipment. This results in the proposed building and fixed equipment 
depreciation cost weight (after leasing costs are included) 
representing 73 percent of total depreciation costs and the movable 
equipment depreciation cost weight (after leasing costs are included) 
representing 27 percent of total depreciation costs.
    To disaggregate the interest cost weight, we needed to determine 
the percent of total interest costs for LTCHs that are attributable to 
government and nonprofit facilities, which we hereafter refer to as the 
``nonprofit percentage,'' because price pressures associated with these 
types of interest costs tend to differ from those for for-profit 
facilities. We are proposing to use interest costs data from Worksheet 
A-7 of the 2013 Medicare cost reports for LTCHs, which is the same 
methodology used for the 2009-based LTCH-specific market basket. The 
nonprofit percentage determined using this method is 23 percent.
    Table VII-3 below provides the proposed detailed capital cost 
shares obtained from the Medicare cost reports. Ultimately, if 
finalized, these detailed capital cost shares would be applied to the 
total capital-related cost weight determined in section VII.D.3.b. of 
the preamble of this proposed rule to separate the total capital-
related cost weight of 9.7 percent into more detailed cost categories 
and weights.

[[Page 25158]]



 Table VII-3--Detailed Capital Cost Weights for the Proposed 2013-Based
                           LTCH Market Basket
------------------------------------------------------------------------
                                                       Proposed detailed
                                      Proposed cost       capital cost
                                     shares obtained      shares after
          Cost categories             from Medicare      allocation of
                                       cost reports      lease expenses
                                    (percent of total  (percent of total
                                          costs)             costs)
------------------------------------------------------------------------
Depreciation......................               22.0               54.8
    Building and Fixed Equipment..               16.1               40.1
    Movable Equipment.............                5.9               14.7
Interest..........................                9.8               24.4
    Government/Nonprofit..........                2.2                5.6
    For-profit....................                7.6               18.8
Lease.............................               62.3  .................
Other.............................                5.9               20.8
------------------------------------------------------------------------
Note: Total may not add to 100 due to rounding.

e. Proposed 2013-Based LTCH Market Basket Cost Categories and Weights
    Table VII-4 below shows the proposed cost categories and weights 
for the proposed 2013-based LTCH market basket compared to the 2009-
based LTCH-specific market basket.

  Table VII-4--Proposed 2013-Based LTCH Cost Weights Compared to 2009-
                         Based LTCH Cost Weights
------------------------------------------------------------------------
                                      Proposed 2013-
           Cost category             based LTCH cost    2009-based LTCH
                                          weight          cost weight
------------------------------------------------------------------------
Total.............................              100.0              100.0
    Compensation..................               53.9               54.3
        Wages and Salaries........               46.6               46.3
        Employee Benefits.........                7.3                8.0
    Utilities.....................                2.2                1.8
        Electricity...............                1.0                1.4
        Fuel, Oil, and Gasoline...                1.1                0.3
        Water & Sewerage..........                0.1                0.1
    Professional Liability                        0.9                0.8
     Insurance....................
    All Other Products and                       33.2               33.3
     Services.....................
    All Other Products............               16.3               19.5
        Pharmaceuticals...........                7.6                8.9
        Food: Direct Purchases....                1.8                3.4
        Food: Contract Services...                1.1                0.5
        Chemicals.................                0.7                1.3
        Medical Instruments.......                2.4                2.1
        Rubber & Plastics.........                0.6                1.3
        Paper and Printing                        1.2                1.2
         Products.................
        Apparel...................  .................                0.3
        Machinery and Equipment...  .................                0.1
        Miscellaneous Products....                0.8                0.4
    All Other Services............               16.9               13.7
    Labor-Related Services........                8.3                5.3
        Professional Fees: Labor-                 3.5                2.3
         related..................
        Administrative and                        0.9                0.5
         Facilities Support
         Services.................
        Installation, Maintenance,                2.0  .................
         and Repair Services......
        All Other: Labor-related                  1.9                2.6
         Services.................
    Nonlabor-Related Services.....                8.6                8.4
        Professional Fees:                        3.6                5.3
         Nonlabor-related.........
        Financial services........                2.9                1.0
        Telephone Services........                0.7                0.5
        Postage...................  .................                0.8
        All Other: Nonlabor-                      1.4                0.7
         related Services.........
    Capital-Related Costs.........                9.7                9.8
    Depreciation..................                5.3                5.7
        Fixed Assets..............                3.9                3.8
        Movable Equipment.........                1.4                1.9
    Interest Costs................                2.4                2.4
        Government/Nonprofit......                0.5                0.7
        For Profit................                1.8                1.7
    Other Capital-Related Costs...                2.0                1.7
------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.


[[Page 25159]]

    Similar to the 2012-based IRF and 2012-based IPF market baskets, 
the proposed 2013-based LTCH market basket does not include separate 
cost categories for Apparel, Machinery and Equipment, and Postage. Due 
to the small weights associated with these detailed categories and 
relatively stable price growth in the applicable price proxy, we are 
proposing to include Apparel and Machinery and Equipment in the 
Miscellaneous Products cost category and Postage in the All-Other 
Nonlabor-Related Services cost category. We note that the machinery and 
equipment expenses are for equipment that is paid for in a given year 
and not depreciated over the asset's useful life. Depreciation expenses 
for movable equipment are reflected in the capital-related cost weight 
of the proposed 2013-based LTCH market basket. For the proposed 2013-
based LTCH market basket, we also are proposing to include a separate 
cost category for Installation, Maintenance, and Repair Services in 
order to proxy these costs by a price index that better reflects the 
price changes of labor associated with maintenance-related services.
4. Selection of Proposed Price Proxies
    After computing the cost weights for the proposed 2013-based LTCH 
market basket, it was necessary to select appropriate wage and price 
proxies to reflect the rate of price change for each expenditure 
category. With the exception of the proxy for Professional Liability 
Insurance, all of the proposed proxies for the operating portion of the 
proposed 2013-based LTCH market basket are based on Bureau of Labor 
Statistics (BLS) data and are grouped into one of the following BLS 
categories:
    [ssquf] Producer Price Indexes--Producer Price Indexes (PPIs) 
measure price changes for goods sold in markets other than the retail 
market. PPIs are preferable price proxies for goods and services that 
hospitals purchase as inputs because PPIs better reflect the actual 
price changes encountered by hospitals. For example, we are proposing 
to use a PPI for prescription drugs, rather than the Consumer Price 
Index (CPI) for prescription drugs, because hospitals generally 
purchase drugs directly from a wholesaler. The PPIs that we are 
proposing to use measure price changes at the final stage of 
production.
    [ssquf] Consumer Price Indexes--Consumer Price Indexes (CPIs) 
measure change in the prices of final goods and services bought by the 
typical consumer. Because they may not represent the price encountered 
by a producer, we are proposing to use CPIs only if an appropriate PPI 
is not available, or if the expenditures are more like those faced by 
retail consumers in general rather than by purchasers of goods at the 
wholesale level. For example, the CPI for food purchased away from home 
is proposed to be used as a proxy for contracted food services.
    [ssquf] Employment Cost Indexes--Employment Cost Indexes (ECIs) 
measure the rate of change in employee wage rates and employer costs 
for employee benefits per hour worked. These indexes are fixed-weight 
indexes and strictly measure the change in wage rates and employee 
benefits per hour. Appropriately, they are not affected by shifts in 
employment mix.
    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance. Reliability indicates that the 
index is based on valid statistical methods and has low sampling 
variability. Timeliness implies that the proxy is published regularly, 
preferably at least once a quarter. Availability means that the proxy 
is publicly available. Finally, relevance means that the proxy is 
applicable and representative of the cost category weight to which it 
is applied. We believe that the proposed PPIs, CPIs, and ECIs selected 
meet these criteria.
    Table VII-7 lists the price proxies that we are proposing to use 
for the proposed 2013-based LTCH market basket. Below we present a 
detailed explanation of the price proxies that we are proposing for 
each cost category weight. We note that many of the proxies that we are 
proposing to use for the proposed 2013-based LTCH market basket are the 
same as those used for the 2009-based LTCH-specific market basket. For 
further discussion on the 2009-based LTCH market basket, we refer 
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53467 through 
53479).
a. Price Proxies for the Operating Portion of the Proposed 2013-Based 
LTCH Market Basket
(1) Wages and Salaries
    We are proposing to use the ECI for Wages and Salaries for All 
Civilian Workers in Hospitals (BLS series code CIU1026220000000I) to 
measure the price growth of this cost category. This is the same price 
proxy used in the 2009-based LTCH-specific market basket.
(2) Employee Benefits
    We are proposing to use the ECI for Total Benefits for All Civilian 
Workers in Hospitals to measure the price growth of this cost category. 
This ECI is calculated using the ECI for Total Compensation for All 
Civilian Workers in Hospitals (BLS series code CIU1016220000000I) and 
the relative importance of wages and salaries within total 
compensation. This is the same price proxy used in the 2009-based LTCH-
specific market basket.
(3) Electricity
    We are proposing to use the PPI Commodity for Commercial Electric 
Power (BLS series code WPU0542) to measure the price growth of this 
cost category. This is the same price proxy used in the 2009-based 
LTCH-specific market basket.
(4) Fuel, Oil, and Gasoline
    We are proposing to change the proxy used for the Fuel, Oil, and 
Gasoline cost category. The 2009-based LTCH-specific market basket uses 
the PPI Industry for Petroleum Refineries (BLS series code PCU32411-
32411) to proxy these expenses.
    For the proposed 2013-based LTCH market basket, we are proposing to 
use a blend of the PPI Industry for Petroleum Refineries (BLS series 
code PCU32411-32411) and the PPI Commodity for Natural Gas (BLS series 
code WPU0531). Our analysis of the Bureau of Economic Analysis' 2007 
Benchmark Input-Output data (use table before redefinitions, 
purchaser's value for NAICS 622000 [Hospitals]), shows that petroleum 
refineries expenses accounts for approximately 70 percent and natural 
gas accounts for approximately 30 percent of the fuel, oil, and 
gasoline expenses. Therefore, we are proposing a blended proxy of 70 
percent of the PPI Industry for Petroleum Refineries (BLS series code 
PCU32411-32411) and 30 percent of the PPI Commodity for Natural Gas 
(BLS series code WPU0531). We believe that these two price proxies are 
the most technically appropriate indices available to measure the price 
growth of the Fuel, Oil, and Gasoline cost category in the proposed 
2013-based LTCH market basket.
(5) Water and Sewage
    We are proposing to use the CPI for Water and Sewerage Maintenance 
(All Urban Consumers) (BLS series code CUUR0000SEHG01) to measure the 
price growth of this cost category. This is the same price proxy used 
in the 2009-based LTCH-specific market basket.
(6) Professional Liability Insurance
    We are proposing to proxy price changes in hospital professional 
liability

[[Page 25160]]

insurance premiums (PLI) using percentage changes as estimated by the 
CMS Hospital Professional Liability Index. To generate these estimates, 
we collected commercial insurance premiums for a fixed level of 
coverage while holding nonprice factors constant (such as a change in 
the level of coverage). This is the same price proxy used in the 2009-
based LTCH-specific market basket.
(7) Pharmaceuticals
    We are proposing to use the PPI Commodity for Pharmaceuticals for 
Human Use, Prescription (BLS series code WPUSI07003) to measure the 
price growth of this cost category. This is the same price proxy used 
in the 2009-based LTCH-specific market basket.
(8) Food: Direct Purchases
    We are proposing to use the PPI Commodity for Processed Foods and 
Feeds (BLS series code WPU02) to measure the price growth of this cost 
category. This is the same price proxy used in the 2009-based LTCH-
specific market basket.
(9) Food: Contract Services
    We are proposing to use the CPI for Food Away From Home (All Urban 
Consumers) (BLS series code CUUR0000SEFV) to measure the price growth 
of this cost category. This is the same price proxy used in the 2009-
based LTCH-specific market basket.
(10) Chemicals
    We are proposing to continue to use a four-part blended PPI 
composed of the PPI Industry for Industrial Gas Manufacturing (BLS 
series code PCU325120325120P), the PPI Industry for Other Basic 
Inorganic Chemical Manufacturing (BLS series code PCU32518-32518), the 
PPI Industry for Other Basic Organic Chemical Manufacturing (BLS series 
code PCU32519-32519), and the PPI Industry for Soap and Cleaning 
Compound Manufacturing (BLS series code PCU32561-32561). We are 
proposing to update the blended weights using 2007 Benchmark I-O data, 
which we also are proposing to use for the proposed 2013-based LTCH 
market basket. The 2009-based LTCH-specific market basket included the 
same blended chemical price proxy, but used the 2002 Benchmark I-O data 
to determine the weights of the blended chemical price index. The 2007 
Benchmark I-O data shows more weight for organic chemical products and 
less weight for inorganic chemical products compared to the 2002 
Benchmark I-O data.
    Table VII-5 below shows the proposed weights for each of the four 
PPIs used to create the blended PPI.

                                    Table VII-5--Blended Chemical PPI Weights
----------------------------------------------------------------------------------------------------------------
                                                              Proposed 2013-
                           Name                                 based LTCH      2009-based LTCH        NAICS
                                                                 weights            weights
----------------------------------------------------------------------------------------------------------------
PPI Industry for Industrial Gas Manufacturing.............                32%                35%          325120
PPI Industry for Other Basic Inorganic Chemical                            17                 25          325180
 Manufacturing............................................
PPI Industry for Other Basic Organic Chemical                              45                 30          325190
 Manufacturing............................................
PPI Industry for Soap and Cleaning Compound Manufacturing.                  6                 10          325610
----------------------------------------------------------------------------------------------------------------

(11) Medical Instruments
    We are proposing to use a blend for the Medical Instruments cost 
category. The 2007 Benchmark Input-Output data shows an approximate 50/
50 split between Surgical and Medical Instruments and Medical and 
Surgical Appliances and Supplies for this cost category. Therefore, we 
are proposing a blend composed of 50 percent of the PPI Commodity for 
Surgical and Medical Instruments (BLS code WPU1562) and 50 percent of 
the PPI Commodity for Medical and Surgical Appliances and Supplies (BLS 
code WPU1563). The 2009-based LTCH-specific market basket used the 
single, higher level PPI Commodity for Medical, Surgical, and Personal 
Aid Devices (BLS series code WPU156). We believe that the proposed 
price proxy better reflects the mix of expenses for this cost category 
as obtained from the 2007 Benchmark I-O data.
(12) Rubber and Plastics
    We are proposing to use the PPI Commodity for Rubber and Plastic 
Products (BLS series code WPU07) to measure the price growth of this 
cost category. This is the same price proxy used in the 2009-based 
LTCH-specific market basket.
(13) Paper and Printing Products
    We are proposing to use the PPI Commodity for Converted Paper and 
Paperboard Products (BLS series code WPU0915) to measure the price 
growth of this cost category. This is the same price proxy used in the 
2009-based LTCH-specific market basket.
(14) Miscellaneous Products
    We are proposing to use the PPI Commodity for Finished Goods Less 
Food and Energy (BLS series code WPUFD4131) to measure the price growth 
of this cost category. This is the same price proxy used in the 2009-
based LTCH-specific market basket.
(15) Professional Fees: Labor-Related
    We are proposing to use the ECI for Total Compensation for Private 
Industry Workers in Professional and Related (BLS series code 
CIU2010000120000I) to measure the price growth of this category. It 
includes occupations such as legal, accounting, and engineering 
services. This is the same price proxy used in the 2009-based LTCH-
specific market basket.
(16) Administrative and Facilities Support Services
    We are proposing to use the ECI for Total Compensation for Private 
Industry Workers in Office and Administrative Support (BLS series code 
CIU2010000220000I) to measure the price growth of this category. This 
is the same price proxy used in the 2009-based LTCH-specific market 
basket.
(17) Installation, Maintenance, and Repair Services
    We are proposing to use the ECI for Total compensation for All 
Civilian Workers in Installation, Maintenance, and Repair (BLS series 
code CIU1010000430000I) to measure the price growth of this new cost 
category. Previously these costs were included in the All Other: Labor-
Related Services category and were proxied by the ECI for Total 
Compensation for Private Industry Workers in Service Occupations (BLS 
series code CIU2010000300000I). We believe that this index better 
reflects the price changes of labor associated with maintenance-related 
services and its incorporation represents a technical improvement to 
the market basket.
    (18) All Other: Labor-Related Services

[[Page 25161]]

    We are proposing to use the ECI for Total Compensation for Private 
Industry Workers in Service Occupations (BLS series code 
CIU2010000300000I) to measure the price growth of this cost category. 
This is the same price proxy used in the 2009-based LTCH-specific 
market basket.
    (19) Professional Fees: Nonlabor-Related
    We are proposing to use the ECI for Total Compensation for Private 
Industry Workers in Professional and Related (BLS series code 
CIU2010000120000I) to measure the price growth of this category. This 
is the same price proxy that we are proposing to use for the 
Professional Fees: Labor-related cost category and the same price proxy 
used in the 2009-based LTCH-specific market basket.
    (20) Financial Services
    We are proposing to use the ECI for Total Compensation for Private 
Industry Workers in Financial Activities (BLS series code 
CIU201520A000000I) to measure the price growth of this cost category. 
This is the same price proxy used in the 2009-based LTCH-specific 
market basket.
    (21) Telephone Services
    We are proposing to use the CPI for Telephone Services (BLS series 
code CUUR0000SEED) to measure the price growth of this cost category. 
This is the same price proxy used in the 2009-based LTCH-specific 
market basket.
(22) All Other: Nonlabor-Related Services
    We are proposing to use the CPI for All Items Less Food and Energy 
(BLS series code CUUR0000SA0L1E) to measure the price growth of this 
cost category. We believe that using the CPI for All Items Less Food 
and Energy avoids double counting of changes in food and energy prices 
as they are already captured elsewhere in the market basket. This is 
the same price proxy used in the 2009-based LTCH-specific market 
basket.
b. Price Proxies for the Capital Portion of the Proposed 2013-Based 
LTCH Market Basket
(1) Capital Price Proxies Prior to Vintage Weighting
    We are proposing to apply the same price proxies to the detailed 
capital-related cost categories as were applied in the 2009-based LTCH-
specific market basket, which are described and provided in Table VII-
7. We also are proposing to continue to vintage weight the capital 
price proxies for Depreciation and Interest to capture the long-term 
consumption of capital. This vintage weighting method is the same 
method that was used for the 2009-based LTCH-specific market basket and 
is described in section VII.D.4.b.(2) of the preamble of this proposed 
rule.
    We are proposing to proxy the Depreciation: Building and Fixed 
Equipment cost category by BEA's Chained Price Index for Nonresidential 
Construction for Hospitals and Special Care Facilities (BEA Table 
5.4.4. Price Indexes for Private Fixed Investment in Structures by 
Type); the Depreciation: Movable Equipment cost category by the PPI 
Commodity for Machinery and Equipment (BLS series code WPU11); the 
Nonprofit Interest cost category by the average yield on domestic 
municipal bonds (Bond Buyer 20-bond index); the For-Profit Interest 
cost category by the average yield on Moody's Aaa bonds (Federal 
Reserve); and the Other Capital-Related cost category by the CPI-U for 
Rent of Primary Residence (BLS series code CUUS0000SEHA). We believe 
that these are the most appropriate proxies for LTCH capital-related 
costs that meet our selection criteria of relevance, timeliness, 
availability, and reliability.
(2) Vintage Weights for Price Proxies
    Because capital is acquired and paid for over time, capital-related 
expenses in any given year are determined by both past and present 
purchases of physical and financial capital. The vintage-weighted 
capital-related portion of the proposed 2013-based LTCH market basket 
is intended to capture the long-term consumption of capital, using 
vintage weights for depreciation (physical capital) and interest 
(financial capital). These vintage weights reflect the proportion of 
capital-related purchases attributable to each year of the expected 
life of building and fixed equipment, movable equipment, and interest. 
We are proposing to use vintage weights to compute vintage-weighted 
price changes associated with depreciation and interest expenses.
    Capital-related costs are inherently complicated and are determined 
by complex capital-related purchasing decisions, over time, based on 
such factors as interest rates and debt financing. In addition, capital 
is depreciated over time instead of being consumed in the same period 
it is purchased. By accounting for the vintage nature of capital, we 
are able to provide an accurate and stable annual measure of price 
changes. Annual non-vintage price changes for capital are unstable due 
to the volatility of interest rate changes and, therefore, do not 
reflect the actual annual price changes for LTCH capital-related costs. 
The capital-related component of the proposed 2013-based LTCH market 
basket reflects the underlying stability of the capital-related 
acquisition process.
    To calculate the vintage weights for depreciation and interest 
expenses, we first needed a time series of capital-related purchases 
for building and fixed equipment and movable equipment. We found no 
single source that provides an appropriate time series of capital-
related purchases by hospitals for all of the above components of 
capital purchases. The early Medicare cost reports did not have 
sufficient capital-related data to meet this need. Data we obtained 
from the American Hospital Association (AHA) did not include annual 
capital-related purchases. However, we were able to obtain data on 
total expenses back to 1963 from the AHA. Consequently, we are 
proposing to use data from the AHA Panel Survey and the AHA Annual 
Survey to obtain a time series of total expenses for hospitals. We then 
are proposing to use data from the AHA Panel Survey supplemented with 
the ratio of depreciation to total hospital expenses obtained from the 
Medicare cost reports to derive a trend of annual depreciation expenses 
for 1963 through 2013. We are proposing to separate these depreciation 
expenses into annual amounts of building and fixed equipment 
depreciation and movable equipment depreciation as determined earlier. 
From these annual depreciation amounts, we derived annual end-of-year 
book values for building and fixed equipment and movable equipment 
using the expected life for each type of asset category. While data are 
not available that are specific to LTCHs, we believe that this 
information for all hospitals serves as a reasonable alternative for 
the pattern of depreciation for LTCHs. We used the AHA data and 
methodology to derive the FY 2010-based IPPS capital market basket (78 
FR 50604), and the capital components of the 2012-based IRF (80 FR 
47062) and 2012-based IPF market baskets (80 FR 46672).
    To continue to calculate the vintage weights for depreciation and 
interest expenses, we also needed to account for the expected lives for 
building and fixed equipment, movable equipment, and interest for the 
proposed 2013-based LTCH market basket. We are proposing to calculate 
the expected lives using Medicare cost report data for LTCHs. The 
expected life of any asset can be determined by dividing the value of 
the asset (excluding fully depreciated assets) by its current year 
depreciation amount. This calculation yields the

[[Page 25162]]

estimated expected life of an asset if the rates of depreciation were 
to continue at current year levels, assuming straight-line 
depreciation. Using this proposed method, we determined the average 
expected life of building and fixed equipment to be equal to 18 years, 
and the average expected life of movable equipment to be equal to 8 
years. For the expected life of interest, we believe that vintage 
weights for interest should represent the average expected life of 
building and fixed equipment because, based on previous research 
described in the FY 1997 IPPS final rule (61 FR 46198), the expected 
life of hospital debt instruments and the expected life of buildings 
and fixed equipment are similar. We note that for the 2009-based LTCH-
specific market basket, we used 2009 Medicare cost reports for LTCHs to 
determine the expected life of building and fixed equipment and movable 
equipment (77 FR 53467 through 53479). The 2009-based LTCH-specific 
market basket was based on an expected average life of building and 
fixed equipment of 20 years and an expected average life of movable 
equipment of 8 years.
    Multiplying these expected lives by the annual depreciation amounts 
results in annual year-end asset costs for building and fixed equipment 
and movable equipment. We then calculated a time series, beginning in 
1964, of annual capital purchases by subtracting the previous year's 
asset costs from the current year's asset costs.
    For the building and fixed equipment and movable equipment vintage 
weights, we are proposing to use the real annual capital-related 
purchase amounts for each asset type to capture the actual amount of 
the physical acquisition, net of the effect of price inflation. These 
real annual capital-related purchase amounts are produced by deflating 
the nominal annual purchase amount by the associated price proxy as 
provided earlier in this proposed rule. For the interest vintage 
weights, we are proposing to use the total nominal annual capital-
related purchase amounts to capture the value of the debt instrument 
(including, but not limited to, mortgages and bonds). Using these 
capital-related purchase time series specific to each asset type, we 
are proposing to calculate the vintage weights for building and fixed 
equipment, for movable equipment, and for interest.
    The vintage weights for each asset type are deemed to represent the 
average purchase pattern of the asset over its expected life (in the 
case of building and fixed equipment and interest, 18 years, and in the 
case of movable equipment, 8 years). For each asset type, we are 
proposing to use the time series of annual capital-related purchase 
amounts available from 2013 back to 1964. These data allow us to derive 
thirty-three 18-year periods of capital-related purchases for building 
and fixed equipment and interest, and forty-three 8-year periods of 
capital-related purchases for movable equipment. For each 18-year 
period for building and fixed equipment and interest, or 8-year period 
for movable equipment, we are proposing to calculate annual vintage 
weights by dividing the capital-related purchase amount in any given 
year by the total amount of purchases over the entire 18-year or 8-year 
period. This calculation was done for each year in the 18-year or 8-
year period and for each of the periods for which we have data. We then 
calculated the average vintage weight for a given year of the expected 
life by taking the average of these vintage weights across the multiple 
periods of data.
    The vintage weights for the capital-related portion of the proposed 
2013-based LTCH market basket and the 2009-based LTCH-specific market 
basket are presented in Table VII-6 below.

    Table VII-6--Proposed 2013-Based LTCH Market Basket and 2009-Based LTCH-Specific Market Basket Vintage Weights for Capital-Related Price Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Building and fixed equipment          Movable equipment                   Interest
                                                         -----------------------------------------------------------------------------------------------
                        Year \1\                           2013-based 18   2009-based 20   2013-based 8    2009-based 8    2013-based 18   2009-based 20
                                                               years           years           years           years           years           years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................           0.044           0.034           0.104           0.102           0.029           0.021
2.......................................................           0.046           0.037           0.110           0.108           0.031           0.024
3.......................................................           0.048           0.039           0.117           0.114           0.034           0.026
4.......................................................           0.050           0.042           0.124           0.123           0.037           0.029
5.......................................................           0.051           0.043           0.128           0.129           0.039           0.032
6.......................................................           0.051           0.045           0.132           0.134           0.042           0.035
7.......................................................           0.051           0.046           0.140           0.142           0.043           0.037
8.......................................................           0.052           0.047           0.145           0.149           0.046           0.040
9.......................................................           0.053           0.049  ..............  ..............           0.049           0.043
10......................................................           0.056           0.051  ..............  ..............           0.054           0.047
11......................................................           0.058           0.053  ..............  ..............           0.059           0.050
12......................................................           0.059           0.053  ..............  ..............           0.063           0.053
13......................................................           0.061           0.053  ..............  ..............           0.068           0.055
14......................................................           0.062           0.054  ..............  ..............           0.072           0.059
15......................................................           0.062           0.055  ..............  ..............           0.076           0.062
16......................................................           0.063           0.057  ..............  ..............           0.080           0.068
17......................................................           0.066           0.059  ..............  ..............           0.086           0.073
18......................................................           0.067           0.059  ..............  ..............           0.091           0.077
19......................................................  ..............           0.061  ..............  ..............  ..............           0.082
20......................................................  ..............           0.062  ..............  ..............  ..............           0.086
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................           1.000           1.000           1.000           1.000           1.000           1.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Numbers may not add to total due to rounding.
\1\ Vintage weight in the last year (for example, year 18 for the proposed 2013-based LTCH market basket) is applied to the most recent data point and
  prior vintage weights are applied going back in time. For example, year 18 vintage weight would be applied to the 2017q3 price proxy level, year 17
  vintage weight would be applied to the 2016q3 price proxy level, etc.


[[Page 25163]]

    The process of creating vintage-weighted price proxies requires 
applying the vintage weights to the price proxy index where the last 
applied vintage weight in Table VII-6 is applied to the most recent 
data point. We have provided on the CMS Web site an example of how the 
vintage weighting price proxies are calculated, using example vintage 
weights and example price indices. The example can be found under the 
following CMS Web site link: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html in the zip file 
titled ``Weight Calculations as described in the IPPS FY 2010 Proposed 
Rule.''
c. Summary of Price Proxies of the Proposed 2013-Based LTCH Market 
Basket
    Table VII-7 below shows both the operating and capital price 
proxies that we are proposing to use for the proposed 2013-based LTCH 
market basket.

  Table VII-7--Proposed Price Proxies for the Proposed 2013-Based LTCH
                              Market Basket
------------------------------------------------------------------------
        Cost description              Price proxies           Weight
------------------------------------------------------------------------
Total..........................  .......................           100.0
    Compensation...............  .......................            53.9
        Wages and Salaries.....  ECI for Wages and                  46.6
                                  Salaries for All
                                  Civilian Workers in
                                  Hospitals.
        Employee Benefits......  ECI for Total Benefits              7.3
                                  for All Civilian
                                  Workers in Hospitals.
    Utilities..................  .......................             2.2
        Electricity............  PPI Commodity for                   1.0
                                  Commercial Electric
                                  Power.
        Fuel, Oil, and Gasoline  Blend of the PPI                    1.1
                                  Industry for Petroleum
                                  Refineries and PPI
                                  Commodity for Natural
                                  Gas.
        Water & Sewerage.......  CPI-U for Water and                 0.1
                                  Sewerage Maintenance.
    Professional Liability       .......................             0.9
     Insurance.
        Malpractice............  CMS Hospital                        0.9
                                  Professional Liability
                                  Insurance Premium
                                  Index.
All Other Products and Services  .......................            33.2
All Other Products.............  .......................            16.3
        Pharmaceuticals........  PPI Commodity for                   7.6
                                  Pharmaceuticals for
                                  human use,
                                  prescription.
        Food: Direct Purchases.  PPI Commodity for                   1.8
                                  Processed Foods and
                                  Feeds.
        Food: Contract Services  CPI-U for Food Away                 1.1
                                  From Home.
        Chemicals..............  Blend of Chemical PPIs.             0.7
        Medical Instruments....  Blend of the PPI                    2.4
                                  Commodity for Surgical
                                  and Medical
                                  Instruments and PPI
                                  Commodity for Medical
                                  and Surgical
                                  Appliances and
                                  Supplies.
        Rubber & Plastics......  PPI Commodity for                   0.6
                                  Rubber and Plastic
                                  Products.
        Paper and Printing       PPI Commodity for                   1.2
         Products.                Converted Paper and
                                  Paperboard Products.
        Miscellaneous Products.  PPI Commodity for                   0.8
                                  Finished Goods Less
                                  Food and Energy.
All Other Services.............  .......................            16.9
    Labor-Related Services.....  .......................             8.3
        Professional Fees:       ECI for Total                       3.5
         Labor-related.           Compensation for
                                  Private Industry
                                  Workers in
                                  Professional and
                                  Related.
        Administrative and       ECI for Total                       0.9
         Facilities Support       Compensation for
         Services.                Private Industry
                                  Workers in Office and
                                  Administrative Support.
        Installation,            ECI for Total                       2.0
         Maintenance & Repair     Compensation for
         Services.                Civilian Workers in
                                  Installation,
                                  Maintenance, and
                                  Repair.
        All Other: Labor-        ECI for Total                       1.9
         related Services.        Compensation for
                                  Private Industry
                                  Workers in Service
                                  Occupations.
    Nonlabor-Related Services..  .......................             8.6
        Professional Fees:       ECI for Total                       3.6
         Nonlabor-related.        Compensation for
                                  Private Industry
                                  Workers in
                                  Professional and
                                  Related.
        Financial services.....  ECI for Total                       2.9
                                  Compensation for
                                  Private Industry
                                  Workers in Financial
                                  Activities.
        Telephone Services.....  CPI-U for Telephone                 0.7
                                  Services.
        All Other: Nonlabor-     CPI-U for All Items                 1.4
         related Services.        Less Food and Energy.
    Capital-Related Costs......  .......................             9.7
    Depreciation...............  .......................             5.3
        Fixed Assets...........  BEA chained price index             3.9
                                  for nonresidential
                                  construction for
                                  hospitals and special
                                  care facilities--
                                  vintage weighted (18
                                  years).
        Movable Equipment......  PPI Commodity for                   1.4
                                  machinery and
                                  equipment--vintage
                                  weighted (8 years).
    Interest Costs.............  .......................             2.4
        Government/Nonprofit...  Average yield on                    0.5
                                  domestic municipal
                                  bonds (Bond Buyer 20
                                  bonds)--vintage
                                  weighted (18 years).
        For Profit.............  Average yield on                    1.8
                                  Moody's Aaa bonds--
                                  vintage weighted (18
                                  years).
    Other Capital-Related Costs  CPI-U for Rent of                   2.0
                                  Primary Residence.
------------------------------------------------------------------------
Note: Sum of the cost weights for the detailed categories may not add to
  total cost weight for subcategory or total market basket due to
  rounding.


[[Page 25164]]

d. Proposed FY 2017 Market Basket Update for LTCHs
    For FY 2017 (that is, October 1, 2016, through September 30, 2017), 
we are proposing to use an estimate of the proposed 2013-based LTCH 
market basket to update payments to LTCHs based on the best available 
data. Consistent with historical practice, we estimate the LTCH market 
basket update for the LTCH PPS based on IHS Global Insight, Inc.'s 
(IGI's) forecast using the most recent available data. IGI is a 
nationally recognized economic and financial forecasting firm that 
contracts with CMS to forecast the components of the market baskets.
    Based on IGI's first quarter 2016 forecast with history through the 
fourth quarter of 2015, the projected market basket update for FY 2017 
is 2.7 percent. Therefore, consistent with our historical practice of 
estimating market basket increases based on the best available data, we 
are proposing a market basket update of 2.7 percent for FY 2017. 
Furthermore, because the proposed FY 2017 annual update is based on the 
most recent market basket estimate for the 12-month period (currently 
2.7 percent), we also are proposing that if more recent data become 
subsequently available (for example, a more recent estimate of the 
market basket), we would use such data, if appropriate, to determine 
the FY 2017 annual update in the final rule. (As discussed in greater 
detail in section V.A.2. of the Addendum to this proposed rule, we are 
proposing an annual update of 2.7 percent to the LTCH PPS standard 
Federal payment rate for FY 2017 under proposed Sec.  
412.523(c)(3)(xiii) of the regulations.)
    Using the current 2009-based LTCH-specific market basket and IGI's 
first quarter 2016 forecast for the market basket components, the FY 
2017 market basket update would be 2.8 percent (before taking into 
account any statutory adjustment). Therefore, the update based on the 
proposed 2013-based LTCH market basket is currently 0.1 percentage 
point lower. This lower update is primarily due to the lower 
pharmaceutical cost weight in the proposed 2013-based market basket 
(7.6 percent) compared to the 2009-based LTCH-specific market basket 
(8.9 percent). This is partially offset by the higher cost weights 
associated with All Other Services (such as Professional Fees and 
Installation, Maintenance, and Repair Services) for the proposed 2013-
based LTCH market basket relative to the 2009-based LTCH-specific 
market basket. Table VII-8 below compares the proposed 2013-based LTCH 
market basket and the 2009-based LTCH-specific market basket percent 
changes.

    Table VII-8--Proposed 2013-Based LTCH Market Basket and 2009-Based LTCH-pecific Market Basket Percentage
                                        Changes, FY 2011 Through FY 2019
----------------------------------------------------------------------------------------------------------------
                                                        Proposed 2013-based LTCH
                  Fiscal year (FY)                     market basket index percent     2009-based LTCH market
                                                                 change              basket index percent change
----------------------------------------------------------------------------------------------------------------
Historical data:
    FY 2011.........................................                           2.3                           2.6
    FY 2012.........................................                           1.9                           2.3
    FY 2013.........................................                           2.1                           2.3
    FY 2014.........................................                           1.8                           1.9
    FY 2015.........................................                           1.8                           2.2
    Average 2011-2015...............................                           2.0                           2.3
Forecast:
    FY 2016.........................................                           2.0                           2.2
    FY 2017.........................................                           2.7                           2.8
    FY 2018.........................................                           3.0                           3.1
    FY 2019.........................................                           3.1                           3.1
    Average 2016-2019...............................                           2.7                           2.8
----------------------------------------------------------------------------------------------------------------
Note that these market basket percent changes do not include any further adjustments as may be statutorily
  required.
Source: IHS Global Insight, Inc. 1st quarter 2016 forecast.

    Over the time period covering 2011 through 2015, the average growth 
rate of the proposed 2013-based LTCH market basket is roughly 0.3 
percentage point lower than the 2009-based LTCH-specific market basket. 
The lower growth rate is primarily a result of the lower pharmaceutical 
cost weight in the proposed 2013-based market basket compared to the 
2009-based LTCH-specific market basket. Historically, the price growth 
of pharmaceutical costs has exceeded the price growth rates for most of 
the other market basket cost categories. Therefore, a lower 
pharmaceutical cost weight would, all else equal, result in a lower 
market basket update. As stated above, the pharmaceutical cost weights 
for the proposed 2013-based LTCH market basket and the 2009-based LTCH-
specific market basket are based on the 2013 and 2009 Medicare cost 
report data for LTCHs, respectively.
e. Proposed FY 2017 Labor-Related Share
    As discussed in section V.B. of the Addendum to this proposed rule, 
under the authority of section 123 of the BBRA as amended by section 
307(b) of the BIPA, we established an adjustment to the LTCH PPS 
payments to account for differences in LTCH area wage levels (Sec.  
412.525(c)). The labor-related portion of the LTCH PPS standard Federal 
payment rate, hereafter referred to as the labor-related share, is 
adjusted to account for geographic differences in area wage levels by 
applying the applicable LTCH PPS wage index.
    The labor-related share is determined by identifying the national 
average proportion of total costs that are related to, influenced by, 
or vary with the local labor market. As discussed in more detail below 
and similar to the 2009-based LTCH-specific market basket, we classify 
a cost category as labor-related and include it in the labor-related 
share if the cost category is defined as being labor-intensive and its 
cost varies with the local labor market. As stated in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49798), the labor-related share for FY 2016 
was defined as the sum of the FY 2016 relative importance of Wages and 
Salaries; Employee Benefits; Professional Fees: Labor-Related Services; 
Administrative and Facilities Support Services (formerly referred to as 
Administrative and Business Support Services); All Other: Labor-related 
Services; and a portion of the Capital

[[Page 25165]]

Costs from the 2009-based LTCH-specific market basket.
    We proposed to continue to classify a cost category as labor-
related if the costs are labor-intensive and vary with the local labor 
market. Given this, based on our definition of the labor-related share 
and the cost categories in the proposed 2013-based LTCH market basket, 
we are proposing to include in thelabor-related share for FY 2017 the 
sum of the FY 2017 relative importance of Wages and Salaries; Employee 
Benefits; Professional Fees: Labor-Related; Administrative and 
Facilities Support Services; Installation, Maintenance, and Repair 
Services; All Other: Labor-related Services; and a portion of the 
Capital-Related cost weight from the proposed 2013-based LTCH market 
basket. As noted in section VII.D.3.e. of the preamble of this proposed 
rule, for the proposed 2013-based LTCH market basket, we have proposed 
the creation of a separate cost category for Installation, Maintenance, 
and Repair services. These expenses were previously included in the 
``All Other'' Labor-related Services cost category in the 2009-based 
LTCH-specific market basket, along with other services, including, but 
not limited to, janitorial, waste management, security, and dry 
cleaning/laundry services. Because these services tend to be labor-
intensive and are mostly performed at the facility (and, therefore, 
unlikely to be purchased in the national market), we continue to 
believe that they meet our definition of labor-related services.
    For the development of the 2009-based LTCH-specific market basket, 
in an effort to more accurately determine the share of professional 
fees for services such as accounting and auditing services, engineering 
services, legal services, and management and consulting services that 
should be included in the labor-related share, we used data from a 
survey of IPPS hospitals regarding the proportion of those fees that go 
to companies that are located beyond their own local labor market. The 
results from this survey were then used to separate a portion of the 
Professional Fees cost category into labor-related and nonlabor-related 
costs. These results and our allocation methodology are discussed in 
more detail in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51766). For 
the proposed 2013-based LTCH market basket, we are proposing to apply 
these survey results using this same methodology to separate the 
Professional Fees cost category into Professional Fees: Labor-related 
and Professional Fees: Nonlabor-related cost categories. We believe 
that using the survey results serves as an appropriate proxy for the 
purchasing patterns of professional services for LTCHs because they 
also are providers of institutional care.
    In addition to the professional services listed above, we are 
proposing to classify expenses under NAICS 55, Management of Companies 
and Enterprises, into the Professional Fees: Labor-related and 
Professional Fees: Nonlabor-related cost categories, as was done for 
the 2009-based LTCH-specific market basket. The NAICS 55 industry is 
mostly comprised of corporate, subsidiary, and regional managing 
offices (otherwise referred to as home offices). As stated above, we 
classify a cost category as labor-related and include it in the labor-
related share if the cost category is labor-intensive and if its costs 
vary with the local labor market. We believe that many of the costs 
associated with NAICS 55 are labor-intensive and vary with the local 
labor market. However, data indicate that not all LTCHs with home 
offices have home offices located in their local labor market. 
Therefore, we are proposing to include in the labor-related share only 
a proportion of the NAICS 55 expenses based on the methodology 
described below.
    For the 2009-based LTCH-specific market basket, we used data 
primarily from the Medicare cost reports and a CMS database of Home 
Office Medicare Records (HOMER) (a database that provides city and 
state information (addresses) for home offices) and determined that 13 
percent of the total number of LTCHs that had home offices had those 
home offices located in their respective local labor markets--defined 
as being in the same Metropolitan Statistical Area (MSA). Therefore, we 
classified 13 percent of these costs into the ``Professional Fees: 
Labor-related Services'' cost category and the remaining 87 percent 
into the ``Professional Fees: Nonlabor-related Services'' cost 
category. For a detailed discussion of this analysis, we refer readers 
to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53478).
    For the proposed 2013-based LTCH market basket, we conducted a 
similar analysis of home office data. For consistency, we believe that 
it is important for our analysis on home office data to be conducted on 
the same LTCHs used to derive the proposed 2013-based LTCH market 
basket cost weights. The Medicare cost report requires a hospital to 
report information regarding their home office provider. Approximately 
56 percent of LTCHs reported some type of home office information on 
their Medicare cost report for 2013 (for example, home office number, 
city, state, zip code, or name). For those providers for which we were 
able to identify which MSA the LTCH's home office was located, we then 
compared the home office MSA with the LTCH facility's MSA.
    We found that 7 percent of the LTCHs with home offices had those 
home offices located in the same MSA as their facilities. We then 
concluded that these providers were located in the same local labor 
market as their home office. As a result, we are proposing to apportion 
the NAICS 55 expense data by this percentage. Therefore, we are 
proposing to classify 7 percent of these costs into the ``Professional 
Fees: Labor-related Services'' cost category and the remaining 93 
percent of these costs into the ``Professional Fees: Nonlabor-related 
Services'' cost category.
    Using this proposed method and the IGI forecast for the first 
quarter 2016 of the proposed 2013-based LTCH market basket, the 
proposed LTCH labor-related share for FY 2017 would be the sum of the 
FY 2017 relative importance of each labor-related cost category. 
Consistent with our proposal to update the labor-related share with the 
most recent available data, the labor-related share for this proposed 
rule reflects IGI's first quarter 2016 forecast of the proposed 2013-
based LTCH market basket. Table VII-9 below shows the proposed FY 2017 
relative importance labor-related share using the proposed 2013-based 
LTCH market basket and the FY 2016 relative importance labor-related 
share using the 2009-based LTCH-specific market basket.

                  Table VII-9--LTCH Labor-Related Share
------------------------------------------------------------------------
                                    FY 2017  Proposed    FY 2016 Final
                                      labor- related     labor related
                                        share \1\          share \2\
------------------------------------------------------------------------
Wages and Salaries................               46.6               44.6
Employee Benefits.................                7.3                8.1

[[Page 25166]]

 
Professional Fees: Labor-related..                3.5                2.2
Administrative and Facilities                     0.9                0.5
 Support Services.................
Installation, Maintenance, and                    2.1                 --
 Repair Services \3\..............
All Other: Labor-related Services.                1.9                2.5
Subtotal..........................               62.3               57.9
Labor-related portion of capital                  4.3                4.1
 (46%)............................
                                   -------------------------------------
    Total Labor-Related Share.....               66.6               62.0
------------------------------------------------------------------------
\1\ Based on the proposed 2013-based LTCH Market Basket, IHS Global
  Insight, Inc. 1st quarter 2016 forecast.
\2\ Federal Register, 80 FR 49478.
\3\ Installation, Maintenance, and Repair services costs were previously
  included in the All Other: Labor-related Services cost weight of the
  2009-based LTCH-specific market basket.

    The proposed labor-related share for FY 2017 is the sum of the 
proposed FY 2017 relative importance of each labor-related cost 
category, and would reflect the different rates of price change for 
these cost categories between the base year (2013) and FY 2017. The sum 
of the proposed relative importance for FY 2017 for operating costs 
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Facilities Support Services, Installation, 
Maintenance, and Repair Services, All Other: Labor-related Services) 
would be 62.3 percent, as shown in Table VII-9 above. We are proposing 
that the portion of capital-related costs that is influenced by the 
local labor market is estimated to be 46 percent, which is the same 
percentage applied to the 2009-based LTCH-specific market basket (77 FR 
53478). Because the relative importance for capital-related costs under 
our proposals would be 9.4 percent of the proposed 2013-based LTCH 
market basket in FY 2017, we are proposing to take 46 percent of 9.4 
percent to determine the proposed labor-related share of capital-
related costs for FY 2017 (.46 x 9.4). The result would be 4.3 percent, 
which we are proposing to add to 62.3 percent for the operating cost 
amount to determine the total proposed labor-related share for FY 2017. 
Therefore, the labor-related share that we are proposing to use for the 
LTCH PPS in FY 2017 would be 66.6 percent. This proposed labor-related 
share is determined using the same methodology as employed in 
calculating all previous LTCH labor-related shares. We also are 
proposing that, if more recent data become available, (for example, an 
updated estimate of the labor-related share) we would use such data to 
determine the FY 2017 labor-related share for the final rule.
    The proposed FY 2017 labor-related share using the proposed 2013-
based LTCH market basket is 4.6 percentage points higher than the FY 
2016 labor-related share using the 2009-based LTCH-specific market 
basket. The primary reason for a higher labor-related share, which we 
describe in more detail below, is a result of the change in the 
quantity of labor, particularly for professional services, outpacing 
the change in quantity of products (which are not included in the 
labor-related share) between 2009 and 2013, which more than offsets the 
faster relative growth in prices for products.
    Roughly three-quarters of the 4.6 percentage point difference is 
the result of higher base year cost weights for the Professional Fees: 
Labor-Related, Administrative and Facilities Support Services, All 
Other: Labor-Related services, and Installation, Maintenance, and 
Repair services cost categories for the proposed 2013-based LTCH market 
basket compared to the 2009-based LTCH-specific market basket. We refer 
to these cost categories collectively as ``Labor-Related Services.'' As 
stated earlier, installation, maintenance and repair costs were 
previously classified in the All Other: Labor-Related services cost 
category of the 2009-based LTCH-specific market basket.
    In aggregate, the base year cost weights for the Labor-Related 
Services cost categories in the proposed 2013-based LTCH market basket 
are 3.0 percentage points higher than the 2009-based LTCH-specific 
market basket cost weights. As described in section VII.D.3.e. of the 
preamble of this proposed rule, the detailed cost categories of the 
LTCH market basket (including the Labor-Related Services cost 
categories) are derived by multiplying the ``All Other'' residual cost 
weight (which reflects all remaining costs that are not captured in the 
six major cost category weights calculated using the LTCH Medicare Cost 
Report data (Wages and Salaries, Employee Benefits, Contract Labor, 
Professional Liability Insurance, Pharmaceuticals, and Capital)) by the 
detailed cost weights calculated from the Benchmark I-O data. 
Therefore, the differences between the Labor-related Services cost 
weights between the proposed 2013-based LTCH market basket and the 
2009-based LTCH-specific market basket are a function of the change in 
the ``All Other'' residual cost category weight and changes to the 
Benchmark I-O data. Approximately 0.6 percentage point of the 3.0 
percentage point difference is attributable to the higher ``All Other'' 
residual cost category weight of the proposed 2013-based LTCH market 
basket compared to the 2009-based LTCH-specific market basket, while 
the remaining 2.4 percentage points is due to the changes in the 
Benchmark I-O cost weights derived from the 2007 data used in the 
proposed 2013-based LTCH market basket and the 2002 data used in the 
2009-based LTCH-specific market basket.
    Roughly one-quarter of the 4.6 percentage point difference between 
the proposed FY 2017 labor-related share using the proposed 2013-based 
LTCH market basket and the FY 2016 labor-related share using the 2009-
based LTCH-specific market basket is a result of the Compensation cost 
weight. There are two key factors causing this differential. First, 
using the 2013 Medicare cost reports, we calculated a Compensation cost 
weight that is 53.9 percent for the proposed 2013-based LTCH market 
basket, which reflects both the change in price and change in quantity 
of compensation. This is 0.9 percentage point higher than the FY 2013 
relative importance moving average using the 2009-based LTCH-specific 
market basket (53.0 percent), which only reflects relative price 
changes between 2009 and 2013. Second, the relative price growth from

[[Page 25167]]

FY 2013 to the payment year between the 2009-based LTCH-specific market 
basket and the proposed 2013-based LTCH market basket also contributes 
to the difference. For the 2009-based LTCH-specific market basket, the 
relative importance for compensation decreases from 53.0 percent in FY 
2013 to 52.7 percent in FY 2016, a reduction of 0.3 percentage point. 
For the proposed 2013-based LTCH market basket, the base weight of 53.9 
percent in 2013 is the same as the relative importance in FY 2017. 
These two factors combined produce the 1.2 percentage point difference 
in the relative importance for compensation in FY 2016 and FY 2017 as 
shown in Table VII-9.
    As noted above, the market basket is described as a fixed-weight 
index because it represents the change in price over time of a constant 
mix (quantity and intensity) of goods and services needed to furnish 
hospital services. The effects on total expenditures resulting from 
changes in the mix of goods and services purchased subsequent to the 
base period are not measured. Only when the index is rebased would 
changes in the quantity and intensity be captured, with those changes 
being reflected in the cost weights. Therefore, we rebase the market 
basket periodically so that the cost weights reflect recent mix of 
goods and services that hospitals purchase (hospital inputs) to furnish 
inpatient care.

E. Proposed Changes to the LTCH PPS Payment Rates and Other Proposed 
Changes to the LTCH PPS for FY 2017

1. Overview of Development of the LTCH PPS Standard Federal Payment 
Rates
    The basic methodology for determining LTCH PPS standard Federal 
prospective payment rates is currently set forth at 42 CFR 412.515 
through 412.536. In this section, we discuss the factors that we are 
proposing to use to update the LTCH PPS standard Federal payment rate 
for FY 2017, that is, effective for LTCH discharges occurring on or 
after October 1, 2016 through September 30, 2017. Under the dual rate 
LTCH PPS payment structure required by statute, beginning with FY 2016, 
only LTCH discharges that meet the criteria for exclusion from the site 
neutral payment rate are paid based on the LTCH PPS standard Federal 
payment rate specified at Sec.  412.523. (For additional details on our 
finalized policies related to the dual rate LTCH PPS payment structure 
required by statute, we refer readers to the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49601 through 49623).)
    For details on the development of the initial FY 2003 standard 
Federal rate, we refer readers to the August 30, 2002 LTCH PPS final 
rule (67 FR 56027 through 56037). For subsequent updates to the LTCH 
PPS 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); FY 2014 IPPS/LTCH PPS final rule (78 FR 50760 through 
50765); FY 2015 IPPS/LTCH PPS final rule (79 FR 50176 through 50180) 
and FY 2016 IPPS/LTCH PPS final rule (80 FR 49634 through 49637).
    In this FY 2017 proposed rule, we present our proposed policies 
related to the annual update to the LTCH PPS standard Federal payment 
rate for FY 2017, which includes the annual market basket update. 
Consistent with our historical practice of using the best data 
available, we also are proposing to use more recent data to determine 
the FY 2017 annual market basket update to the LTCH PPS standard 
Federal payment rate in the final rule.
    The application of the proposed update to the LTCH PPS standard 
Federal payment rate for FY 2017 is presented in section V.A. of the 
Addendum to this proposed rule. The components of the proposed annual 
market basket update to the LTCH PPS standard Federal payment rate for 
FY 2017 are discussed below, including the reduction to the annual 
update for LTCHs that fail to submit quality reporting data for FY 2017 
as required by the statute (as discussed in section VII.E.2.c. of the 
preamble of this proposed rule). In addition, we are proposing to make 
an adjustment to the LTCH PPS standard Federal payment rate to account 
for the estimated effect of the proposed changes to the area wage level 
adjustment for FY 2017 on estimated aggregate LTCH PPS payments, in 
accordance with Sec.  412.523(d)(4) (as discussed in section V.A. of 
the Addendum to this proposed rule).
2. Proposed FY 2017 LTCH PPS Standard Federal Payment Rate Annual 
Market Basket Update
a. Overview
    Historically, the Medicare program has used a market basket to 
account for input 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. We 
adopted the 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 
53476). For FY 2017, we are proposing to rebase and revise the 2009-
based LTCH-specific market basket. The proposed LTCH market basket is 
primarily based on Medicare cost report data for LTCHs for 2013. We 
refer readers to section VII.D. of this preamble of this proposed rule 
for a complete discussion of the proposed LTCH market basket and a 
description of the methodologies we are proposing to use for 
determining the operating and capital-related portions of the proposed 
2013-based LTCH market basket.
    Section 3401(c) of the Affordable Care Act provides for certain 
adjustments to any annual update to the LTCH PPS standard Federal 
payment rate and refers to the timeframes associated with such 
adjustments as a ``rate year'' (which are discussed in more detail in 
section VII.C.2.b. of the preamble of this proposed rule.) We note that 
because the annual update to the LTCH PPS policies, rates, and factors 
now occurs on October 1, we adopted the term ``fiscal year'' (FY) 
rather than ``rate year'' (RY) under the LTCH PPS beginning October 1, 
2010, to conform with the standard definition of the Federal fiscal 
year (October 1 through September 30) used by other PPSs, such as the 
IPPS (75 FR 50396 through 50397). Although the language of sections 
3004(a), 3401(c), 10319, and 1105(b) of the Affordable Care Act refers 
to years 2010 and thereafter under the LTCH PPS as ``rate year,'' 
consistent with our change in the terminology used under the LTCH PPS 
from ``rate year'' to ``fiscal year,'' for purposes of clarity, when 
discussing the annual update for the LTCH PPS standard Federal payment 
rate, including the provisions of the Affordable Care Act, we use

[[Page 25168]]

``fiscal year'' rather than ``rate year'' for 2011 and subsequent 
years.
b. Proposed Market Basket Under the LTCH PPS for FY 2017
    Under the authority of section 123 of the BBRA as amended by 
section 307(b) of the BIPA, we adopted a 2009-based LTCH-specific 
market basket for use under the LTCH PPS beginning in FY 2013. The 
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 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 2017, as noted earlier, we are proposing to rebase and 
revise the 2009-based LTCH-specific market basket to reflect a 2013 
base year. We are proposing to use 2013 cost reports beginning in FY 
2013 because these represent the most recent, complete set of Medicare 
cost report data for purposes of calculating cost weights for the LTCH 
market basket.
    We believe that the proposed 2013-based LTCH market basket 
appropriately reflects the cost structure of LTCHs, as discussed in 
greater detail in section VII.D. of the preamble of this proposed rule. 
In this proposed rule, we are proposing to use the proposed 2013-based 
LTCH market basket to update the LTCH PPS standard Federal payment rate 
for FY 2017.
c. 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 LTCH PPS 
standard Federal payment 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 fiscal 
year update period. In addition, the MFP adjustment that is applied in 
determining any annual update to the LTCH PPS standard Federal payment 
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. (We refer readers to section IV.A.1. of the preamble of FY 2016 
IPPS/LTCH PPS final rule for more information on the current MFP 
adjustment.)
d. Proposed Adjustment to the LTCH PPS Standard Federal Payment Rate 
Under the Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
    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 Program (LTCH QRP). The 
reduction in the annual update to the LTCH PPS standard Federal payment 
rate for failure to report quality data under the LTCH QRP for FY 2014 
and subsequent fiscal years is codified under Sec.  412.523(c)(4) of 
the regulations. (As previously noted, 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.) The LTCH QRP, as required for FY 2014 and subsequent fiscal 
years by section 1886(m)(5)(A)(i) of the Act, applies a 2.0 percentage 
point reduction to any update under Sec.  412.523(c)(3) for 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 (that is, in the form and manner and at the time specified by the 
Secretary under the LTCH QRP) (Sec.  412.523(c)(4)(i)). 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 
(Sec.  412.523(c)(4)(iii)). 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 (Sec.  412.523(c)(4)(ii)). We 
discuss the application of the 2.0 percentage point reduction under 
Sec.  412.523(c)(4)(i) in our discussion of the proposed annual market 
basket update to the LTCH PPS standard Federal payment rate for FY 2017 
in section VII.E.2.e. of the preamble of this proposed rule. (For 
additional information on the history of the LTCH QRP, including the 
statutory authority and the selected measures, we refer readers to 
section VIII.C. of the preamble of this proposed rule.)
e. Proposed Annual Market Basket Update Under the LTCH PPS for FY 2017
    Consistent with our historical practice, 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 first quarter 2016 forecast, 
the FY 2017 full market basket increase for the LTCH PPS using the 
proposed 2013-based LTCH market basket is 2.7 percent, as discussed in 
section VII.D.4.d. of the preamble of this proposed rule. The current 
estimate of the MFP adjustment for FY 2017 based on IGI's first quarter 
2016 forecast is 0.5 percent, as discussed in section IV.B. of the 
preamble of this proposed rule. In addition, consistent with our 
historical practice, we are proposing to use a more recent estimate of 
the market basket increase and the MFP adjustment to determine the FY 
2017 market basket update and the MFP adjustment for FY 2017 in the 
final rule.
    For FY 2017, section 1886(m)(3)(A)(i) of the Act requires that any 
annual update to the LTCH PPS standard Federal payment rate be reduced 
by the productivity adjustment (``the MFP adjustment'') described in 
section 1886(b)(3)(B)(xi)(II) of the Act. Consistent with the statute, 
we are proposing to reduce the full FY 2017 market basket increase by 
the proposed FY 2017 MFP adjustment. To determine

[[Page 25169]]

the proposed market basket update for LTCHs for FY 2017, as reduced by 
the MFP adjustment, consistent with our established methodology, we 
subtracted the proposed FY 2017 MFP adjustment from the proposed FY 
2017 market basket update. Furthermore, sections 1886(m)(3)(A)(ii) and 
1886(m)(4)(F) of the Act requires that any annual update to the LTCH 
PPS standard Federal payment rate for FY 2017 be reduced by the ``other 
adjustment'' described in paragraph (4), which is 0.75 percentage point 
for FY 2017. Therefore, following application of the productivity 
adjustment, we are proposing to further reduce the proposed adjusted 
market basket update (that is, the proposed full market basket increase 
less the proposed MFP adjustment) by the ``other adjustment'' specified 
by sections 1886(m)(3)(A)(ii) and 1886(m)(4) of the Act. (For 
additional details on our established methodology for adjusting the 
market basket increase by the MFP and the ``other adjustment'' required 
by the statute, we refer readers to the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51771).)
    For FY 2017, section 1886(m)(5) of the Act requires that, for LTCHs 
that do not submit quality reporting data as required under the LTCH 
QRP, any annual update to an LTCH PPS standard Federal payment rate, 
after application of the adjustments required by section 1886(m)(3) of 
the Act, shall be further reduced by 2.0 percentage points. Therefore, 
the proposed update to the LTCH PPS standard Federal payment rate for 
FY 2017 for LTCHs that fail to submit quality reporting data under the 
LTCH QRP, the full LTCH PPS market basket increase, 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 proposed rule, in accordance with the statute, we are 
proposing to reduce the proposed FY 2017 full market basket increase of 
2.7 percent (based on IGI's first quarter 2016 forecast of the proposed 
2013-based LTCH market basket) by the proposed FY 2017 MFP adjustment 
of 0.5 percentage point (based on IGI's first quarter 2016 forecast). 
Following application of the proposed productivity adjustment, the 
proposed adjusted market basket update of 2.2 percent (2.7 percent 
minus 0.5 percentage point) was then reduced by 0.75 percentage point, 
as required by sections 1886(m)(3)(A)(ii) and 1886(m)(4)(F) of the Act. 
Therefore, under the authority of section 123 of the BBRA as amended by 
section 307(b) of the BIPA, we are proposing an annual market basket 
update under to the LTCH PPS standard Federal payment rate for FY 2017 
of 1.45 percent (that is, the most recent estimate of the proposed LTCH 
PPS market basket increase of 2.7 percent, less the proposed MFP 
adjustment of 0.5 percentage point, and less the 0.75 percentage point 
required under section 1886(m)(4)(F) of the Act). Accordingly, we are 
proposing to revise Sec.  412.523(c)(3) by adding a new paragraph 
(xiii), which would specify that the LTCH PPS standard Federal payment 
rate for FY 2017 is the LTCH PPS standard Federal payment rate for the 
previous LTCH PPS year updated by 1.45 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 LTCH QRP, under 
Sec.  412.523(c)(3)(xiii) in conjunction with Sec.  412.523(c)(4), we 
are proposing to further reduce the proposed annual update to the LTCH 
PPS standard Federal payment rate by 2.0 percentage points in 
accordance with section 1886(m)(5) of the Act. Accordingly, we are 
proposing an annual update to the LTCH PPS standard Federal payment 
rate of -0.55 percent (that is, 1.45 percent minus 2.0 percentage 
points) for FY 2017 for LTCHs that fail to submit quality reporting 
data as required under the LTCH QRP. As stated above, consistent with 
our historical practice, we are proposing to use more recent estimate 
of the market basket and the MFP adjustment to establish an annual 
update to the LTCH PPS standard Federal payment rate for FY 2017 under 
Sec.  412.523(c)(3)(xiii) in the final rule. (We note that, consistent 
with historical practice, we also are proposing to adjusted the 
proposed FY 2017 LTCH PPS standard Federal payment rate 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 to this proposed 
rule).)
3. Proposed Update Under the Payment Adjustment for ``Subclause (II)'' 
LTCHs
    Under the LTCH PPS payment adjustment for ``subclause (II) LTCHs'' 
at Sec.  412.526(c)(1)(ii), we established that, for cost reporting 
periods beginning during fiscal years after FY 2015, the target amount 
(used to determine the adjusted payment for Medicare inpatient 
operating costs under reasonable cost-based reimbursement rules) 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 
(79 FR 50197). For FY 2017, in accordance with Sec.  412.526(c)(1)(ii) 
of the regulations, we are proposing that, for cost reporting periods 
beginning during FY 2017, the update to the target amount for the 
payment adjustment for ``subclause (II)'' LTCHs would be 2.8 percent, 
which is the estimated market basket update for FY 2017 to the rate-of-
increase limits for certain hospitals excluded from the IPPS that are 
paid on a reasonable cost basis (that is, the applicable annual rate-
of-increase percentage under Sec.  413.40(c)(3)), which is discussed in 
section VI. of the preamble of this proposed rule, is the FY 2017 rate-
of-increase percentage estimate for updating the target amounts, and is 
equal to the estimated percentage increase in the FY 2010-based IPPS 
operating market basket, in accordance with applicable regulations at 
Sec.  413.40.
    Based on IGI's 2016 first quarter forecast, with historical data 
through the 2015 fourth quarter, we estimate that the FY 2010-based 
IPPS operating market basket update for FY 2017 is 2.8 percent (that 
is, the estimate of the market basket rate-of-increase). Therefore, the 
proposed rate-of-increase percentage that would be applied to the FY 
2016 target amounts in order to determine the FY 2017 target amounts 
for ``subclause (II) LTCHs'' under Sec.  412.526(c)(1)(i) is 2.8 
percent. This is the same applicable annual rate-of-increase percentage 
that would be provided for FY 2017 under Sec.  413.40(c)(3), as 
discussed in section VI. of the preamble of this proposed rule. 
Consistent with our historical practice of using the best available 
data, if more recent data become available (for example, a more recent 
estimate of the market basket increase), we propose to use such data, 
if appropriate, to determine the FY 2017 rate-of-increase percentage to 
determine the FY 2017 target amounts for ``subclause (II) LTCHs'' in 
the final rule.

F. Proposed Modifications to the ``25-Percent Threshold Policy'' 
Payment Adjustments (Sec. Sec.  412.534 and 412.536)

    The ``25-percent threshold policy'' is a per discharge payment 
adjustment in the LTCH PPS that is applied to payments for Medicare 
patient discharges from an LTCH when the number of such patients 
originating from any single referring hospital is in excess of the 
applicable threshold for a given cost reporting period (such threshold 
is generally set at 25 percent, with exceptions for rural and urban 
single or MSA-dominant hospitals). If an LTCH exceeds the applicable

[[Page 25170]]

threshold during a cost reporting period, payment for the discharge 
that puts the LTCH over its threshold and all discharges subsequent to 
that discharge in the cost reporting period from the referring hospital 
are adjusted at cost report settlement (discharges not in excess of the 
threshold are unaffected by the 25-percent threshold policy). Each cost 
reporting period begins a new threshold determination, so subsequent 
cost reporting periods are unaffected by failure to meet the applicable 
percentage threshold requirements in a prior period.
    The adjusted payment amount for those discharges that are subject 
to the current 25-percent threshold policy is calculated as the lesser 
of the applicable LTCH PPS payment amount or the IPPS equivalent 
amount. We note that the IPPS equivalent amount under the 25-percent 
threshold policy differs somewhat from the IPPS comparable per diem 
amount applicable under the site neutral payment rate policy at Sec.  
412.522(c)(1)(i) and the short-stay outlier (SSO) policy at Sec.  
412.529(d)(4). For a discussion of the calculation of the IPPS 
comparable per diem amount under Sec.  412.529(d)(4) and the IPPS 
equivalent amount under existing Sec. Sec.  412.534(f) and 412.536(e), 
including details on the differences in the calculations, we refer 
readers to our response to comments in the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50772).
    The 25-percent threshold policy was originally established in the 
FY 2005 IPPS final rule for LTCH hospital-within-hospitals (HwHs) and 
satellites (69 FR 49191 through 49214). It addressed patient shifting 
driven by financial considerations, rather than patient benefit. 
Specifically, it addressed the negative incentives that result from the 
co-location of facilities which created incentives for behaviors which 
result in two hospital stays, and two Medicare payments, for what was 
essentially one episode of patient care--and a financial windfall for 
both providers, as compared to acute care hospitals that were not co-
located with an LTCH. It also addressed statutory limits for LTCHs, 
namely concerns that these LTCHs were, in essence, behaving as long-
term care ``units'' of the co-located hospitals (an arrangement 
prohibited under section 1886(d)(1)(B) of the Act). In order to 
discourage such activities, CMS initially established a payment 
adjustment at Sec.  412.534 for discharges in which the patient was 
admitted to the LTCH location from a co-located referring hospital in 
excess of an applicable percentage threshold. Implementation was phased 
in, but ultimately was generally set at a 25-percent threshold after 
specified phase-in periods. A full discussion of the original 25-
percent threshold policy is contained in the FY 2005 IPPS final rule 
(69 FR 49191 through 49214).
    While initially limited to co-located facilities, in keeping with 
the suggestions of MedPAC and certain other commenters, CMS noted that 
it would continue to monitor claims data for signs that common 
ownership between hospitals that did not share a location also 
encouraged discharge and admission decisions based on reimbursement 
rather than clinical considerations (69 FR 49202 through 19203). This 
continued monitoring, including analysis of discharge patterns from the 
FY 2005 MedPAR files, identified additional patterns of patient 
shifting and worrisome admission practices between LTCHs and referring 
hospitals that were not co-located that were similar to the patterns 
identified in the FY 2004 MedPAR files between co-located LTCHs and 
their host hospitals. In response to these findings, CMS expanded the 
25-percent threshold policy in the RY 2008 LTCH PPS final rule to 
include all LTCHs and LTCH satellite facilities through the amendment 
of Sec.  412.534 (including those certain LTCHs which had been 
grandfathered from the original policy established in the FY 2005 rule) 
and the addition of Sec.  412.536 (governing patients admitted from 
hospitals not co-located with the LTCH). A full discussion of this 
policy can be found in the RY 2008 LTCH PPS final rule (72 FR 26919 
through 26944).
    The resulting 25-percent threshold policy was to have been phased 
in over 3 years, and, when fully implemented, the 25-percent threshold 
policy would have applied to nearly all LTCHs or LTCH satellites and 
remote locations admitting patients from any hospital, regardless of 
the location or ownership of the referring hospital. (For the remainder 
of this section, we refer to the policies under Sec.  412.534 and Sec.  
412.536 collectively as the ``25-percent threshold policy'' unless 
otherwise indicated.) However, several laws mandated delayed 
implementation of the policy, including, most recently, section 1206 of 
the Pathway for Sustainable Growth Rate (SGR) Reform Act (Pub. L. 113-
67). Section 1206(b)(1)(B) provides a permanent exemption from the 
application of the 25-percent threshold policy for co-located LTCHs 
that were excluded from the original policy in the FY 2005 IPPS final 
rule. Section 1206(b)(1)(A) extended prior moratoria on the full 
implementation of the 25-percent threshold policy until cost reporting 
periods beginning on or after either July 1, 2016 (for LTCHs subject to 
42 CFR 412.534) or October 1, 2016 (for LTCHs subject to 42 CFR 
412.536). For more details on the various laws that delayed the full 
implementation of the 25 percent threshold policy, we refer readers to 
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50356 through 50357).
    With the impending expiration of the most recent statutory delay of 
the full implementation of the 25-percent threshold policy and the 
recent implementation of a dual rate payment system for the revised 
LTCH PPS for cost reporting periods beginning on or after October 1, 
2015, we have received many questions concerning the mechanics of the 
revised payment system, especially in relation to the application of 
the 25-percent threshold policy under Sec.  412.534 and Sec.  412.536, 
and how those sections will interact. The questions generally involved 
how CMS would implement the policy for LTCHs with multiple locations. 
Other questions included how site neutral payment rate discharges would 
be treated under the policy and how CMS would determine whether a 
hospital was located in a rural or MSA-dominant area. As a result of 
the confusion reflected in those questions, we are proposing to revise 
our existing policies in an effort to simplify the application of the 
25-percent threshold policy.
    Specifically, we are proposing to sunset both Sec. Sec.  412.534 
and 412.536 and adopt a unified 25-percent threshold policy at new 
Sec.  412.538. If finalized, this provision would apply to payments for 
discharges occurring on or after October 1, 2016. The applicable 
percentage thresholds would generally remain at 25 percent. In keeping 
with our current policy at Sec.  412.534(h) and Sec.  412.536(a)(2), 
under proposed new Sec.  412.538(a), the adjustment would not be 
applicable to ``subclause (II)'' LTCHs described at section 
1886(d)(1)(B)(iv)(II) of the Act and Sec.  412.23(e)(2)(ii) or, 
consistent with the statute and as codified in the regulations at Sec.  
412.534(a) and Sec.  412.536(a)(1)(ii), those HwHs described in Sec.  
412.23(e)(2)(i) that meet the criteria in Sec.  412.22(f) 
(``grandfathered HwHs''). (Section 1206(b)(1)(B) of the Pathway for SGR 
Reform Act provides for a statutory exclusion from the 25-percent 
threshold policy for ``grandfathered HwHs,'' which was codified in the 
regulations at Sec.  412.534(a) and Sec.  412.536(a)(1)(ii) in the FY 
2015 IPPS/LTCH PPS final rule at (79 FR 50186)).
    In keeping with our current policy at Sec.  412.534(c)(2) and Sec.  
412.536(h)(2), we are further proposing that LTCH discharges that 
reached high-cost outlier

[[Page 25171]]

status at the referring hospital would not be subject to the 25-percent 
threshold policy (that is, LTCH discharges which had been high-cost 
outlier cases at the referring hospital would only be included in an 
LTCH's total Medicare discharges and, therefore, would not count as 
having been admitted from that referring hospital. In other words, LTCH 
discharges that were high-cost outlier cases at the referring hospital 
would not be counted in the numerator (but would be counted in the 
denominator) when determining whether the LTCH exceeded the applicable 
percentage threshold from that referring hospital). As we discussed in 
the FY 2005 IPPS final rule, we continue to believe that it is 
appropriate to treat high-cost outlier cases as though they had come 
from a different hospital because a case which reaches high-cost 
outlier status has received a full complement of services and, 
therefore, any transfer from a hospital to an LTCH cannot be said to be 
premature or inappropriate. In addition, consistent with our current 
policy, under this proposal, both the LTCH PPS standard Federal payment 
rate cases and the site neutral payment rate cases would be subject to 
the 25-percent threshold policy at proposed new Sec.  412.538 and, 
therefore, would be included in the determination of whether an LTCH 
has exceeded its threshold. In conjunction with this proposal, we are 
proposing conforming changes to Sec.  412.522(c)(2) (adjustments for 
payments under the site neutral payment rate) and Sec.  412.525(d)(5) 
(adjustments for payments under the LTCH PPS standard Federal payment 
rate) to include the proposed adjustment for the limitation on LTCH 
admissions from referring hospitals (that is, the proposed revised 25-
percent threshold policy) under new Sec.  412.538. Lastly, we are also 
proposing that Medicare Advantage (MA) discharges would not be 
considered under the revised 25-percent threshold policy at proposed 
new Sec.  412.538, consistent with our current policy. (Consistent with 
these proposals, for the remainder of this section, when we refer to 
``Medicare discharges,'' we mean a hospital's Medicare discharges that 
were not paid under an MA plan (and in the case of an LTCH, all LTCH 
PPS discharges, that is, both the LTCH PPS standard Federal payment 
rate cases and the site neutral payment rate cases).)
    Under our proposed revised 25-percent threshold policy at proposed 
new Sec.  412.538, we are proposing to calculate the numerator and 
denominator for the ``applicable percentage threshold'' by using the 
CMS Certification Number (CCN) on hospital claims submitted to 
Medicare. Specifically, we would determine whether the applicable 
percentage threshold was exceeded based on the Medicare discharges from 
the entire LTCH that were admitted from each referring hospital. The 
CCN is used on Medicare claims to identify the hospital which 
discharged the patient, and thus we believe that using the CCN to 
identify the discharging LTCH and referring hospital is an appropriate 
and administratively straight-forward process to implement this 
proposed revision. We believe that this proposed approach would 
simplify the application of the 25-percent threshold policy because it 
provides transparency in identifying both the discharging LTCH and the 
referring hospital. Under this proposed approach, an LTCH's percentage 
of Medicare discharges from a given referring hospital would be 
determined during settlement of a cost report by dividing the LTCH's 
total number of Medicare discharges in the cost reporting period (based 
on the CCN on the claims) that were admitted directly from a given 
referring hospital (again determined by the CCN on the referring 
hospital's claims) that did not receive a high-cost outlier payment 
(based on the referring hospital's claims) by the LTCH's total number 
of Medicare discharges in the cost reporting period. In other words, at 
cost report settlement, each LTCH's Medicare discharges from a given 
referring hospital (that did not receive a high-cost outlier payment) 
during that cost reporting period would be evaluated chronologically 
based on the discharge date from the LTCH, such that the Medicare 
discharge that results in the LTCH exceeding or remaining in excess of 
its applicable percentage threshold would be subject to the payment 
adjustment at proposed new Sec.  412.538(c). Attribution of the 
Medicare discharge from a specific LTCH and a specific referring 
hospital would be determined according to the CCN on the Medicare claim 
submitted by the provider (that is, the LTCH's CCN would be determined 
from the LTCH's claim; the referring hospital's CCN by its claim), 
which generally comprises all locations of a single hospital (and for a 
single LTCH, includes satellite facilities and remote locations, as 
applicable). For example, the CCN of an LTCH with 3 locations is 
``902000'' and the CCN of a specific referring hospital with 2 
locations is ``900001.'' During its cost reporting period, LTCH 
``902000'' has a total of 60 Medicare discharges (10 discharges from 
the first location, 20 discharges from the second location, and 30 
discharges from the third location). Of those 60 Medicare discharges, 
25 Medicare discharges (that did not receive a high-cost outlier 
payment) came directly from hospital ``900001'' (10 discharges from the 
first location, and 15 discharges from the second location). LTCH 
``902000's'' percentage of Medicare discharges from referring hospital 
``900001'' would be calculated as 25 divided by 60, or 41.7 percent. 
The location of the discharging LTCH and the referring hospital is not 
relevant, and only the aggregate Medicare discharge counts would be 
used in the proposed calculation when determining if a payment 
adjustment under proposed new Sec.  412.538 is applicable at cost 
report settlement.
    Under proposed new Sec. Sec.  412.538 (b) and (c), we are 
proposing, in general, that payment would be adjusted for LTCH Medicare 
discharges originating from a single referring hospital during a given 
cost reporting period when that Medicare discharge results in a 
percentage of Medicare discharges (that did not receive a high-cost 
outlier payment) from that referring hospital that exceeds that LTCH's 
applicable percentage threshold (that is, goes above ``25 percent'' of 
that LTCH's total Medicare discharges). In other words, in general, we 
would continue to calculate separate percentages for each hospital from 
which an LTCH admits patients, and compare those referring hospitals' 
percentage of Medicare discharges (excluding those cases that received 
a high-cost outlier payment) to the LTCH's applicable percentage 
threshold, and the payment adjustment would then be applied to any of 
the Medicare discharges that cause the LTCH to exceed or remain in 
excess of the applicable percentage threshold. Medicare discharges not 
in excess of the threshold (which includes those that received a high-
cost outlier payment at the referring hospital) would continue to be 
unaffected by the 25-percent threshold policy. As adjusted, the net 
payment amount to an LTCH for each of its Medicare discharges beyond 
the applicable percentage threshold would continue to be the lesser of 
the applicable LTCH PPS payment amount or an IPPS equivalent amount. 
The IPPS equivalent amount under the current 25-percent threshold 
policy is set forth in existing regulations at Sec.  412.534(f) and 
Sec.  412.536(e). As we are proposing to sunset these provisions, we 
are proposing to codify the existing definition of ``IPPS equivalent 
amount'' under our proposed revised 25-percent threshold policy at 
proposed new Sec.  412.538(f). (For a detailed description

[[Page 25172]]

of the calculation of the IPPS equivalent amount, we refer readers to 
the RY 2007 LTCH PPS proposed rule (71 FR 4698 through 4700), which was 
finalized in the corresponding final rule (71 FR 27875)). As noted 
previously, the IPPS equivalent amount under the 25-percent threshold 
policy differs somewhat from the IPPS comparable amount applicable 
under the site neutral payment rate and the SSO policy (78 FR 50772).
    In addition, consistent with our existing policy at Sec.  
412.534(d) and Sec.  412.536(c), under proposed new Sec.  412.538(f), 
we are proposing a 50-percent threshold for rural LTCHs (as defined 
under Sec.  412.503) in lieu of the generally applicable 25-percent 
threshold. If finalized, payment to such LTCHs would not be adjusted 
unless the rural LTCH's Medicare discharges from a single referring 
hospital (excluding those that received a high-cost outlier payment), 
which exceeded 50 percent of the LTCH's total Medicare discharges (that 
is, we would continue to apply an applicable percentage threshold of 50 
percent from any single referring hospital to rural LTCHs).
    We also are proposing to maintain at proposed new Sec.  
412.538(e)(3) the current special treatment of an LTCH located in an 
MSA with an MSA-dominant hospital at Sec.  412.534(e) and Sec.  
412.536(d). As defined in those regulations, an MSA-dominant hospital 
is a hospital that has discharged more than 25 percent of the total 
hospital's Medicare discharges in the MSA in which it is located. For 
LTCHs located in an MSA-dominant area (that is located in an MSA with 
an MSA-dominant hospital), the LTCH's applicable percentage threshold 
would continue to be the percentage of total Medicare hospital 
discharges in the MSA from the MSA-dominant hospital during the LTCH's 
applicable cost reporting period, but in no case is less than 25 
percent or more than 50 percent. (That is, as is the case under our 
current policy, for an LTCH located in an MSA-dominant area, it would 
have a single applicable percentage threshold for all of that LTCH's 
referring hospitals under the special treatment provided under proposed 
new Sec.  412.538(e)(3). We are proposing to use our existing 
definition of ``MSA-dominant hospital'' under both Sec.  412.534(e) and 
Sec.  412.536(d) of the regulations to also define the term under Sec.  
412.103. We are further proposing to codify definitions for the terms 
``MSA'' (which we are proposing to define as an Metropolitan 
Statistical Area, as defined by the Executive Office of Management and 
Budget) and ``MSA-dominant area'' (which we are proposing to define as 
an MSA in which an MSA-dominant hospital is located) under Sec.  
412.103. (Information on OMB's MSA delineations based on the 2010 
standards can be found at: http://www.whitehouse.gov/sites/default/files/omb/assets/fedreg_2010/06282010_metro_standards-Complete.pdf.)
    Under this proposed special treatment at Sec. Sec.  412.538(e)(2) 
and (3) for LTCHs with multiple locations, we are further proposing 
that all locations of the LTCH paid under the LTCH PPS must be rural or 
located in an MSA-dominant area (as applicable); otherwise the special 
treatment would not apply and the applicable percentage threshold would 
be 25 percent. Under our existing regulations, the applicable 
percentage threshold for each location is determined independently of 
any other location of the hospital (meaning that, if an LTCH had one 
rural and one urban location, the applicable percentage threshold for 
the rural location would be 50 percent and the applicable percentage 
threshold for the urban location would be 25 percent). However, under 
our proposal, the applicable percentage threshold would apply to the 
LTCH as a whole entity (based on its CCN). Therefore, we believe that 
it would be appropriate to apply the rural and MSA-dominant ``special'' 
applicable percentage thresholds based on the LTCH as a whole as well. 
Furthermore, we believe that LTCHs with locations that do not fall in 
these special treatment categories would have sufficient access across 
its locations to admit patients from multiple hospitals such that, as a 
whole, the LTCH should be able to draw from a diverse enough population 
to meet the proposed 25-percent threshold criteria. For these reasons, 
at this time we do not believe that it would be appropriate or 
necessary to apply these special percentages unless the LTCH is 
exclusively rural or located exclusively in an MSA-dominant area (as 
applicable). Therefore, we are proposing to require all locations of an 
LTCH to be rural or located within an MSA-dominant area in order to 
qualify for special treatment under proposed new Sec. Sec.  
412.538(e)(2) and (3) (that is, an adjusted applicable percentage 
threshold).
    In summary, for discharges occurring on or after October 1, 2016, 
we are proposing to establish a single consolidated admission threshold 
policy (generally a 25-percent threshold policy) at proposed new Sec.  
412.538, in conjunction with proposing to sunset the existing 25-
percent threshold policies at Sec. Sec.  412.534 and 412.536, effective 
October 1, 2016. Under this proposed single 25-percent threshold 
policy, LTCH PPS payment for LTCH discharges from a single referring 
hospital in excess of the LTCH's applicable percentage threshold for 
that referring hospital would be adjusted. We are proposing that the 
applicable percentage threshold would generally be 25 percent (with 
proposed special treatment for exclusively rural LTCHs and LTCHs 
exclusively located in an MSA-dominant area). The proposed 25-percent 
threshold policy would be applicable to all LTCHs except ``subclause 
(II)'' LTCHs and ``grandfathered HwHs.'' Under this proposal, LTCH 
discharges which reached high-cost outlier status at the referring 
hospital from which the patient was discharged directly to the LTCH 
would be treated as though they had come from a different referring 
hospital and, therefore, would not be counted as a Medicare discharge 
from that referring hospital. We also are proposing that MA discharges 
would not be included in this proposed policy. In addition, the 
proposed revised 25-percent policy would apply to all LTCH PPS 
discharges (that is, both LTCH PPS standard Federal payment rate and 
site neutral payment rate cases).
    Under this proposal, we would evaluate the ``applicable percentage 
threshold'' based on the sum of the locations covered by the LTCH's and 
referring hospitals' Medicare provider agreement, and would implement 
this policy using the LTCH's and the referring hospitals' CCN. We are 
proposing that an LTCH's percentage of Medicare discharges from a given 
hospital would be determined by dividing the LTCH's number of Medicare 
discharges in the cost reporting period (based on the LTCH's CCN) that 
were admitted directly from a given referring hospital (based on the 
hospital's CCN) that did not receive a high-cost outlier payment during 
the stay at that referring hospital by the LTCH's total number of 
Medicare discharges in the cost reporting period (based on the LTCH's 
CCN). Under proposed new Sec.  412.538, in general, the LTCH PPS 
payment would be adjusted for LTCH Medicare discharges from a single 
referring hospital (that did not receive a high cost-outlier payment) 
that exceed the applicable percentage threshold (generally 25 percent). 
If an LTCH exceeds its applicable threshold during a cost reporting 
period, which would be determined at cost report settlement, we are 
proposing to adjust payment for Medicare discharges in excess of the 
applicable percentage threshold (including the Medicare

[[Page 25173]]

discharge which causes the LTCH to exceed the applicable percentage 
threshold), and Medicare discharges not in excess of the applicable 
percentage threshold would continue to be unaffected by the 25-percent 
threshold policy (that is, the payment for such discharges would not be 
adjusted). As adjusted, the payment amount for a LTCH Medicare 
discharge that is found to be at or beyond the applicable percentage 
threshold would continue to receive the lesser of the applicable LTCH 
PPS payment amount or an IPPS equivalent amount.

G. Proposed Refinement to the Payment Adjustment for ``Subclause II'' 
LTCHs

    As part of our FY 2015 IPPS/LTCH PPS rulemaking cycle, under the 
authority provided by section 1206(d)(2) of the Pathway to SGR Reform 
Act (Pub. L. 113-67), we adopted an adjustment to the LTCH PPS payment 
for LTCHs classified under section 1886(d)(1)(B)(iv)(II) of the Act 
(``subclause (II) LTCHs''), which are described in 42 CFR 
412.23(e)(2)(ii). Under this adjustment, subclause (II) LTCHs receive 
payment under the LTCH PPS that is generally equivalent to an amount 
determined under the reasonable cost-based payment rules for both 
operating and capital-related costs under 42 CFR part 413 (that is, an 
amount generally equivalent to an amount determined under the TEFRA 
payment system methodology, which could be called a ``TEFRA-like'' 
methodology). For more information on this adjustment, we refer readers 
to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50193 through 50197). As 
initially adopted, this ``TEFRA-like'' payment adjustment for subclause 
(II) LTCHs did not incorporate the limitation on charges to Medicare 
beneficiaries policies under the TEFRA payment system. Alignment of the 
limitation on charges to beneficiaries and related billing requirements 
would result in administrative simplification for the cost report 
submission and settlement process under the payment adjustment for 
subclause (II) LTCHs specified at Sec.  412.526.
    In this proposed rule, we are proposing to revise the limitation on 
charges to beneficiaries policy and related billing requirements for 
subclause (II) LTCHs like what is done in the TEFRA payment system 
context for cost reporting periods beginning on or after October 1, 
2016, which would align our beneficiary charge policies (and related 
billing procedures) with the reasonable cost-based ``TEFRA-like'' 
payment adjustment under Sec.  412.526. The adjusted LTCH PPS payment 
to subclause (II) LTCHs under Sec.  412.526 is considered the full LTCH 
PPS payment (that is, the LTCH PPS standard Federal payment rate or 
site neutral payment rate, as applicable), and as such, under current 
policy that payment applies to the LTCH's costs for services furnished 
until the high-cost outlier threshold is met (existing Sec.  
412.507(a)). Under this proposal, for a subclause (II) LTCH, the 
Medicare payment would only apply to the LTCH's costs incurred for the 
days used to calculate the Medicare payment (that is, days for which 
the patient has a benefit day available). Furthermore, in addition to 
the applicable Medicare deductible and coinsurance amounts (and for 
items and services as specified under Sec.  489.20(a)), we would 
specify that the LTCH may only charge the beneficiary for services 
provided during the stay that were not the basis for the adjusted LTCH 
PPS payment amount under Sec.  412.526. If finalized, subclause (II) 
LTCHs would be treated the same as IPPS-excluded hospitals paid under 
the TEFRA payment system for purposes of the limitation on charges to 
beneficiaries and related billing requirements.
    In this proposed rule, using the broad authority conferred upon the 
Secretary under section 123(a)(1) of the BBRA, as amended by section 
307(b) of the BIPA, in conjunction with the authority provided under 
section 1206(d)(2) of Public Law 113-67, we are proposing to revise 
Sec.  412.507 to limit allowable charges to beneficiaries treated at 
subclause (II) LTCHs as is done under the TEFRA payment system in order 
to align our beneficiary charge policies with the reasonable cost-based 
``TEFRA-like'' payment adjustments under Sec.  412.526. Specifically, 
we are proposing to revise Sec.  412.507 to specify that, for cost 
reporting periods beginning on or after October 1, 2016, the Medicare 
payment made to subclause (II) LTCHs (as defined at Sec.  
412.23(e)(2)(ii)) only applies to the hospital's costs on the days used 
to calculate the Medicare payment (that is, days for which the patient 
has a benefit day available). Furthermore, proposed revised Sec.  
412.507 would specify that, for cost reporting periods beginning on or 
after October 1, 2016, the hospital may only charge the Medicare 
beneficiary for the applicable deductible and coinsurance amounts 
(under Sec. Sec.  409.82, 409.83 and 409.87) for items and services as 
specified under Sec.  489.20(a), and for services provided during the 
stay that were not the basis for the adjusted LTCH PPS payment amount 
under Sec.  412.526.

VIII. Quality Data Reporting Requirements for Specific Providers and 
Suppliers

    We seek to promote higher quality and more efficient healthcare 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 Program (LTCH QRP) (also referred to as the 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, Hospital Readmissions Reduction Program, HAC 
Reduction Program, and Hospital VBP Program (described further below) 
that link payment to performance.

[[Page 25174]]

    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 a seamless 
component of care delivery. Establishing such a system will require 
interoperability between EHRs and CMS data collection systems, 
additional infrastructure development on the part of hospitals and CMS, 
and 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 VBP Program under section 
1886(o) of the Act, described in 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 IV.I. of 
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49544 through 49570). Under 
the Hospital VBP Program, hospitals receive value-based incentive 
payments based on their 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 developed for the Hospital VBP 
Program. Because measures adopted for the Hospital VBP Program must 
first have been adopted and reported under the Hospital IQR Program, 
these two programs are linked 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.
    We also view the HAC Reduction 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 poorly performing 
hospitals based on their rates of HACs.
    In the preamble of this proposed rule, we are proposing changes to 
the following Medicare quality reporting systems:
     In section VIII.A, the Hospital IQR Program.
     In section VIII.B., the PCHQR Program.
     In section VIII.C., the LTCH QRP.
     In section VIII.D., the IPFQR Program.
    In addition, in section VIII.E. of the preamble of this proposed 
rule, we are proposing changes to the Medicare and Medicaid EHR 
Incentive Programs for eligible hospitals and CAHs.

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background
a. History of the Hospital IQR Program
    We refer readers to the FY 2010 IPPS/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 
2015 IPPS/LTCH PPS final rule (79 FR 50217 through 50249) and the FY 
2016 IPPS/LTCH PPS final rule (80 FR 49660 through 49692) for the 
measures we have adopted for the Hospital IQR Program measure set 
through the FY 2019 payment determination and subsequent years.
b. Maintenance of Technical Specifications for Quality Measures
    We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49640 through 49641) for a discussion of the maintenance of technical 
specifications for quality measures for the Hospital IQR Program. We 
also refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50202 
through 50203) for additional detail on the measure maintenance 
process.
    In addition, we believe that it is important to have in place a 
subregulatory process to incorporate nonsubstantive updates to the 
measure specifications for measures we have adopted for the Hospital 
IQR Program so that these measures remain up-to-date. We refer readers 
to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53504 through 53505) and 
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50203) for our policy for 
using a subregulatory process to make nonsubstantive updates to 
measures used for the Hospital IQR Program. We recognize that some 
changes made to measures undergoing maintenance review are substantive 
in nature and might not be appropriate for adoption using a 
subregulatory process. We will continue to use rulemaking to adopt 
substantive updates made to measures we have adopted for the Hospital 
IQR Program.
    In this proposed rule, we are not proposing any changes to our 
policies on the measures maintenance process or for using the 
subregulatory process to make nonsubstantive updates to measures used 
for the Hospital IQR Program.
c. Public Display of Quality Measures
    Section 1886(b)(3)(B)(viii)(VII) of the Act was amended by the 
Deficit Reduction Act (DRA) of 2005. Section 5001(a) of the DRA 
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. We refer readers to the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50776 through 50778) for a more detailed discussion about public 
display of quality measures.
    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, we refer readers to the Web site 
at: http://www.medicare.gov/hospitalcompare. Other information not 
reported to

[[Page 25175]]

Hospital Compare may be made available on other CMS Web sites, such as 
https://data.medicare.gov.
    In this proposed rule, we are not proposing any changes to these 
policies.
2. 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. 
Pursuant to this policy, when we adopt measures for the Hospital IQR 
Program beginning with a particular payment determination, we 
automatically readopt these measures for all subsequent payment 
determinations unless we propose to remove, suspend, or replace the 
measures. In this proposed rule, we are not proposing any changes to 
this policy.
3. Removal and Suspension of Hospital IQR Program Measures
a. Considerations in Removing Quality Measures From the Hospital IQR 
Program
    As discussed above, 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, suspend, or replace 
a measure. We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 
FR 50185) and the FY 2015 IPPS/LTCH PPS final rule (79 FR 50203 through 
50204) for more information on the criteria we consider for removing 
quality measures. We refer readers to the FY 2016 IPPS/LTCH PPS final 
rule (80 FR 49641 through 49643) for more information on the additional 
factors we consider in removing quality measures and the factors we 
consider in order to retain measures. In the FY 2015 IPPS/LTCH PPS 
final rule (79 FR 50203 through 50204), we also finalized our proposal 
to clarify the criteria for determining when a measure is ``topped-
out.'' In this proposed rule, we are not proposing any changes to these 
policies.
b. Proposed Removal of Hospital IQR Program Measures for the FY 2019 
Payment Determination and Subsequent Years
    We are proposing to remove the following 15 measures for the FY 
2019 payment determination and subsequent years. Some of these measures 
we are proposing to remove in their entirety; one of these measures, 
VTE-6 Incidence of Potentially Preventable Venous Thromboembolism, we 
are proposing to remove just in the electronic form as discussed 
further below:
     AMI-2: Aspirin Prescribed at Discharge for AMI (NQF 
#0142);
     AMI-7a: Fibrinolytic Therapy Received Within 30 minutes of 
Hospital Arrival;
     AMI-10: Statin Prescribed at Discharge;
     HTN: Healthy Term Newborn (NQF #0716);
     PN-6: Initial Antibiotic Selection for Community-Acquired 
Pneumonia (CAP) in Immunocompetent Patients (NQF #0147);
     SCIP-Inf-1a: Prophylactic Antibiotic Received Within One 
Hour Prior to Surgical Incision (NQF #0527);
     SCIP-Inf-2a: Prophylactic Antibiotic Selection for 
Surgical Patients (NQF #0528);
     SCIP-Inf-9: Urinary Catheter Removed on Postoperative Day 
1 (POD1) or Postoperative Day 2 (POD2) with Day of Surgery Being Day 
Zero;
     STK-4 Thrombolytic Therapy (NQF #0437);
     VTE-3: Venous Thromboembolism Patients with 
Anticoagulation Overlap Therapy (NQF #0373);
     VTE-4: Venous Thromboembolism Patients Receiving 
Unfractionated Heparin (UFH) with Dosages/Platelet Count Monitoring by 
Protocol (or Nomogram);
     VTE-5: Venous Thromboembolism Discharge Instructions;
     VTE-6: Incidence of Potentially Preventable Venous 
Thromboembolism;
     Participation in a Systematic Clinical Database Registry 
for Nursing Sensitive Care; and
     Participation in a Systematic Clinical Database Registry 
for General Surgery.
    Removal of these measures is discussed in more detail below.
(1) Proposed Removal of Structural Measures
    We are proposing to remove two structural measures for the FY 2019 
payment determination and subsequent years: (1) Participation in a 
Systematic Clinical Database Registry for Nursing Sensitive Care; and 
(2) Participation in a Systematic Clinical Database Registry for 
General Surgery, because performance on these measures does not result 
in better patient outcomes--removal factor 4 (80 FR 49641). These 
measures were originally adopted in the RHQDAPU Program FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 43870 through 43872) to monitor 
participation in systematic clinical database registries for the 
Hospital IQR Program. By design, the measures do not provide 
information on patient outcomes, because hospitals are asked only 
whether they participate in registries. In the future, we will consider 
other more effective measures to include in the program. As a result, 
we believe that the burden to retain these measures outweighs the 
benefits. Therefore, we are proposing to remove these two structural 
measures from the Hospital IQR Program for the FY 2019 payment 
determination and subsequent years.
(2) Proposed Removal of ``Topped-Out'' Chart-Abstracted Measures
    We are proposing to remove two measures in their chart-abstracted 
forms: (1) STK-4: Thrombolytic Therapy (NQF #0437) and (2) VTE-5: VTE 
Discharge Instructions, because measure performance among hospitals is 
so high and unvarying that meaningful distinctions and improvements in 
performance can no longer be made (``topped-out'' measures)--removal 
factor 1 (80 FR 49641). The chart-abstracted version of STK-4 was 
adopted into the program in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51634); and the chart-abstracted version of VTE-5 was adopted into the 
program in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51636). One 
factor we consider in determining whether a measure should be retained 
or removed from the program is whether the measure is ``topped-out.'' 
We have previously adopted two criteria for determining the ``topped-
out'' status of Hospital IQR Program measures: (1) Statistically 
indistinguishable performance at the 75th and 90th percentiles; and (2) 
truncated coefficient of variation <=0.10 (80 FR 49642). These measures 
meet both of these criteria. We believe that the burdens of retaining 
these measures outweigh the benefits, and therefore, are proposing to 
remove the chart-abstracted versions of STK-4 and VTE-5 for the FY 2019 
payment determination and subsequent years.
(3) Proposed Removal of Certain eCQMs
    We are proposing to remove the electronic versions of AMI-7a, HTN, 
PN-6, SCIP-Inf-9, VTE-3, VTE-4, VTE-5, VTE-6, STK-4, AMI-2, AMI-10, 
SCIP-Inf-1a, and SCIP-Inf-2a, beginning with the FY 2019 payment 
determination. Each measure is discussed in more detail below.
(a) Removal of eCQMs in Alignment With the Medicare and Medicaid EHR 
Incentive Programs
    We are proposing to remove 13 eCQMs from both the Hospital IQR 
Program and the Medicare and Medicaid EHR Incentive Programs in order 
for hospitals to focus on a smaller,

[[Page 25176]]

more specific subset of eCQMs while keeping the programs aligned.
    We refer readers to section VIII.A.8.a. and section VIII.A.10.d. of 
the preamble of this proposed rule for details on our proposed changes 
to eCQM reporting requirements for the Hospital IQR Program to align 
with the Medicare and Medicaid EHR Incentive Programs. We also refer 
readers to section VIII.A.3.b.(3) of the preamble of this proposed rule 
for our proposals to remove these 13 eCQMs from the Medicare and 
Medicaid EHR Incentive Programs. We believe that a coordinated 
reduction in the overall number of eCQMs in both programs would reduce 
burden on hospitals and improve the quality of reported data by 
enabling hospitals to focus on a smaller, more specific subset of 
eCQMs. We are proposing these changes in response to public comments 
for the Hospital IQR Program in the FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49694), which recommended that CMS adopt a lesser number of 
eCQMs.
(i) AMI-7a
    We are proposing to remove the AMI-7a: Fibrinolytic Therapy 
Received Within 30 minutes of Hospital Arrival eCQM, because 
performance or improvement on this measure does not result in better 
patient outcomes--removal factor 4 (80 FR 49641). In the FY 2016 IPPS/
LTCH PPS final rule, we removed the chart-abstracted version of AMI-7a 
because the reporting burden outweighed the benefit of posting very few 
hospitals' measure rates. This measure's specifications resulted in 
very high denominator exclusion rates. Consequently, the vast majority 
of abstracted AMI cases were excluded from AMI-7a measure rates. Most 
acute myocardial infarction (AMI) patients receive percutaneous 
coronary intervention (PCI) instead of fibrinolytic therapy (80 FR 
49647). We do not believe that the mode of reporting (eCQM versus 
chart-abstracted) would cause the number of cases reported to differ 
since most AMI patients would still receive PCI instead of fibrinolytic 
therapy. In the FY 2016 IPPS/LTCH PPS final rule, we retained the 
electronic version of this measure for alignment purposes with the 
Medicare and Medicaid EHR Incentive Programs (80 FR 49644). As 
discussed above, we are proposing to focus on a smaller, more specific 
subset of eCQMs in both the Hospital IQR and Medicare and Medicaid EHR 
Incentive Programs. As a result, the burdens related to retaining this 
measure outweigh the benefits. Therefore, we are proposing to remove 
the AMI-7a eCQM from the Hospital IQR Program for the FY 2019 payment 
determination and subsequent years.
(ii) STK-4, AMI-2, AMI-10, SCIP-Inf-1a, and SCIP-Inf-2a
    We are proposing to remove the: (1) STK-4: Thrombolytic Therapy 
(NQF #0437); (2) AMI-2: Aspirin Prescribed at Discharge for AMI (NQF 
#0142); (3) AMI-10: Statin Prescribed at Discharge; (4) SCIP-Inf-1a: 
Prophylactic Antibiotic Received Within One Hour Prior to Surgical 
Incision (NQF #0527); and (5) SCIP-Inf-2a: Prophylactic Antibiotic 
Selection for Surgical Patients (NQF #0528) eCQMs, because measure 
performance among hospitals is so high and unvarying that meaningful 
distinctions and improvements in performance can no longer be made--
removal factor 1 (80 FR 49641). We note that the NQF has changed the 
endorsement designations of the AMI-2, AMI-10, SCIP-Inf-1a, and SCIP-
Inf-2a chart abstracted measures and eCQM versions to either ``reserve 
status'' or ``endorsement removed'' (available at: http://www.qualityforum.org/QPS/QPSTool.aspx), because there is no opportunity 
for improvement.
    We refer readers to section VIII.A.3.b.(2) of the preamble of this 
proposed rule for our proposal also to remove the chart-abstracted form 
of the STK-4 measure due to ``topped-out'' status. The electronic 
version of the STK-4 measure was adopted into the Hospital IQR Program 
in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50784) to promote 
programmatic alignment, as it was a part of a measure set that was 
already included in the Medicare and Medicaid EHR Incentive Programs' 
Electronic Reporting Pilot for Eligible Hospitals and CAHs (75 FR 44418 
and 76 FR 74489).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50781), we removed 
the chart-abstracted versions of AMI-2 and AMI-10 due to ``topped-out'' 
status. However, as noted in FY 2015 IPPS/LTCH PPS final rule (79 FR 
50245), we readopted these measures, though only in the electronic 
form, because we believed that we should continue aligning the Hospital 
IQR Program and the Medicare EHR Incentive Program in order to minimize 
reporting burden and to facilitate the transition to reporting of 
eCQMs. We believed that voluntary reporting of these measures would 
further that aim. In addition, we believed that allowing hospitals the 
option to electronically report ``topped-out'' measures would provide 
them with an opportunity to test the accuracy of their EHR reporting 
systems.
    Similarly, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50208), 
we removed the chart-abstracted versions of SCIP-Inf-1a and SCIP-Inf-
2a, previously referred to as SCIP-Inf-1 and SCIP-Inf-2 respectively, 
due to their ``topped-out'' status. However, as stated in that rule, we 
retained the electronic versions of these measures, because we believed 
this provided CMS with an opportunity to monitor ``topped-out'' 
measures for performance decline. It also simplified alignment between 
the Hospital IQR and Medicare EHR Incentive Program for eligible 
hospitals and provided a more straight-forward approach to educate 
stakeholders on electronic reporting options (79 FR 50208).
    As discussed above, we are proposing to focus on a smaller, more 
specific subset of eCQMs for the Hospital IQR Program and both the 
Medicare and Medicaid EHR Incentive Programs. Therefore, in light of 
their ``topped out'' status, the burden of retaining these measures 
outweighs the benefits. Thus, we are proposing to remove the STK-4, 
AMI-2, AMI-10, SCIP-Inf-1a, and SCIP-Inf-2a eCQMs from the Hospital IQR 
Program for the FY 2019 payment determination and subsequent years.
(b) HTN
    We are proposing to remove the HTN: Healthy Term Newborn (NQF 
#0716) eCQM, because it is no longer feasible to implement the measure 
specifications--removal factor 7 (80 FR 49642). In the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50249), we added HTN, only as an eCQM, not 
as a claims-based measure. Although the claims-based version of the HTN 
measure has never been part of the Hospital IQR Program, the claims-
based HTN measure concept was used to develop the HTN eCQM. The measure 
steward has made substantial revisions to the claims-based version of 
this measure such that the focus is no longer on the number of healthy 
term newborns, but the number of unexpected complications in term 
newborns. The numerator of the revised measure has been restructured to 
assess the presence of severe or moderate complications after term 
birth, while the original measure looked for the absence of several 
types of complications after term birth. For the revised measure 
specifications, we refer readers to: https://www.cmqcc.org/focus-areas/quality-metrics/unexpected-complications-term-newborns. In addition, 
the measure steward is no longer maintaining the claims-based version 
of HTN or supporting the maintenance of the original eCQM version of 
HTN that was developed by CMS and adopted in the Hospital IQR Program. 
Therefore, it is not feasible to

[[Page 25177]]

continue to include a measure that is no longer supported by the 
steward. As a result, we are proposing to remove the HTN eCQM from the 
Program for the FY 2019 payment determination and subsequent years.
(c) PN-6 and SCIP-Inf-9
    We are proposing to remove the: (1) PN-6: Initial Antibiotic 
Selection for Community-Acquired Pneumonia (CAP) in Immunocompetent 
Patients (NQF #0147) and (2) SCIP-Inf-9: Urinary Catheter Removed on 
Postoperative Day 1 (POD1) or Postoperative Day 2 ((POD2) with Day of 
Surgery Being Day Zero) eCQMs, because it is no longer feasible to 
implement the measure specifications--removal factor 7 (80 FR 49642). 
While the electronic versions were retained, the chart-abstracted 
versions of PN-6 and SCIP-Inf-9 were determined to be ``topped-out'' 
and were removed from the Hospital IQR Program measure set in the FY 
2015 IPPS/LTCH PPS final rule (79 FR 50204 through 50208).
    These two eCQMs have undergone significant changes to their logic 
expression during the previous annual update.\73\ There are a number of 
data capture requirements that cannot be represented adequately in the 
eCQM form due to their conceptual complexity. Specifically, for PN-6, 
hospital feedback has indicated difficulties with interpreting several 
critical timing requirements, such as for intensive care unit 
populations, emergency department and inpatient admission transitions, 
steroid therapy, and pre-admission medications. In addition, hospitals 
raised concern about the inability to account for variation in 
recording of the interpretation of laboratory results. For SCIP-Inf-9, 
feedback from hospitals has indicated that it is difficult to interpret 
the appropriate timing of elements associated with both the insertion 
and removal of a catheter. This is particularly problematic, because of 
the variety of patient locations encountered before and after surgery, 
as well as transfers among units. While these variations for both PN-6 
and SCIP-Inf-9 can be accounted for through chart-based manual 
abstraction, we have had great difficulties in translating and 
maintaining these options for electronic reporting. Therefore, we are 
proposing to remove both the PN-6 and SCIP-Inf-9 eCQMs from the 
Hospital IQR Program for the FY 2019 payment determination and 
subsequent years.
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    \73\ Technical Release Notes: 2015 Annual Update of 2014 
Eligible Hospitals and Eligible Professionals Electronic Clinical 
Quality Measures (eCQMs). Available at: https://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/Downloads/EHandEPTRNs.pdf.
---------------------------------------------------------------------------

(d) VTE-3, VTE-4, VTE-5, and VTE-6
    We are proposing to remove the four VTE eCQMs: (1) VTE-3: Venous 
Thromboembolism Patients with Anticoagulation Overlap Therapy (NQF 
#0373); (2) VTE-4: Venous Thromboembolism Patients Receiving 
Unfractionated Heparin (UFH) with Dosages/Platelet Count Monitoring by 
Protocol (or Nomogram); (3) VTE-5: Venous Thromboembolism Discharge 
Instructions; and (4) VTE-6: Incidence of Potentially Preventable 
Venous Thromboembolism, because it is no longer feasible to implement 
the measures specifications--removal factor 7 (80 FR 49642). Many of 
the chart-abstracted versions of these measures were determined to be 
``topped-out''. While the electronic versions of VTE-3 and VTE-4 were 
retained, the chart-abstracted versions were determined to be ``topped-
out'' and were removed from the Hospital IQR Program measure set in the 
FY 2016 IPPS/LTCH PPS final rule (80 FR 49643) and the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50205), respectively. In addition, as 
described above in section VIII.A.3.b.(2) of the preamble of this 
proposed rule, we are proposing to remove the chart-abstracted version 
of VTE-5 for the FY 2019 payment determination and subsequent years due 
to its ``topped-out'' status. The electronic version of VTE-5 was 
adopted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50784). Finally, 
the chart-abstracted version of VTE-6, however, continues to be 
included in the Hospital IQR Program measure set because chart 
abstractors can manually find required data elements in clinical notes 
and not in structured data fields.
    Nonetheless, a majority of hospitals do not have the ability to 
capture required data elements, such as diagnostic study results/
reports and location of the specific vein in which deep vein thrombosis 
was diagnosed, in discrete structured data fields to support these 
eCQMs, because they are often found as free text in clinical notes 
instead. It is exceedingly difficult for hospitals to implement the 
measure specifications in the absence of these functional requirements. 
Furthermore, as discussed above, we are proposing to focus on a 
smaller, more specific subset of eCQMs in the Hospital IQR Program and 
both the Medicare and Medicaid EHR Incentive Programs. Therefore, in 
light of their ``topped out'' statuses and the infeasibility of 
implementing the measure specifications, the burden of retaining these 
measures outweighs the benefits. As a result, we are proposing to 
remove the VTE-3, VTE-4, VTE-5, and VTE-6 eCQMs from the Hospital IQR 
Program for the FY 2019 payment determination and subsequent years.
(4) Summary of Measures Proposed for Removal
    The table below lists the measures we are proposing for removal. We 
are inviting public comment on our proposals to remove these 15 
measures (eCQMs, structural, and chart-abstracted) from the Hospital 
IQR Program for the FY 2019 payment determination and subsequent years.
    We note that STK-4 and VTE-5 are listed twice--once as an eCQM and 
again as a chart-abstracted measure.

 Measures Proposed for Removal for the FY 2019 Payment Determination and
                            Subsequent Years
------------------------------------------------------------------------
                  Electronic Clinical Quality Measures
-------------------------------------------------------------------------
 AMI-2: Aspirin Prescribed at Discharge for AMI (NQF #0142)
 AMI-7a: Fibrinolytic Therapy Received Within 30 Minutes of
 Hospital Arrival
 AMI-10: Statin Prescribed at Discharge
 HTN: Healthy Term Newborn (NQF #0716)
 PN-6: Initial Antibiotic Selection for Community-Acquired
 Pneumonia (CAP) in Immunocompetent Patients (NQF #0147)
 SCIP-Inf-1a: Prophylactic Antibiotic Received within 1 Hour
 Prior to Surgical Incision (NQF #0527)
 SCIP-Inf-2a: Prophylactic Antibiotic Selection for Surgical
 Patients (NQF #0528)
 SCIP-Inf-9: Urinary Catheter Removed on Postoperative Day 1
 (POD1) or Postoperative Day 2 (POD2) with Day of Surgery Being Day Zero
 STK-4: Thrombolytic Therapy (NQF #0437)
 VTE-3: Venous Thromboembolism Patients with Anticoagulation
 Overlap Therapy (NQF #0373)
 VTE-4: Venous Thromboembolism Patients Receiving Unfractionated
 Heparin (UFH) with Dosages/Platelet Count Monitoring by Protocol (or
 Nomogram)

[[Page 25178]]

 
 VTE-5: Venous Thromboembolism Discharge Instructions
 VTE-6: Incidence of Potentially Preventable VTE *
------------------------------------------------------------------------
                           Structural Measures
------------------------------------------------------------------------
 Participation in a Systematic Clinical Database Registry for
 Nursing Sensitive Care
 Participation in a Systematic Clinical Database Registry for
 General Surgery
------------------------------------------------------------------------
                        Chart-Abstracted Measures
------------------------------------------------------------------------
 STK-4: Thrombolytic Therapy (NQF #0437)
 VTE-5: VTE Discharge Instructions
------------------------------------------------------------------------
* Retained in chart-abstracted form.

4. Previously Adopted Hospital IQR Program Measures for the FY 2018 and 
FY 2019 Payment Determination and Subsequent Years
    The Hospital IQR Program has previously finalized 68 measures as 
outlined in the table below:

   Previously Adopted Hospital IQR Program Measures for the FY 2018 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
                   Short name                                        Measure name                       NQF #
----------------------------------------------------------------------------------------------------------------
                                                      NHSN
----------------------------------------------------------------------------------------------------------------
CAUTI...........................................  National Healthcare Safety Network (NHSN)                 0138
                                                   Catheter-associated Urinary Tract Infection
                                                   (CAUTI) Outcome Measure.
CDI.............................................  National Healthcare Safety Network (NHSN)                 1717
                                                   Facility-wide Inpatient Hospital-onset
                                                   Clostridium difficile Infection (CDI) Outcome
                                                   Measure.
CLABSI..........................................  National Healthcare Safety Network (NHSN) Central         0139
                                                   Line-Associated Bloodstream Infection (CLABSI)
                                                   Outcome Measure.
Colon and Abdominal Hysterectomy SSI............  American College of Surgeons--Centers for Disease         0753
                                                   Control and Prevention (ACS-CDC) Harmonized
                                                   Procedure Specific Surgical Site Infection (SSI)
                                                   Outcome Measure.
HCP.............................................  Influenza Vaccination Coverage Among Healthcare           0431
                                                   Personnel.
MRSA Bacteremia.................................  National Healthcare Safety Network (NHSN)                 1716
                                                   Facility-wide Inpatient Hospital-onset
                                                   Methicillin-resistant Staphylococcus aureus
                                                   (MRSA) Bacteremia Outcome Measure.
----------------------------------------------------------------------------------------------------------------
                                                Chart-Abstracted
----------------------------------------------------------------------------------------------------------------
ED-1 *..........................................  Median Time from ED Arrival to ED Departure for           0495
                                                   patients Admitted ED Patients.
ED-2 *..........................................  Admit Decision Time to ED Departure Time for              0497
                                                   Admitted Patients.
Imm-2...........................................  Influenza Immunization...........................         1659
PC-01 *.........................................  Elective Delivery (Collected in aggregate,                0469
                                                   submitted via Web-based tool or electronic
                                                   clinical quality measure).
Sepsis..........................................  Severe Sepsis and Septic Shock: Management Bundle         0500
                                                   (Composite Measure).
STK-04 *........................................  Thrombolytic Therapy.............................         0437
VTE-5 *.........................................  Venous Thromboembolism Discharge Instructions....          \+\
VTE-6 *.........................................  Incidence of Potentially Preventable Venous                \+\
                                                   Thromboembolism.
----------------------------------------------------------------------------------------------------------------
                                              Claims-Based Outcome
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI.....................................  Hospital 30-Day, All-Cause, Risk-Standardized             0230
                                                   Mortality Rate (RSMR) Following Acute Myocardial
                                                   Infarction (AMI) Hospitalization.
MORT-30-CABG....................................  Hospital 30-Day, All-Cause, Risk-Standardized             2558
                                                   Mortality Rate (RSMR) Following Coronary Artery
                                                   Bypass Graft (CABG) Surgery.
MORT-30-COPD....................................  Hospital 30-Day, All-Cause, Risk-Standardized             1893
                                                   Mortality Rate (RSMR) Following Chronic
                                                   Obstructive Pulmonary Disease (COPD)
                                                   Hospitalization.
MORT-30-HF......................................  Hospital 30-Day, All-Cause, Risk-Standardized             0229
                                                   Mortality Rate (RSMR) Following Heart Failure
                                                   (HF) Hospitalization.
MORT-30-PN......................................  Hospital 30-Day, All-Cause, Risk-Standardized             0468
                                                   Mortality Rate (RSMR) Following Pneumonia
                                                   Hospitalization.
MORT-30-STK.....................................  Hospital 30-Day, All-Cause, Risk-Standardized              N/A
                                                   Mortality Rate Following Acute Ischemic Stroke.
READM-30-AMI....................................  Hospital 30-Day All-Cause Risk-Standardized               0505
                                                   Readmission Rate (RSRR) Following Acute
                                                   Myocardial Infarction (AMI) Hospitalization.

[[Page 25179]]

 
READM-30-CABG...................................  Hospital 30-Day, All-Cause, Unplanned, Risk-              2515
                                                   Standardized Readmission Rate (RSRR) Following
                                                   Coronary Artery Bypass Graft (CABG) Surgery.
READM-30-COPD...................................  Hospital 30-Day, All-Cause, Risk-Standardized             1891
                                                   Readmission Rate (RSRR) Following Chronic
                                                   Obstructive Pulmonary Disease (COPD)
                                                   Hospitalization.
READM-30-HF.....................................  Hospital 30-Day, All-Cause, Risk-Standardized             0330
                                                   Readmission Rate (RSRR) Following Heart Failure
                                                   (HF) Hospitalization.
READM-30-HWR....................................  Hospital-Wide All-Cause Unplanned Readmission             1789
                                                   Measure (HWR).
READM-30-PN.....................................  Hospital 30-Day, All-Cause, Risk-Standardized             0506
                                                   Readmission Rate (RSRR) Following Pneumonia
                                                   Hospitalization.
READM-30-STK....................................  30-Day Risk Standardized Readmission Rate                  N/A
                                                   Following Stroke Hospitalization.
READM-30-THA/TKA................................  Hospital-Level 30-Day, All-Cause Risk-                    1551
                                                   Standardized Readmission Rate (RSRR) Following
                                                   Elective Primary Total Hip Arthroplasty (THA)
                                                   and/or Total Knee Arthroplasty (TKA).
AMI Excess Days.................................  Excess Days in Acute Care after Hospitalization            N/A
                                                   for Acute Myocardial Infarction.
HF Excess Days..................................  Excess Days in Acute Care after Hospitalization            N/A
                                                   for Heart Failure.
Hip/knee complications..........................  Hospital-Level Risk-Standardized Complication             1550
                                                   Rate (RSCR) Following Elective Primary Total Hip
                                                   Arthroplasty (THA) and/or Total Knee
                                                   Arthroplasty (TKA).
PSI 04..........................................  Death Rate among Surgical Inpatients with Serious         0351
                                                   Treatable Complications.
PSI 90..........................................  Patient Safety for Selected Indicators (Composite         0531
                                                   Measure).
----------------------------------------------------------------------------------------------------------------
                                              Claims-Based Payment
----------------------------------------------------------------------------------------------------------------
AMI payment.....................................  Hospital-Level, Risk-Standardized Payment                 2431
                                                   Associated with a 30-Day Episode-of-Care for
                                                   Acute Myocardial Infarction (AMI).
HF Payment......................................  Hospital-Level, Risk-Standardized Payment                 2436
                                                   Associated with a 30-Day Episode-of-Care For
                                                   Heart Failure (HF).
PN Payment......................................  Hospital-Level, Risk-Standardized Payment                 2579
                                                   Associated with a 30-day Episode-of-Care For
                                                   Pneumonia.
THA/TKA Payment.................................  Hospital[hyphen]Level, Risk[hyphen]Standardized            N/A
                                                   Payment Associated with an Episode-of-Care for
                                                   Primary Elective Total Hip Arthroplasty and/or
                                                   Total Knee Arthroplasty.
MSPB............................................  Payment-Standardized Medicare Spending Per                2158
                                                   Beneficiary (MSPB).
----------------------------------------------------------------------------------------------------------------
                                  Electronic Clinical Quality Measures (eCQMs)
----------------------------------------------------------------------------------------------------------------
AMI-2...........................................  Aspirin Prescribed at Discharge for AMI..........         0142
AMI-7a..........................................  Fibrinolytic Therapy Received Within 30 Minutes            \+\
                                                   of Hospital Arrival.
AMI-8a..........................................  Primary PCI Received Within 90 Minutes of                 0163
                                                   Hospital Arrival.
AMI-10..........................................  Statin Prescribed at Discharge...................          \+\
CAC-3...........................................  Home Management Plan of Care Document Given to             \+\
                                                   Patient/Caregiver.
EHDI-1a.........................................  Hearing Screening Prior to Hospital Discharge....         1354
ED-1*...........................................  Median Time from ED Arrival to ED Departure for           0495
                                                   Admitted ED Patients.
ED-2 *..........................................  Admit Decision Time to ED Departure Time for              0497
                                                   Admitted Patients.
HTN.............................................  Healthy Term Newborn.............................         0716
PC-01 *.........................................  Elective Delivery (Collected in aggregate,                0469
                                                   submitted via Web-based tool or electronic
                                                   clinical quality measure).
PC-05...........................................  Exclusive Breast Milk Feeding **.................         0480
PN-6............................................  Initial Antibiotic Selection for                          0147
                                                   Community[dash]Acquired Pneumonia (CAP) in
                                                   Immunocompetent Patients.
SCIP-Inf-1a.....................................  Prophylactic Antibiotic Received Within One Hour          0527
                                                   Prior to Surgical Incision.
SCIP-Inf-2a.....................................  Prophylactic Antibiotic Selection for Surgical            0528
                                                   Patients.
SCIP-Inf-9......................................  Urinary Catheter Removed on Postoperative Day 1            \+\
                                                   (POD1) or Postoperative Day 2 (POD2) with Day of
                                                   Surgery Being Day Zero.
STK-02..........................................  Discharged on Antithrombotic Therapy.............         0435
STK-03..........................................  Anticoagulation Therapy for Atrial Fibrillation/          0436
                                                   Flutter.
STK-04 *........................................  Thrombolytic Therapy.............................         0437
STK-05..........................................  Antithrombotic Therapy by the End of Hospital Day         0438
                                                   Two.
STK-06..........................................  Discharged on Statin Medication..................         0439
STK-08..........................................  Stroke Education.................................          \+\
STK-10..........................................  Assessed for Rehabilitation......................         0441
VTE-1...........................................  Venous Thromboembolism (VTE) Prophylaxis.........         0371
VTE-2...........................................  Intensive Care Unit Venous Thromboembolism (VTE)          0372
                                                   Prophylaxis.
VTE-3...........................................  Venous Thromboembolism Patients with                      0373
                                                   Anticoagulation Overlap Therapy.
VTE-4...........................................  Venous Thromboembolism Patients Receiving                  \+\
                                                   Unfractionated Heparin with Dosages/Platelet
                                                   Count Monitoring by Protocol (or Nomogram).
VTE-5 *.........................................  Venous Thromboembolism Discharge Instructions....          \+\
VTE-6 *.........................................  Incidence of Potentially Preventable Venous                \+\
                                                   Thromboembolism.
----------------------------------------------------------------------------------------------------------------
                                                 Patient Survey
----------------------------------------------------------------------------------------------------------------
HCAHPS..........................................  HCAHPS + 3-Item Care Transition Measure (CTM-3)..         0166
                                                                                                            0228
----------------------------------------------------------------------------------------------------------------

[[Page 25180]]

 
                                                   Structural
----------------------------------------------------------------------------------------------------------------
Registry for Nursing Sensitive Care.............  Participation in a Systematic Clinical Database            N/A
                                                   Registry for Nursing Sensitive Care.
Registry for General Surgery....................  Participation in a Systematic Clinical Database            N/A
                                                   Registry for General Surgery.
Patient Safety Culture..........................  Hospital Survey on Patient Safety Culture........          N/A
Safe Surgery Checklist..........................  Safe Surgery Checklist Use.......................          N/A
----------------------------------------------------------------------------------------------------------------
* Measure listed twice, as both chart-abstracted and electronic clinical quality measure.
** Measure name has been shortened. Please refer to annually updated measure specifications on the CMS eCQI
  Resource Center Page for further information: https://www.healthit.gov/newsroom/ecqi-resource-center.
\+\ Endorsement removed.


   Previously Adopted Hospital IQR Program Measures for the FY 2019 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
                   Short name                                        Measure name                       NQF #
----------------------------------------------------------------------------------------------------------------
                                              Claims-Based Payment
----------------------------------------------------------------------------------------------------------------
Cellulitis Payment..............................  Cellulitis Clinical Episode-Based Payment Measure          N/A
GI Payment......................................  Gastrointestinal Hemorrhage Clinical Episode-              N/A
                                                   Based Payment Measure.
Kidney/UTI Payment..............................  Kidney/Urinary Tract Infection Clinical Episode-           N/A
                                                   Based Payment Measure.
----------------------------------------------------------------------------------------------------------------

5. Expansion and Updating of Quality Measures
    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 
this proposed rule, we are not proposing any changes to these policies.
6. Proposed Refinements to Existing Measures in the Hospital IQR 
Program
    We are proposing refinements to two claims-based measures: (1) PN 
Payment: Hospital-Level, Risk-Standardized 30-Day Episode-of-Care 
Payment Measure for Pneumonia; and (2) PSI 90: Patient Safety and 
Adverse Events Composite (previously known as the Patient Safety for 
Selected Indicators Composite Measure). We discuss these proposed 
refinements in more detail below. In addition, we refer readers to 
section VIII.A.9.a. of the preamble of this proposed rule where we are 
inviting public comment on our intent to update the MORT-30-STK measure 
to include the NIH Stroke Scale as a measure of stroke severity in the 
risk-adjustment in future rulemaking.
a. Proposed Expansion of the Cohort for the PN Payment Measure: 
Hospital-Level, Risk-Standardized Payment Associated With a 30-Day 
Episode-of-Care for Pneumonia (NQF #2579)
(1) Background
    For FY 2018 payment determination and subsequent years, we are 
proposing a refinement of the CMS hospital-level, risk-standardized 
payment associated with a 30-day episode-of-care for pneumonia (NQF 
#2579) (PN Payment). The proposed refinement expands the measure cohort 
to align with the following Hospital IQR Program measures: (1) Hospital 
30-day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following 
Pneumonia Hospitalization (NQF #0468) (MORT-30-PN); (2) Hospital 30-
day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following 
Pneumonia Hospitalization (NQF #0506) (READM-30-PN); and (3) Excess 
Days in Acute Care After Hospitalization for Pneumonia (an improved 
measure to the previously developed measure entitled ``30-day Post-
Hospital Pneumonia Discharge Care Transition Composite'' (NQF #0707) 
(PN Excess Days).
    The expansion of the measure cohort for the MORT-30-PN and the 
READM-30-PN was finalized in the FY 2016 IPPS/LTCH PPS final rule (80 
FR 49660) and is expected to be publicly reported beginning in July 
2016. We refer readers to section VIII.A.7.b. of the preamble of this 
proposed rule where we are proposing the PN Excess Days measure for 
inclusion in the Hospital IQR Program for FY 2019 payment determination 
and subsequent years.
    For the purposes of describing the refinement of this measure, we 
note that ``cohort'' is defined as the hospitalizations, or ``index 
admissions,'' that are included in the measure and evaluated to 
ascertain the total payments made on behalf of the Medicare beneficiary 
for a 30-day episode-of-care. The cohort is the set of hospitalizations 
that meets all of the inclusion and exclusion criteria. We are 
proposing an expansion to this set of hospitalizations.
    The previously adopted PN Payment measure (79 FR 50227 through 
50231) includes hospitalizations for patients with a principal 
discharge diagnosis of pneumonia using the International Classification 
of Diseases, 9th Edition, Clinical Modification (ICD-9-CM), which 
includes viral and bacterial pneumonia. For more cohort details on the 
measure as currently implemented, we refer readers to the measure 
methodology report, with the measure risk adjustment statistical model, 
in the AMI, HF, PN, and Hip/Knee Arthroplasty Payment Updates zip file 
on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    This proposed measure refinement would expand the measure cohort to 
include hospitalizations for patients with a: (1) Principal discharge 
diagnosis of pneumonia, including not only viral or bacterial 
pneumonia, but also aspiration pneumonia; and (2) principal discharge 
diagnosis of sepsis (but not severe sepsis) with a secondary diagnosis 
of pneumonia (including viral or bacterial pneumonia and aspiration 
pneumonia) coded as present on admission (POA). This refinement to the 
pneumonia cohort was proposed for several reasons, which were 
previously

[[Page 25181]]

discussed in the FY 2016 IPPS/LTCH PPS final rule for the MORT-30-PN 
and READM-30-PN measures (80 FR 49653 through 49660). We believe that 
refining this measure is appropriate for the following reasons. First, 
recent evidence has shown an increase in the use of sepsis as principal 
discharge diagnosis codes among patients hospitalized with 
pneumonia.\74\ Pneumonia patients with this principal diagnosis code 
were not included in the original MORT-30-PN and READM-30-PN measure 
cohorts, and including them would better capture the complete patient 
population of a hospital with patients receiving clinical management 
and treatment for pneumonia. In addition, because patients with a 
principal diagnosis of sepsis are not included in the original MORT-30-
PN and READM-30-PN measure specifications, efforts to evaluate changes 
over time in pneumonia outcomes could be biased as coding practices 
change. Lastly, a published article\75\ also demonstrated wide 
variation in the use of sepsis codes as principal discharge diagnosis 
for pneumonia patients across hospitals, which can potentially bias 
efforts to compare hospital performance on the MORT-30-PN and READM-30-
PN measures.
---------------------------------------------------------------------------

    \74\ Lindenauer PK, Lagu T, Shieh MS, Pekow PS, Rothberg MB. 
Association of diagnostic coding with trends in hospitalizations and 
mortality of patients with pneumonia, 2003-2009. Journal of the 
American Medical Association. Apr 4 2012;307(13):1405-1413.
    \75\ Rothberg MB, Pekow PS, Priya A, Lindenauer PK. Variation in 
diagnostic coding of patients with pneumonia and its association 
with hospital risk-standardized mortality rates: a cross-sectional 
analysis. Annals of Internal Medicine. Mar 18 2014;160(6):380-388.
---------------------------------------------------------------------------

    The proposal to align the PN Payment measure cohort with those of 
the MORT-30-PN, READM-30-PN, and proposed PN Excess Days measures would 
address the changing coding patterns in which patients with pneumonia 
are increasingly given a principal discharge diagnosis code of sepsis 
in combination with a secondary discharge diagnosis of pneumonia that 
is POA. Moreover, expanding the PN Payment measure cohort would ensure 
that the measure captures the broader population of patients admitted 
for pneumonia that may have been excluded from the previously adopted 
measure. Finally, the expansion of the cohort for the PN Payment 
measure harmonizes the cohort of this measure with the MORT-30-PN, the 
READM-30-PN, and the proposed PN Excess Days measures.
    The proposed PN Payment measure (MUC15-378), which includes this 
expanded measure cohort was included on a publicly available document 
entitled ``2015 Measures Under Consideration List'' for December 1, 
2015 (available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367) and has been reviewed by the NQF 
Measure Applications Partnership (MAP) Hospital Workgroup. The revised 
measure was conditionally supported pending the examination of 
sociodemographic status (SDS) factors and NQF review and endorsement of 
the measure update, as referenced in the MAP 2016 Final Recommendations 
Report (available at: http://www.qualityforum.org/map/).\76\
---------------------------------------------------------------------------

    \76\ Spreadsheet of MAP 2016 Final Recommendations Available at: 
http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

    In regard to MAP stakeholder concerns that the proposed PN Payment 
measure may need to be adjusted for SDS, we understand the important 
role that sociodemographic status plays in the care of patients. 
However, we continue to have concerns about holding hospitals to 
different standards for the outcomes of their patients of diverse 
sociodemographic status, because we do not want to mask potential 
disparities or minimize incentives to improve the outcomes of 
disadvantaged populations. We routinely monitor the impact of 
sociodemographic status on hospitals' results on our measures.
    The NQF is currently undertaking a 2-year trial period in which new 
measures and measures undergoing maintenance review will be assessed to 
determine if risk-adjusting for sociodemographic factors is 
appropriate. For 2 years, NQF will conduct a trial of temporarily 
allowing inclusion of sociodemographic factors in the risk-adjustment 
approach for some performance measures. At the conclusion of the trial, 
NQF will issue recommendations on future permanent inclusion of 
sociodemographic factors. During the trial, measure developers are 
expected to submit information such as analyses and interpretations as 
well as performance scores with and without sociodemographic factors in 
the risk adjustment model.
    Furthermore, the Office of the Assistant Secretary for Planning and 
Evaluation (ASPE) is conducting research to examine the impact of 
sociodemographic status on quality measures, resource use, and other 
measures under the Medicare program as directed by the IMPACT Act. We 
will closely examine the findings of the ASPE reports and related 
Secretarial recommendations and consider how they apply to our quality 
programs at such time as they are available.
    The refined PN Payment measure will be submitted to NQF for 
reendorsement as part of the next Cost and Resource Use project which 
is expected in the first quarter of 2017. We will work to minimize any 
potential confusion when publicly reporting the updated measure to 
ensure that the refined measure would not be confused with the 
originally adopted measure.
(2) Overview of Measure Change
    The proposed measure refinement expands the cohort. As the measure 
is currently specified, the cohort includes hospitalizations for 
patients with a principal discharge diagnosis of pneumonia using the 
ICD-9-CM, which includes viral and bacterial pneumonia (79 FR 50227 
through 50231). This refinement would expand the cohort to also include 
hospitalizations for patients with a: (1) Principal discharge diagnosis 
of pneumonia, including not only viral or bacterial pneumonia, but also 
aspiration pneumonia; and (2) principal discharge diagnosis of sepsis 
(but not severe sepsis) with a secondary diagnosis of pneumonia 
(including viral or bacterial pneumonia and aspiration pneumonia) coded 
as POA.
    For the ICD-9-CM and ICD-10-CM codes that define the expanded PN 
Payment cohort, we refer readers to the 2016 Reevaluation and Re-
specifications Report of the Hospital-Level 30-Day Risk-Standardized 
Pneumonia Payment Measure--Pneumonia Payment Version 3.1 in the AMI, 
HF, PN, and Hip/Knee Arthroplasty Payment Updates zip file on our Web 
site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    The data sources, exclusion criteria, assessment of the total 
payment outcome, and 3 year reporting period all remain unchanged.
(3) Risk Adjustment
    The statistical modeling approach as well as the measure 
calculation remains unchanged from the previously adopted measure. The 
risk adjustment approach also remains unchanged; however, to maintain 
model performance, we conducted variable reselection, or reevaluation 
of the variables used, to ensure the model risk variables are 
appropriate for the discharge diagnoses included in the expanded 
cohort.
    The previously adopted pneumonia payment risk-adjustment model

[[Page 25182]]

includes 48 variables.\77\ As a result of the variable reselection 
process, the revised risk-adjustment model includes a total of 57 
variables--37 of the same variables that are in the previously adopted 
model as well as 20 additional variables. However, there are 11 
variables from the previously adopted model that are not included in 
the revised model. For details on variable reselection and the full 
measure specifications of the proposed change to the measure, we refer 
readers to the 2016 Reevaluation and Re-specifications Report of the 
Hospital-Level 30-Day Risk-Standardized Pneumonia Payment Measure--
Pneumonia Payment Version 3.1 in the AMI, HF, PN, and Hip/Knee 
Arthroplasty Payment Updates zip file on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    \77\ Kim N, Ott L, Hsieh A, et al. 2015 Condition-Specific 
Measure Updates and Specifications Report, Hospital-Level 30-Day 
Risk-Standardized Payment Measures--Acute Myocardial Infarction 
(Version 4.0), Heart Failure (Version 2.0), Pneumonia (Version 2.0). 
Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. Accessed Date: March 16, 2016.
---------------------------------------------------------------------------

(4) Estimated Effects of the Cohort Expansion
    Using administrative claims data for the FY 2016 payment 
determination (which included discharges between July 2011 and June 
2014), we simulated and analyzed the effects of the proposed cohort 
refinements on the PN Payment measure (NQF #2579) as if these changes 
had been applied for FY 2016 payment determination. We note that these 
statistics are for illustrative purposes only, and we are not proposing 
to revise measure calculations for the FY 2016 payment determination.
    In the FY 2010 IPPS/LTCH PPS final rule (74 FR 43881), we 
established that if a hospital has fewer than 25 eligible cases 
combined over a measure's reporting period, we would replace the 
hospital's data with a footnote indicating that the number of cases is 
too small to reliably determine how well the hospital is performing. 
These cases are still used to calculate the measure; however, for 
hospitals with fewer than 25 eligible cases, the hospital's Risk 
Standardization Payment (RSP) and RSP interval estimates are not 
publicly reported for the measure. We refer readers to the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50221), the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51641), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53537), 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50819), and the FY 2016 
IPPS/LTCH PPS final rule (80 FR 24588) for details on our sampling and 
case thresholds for the FY 2016 payment determination and subsequent 
years. Expanding the measure cohort to include a broader population of 
patients as proposed would add a large number of patients, as well as 
additional hospitals (which would now meet the minimum threshold of 25 
eligible cases for public display), to the PN Payment measure (NQF 
#2579). The increase in the size of the measure cohort proposed in this 
rule also is estimated to change results for some hospitals as detailed 
below.
    The previously adopted PN Payment measure cohort includes 901,764 
patients and 4,685 hospitals for the FY 2016 payment determination 
(administrative claims from July 2011-June 2014). We noted the 
following effects for the PN Payment measure if the proposed expanded 
cohort is applied for FY 2016 payment determinations: (1) The cohort 
would increase to include an additional 386,143 patients across all 
hospitals (creating a total measure cohort size of 1,287,907 patients); 
(2) an additional 81 hospitals would meet the minimum 25 patient case 
volume threshold over the 3-year reporting period and, as a result, 
would be publicly reported for the measure; and (3) 31.7 percent of the 
refined measure cohort would consist of patients who fall into the 
expanded set of hospitalizations.
    The expansion of the cohort leads to an overall increase in the 
mean national payment of $16,116 when compared to the mean national 
payment of $14,294 for the previously adopted cohort. This leads to an 
increase in the RSP outcome of $1,822 or 12.7 percent due to the higher 
mean payments for patients added to the cohort. An individual 
hospital's average payment category or reclassification of outlier 
status of ``higher than the U.S. national payment,'' ``no different 
than the U.S. national payment,'' or ``less than the U.S. national 
payment'' may change as demonstrated in the 2016 Reevaluation and Re-
specifications Report of the Hospital-Level 30-Day Risk-Standardized 
Pneumonia Payment measure--Pneumonia Payment Version 3.1, which can be 
found in the AMI, HF, PN, and Hip/Knee Arthroplasty Payment Updates zip 
file on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    Overall, we estimate that 1.4 percent of hospitals included in the 
previously adopted measure would change categorization from greater 
than average to average payment, 9.3 percent would change from average 
to greater than average payment, and 8.5 percent would change from 
average to less than average payment. Finally, 1.8 percent of hospitals 
would change from less than average to average payment. Therefore, 
there would be an increase in the number of hospitals considered 
outliers and a shift in some hospitals' outlier status classification. 
We reiterate that these statistics are for illustrative purposes only, 
and we are not proposing to revise measure calculations for the FY 2016 
payment determination; our proposal would affect the FY 2018 payment 
determination and subsequent years.
    A detailed description of the refinements to the PN Payment measure 
(NQF #2579) and the estimated effects of the change are available in 
the 2016 Reevaluation and Re-specifications Report of the Hospital-
Level 30-Day Risk-Standardized Pneumonia Payment Measure--Pneumonia 
Payment Version 3.1 in the AMI, HF, PN, and Hip/Knee Arthroplasty 
Payment Updates zip file on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    We are inviting public comment on our proposal to refine the 
Hospital-Level, Risk-Standardized Payment Associated with a 30-day 
Episode-of-Care For Pneumonia (NQF #2579) (PN Payment) measure for the 
FY 2018 payment determination and subsequent years as described above.
b. Proposed Adoption of Modified PSI 90: Patient Safety and Adverse 
Events Composite Measure (NQF #0531)
(1) Background
    We are proposing to adopt refinements to the Agency for Healthcare 
Research and Quality (AHRQ) Patient Safety and Adverse Events Composite 
(NQF #0531) for the Hospital IQR Program beginning with the FY 2018 
payment determination and subsequent years. In summary, the PSI 90 
measure was refined to reflect the relative importance and harm 
associated with each component indicator to provide a more reliable and 
valid signal of patient safety events. We believe refining the PSI 90 
measure will provide strong incentives for hospitals to ensure that 
patients are not harmed by the medical care they receive, a critical 
consideration in quality improvement.
    In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48607 through 
48610), we

[[Page 25183]]

adopted the Complication/Patient Safety for Selected Indicators 
Composite Measure (NQF #0531) in the Hospital IQR Program beginning 
with the FY 2010 payment determination as an important measure of 
patient safety and adverse events. In the FY 2015 IPPS/LTCH PPS final 
rule, we updated the title of the measure to Patient Safety for 
Selected Indicators Composite Measure (NQF #0531), to be consistent 
with the NQF (79 FR 50211). As previously adopted, the PSI 90 measure 
consisted of eight component indicators: (1) PSI 3 Pressure Ulcer Rate; 
(2) PSI 6 Iatrogenic Pneumothorax Rate; (3) PSI 7 Central Venous 
Catheter-Related Blood Stream Infections Rate; (4) PSI 8 Postoperative 
Hip Fracture Rate; (5) PSI 12 Perioperative Pulmonary Embolism/Deep 
Vein Thrombosis Rate; (6) PSI 13 Postoperative Sepsis Rate; (7) PSI 14 
Postoperative Wound Dehiscence Rate; and (8) PSI 15 Accidental Puncture 
and Laceration Rate.\78\
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    \78\ NQF-Endorsed Measures for Patient Safety, Final Report. 
Available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.
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    The currently adopted eight-indicator version of the measure 
underwent an extended NQF maintenance reendorsement in the 2014 NQF 
Patient Safety Committee due to concerns with the underlying component 
indicators and their composite weights. In the NQF-Endorsed Measures 
for Patient Safety, Final Report,\79\ the NQF Patient Safety Committee 
deferred their final decision for the PSI 90 measure until the 
following measure evaluation cycle. In the meantime, AHRQ worked to 
address many of the NQF stakeholders' concerns about the PSI 90 
measure, which subsequently completed NQF maintenance re-review and 
received reendorsement on December 10, 2015.
---------------------------------------------------------------------------

    \79\ NQF-Endorsed Measures for Patient Safety, Final Report 
available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.
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    The PSI 90 measure's extended NQF reendorsement led to several 
changes to the measure.\80\ First, the name of the PSI 90 measure has 
changed to ``Patient Safety and Adverse Events Composite'' (NQF #0531) 
(herein referred to as the ``modified PSI 90''). Second, the modified 
PSI 90 measure includes the addition of three indicators: (1) PSI 09 
Perioperative Hemorrhage or Hematoma Rate; (2) PSI 10 Physiologic and 
Metabolic Derangement Rate; and (3) PSI 11 Postoperative Respiratory 
Failure Rate. Third, PSI 12, Perioperative Pulmonary Embolism (PE) or 
Deep Vein Thrombosis (DVT) Rate, and PSI 15, Accidental Puncture or 
Laceration Rate, have been respecified in the modified PSI 90 measure. 
Fourth, PSI 07 Central Venous Catheter-Related Blood Stream Infection 
Rate has been removed in the modified PSI 90 measure. Fifth, the 
weighting of component indicators in the modified PSI 90 measure is 
based not only on the volume of each of the patient safety and adverse 
events, but also the harms associated with the events. We consider 
these changes to the modified PSI 90 measure to be substantive changes 
to the measure. Therefore, we are proposing to adopt refinements to the 
PSI 90 measure for the Hospital IQR Program beginning with the FY 2018 
payment determination and subsequent years. We explain the modified PSI 
90 measure more fully below, and also refer readers to the measure 
description on the NQF Web site at: https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3. We are also 
proposing to modify the reporting periods for FYs 2018 and 2019 payment 
determinations and subsequent years as detailed further below.
---------------------------------------------------------------------------

    \80\ National Quality Forum QPS Measure Description for 
``Patient Safety for Selected Indicators (modified version of PSI90) 
(Composite measure)'' found at: https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3.
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    We note that the proposed modified PSI 90 measure (MUC15-604) was 
included on a publicly available document entitled 2015 Measures Under 
Consideration for December 1, 2015 \81\ in compliance with section 
1890A(a)(2) of the Act, and was reviewed by the MAP. The MAP supported 
this measure stating that, ``the PSI measures were developed to 
identify harmful healthcare related events that are potentially 
preventable. Three additional PSIs have been added to this updated 
version of the measure. PSIs were better linked to important changes in 
clinical status with `harm weights' that are based on diagnoses that 
were assigned after the complication. This is intended to allow the 
measure to more accurately reflect the impact of the events.'' \82\ The 
measure received support for inclusion in the Hospital IQR Program as 
referenced in the MAP Final Recommendations Report.\83\
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    \81\ 2015 Measures Under Consideration List Available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
    \82\ MAP Final Recommendations. Available at: http://www.qualityforum.org/map/.
    \83\ MAP Final Recommendations. Available at: http://www.qualityforum.org/map/.
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(2) Overview of the Measure Changes
    First, the name of the PSI 90 measure has changed from the 
``Patient Safety for Selected Indicators Composite Measure'' to the 
``Patient Safety and Adverse Events Composite'' (NQF #0531) to more 
accurately capture the indicators included in the measure.
    Second, the PSI 90 measure has expanded from eight to 10 component 
indicators. The modified PSI 90 measure is a weighted average of the 
following 10 risk-adjusted and reliability-adjusted individual 
component PSI rates:
     PSI 03 Pressure Ulcer Rate;
     PSI 06 Iatrogenic Pneumothorax Rate;
     PSI 08 Postoperative Hip Fracture Rate;
     PSI 09 Postoperative Hemorrhage or Hematoma Rate; *
     PSI 10 Physiologic and Metabolic Derangement Rate; *
     PSI 11 Postoperative Respiratory Failure Rate; *
     PSI 12 Perioperative Pulmonary Embolism (PE) or Deep Vein 
Thrombosis (DVT) Rate;
     PSI 13 Postoperative Sepsis Rate;
     PSI 14 Postoperative Wound Dehiscence Rate; and
     PSI 15 Accidental Puncture or Laceration Rate.\84\
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    \84\ http://www.qualityforum.org/QPS/0531.
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    (* Denotes new component for the modified PSI 90 measure)
    As stated above, the modified PSI 90 measure also removed PSI 07 
Central Venous Catheter-Related Blood Stream Infection Rate, because of 
potential overlap with the CLABSI measure (NQF #0139), which has been 
included in the Hospital IQR Program since the FY 2011 IPPS/LTCH PPS 
final rule (75 FR 50201 through 50202), the HAC Reduction Program since 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), and the Hospital 
VBP Program since the FY 2013 IPPS/LTCH PPS final rule (77 FR 53597 
through 53598).
    In response to stakeholder concerns, highlighted in the NQF 2014 
Patient Safety Report,\85\ the modified PSI 90 measure also respecified 
two component indicators, PSI 12 and PSI 15. Specifically, for PSI 12 
Perioperative PE or DVT Rate, the NQF received public comments 
concerning the inclusion of: (1) Extracorporeal membrane oxygenation 
(ECMO) procedures in the denominator; and (2) intra-hospital 
variability in the

[[Page 25184]]

documentation of calf vein thrombosis (which has uncertain clinical 
significance). As such, the modified PSI 12 component indicator no 
longer includes ECMO procedures in the denominator or isolated deep 
vein thrombosis of the calf veins in the numerator. PSI 15 also was 
respecified further to focus on the most serious intraoperative 
injuries--those that were unrecognized until they required a subsequent 
reparative procedure. The modified denominator of PSI 15 now is limited 
to discharges with an abdominal/pelvic operation, rather than including 
all medical and surgical discharges. In addition, to identify events 
that are more likely to be clinically significant and preventable, the 
PSI 15 numerator was modified to require both: (1) A diagnosis of an 
accidental puncture and/or laceration; and (2) an abdominal/pelvic 
reoperation one or more days after the index surgery.
---------------------------------------------------------------------------

    \85\ NQF Endorsed Measures for Patient Safety, Final Report. 
Available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.
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    Finally, the NQF Patient Safety Review Committee raised concerns 
about the weighting scheme of the component indicators. In prior 
versions of the measure, the weights of each component PSI were based 
solely on volume (numerator rates). In the modified PSI 90 measure, the 
rates of each component PSI are weighted based on statistical and 
empirical analyses of volume, excess clinical harm associated with the 
PSI, and disutility (individual preference for a health state linked to 
a harm, such as death or disability. The final weight for each 
component indicator is the product of harm weights and volume weights 
(numerator weights). Harm weights are calculated by multiplying 
empirical estimates of excess harms associated with the patient safety 
event by the utility weights linked to each of the harms. Excess harms 
are estimated using statistical models comparing patients with a safety 
event to those without a safety event in a Medicare fee-for-service 
sample. Volume weights are calculated based on the number of safety 
events for the component indicators in an all-payer reference 
population. For more information on the modified PSI 90 measure and 
component indicators, we refer readers to Quality Indicator Empirical 
Methods available online at: www.qualityindicators.ahrq.gov.
(3) Risk Adjustment
    The risk adjustment and statistical modeling approaches of the 
models remain unchanged in the modified PSI 90 measure. In summary, the 
predicted value for each case is computed using a modeling approach 
that includes, but is not limited to, applying a Generalized Estimating 
Equation (GEE) hierarchical model (logistic regression with hospital 
random effect) and covariates for gender, age, Modified MS-DRG (MDRG), 
Major Diagnostic Category, transfer in, point of origin not available, 
procedure days not available, and AHRQ comorbidity (COMORB).
    The expected rate for each of the indicators is computed as the sum 
of the predicted value for each case divided by the number of cases for 
the unit of analysis of interest (that is, the hospital). The risk-
adjusted rate for each of the indicators is computed using indirect 
standardization as the observed rate divided by the expected rate, 
multiplied by the reference population rate. For more details about 
risk adjustment, we refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf. As stated above, we are not proposing any 
changes to the risk adjustment for this measure.
(4) Proposed Reporting Periods
    The PSI 90 measure is a claims-based measure that has been 
calculated using 24-months of data. For the FY 2018 and FY 2019 payment 
determinations, measure rates would be calculated using reporting 
periods of July 1, 2014 through June 30, 2016 and July 1, 2015 through 
June 30, 2017, respectively. However, because hospitals began ICD-10-
CM/PCS implementation on October 1, 2015, these reporting periods for 
the FY 2018 and FY 2019 payment determinations would require using both 
ICD-9 and ICD-10 claims data to calculate measure performance.
    Since the ICD-10 transition was implemented on October 1, 2015, we 
have been monitoring our systems, and so far, claims are processing 
normally. The measure steward, AHRQ, has been reviewing the measure for 
any potential issues related to the conversion of approximately 70,000 
ICD-10 coded operating room procedures \86\ (https://www.cms.gov/icd10manual/fullcode_cms/P1616.html), which could directly affect the 
modified PSI 90 component indicators. In addition, to meet program 
requirements and implementation schedules, our system would require an 
ICD-10 risk-adjusted version of the AHRQ QI PSI software \87\ by 
December 2016 for the FY 2018 payment determination year. At this time, 
a risk adjusted ICD-10 version of the modified PSI 90 Patient Safety 
and Adverse Events Composite software is not expected to be available 
until late CY 2017.
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    \86\ International Classification of Diseases, (ICD-10-CM/PCS) 
Transition--Background. Available at: http://www.cdc.gov/nchs/icd/icd10cm_pcs_background.htm.
    \87\ The AHRQ QI Software is the software used to calculate PSIs 
and the composite measure. More information is available at: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf.
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    To address the above issues, we are proposing to modify the 
reporting periods for the FYs 2018 and 2019 payment determinations and 
beyond. For the FY 2018 payment determination, we are proposing to use 
a 15-month reporting period spanning July 1, 2014 through September 30, 
2015. The 15-month reporting period would only apply to the FY 2018 
payment determination and would only use ICD-9 data. For the FY 2019 
payment determination, we are proposing to use a 21-month reporting 
period spanning October 1, 2015 through June 30, 2017. The 21-month 
reporting period would only apply to the FY 2019 payment determination 
and would only use ICD-10 data. For all subsequent payment 
determinations after FY 2019, we are proposing to use the standard 24-
month reporting period, which would only use ICD-10 data. In order to 
align the modified PSI 90 measure and the use of ICD-9 and ICD-10 data 
across CMS hospital quality programs, we are proposing similar 
modifications for FYs 2018 and 2019 payment determinations and beyond 
in the HAC Reduction Program, as set forth in section IV.I.5.b. of the 
preamble of this proposed rule, and similar modifications to the 
performance period for the Hospital VBP Program FY 2018 program year, 
as set forth in section IV.H.2. of the preamble of this proposed rule.
    Prior to deciding to propose abbreviated reporting periods for the 
FY 2018 and FY 2019 payment determinations, we took several factors 
into consideration, including the recommendations of the measure 
steward, the feasibility of using a combination of ICD-9 and ICD-10 
data without the availability of the appropriate measure software, 
minimizing provider burden, program implementation timelines, and the 
reliability of using shortened reporting periods, as well as the 
importance of continuing to publicly report this measure. We believe 
that using a 15-month reporting period for the FY 2018 payment 
determination and a 21-month reporting period for the FY 2019 payment 
determination best serves the need to provide important information on 
hospital patient safety and adverse events by allowing sufficient time 
to process the claims data and calculate the measures, while minimizing

[[Page 25185]]

reporting burden and program disruption. We will continue to test ICD-
10 data that are submitted in order to ensure the accuracy of measure 
calculations, to monitor and assess the translation of measure 
specifications to ICD-10 as well as potential coding variation, and to 
assess any impacts on measure performance.
    We note that a prior reliability analysis of the PSI 90 measure 
(not the modified PSI 90 measure) showed that the majority of hospitals 
attain a moderate or high level of reliability after a 12-month 
reporting period.\88\ Although the modified PSI 90 measure has 
undergone substantial changes since this analysis, we believe that 
measure scores would continue to be reliable for the above proposed 
reporting periods, because the NQF, which reendorsed the modified 
version, found it to be reliable using 12 months of data.\89\ In 
establishing the revised reporting periods for the modified PSI 90 
measure, we also relied upon an analysis by Mathematica Policy 
Research, a CMS contractor, which found that the measure was most 
reliable with a 24-month reporting period and unreliable with a 
reporting period of less than 12 months.\90\ Therefore, we believe that 
the proposed abbreviated reporting periods for the modified PSI 90 
measure would produce reliable data because the reporting periods are 
still greater than 12 months.
---------------------------------------------------------------------------

    \88\ Mathematica Policy Research (November 2011). Reporting 
period and reliability of AHRQ, CMS 30-day and HAC Quality 
Measures--Revised. Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf.
    \89\ ``Patient Safety 2015 Final Report'' is available at: 
http://www.qualityforum.org/Publications/2016/02/Patient_Safety_2015_Final_Report.aspx.
    \90\ Mathematica Policy Research (November 2011). Reporting 
period and reliability of AHRQ, CMS 30- day and HAC Quality 
Measures--Revised. Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-basedpurchasing/Downloads/HVBP_Measure_Reliability-.pdf.
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(5) Proposed Adoption of the Modified PSI 90 Measure
    In summary, the PSI 90 measure was revised to reflect the relative 
importance and harm associated with each component indicator to provide 
a more reliable and valid signal of patient safety events. We believe 
that adopting the modified PSI 90 measure would continue to provide 
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.
    We are inviting public comment on our proposal to adopt the 
modified PSI 90 measure (NQF #0531) for the Hospital IQR Program 
beginning with the FY 2018 payment determination. We will continue to 
use the currently adopted eight-indicator version of the PSI 90 measure 
in the Hospital IQR Program for FY 2017. We also are inviting public 
comment on the proposals to revise the reporting periods for this 
measure as described above: (1) A 15-month reporting period using only 
ICD-9 data for the FY 2018 payment determination; (2) a 21-month 
reporting period using only ICD-10 data for the FY 2019 payment 
determination; and (3) a 24-month reporting period using only ICD-10 
data for the FY 2020 payment determination and subsequent years.
7. Proposed Additional Hospital IQR Program Measures for the FY 2019 
Payment Determination and Subsequent Years
    We are proposing to add four new measures to the Hospital IQR 
Program for the FY 2019 payment determination and subsequent years. We 
are proposing to adopt three clinical episode-based payment measures:
     Aortic Aneurysm Procedure Clinical Episode-Based Payment 
(AA Payment) Measure;
     Cholecystectomy and Common Duct Exploration Clinical 
Episode-Based Payment (Chole and CDE Payment) Measure; and
     Spinal Fusion Clinical Episode-Based Payment (SFusion 
Payment) Measure.
    In addition, we are proposing to adopt one required outcome 
measure: Excess Days in Acute Care After Hospitalization for Pneumonia.
    The proposed measures were included on a publicly available 
document entitled ``2015 Measures Under Consideration'' \91\ in 
compliance with section 1890A(a)(2) of the Act, and they were reviewed 
by the MAP as discussed in its MAP Pre-Rulemaking Report and 
Spreadsheet of MAP 2016 Final Recommendations.\92\
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    \91\ Measure Applications Partnership: List of Measures Under 
Consideration (MUC) for December 1, 2015. Available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
    \92\ Spreadsheet of MAP 2016 Final Recommendations Available at: 
http://www.qualityforum.org/map/.
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    Below, we discuss each of the above measures in more detail.
a. Proposed Adoption of Three Clinical Episode-Based Payment Measures
(1) Background
    Clinical episode-based payment measures are clinically coherent 
groupings of healthcare services that can be used to assess providers' 
resource use. Combined with other clinical quality measures, they 
contribute to the overall picture of providers' clinical effectiveness 
and efficiency. Episode-based performance measurement allows meaningful 
comparisons between providers based on resource use for certain 
clinical conditions or procedures, as noted in the NQF report for the 
``Episode Grouper Evaluation Criteria'' project available at: http://www.qualityforum.org/Publications/2014/09/Evaluating_Episode_Groupers__A_Report_from_the_National_Quality_Forum.aspx and in various peer-reviewed articles.\93\ We are proposing three 
clinical episode-based payment measures for inclusion in the Hospital 
IQR Program beginning with the FY 2019 payment determination: (1) 
Aortic Aneurysm Procedure Clinical Episode-Based Payment (AA Payment) 
Measure; (2) Cholecystectomy and Common Duct Exploration Clinical 
Episode-Based Payment (Chole and CDE Payment) Measure; and (3) Spinal 
Fusion Clinical Episode-Based Payment (SFusion Payment) Measure. The 
proposed measures capture Medicare payment for services related to the 
episode procedure and take into account beneficiaries' clinical 
complexity as well as geographic payment differences.
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    \93\ For example: Hussey, P. S., Sorbero, M. E.,Mehrotra, A., 
Liu, H., & Damberg, S. L.: (2009). Episode-Based Performance 
Measurement and Payment: Making It a Reality. Health Affairs, 28(5), 
1406-1417. Doi:10.1377/hlthaff.28.5.1406.
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    We are proposing these clinical episode-based measures to 
supplement the Hospital IQR Program's Medicare Spending per Beneficiary 
(MSPB) Measure. The proposed measures also support our mission to 
provide better healthcare for individuals, better health for 
populations, and lower costs for healthcare. We note that these 
measures were reviewed by the MAP and did not receive support for 
adoption into the Hospital IQR Program, as discussed in its MAP Pre-
Rulemaking Report and Spreadsheet of MAP 2016 Final 
Recommendations.\94\ The result of the MAP vote for the proposed 
measures was as follows: (1) Aortic Aneurysm Procedure Clinical 
Episode-Based Payment Measure: 8 percent support, 32 percent 
conditional support, and 60 percent do not support; (2) Cholecystectomy 
and Common Duct Exploration Clinical Episode-Based Payment Measure: 20 
percent support, 28 percent conditional support, and 52 percent do not 
support; and (3) Spinal

[[Page 25186]]

Fusion Clinical Episode-Based Payment Measure: 16 percent support, 36 
percent conditional support, and 48 percent do not support. MAP 
stakeholders expressed concerns that the proposed measures: (1) Overlap 
with the Medicare Spending per Beneficiary (MSPB) Measure; \95\ (2) are 
not NQF-endorsed; (3) may need to be adjusted for sociodemographic 
status (SDS); and (4) fail to link outcomes to quality because they do 
not reflect appropriateness of care.
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    \94\ Spreadsheet of MAP 2016 Final Recommendations. Available 
at: http://www.qualityforum.org/map/.
    \95\ MSPB measure specifications can be found in the ``Medicare 
Spending Per Beneficiary (MSPB) Measure Overview,'' available at: 
http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772053996.
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    In response to MAP stakeholder concerns that the clinical episode-
based payment measures overlap with the MSPB measure, we note that 
unlike the overall MSPB measure, the clinical episode-based payment 
measures assess payment variation at the procedure level and only 
include services that are clinically related to the named episode 
procedure (for example, the spinal fusion measure includes inpatient 
admissions for ``medical back problems'' that occur following the 
initial spinal fusion procedure since the admission is likely a result 
of complications from the initial procedure).
    With respect to MAP stakeholder concerns that the clinical episode-
based payment measures are not NQF-endorsed, section 
1886(b)(3)(B)(IX)(bb) of the Act provides that in the case of a 
specified area or medical topic determined appropriate by the Secretary 
for which a feasible and practical measure has not been endorsed by the 
entity with a contract under section 1890(a) of the Act, the Secretary 
may specify a measure that is not so endorsed as long as due 
consideration is given to measures that have been endorsed or adopted 
by a consensus organization identified by the Secretary. We considered 
other existing measures related to payment that have been endorsed by 
the NQF and other consensus organizations, but we were unable to 
identify any NQF-endorsed (or other consensus organization endorsed) 
payment measures that assess the aortic aneurysm procedure, 
cholecystectomy and common duct exploration, or spinal fusion. However, 
these proposed clinical episode-based payment measures will be 
submitted to NQF for endorsement as part of the next Cost and Resource 
Use project.
    In regard to MAP stakeholder concerns that the clinical episode-
based payment measures may need to be adjusted for SDS, we refer 
readers to section VIII.A.6.a.(1) of the preamble of this proposed rule 
for a discussion of our policy on SDS factors. Finally, regarding MAP 
stakeholder concerns that the clinical episode-based payment measures 
fail to link outcomes to quality because they do not reflect 
appropriateness of care, we believe that the proposed measures cover 
topics of critical importance to quality in the inpatient hospital 
setting. Hospitals have a significant influence on Medicare spending 
during the episode surrounding a hospitalization, through the provision 
of appropriate, high-quality care before and during inpatient 
hospitalization and through proper hospital discharge planning, care 
coordination, and care transitions. While we recognize that high or low 
payments to hospitals are difficult to interpret in isolation, high 
payments for services may implicitly be associated with poor quality of 
care (for example, preventable readmissions, procedure complications, 
or emergency room usage).
    Although the MAP did not support inclusion of these clinical 
episode-based payment measures in the Hospital IQR Program,\96\ 
stakeholders have requested to have more condition-specific and 
procedure-specific measures, similar to the MSPB measure included in 
the Hospital IQR Program, as described in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51623). We believe that including condition- and 
procedure-specific payment measures will provide hospitals with 
actionable feedback that will better equip them to implement targeted 
improvements in comparison to an overall payment measure alone. 
Further, we believe that supplementing the MSPB measure with condition-
specific and procedure-specific measures will provide both overall 
hospital-level and detailed information on high-cost and high-
prevalence conditions and procedures to better inform their future 
spending plans. Moreover, the payment measures will help consumers and 
other payers and providers identify hospitals involved in the provision 
of efficient care for certain procedures.
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    \96\ Spreadsheet of MAP 2016 Final Recommendations. Available 
at: http://www.qualityforum.org/map/.
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    The three procedures selected for the clinical episode-based 
payment measures were chosen based on the following criteria: (1) The 
condition constitutes a significant share of Medicare payments and 
potential savings for hospitalized patients during and surrounding a 
hospital stay; (2) there was a high degree of agreement among clinical 
experts consulted for this project that standardized Medicare payments 
for services provided during this 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 and 
potential savings 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 among 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 practitioners. 
These selection criteria were also used for the three clinical episode-
based payment measures finalized in the FY 2016 IPPS/LTCH PPS final 
rule (80 FR 49664 through 49665).
    The measures follow the general construction of episode-based 
measures previously adopted in the Hospital IQR Program: The NQF-
endorsed MSPB measure finalized in the FY 2012 IPPS/LTCH PPS final rule 
for the Hospital IQR Program (76 FR 51626 through 74529); and the three 
clinical episode-based payment measures for kidney/UTI, cellulitis, and 
gastrointestinal hemorrhage finalized in the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49674). Similar to these previously adopted measures, 
the proposed measures include standardized payments for Medicare Part A 
and Part B services and are risk adjusted for individual patient 
characteristics and other factors (for example, the MS-DRG of the index 
inpatient stay). However, unlike the MSPB measure, the clinical 
episode-based payment measures only include Medicare Part A and Part B 
services that are clinically related to the named episode procedure. 
The clinical episode-based payment measures are price-standardized, 
risk-adjusted ratios that compare a provider's resource use against the 
resource use of other providers within a reporting period (that is, the 
measure calculation includes eligible episodes occurring within a 1-
year timeframe). Similar to the MSPB measure though, the ratio allows 
for ease of comparison over time as it obviates the need to adjust for 
inflation.
    Each clinical episode-based payment measure is calculated as the 
ratio of the Episode Amount for each provider divided by the episode-
weighted median Episode Amount across all providers. To calculate the 
Episode

[[Page 25187]]

Amount for each provider, one calculates the average of the ratio of 
the observed episode payment over the expected episode payment (as 
predicted in risk adjustment), and then multiplies this quantity by the 
average observed episode payment level across all providers nationally. 
The denominator for a provider's measure is the episode weighted 
national median \97\ of Episode Amounts across all providers. A 
clinical episode-based payment measure of less than 1 indicates that a 
given provider's resource use is less than that of the national median 
provider during a reporting period. Mathematically, this is represented 
in equation (A) below.
---------------------------------------------------------------------------

    \97\ Example of episode weighted median: If there are 2 
hospitals and one hospital had an measure score of 1.5 and another 
had one of 0.5, but the first had 4 episodes and the second only 1, 
then the episode-weighted median would be 1.5 (that is, 0.5, 1.5, 
1.5, 1.5, 1.5).
[GRAPHIC] [TIFF OMITTED] TP27AP16.001

---------------------------------------------------------------------------
Where:

Oij = observed episode payment for episode i in provider j,
Eij = expected episode payment for episode i in provider j,
Oi[isin]I = average observed episode payment across all episodes i 
nationally, and
nj = total number of episodes for provider j.

    Each of the three measures we are proposing is described further 
below, followed by explanations of payment standardization and risk 
adjustment. For detailed measure specifications, we refer readers to 
the clinical episode-based payment measures report entitled, ``Measure 
Specifications: Hospital Clinical Episode-Based Payment Measures for 
Aortic Aneurysm Procedure, Cholecystectomy and Common Duct Exploration, 
and Spinal Fusion'' available at: http://www.qualitynet.org > Hospital-
Inpatient > Claims-Based Measures > Episode-Based Payment Measures.
(2) Proposed Aortic Aneurysm Procedure Clinical Episode-Based Payment 
(AA Payment) Measure
(a) Background
    Inpatient hospital stays and associated services assessed by the 
proposed Aortic Aneurysm Procedure Clinical Episode-Based Payment (AA 
Payment) measure have high payments with substantial variation. In CY 
2014, Medicare FFS beneficiaries experienced more than 22,000 aortic 
aneurysm procedure episodes triggered by related inpatient stays. 
Payment-standardized, risk-adjusted episode payment for these episodes 
(payment for the hospitalization plus payment for clinically related 
services in the episode window) totaled nearly $760 million in CY 2014, 
with a mean episode payment of over $33,000. There is substantial 
variation in aortic aneurysm procedure episode payment--ranging from 
approximately $21,000 at the 5th percentile to approximately $62,000 at 
the 95th percentile--that is partially driven by variation in 
postdischarge payment clinically-related to the inpatient 
hospitalization.\98\ These clinically-related postdischarge payments 
may be an indicator of the quality of care provided during the 
hospitalization. Specifically, higher quality hospital treatment may 
yield lower postdischarge payment.
---------------------------------------------------------------------------

    \98\ Statistics based on Acumen's testing of episode definition 
on Medicare FFS population using Medicare Parts A and B claims.
---------------------------------------------------------------------------

(b) Overview of Measure
    The proposed AA Payment measure includes the set of medical 
services related to a hospital admission for an aortic aneurysm 
procedure, including treatment, follow-up, and postacute care. The 
measure includes two clinical subtypes: (1) Abdominal Aortic Aneurysm 
Procedure; and (2) Thoracic Aortic Aneurysm Procedure. Clinical 
subtypes are included in the measure construction to distinguish 
relatively homogeneous subpopulations of patients whose health 
conditions significantly influence the form of treatment and the 
expected post-discharge outcomes and risks. The risk adjustment model 
is estimated separately for each clinical subtype, such that the 
measure compares observed spending for an episode of a given clinical 
subtype only to expected spending among episodes of that subtype. This 
measure, like the NQF-endorsed MSPB measure (NQF #2158), assesses the 
payment for services initiated during an episode that spans the period 
immediately prior to, during, and following a beneficiary's hospital 
stay (the ``episode window'', discussed in more detail below). In 
contrast to the MSPB measure, however, this proposed measure includes 
Medicare payments for services during the episode window only if they 
are clinically related to the aortic aneurysm procedure that was 
performed during the index hospital stay.
(c) Data Sources
    The proposed AA Payment measure is a claims-based measure. It uses 
Part A and Part B Medicare administrative claims data from Medicare FFS 
beneficiaries hospitalized for an aortic aneurysm procedure. The 
reporting period for the measure is 1 year (that is, the measure 
calculation includes eligible episodes occurring within a 1-year 
timeframe). For example, for the FY 2019 payment determination, the 
reporting period would be CY 2017.
(d) Measure Calculation
    The proposed AA Payment measure sums the Medicare payment amounts 
for clinically related Part A and Part B services provided during the 
episode window and attributes them to the hospital at which the index 
hospital stay occurred. Medicare payments included in this episode-
based measure are standardized and risk-adjusted. Similar to the MSPB 
measure's construction, this measure is expressed as a risk-adjusted 
ratio, which allows for ease of comparison over time, without the need 
to adjust for inflation. The numerator is the Episode Amount, 
calculated as the average of the ratios of the observed episode payment 
over the expected episode payment (as predicted in risk adjustment), 
multiplied by the average observed episode payment level across all 
providers nationally. The denominator for a provider's measure is the 
episode weighted national median of Episode Amounts across all 
providers. An aortic aneurysm procedure episode begins 3 days prior to 
the initial (index) admission and extends 30 days following the 
discharge from the index hospital stay. For detailed measure 
specifications, we refer readers to the clinical episode-

[[Page 25188]]

based payment measures report entitled, ``Measure Specifications: 
Hospital Clinical Episode-Based Payment Measures for Aortic Aneurysm 
Procedure, Cholecystectomy and Common Duct Exploration, and Spinal 
Fusion'' and available at: http://www.qualitynet.org > Hospital-
Inpatient > Claims-Based Measures > Episode-Based Payment Measures.
(e) Cohort
    The proposed AA Payment measure cohort includes Medicare FFS 
beneficiaries hospitalized for an aortic aneurysm procedure. Measure 
exclusions are discussed in more detail in section VIII.A.7.a.(5) of 
the preamble of this proposed rule.
    We are inviting public comment on our proposal to adopt the Aortic 
Aneurysm Procedure Clinical Episode-Based Payment (AA Payment) measure 
to the Hospital IQR Program measure set for the FY 2019 payment 
determination and subsequent years as discussed in this section.
(3) Proposed Cholecystectomy and Common Duct Exploration Clinical 
Episode-Based Payment (Chole and CDE Payment) Measure
(a) Background
    Inpatient hospital stays and associated services assessed by the 
proposed Cholecystectomy and Common Duct Exploration Clinical Episode-
Based Payment (Chole and CDE Payment) measure have high payments with 
substantial variation. In CY 2014, Medicare FFS beneficiaries 
experienced more than 48,000 cholecystectomy and common duct 
exploration episodes triggered by related inpatient stays. Payment-
standardized, risk-adjusted episode payment for these episodes (payment 
for the hospitalization plus the payment for clinically related 
services in the episode window) totaled nearly $690 million in CY 2014, 
with a mean episode payment of over $14,000. There is substantial 
variation in cholecystectomy and common duct exploration episode 
payment--ranging from approximately $11,000 at the 5th percentile to 
approximately $22,000 at the 95th percentile--that is partially driven 
by variation in postdischarge payment clinically-related to the 
inpatient hospitalization.\99\ These clinically-related postdischarge 
payments may be an indicator of the quality of care provided during the 
hospitalization. Specifically, higher quality hospital treatment may 
yield lower postdischarge payment.
---------------------------------------------------------------------------

    \99\ Statistics based on Acumen's testing of episode definition 
on Medicare FFS population using Medicare Parts A and B claims.
---------------------------------------------------------------------------

(b) Overview of Measure
    The proposed Chole and CDE Payment measure includes the set of 
medical services related to a hospital admission for a cholecystectomy 
and common duct exploration, including treatment, follow-up, and 
postacute care. This measure, like the NQF-endorsed MSPB measure (NQF 
#2158), assesses the payment for services initiated during an episode 
that spans the period immediately prior to, during, and following a 
beneficiary's hospital stay (the ``episode window'', discussed in more 
detail below). In contrast to the MSPB measure, however, this measure 
includes Medicare payments for services during the episode window only 
if they are clinically related to the cholecystectomy and common duct 
exploration that was performed during the index hospital stay.
(c) Data Sources
    The proposed Chole and CDE Payment measure is a claims-based 
measure. It uses Part A and Part B Medicare administrative claims data 
from Medicare FFS beneficiaries hospitalized for a cholecystectomy and 
common duct exploration. The reporting period for the measure is 1 year 
(that is, the measure calculation includes eligible episodes occurring 
within a 1-year timeframe). For example, for the FY 2019 payment 
determination, the reporting period would be CY 2017.
(d) Measure Calculation
    The proposed Chole and CDE Payment measure sums the Medicare 
payment amounts for clinically related Part A and Part B services 
provided during the episode window and attributes them to the hospital 
at which the index hospital stay occurred. Medicare payments included 
in this episode-based measure are standardized and risk-adjusted. 
Similar to the MSPB measure's construction, this measure is expressed 
as a risk-adjusted ratio, which allows for ease of comparison over 
time, without need to adjust for inflation. The numerator is the 
Episode Amount, calculated as the average of the ratios of the observed 
episode payment over the expected episode payment (as predicted in risk 
adjustment), multiplied by the average observed episode payment level 
across all providers nationally. The denominator for a provider's 
measure is the episode weighted national median of Episode Amounts 
across all providers. A cholecystectomy and common duct exploration 
episode begins 3 days prior to the initial (index) admission and 
extends 30 days following the discharge from the index hospital stay. 
For detailed measure specifications, we refer readers to the clinical 
episode-based payment measures report entitled, ``Measure 
Specifications: Hospital Clinical Episode-Based Payment Measures for 
Aortic Aneurysm Procedure, Cholecystectomy and Common Duct Exploration, 
and Spinal Fusion'' and available at: http://www.qualitynet.org > 
Hospital-Inpatient > Claims-Based Measures > Episode-Based Payment 
Measures.
(e) Cohort
    The proposed Chole and CDE Payment measure cohort includes Medicare 
FFS beneficiaries hospitalized for cholecystectomy and common duct 
exploration. Measure exclusions are discussed in more detail in section 
VIII.A.7.a.(5) of the preamble of this proposed rule below.
    We are inviting public comment on our proposal to adopt the 
Cholecystectomy and Common Duct Exploration Clinical Episode-Based 
Payment (Chole and CDE Payment) measure to the Hospital IQR Program 
measure set for the FY 2019 payment determination and subsequent years 
as discussed in this section.
(4) Proposed Spinal Fusion Clinical Episode-Based Payment (SFusion 
Payment) Measure
(a) Background
    Inpatient hospital stays and associated services assessed by the 
proposed Spinal Fusion Clinical Episode-Based Payment (SFusion Payment) 
measure have high payments with substantial variation. In CY 2014, 
Medicare FFS beneficiaries experienced nearly 60,000 spinal fusion 
episodes triggered by related inpatient stays. Payment-standardized, 
risk-adjusted episode payment for these episodes (payment for the 
hospitalization plus the payment for clinically related services in the 
episode window) totaled over $2 billion in CY 2014, with a mean episode 
payment of over $35,000. There is substantial variation in spinal 
fusion episode payment--ranging from approximately $27,000 at the 5th 
percentile to approximately $56,000 at the 95th percentile--that is 
partially driven by variation in postdischarge payment clinically-
related to the inpatient hospitalization.\100\ These clinically-related 
postdischarge

[[Page 25189]]

payments may be an indicator of the quality of care provided during the 
hospitalization. Specifically, higher quality hospital treatment may 
yield lower postdischarge payment.
---------------------------------------------------------------------------

    \100\ Statistics based on Acumen's testing of episode definition 
on Medicare FFS population using Medicare Parts A and B claims.
---------------------------------------------------------------------------

(b) Overview of Measure
    The proposed SFusion Payment measure includes the set of medical 
services related to a hospital admission for a spinal fusion, including 
treatment, follow-up, and postacute care. The measure includes five 
clinical subtypes: (1) Anterior Fusion--Single; (2) Anterior Fusion--2 
Levels; (3) Posterior/Posterior-Lateral Approach Fusion--Single; (4) 
Posterior/Posterior-Lateral Approach Fusion--2 or 3 Levels; and (5) 
Combined Fusions. The clinical subtypes are included in the measure 
construction to distinguish relatively homogeneous subpopulations of 
patients whose health conditions significantly influence the form of 
treatment and the expected outcomes and risks. The risk adjustment 
model is estimated separately for each clinical subtype, such that the 
measure compares observed spending for an episode of a given clinical 
subtype only to expected spending among episodes of that subtype. A 
similar measure, the Lumbar Spinal Fusion/Refusion Clinical Episode-
Based Payment Measure, was proposed for inclusion in the Hospital IQR 
Program in the FY 2016 IPPS/LTCH PPS proposed rule (80 FR 24570-24571). 
Based on public comment regarding the heterogeneity of the spinal 
fusion patient population, we decided not to finalize the measure for 
the Hospital IQR Program at that time (80 FR 49668 through 49674). We 
have since refined the measure by including more granular subtypes of 
fusions of the lumbar spine to create more homogenous patient cohorts.
    This proposed measure, like the NQF-endorsed MSPB measure (NQF 
#2158), assesses the payment for services initiated during an episode 
that spans the period immediately prior to, during, and following a 
beneficiary's hospital stay (the ``episode window'', discussed in more 
detail below). In contrast to the MSPB measure, however, this measure 
includes Medicare payments for services during the episode window only 
if they are clinically related to the spinal fusion procedure that was 
performed during the index hospital stay.
(c) Data Sources
    The proposed SFusion Payment measure is a claims-based measure. It 
uses Part A and Part B Medicare administrative claims data from 
Medicare FFS beneficiaries hospitalized for spinal fusion. The 
reporting period for the measure is 1 year (that is, the measure 
calculation includes eligible episodes occurring within a 1-year 
timeframe). For example, for the FY 2019 payment determination, the 
reporting period would be CY 2017.
(d) Measure Calculation
    The proposed SFusion Payment measure sums the Medicare payment 
amounts for clinically related Part A and Part B services provided 
during the episode window and attributes them to the hospital at which 
the index hospital stay occurred. Medicare payments included in this 
episode-based measure are standardized and risk-adjusted. Similar to 
the MSPB measure's construction, this measure is expressed as a risk-
adjusted ratio, which allows for ease of comparison over time, without 
need to adjust for inflation. The numerator is the Episode Amount, 
calculated as the average of the ratios of the observed episode payment 
over the expected episode payment (as predicted in risk adjustment), 
multiplied by the average observed episode payment level across all 
providers nationally. The denominator for a provider's measure is the 
episode weighted national median of Episode Amounts across all 
providers. A spinal fusion episode begins 3 days prior to the initial 
(index) admission and extends 30 days following the discharge from the 
index hospital stay.
    For detailed measure specifications, we refer readers to the 
clinical episode-based payment measures report entitled, ``Measure 
Specifications: Hospital Clinical Episode-Based Payment Measures for 
Aortic Aneurysm Procedure, Cholecystectomy and Common Duct Exploration, 
and Spinal Fusion'' available at: http://www.qualitynet.org > Hospital-
Inpatient > Claims-Based Measures > Episode-Based Payment Measures.
(e) Cohort
    The proposed SFusion Payment measure cohort includes Medicare FFS 
beneficiaries hospitalized for spinal fusion. Measure exclusions are 
discussed in more detail in section VIII.A.7.a.(5) of the preamble of 
this proposed rule below.
    We are inviting public comment on our proposal to adopt the Spinal 
Fusion Clinical Episode-Based Payment (SFusion Payment) measure to the 
Hospital IQR Program measure set for the FY 2019 payment determination 
and subsequent years as discussed in this section.
(5) Exclusion Criteria
    For a full list of the MS-DRG, procedure, and diagnosis codes used 
to identify beneficiaries included in the final cohort for each of the 
proposed episode-based payment measures, we refer readers to the report 
entitled, ``Measure Specifications: Hospital Clinical Episode-Based 
Payment Measures for Aortic Aneurysm Procedure, Cholecystectomy and 
Common Duct Exploration, and Spinal Fusion'' available at: http://
www.qualitynet.org > Hospital-Inpatient > Claims-Based Measures > 
Episode-Based Payment Measures.
    Episodes for beneficiaries that meet any of the following criteria 
are excluded from all three measures: (1) Lack of continuous enrollment 
in Medicare Part A and Part B from 90 days prior to the episode through 
the end of the episode with traditional Medicare fee-for-service as the 
primary payer; (2) Death date during episode window; or (3) Enrollment 
in Medicare Advantage anytime from 90 days prior to the episode through 
the end of the episode.
    In addition, claims that meet any of the following criteria do not 
trigger, or open, an episode for all three measures: (1) Claims with 
data coding errors, including missing date of birth or death dates 
preceding the date of the trigger event; (2) Claims with standardized 
payment <= 0; (3) Admissions to hospitals that Medicare does not 
reimburse through the IPPS system (for example, cancer hospitals, 
critical access hospitals, hospitals in Maryland); or (4) Transfers (by 
which a transfer is defined based on the claim discharge code) are not 
considered index admissions. In other words, these cases do not 
generate new episodes; neither the hospital that transfers a patient to 
another hospital, nor the receiving hospital will have an index 
admission or associated admission attributed to them.
(6) Standardization
    Standardization, or payment standardization, is the process of 
adjusting the allowed charge for a Medicare service to facilitate 
comparisons of resource use across geographic areas. Medicare payments 
included in these proposed episode-based measures would be standardized 
according to the standardization methodology previously finalized for 
the MSPB measure in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51627). 
The methodology removes geographic payment differences, such as wage 
index and geographic practice cost

[[Page 25190]]

index, incentive payment adjustments, and other add-on payments that 
support broader Medicare program goals, such as add-on payments for 
indirect graduate medical education (IME) and add-ons for serving a 
disproportionate share of uninsured patients.\101\
---------------------------------------------------------------------------

    \101\ An overview of payment standardization can be found in the 
``CMS Price (Payment) Standardization--Basics'' document available 
at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPages%2FQnetTier4&cid=1228772057350.
---------------------------------------------------------------------------

(7) Risk Adjustment
    Risk adjustment uses patient claims history to account for case-mix 
variation and other factors. The steps used to calculate risk-adjusted 
payments align with the NQF-endorsed MSPB measure (NQF #2158) method as 
specified in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51624 through 
51626). For more details on the specifications for the risk adjustment 
employed in the proposed episode-based payment measures, we refer 
readers to the report entitled, ``Measure Specifications: Hospital 
Clinical Episode-Based Payment Measures for Aortic Aneurysm Procedure, 
Cholecystectomy and Common Duct Exploration, and Spinal Fusion'' 
available at: http://www.qualitynet.org > Hospital-Inpatient > Claims-
Based Measures > Episode-Based Payment Measures.
    We are inviting public comment on our proposals to add three 
clinical episode-based payment measures as stated above for the FY 2019 
payment determination and subsequent years.
b. Proposed Adoption of Excess Days in Acute Care After Hospitalization 
for Pneumonia (PN Excess Days) Measure
(1) Background
    Pneumonia is a priority area for outcomes measurement because it is 
a common condition associated with considerable morbidity, mortality, 
and healthcare spending. Pneumonia was the third most common principal 
discharge diagnosis among patients with Medicare in 2011.\102\ 
Pneumonia also accounts for a large fraction of hospitalization costs, 
and it was the seventh most expensive condition billed to Medicare, 
accounting for 3.7 percent of the total national costs for all Medicare 
hospitalizations in 2011.\103\
---------------------------------------------------------------------------

    \102\ Agency for Healthcare Research and Quality (AHRQ). 
Healthcare Cost and Utilization Project (HCUP) http://hcupnet.ahrq.gov/.
    \103\ Torio CM, Andrews RM. National Inpatient Hospital Costs: 
The Most Expensive Conditions by Payer, 2011. HCUP Statistical Brief 
#160. 2013; http://hcup-us.ahrq.gov/reports/statbriefs/sb160.jsp.
---------------------------------------------------------------------------

    Some of the costs for pneumonia can be attributed to high acute 
care utilization for post-discharge pneumonia patients in the form of 
readmissions, observation stays, and emergency department (ED) visits. 
Patients admitted for pneumonia have disproportionately high 
readmission rates, and that readmission rates following discharge for 
pneumonia are highly variable across hospitals in the United 
States.104 105
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    \104\ Lindenauer PK, Bernheim SM, Grady JN, et al. The 
performance of US hospitals as reflected in risk-standardized 30-day 
mortality and readmission rates for medicare beneficiaries with 
pneumonia. J Hosp Med. 2010;5(6):E12-18.
    \105\ Dharmarajan K, Hsieh AF, Lin Z, et al. Hospital 
readmission performance and patterns of readmission: retrospective 
cohort study of Medicare admissions. BMJ. 2013;347:f6571.
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    For the previously adopted Hospital IQR Program measure, Hospital 
30-Day All-Cause Risk-Standardized Readmission Rate (RSRR) following 
Pneumonia Hospitalization (NQF #0506) (hereinafter referred to as 
READM-30-PN) (80 FR 49654 through 49660), publicly reported 30-day 
risk-standardized readmission rates for pneumonia ranged from 12.9 
percent to 24.8 percent for the time period between July 2012 and June 
2015.\106\ However, during the post-discharge period, patients are not 
only at risk of requiring readmission. Emergency Department (ED) visits 
represent a significant proportion of post-discharge acute care 
utilization. Two recent studies conducted in patients of all ages have 
shown that 9.5 percent of patients return to the ED within 30 days of 
hospital discharge and approximately 12 percent of these patients are 
discharged from the ED, and thus are not captured by the READM-30-PN 
Measure.107 108
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    \106\ Dorsey K, Grady J, Desai N, Lindenauer P, et al. 2016 
Condition-Specific Measures Updates and Specifications Report: 
Hospital-Level Risk-Standardized Readmission Measures for Acute 
Myocardial Infarction, Heart Failure, and Pneumonia. 2016.
    \107\ Rising KL, White LF, Fernandez WG, Boutwell AE.: Emergency 
Department Visits After Hospital Discharge: A Missing Part of the 
Equation. Annals of Emergency Medicine. 2013(0).
    \108\ Vashi AA, Fox JP, Carr BG, et al.: Use of hospital-based 
acute care among patients recently discharged from the hospital. 
JAMA: the journal of the American Medical Association. Jan 23 
2013;309(4):364-371.
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    In addition, over the past decade, the use of observation stays has 
rapidly increased. Specifically, between 2001 and 2008, the use of 
observation services increased nearly three-fold,\109\ and significant 
variation has been demonstrated in the use of observation services.
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    \109\ Venkatesh AK GB, Gibson Chambers JJ, Baugh CW, Bohan JS, 
Schuur JD. Use of Observation Care in US Emergency Departments, 2001 
to 2008. PLoS One. September 2011;6(9):e24326.
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    Thus, in the context of the previously adopted and publicly 
reported READM-30-PN measure, the increasing use of ED visits and 
observation stays has raised concerns that the READM-30-PN measure does 
not capture the full range of unplanned acute care in the post-
discharge period. In particular, some policymakers and stakeholders 
have expressed concern that high use of observation stays in some cases 
could replace readmissions, and hospitals with high rates of 
observation stays in the post-discharge period may therefore have low 
readmission rates that do not more fully reflect the quality of 
care.\110\
---------------------------------------------------------------------------

    \110\ Carlson J. Readmissions are down, but observational-status 
patients are up and that could skew Medicare numbers. Modern 
Healthcare. 2013.
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    In response to these concerns, we improved on a previously 
developed measure, which is not currently part of the Hospital IQR 
Program measure set, titled, ``30-Day Post-Hospital Pneumonia Discharge 
Care Transition Composite'' (NQF #0707--NQF endorsement removed). The 
improved measure entitled Excess Days in Acute Care after 
Hospitalization for Pneumonia (PN Excess Days) is a risk-adjusted 
outcome measure for pneumonia that incorporates the full range of acute 
care use that patients may experience post-discharge: Hospital 
readmissions, observation stays, and ED visits. We are proposing this 
PN Excess Days measure for inclusion in the Hospital IQR Program for 
the FY 2019 payment determination and subsequent years.
    The proposed PN Excess Days measure assesses all-cause acute care 
utilization for post-discharge pneumonia patients for several reasons. 
First, from the patient perspective, acute care utilization for any 
cause is undesirable. It is costly, exposes patients to additional 
risks of medical care, interferes with work and family care, and 
imposes significant burden on caregivers. Second, limiting the measure 
to inpatient utilization may make it susceptible to gaming. Finally, 
this measure includes all-cause acute care utilization because it is 
often hard to exclude quality concerns and accountability based on the 
documented cause of a hospital visit.
    Although the original measure was NQF-endorsed, this improved 
measure has not yet been NQF-endorsed. Section 1886(b)(3)(B)(IX)(bb) of 
the Act provides that in the case of a specified area or medical topic 
determined appropriate by the Secretary for which a feasible and 
practical measure has not been endorsed by the entity with a contract 
under section 1890(a) of the Act, the Secretary

[[Page 25191]]

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. While we 
considered other existing measures related to care transitions and 
post-discharge acute care utilization that have been endorsed by NQF or 
other consensus organizations, but we were unable to identify any NQF-
endorsed (or other consensus organization endorsed) measures that 
assess the full range of post-discharge acute care use that patients 
may experience. Existing process measures capture many important 
domains of care transitions such as education, medication 
reconciliation, and follow-up, but all require chart review and manual 
abstraction. Existing outcome measures are focused entirely on 
readmissions or complications and do not include observation stays or 
ED visits. We are not aware of any other measures that assess the 
quality of transitional care by measuring 30-day risk-standardized days 
in acute care (hospital readmissions, observation stays, and ED visits) 
following hospitalization for pneumonia that have been endorsed or 
adopted by a consensus organization, and we have not found any other 
feasible and practical measures on this topic. However, we note that 
this measure has been submitted to NQF for endorsement proceedings as 
part of the All-Cause Admissions and Readmissions project in January 
2016.
    The proposed PN Excess Days measure was developed in conjunction 
with the previously adopted Hospital IQR Program measures, Excess Days 
in Acute Care after Hospitalization for Acute Myocardial Infarction 
(AMI Excess Days) (80 FR 49690) and Hospital 30-Day Excess Days in 
Acute Care after Hospitalization for Heart Failure (HF Excess Days) (80 
FR 49690). All three measures assess the same outcome and use the same 
risk-adjustment methodology. They differ only in the target population 
and the specific risk variables included.
    When we finalized the AMI Excess Days and HF Excess Days measures 
for the FY 2018 payment determination and subsequent years, 
stakeholders expressed concern about the interaction between Medicare 
payment policy regarding admissions spanning two midnights and the AMI 
Excess Days and HF Excess Days measures (80 FR 49686 through 49687). We 
continue to believe that the ``2-midnight'' policy or any changes to 
such policy will not influence the outcome of Excess Days in Acute Care 
measures, as all postdischarge days in acute care are captured whether 
they are billed as inpatient or outpatient days (80 FR 49686 through 
49687).
    The proposed PN Excess Days measure (MUC15-391) was included on a 
publicly available document entitled ``2015 Measures Under 
Consideration List'' for December 1, 2015 (available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367) and has 
been reviewed by the NQF Measure Applications Partnership (MAP) 
Hospital Workgroup. The measure was conditionally supported pending the 
examination of sociodemographic status (SDS) factors and NQF review and 
endorsement of the measure update, as referenced in the MAP 2016 Final 
Recommendations Report (available at: http://www.qualityforum.org/map/
).\111\ We refer readers to section VIII.A.6.a.(1) of the preamble of 
this proposed rule for a discussion of our policy on SDS factors. As 
stated above, we note that this measure has been submitted to NQF for 
endorsement proceedings as part of the All-Cause Admissions and 
Readmissions project in January 2016.
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    \111\ Spreadsheet of MAP 2016 Final Recommendations Available 
at: http://www.qualityforum.org/map/.
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(2) Overview of Measure
    The proposed PN Excess Days measure is a risk-standardized outcome 
measure that compares the number of days that patients, discharged from 
a hospital for pneumonia, are predicted to spend in acute care across 
the full spectrum of possible events (hospital readmissions, 
observation stays, and ED visits) to the days that patients are 
expected to spend based on their degree of illness as defined using 
principal diagnosis and comorbidity data from administrative claims.
(3) Data Sources
    The proposed PN Excess Days measure is claims-based. It uses Part A 
and Part B Medicare administrative claims data from Medicare FFS 
beneficiaries hospitalized for pneumonia. To determine eligibility for 
inclusion in the measure, we also use Medicare enrollment data. As 
proposed, the measure would use 3 years of data. For example, for the 
FY 2019 payment determination, the reporting period would be July 2014 
through June 2017.
(4) Outcome
    The outcome of the proposed PN Excess Days measure is the excess 
number of days patients spend in acute care (hospital readmissions, 
observation stays, and ED visits) per 100 discharges during the first 
30 days after discharge from the hospital, relative to the number spent 
by the same patients discharged from an average hospital. The measure 
defines days in acute care as days spent: (1) In an ED; (2) admitted to 
observation status; or (3) admitted as an unplanned readmission for any 
cause within 30 days from the date of discharge from the index 
pneumonia hospitalization. Readmission days are calculated as the 
discharge date minus the admission date. Admissions that extend beyond 
the 30-day follow-up period are truncated on day 30. Observation days 
are calculated by the hours in observation, rounded up to the nearest 
half day. Based on the recommendation of our technical expert panel 
convened as part of developing this measure, an ED treat-and-release 
visit is counted as one half day. ED visits are not counted as a full 
day because the majority of treat-and-release visits last fewer than 12 
hours.
    ``Planned'' readmissions are those planned by providers for 
anticipated medical treatment or procedures that must be provided in 
the inpatient setting. This measure excludes planned readmissions using 
the planned readmission algorithm previously developed for the READM-
30-PN measure (78 FR 50786 through 50787). The planned readmission 
algorithm is a set of criteria for classifying admissions as planned 
among the general Medicare population using Medicare administrative 
claims data. The algorithm identifies admissions that are typically 
planned and may occur within 30 days of discharge from the hospital. 
The planned readmission algorithm has three fundamental principles: (1) 
A few specific, limited types of care are always considered planned 
(transplant surgery, maintenance chemotherapy/immunotherapy, 
rehabilitation); (2) otherwise, a planned readmission is defined as a 
non-acute readmission for a scheduled procedure; and (3) admissions for 
acute illness or for complications of care are never planned. A more 
detailed discussion of exclusions follows in section VIII.A.7.b.(6) of 
the preamble of this proposed rule.
    The measure counts all use of acute care occurring in the 30-day 
post-discharge period. For example, if a patient returns to the ED 
three times, the measure counts each ED visit as a half-day. Similarly, 
if a patient has two hospitalizations within 30 days, the days spent in 
each are counted. We take this approach to capture the full patient 
experience of need for acute care in the post-discharge period.

[[Page 25192]]

(5) Cohort
    We defined the eligible cohort using the same criteria as the 
previously adopted Hospital IQR Program measure, READM-30-PN (80 FR 
49654 through 49660). The READM-30-PN cohort criteria are included in a 
report posted on our Measure Methodology Web page, under the 
``Downloads'' section in the ``AMI, HF, PN, COPD, and Stroke 
Readmission Updates'' zip file on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    The cohort includes Medicare FFS patients aged 65 years or older: 
(1) With a principal discharge diagnosis of pneumonia, a principal 
discharge diagnosis of aspiration pneumonia, or a principal discharge 
diagnosis of sepsis (not including severe sepsis) who also have a 
secondary diagnosis of pneumonia present on admission; (2) enrolled in 
Part A and Part B Medicare for the 12 months prior to the date of 
admission, and enrolled in Part A during the index admission; (3) who 
were discharged from a non-Federal acute care hospital; (4) who were 
not transferred to another acute care facility; and (5) who were alive 
at discharge.
    The measure cohort is also harmonized with the previously adopted 
Hospital IQR Program measure, the MORT-30-PN measure (80 FR 49837), and 
the proposed refined cohort for the PN Payment measure proposed in 
section VIII.A.6.a. of the preamble of this proposed rule.
    For the ICD-9-CM and ICD-10-CM codes that define the measure 
development cohort, we refer readers to the ``Excess Days in Acute Care 
after Hospitalization for Pneumonia Version 1.0'' in the Pneumonia 
Excess Days in Acute Care zip file on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(6) Exclusion Criteria
    The proposed PN Excess Days measure excludes the following 
admissions from the measure cohort: (1) Hospitalizations without at 
least 30 days of post-discharge enrollment in Part A and Part B FFS 
Medicare, because the 30-day outcome cannot be assessed in this group 
since claims data are used to determine whether a patient was 
readmitted, was placed under observation, or visited the ED; (2) 
discharged against medical advice, because providers did not have the 
opportunity to deliver full care and prepare the patient for discharge; 
and (3) hospitalizations for patients with an index admission within 30 
days of a previous index admission, because additional pneumonia 
admissions within 30 days are part of the outcome, and we choose not to 
count a single admission both as an index admission and a readmission 
for another index admission.
(7) Risk-Adjustment
    The proposed PN Excess Days measure adjusts for variables that are 
clinically relevant and have strong relationships with the outcome. The 
measure seeks to adjust for case-mix differences among hospitals based 
on the clinical status of the patient at the time of the index 
admission. Accordingly, only comorbidities that convey information 
about the patient at that time or in the 12 months prior, and not 
complications that arise during the course of the index 
hospitalization, are included in the risk adjustment. The measure does 
not adjust for patients' admission source or their discharge 
disposition (for example, skilled nursing facility) because these 
factors are associated with the structure of the healthcare system, not 
solely patients' clinical comorbidities. Patients' admission source and 
discharge disposition may be influenced by regional differences in the 
availability of post-acute care providers and practice patterns. These 
regional differences might exert undue influence on results. In 
addition, patients' admission source and discharge disposition are not 
audited and are not as reliable as diagnosis codes. The proposed PN 
Excess Days measure uses the same risk-adjustment variables as the 
READM-30-PN (73 FR 48614).
    The outcome is risk adjusted using a two-part random effects model. 
This statistical model, often referred to as a ``hurdle'' model, 
accounts for the structure of the data (patients clustered within 
hospitals) and the observed distribution of the outcome. Specifically, 
it models the number of acute care days for each patient as: (1) a 
probability that they have a non-zero number of days; and (2) a number 
of days, given that this number is non-zero. The first part is 
specified as a logit model, and the second part is specified as a 
Poisson model, with both parts having the same risk-adjustment 
variables and each part having a random effect. This is an accepted 
statistical method that explicitly estimates how much of the variation 
in acute care days is accounted for by patient risk factors, how much 
by the hospital where the patient is treated, and how much is explained 
by neither. This model is used to calculate the predicted (including 
random effects) and expected (assuming random effects are zero) number 
of days for each patient. The average difference between the predicted 
and expected number of days for each patient for each hospital is used 
to construct the risk-standardized Excess Days in Acute Care. For more 
details about risk-adjustment for this proposed measure, we refer 
readers to the ``Pneumonia Excess Days in Acute Care'' zip file on our 
Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(8) Calculating Excess Acute Care Days
    The proposed PN Excess Days measure is calculated as the difference 
between the average of the predicted number of days spent in acute care 
for patients discharged from each hospital and the average number of 
days that would have been expected if those patients had been cared for 
at an average hospital, and then the difference is multiplied by 100 so 
that the measure result represents PN Excess Days per 100 discharges. 
We multiply the final measure by 100 to be consistent with the 
reporting of the previously adopted READM-30-PN measure that is 
reported as a rate (that is, a 25 percent rate is equivalent to 25 out 
of 100 discharges) (80 FR 49654 through 49660), as well as the AMI 
Excess Days (80 FR 49690) and HF Excess Days (80 FR 49685) measures. A 
positive result indicates that patients spend more days in acute care 
post-discharge than expected if admitted to an average performing 
hospital with a similar case mix; a negative result indicates that 
patients spend fewer days in acute care than expected if admitted to an 
average performing hospital with a similar case mix. A negative PN 
Excess Days measure score reflects better quality.
    We are inviting public comment on our proposal to adopt the PN 
Excess Days measure for the FY 2019 payment determination and 
subsequent years as described above.
c. Summary of Previously Adopted and Newly Proposed Hospital IQR 
Program Measures for the FY 2019 Payment Determination and Subsequent 
Years
    The table below outlines the proposed Hospital IQR Program measure 
set for the FY 2019 payment determination and subsequent years, and 
includes both previously adopted measures and measures newly proposed 
in this proposed rule. Measures proposed for removal in section 
VIII.A.3.b. of the

[[Page 25193]]

preamble of this proposed rule are not included in this chart.

      Proposed Hospital IQR Program Measure Set for the FY 2019 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
                   Short name                                        Measure name                      NQF No.
----------------------------------------------------------------------------------------------------------------
                                                      NHSN
----------------------------------------------------------------------------------------------------------------
CAUTI...........................................  National Healthcare Safety Network (NHSN)                 0138
                                                   Catheter-associated Urinary Tract Infection
                                                   (CAUTI) Outcome Measure.
CDI.............................................  National Healthcare Safety Network (NHSN)                 1717
                                                   Facility-wide Inpatient Hospital-onset
                                                   Clostridium difficile Infection (CDI) Outcome
                                                   Measure.
CLABSI..........................................  National Healthcare Safety Network (NHSN) Central         0139
                                                   Line-Associated Bloodstream Infection (CLABSI)
                                                   Outcome Measure.
Colon and Abdominal Hysterectomy SSI............  American College of Surgeons--Centers for Disease         0753
                                                   Control and Prevention (ACS-CDC) Harmonized
                                                   Procedure Specific Surgical Site Infection (SSI)
                                                   Outcome Measure.
HCP.............................................  Influenza Vaccination Coverage Among Healthcare           0431
                                                   Personnel.
MRSA Bacteremia.................................  National Healthcare Safety Network (NHSN)                 1716
                                                   Facility-wide Inpatient Hospital-onset
                                                   Methicillin-resistant Staphylococcus aureus
                                                   (MRSA) Bacteremia Outcome Measure.
----------------------------------------------------------------------------------------------------------------
                                                Chart-abstracted
----------------------------------------------------------------------------------------------------------------
ED-1 *..........................................  Median Time from ED Arrival to ED Departure for           0495
                                                   Admitted ED Patients.
ED-2 *..........................................  Admit Decision Time to ED Departure Time for              0497
                                                   Admitted Patients.
Imm-2...........................................  Influenza Immunization...........................         1659
PC-01 *.........................................  Elective Delivery (Collected in aggregate,                0469
                                                   submitted via Web-based tool or electronic
                                                   clinical quality measure).
Sepsis..........................................  Severe Sepsis and Septic Shock: Management Bundle         0500
                                                   (Composite Measure).
VTE-6...........................................  Incidence of Potentially Preventable Venous                \+\
                                                   Thromboembolism.
----------------------------------------------------------------------------------------------------------------
                                              Claims-based Outcome
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI.....................................  Hospital 30-Day, All-Cause, Risk-Standardized             0230
                                                   Mortality Rate (RSMR) Following Acute Myocardial
                                                   Infarction (AMI) Hospitalization.
MORT-30-CABG....................................  Hospital 30-Day, All-Cause, Risk-Standardized             2558
                                                   Mortality Rate (RSMR) Following Coronary Artery
                                                   Bypass Graft (CABG) Surgery.
MORT-30-COPD....................................  Hospital 30-Day, All-Cause, Risk-Standardized             1893
                                                   Mortality Rate (RSMR) Following Chronic
                                                   Obstructive Pulmonary Disease (COPD)
                                                   Hospitalization.
MORT-30-HF......................................  Hospital 30-Day, All-Cause, Risk-Standardized             0229
                                                   Mortality Rate (RSMR) Following Heart Failure
                                                   (HF) Hospitalization.
MORT-30-PN......................................  Hospital 30-Day, All-Cause, Risk-Standardized             0468
                                                   Mortality Rate Following Pneumonia
                                                   Hospitalization.
MORT-30-STK.....................................  Hospital 30-Day, All-Cause, Risk-Standardized              N/A
                                                   Mortality Rate Following Acute Ischemic Stroke.
READM-30-AMI....................................  Hospital 30-Day All-Cause Risk-Standardized               0505
                                                   Readmission Rate (RSRR) Following Acute
                                                   Myocardial Infarction (AMI) Hospitalization.
READM-30-CABG...................................  Hospital 30-Day, All-Cause, Unplanned, Risk-              2515
                                                   Standardized Readmission Rate (RSRR) Following
                                                   Coronary Artery Bypass Graft (CABG) Surgery.
READM-30-COPD...................................  Hospital 30-Day, All-Cause, Risk-Standardized             1891
                                                   Readmission Rate (RSRR) Following Chronic
                                                   Obstructive Pulmonary Disease (COPD)
                                                   Hospitalization.
READM-30-HF.....................................  Hospital 30-Day, All-Cause, Risk-Standardized             0330
                                                   Readmission Rate (RSRR) Following Heart Failure
                                                   (HF) Hospitalization.
READM-30-HWR....................................  Hospital-Wide All-Cause Unplanned Readmission             1789
                                                   Measure (HWR).
READM-30-PN.....................................  Hospital 30-Day, All-Cause, Risk-Standardized             0506
                                                   Readmission Rate (RSRR) Following Pneumonia
                                                   Hospitalization.
READM-30-STK....................................  30-Day Risk Standardized Readmission Rate                  N/A
                                                   Following Stroke Hospitalization.
READM-30-THA/TKA................................  Hospital-Level 30-Day, All-Cause Risk-                    1551
                                                   Standardized Readmission Rate (RSRR) Following
                                                   Elective Primary Total Hip Arthroplasty (THA)
                                                   and/or Total Knee Arthroplasty (TKA).
AMI Excess Days.................................  Excess Days in Acute Care after Hospitalization            N/A
                                                   for Acute Myocardial Infarction.
HF Excess Days..................................  Excess Days in Acute Care after Hospitalization            N/A
                                                   for Heart Failure.
PN Excess Days **...............................  Excess Days in Acute Care after Hospitalization            N/A
                                                   for Pneumonia.
Hip/knee complications..........................  Hospital-Level Risk-Standardized Complication             1550
                                                   Rate (RSCR) Following Elective Primary Total Hip
                                                   Arthroplasty (THA) and/or Total Knee
                                                   Arthroplasty (TKA).
PSI 04..........................................  Death Rate among Surgical Inpatients with Serious         0351
                                                   Treatable Complications.
PSI 90..........................................  Patient Safety for Selected Indicators Composite          0531
                                                   Measure, Modified PSI 90 (Updated Title: Patient
                                                   Safety and Adverse Events Composite).
----------------------------------------------------------------------------------------------------------------
                                              Claims-based Payment
----------------------------------------------------------------------------------------------------------------
AMI Payment.....................................  Hospital-Level, Risk-Standardized Payment                 2431
                                                   Associated with a 30-Day Episode-of-Care for
                                                   Acute Myocardial Infarction (AMI).
HF Payment......................................  Hospital-Level, Risk-Standardized Payment                 2436
                                                   Associated with a 30-Day Episode-of-Care For
                                                   Heart Failure (HF).
PN Payment......................................  Hospital-Level, Risk-Standardized Payment                 2579
                                                   Associated with a 30-day Episode-of-Care For
                                                   Pneumonia.

[[Page 25194]]

 
THA/TKA Payment.................................  Hospital[hyphen]Level, Risk[hyphen]Standardized            N/A
                                                   Payment Associated with an Episode-of-Care for
                                                   Primary Elective Total Hip Arthroplasty and/or
                                                   Total Knee Arthroplasty.
MSPB............................................  Payment-Standardized Medicare Spending Per                2158
                                                   Beneficiary (MSPB).
Cellulitis Payment..............................  Cellulitis Clinical Episode-Based Payment Measure          N/A
GI Payment......................................  Gastrointestinal Hemorrhage Clinical Episode-              N/A
                                                   Based Payment Measure.
Kidney/UTI Payment..............................  Kidney/Urinary Tract Infection Clinical Episode-           N/A
                                                   Based Payment Measure.
AA Payment **...................................  Aortic Aneurysm Procedure Clinical Episode-Based           N/A
                                                   Payment Measure.
Chole and CDE Payment **........................  Cholecystectomy and Common Duct Exploration                N/A
                                                   Clinical Episode-Based Payment Measure.
SFusion Payment **..............................  Spinal Fusion Clinical Episode-Based Payment               N/A
                                                   Measure.
----------------------------------------------------------------------------------------------------------------
                                  Electronic Clinical Quality Measures (eCQMs)
----------------------------------------------------------------------------------------------------------------
AMI-8a..........................................  Primary PCI Received Within 90 Minutes of                 0163
                                                   Hospital Arrival.
----------------------------------------------------------------------------------------------------------------
CAC-3...........................................  Home Management Plan of Care Document Given to             \+\
                                                   Patient/Caregiver.
ED-1 *..........................................  Median Time from ED Arrival to ED Departure for           0495
                                                   Admitted ED Patients.
ED-2 *..........................................  Admit Decision Time to ED Departure Time for              0497
                                                   Admitted Patients.
EHDI-1a.........................................  Hearing Screening Prior to Hospital Discharge....         1354
PC-01 *.........................................  Elective Delivery (Collected in aggregate,                0469
                                                   submitted via Web-based tool or electronic
                                                   clinical quality measure).
PC-05...........................................  Exclusive Breast Milk Feeding ***................         0480
STK-02..........................................  Discharged on Antithrombotic Therapy.............         0435
STK-03..........................................  Anticoagulation Therapy for Atrial Fibrillation/          0436
                                                   Flutter.
STK-05..........................................  Antithrombotic Therapy by the End of Hospital Day         0438
                                                   Two.
STK-06..........................................  Discharged on Statin Medication..................         0439
STK-08..........................................  Stroke Education.................................          \+\
STK-10..........................................  Assessed for Rehabilitation......................         0441
VTE-1...........................................  Venous Thromboembolism Prophylaxis...............         0371
VTE-2...........................................  Intensive Care Unit Venous Thromboembolism                0372
                                                   Prophylaxis.
----------------------------------------------------------------------------------------------------------------
                                                 Patient Survey
----------------------------------------------------------------------------------------------------------------
HCAHPS..........................................  HCAHPS + 3-Item Care Transition Measure                   0166
                                                   (CTM[dash]3).                                            0228
----------------------------------------------------------------------------------------------------------------
                                               Structural Measures
----------------------------------------------------------------------------------------------------------------
Patient Safety Culture..........................  Hospital Survey on Patient Safety Culture........          N/A
----------------------------------------------------------------------------------------------------------------
Safe Surgery Checklist..........................  Safe Surgery Checklist Use.......................          N/A
----------------------------------------------------------------------------------------------------------------
* Measure listed twice, as both chart-abstracted and electronic clinical quality measure.
** Newly proposed measures for the FY 2019 payment determination and for subsequent years.
*** Measure name has been shortened. Please refer to annually updated electronically clinical quality measure
  specifications on the CMS eCQI Resource Center Page for further information: https://www.healthit.gov/newsroom/ecqi-resource-center.
\+\ NQF endorsement has been removed.

8. Proposed Changes to Policies on Reporting of eCQMs
    For a discussion of our previously finalized eCQMs and policies, we 
refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50807 
through 50810; 50811 through 50819), the FY 2015 IPPS/LTCH PPS final 
rule (79 FR 50241 through 50253; 50256 through 50259; and 50273 through 
50276), and the FY 2016 IPPS/LTCH PPS final rule (80 FR 49692 through 
49698; and 49704 through 49709).
    We are proposing two changes to our policies with respect to eCQMs 
reporting to require that hospitals: (1) Submit data for an increased 
number of eCQMs as further detailed below; and (2) report a full year 
of data. These proposals are made in conjunction with our proposals in 
section VIII.A.3.b.(3) of the preamble of this proposed rule to remove 
13 eCQMs from the Hospital IQR Program and proposals in sections 
VIII.A.10.d. and VIII.E.2.b. of the preamble of this proposed rule to 
align requirements for the Hospital IQR and the Medicare and Medicaid 
EHR Incentive Programs.
    In addition, we are clarifying that for three measures (ED-1, ED-2, 
and PC-01), our previously finalized policy that hospitals must submit 
a full year of chart-abstracted data regardless of whether data also 
are submitted electronically continues to apply.
a. Proposed Requirement That Hospitals Report on All eCQMs in the 
Hospital IQR Program Measure Set for the CY 2017 Reporting Period/FY 
2019 Payment Determination and Subsequent Years
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49698), we finalized 
our policy to require hospitals to submit one quarter of data (either 
Q3 or Q4) for 4 self-selected eCQMs for the CY 2016 reporting period/FY 
2018 payment determination by February 28, 2017. Furthermore, in that 
final rule (80 FR 49694), we signaled our intent to propose increasing 
the reporting requirement to 16 eCQMs in future rulemaking. In this 
proposed rule, we are proposing to require reporting of a full calendar 
year of data for all eCQMs in the Hospital IQR Program measure set

[[Page 25195]]

for the CY 2017 reporting period/FY 2019 payment determination and 
subsequent years.
    Requiring hospitals to electronically report a greater number of 
eCQMs furthers our goal of expanding electronic reporting in the 
Hospital IQR Program, which we believe will improve patient outcomes by 
providing more robust data to support quality improvement efforts. As 
stated above, this proposal is made in conjunction with our proposals 
in section VIII.A.3.b.(3) of the preamble of this proposed rule to 
remove thirteen eCQMs from the Hospital IQR Program and proposals in 
sections VIII.A.10.d. and VIII.E.2.b. of the preamble of this proposed 
rule to align requirements for the Hospital IQR and the Medicare and 
Medicaid EHR Incentive Programs. In addition, as discussed in section 
VIII.A.3.b.(3) of the preamble of this proposed rule, we believe that 
removing certain eCQMs for which the chart-abstracted versions have 
been determined to be ``topped-out'' will reduce certification burden 
and implementation hurdles, enabling hospitals to focus efforts on 
successfully implementing a smaller subset of eCQMs. If our proposals 
to remove 13 eCQMs in section VIII.A.3.b.(3) of the preamble of this 
proposed rule is finalized as proposed, hospitals would be required to 
report on a total 15 eCQMs for the CY 2017 reporting period/FY 2019 
payment determination. While the number of required eCQMs would 
increase as compared to that required for the CY 2016 reporting period/
FY 2018 payment determination (that is, from 4 to 15 eCQMs), we believe 
that a coordinated reduction in the overall number of eCQMs (from 28 to 
15 eCQMs) in both the Hospital IQR and Medicare and Medicaid EHR 
Incentive Programs will reduce certification burden on hospitals and 
improve the quality of reported data by enabling hospitals to focus on 
a smaller, more specific subset of eCQMs.
    In crafting this proposal, we also considered proposing to require 
a lesser number of eCQMs--that hospitals submit eight of the available 
eCQMs (that is, in other words, 8 of the proposed 15 eCQMs as discussed 
above) for the CY 2017 reporting period/FY 2019 payment determination. 
Specifically, hospitals would submit a full calendar year of data on an 
annual basis for eight of the available eCQMs whether reporting only 
for the Hospital IQR Program or if reporting for both the Medicare and 
Medicaid EHR Incentive Programs and the Hospital IQR Program for the CY 
2017 reporting period/FY 2019 payment determination. Reporting on all 
eCQMs in the Hospital IQR Program measure set would begin with the CY 
2018 reporting period/FY 2020 payment determination and subsequent 
years.
    Ultimately we chose to propose to require reporting on all the 
proposed eCQMs for the CY 2017 reporting period/FY 2019 payment 
determination, because we believe that requiring hospitals to report 
measures electronically is in line with our goals to move towards eCQM 
reporting and to align with the Medicare and Medicaid EHR Incentive 
Programs. We believe that the CY 2017/FY 2019 payment determination is 
the appropriate time to require eCQM reporting because hospitals have 
had several years to report data electronically for the Medicare and 
Medicaid EHR Incentive Programs and Hospital IQR Program (3 years of 
voluntary reporting and 2 years of reporting as part of a pilot). Based 
upon data collected by CMS, currently, 95 percent of hospitals attest 
to successful eCQM reporting under the Medicare and Medicaid EHR 
Incentive Programs.
b. Proposed Requirement That Hospitals Report a Full Year of eCQM Data
    In the FY 2016 IPPS/LTCH PPS final rule, we finalized our policy to 
require hospitals to submit one quarter of data (either Q3 or Q4) for 4 
self-selected eCQMs for the CY 2016 reporting period/FY 2018 payment 
determination by February 28, 2017 (80 FR 49698). As previously stated, 
we believe that the CY 2017/FY 2019 payment determination is the 
appropriate time to require eCQM reporting because hospitals have had 
several years to report data electronically for the Medicare and 
Medicaid EHR Incentive Programs and for the Hospital IQR Program. As 
such, we are proposing that for the CY 2017 reporting period/FY 2019 
payment determination and subsequent years, hospitals must submit one 
year's worth of eCQM data for each required eCQM. For example, for the 
ED-1 eCQM, hospitals would be required to submit one year of data 
(covering Q1, Q2, Q3, and Q4), instead of just one quarter of data 
(either Q3 or Q4) as previously required.
    We hope to address stakeholder concerns associated with increasing 
the number of eCQMs for which reporting will be required proactively by 
reducing burden on hospitals by aligning data submission deadlines 
between the Hospital IQR Program and the Medicare EHR Incentive 
Program. We note that deadlines for the Medicaid EHR Incentive Program 
differ by State, and therefore our proposal to align data submission 
deadlines for eCQMs applies only to the Hospital IQR Program and the 
Medicare EHR Incentive Program and not to the Medicaid EHR Incentive 
Program. For more details on Hospital IQR Program reporting 
requirements and eCQM submission deadlines, we refer readers to section 
VIII.A.10.d.(5) of the preamble of this proposed rule.
c. Clarification Regarding Data Submission for ED-1, ED-2, PC-01, STK-
4, VTE-5, and VTE-6
    In the FY 2016 IPPS/LTCH PPS final rule, we finalized our policy 
that hospitals must continue to submit data on ED-1, ED-2, PC-01, STK-
4, VTE-5, and VTE-6 via chart abstraction as previously required and 
that the results would be publicly displayed (80 FR 49695-49698). We 
also finalized, however, that hospitals may choose to submit electronic 
data on any of these 6 measures in addition to the chart-abstraction 
requirements to meet the requirement to report 4 of 28 eCQMs (80 FR 
49695-49698). As discussed in section VIII.A.3.b.(3)(a)(ii) of the 
preamble of this proposed rule, we are proposing to remove the 
electronic version of the STK-4 measure. As discussed in section 
VIII.A.3.b.(3)(d) of the preamble of this proposed rule, we are 
proposing to remove the electronic version of the VTE-5 and VTE-6 
measure. Lastly, in section VIII.A.3.b.(2) of the preamble of this 
proposed rule, we are proposing to remove the chart-abstracted versions 
of the STK-4 and VTE-5 measures. If these proposals are finalized as 
proposed, the STK-4 and VTE-5 measures will be completely removed from 
the Hospital IQR Program measure set, but the VTE-6 measure would 
continue to be included in its chart-abstracted form.
    For the FY 2019 payment determination and subsequent years, we are 
clarifying that requirements for the chart-abstracted versions of ED-1, 
ED-2, PC-01, and VTE-6 remain the same as previously finalized. 
Hospitals must submit a full calendar year of data (covering Q1, Q2, 
Q3, and Q4) via chart-abstraction regardless of whether data also are 
submitted electronically in accordance with the applicable submission 
requirements. However, we note that if our proposal that hospitals 
submit a full calendar year of eCQM data for each required eCQM is 
finalized as proposed above, data submission for the chart-abstracted 
version of these measures will differ from those submitted 
electronically (quarterly basis for chart-abstracted measures versus 
annual basis for electronic measures).

[[Page 25196]]

    We are inviting public comment on our proposals to require that 
hospitals: (1) Submit data for all eCQMs included in the Hospital IQR 
Program measure set; and (2) report a full year of data for the CY 2017 
reporting period/FY 2019 payment determination and subsequent years, as 
discussed above.
9. Possible New Quality Measures and Measure Topics for Future Years
    We are providing information about new quality measures and measure 
topics under consideration for future inclusion in the Hospital IQR 
Program. We are considering to propose in future rulemaking: (1) A 
refined version of the Stroke Scale for the Hospital 30-Day Mortality 
Following Acute Ischemic Stroke Hospitalization Measure; (2) a new 
measure, the National Healthcare Safety Network (NHSN) Antimicrobial 
Use Measure (NQF #2720); and (3) one or more potential measures of 
behavioral health for the inpatient hospital setting, including 
measures previously adopted for the IPFQR Program (80 FR 46694), for 
adoption into the Hospital IQR Program measure set. Also, we are 
considering public reporting of Hospital IQR Program data stratified by 
race, ethnicity, sex, and disability on Hospital Compare. These topics 
are further discussed below.
a. Potential Inclusion of the National Institutes of Health (NIH) 
Stroke Scale for the Hospital 30-Day Mortality Following Acute Ischemic 
Stroke Hospitalization Measure Beginning as Early as the FY 2022 
Payment Determination
(1) Background
    Mortality following stroke is an important adverse outcome that can 
be measured reliably and objectively and is influenced by the quality 
of care provided to patients during their initial hospitalization; 
therefore, mortality is an appropriate measure of quality of care 
following stroke hospitalization.112 113 Specifically, post-
stroke mortality rates have been shown to be influenced by critical 
aspects of care such as response to complications, speediness of 
delivery of care, organization of care, and appropriate 
imaging.114 115 116 117 Therefore, we are refining the 
previously adopted CMS Hospital 30-Day, All-Cause, Risk-Standardized 
Mortality Rate (RSMR) following Acute Ischemic Stroke Hospitalization 
Measure (hereafter referred to as the Stroke 30-day Mortality Rate) (78 
FR 50802) by changing the measure's risk adjustment to include stroke 
severity. We are considering proposing this refinement to the measure 
in the future.
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    \112\ Weir NU, Sandercock PA, Lewis SC, Signorini DF, Warlow CP. 
Variations between countries in outcome after stroke in the 
International Stroke Trial (IST). Stroke. Jun 2001;32(6):1370-1377.
    \113\ DesHarnais SI, Chesney JD, Wroblewski RT, Fleming ST, 
McMahon LF, Jr. The Risk-Adjusted Mortality Index. A new measure of 
hospital performance. Med Care. Dec 1988;26(12):1129-1148.
    \114\ Hong KS, Kang DW, Koo JS, et al. Impact of neurological 
and medical complications on 3-month outcomes in acute ischaemic 
stroke. European journal of neurology: the official journal of the 
European Federation of Neurological Societies. Dec 2008;15(12):1324-
1331.
    \115\ Lingsma HF, Dippel DW, Hoeks SE., et al. Variation between 
hospitals in patient outcome after stroke is only partly explained 
by differences in quality of care: results from the Netherlands 
Stroke Survey.[Reprint in Ned Tijdschr Geneeskd. 2008 Sep 
27;152(39):2126-32; PMID: 18856030]. Journal of Neurology, 
Neurosurgery & Psychiatry. 2008;79(8):888-894.
    \116\ Reeves MJ, Smith E, Fonarow G, Hernandez A, Pan W, Schwamm 
LH. Off-hour admission and in-hospital stroke case fatality in the 
get with the guidelines-stroke program. Stroke. Feb 2009;40(2):569-
576.
    \117\ Smith MA, Liou JI, Frytak JR, Finch MD. 30-day survival 
and rehospitalization for stroke patients according to physician 
specialty. Cerebrovascular diseases (Basel, Switzerland). 
2006;22(1):21-26.
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    The previously adopted Stroke 30-day Mortality Rate (78 FR 50802) 
includes 42 risk variables, but does not include an assessment of 
stroke severity. For more details on the measure as currently adopted 
and implemented, we refer readers to its measure methodology report and 
measure risk-adjustment statistical model in the AMI, HF, PN, COPD, and 
Stroke Mortality Update zip file on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    In the future, we are considering proposing a refinement to the 
Stroke 30-day Mortality Rate for several reasons. First, the refined 
measure would allow for more rigorous risk adjustment by incorporating 
the NIH Stroke Scale (discussed in more detail below) as an assessment 
of stroke severity.\118\ Second, the inclusion of the NIH Stroke Scale 
is aligned with and supportive of clinical guidelines, as use of the 
NIH Stroke Scale to assess stroke severity upon acute ischemic stroke 
patient presentation is Class I recommended in the American Heart 
Association and American Stroke Association (AHA/ASA) guidelines.\119\ 
Third, clinicians and stakeholders, including AHA, ASA, and other 
professional organizations, highlight the importance of including an 
assessment of stroke severity in risk-adjustment models of stroke 
mortality. Therefore, the refined Stroke 30-day Mortality Rate is 
responsive to comments received from the feedback of measure developers 
during measure development, the Technical Expert Panel, and the NQF 
endorsement process (78 FR 50802). Fourth, in addition to a modestly 
higher c-statistic, which evaluates the measure's ability to 
discriminate or differentiate between high and low performing 
hospitals, the refined Stroke 30-day Mortality Rate includes a more 
parsimonious risk model than the publicly reported stroke mortality 
measure, with a total of 20 risk adjustment variables including the NIH 
Stroke Scale, compared to the current use of 42 risk adjustment 
variables.
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    \118\ NIH Stroke Scale. Available at: http://www.nihstrokescale.org/.
    \119\ Jauch EC, Saver JL, Adams HP, Jr., et al. Guidelines for 
the early management of patients with acute ischemic stroke: a 
guideline for healthcare professionals from the American Heart 
Association/American Stroke Association. Stroke. Mar 2013;44(3):870-
947.
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    Initial stroke severity score, such as the NIH Stroke Scale score, 
is one of the strongest predictors of mortality in ischemic stroke 
patients,120 121 122 and is part of the national guidelines 
on stroke care.\123\ The NIH Stroke Scale is a 15-item neurologic 
examination stroke scale used to provide a quantitative measure of 
stroke-related neurologic deficit. The NIH Stroke Scale evaluates the 
effect of acute ischemic stroke on a patient's level of consciousness, 
language, neglect, visual-field loss, extra-ocular movement, motor 
strength, ataxia (the loss of full control of bodily movements), 
dysarthria (difficult or unclear articulation of speech), and sensory 
loss. The NIH Stroke Scale was designed to be a simple, valid, and 
reliable tool that can be administered at the bedside consistently by 
neurologists, physicians, nurses, or therapists. In October 2016, codes 
for the NIH Stroke Scale are expected to be added to the International 
Statistical Classification of Diseases and Related Health Problems 10th 
Revision (ICD-10). The currently adopted measure covers 3 years of

[[Page 25197]]

claims data using administrative claims from July 2011-June 2014. In 
order to give hospitals time to adjust to reporting the NIH Stroke 
Scale, we are considering this measure refinement for as early as the 
July 2017 through June 2020 reporting period (3 years of data), which 
would correspond to the FY 2022 payment determination in the Hospital 
IQR Program.
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    \120\ Fonarow GC, Saver JL, Smith EE, et al. Relationship of 
national institutes of health stroke scale to 30-day mortality in 
medicare beneficiaries with acute ischemic stroke. J Am Heart Assoc. 
Feb 2012;1(1):42-50.
    \121\ Nedeltchev K, Renz N, Karameshev A, et al. Predictors of 
early mortality after acute ischaemic stroke. Swiss Medical Weekly. 
2010;140(17-18):254-259.
    \122\ Smith EE, Shobha N, Dai D, et al. Risk score for in-
hospital ischemic stroke mortality derived and validated within the 
Get With the Guidelines-Stroke Program. Circulation. Oct 12 
2010;122(15):149615041496-1504.
    \123\ Jauch EC, Saver JL, Adams HP, Jr., et al. Guidelines for 
the early management of patients with acute ischemic stroke: a 
guideline for healthcare professionals from the American Heart 
Association/American Stroke Association. Stroke. Mar 2013;44(3):870-
947.
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    The measure refinement was developed in collaboration with the AHA/
ASA. We sought to update the current publicly reported measure to 
include an assessment of stroke severity at this time, because it has 
become feasible to do so due to both the increased use of the NIH 
Stroke Scale related to the AHA/ASA guidelines that recommend 
administering the NIH Stroke Scale on all stroke patients, as well as 
due to the upcoming availability to obtain the scores through claims 
data (incorporation into ICD-10).
    The Stroke 30-day Mortality Rate (MUC15-294) with the refined risk 
adjustment was included on a publicly available document entitled 
``List of Measures under Consideration for December 1, 2015'' with 
identification number MUC15-294, (available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367) and has 
been reviewed by the MAP. The MAP conditionally supported this measure 
pending NQF review and endorsement and asked that CMS consider a phased 
approach in regards to implementation to avoid multiple versions of the 
same measure.\124\ The MAP also noted that mortality is not the most 
meaningful outcome for stroke patients and to consider cognitive or 
functional outcomes such as impaired capacity.\125\ The Stroke 30-day 
Mortality Rate with the refined risk adjustment was submitted to NQF 
for endorsement in the neurology project on January 15, 2016.
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    \124\ Spreadsheet of MAP 2016 Final Recommendations Available 
at: http://www.qualityforum.org/map/.
    \125\ Spreadsheet of MAP 2016 Final Recommendations Available 
at: http://www.qualityforum.org/map/.
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(2) Overview of Measure Change
    The measure cohort for the refined measure would not be 
substantively different from the currently adopted, publicly reported 
Stroke 30-day Mortality Rate. In addition, the data sources, three-year 
reporting period, inclusion and exclusion criteria, as well as the 
assessment of the outcome of mortality would all align with the 
currently adopted measure.
(3) Risk Adjustment
    The statistical modeling, measure calculation, and risk-adjustment 
calculation for this refined measure would align with the currently 
adopted Stroke 30-day Mortality Rate. However, we reselected risk 
variables, resulting in a final model with 20 risk-adjustment variables 
including the NIH Stroke Scale as an assessment of stroke severity. For 
the full measure specifications of the refined measure, we refer 
readers to the AMI, HF, PN, COPD, and Stroke Mortality Update zip file 
on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    In summary, we are considering proposing in the future a refinement 
of the Stroke 30-day Mortality Rate, which would change the risk 
adjustment to include an assessment of stroke severity, in the Hospital 
IQR Program for as early as the July 2017-June 2020 reporting period/FY 
2022 payment determination and for subsequent years.
    We are inviting comments on the possibility of a future proposal of 
refinements to the previously adopted Hospital 30-Day Mortality 
Following Acute Ischemic Stroke Hospitalization Measure to include the 
NIH Stroke Scale beginning as early as the FY 2022 payment 
determination.
b. Potential Inclusion of National Healthcare Safety Network (NHSN) 
Antimicrobial Use Measure (NQF #2720)
(1) Background
    The emergence of antibiotic drug resistance is a clinical and 
public health problem that threatens the effective prevention and 
treatment of bacterial infections. The CDC estimates that each year at 
least two million people become infected with bacteria that are 
resistant to antibiotics, and at least 23,000 people die as a direct 
result of these drug-resistant bacterial infections. In addition, 
antibiotic resistance contributes an estimated $20 billion in excess 
direct healthcare costs.\126\
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    \126\ Centers for Disease Control and Prevention. Antibiotic 
Resistance Threats in the United States, 2013. Available from: 
http://www.cdc.gov/drugresistance/threat-report-2013/.
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    In order to promote the efficiency and coordination of efforts to 
detect, prevent, and control antibiotic resistance, HHS announced in 
2015 the establishment of the Presidential Advisory Council on 
Combating Antibiotic-Resistant Bacteria (Advisory Council).\127\ The 
Advisory Council makes recommendations to the Secretary regarding 
policies to support the implementation of the National Strategy for 
Combating Antibiotic-Resistant Bacteria \128\ and the National Action 
Plan for Combating Antibiotic-Resistant Bacteria.\129\ Evidence is 
accumulating that programs dedicated to optimizing inpatient antibiotic 
use, known as antimicrobial stewardship programs (ASPs), may slow the 
emergence of antibiotic resistance and improve appropriateness of 
antimicrobial use and patient outcomes.130 131 132 
Therefore, the CDC and several professional societies have published 
guidelines and resources to support hospitals in implementing 
antimicrobial stewardship programs.\133\
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    \127\ Centers for Disease Control and Prevention. Presidential 
Advisory Council on Combating Antibiotic-Resistant Bacteria. 
Available from: http://www.hhs.gov/ash/carb/index.html.
    \128\ National Strategy for Combating Antibiotic-Resistant 
Bacteria, 2014. Available from: https://www.whitehouse.gov/sites/default/files/docs/carb_national_strategy.pdf.
    \129\ National Action Plan for Combating Antibiotic-Resistant 
Bacteria, 2015. Available from: https://www.whitehouse.gov/sites/default/files/docs/national_action_plan_for_combating_antibotic-resistant_bacteria.pdf.
    \130\ Davey P, Brown E, Charani E, Fenelon L, Gould IM, Holmes 
A, et al. Interventions to improve antibiotic prescribing practices 
for hospital inpatients. Cochrane Database Syst Rev. 
2013;4:CD003543.
    \131\ Feazel LM, Malhotra A, Perencevich EN, Kaboli P, Diekema 
DJ, Schweizer ML. Effect of antibiotic stewardship programmes on 
Clostridium difficile incidence: a systematic review and meta-
analysis. J Antimicrob Chemother. 2014;69(7):1748-54. http://jac.oxfordjournals.org/content/69/7/1748.full.pdf.
    \132\ Kaki R, Elligsen M, Walker S, Simor A, Palmay L, Daneman 
N. Impact of antimicrobial stewardship in critical care: a 
systematic review. J Antimicrob Chemother. 2011;66(6):1223-30.
    \133\ Centers for Disease Control and Prevention. Core Elements 
of Hospital Antibiotic Stewardship Programs. Available from: http://www.cdc.gov/getsmart/healthcare/implementation/core-elements.html.
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    In the future, we are considering proposing the NHSN Antimicrobial 
Use measure to advance national efforts to reduce the emergence of 
antibiotic resistance by enabling hospitals and CMS to assess national 
trends of antibiotic use to facilitate improved stewardship by 
comparing antibiotic use that hospitals report to antibiotic use that 
is predicted based on nationally aggregated data. The measure was 
included on a publicly available document entitled ``List of Measures 
Under Consideration for December 1, 2015,'' \134\ in compliance with 
section 1890A(a)(2) of the Act. The measure received conditional 
support, pending CDC recommendation that the measure is ready for use 
in public reporting as referenced in the MAP 2016 Final

[[Page 25198]]

Recommendations.\135\ The MAP recognized the high importance of 
antimicrobial stewardship and conditionally supported the inclusion of 
this measure in the Hospital IQR Program while acknowledging that 
additional testing may be necessary to address feasibility issues for 
public reporting, quality implications of measuring the amount of 
antibiotics used versus appropriate use of antibiotics, and risk-
adjustment. Further, MAP noted these issues should be addressed before 
the measure is reported on Hospital Compare.\136\ The measure received 
endorsement from NQF on December 10, 2015.\137\
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    \134\ 2015 Measures Under Consideration List Available at: 
http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
    \135\ Spreadsheet of MAP 2016 Final Recommendations Available 
at: http://www.qualityforum.org/map/.
    \136\ Spreadsheet of MAP 2016 Final Recommendations Available 
at: http://www.qualityforum.org/map/.
    \137\ http://www.qualityforum.org/QPS/2720.
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(2) Overview of Measure
    The NHSN Antimicrobial Use measure assesses antibiotic use in 
hospitals based on medication administration data that hospitals 
collect electronically at the point of care. The measure compares 
antibiotic use that hospitals report, via electronic file submissions 
to the CDC's NHSN, to antibiotic use that is predicted based on 
nationally aggregated data. Data on administered antibiotics are 
required to be extracted from an electronic medication administration 
record (eMAR) \138\ and/or bar coded medication administration (BCMA) 
system.\139\ The antibiotic use data that are in scope for this measure 
include antibiotic agents administered to adult and pediatric patients 
in a specified set of ward and intensive care unit (ICU) locations. 
Locations include adult and pediatric medical, medical/surgical, and 
surgical wards and adult and pediatric medical, medical/surgical, and 
surgical ICUs as defined by the NHSN at: http://www.cdc.gov/nhsn/PDFs/pscManual/15LocationsDescriptions_current.pdf.
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    \138\ eMAR is defined as technology that automatically documents 
the administration of medication into CEHRT using electronic 
tracking sensors (for example, radio frequency identification 
(RFID)) or electronically readable tagging such as bar coding (77 FR 
54034).
    \139\ Barcode Medication Administration (BCMA) System is defined 
as a system that allows users to electronically document medications 
at the bedside or other points-of-care using an electronically 
readable format. More information. Available at: http://www.ahrq.gov/downloads/pub/advances/vol3/wideman.pdf.
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    The measure is comprised of a discrete set of risk-adjusted summary 
ratios, known as Standardized Antimicrobial Administration Ratios 
(SAARS), which summarize observed-to-predicted antibacterial use for 
one of sixteen antibiotic agent-patient care location combinations. The 
specific antibiotic agent-location combinations were selected based on 
extensive consultation with infectious disease physicians and 
pharmacists at the forefront of ASPs. The specified categories of 
antibiotic agents include:
     Broad spectrum agents predominantly used for hospital-
onset/multi-drug resistant bacteria;
     Broad spectrum agents predominantly used for community-
acquired infection;
     Anti-MRSA agents; and
     Agents predominantly used for surgical site infection 
prophylaxis.
    The SAARs are designed to serve as high value targets or high-level 
indicators for hospital ASPs to assess hospital antimicrobial use. A 
SAAR that is not significantly different from 1.0 indicates 
``expected'' antibiotic use. A SAAR that is above 1.0 may indicate 
excessive antibiotic use or a SAAR that is below 1.0 may indicate 
antibiotic underuse. We note that the SAARs do not provide a definitive 
indication of antibiotic appropriateness of use. Outlier SAAR values 
should prompt hospitals to do further analysis to assess overuse, 
underuse, or inappropriate use of antibacterial medications. In 
addition, the SAARS may be used by hospital ASPs to identify 
opportunities to improve antibiotic use and gauge the impact of 
stewardship efforts.
(3) Data Sources
    The data submission and reporting standard procedures for the NHSN 
Antimicrobial Use measure have been set forth by the CDC for NHSN 
participation, in general, and for submission of measure data. We refer 
readers to the CDC's NHSN Web site (http://www.cdc.gov/nhsn) for 
detailed data submission and reporting procedures. Although the NHSN 
Antimicrobial Use measure is not specified as an eCQM, manual data 
entry is not available. Data must be electronically extracted from an 
eMAR \140\ and/or BCMA system.\141\ The format for data submission must 
adhere to the data format prescribed by the CDC HL7 Clinical Data 
Architecture (CDA) Implementation Guide available at: http://www.cdc.gov/nhsn/cdaportal/toolkits/guidetocdaversions.html.
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    \140\ eMAR is defined as technology that automatically documents 
the administration of medication into CEHRT using electronic 
tracking sensors (for example, radio frequency identification 
(RFID)) or electronically readable tagging such as bar coding (77 FR 
54034).
    \141\ Barcode Medication Administration (BCMA) System is defined 
as a system that allows users to electronically document medications 
at the bedside or other points-of-care using an electronically 
readable format. More information available at: http://www.ahrq.gov/downloads/pub/advances/vol3/wideman.pdf.
---------------------------------------------------------------------------

(4) Measure Calculation
    Each SAAR is an observed to expected ratio and is calculated by 
dividing the numerator, or total number of observed antimicrobial days 
(days of therapy reported by a healthcare facility for a specified 
category of antimicrobial agents in a specified patient care location 
or group of locations), by the denominator, or expected (predicted on 
the basis of nationally aggregated AU data for a healthcare facility's 
use of a specified category of antimicrobial agents in a specified 
patient care location or group of locations) number of antimicrobial 
days, for each antibiotic agent category-patient care location 
combination. The total number of observed antimicrobial days for each 
patient care location is defined as the aggregated sum of days for 
which any amount of a specific antibiotic agent within an antibiotic 
agent category was administered as documented in the eMAR or BCMA 
system. The predicted number of antimicrobial days for each patient 
care location is determined by multiplying the observed days present by 
the corresponding antimicrobial use rate in the standard population 
obtained from the relevant regression model. Hospital patient care 
locations other than adult and pediatric medical, medical/surgical, and 
surgical wards and adult and pediatric medical, medical/surgical, and 
surgical ICUs are excluded from this measure. For more information 
regarding the specifications for the Antimicrobial Use measure, we 
refer readers to the NHSN Antimicrobial Use and Resistance Module 
(AUR): http://www.cdc.gov/nhsn/PDFs/pscManual/11pscAURcurrent.pdf.
    We are inviting public comment on the possibility of future 
inclusion of the NHSN Antimicrobial Use Measure (NQF #2720).
c. Potential Measures for Behavioral Health in the Hospital IQR Program
    Although the IPFQR Program incorporates measures of inpatient 
psychiatric treatment (80 FR 46694), the Hospital IQR Program does not 
include any measures directly related to behavioral health. Based on 
MedPAC analyses, over a third of Medicare inpatient psychiatric 
admissions are treated ``in acute care hospital beds not within 
distinct-part psychiatric units.'' \142\ Thus, there may be a gap in

[[Page 25199]]

understanding the quality of care given to inpatient psychiatric 
patients not paid for under the IPFQR Program.
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    \142\ Medicare Payment Advisory Commission (U.S.). (2010). 
MedPAC June 2010 Report to the Congress: . Washington, DC: MedPAC, 
available at: http://www.medpac.gov/documents/reports/Jun10_Ch06.pdf?sfvrsn=0.
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    To address this gap, we are inviting public comments on potential 
behavioral health quality measures appropriate to include in the 
Hospital IQR Program in future years, including the possible use of one 
or more measures previously adopted in the IPFQR Program (80 FR 46417).
d. Potential Public Reporting of Quality Measures Data Stratified by 
Race, Ethnicity, Sex, and Disability and Future Hospital Quality 
Measures That Incorporate Health Equity
    We are seeking comment on the possibility of including Hospital IQR 
Program measure data stratified by race, ethnicity, sex, and disability 
on Hospital Compare, if feasible and appropriate (that is, 
statistically appropriate, etc.) in the future. By stratification, we 
mean that we would report quality measures for each group of a given 
category (age, race, sex, and disability status). For example, if we 
were to report the Hospital-Wide All-Cause Unplanned Readmission 
Measure (HWR) (NQF #1789) stratified by sex, we would report a 
hospital's measure result for females and then again separately for 
males, in addition to reporting a hospital's unstratified rate, as is 
currently displayed.
    In addition, we are also seeking comment on potential hospital 
quality measures, including composite measures, for inclusion in the 
Hospital IQR Program measure set and thus, future postings on Hospital 
Compare, that could help consumers and stakeholders not only assess the 
measurement of the quality of care furnished by hospitals in inpatient 
settings, but also monitor trends in health equity.
    Any data pertaining to these areas that are recommended for 
collection through measure reporting for the Hospital IQR Program and 
public disclosure on Hospital Compare, would be addressed through a 
separate and future notice-and-comment rulemaking.
    We are inviting public comment on the possibility of future 
inclusion of stratified quality measures data on Hospital Compare and 
on stratification categories, including any categories not specified in 
this preamble. We are also seeking comment on potential future hospital 
quality measures that incorporate health equity.
10. Form, Manner, and Timing of Quality Data Submission
a. Background
    Sections 1886(b)(3)(B)(viii)(I) and (b)(3)(B)(viii)(II) of the Act 
state that the applicable percentage increase for FY 2015 and each 
subsequent year shall be reduced 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 data required to be submitted on measures 
specified by the Secretary in a form and manner, and at a time, 
specified by the Secretary. Previously, the applicable percentage 
increase for FY 2007 and each subsequent fiscal year until FY 2015 was 
reduced by 2.0 percentage points for subsection (d) hospitals failing 
to submit data in accordance with the description above. In accordance 
with the statute, the FY 2016 payment determination began the second 
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, data collection, submission, and validation 
requirements. For each Hospital IQR Program payment determination, we 
require that hospitals submit data on each specified 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 must register and 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.
b. Procedural Requirements for the FY 2019 Payment Determination and 
Subsequent Years
    The Hospital IQR Program's procedural requirements are codified in 
regulation at 42 CFR 412.140. We refer readers to these codified 
regulations for participation requirements, as further explained by the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50810 through 50811). In this 
proposed rule, we are not proposing any changes to these procedural 
requirements.
    However, as discussed below in section VIII.A.11. of the preamble 
of this proposed rule, we are proposing to amend Sec.  412.140(d)(2) in 
connection with our proposal to modify our validation processes 
beginning with the FY 2020 payment determination.
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 this proposed rule, we are not 
proposing any changes to the data submission requirements for chart-
abstracted measures.
d. Proposed Alignment of the Hospital IQR Program With the Medicare and 
Medicaid EHR Incentive Programs for Eligible Hospitals and CAHs
(1) Background
    We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 
50256 through 50259) and the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49705 through 49709) for our policies aligning eCQM data reporting and 
submission periods on a calendar year basis for both the Medicare EHR 
Incentive Program for eligible hospitals and CAHs and the Hospital IQR 
Program for the FY 2017 payment determination and subsequent years for 
the Hospital IQR Program.
    In this section, we are proposing the following changes to the 
Hospital IQR Program to further align eCQM data reporting for the 
Hospital IQR Program with the Medicare and Medicaid EHR Incentive 
Programs: (1) Maintaining the eCQM data certification process we 
previously adopted for the FY 2018 payment determination, including 
requiring hospitals to report eCQM data using either the 2014 or 2015 
Edition of the Office of the National Coordinator for Health 
Information Technology's (ONC's) certified electronic health record 
technology (CEHRT) for the CY 2017 reporting period/FY 2019 payment 
determination; and (2) requiring the use of the 2015 Edition of CEHRT 
beginning with the CY 2018 reporting period/FY 2020 payment 
determination and subsequent years.
    In addition, we are proposing to require eCQM data submission by 
the end of 2 months following the close of the reporting period 
calendar year for the CY 2017 reporting period/FY 2019 payment 
determination and subsequent years to further align eCQM data reporting 
for the Hospital IQR Program with the Medicare EHR Incentive Program. 
These proposals are discussed in more detail below.

[[Page 25200]]

(2) Proposed Continuation of eCQM Certification Processes for the FY 
2019 Payment Determination and Proposals for Subsequent Years
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49705 through 
49708), we finalized policies regarding eCQM certification for the FY 
2018 payment determination. Specifically, we finalized that: (1) 
Hospitals can report using either the 2014 or 2015 Edition of CEHRT for 
the CY 2016 reporting period/FY 2018 payment determination since 
certification to the 2015 Edition is expected to be available in 2016; 
and (2) hospitals must submit eCQM data via Quality Reporting Document 
Architecture (QRDA) Category I file (80 FR 49707-49708). In addition, 
hospitals may use third parties to submit QRDA I files on their behalf 
(80 FR 49706) and can either use abstraction or pull the data from non-
certified sources in order to then input these data into CEHRT for 
capture and reporting QRDA I (80 FR 49706).
    We are proposing to continue these eCQM certification policies. 
Specifically, for the CY 2017 reporting period/FY 2019 payment 
determination (not subsequent years), we are proposing to require that 
hospitals report using either the 2014 or 2015 Edition of CEHRT as 
previously required. We note that we are proposing to change these 
policies, however, for the CY 2018 reporting period/FY 2020 payment 
determination as discussed in the following section.
    In addition, for the CY 2017 reporting period/FY 2019 payment 
determination and subsequent years, we are proposing that hospitals: 
(1) Must submit eCQM data via QRDA I files as previously required; (2) 
may continue to use a third party to submit QRDA I files on their 
behalf; and (3) continue to either use abstraction or pull the data 
from non-certified sources in order to then input these data into CEHRT 
for capture and reporting QRDA I. This would align the Hospital IQR 
Program with the Medicare EHR Incentive Program. We refer readers to 
section VIII.E.2.c. of the preamble of this proposed rule for 
discussion of the proposed certification requirements for the Medicare 
EHR Incentive Program.
    We are inviting comment on these proposals. In addition, we refer 
readers to section VIII.A.11.b.(4) of the preamble of this proposed 
rule where we encourage hospitals to take advantage of eCQM pre-
submission testing tools to help reduce submission errors related to 
improperly formatted QRDA I files.
(3) Proposed Required Use of EHR Technology Certified to the 2015 
Edition for the FY 2020 Payment Determination and Subsequent Years
    As stated in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49705), 
some commenters requested that hospitals be given the opportunity to 
use the most recent version of the CEHRT (2015 Edition) for the CY 2016 
reporting period/FY 2018 payment determination if they are able. We 
believe this requirement will mitigate the existing vendor issue of 
system comparability between hospitals and vendors and facilitate 
consistency regarding the version of CEHRT to which vendors are 
certified by establishing uniformity in the version of the product 
used. Therefore, we are proposing to require the use of EHR technology 
certified to the 2015 Edition beginning with the CY 2018 reporting 
period for the FY 2020 payment determination and subsequent years. This 
would align the Hospital IQR Program with the Medicare EHR Incentive 
Program. We refer readers to section VIII.E.2.c. of the preamble of 
this proposed rule for discussion of the proposed certification 
requirements for the Medicare EHR Incentive Program.
    We are inviting public comment on our proposal to require the use 
of EHR technology certified to the 2015 Edition for the CY 2018 
reporting period/FY 2020 payment determination and subsequent years as 
stated above.
(4) Proposed Electronic Submission Deadlines for the FY 2019 Payment 
Determination and Subsequent Years
    We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 
50256 through 50259) and the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49705 through 49708) for our previously adopted policies to align eCQM 
data reporting and submission periods for both the Medicare EHR 
Incentive Program for eligible hospitals and CAHs and the Hospital IQR 
Program for the FY 2018 payment determination.
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50249 through 
50252), we finalized our policy that hospitals may voluntarily report 
16 electronic measures by submitting one quarter of eCQM data from CY 
Q1 (January 1-March 31, 2015), CY Q2 (April 1-June 30, 2015), or CY Q3 
(July 1-September 30) by November 30, 2015. In the FY 2016 IPPS/LTCH 
PPS final rule (80 FR 49693 through 49698), for the FY 2018 payment 
determination, we finalized a policy that hospitals must submit one 
quarter of data (either Q3 or Q4 of CY 2016) for at least 4 eCQMs by 
the submission deadline of February 28, 2017.
    In this year's proposed rule, in order to align the Hospital IQR 
Program eCQM data submission deadline with that of the Medicare EHR 
Incentive Program, which requires eCQM data submission by the end of 
two months following the close of the reporting period calendar year 
(80 FR 62896 through 62897), we are proposing to establish an eCQM 
submission deadline for the Hospital IQR Program which requires eCQM 
data submission by the end of two months following the close of the 
calendar year for the CY 2017 reporting period/FY 2019 payment 
determination and subsequent years. For example, for the CY 2017 
reporting period/FY 2019 payment determination, hospitals would be 
required to submit eCQM data for the Hospital IQR Program by February 
28, 2018, which is the end of 2 months following the close of the 
calendar year (December 31, 2017). This would align the Hospital IQR 
Program with the Medicare EHR Incentive Program deadlines. We note that 
deadlines for the Medicaid (not Medicare) EHR Incentive Program differ 
by State, and therefore our proposal to align data submission deadlines 
for eCQMs applies only to the Hospital IQR Program and the Medicare EHR 
Incentive Program and not to the Medicaid EHR Incentive Program. For 
more information about the Medicaid EHR Incentive Program for eligible 
hospitals and CAHs, we refer readers to: https://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/Eligible_Hospital_Information.html.
    We are inviting public comment on our proposal to align the 
Hospital IQR Program eCQM submission deadline with that of the Medicare 
EHR Incentive Program for the CY 2017 reporting period/FY 2019 payment 
determination and subsequent years as discussed above.
(5) Summary of Alignment
    We are proposing to align the Hospital IQR Program with the 
Medicare and Medicaid EHR Incentive Programs as summarized below:

------------------------------------------------------------------------
  Alignment of Hospital IQR Program with both the Medicare and Medicaid
                         EHR Incentive Programs
-------------------------------------------------------------------------
 Proposed removal of 13 eCQMs
 Proposed requirement for submission of all available eCQMs

[[Page 25201]]

 
 Proposed requirement for annual submission of four quarters of
 eCQM data
 Proposed continued use of 2014 or 2015 CEHRT for CY 2017
 reporting period/FY2019 payment determination
 Proposed use of 2015 CEHRT for CY 2018 reporting period/FY2020
 payment determination
------------------------------------------------------------------------
 Alignment of Hospital IQR Program with only the Medicare EHR Incentive
                                 Program
------------------------------------------------------------------------
 Proposed submission of eCQM data 2 months following the close
 of the calendar year
------------------------------------------------------------------------

e. Sampling and Case Thresholds for the FY 2019 Payment Determination 
and Subsequent Years
    We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50221), 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 2016 IPPS/LTCH PPS final rule (80 FR 24588), we revised our 
sampling and case thresholds policy so that, for the FY 2018 payment 
determination and subsequent years, hospitals will be required to 
submit population and sample size data only for those measures that a 
hospital submits as chart-abstracted measures under the Hospital IQR 
Program.
    We are not proposing any changes to our sampling and case 
thresholds policy in this proposed rule.
f. HCAHPS Requirements for the FY 2019 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), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50819 through 
50820) for details on previously-adopted HCAHPS requirements. We also 
refer hospitals and HCAHPS survey vendors to 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. In this proposed rule, we are not proposing any 
changes to the HCAHPS requirements.
g. Data Submission Requirements for Structural Measures for the FY 2019 
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 this proposed rule, we are not proposing 
any changes to data submission requirements for structural measures.
h. Data Submission and Reporting Requirements for HAI Measures Reported 
via NHSN
    For details on the data submission and reporting requirements for 
HAI measures reported via the CDC's NHSN Web site, we refer readers to 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51629 through 51633; 51644 
through 51645), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539), the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50821 through 50822), and the 
FY 2015 IPPS/LTCH PPS final rule (79 FR 50259 through 50262). The data 
submission deadlines are posted on the QualityNet Web site at: http://www.QualityNet.org/ org/. In this proposed rule, we are not proposing any 
changes to data submission and reporting requirements for HAI measures 
reported via the NHSN.
11. Proposed Modifications to the Existing Processes for Validation of 
Hospital IQR Program Data
a. Background
    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; the FY 2013 IPPS/LTCH PPS 
final rule also contains a comprehensive summary of all procedures 
finalized in previous years that are still in effect. We refer readers 
to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50822 through 50835), 
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50262 through 50273), and 
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49710 through 49712) for 
detailed information on the modifications to these processes finalized 
for the FY 2016, FY 2017, and FY 2018 payment determinations and 
subsequent years.
    In this proposed rule, we are proposing to update the validation 
process in order to incorporate a process for validating eCQM data.
b. Proposed Modifications to the Existing Processes for Validation of 
Hospital IQR Program Data
(1) Background
    In this proposed rule, we are proposing to update the existing 
process for validation of Hospital IQR Program data, which has 
previously included up to 600 hospitals for chart-abstracted 
validation, to also include eCQM validation of up to 200 hospitals, for 
a total of up to 800 hospitals for validation for the FY 2020 payment 
determination and subsequent years. Specifically, 200 hospitals would 
be randomly selected for eCQM validation but among those hospitals some 
may be granted Extraordinary Circumstances Exception (ECE) waivers or 
meet other exclusion criteria (discussed in additional detail below) 
potentially resulting in a number totaling less than 200 hospitals that 
actually participate in eCQM validation. Furthermore, we are proposing 
that hospitals would be required to submit timely and complete medical 
record information from the Electronic Health Records (EHR) for at 
least 75 percent of sampled records, but would not be scored on the 
basis of measure accuracy for FY 2020 payment determinations.
    As we stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53555), 
determining the equivalence of eCQM data and chart-abstracted measures 
data requires extensive testing given that the data for the Hospital 
IQR Program support public reporting for both the Hospital IQR and the 
Hospital VBP Programs; in addition, for the Hospital VBP Program, the 
data are used to calculate hospitals' performance on a subset of 
measures which tie payment directly to measure performance. As 
described in the Hospital IQR Program discussion in the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50258), we have received anecdotal comments 
about performance level differences between chart-abstracted and eCQM 
data. We stated that we did not have sufficient data to be able to 
confirm or refute the accuracy of those comments (79 FR 50258). In 
order to substantiate or refute the existence of performance-level 
differences between eCQM data and

[[Page 25202]]

chart-abstracted measure data, we believe that we must collect more 
eCQM data and develop a process for validating the accuracy of that 
data.
    As a result, we conducted a validation pilot test for eCQMs 
(discussed below). Our findings from this pilot test have informed what 
we believe the initial future direction of eCQM validation in the 
Hospital IQR Program should be. In this proposed rule, we are proposing 
to adopt a validation process for eCQM data submissions beginning in 
spring of CY 2018, as further explained below.
(2) Validation Pilot Test
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50269 through 
50273), we finalized a proposal to conduct a validation pilot test for 
eCQMs in FY 2015. The results of the pilot test yielded measure record 
matching rates (that is, the rates of medical record abstracted values 
as compared to the values reported in the QRDA I file) of less than 50 
percent for all of the measures reported. For all measures, the 
inconsistencies between abstracted values and values reported in the 
QRDA I files appear to be mainly due to missing data rather than actual 
differences in reported versus abstracted values. The highest rate of 
accuracy was 48 percent on both the STK-04 and VTE-1 eCQM measures. In 
addition, all of the participating hospitals demonstrated significant 
difficulty in reporting the ED-1 and ED-2 eCQM measures due to the ED 
Admit Date/Time data element, which contributed to the ED measure 
mismatch rates. Specifically, hospitals systematically reported a later 
date and time for the decision to admit a patient to the hospital in 
the QRDA I file than that identified by the Clinical Data Abstraction 
Center (CDAC) in the review of the medical record.
    Follow-up interviews conducted by CDAC revealed that low accuracy 
rates and reporting difficulties were a result of a lack of targeted 
outreach and education efforts at the time of the pilot to adequately 
prepare participating hospitals for the specific reporting mechanisms. 
In order to improve data accuracy and diminish reporting difficulties, 
the CMS Outreach and Education contractor (EOC) as well as the 
Validation Support Contractor (VSC) plan to continue to conduct 
provider education follow-up and refine the validation process. We will 
work in conjunction with the EOC and VSC to enlarge the cohort of 
eligible hospitals that are able to successfully submit QRDA I files, 
as well as encourage hospitals that were not able to successfully 
submit QRDA I files to participate in follow-up interviews. These 
follow-up interviews will inform the eCQM validation process moving 
forward, and allow us to derive ``best reporting practices'' to 
consider once we begin scoring the measures.
(3) Proposal To Validate eCQMs Beginning Spring CY 2018/FY 2020 Payment 
Determination
    In response to the findings of the pilot test and in light of our 
proposal to increase the number of eCQMs on which hospitals are 
required to submit data for the Hospital IQR Program in section 
VIII.A.8.a. of the preamble of this proposed rule, we believe that it 
is increasingly important to validate eCQM data to ensure the accuracy 
of future information submitted by hospitals and reported to the 
public. Therefore, we are proposing to adopt a validation process for 
eCQM data submissions beginning in spring of CY 2018, as further 
explained below.
(a) Number and Selection of Hospitals
    We are proposing to validate eCQM data submitted by up to 200 
hospitals selected via random sample. Furthermore, we are proposing 
that the following hospitals be excluded from this random sample of 200 
hospitals selected for eCQM validation:
     Any hospital selected for chart-abstracted measure 
validation; and
     Any hospital that has been granted a Hospital IQR Program 
``Extraordinary Circumstances Exemption'' for the applicable eCQM 
reporting period.
    We acknowledge that the burden associated with both the chart-
abstracted and eCQM validation processes would be significant. We do 
not intend to impose an undue burden on any hospital by requiring that 
it be subject to more than one of these processes in a program year. 
Thus, if a hospital is selected for chart-abstracted targeted or random 
validation, we are proposing that hospital would be excluded from the 
eCQM validation sample.
    In addition, although our targeted criteria permit that a hospital 
may be selected for chart-abstracted validation even if it has been 
granted an Extraordinary Circumstances Exemption with respect to one or 
more chart-abstracted measures for the applicable data collection 
period (77 FR 53552 through 53553), if a hospital is granted an 
Extraordinary Circumstances Exemption with respect to eCQM reporting 
for the applicable eCQM reporting period, we are proposing that the 
hospital would be excluded from the eCQM validation sample due to its 
inability to supply data for validation. We note that due to these 
proposed exclusions, the total number of hospitals validated for eCQMs 
might be less than 200.
    Adding the proposed eCQM validation would result in a total of 800 
hospitals in the validation process, as described in the below tables.

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
        Current Validation Process Number of HospProposed Validation Process Number of Hospitals
----------------------------------------------------------------------------------------------------------------
Chart-Abstracted Random.......................             400  Chart-Abstracted Random.........             400
Chart-Abstracted Targeted.....................             200  Chart-Abstracted Targeted.......             200
                                                                eCQM: random....................             200
                                               ----------------                                  ---------------
    Total.....................................             600  ................................             800
----------------------------------------------------------------------------------------------------------------

    We believe that as we expand the required reporting of eCQMs in the 
Hospital IQR Program, we need to validate eCQM data to ensure the 
accuracy of information submitted by hospitals and reported to the 
public, as well as for future consideration of eCQMs for potential use 
in the Hospital VBP Program. In addition, during the first round of 
eCQM validation, we could better assess strategies to offset the 
resources required to conduct a scored method of eCQM validation for 
future rulemaking cycles.
    We are inviting public comment on our proposals for the FY 2020 
payment determination and subsequent years to: (1) Validate eCQM data 
submitted by up to 200 hospitals selected via random sample; and (2) to 
exclude any hospital selected for chart-abstracted measure validation 
as well as any hospital that has been granted a Hospital IQR Program 
``Extraordinary Circumstances Exemption'' for the applicable eCQM 
reporting period as discussed above.

[[Page 25203]]

(b) Number of Cases
    We are proposing to randomly select 32 cases (individual patient-
level reports) from the QRDA I file submitted per hospital selected for 
eCQM validation. Each randomly selected case (individual patient-level 
report) contains eCQM data elements \143\ for one patient for one or 
more eCQMs available in the program's eCQM measure set. The CDAC would 
then request that each of the selected hospitals submit patient medical 
record data for each of their 32 randomly selected cases (transmitted 
by the hospital to the Clinical Data Warehouse) within 30 days of the 
medical records request date. We refer readers to our discussion in 
section VIII.A.11.b.(3)(c) of the preamble of this proposed rule, 
below, for more information on our proposed submission requirements.
---------------------------------------------------------------------------

    \143\ A data element is a representation of a clinical concept 
that represents a patient state or attribute. This may be a 
diagnosis, lab value, sex, etc., which is encoded using standardized 
terminologies. The e-specifications for an eCQM include the data 
elements, logic, and definitions for that measure, available from: 
https://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/Electronic_Reporting_Spec.html.
---------------------------------------------------------------------------

    Based on the statistical properties of estimates as discussed 
below, we believe that a sample size of 32 cases is necessary to assess 
hospital performance on eCQMs. More specifically, at the individual 
hospital level, if we assume the average agreement rate between the 
QRDA I file data and data abstracted from the patient medical record is 
around 90 percent, and we want the hospital's confidence interval to 
vary by no more than plus or minus 10 percentage points (80 to 100 
percent), then we need to select at least 32 cases per year. Also, 32 
cases aligns with the number of cases currently selected for chart-
abstracted validation of clinical process of care measures. We 
currently select eight cases per quarter per hospital, which equates to 
32 cases annually (79 FR 50264).
    We are inviting public comment on our proposal to randomly select 
32 cases from the QRDA I file submitted per hospital selected for eCQM 
validation for the FY 2020 payment determination and subsequent years 
as discussed above.
(c) Submission Requirements
    We are proposing to require hospitals selected for eCQM validation 
to submit timely and complete medical record information to CMS on 
eCQMs selected for the validation sample. These are defined below.
    Consistent with the Hospital IQR Program chart-abstracted and NHSN 
validation submission deadline, which is 30 calendar days following the 
medical records request date listed on the CDAC request form (76 FR 
51645), we are proposing to require eCQM validation submission by 30 
calendar days following the medical records request date listed on the 
CDAC request form for the FY 2020 payment determination and subsequent 
years. Also, we are proposing to require sufficient patient level 
information (defined below) necessary to match the requested medical 
record to the original Hospital IQR Program submitted eCQM measure data 
record for the FY 2020 payment determination and subsequent years. 
Sufficient patient level information is defined as the entire medical 
record that sufficiently documents the eCQM measure data elements, 
which would include but would not be limited to, patient arrival date 
and time, inpatient admission date, and discharge date from inpatient 
episode of care. Lastly, we are proposing that, if selected as part of 
the random sample for eCQM validation, a hospital would be required to 
submit records in PDF file format through QualityNet using the Secure 
File Transfer (SFT) for the FY 2020 payment determination and 
subsequent years. The data submission deadlines and additional details 
about the eCQM validation procedures would be posted on the QualityNet 
Web site at: http://www.QualityNet.org/.
    We are inviting public comment on our proposals regarding eCQM 
validation submission requirements for the FY 2020 payment 
determination and subsequent years as discussed above.
(d) Scoring: Summary of Previously Adopted Chart-Abstracted Measure 
Validation Scoring
    We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50226 through 50227), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539 
through 53553), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50832 
through 50833), and the FY 2015 IPPS/LTCH PPS final rule (79 FR 50268 
through 50269), for a detailed description of our previously adopted 
scoring methodology for chart-abstracted measure data.
    We note that we are not proposing any changes to our chart-
abstracted measures validation. We are providing this information as 
background for our discussion of eCQM validation scoring. Under the 
current validation process for the Hospital IQR Program there are 600 
hospitals (400 randomly sampled and 200 targeted) selected for 
validation on a yearly basis. As stated above, those selected for 
chart-abstracted measure validation would not be eligible for selection 
to participate in eCQM validation. For chart-abstracted measure 
validation, the CDAC contractor requests hospitals to submit 8 randomly 
selected medical charts on a quarterly basis from which data were 
abstracted and submitted by the hospital to the Clinical Data Warehouse 
(for a total of 32 charts per year). Under the validation methodology, 
once the CDAC contractor receives the charts, it reabstracts the same 
data submitted by the hospitals and calculates the percentage of 
matching Hospital IQR Program measure numerators and denominators for 
each measure within each chart submitted by the hospital. Each selected 
case has multiple measures included in the validation score. Consistent 
with previous years, each quarter and clinical topic is treated as a 
stratum for variance estimation purposes (70 FR 47423).
    As in previous years, for the FY 2020 payment determination, the 
overall validation score from the chart-abstracted measure validation 
will be used to determine a hospital's overall annual payment update. 
Specifically, if a hospital fails chart-abstracted validation, it would 
not receive the full annual payment update. If a hospital passes chart-
abstracted validation, and also meets the other Hospital IQR Program 
requirements, it would be eligible to receive the full annual payment 
update. Consistent with previous years, a hospital must attain at least 
a 75 percent validation score (the percentage of matching Hospital IQR 
Program measure numerators and denominators for each measure within 
each chart submitted by the hospital) based upon chart-abstracted data 
validation to pass the validation requirement and to be eligible for a 
full annual payment update, if all other Hospital IQR Program 
requirements are met.
(e) Scoring: Proposals for eCQM Validation Scoring
    For the FY 2020 payment determination, for hospitals selected for 
eCQM validation, we are proposing to require submission of at least 75 
percent of sampled eCQM measure medical records in a timely and 
complete manner. However, unlike chart-abstracted validation, which 
requires a hospital to attain at least a 75 percent validation score, 
we are proposing that the accuracy of eCQM data (the extent to which 
data abstracted for validation matches the data submitted in the QRDA I 
file) submitted for validation would not affect a hospital's validation 
score for the FY 2020 payment

[[Page 25204]]

determination only. This is further explained below.
    Public comments on the FY 2015 IPPS/LTCH PPS final rule suggested 
further refinements to the process for eCQM validation. Specifically, 
several commenters urged CMS to implement the recommendations of a 
March 2014 Government Accountability Office (GAO) report to develop a 
comprehensive data collection strategy, which includes testing for and 
mitigation of reliability issues arising from variance in certified EHR 
systems tested to different CQM specifications (79 FR 50272). 
Commenters in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49711) 
expressed concern over the barriers hospitals encounter associated with 
reporting eCQMs and encouraged CMS to ensure that a diverse group of 
hospitals and certified EHRs are represented to inform an assessment of 
the work required to make eCQM validation feasible, reliable, and 
valid. In response to these concerns, in light of operational capacity 
limitations, and due to the time necessary to analyze eCQM validation 
results, we are proposing that eCQM data would be validated, but 
initially (meaning for the FY 2020 payment determination only), the 
measure accuracy would not affect hospitals' validation scores.
    In other words, although hospitals would be required to submit eCQM 
data in a timely and complete manner, we are proposing that hospitals 
would not be required to attain at least a 75 percent validation score 
(the percentage of matching Hospital IQR Program measure numerators and 
denominators for each measure within each chart submitted by the 
hospital) based upon QRDA I validation to pass the validation 
requirement and to be eligible for a full annual payment update. 
Hospitals that submit at least 75 percent of sampled eCQM measure 
medical records (even if those records do not produce a validation 
score of at least 75 percent) in a timely manner (that is, within 30 
days of the date listed on the CDAC medical records request) would not 
be subject to payment reduction. However, hospitals that fail to submit 
timely and complete information for at least 75 percent of requested 
records would not meet the eCQM validation requirement and would be 
subject to payment reduction. For example, if a hospital submits timely 
and complete information for at least 75 percent of requested records, 
but comparison of the QRDA I file and the abstracted data results in a 
validation score of 28 percent, the hospital still would pass 
validation and be eligible for a full annual payment update.
    Hospitals that pass either chart-abstracted or eCQM validation 
requirements would receive their full annual payment update, assuming 
all other Hospital IQR Program requirements are met. Hospitals that 
fail to attain at least a 75-percent validation score for chart-
abstracted validation or fail to submit timely and complete data for 75 
percent of requested records for eCQM validation, would not receive 
their full annual payment update.
    In addition, we are proposing to update our regulations at 42 CFR 
412.140(d)(2) to reflect the above proposals and to specify that the 75 
percent score would only apply to chart-abstracted validation.
    We are inviting public comment on our eCQM validation scoring 
proposals for the FY 2020 payment determination as discussed above.
(4) Reimbursement for eCQM Validation
    To align with the chart-abstracted validation process, which 
reimburses hospitals at a rate of $3.00 per chart (78 FR 50956) for 
submitting charts electronically via Secure File Transfer (SFT), we are 
proposing to similarly reimburse hospitals at a rate of $3.00 per chart 
for submitting charts electronically via Secure File Transfer (SFT) for 
eCQM validation for the FY 2020 payment determination and subsequent 
years. We also refer readers to section X.B.6. of the preamble of this 
proposed rule for more information regarding the collection of 
information for eCQM validation.
    We are inviting public comment on our proposal to reimburse 
hospitals at a rate of $3.00 per chart for eCQM validation for the FY 
2020 payment determination and subsequent years as discussed above.
(5) eCQM Pre-Submission Testing
    We are encouraging hospitals to test their eCQM submissions prior 
to annual reporting using an available CMS pre-submission validation 
tool for electronic reporting--the Pre-submission Validation 
Application (PSVA), which can be downloaded from the Secure File 
Transfer (SFT) section of the QualityNet Secure Portal at https://cportal.qualitynet.org/QNet/pgm_select.jsp. The PSVA is a downloadable 
tool that operates on a user's system to allow submitters to catch and 
correct errors prior to data submission to CMS. It provides validation 
feedback within the submitter's system and allows valid files to be 
separated and submitted while identifying invalid files for error 
correction.\144\ While the PSVA does not guarantee the accuracy of data 
in a hospital's QRDA I file, it helps to reduce submission errors 
related to improperly formatted QRDA I files. Pre-submission testing 
would assist in proactively identifying inconsistencies in data 
mapping, a process used in data warehousing by which different data 
models are linked to each other using a defined set of methods to 
characterize the data in a specific definition.\145\
---------------------------------------------------------------------------

    \144\ PSVA Demonstration and eCQM Question and Answer Session. 
Available at: http://www.qualityreportingcenter.com/wp-content/uploads/2016/03/3-10-16-eCQM_PSVA-Demonstration_FINAL508.pdf.
    \145\ Data Mapping Definition Available at: https://www.techopedia.com/definition/6750/data-mapping.
---------------------------------------------------------------------------

12. Data Accuracy and Completeness Acknowledgement (DACA) Requirements 
for the FY 2019 Payment Determination and Subsequent Years
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53554) for previously-adopted details on DACA requirements. We are not 
proposing any changes to the DACA requirements in this proposed rule.
13. Public Display Requirements for the FY 2019 Payment Determination 
and Subsequent Years
    We refer readers to the FY 2008 IPPS/LTCH PPS final rule (72 FR 
47364), 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), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50836), 
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50277), and the FY 2016 
final rule (80 FR 49712 through 49713) for details on public display 
requirements. 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 https://data.medicare.gov. We are not proposing any changes to 
our public display requirements in this proposed rule.
14. Reconsideration and Appeal Procedures for the FY 2019 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 42 CFR 412.140(e) for details on reconsideration and appeal 
procedures for the FY 2017 payment determination and subsequent years. 
We are not

[[Page 25205]]

proposing any changes to the reconsideration and appeals procedures in 
this proposed rule.
15. Proposed Changes to the Hospital IQR Program Extraordinary 
Circumstances Extensions or Exemptions (ECE) Policy
    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), the FY 2015 IPPS/LTCH PPS final rule (79 FR 50277), the 
FY 2016 IPPS/LTCH PPS final rule (80 FR 49713), and 42 CFR 
412.140(c)(2) for details on the Hospital IQR Program ECE policy. We 
also refer readers to the QualityNet Web site at http://www.QualityNet.org/ for our current requirements for submission of a 
request for an extension or exemption.
    In this proposed rule, we are proposing to update our ECE policy 
by: (1) Extending the general ECE request deadline for non-eCQM 
circumstances from 30 to 90 calendar days following an extraordinary 
circumstance; and (2) establishing a separate submission deadline for 
ECE requests related to eCQM reporting circumstances to be April 1 
following the end of the reporting calendar year. We are proposing that 
these policies would apply beginning in FY 2017 as related to 
extraordinary circumstance events that occur on or after October 1, 
2016.
a. Proposal To Extend the General ECE Request Deadline for Non-eCQM 
Circumstances
    In the past, we have allowed hospitals to submit an ECE request 
form for non-eCQM measures within 30 calendar days following an event 
that causes hardship and prevents them from providing data for non-eCQM 
measures (76 FR 51652). In certain circumstances, however, it may be 
difficult for hospitals to timely evaluate the impact of a certain 
extraordinary event within 30 calendar days. We believe that extending 
the deadline to 90 calendar days would allow hospitals more time to 
determine whether it is necessary and appropriate to submit an ECE 
request and to provide a more comprehensive account of the ``event'' in 
their ECE request form to CMS. For example, if a hospital has suffered 
damage due to a hurricane on January 1, it would have until March 31 to 
submit an ECE form via the QualityNet Secure Portal, mail, email, or 
secure fax as instructed on the ECE form. This proposed timeframe (90 
calendar days) also aligns with the ECE request deadlines for the 
Hospital VBP Program (78 FR 50706), the HAC Reduction Program (80 FR 
49580) and the Hospital Readmissions Reduction Program (80 FR 49542 
through 49543), all of which at least partially rely on the same data 
collection.
b. Proposal To Establish a Separate Submission Deadline for ECE 
Requests Related to eCQMs
    In addition, we are proposing to establish a separate submission 
deadline for ECE requests with respect to eCQM reporting, such that 
hospitals must submit a request by April 1 following the end of the 
reporting calendar year. We are proposing that this deadline for ECE 
requests with respect to eCQM reporting would first apply with an April 
1, 2017 deadline and apply for subsequent eCQM reporting years. For 
example, for data collected for the CY 2016 reporting period (through 
December 31, 2016), hospitals would have until April 1, 2017 to submit 
an ECE request. This timeframe also aligns with the Medicare and 
Medicaid EHR Incentive Programs' typical annual hardship request 
deadline (77 FR 54104 through 54109), which we believe would help 
reduce burden for hospitals.
    We are inviting public comment on our proposals related to the 
Hospital IQR Program's ECE policy beginning FY 2017 as described above.

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

1. Background
    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'') that specifically applies to PCHs that meet 
the requirements under 42 CFR 412.23(f). 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 fiscal year. For additional background 
information, including previously finalized measures and other policies 
for the PCHQR Program, we refer readers to the following final rules: 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53556 through 53561); the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50838 through 50846); the FY 2015 
IPPS/LTCH PPS final rule (79 FR 50277 through 50288); and the FY 2016 
IPPS/LTCH PPS final rule (80 FR 49713 through 49723).
2. Proposed Criteria for Removal and Retention of PCHQR Program 
Measures
    We have received public comments on past proposed rules asking that 
we clarify our policy for measure retention and removal. We generally 
retain measures from the previous year's PCHQR Program measure set for 
subsequent years' measure sets, except when we specifically propose to 
remove or replace a measure. With respect to measure removal, we 
believe it is important to be transparent in identifying criteria that 
we would use to evaluate a measure for potential removal from the PCHQR 
Program. We also believe that we should align these criteria between 
our programs whenever possible.
    Therefore, we are proposing the following measure removal criteria 
for the PCHQR Program, which are based on criteria established in the 
Hospital IQR Program (80 FR 49641 through 49642):
     Measure performance among PCHs is so high and unvarying 
that meaningful distinctions and improvements in performance can no 
longer be made (``topped-out'' measures);
     A measure does not align with current clinical guidelines 
or practice;
     The availability of a more broadly applicable measure 
(across settings or populations) or the availability of a measure that 
is more proximal in time to desired patient outcomes for the particular 
topic;
     Performance or improvement on a measure does not result in 
better patient outcomes;
     The availability of a measure that is more strongly 
associated with desired patient outcomes for the particular topic;
     Collection or public reporting of a measure leads to 
negative unintended consequences other than patient harm; and
     It is not feasible to implement the measure 
specifications.
    For the purposes of considering measures for removal from the 
program, we would consider ``topped-out'' to be that there is 
statistically indistinguishable performance at the 75th and 90th 
percentiles and that the truncated coefficient of variation is less 
than or equal to 0.10.
    However, we recognize that there are times when measures may meet 
some of the outlined criteria for removal from the program, but 
continue to bring value to the program. Therefore, we are proposing the 
following criteria for consideration in determining whether to retain a 
measure in the PCHQR Program,

[[Page 25206]]

which also are based on criteria established in the Hospital IQR 
Program (80 FR 49641 through 49642):
     Measure aligns with other CMS and HHS policy goals;
     Measure aligns with other CMS programs, including other 
quality reporting programs; and
     Measure supports efforts to move PCHs towards reporting 
electronic measures.
    We welcome public comments on these proposed measure removal and 
retention criteria.
3. Retention and Proposed Update to Previously Finalized Quality 
Measures for PCHs Beginning With the FY 2019 Program Year
a. Background
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556 through 
53561), we finalized five quality measures for the FY 2014 program year 
and subsequent years. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50837 through 50847), we finalized one new quality measure for the FY 
2015 program year and subsequent years and 12 new quality measures for 
the FY 2016 program year and subsequent years. In the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 50278 through 50280), we finalized one new 
quality measure for the FY 2017 program year and subsequent years. In 
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49713 through 49719), we 
finalized three new CDC NHSN measures for the FY 2018 program year and 
subsequent years, and finalized the removal of six previously finalized 
measures for fourth quarter (Q4) 2015 discharges and subsequent years. 
We refer readers to the final rules referenced in section VIII.B.1. of 
the preamble of this proposed rule for more information regarding these 
previously finalized measures.
    We are not proposing for FY 2019 to remove any of the measures 
previously finalized for the FY 2018 program year from the PCHQR 
measure set. However, we are proposing to update the Oncology: 
Radiation Dose Limits to Normal Tissues (NQF #0382) measure, described 
below.
b. Proposed Update of Oncology: Radiation Dose Limits to Normal Tissues 
(NQF #0382) Measure for FY 2019 Program Year and Subsequent Years
    Beginning with the FY 2019 program year, we are proposing to update 
the specifications of the Oncology: Radiation Dose Limits to Normal 
Tissues (NQF #0382) measure. This measure was originally finalized in 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50841 through 50842). In 
November 2014, subsequent to our adoption of the measure in the PCHQR 
Program, updated specifications were endorsed by the NQF.
    The updated measure specifications expand the patient cohort to 
include patients receiving 3D conformal radiation therapy for breast or 
rectal cancer in addition to patients receiving 3D conformal radiation 
therapy for lung or pancreatic cancers (the original cohort).\146\ For 
additional information about the original measure cohort, we refer 
readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50842), in which 
we introduced the measure to the PCHQR Program. In 2012, breast cancer 
was the most common cancer among women, and the second most common 
cause of cancer related deaths for women.\147\ For 2016, the National 
Institutes of Health estimates that there will be approximately 135,000 
new cases of colorectal cancer in the United States, with approximately 
39,000 of these cases being rectal cancer.\148\
---------------------------------------------------------------------------

    \146\ Available at: http://www.qualityforum.org/QPS/0382.
    \147\ CDC Breast Cancer Statistics. Available at: http://www.cdc.gov/cancer/breast/statistics/.
    \148\ NIH Colorectal Cancer Incidence and Mortality. Available 
at: http://www.cancer.gov/types/colorectal/hp/rectal-treatment-pdq.
---------------------------------------------------------------------------

    As these cancer types are so prevalent, we believe that the 
expansion of the measure cohort to include breast and rectal cancer 
patients is important to ensuring the delivery of high quality care in 
the PCH setting. In compliance with section 1890A(a)(2) of the Act, 
this measure update was included in a publicly available document, 
``List of Measures under Consideration for December 1, 2015.'' \149\ 
The MAP, a multi-stakeholder group convened by the NQF, reviews the 
measures under consideration for the PCHQR Program, among other Federal 
programs, and provides input on those measures to the Secretary. The 
MAP's 2016 recommendations for quality measures under consideration are 
captured in the following document: ``Process and Approach for MAP Pre-
Rulemaking Deliberations 2015-2016'' (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81599). The MAP expressed 
conditional support for the update of Oncology: Radiation Dose Limits 
to Normal Tissues. The MAP's conditional support was solely pending 
annual NQF review, and was not based on significant concerns. We 
considered the input and recommendations provided by the MAP, and the 
importance of aligning with NQF-endorsed specifications of measures 
whenever possible, in proposing this update for the PCHQR Program.
---------------------------------------------------------------------------

    \149\ CMS List of Measures under Consideration. Available at: 
http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81172.
---------------------------------------------------------------------------

    We welcome public comments on this proposal for the Oncology: 
Radiation Dose Limits to Normal Tissues measure cohort expansion for 
the FY 2019 program year and subsequent years.
4. Proposed New Quality Measure Beginning With the FY 2019 Program Year
a. Considerations in the Selection of Quality Measures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556), the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50837 through 50838), and the FY 2015 
IPPS/LTCH PPS final rule (79 FR 50278), 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. In this proposed rule, we are not proposing any 
changes to the principles we consider when developing and selecting 
measures for the PCHQR Program.
    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 (the NQF is the entity that 
currently holds this contract). Section 1866(k)(3)(B) of the Act 
provides an exception under which, 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.
    Using the principles for measure selection in the PCHQR Program, we 
are proposing one new measure, described below.
b. Proposed Adoption of the Admissions and Emergency Department (ED) 
Visits for Patients Receiving Outpatient Chemotherapy Measure
    We are proposing to adopt the Admissions and Emergency Department 
(ED) Visits for Patients Receiving Outpatient Chemotherapy measure for 
the FY 2019 program year and

[[Page 25207]]

subsequent years. Cancer care is a priority area for outcome 
measurement because cancer is an increasingly prevalent condition 
associated with considerable morbidity and mortality. In 2015, there 
were more than 1.6 million new cases of cancer in the United 
States.\150\ Each year, about 22 percent of cancer patients receive 
chemotherapy,\151\ with Medicare payments for cancer treatment totaling 
$34.4 billion in 2011 or almost 10 percent of Medicare fee-for-service 
(FFS) spending.\152\ With an increasing number of cancer patients 
receiving chemotherapy in a hospital outpatient department,\153\ a 
growing body of peer-reviewed literature identifies unmet needs in the 
care provided to these patients. This gap in care may be due to reasons 
including: (1) Delayed onset of side effects that patients must manage 
at home; (2) patients assuming that little can be done and not seeking 
assistance; and (3) limited access to and communication with providers 
who can tailor care to the individual.\154\ As a result, cancer 
patients that receive chemotherapy in a hospital outpatient department 
require more frequent acute care in the hospital setting and experience 
more adverse events than cancer patients that are not receiving 
chemotherapy.155 156 157
---------------------------------------------------------------------------

    \150\ American Cancer Society. ``Cancer Facts & Figures 2015.'' 
Available at: http://www.cancer.org/acs/groups/content/@editorial/documents/document/acspc-044552.pdf.
    \151\ Klodziej, M., J.R. Hoverman, J.S. Garey, J. Espirito, S. 
Sheth, A. Ginsburg, M.A. Neubauer, D. Patt, B. Brooks, C. White, M. 
Sitarik, R. Anderson, and R. Beveridgel. ``Benchmarks for Value in 
Cancer Care: An Analysis of a Large Commercial Population.'' Journal 
of Oncology Practice, Vol. 7, 2011, pp. 301-306.
    \152\ Sockdale, H., K. Guillory. ``Lifeline: Why Cancer Patients 
Depend on Medicare for Critical Coverage.'' Available at: http://www.acscan.org/content/wp-content/uploads/2013/06/2013-Medicare-Chartbook-Online-Version.pdf.
    \153\ Vandervelde, Aaron, Henry Miller, and JoAnna Younts. 
``Impact on Medicare Payments of Shift in Site of Care for 
Chemotherapy Administration.'' Washington, DC: Berkeley Research 
Group, June 2014. Available at: http://www.communityoncology.org/UserFiles/BRG_340B_SiteofCare_ReportF_6-9-14.pdf.
    \154\ McKenzie, H., L. Hayes, K. White, K. Cox, J. Fethney, M. 
Boughton, and J. Dunn. ``Chemotherapy Outpatients' Unplanned 
Presentations to Hospital: A Retrospective Study.'' Supportive Care 
in Cancer, Vol. 19, No. 7, 2011, pp. 963-969.
    \155\ Sadik, M., K. Ozlem, M. Huseyin, B. AliAyberk, S. Ahmet, 
and O. Ozgur. ``Attributes of Cancer Patients Admitted to the 
Emergency Department in One Year.'' World Journal of Emergency 
Medicine, Vol. 5, No. 2, 2014, pp. 85-90. Available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4129880/#ref4.
    \156\ Hassett, M.J., J. O'Malley, J.R. Pakes, J.P. Newhouse, and 
C.C. Earle. ``Frequency and Cost of Chemotherapy-Related Serious 
Adverse Effects in a Population Sample of Women with Breast 
Cancer.'' Journal of the National Cancer Institute, Vol. 98, No. 16, 
2006, pp. 1108-1117.
    \157\ Foltran, L., G. Aprile, F.E. Pisa, P. Ermacora, N. Pella, 
E. Iaiza, E. Poletto, SE. Lutrino, M. Mazzer, M. Giovannoni, G.G. 
Cardellino, F. Puglisi, and G. Fasola. ``Risk of Unplanned Visits 
for Colorectal Cancer Outpatients Receiving Chemotherapy: A Case-
Crossover Study.'' Supportive Care in Cancer, Vol. 22, No. 9, 2014, 
pp. 2527-2533.
---------------------------------------------------------------------------

    Unmet patient needs resulting in admissions and ED visits related 
to chemotherapy treatment pose a heavy financial burden and affect 
patients' quality of life. Based on available commercial claims data, 
in 2010 the national average cost of a chemotherapy-related admission 
was $22,000, and the average cost of a chemotherapy-related ED visit 
was $800.\158\ Furthermore, admissions and ED visits can reduce 
patients' quality of life by affecting their physical and emotional 
well-being, disrupting their schedules, decreasing their desire to 
engage in work and social activities, and increasing the burden on 
their family.159 160
---------------------------------------------------------------------------

    \158\ Fitch, K., and B. Pyenson. ``Cancer Patients Receiving 
Chemotherapy: Opportunities for Better Management.'' Available at: 
http://us.milliman.com/uploadedFiles/insight/research/health-rr/cancer-patients-receiving-chemotherapy.pdf.
    \159\ McKenzie, H., L. Hayes, K. White, K. Cox, J. Fethney, M. 
Boughton, and J. Dunn. ``Chemotherapy Outpatients' Unplanned 
Presentations to Hospital: A Retrospective Study.'' Supportive Care 
in Cancer, Vol. 19, No. 7, 2011, pp. 963-969.
    \160\ Hassett, M.J., J. O'Malley, J.R. Pakes, J.P. Newhouse, and 
C.C. Earle. ``Frequency and Cost of Chemotherapy-Related Serious 
Adverse Effects in a Population Sample of Women with Breast 
Cancer.'' Journal of the National Cancer Institute, Vol. 98, No. 16, 
2006, pp. 1108-1117.
---------------------------------------------------------------------------

    Hospital admissions and ED visits among cancer patients are often 
caused by manageable side effects. Chemotherapy treatment can have 
severe, predictable side effects. Recent studies of cancer outpatients 
show the most commonly cited symptoms and reasons for unplanned 
hospital visits following chemotherapy treatment are pain, anemia, 
fatigue, nausea and/or vomiting, fever and/or febrile neutropenia, 
shortness of breath, dehydration, diarrhea, and anxiety/
depression.\161\ These hospital visits may be due to conditions related 
to the cancer itself or to side effects of chemotherapy. However, 
treatment plans and guidelines exist to support the management of these 
conditions. PCHs that provide outpatient chemotherapy should implement 
appropriate care to minimize the need for acute hospital care for these 
adverse events. Guidelines from the American Society of Clinical 
Oncology, National Comprehensive Cancer Network, Oncology Nursing 
Society, Infectious Diseases Society of America, and other professional 
societies recommend evidence-based interventions to prevent and treat 
common side effects and complications of chemotherapy. Appropriate 
outpatient care should reduce potentially avoidable hospital admissions 
and ED visits for these issues and improve cancer patients' quality of 
life.
---------------------------------------------------------------------------

    \161\ Ibid.
---------------------------------------------------------------------------

    This measure aims to assess the care provided to cancer patients 
and encourage quality improvement efforts to reduce the number of 
unplanned inpatient admissions and ED visits among cancer patients 
receiving chemotherapy in a PCH outpatient setting. Improved PCH 
management of these potentially preventable symptoms--including anemia, 
dehydration, diarrhea, emesis, fever, nausea, neutropenia, pain, 
pneumonia, or sepsis--could reduce unplanned admissions and ED visits 
for these conditions. Measuring unplanned admissions and ED visits for 
cancer patients receiving outpatient chemotherapy would provide PCHs 
with an incentive to improve the quality of care for these patients by 
taking steps to prevent and better manage side effects and 
complications from treatment. In addition, this measure meets two 
National Quality Strategy priorities: (1) Promoting effective 
communication and coordination of care; and (2) promoting the most 
effective prevention and treatment practices for the leading causes of 
mortality.
    We are proposing to adopt this measure under the exception 
authority in section 1866(k)(3)(B) of the Act under which, 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. Existing measures that the NQF 
has endorsed focus on processes of care related to outpatient cancer 
care.
    This proposed measure aligns with the intent of two process 
measures we adopted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50842 through 50843) for FY 2016 and subsequent years: (1) Clinical 
Process/Oncology Care--Plan of Care for Pain (NQF #0383); and (2) 
Clinical Process/Oncology: Medical and Radiation--Pain Intensity 
Quantified (NQF #0384). Process measures NQF #0383 and NQF #0384, which 
are not risk-adjusted, support the intent of the proposed measure by 
reinforcing that providers of outpatient care should

[[Page 25208]]

screen for and manage symptoms such as pain. The proposed measure 
improves upon these two measures in two key ways: (1) It does not 
target a specific symptom, but rather assesses the overall management 
of 10 important symptoms that studies have identified as frequent 
reasons for ED visits and inpatient admissions in this population; and 
(2) it assesses the care outcomes that matter to patients, rather than 
measuring processes to detect and treat these conditions. Also, we are 
not aware of any other measures a consensus organization has endorsed 
or adopted that assess the quality of outpatient cancer care by 
measuring unplanned inpatient admissions and ED visits.
    The MAP supported this measure on the condition that it is reviewed 
and endorsed by NQF. We refer readers to the Spreadsheet of MAP 2016 
Final Recommendations available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593. In particular, MAP 
members recommended considering the measure for sociodemographic status 
(SDS) adjustment in the ongoing NQF trial period and reviewing it to 
ensure that the detailed specifications meet the intent of the measure 
and align with current cancer care practice.
    We understand the important role that SDS plays in the care of 
patients. However, we continue to have concerns about holding hospitals 
to different standards for the outcomes of their patients of diverse 
sociodemographic status because we do not want to mask potential 
disparities or minimize incentives to improve the outcomes of 
disadvantaged populations. We routinely monitor the impact of 
sociodemographic status on hospitals' results on our measures.
    The NQF is currently undertaking a 2-year trial period in which new 
measures and measures undergoing maintenance review will be assessed to 
determine if risk-adjusting for sociodemographic factors is 
appropriate. For 2 years, NQF will conduct a trial of temporarily 
allowing inclusion of sociodemographic factors in the risk-adjustment 
approach for some performance measures. At the conclusion of the trial, 
NQF will issue recommendations on future permanent inclusion of 
sociodemographic factors. During the trial, measure developers are 
expected to submit information such as analyses and interpretations as 
well as performance scores with and without sociodemographic factors in 
the risk adjustment model. We submitted this measure to NQF with 
appropriate consideration for SDS for endorsement proceedings as part 
of the NQF Cancer Consensus Development Project in March 2016 and it is 
currently undergoing review. However, the measure we are proposing to 
adopt at this time for the PCHQR Program does not include this 
adjustment.
    Furthermore, the Office of the Assistant Secretary for Planning and 
Evaluation (ASPE) is conducting research to examine the effect of 
socioeconomic, demographic, and other characteristics on quality 
measures, resource use, and other measures in the Medicare program, as 
directed by the IMPACT Act. We will closely examine the findings of the 
ASPE reports and related Secretarial recommendations and consider how 
they apply to our quality programs at such time as they are available.
    In addition, several MAP members noted the alignment of this 
measure concept with other national priorities, such as improving 
patient experience, and other national initiatives to improve cancer 
care, as well as the importance of this measure to raise awareness and 
create a feedback loop with providers.
    This Admissions and Emergency Department (ED) Visits for Patients 
Receiving Outpatient Chemotherapy measure is a risk-standardized 
outcome measure for patients age 18 years or older who are receiving 
PCH-based outpatient chemotherapy treatment for all cancer types except 
leukemia; it measures inpatient admissions or ED visits within 30 days 
of each outpatient chemotherapy encounter for any of the following 
qualifying diagnoses: anemia, dehydration; diarrhea; emesis; fever; 
nausea; neutropenia; pain; pneumonia; or sepsis, as these are 
associated with commonly cited reasons for hospital visits among cancer 
patients receiving chemotherapy.\162\
---------------------------------------------------------------------------

    \162\ Hassett, M.J., J. O'Malley, J.R. Pakes, J.P. Newhouse, and 
C.C. Earle. ``Frequency and Cost of Chemotherapy-Related Serious 
Adverse Effects in a Population Sample of Women with Breast 
Cancer.'' Journal of the National Cancer Institute, Vol. 98, No. 16, 
2006, pp. 1108-1117.
---------------------------------------------------------------------------

    The proposed measure uses 1 year of Medicare FFS Part A and Part B 
administrative claims data with respect to beneficiaries receiving 
chemotherapy treatment in a PCH outpatient setting. The qualifying 
diagnosis on the admission or ED visit claim must be (1) the primary 
diagnosis or (2) a secondary diagnosis accompanied by a primary 
diagnosis of cancer.
    We limited the window for identifying the outcomes of admissions 
and ED visits to 30 days after PCH outpatient chemotherapy treatment 
encounters, as existing literature suggests the vast majority of 
adverse events occur within that time frame 163 164 165 and 
we also observed this during testing. In addition, the technical expert 
panel (TEP) supported this time window because: (1) It helps link 
patients' experiences to the facilities that provided their recent 
treatment while accounting for variations in time between outpatient 
treatment encounters; (2) it supports the idea that the admission is 
related to the management of side effects of treatment and ongoing 
care, as opposed to progression of the disease or other unrelated 
events; and (3) clinically, 30 days after each outpatient chemotherapy 
treatment is a reasonable timeframe to observe related side effects.
---------------------------------------------------------------------------

    \163\ Aprile, G., F.E. Pisa, A. Follador, L. Foltran, F. De 
Pauli, M. Mazzer, S. Lutrino, C.S. Sacco, M. Mansutti, and G. 
Fasola. ``Unplanned Presentations of Cancer Outpatients: A 
Retrospective Cohort Study.'' Supportive Care in Cancer, Vol. 21, 
No. 2, 2013, pp. 397-404.
    \164\ Foltran, L., G. Aprile, F.E. Pisa, P. Ermacora, N. Pella, 
E. Iaiza, E. Poletto, SE. Lutrino, M. Mazzer, M. Giovannoni, G.G. 
Cardellino, F. Puglisi, and G. Fasola. ``Risk of Unplanned Visits 
for Colorectal Cancer Outpatients Receiving Chemotherapy: A Case-
Crossover Study.'' Supportive Care in Cancer, Vol. 22, No. 9, 2014, 
pp. 2527-2533.
    \165\ McKenzie, H., L. Hayes, K. White, K. Cox, J. Fethney, M. 
Boughton, and J. Dunn. ``Chemotherapy Outpatients' Unplanned 
Presentations to Hospital: A Retrospective Study.'' Supportive Care 
in Cancer, Vol. 19, No. 7, 2011, pp. 963-969.
---------------------------------------------------------------------------

    The measure identifies outcomes separately for the inpatient and ED 
measures. A patient can qualify only once for one of the two outcomes 
in each measurement period. If patients experience both an inpatient 
admission and an ED visit after outpatient chemotherapy during the 
measurement period, the measure counts them toward the inpatient 
admission outcome because this outcome represents a more significant 
deterioration in patient quality of life, and is more costly. Among 
those with no qualifying inpatient admissions, the measure counts 
qualifying standalone ED visits. As a result, the rates provide a 
comprehensive performance estimate of quality of care. We calculate the 
rates separately because the severity and cost of an inpatient 
admission differ from those of an ED visit, but both adverse events are 
significant quality indicators and represent outcomes of care that are 
important to patients.
    The measure attributes the outcome to the PCH where the patient 
received chemotherapy treatment during the 30 days before the outcome. 
If a patient received outpatient chemotherapy treatment from more than 
one PCH in the 30 days before the outcome, the measure would attribute 
the outcome to all the PCHs that provided treatment. For example, if a 
patient received an

[[Page 25209]]

outpatient chemotherapy treatment at PCH A on January 1, a second 
treatment at PCH B on January 10, and then experienced a qualifying 
inpatient admission on January 15, the measure would count this outcome 
for both PCH A and PCH B because both PCHs provided outpatient 
chemotherapy treatment to the patient within the 30-day window. 
However, if a patient received an outpatient chemotherapy treatment 
from PCH A on January 1, and a second treatment from PCH B on March 1, 
and then experienced a qualifying inpatient admission on March 3, the 
measure would attribute this outcome only to PCH B. In measure testing, 
using Medicare FFS claims data from July 1, 2012, to June 30, 2013, 
only 5 percent of patients in the cohort received outpatient 
chemotherapy treatment from more than one facility during that year.
    For additional methodology details, including the code sets used to 
identify the qualifying outcomes, we refer readers to the CMS Web site 
at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html under 
``Hospital Outpatient Chemotherapy.''
    This measure includes all adult Medicare FFS patients because this 
would enable us to more broadly assess the quality of care provided by 
the PCH.
    This measure focuses on treatments in the PCH outpatient setting 
because of the increase in hospital-based chemotherapy, which presents 
an opportunity to coordinate care. From 2008 to 2012, the proportion of 
Medicare patients receiving hospital-based outpatient chemotherapy 
increased from 18 to 29 percent, and this trend is likely to continue. 
As currently specified, the measure identifies chemotherapy treatment 
using ICD-9-CM procedure and encounter codes and Current Procedural 
Terminology (CPT)/Healthcare Common Procedure Coding System (HCPCS) 
procedure and medication procedure codes. It excludes procedure codes 
for oral chemotherapy because it is challenging to identify oral 
chemotherapy without using pharmacy claims data and, according to our 
TEP, most oral chemotherapies have fewer adverse reactions that result 
in admissions. We have developed a ``coding crosswalk'' between the 
ICD-9-CM codes and the ICD-10 codes that became effective beginning on 
October 1, 2015, and we will test this crosswalk prior to 
implementation. For detailed information on the cohort definition, 
including the ICD-9-CM, ICD-10, CPT, and HCPCS codes that identify 
chemotherapy treatment, we refer readers to the Data Dictionary 
appendix to the measure Technical Report at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html under ``Hospital 
Outpatient Chemotherapy.''
    The measure excludes three groups of patients: (1) Patients with a 
diagnosis of leukemia at any time during the measurement period because 
of the high toxicity of treatment and recurrence of disease, and 
because inpatient admissions and ED visits may reflect a relapse, 
rather than poorly managed outpatient care; (2) patients who were not 
enrolled in Medicare FFS Parts A and B in the year before the first 
outpatient chemotherapy treatment encounter during the measurement 
period (because the risk-adjustment model uses claims data for the year 
before the first chemotherapy treatment encounter during the period to 
identify comorbidities); and (3) patients who do not have at least one 
outpatient chemotherapy treatment encounter followed by continuous 
enrollment in Medicare FFS Parts A and B in the 30 days after the 
encounter (because the measure cannot assess the 30-day outcome in this 
group since it uses claims data to determine whether a patient had an 
ED visit or a hospital inpatient admission).
    Risk adjustment takes into account important demographic and 
clinically-relevant patient characteristics that have strong 
relationships with the outcome. It seeks to adjust for differences in 
patient demographics, clinical comorbidities, and treatment exposure, 
which vary across patient populations and influence the outcome but do 
not relate to quality. Specifically, the measure adjusts for: (1) The 
patient's age at the start of the measurement period; (2) sex; (3) 
comorbidities that convey information about the patient in the 12 
months before his or her first outpatient chemotherapy treatment 
encounter during the measurement period; (4) cancer type; and (5) the 
number of outpatient chemotherapy treatments the patient received at 
the reporting PCH during the measurement period.
    We developed two risk-adjustment models, one for each dependent 
variable described above--qualifying inpatient admissions and 
qualifying ED visits. The separate models are necessary to enable the 
use of the most parsimonious model with variables tailored to those 
that are most predictive for each of the measure's two mutually 
exclusive outcomes. The measure algorithm first searches for a 
qualifying inpatient admission, and for those patients that do not have 
a qualifying inpatient admission, searches for a qualifying ED visit. 
Therefore, the patient-mix and predictive risk factors for each outcome 
is slightly different. The statistical risk-adjustment model for 
inpatient admissions includes 20 clinically relevant risk-adjustment 
variables that are strongly associated with the risk of one or more 
hospital admissions within 30 days following an outpatient chemotherapy 
treatment encounter in a hospital outpatient setting; the statistical 
risk-adjustment model for ED visits includes 15 clinically relevant 
risk-adjustment variables that are strongly associated with risk of one 
or more ED visits within 30 days following an outpatient chemotherapy 
treatment encounter in a hospital outpatient setting (3 comorbidities 
and 2 cancer types significant for inpatient admissions are not 
significant for ED visits).
    The measure uses hierarchical logistic modeling, similar to the 
approach used in the CMS inpatient hospital 30-day risk-standardized 
mortality and readmission outcome measures, such as the Hospital 30-
Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute 
Myocardial Infarction (AMI) Hospitalization.\166\ This approach 
appropriately accounts for both differences in patient-mix and the 
clustering of observations within PCHs. The measure calculates the PCH-
specific risk-adjusted rate as the ratio of the PCH's ``predicted'' 
number of outcomes to ``expected'' number of outcomes multiplied by the 
national observed outcome rate. It estimates the expected number of 
outcomes for each PCH using the PCH's patient-mix and the average PCH-
specific intercept (that is, the average intercept among all PCHs in 
the sample). The measure estimates the predicted number of outcomes for 
each PCH using the same patient-mix, but an estimated PCH-specific 
intercept.
---------------------------------------------------------------------------

    \166\ Methodology reports for these measures are available at 
the following link: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    The measure calculates two rates, one for each mutually exclusive 
outcome (qualifying inpatient admissions and qualifying ED visits). It 
derives the two rates (also referred to as the PCH-level risk-
standardized admission rate (RSAR) and risk-standardized ED visit rate 
(RSEDR)), from the ratio of the numerator to the denominator multiplied 
by the national observed rate. The numerator is the number of predicted 
(meaning adjusted actual) patients with the measured adverse outcome. 
The denominator is the

[[Page 25210]]

number of patients with the measured adverse outcome the PCH is 
expected to have based on the national performance with the PCH's case 
mix. The national observed rate is the national unadjusted number of 
patients who have an adverse outcome among all the qualifying patients 
who had at least one chemotherapy treatment encounter in a PCH. If the 
``predicted'' number of outcomes is higher (or lower) than the 
``expected'' number of outcomes for a given hospital, the risk-
standardized rate will be higher (or lower) than the national observed 
rate.
    For more detailed information on the calculation methodology, we 
refer readers to the methodology report at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html under ``Hospital 
Outpatient Chemotherapy.''
    We would publicly report the RSAR and RSEDR for all participating 
PCHs with 25 or more eligible patients per measurement period to 
maintain a reliability of at least 0.4 (as measured by the interclass 
correlation coefficient, ICC). If a PCH does not meet the 25 eligible 
patient threshold, we would include a footnote on the Hospital Compare 
Web site indicating that the number of cases is too small to reliably 
measure that PCH's rate. These patients and PCHs would still be 
included when calculating the national rates for both the RSAR and 
RSEDR.
    To prepare PCHs for public reporting, we would conduct a 
confidential national reporting (dry run) of measure results prior to 
public reporting. The objectives of the dry run are to: (1) Educate 
PCHs and other stakeholders about the measure; (2) allow PCHs to review 
their measure results and data prior to public reporting; (3) answer 
questions from PCHs and other stakeholders; (4) test the production and 
reporting process; and (5) identify potential technical changes to the 
measure specifications that might be needed. We have not yet determined 
the measurement period to use for the dry run calculations, but 
acknowledge the importance of including some data based on ICD-10 codes 
to evaluate the success of the ``coding crosswalk.''
    We are inviting public comment on our proposal to adopt the 
Admissions and Emergency Department (ED) Visits for Patients Receiving 
Outpatient Chemotherapy measure for the FY 2019 program year and 
subsequent years.
    In summary, the previously finalized and newly proposed measures 
for the PCHQR Program for the FY 2019 program year and subsequent years 
are listed in the table below.

Previously Finalized and Proposed PCHQR Measures for the FY 2019 Program
                        Year and Subsequent Years
------------------------------------------------------------------------
           Short name                NQF No.           Measure name
------------------------------------------------------------------------
            Safety and Healthcare-Associated Infection (HAI)
------------------------------------------------------------------------
CLABSI.........................            0139  National Healthcare
                                                  Safety Network (NHSN)
                                                  Central Line-
                                                  Associated Bloodstream
                                                  Infection Outcome
                                                  Measure.
CAUTI..........................            0138  National Healthcare
                                                  Safety Network (NHSN)
                                                  Catheter-Associated
                                                  Urinary Tract
                                                  Infections Outcome
                                                  Measure.
SSI............................            0753  American College of
                                                  Surgeons--Centers for
                                                  Disease Control and
                                                  Prevention (ACS-CDC)
                                                  Harmonized Procedure
                                                  Specific Surgical Site
                                                  Infection (SSI)
                                                  Outcome Measure
                                                  [currently includes
                                                  SSIs following Colon
                                                  Surgery and Abdominal
                                                  Hysterectomy Surgery].
CDI............................            1717  National Healthcare
                                                  Safety Network (NHSN)
                                                  Facility[dash]wide
                                                  Inpatient Hospital-
                                                  onset Clostridium
                                                  difficile Infection
                                                  (CDI) Outcome Measure.
MRSA...........................            1716  National Healthcare
                                                  Safety Network (NHSN)
                                                  Facility[dash]wide
                                                  Inpatient Hospital-
                                                  onset
                                                  Methicillin[dash]resis
                                                  tant Staphylococcus
                                                  aureus Bacteremia
                                                  Outcome Measure.
HCP............................            0431  Influenza Vaccination
                                                  Coverage Among
                                                  Healthcare Personnel.
------------------------------------------------------------------------
               Clinical Process/Cancer Specific Treatment
------------------------------------------------------------------------
N/A............................            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.
N/A............................            0559  Combination
                                                  Chemotherapy is
                                                  Considered or
                                                  Administered Within 4
                                                  Months (120 days) of
                                                  Diagnosis for Women
                                                  Under 70 with AJCC
                                                  T1cN0M0, or Stage IB--
                                                  III Hormone Receptor
                                                  Negative Breast
                                                  Cancer. ***
N/A............................            0220  Adjuvant Hormonal
                                                  Therapy.
------------------------------------------------------------------------
                 Clinical Process/Oncology Care Measures
------------------------------------------------------------------------
N/A............................            0382  Oncology: Radiation
                                                  Dose Limits to Normal
                                                  Tissues. *
N/A............................            0383  Oncology: Plan of Care
                                                  for Pain--Medical
                                                  Oncology and Radiation
                                                  Oncology.
N/A............................            0384  Oncology: Medical and
                                                  Radiation--Pain
                                                  Intensity Quantified.
N/A............................            0390  Prostate Cancer:
                                                  Adjuvant Hormonal
                                                  Therapy for High Risk
                                                  Prostate Cancer
                                                  Patients.
N/A............................            0389  Prostate Cancer:
                                                  Avoidance of Overuse
                                                  of Bone Scan for
                                                  Staging Low Risk
                                                  Prostate Cancer
                                                  Patients.
------------------------------------------------------------------------
                  Patient Engagement/Experience of Care
------------------------------------------------------------------------
HCAHPS.........................            0166  HCAHPS.
------------------------------------------------------------------------
                     Clinical Effectiveness Measure
------------------------------------------------------------------------
EBRT...........................            1822  External Beam
                                                  Radiotherapy for Bone
                                                  Metastases.
------------------------------------------------------------------------

[[Page 25211]]

 
                      Claims Based Outcome Measure
------------------------------------------------------------------------
N/A............................             N/A  Admissions and
                                                  Emergency Department
                                                  (ED) Visits for
                                                  Patients Receiving
                                                  Outpatient
                                                  Chemotherapy. **
------------------------------------------------------------------------
* Proposed for update in FY 2019 program year.
** Newly proposed for FY 2019 program year.
*** In previous final rules, this measure was titled ``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
  Hormones Receptor Negative Breast Cancer. This name change is
  consistent with NQF updates to the measure name and reflects an update
  in the AJCC staging, does not reflect a change in the measure
  inclusion criteria, and is not considered substantive.

5. Possible New Quality Measure Topics for Future Years
    We discussed future quality measure topics and quality measure 
domain areas in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50280), and 
in the FY 2016 IPPS/LTCH PPS final rule (80 FR4979), we discussed 
public comment and specific suggestions for measure topics addressing 
the following CMS Quality Strategy domains: Making care affordable; 
communication and coordination; and working with communities to promote 
best practices of healthy living. We welcome public comment and 
specific suggestions for measure topics that we should consider for 
future rulemaking.
6. 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?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1228774479863.
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50281), we adopted a 
policy under which we use a subregulatory process to make 
nonsubstantive updates to measures used for the PCHQR Program. We are 
not proposing any changes to this policy in this proposed rule.
7. Public Display Requirements
a. Background
    Under section 1866(k)(4) of the Act, we are required 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 
hospitals on the CMS Web site. The measures that we have finalized for 
public display are shown in the table below.

            Previously Finalized Measures for Public Display
------------------------------------------------------------------------
            Measure name                 First year of public display
------------------------------------------------------------------------
 Adjuvant Chemotherapy is    2014
 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).
 Combination Chemotherapy
 is Considered or Administered
 Within 4 Months (120 days) of
 Diagnosis for Women Under 70 with
 AJCC T1c, or Stage II or III
 Hormone Receptor Negative Breast
 Cancer (NQF #0559).
 Adjuvant Hormonal Therapy   2015
 (NQF #0220).
 Oncology: Radiation Dose    2016
 Limits to Normal Tissues (NQF
 #0382).
 Oncology: Oncology: Plan
 of Care for Pain--Medical Oncology
 and Radiation Oncology (NQF #0383).
 Oncology: Oncology:
 Medical and Radiation--Pain
 Intensity Quantified (NQF #0384).
 Prostate Cancer: Adjuvant
 Hormonal Therapy for High Risk
 Prostate Cancer Patients (NQF
 #0390).
 Prostate Cancer: Avoidance
 of Overuse of Bone Scan for
 Staging Low Risk Prostate Cancer
 Patients (NQF #0389).
 HCAHPS (NQF #0166)........
 CLABSI (NQF #0139)........  No Later Than 2017.
 CAUTI (NQF #0138).........
------------------------------------------------------------------------

b. Proposed Additional Public Display Requirements
    As we strive to publicly display data as soon as possible on a CMS 
Web site, we are proposing the following update to our public display 
polices. We believe it is best to not specify in rulemaking the exact 
timeframe during the year for publication as doing so may prevent 
earlier publication. We are proposing, then, to make these data 
available as soon as it is feasible during the year, starting with the 
first year for which we are publishing data for each measure. We will 
continue to propose in rulemaking the first year for which we intend to 
publish data for each measure. We intend to make the data available on 
at least a yearly basis.
    As stated above, we are required to give PCHs an opportunity to 
review their data before the data are made public. Because we are 
proposing to make the data for this program available as soon as 
possible, and the timeframe for this publication may change year-to-
year, we are not proposing to specify in rulemaking the exact dates for 
review. However, we are proposing that the time period for review would 
be approximately 30 days in length. We are proposing to announce the 
exact timeframes on a CMS Web site and/or on our applicable listservs.

[[Page 25212]]

    We welcome public comments on these updates to our public display 
and preview policies.
c. Proposed Public Display of Additional PCHQR Measure
    We are proposing to publicly display one additional PCHQR measure 
beginning with FY 2017 program year data (which is data collected 
during CY 2015). This proposal would mean that we would display the 
measure data during CY 2017, and that we would use a CMS Web site and/
or our applicable listservs to announce the exact timeframe. This 
measure is External Beam Radiotherapy for Bone Metastases (NQF #1822), 
which we adopted in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50278 
through 50280). We believe that it is important to share data collected 
under the PCHQR Program with healthcare consumers through publication 
on public Web sites to help inform healthcare choices. We intend to 
make this data publicly available at the first opportunity.
    We welcome public comment on our proposal to display this measure 
beginning with the FY 2017 program year data and for subsequent years.
d. Proposed Public Display of Updated Measure
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49720 through 
49722), we finalized public display of the Oncology: Radiation Dose 
Limits to Normal Tissues measure in 2016 and subsequent years. If our 
proposal to update this measure (described in section VIII.B.3.b. of 
the preamble of this proposed rule) is finalized, we are proposing to 
begin displaying on Hospital Compare data using the updated measure 
cohort as soon as feasible after the updated data is collected in CY 
2017. We intend to denote the cohort expansion on Hospital Compare to 
ensure that consumers are informed about the expansion.
    We welcome public comment on our proposals regarding public display 
of this updated measure.
e. Proposed Postponement of Public Display of Two Measures
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50281 through 
50282), we finalized public display of the CLABSI and CAUTI measures 
beginning no later than 2017 and subsequent years. However, at this 
time, we are proposing to defer the public reporting of these two 
measures' data. 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 this small number of 
facilities, we need additional time to work with CDC to identify an 
appropriate timeframe for public reporting and collaborate on the 
analytic methods that will be used to summarize the CLABSI and CAUTI 
data for public reporting purposes.
    We are inviting public comment on our proposal to defer the public 
reporting of the CLABSI and the CAUTI measures.
    Our previously finalized and proposed public display requirements 
are summarized in the table below.

      Previously Finalized and Proposed Public Display Requirements
------------------------------------------------------------------------
              Measures                         Public reporting
------------------------------------------------------------------------
      Summary of Finalized and Proposed Public Display Requirements
------------------------------------------------------------------------
 Adjuvant Chemotherapy is    2014 and subsequent years.
 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).
 Combination Chemotherapy
 is Considered or Administered
 Within 4 Months (120 days) of
 Diagnosis for Women Under 70 with
 AJCC T1cN0M0, or Stage IB--III
 Hormone Receptor Negative Breast
 Cancer (NQF #0559).
 Adjuvant Hormonal Therapy   2015 and subsequent years.
 (NQF #0220).
 Oncology: Radiation Dose
 Limits to Normal Tissues (NQF
 #0382).*
 Oncology: Plan of Care for
 Pain--Medical Oncology and
 Radiation Oncology (NQF #0383).
 Oncology: Medical and       2016 and subsequent years.
 Radiation--Pain Intensity
 Quantified (NQF #0384).
 Prostate Cancer: Adjuvant
 Hormonal Therapy for High Risk
 Prostate Cancer Patients (NQF
 #0390).
 Prostate Cancer: Avoidance
 of Overuse of Bone Scan for
 Staging Low Risk Prostate Cancer
 Patients (NQF #0389).
 HCAHPS (NQF #0166)........
 CLABSI (NQF #0139).**
 CAUTI (NQF #0138) **......  Deferred.
 External Beam Radiotherapy  Beginning at the first opportunity
 for Bone Metastases (NQF #1822)      in 2017 and for subsequent years.
 ***.
------------------------------------------------------------------------
* Update proposed for display for the FY 2019 program year and
  subsequent years in this proposed rule--expanded cohort will be
  displayed as soon as feasible.
** Deferral proposed in this proposed rule.
*** Measure newly proposed for public display in this proposed rule.

8. Form, Manner, and Timing of Data Submission
    Section 1866(k)(2) of the Act requires that, beginning with the FY 
2014 PCHQR program year, 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.
    The newly proposed measure for FY 2019 (Admissions and Emergency 
Department (ED) Visits for Patients Receiving Outpatient Chemotherapy) 
is a claims-based measure; therefore, there are no additional data 
submission requirements for this measure. As this measure uses 1 year 
of Medicare administrative claims data, we are proposing to calculate 
this measure on a yearly basis, beginning with data from July 1, 2016 
through June 30, 2017, and then to calculate the measure for

[[Page 25213]]

subsequent years using data from July 1 through June 30.
    We are not proposing any changes to previously finalized data 
submission requirements in this proposed rule.
9. Exceptions From PCHQR 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 increase their burden unduly 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 rear 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 not proposing any changes to this PCHQR exception process in 
this proposed rule.

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

1. Background and Statutory Authority
    We seek to promote higher quality and more efficient health care 
for Medicare beneficiaries, and our efforts are furthered by quality 
reporting programs coupled with public reporting of that information.
    Section 3004(a) of the Affordable Care Act amended section 
1886(m)(5) of the Act, requiring the Secretary to establish the Long-
Term Care Hospital Quality Reporting Program (LTCH QRP). The LTCH QRP 
applies to all hospitals certified by Medicare as LTCHs. Beginning with 
the FY 2014 payment determination and subsequent years, the Secretary 
is required to reduce any annual update to the LTCH PPS standard 
Federal rate for discharges occurring during such fiscal year by 2 
percentage points for any LTCH that does not comply with the 
requirements established by the Secretary. Section 1886(m)(5) of the 
Act requires that for the FY 2014 payment determination and subsequent 
years, each LTCH submit data on quality measures specified by the 
Secretary in a form and manner, and at a time, specified by the 
Secretary. For more information on the statutory history of the LTCH 
QRP, we refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 
50286).
    The Improving Medicare Post-Acute Care Transformation Act of 2014 
(IMPACT Act) imposed new data reporting requirements for certain post-
acute care (PAC) providers, including LTCHs. For information on the 
statutory background of the IMPACT Act, we refer readers to the FY 2016 
IPPS/LTCH PPS final rule (80 FR 49723 through 49724).
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49723 through 
49728), we reviewed and finalized the activities and the timeline and 
sequencing of such activities that would occur under the LTCH QRP. In 
addition, we established our approach for identifying cross-cutting 
measures and process for the adoption of measures, including the 
application and purpose of the Measures Application Partnership (MAP) 
and the notice-and-comment rulemaking process. For information on these 
topics, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49723).
2. General Considerations Used for Selection of Quality, Resource Use, 
and Other Measures for the LTCH QRP
    For a detailed discussion of the considerations we use for the 
selection of LTCH QRP quality measures, such as alignment with the CMS 
Quality Strategy,\167\ which incorporates the three broad aims of the 
National Quality Strategy,\168\ we refer readers to the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50286 through 50287) and the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49728). Overall, we strive to promote high 
quality and efficiency in the delivery of health care to the 
beneficiaries we serve. Performance improvement leading to the highest 
quality health care requires continuous evaluation to identify and 
address performance gaps and reduce the unintended consequences that 
may arise in treating a large, vulnerable, and aging population. 
Quality reporting programs, coupled with public reporting of quality 
information, are critical to the advancement of health care quality 
improvement efforts. Valid, reliable, relevant quality measures are 
fundamental to the effectiveness of our quality reporting programs. 
Therefore, selection of quality measures is a priority for CMS in all 
of its quality reporting programs.
---------------------------------------------------------------------------

    \167\ http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html.
    \168\ http://www.ahrq.gov/workingforquality/nqs/nqs2011annlrpt.htm.
---------------------------------------------------------------------------

    In this proposed rule, we are proposing to adopt for the LTCH QRP 
one measure that we are specifying under section 1899B(c)(1) of the Act 
to meet the Medication Reconciliation domain, that is, Drug Regimen 
Review Conducted with Follow-Up for Identified Issues-PAC LTCH QRP. 
Further, we are proposing for the LTCH QRP to adopt three measures in 
order to meet the resource use and other measure domains identified in 
section 1899B(d)(1) of the Act. These measures consist of: (1) Total 
Estimated Medicare Spending Per Beneficiary (MSPB): MSPB-PAC LTCH QRP; 
(2) Discharge to Community: Discharge to Community-PAC LTCH QRP; and 
(3) Measures to reflect all-condition risk-adjusted potentially 
preventable hospital readmission rates: Potentially Preventable 30-Day 
Post-Discharge Readmission Measure for LTCH QRP.
    In our selection and specification of measures, we employ a 
transparent process in which we seek input from stakeholders and 
national experts and engage in a process that allows for pre-rulemaking 
input on each measure, as required by section 1890A of the Act. To meet 
this requirement, we provided the following opportunities for 
stakeholder input: Our measure development contractor convened 
technical expert panels (TEPs) that included stakeholder experts and 
patient representatives on July 29, 2015, for the Drug Regimen Review 
Conducted with Follow-Up for Identified Issues measures; on August 25, 
2015, September 25, 2015, and October 5, 2015, for the Discharge to 
Community measures; on August 12 and 13, 2015, and October 14, 2015 for 
the Potentially Preventable 30-Day Post-Discharge Readmission Measures; 
and on October 29 and 30, 2015, for the Medicare Spending Per 
Beneficiary measures. In addition, we released draft quality measure 
specifications for public comment for the Drug Regimen Review Conducted 
with Follow-Up for Identified Issues measures from September 18, 2015, 
to October 6, 2015; for the Discharge to Community measures from 
November 9, 2015, to December 8, 2015; for the Potentially Preventable 
30-Day Post-Discharge Readmission Measures from November 2, 2015 to 
December 1, 2015; and for the Medicare Spending Per Beneficiary 
measures from January 13, 2016 to February 5, 2016. We implemented a 
public mailbox, [email protected], for the submission of 
public comments. This PAC mailbox is accessible on our post-acute care 
quality initiatives Web site at: https://www.cms.gov/Medicare/Quality-
Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-
Initiatives/IMPACT-

[[Page 25214]]

Act-of-2014-and-Cross-Setting-Measures.html.
    In addition, we sought public input from the MAP Post-Acute Care, 
Long-Term Care Workgroup during the annual in-person meeting held 
December 14 and 15, 2015. The MAP is composed of multi-stakeholder 
groups convened by the NQF, our current contractor under section 
1890(a) of the Act, tasked to provide input on the selection of quality 
and efficiency measures described in section 1890(b)(7)(B) of the Act.
    The MAP reviewed each IMPACT Act-related measure proposed in this 
proposed rule for use in the LTCH QRP. For more information on the 
MAP's recommendations, we refer readers to the MAP 2016 Final 
Recommendations to HHS and CMS public report at: http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_PAC-LTC.aspx.
    For measures that do not have NQF endorsement, or which are not 
fully supported by the MAP for use in the LTCH QRP, we are proposing 
for the LTCH QRP for the purposes of satisfying the measure domains 
required under the IMPACT Act measures that closely align with the 
national priorities identified in the National Quality Strategy (http://www.ahrq.gov/workingforquality/) and for which the MAP supports the 
measure concept. Further, discussion as to the importance and high-
priority status of these proposed measures in the LTCH setting is 
included under each quality measure proposal in this proposed rule.
3. Policy for Retention of LTCH QRP Measures Adopted for Previous 
Payment Determinations
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53614 through 
53615), for the purpose of streamlining the rulemaking process, we 
adopted a policy that, when we initially adopt a measure for the LTCH 
QRP for a payment determination and all subsequent years, it would 
remain in effect until the measure was actively removed, suspended, or 
replaced. 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 (77 FR 53614 through 53615).
    We are not proposing any changes to the policy for retaining LTCH 
QRP measures adopted for previous payment determinations.
4. Policy for Adopting Changes to LTCH QRP Measures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 
53616), we adopted a subregulatory process to incorporate NQF updates 
to LTCH quality measure specifications that do not substantively change 
the nature of the measure. Substantive changes will be proposed and 
finalized through rulemaking. For further information on what 
constitutes a substantive versus a nonsubstantive change and the 
subregulatory process for nonsubstantive changes, we refer readers to 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 53616). We 
are not proposing any changes to the policy for adopting changes to 
LTCH QRP measures.
5. Quality Measures Previously Finalized for and Currently Used in the 
LTCH QRP
    A history of the LTCH QRP quality measures adopted for the FY 2014 
payment determinations and subsequent years is presented in the table 
below. The year in which each quality measure was first adopted and 
implemented, and then subsequently readopted or revised, if applicable, 
is displayed. The initial and subsequent annual payment determination 
years are also shown in this table. For more information on a 
particular measure, we refer readers to the IPPS/LTCH PPS final rule 
and associated page numbers referenced in this table.

                  Quality Measures Previously Finalized for and Currently Used in the LTCH QRP
----------------------------------------------------------------------------------------------------------------
                                                                                           Annual payment
          Measure title             IPPS/LTCH PPS Final rule    Data collection     determination:  initial and
                                                                   start date          subsequent  APU Years
----------------------------------------------------------------------------------------------------------------
National Healthcare Safety         Adopted an application of  October 1, 2012....  FY 2014 and subsequent years.
 Network (NHSN) Catheter-           the measure in the FY
 Associated Urinary Tract           2012 IPPS/LTCH PPS final
 Infection (CAUTI) Outcome          rule (76 FR 51745
 Measure (NQF #0138).               through 51747).
                                   Adopted the                January 1, 2013....  FY 2015 and subsequent years.
                                    NQF[dash]endorsed
                                    version and expanded
                                    measure (with
                                    standardized infection
                                    ratio [SIR]) in the FY
                                    2013 IPPS/LTCH PPS final
                                    rule (77 FR 53616
                                    through 53619).
National Healthcare Safety         Adopted an application of  October 1, 2012....  FY 2014 and subsequent years.
 Network (NHSN) Central Line-       the measure in the FY
 Associated Bloodstream Infection   2012 IPPS/LTCH PPS final
 (CLABSI) Outcome Measure (NQF      rule (76 FR 51747
 #0139).                            through 51748).
                                   Adopted the                January 1, 2013....  FY 2015 and subsequent years.
                                    NQF[dash]endorsed and
                                    expanded measure (with
                                    SIR) in the FY 2013 IPPS/
                                    LTCH PPS final rule (77
                                    FR 53616 through 53619).
Percent of Residents or Patients   Adopted an application of  October 1, 2012....  FY 2014 and subsequent years.
 with Pressure Ulcers That Are      the measure in the FY
 New or Worsened (Short Stay)       2012 IPPS/LTCH PPS final
 (NQF #0678).                       rule (76 FR 51748
                                    through 51750).
                                   Adopted the                January 1, 2013....  FY 2015 and subsequent years.
                                    NQF[dash]endorsed
                                    version in the FY 2014
                                    IPPS/LTCH PPS final rule
                                    (78 FR 50861 through
                                    50863).
                                   Adopted in the FY 2016     January 1, 2016....  FY 2018 and subsequent years.
                                    IPPS/LTCH PPS final rule
                                    (80 FR 49731 through
                                    49736) to fulfill IMPACT
                                    Act requirements.

[[Page 25215]]

 
Percent of Residents or Patients   Adopted in the FY 2013     January 1, 2014....  FY 2016 and subsequent years.
 Who Were Assessed and              IPPS/LTCH PPS final rule
 Appropriately Given the Seasonal   (77 FR 53624 through
 Influenza Vaccine (Short Stay)     53627).
 (NQF #0680).
                                   Revised data collection    October 1, 2014....  FY 2016 and subsequent years.
                                    timeframe in the FY 2014
                                    IPPS/LTCH PPS final rule
                                    (78 FR 50858 through
                                    50861).
                                   Revised data collection    October 1, 2014....  FY 2016 and subsequent years.
                                    timeframe in the FY 2015
                                    IPPS/LTCH PPS final rule
                                    (79 FR 50289 through
                                    50290).
Influenza Vaccination Coverage     Adopted in the FY 2013     October 1, 2014....  FY 2016 and subsequent years.
 among Healthcare Personnel (NQF    IPPS/LTCH PPS final rule
 #0431).                            (77 FR 53630 through
                                    53631).
                                   Revised data collection    October 1, 2014....  FY 2016 and subsequent years.
                                    timeframe in the FY 2014
                                    IPPS/LTCH PPS final rule
                                    (78 FR 50857 through
                                    50858).
All-Cause Unplanned Readmission    Adopted in FY 2014 IPPS/   N/A................  FY 2017 and subsequent years.
 Measure for 30-Days Post-          LTCH PPS final rule (78
 Discharge from Long-Term Care      FR 50868 through 50874).
 Hospitals (NQF #2512).
                                   Adopted the NQF-endorsed   N/A................  FY 2018 and subsequent years.
                                    version in the FY 2016
                                    IPPS/LTCH PPS final rule
                                    (80 FR 49730 through
                                    49731).
National Healthcare Safety         Adopted in the FY 2014     January 1, 2015....  FY 2017 and subsequent years.
 Network (NHSN) Facility-wide       IPPS/LTCH PPS final rule
 Inpatient Hospital-onset           (78 FR 50863 through
 Methicillin-resistant              50865).
 Staphylococcus aureus (MRSA)
 Bacteremia Outcome Measure (NQF
 #1716).
National Healthcare Safety         Adopted in the FY 2014     January 1, 2015....  FY 2017 and subsequent years.
 Network (NHSN) Facility-wide       IPPS/LTCH PPS final rule
 Inpatient Hospital-onset           (78 FR 50865 through
 Clostridium difficile Infection    50868).
 (CDI) Outcome Measure (NQF
 #1717).
National Healthcare Safety         Adopted in the FY 2015     January 1, 2016....  FY 2018 and subsequent years.
 Network (NHSN) Ventilator-         IPPS/LTCH PPS final rule
 Associated Event (VAE) Outcome     (79 FR 50301 through
 Measure (NQF #N/A).                50305).
Application of Percent of          Adopted in the FY 2014     January 1, 2016....  FY 2018 and subsequent years.
 Residents Experiencing One or      IPPS/LTCH PPS final rule
 More Falls with Major Injury       (78 FR 50874 through
 (Long Stay) (NQF #0674).           50877).
                                   Revised data collection    April 1, 2016......  FY 2018 and subsequent years.
                                    timeframe in the FY 2015
                                    IPPS/LTCH PPS final rule
                                    (79 FR 50290 through
                                    50291).
                                   Adopted an application of  April 1, 2016......  FY 2018 and subsequent years.
                                    the measure in the FY
                                    2016 IPPS/LTCH PPS final
                                    rule (80 FR 49736
                                    through 49739) to
                                    fulfill IMPACT Act
                                    requirements.
Percent of Long-Term Care          Adopted in the FY 2015     April 1, 2016......  FY 2018 and subsequent years.
 Hospital Patients with an          IPPS/LTCH PPS final rule
 Admission and Discharge            (79 FR 50291 through
 Functional Assessment and a Care   50298).
 Plan That Addresses Function
 (NQF #2631).
Application of Percent of Long-    Adopted an application of  April 1, 2016......  FY 2018 and subsequent years.
 Term Care Hospital Patients with   the measure in the FY
 an Admission and Discharge         2016 IPPS/LTCH PPS final
 Functional Assessment and a Care   rule (80 FR 49739
 Plan That Addresses Function       through 49747) to
 (NQF #2631).                       fulfill IMPACT Act
                                    requirements.
Functional Outcome Measure:        Adopted in the FY 2015     April 1, 2016......  FY 2018 and subsequent years.
 Change in Mobility among Long-     IPPS/LTCH PPS final rule
 Term Care Hospital Patients        (79 FR 50298 through
 Requiring Ventilator Support       50301).
 (NQF #2632).
----------------------------------------------------------------------------------------------------------------

6. LTCH QRP Quality, Resource Use and Other Measures Proposed for the 
FY 2018 Payment Determination and Subsequent Years
    For the FY 2018 payment determinations and subsequent years, in 
addition to the quality measures we are retaining under our policy 
described in section VIII.C.3. of the preamble of this proposed rule, 
we are proposing three new measures. These measures were developed to 
meet the requirements of the IMPACT Act. They are:
     MSPB-PAC LTCH QRP;
     Discharge to Community-PAC LTCH QRP, and
     Potentially Preventable 30-Day Post-Discharge Readmission 
Measure for LTCH QRP.
    The measures are described in more detail below.
    For the risk-adjustment of the resource use and other measures, we 
understand the important role that sociodemographic status plays in the

[[Page 25216]]

care of patients. However, we continue to have concerns about holding 
providers to different standards for the outcomes of their patients of 
diverse sociodemographic status because we do not want to mask 
potential disparities or minimize incentives to improve the outcomes of 
disadvantaged populations. We routinely monitor the impact of 
sociodemographic status on providers' results on our measures.
    The NQF is currently undertaking a 2-year trial period in which new 
measures and measures undergoing maintenance review will be assessed to 
determine if risk-adjusting for sociodemographic factors is 
appropriate. For 2 years, NQF will conduct a trial of temporarily 
allowing inclusion of sociodemographic factors in the risk-adjustment 
approach for some performance measures. At the conclusion of the trial, 
NQF will issue recommendations on future permanent inclusion of 
sociodemographic factors. During the trial, measure developers are 
expected to submit information such as analyses and interpretations as 
well as performance scores with and without sociodemographic factors in 
the risk adjustment model.
    Furthermore, the Office of the Assistant Secretary for Planning and 
Evaluation (ASPE) is conducting research to examine the impact of 
sociodemographic status on quality measures, resource use, and other 
measures under the Medicare program as directed by the IMPACT Act. We 
will closely examine the findings of the ASPE reports and related 
Secretarial recommendations and consider how they apply to our quality 
programs at such time as they are available.
    We are inviting public comment on how socioeconomic and demographic 
factors should be used in risk adjustment for the resource use 
measures.
a. Proposal To Address the IMPACT Act Domain of Resource Use and Other 
Measures: Total Estimated MSPB-PAC LTCH QRP
    We are proposing an MSPB-PAC LTCH QRP measure for inclusion in the 
LTCH QRP for the FY 2018 payment determination and subsequent years. 
Section 1899B(d)(1)(A) of the Act requires the Secretary to specify 
resource use measures, including total estimated Medicare spending per 
beneficiary, on which PAC providers, consisting of LTCHs, Inpatient 
Rehabilitation Facilities (IRFs), Skilled Nursing Facilities (SNFs), 
and Home Health Agencies (HHAs), are required to submit necessary data 
specified by the Secretary.
    Rising Medicare expenditures for post-acute care as well as wide 
variation in spending for these services underlines the importance of 
measuring resource use for providers rendering these services. Between 
2001 and 2013, Medicare PAC spending grew at an annual rate of 6.1 
percent and doubled to $59.4 billion, while payments to inpatient 
hospitals grew at an annual rate of 1.7 percent over this same 
period.\169\ A study commissioned by the Institute of Medicine found 
that variation in PAC spending explains 73 percent of variation in 
total Medicare spending across the United States.\170\
---------------------------------------------------------------------------

    \169\ MedPAC, ``A Data Book: Health Care Spending and the 
Medicare Program,'' (2015). 114.
    \170\ Institute of Medicine, ``Variation in Health Care 
Spending: Target Decision Making, Not Geography,'' (Washington, DC: 
National Academies 2013). 2.
---------------------------------------------------------------------------

    We reviewed the NQF's consensus-endorsed measures and were unable 
to identify any NQF-endorsed resource use measures for PAC settings. 
Therefore, we are proposing this MSPB-PAC LTCH QRP measure under the 
Secretary's authority to specify non-NQF-endorsed measures under 
section 1899B(e)(2)(B) of the Act. Because of the current lack of 
resource use measures for PAC settings, our proposed MSPB-PAC LTCH QRP 
measure has the potential to provide valuable information to LTCHs on 
their relative Medicare spending in delivering services to 
approximately 122,000 Medicare beneficiaries.\171\
---------------------------------------------------------------------------

    \171\ Figures for 2013. MedPAC, ``Medicare Payment Policy,'' 
Report to the Congress (2015). xvii-xviii.
---------------------------------------------------------------------------

    The proposed MSPB-PAC LTCH QRP episode-based measure will provide 
actionable and transparent information to support LTCHs' efforts to 
promote care coordination and deliver high quality care at a lower cost 
to Medicare. The MSPB-PAC LTCH QRP measure holds LTCHs accountable for 
the Medicare payments within an ``episode of care'' (episode), which 
includes the period during which a patient is directly under the LTCH's 
care, as well as a defined period after the end of the LTCH treatment, 
which may be reflective of and influenced by the services furnished by 
the LTCH. MSPB-PAC LTCH QRP episodes, constructed according to the 
methodology described below, have high levels of Medicare spending with 
substantial variation. In FY 2013 and FY 2014, Medicare FFS 
beneficiaries experienced 178,538 MSPB-PAC LTCH QRP episodes triggered 
by admission to an LTCH. The mean payment-standardized, risk-adjusted 
episode spending for these episodes is $67,181. There is substantial 
variation in the Medicare payments for these MSPB-PAC LTCH QRP 
episodes--ranging from approximately $27,502 at the 5th percentile to 
approximately $115,291 at the 95th percentile. This variation is 
partially driven by variation in payments occurring following LTCH 
treatment.
    Evaluating Medicare payments during an episode creates a continuum 
of accountability between providers and has the potential to improve 
post-treatment care planning and coordination. While some stakeholders 
throughout the measure development process supported the measures and 
believed that measuring Medicare spending was critical for improving 
efficiency, other stakeholders believed that resource use measures did 
not reflect quality of care in that they do not take into account 
patient outcomes or experience beyond those observable in claims data. 
However, LTCHs involved in the provision of high quality PAC care as 
well as appropriate discharge planning and post-discharge care 
coordination would be expected to perform well on this measure since 
beneficiaries would likely experience fewer costly adverse events (for 
example, avoidable hospitalizations, infections, and emergency room 
usage). Further, it is important that the cost of care be explicitly 
measured so that, in conjunction with other quality measures, we can 
recognize providers that are involved in the provision of high quality 
care at lower cost.
    We have undertaken development of MSPB-PAC measures for each of the 
four PAC settings. We intend to propose IRF-, SNF-, and HHA-specific 
MSBP-PAC measures through future notice-and-comment rulemaking. The 
four setting-specific MSPB-PAC measures are closely aligned in terms of 
episode construction and measure calculation. Each of the MSPB-PAC 
measures assess Medicare Part A and Part B spending during an episode, 
and the numerator and denominator are defined similarly for each of the 
MSPB-PAC measures. However, developing setting-specific measures allows 
us to account for differences between settings in payment policy, the 
types of data available, and the underlying health characteristics of 
beneficiaries. For example, the MSPB-PAC LTCH QRP measure reflects the 
dual payment rate of the LTCH PPS by comparing episodes triggered by 
each payment rate case only with episodes of the same type, as detailed 
below.
    The MSPB-PAC measures mirror the general construction of the 
Hospital IQR Program MSPB measure that was finalized in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51618 through 51627). That measure was 
endorsed by

[[Page 25217]]

the NQF on December 6, 2013, and has been used in the Hospital VBP 
Program (NQF #2158) since FY 2015.\172\ The Hospital IQR Program MSPB 
measure was originally established under the authority of section 
1886(o)(2)(B)(ii) of the Act. The hospital MSPB measure evaluates 
hospitals' Medicare spending relative to the Medicare spending for the 
national median hospital during a hospital MSPB episode. It assesses 
Medicare Part A and Part B payments for services performed by hospitals 
and other healthcare providers during a hospital MSPB episode, which is 
comprised of the periods immediately prior to, during, and following a 
patient's hospital stay.173 174
---------------------------------------------------------------------------

    \172\ QualityNet, ``Measure Methodology Reports: Medicare 
Spending Per Beneficiary (MSPB) Measure,'' (2015). http://www.qualitynet.org/dcs/ContentServer?pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772053996.
    \173\ QualityNet, ``Measure Methodology Reports: Medicare 
Spending Per Beneficiary (MSPB) Measure,'' (2015). http://www.qualitynet.org/dcs/ContentServer?pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772053996.
    \174\ FY 2012 IPPS/LTCH PPS final rule (76 FR 51619).
---------------------------------------------------------------------------

    Similarly, the MSPB-PAC measures assess all Medicare Part A and 
Part B payments for FFS claims with a start date during the episode 
window (which, as discussed below, is the time period during which 
Medicare FFS Part A and Part B services are counted towards the MSPB-
PAC LTCH QRP episode). However, there are differences between the MSPB-
PAC measures, as proposed, and the hospital MSPB measure to reflect 
differences in payment policies and the nature of care provided in each 
PAC setting. For example, the MSPB-PAC measures exclude a limited set 
of services (for example, for clinically unrelated services) provided 
to a beneficiary during the episode window while the hospital MSPB 
measure does not exclude any services.\175\
---------------------------------------------------------------------------

    \175\ FY 2012 IPPS/LTCH PPS final rule (76 FR 51620).
---------------------------------------------------------------------------

    MSPB-PAC episodes may begin within 30 days of discharge from an 
inpatient hospital as part of a patient's trajectory from an acute to a 
PAC setting. An LTCH stay beginning within 30 days of discharge from an 
inpatient hospital will therefore be included once in the hospital's 
MSPB measure, and once in the LTCH's MSPB-PAC measure. Aligning the 
hospital MSPB and MSPB-PAC measures in this way creates continuous 
accountability and aligns incentives to improve care planning and 
coordination across inpatient and PAC settings.
    We have sought and considered the input of stakeholders throughout 
the measure development process for the MSPB-PAC measures. We convened 
a TEP consisting of 12 panelists with combined expertise in all of the 
PAC settings on October 29 and 30, 2015, in Baltimore, Maryland. A 
follow-up email survey was sent to TEP members on November 18, 2015, to 
which 7 responses were received by December 8, 2015. The MSPB-PAC TEP 
Summary Report is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/Downloads/Technical-Expert-Panel-on-Medicare-Spending-Per-Beneficiary.pdf. The measures were also presented to the NQF MAP Post-
Acute Care/Long-Term Care (PAC/LTC) Workgroup on December 15, 2015. As 
the MSPB-PAC measures were under development, there were three voting 
options for members: Encourage continued development, do not encourage 
further consideration, and insufficient information.\176\ The MAP PAC/
LTC Workgroup voted to ``encourage continued development'' for each of 
the MSPB-PAC measures.\177\ The MAP PAC/LTC Workgroup's vote of 
``encourage continued development'' was affirmed by the MAP 
Coordinating Committee on January 26, 2016.\178\ The MAP's concerns 
about the MSPB-PAC measures, as outlined in their final report, ``MAP 
2016 Considerations for Implementing Measures in Federal Programs: 
Post-Acute Care and Long-Term Care,'' and Spreadsheet of Final 
Recommendations were taken into consideration during the measure 
development process and are discussed as part of our responses to 
public comments, described below.179 180
---------------------------------------------------------------------------

    \176\ National Quality Forum, Measure Applications Partnership, 
``Process and Approach for MAP Pre-Rulemaking Deliberations, 2015-
2016'' (February 2016) http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81693.
    \177\ National Quality Forum, Measure Applications Partnership 
Post-Acute Care/Long-Term Care Workgroup, ``Meeting Transcript--Day 
2 of 2'' (December 15, 2015) 104-106 http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81470.
    \178\ National Quality Forum, Measure Applications Partnership, 
``Meeting Transcript--Day 1 of 2'' (January 26, 2016) 231-232 http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81637.
    \179\ National Quality Forum, Measure Applications Partnership, 
``MAP 2016 Considerations for Implementing Measures in Federal 
Programs: Post-Acute Care and Long-Term Care'' Final Report, 
(February 2016) http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_PAC-LTC.aspx.
    \180\ National Quality Forum, Measure Applications Partnership, 
``Spreadsheet of MAP 2016 Final Recommendations'' (February 1, 2016) 
http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593.
---------------------------------------------------------------------------

    Since the MAP's review and recommendation of continued development, 
CMS has continued to refine risk adjustment models and conduct measure 
testing for the IMPACT Act measures in compliance with the MAP's 
recommendations. The proposed IMPACT Act measures are both consistent 
with the information submitted to the MAP and support the scientific 
acceptability of these measures for use in quality reporting programs.
    In addition, a public comment period, accompanied by draft measures 
specifications, was originally open from January 13 to 27, 2016 and 
twice extended to January 29 and February 5. A total of 45 comments on 
the MSPB-PAC measures were received during this comment period. The 
comments received also covered each of the MAP's concerns as outlined 
in their Final Recommendations.\181\ The MSPB-PAC Public Comment 
Summary Report is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html and 
contains the public comments (summarized and verbatim), along with our 
responses including statistical analyses. If finalized, the proposed 
MSPB-PAC LTCH QRP measure, along with the other MSPB-PAC measures, as 
applicable, will be submitted for NQF endorsement.
---------------------------------------------------------------------------

    \181\ National Quality Forum, Measure Applications Partnership, 
``Spreadsheet of MAP 2016 Final Recommendations'' (February 1, 2016) 
http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593.
---------------------------------------------------------------------------

    To calculate the MSPB-PAC LTCH QRP measure for each LTCH, we first 
define the construction of the MSPB-PAC LTCH QRP episode, including the 
length of the episode window as well as the services included in the 
episode. Next, we apply the methodology for the measure calculation. 
The specifications are discussed further below. More detailed 
specifications for the proposed MSPB-PAC measures, including the MSPB-
PAC LTCH QRP measure in this proposed rule, are available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
(1) Episode Construction
    An MSPB-PAC LTCH QRP episode begins at the episode trigger, which 
is defined as the patient's admission to an LTCH. This admitting 
facility is the attributed provider, for whom the

[[Page 25218]]

MSPB-PAC LTCH QRP measure is calculated. The episode window is the time 
period during which Medicare FFS Part A and Part B services are counted 
towards the MSPB-PAC LTCH QRP episode. Because Medicare FFS claims are 
already reported to the Medicare program for payment purposes, LTCHs 
will not be required to report any additional data to CMS for 
calculation of this measure. Thus, there will be no additional data 
collection burden from the implementation of this measure.
    Our proposed MSPB-PAC LTCH QRP episode construction methodology 
differentiates between episodes triggered by standard payment rate 
cases and site neutral payment rate cases, reflecting the LTCH dual-
payment policy detailed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49601 through 49623). Standard and site neutral episodes would be 
compared only with standard and site neutral episodes respectively. 
Differences in episode construction between standard and site neutral 
episodes are noted below; they otherwise share the same definition.
    The episode window is comprised of a treatment period and an 
associated services period. The treatment period begins at the trigger 
(that is, on the day of admission to the LTCH) and ends on the day of 
discharge from that LTCH. Readmissions to the same facility occurring 
within 7 or fewer days do not trigger a new episode, and instead are 
included in the treatment period of the original episode. When two 
sequential stays at the same LTCH occur within 7 or fewer days of one 
another, the treatment period ends on the day of discharge for the 
latest LTCH stay. The treatment period includes those services that are 
provided directly or reasonably managed by the LTCH that are directly 
related to the beneficiary's care plan. The associated services period 
is the time during which Medicare Part A and Part B services (with 
certain exclusions) are counted towards the episode. The associated 
services period begins at the episode trigger and ends 30 days after 
the end of the treatment period. The distinction between the treatment 
period and the associated services period is important because clinical 
exclusions of services may differ for each period.
    Certain services are excluded from the MSPB-PAC LTCH QRP episodes 
because they are clinically unrelated to LTCH care, and/or because 
LTCHs may have limited influence over certain Medicare services 
delivered by other providers during the episode window. These limited 
service-level exclusions are not counted towards a given LTCH's 
Medicare spending to ensure that beneficiaries with certain conditions 
and complex care needs receive the necessary care. Certain services 
that have been determined by clinicians to be outside of the control of 
an LTCH include planned hospital admissions, management of certain 
preexisting chronic conditions (for example, dialysis for end-stage 
renal disease (ESRD), and enzyme treatments for genetic conditions), 
treatment for preexisting cancers, organ transplants, and preventive 
screenings (for example, colonoscopy and mammograms). Exclusion of such 
services from the MSPB-PAC LTCH QRP episode ensures that facilities do 
not have disincentives to treat patients with certain conditions or 
complex care needs.
    An MSPB-PAC episode may begin during the associated services period 
of an MSPB-PAC LTCH QRP episode in the 30 days post-treatment. One 
possible scenario occurs where an LTCH discharges a beneficiary who is 
then admitted to a HHA within 30 days. The HHA claim would be included 
once as an associated service for the attributed provider of the first 
MSPB-PAC LTCH QRP episode and once as a treatment service for the 
attributed provider of the second MSPB-PAC HHA episode. As in the case 
of overlap between hospital and PAC episodes discussed earlier, this 
overlap is necessary to ensure continuous accountability between 
providers throughout a beneficiary's trajectory of care, as both 
providers share incentives to deliver high quality care at a lower cost 
to Medicare.
    Even within the LTCH setting, one MSPB-PAC LTCH QRP episode may 
begin in the associated services period of another MSPB-PAC LTCH QRP 
episode in the 30 days post-treatment. The second LTCH claim would be 
included once as an associated service for the attributed LTCH of the 
first MSPB-PAC LTCH QRP episode and once as a treatment service for the 
attributed LTCH of the second MSPB-PAC LTCH QRP episode. Again, this 
ensures that LTCHs have the same incentives throughout both MSPB-PAC 
LTCH QRP episodes to deliver quality care and engage in patient-focused 
care planning and coordination. If the second MSPB-PAC LTCH QRP episode 
were excluded from the second LTCH's MSPB-PAC LTCH QRP measure, that 
LTCH would not share the same incentives as the first LTCH of the first 
MSPB-PAC LTCH QRP episode. The MSPB-PAC LTCH QRP measure is designed to 
benchmark the resource use of each attributed provider against what 
their spending is expected to be as predicted through risk adjustment. 
As discussed further below, the measure takes the ratio of observed 
spending to expected spending for each episode and then takes the 
average of those ratios across all of the attributed provider's 
episodes. The measure is not a simple sum of all costs across a 
provider's episodes, thus mitigating concerns about double counting.
(2) Measure Calculation
    Medicare payments for Part A and Part B claims for services 
included in MSPB-PAC LTCH episodes, defined according to the 
methodology above, are used to calculate the MSPB-PAC LTCH QRP measure. 
Measure calculation involves determination of the episode exclusions, 
the approach for standardizing payments for geographic payment 
differences, the methodology for risk adjustment of episode spending to 
account for differences in patient case mix, and the specifications for 
the measure numerator and denominator. The measure calculation is 
performed separately for MSPB-PAC LTCH QRP standard and site neutral 
episodes to ensure that they are compared only to other standard and 
site neutral episodes, respectively. The final MSPB-PAC LTCH QRP 
measure would combine the two ratios to construct one LTCH score as 
described below.
(a) Exclusion Criteria
    In addition to service-level exclusions that remove some payments 
from individual episodes, we exclude certain episodes in their entirety 
from the MSPB-PAC LTCH QRP measure to ensure that the MSPB-PAC LTCH QRP 
measure accurately reflects resource use and facilitates fair and 
meaningful comparisons between LTCHs. The proposed episode-level 
exclusions are as follows:
     Any episode that is triggered by an LTCH claim outside the 
50 States, DC, Puerto Rico, and U.S. territories.
     Any episode where the claim(s) constituting the attributed 
LTCH's treatment have a standard allowed amount of zero or where the 
standard allowed amount cannot be calculated.
     Any episode in which a beneficiary is not enrolled in 
Medicare FFS for the entirety of a 90-day lookback period (that is, a 
90-day period prior to the episode trigger) plus episode window 
(including where a beneficiary dies), or is enrolled in Part C for any 
part of the lookback period plus episode window.
     Any episode in which a beneficiary has a primary payer 
other than Medicare for any part of the 90-day lookback period plus 
episode window.
     Any episode where the claim(s) constituting the attributed 
LTCH's

[[Page 25219]]

treatment include at least one related condition code indicating that 
it is not a prospective payment system bill.
(b) Standardization and Risk Adjustment
    Section 1899B(d)(2)(C) of the Act requires that the MSPB-PAC 
measures are adjusted for the factors described under section 
1886(o)(2)(B)(ii) of the Act, which include adjustment for factors such 
as age, sex, race, severity of illness, and other factors that the 
Secretary determines appropriate. Medicare payments included in the 
proposed MSPB-PAC LTCH QRP measure are payment-standardized and risk-
adjusted. Payment standardization removes sources of payment variation 
not directly related to clinical decisions and facilitates comparisons 
of resource use across geographic areas. We are proposing to use the 
same payment standardization methodology as that used in the NQF-
endorsed hospital MSPB measure. This methodology removes geographic 
payment differences, such as wage index and geographic practice cost 
index (GPCI), incentive payment adjustments, and other add-on payments 
that support broader Medicare program goals including indirect graduate 
medical education (IME) and hospitals serving a disproportionate share 
of uninsured patients (DSH).\182\
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    \182\ QualityNet, ``CMS Price (Payment) Standardization--
Detailed Methods'' (Revised May 2015) https://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228772057350.
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    Risk adjustment uses patient claims history to account for case-mix 
variation and other factors that affect resource use but are beyond the 
influence of the attributed LTCH. To assist with risk adjustment for 
MSPB-PAC LTCH QRP episodes, we create mutually exclusive and exhaustive 
clinical case-mix categories using the most recent institutional claim 
in the 60 days prior to the start of the MSPB-PAC LTCH QRP episode. The 
beneficiaries in these clinical case-mix categories have a greater 
degree of clinical similarity than the overall LTCH patient population, 
and allow us to more accurately estimate Medicare spending. Our 
proposed MSPB-PAC LTCH QRP model, adapted for the LTCH setting from the 
NQF-endorsed hospital MSPB measure, uses a regression framework with a 
90-day hierarchical condition category (HCC) lookback period and 
covariates including the clinical case mix categories, MS-LTC-DRGs, HCC 
indicators, age brackets, indicators for originally disabled, ESRD 
enrollment, and long-term care status, and selected interactions of 
these covariates where sample size and predictive ability make them 
appropriate. We sought and considered public comment regarding the 
treatment of hospice services occurring within the MSPB-PAC LTCH QRP 
episode window. After consideration of the comments received, we are 
proposing to include the Medicare spending for hospice services but 
risk adjust for them, so that MSPB-PAC LTCH QRP episodes with hospice 
are compared to a benchmark reflecting other MSPB-PAC LTCH QRP episodes 
with hospice. We believe that this strikes a balance between the 
measure's intent of evaluating Medicare spending and ensuring that 
providers do not have incentives against the appropriate use of hospice 
services in a patient-centered continuum of care.
    We understand the important role that sociodemographic status, 
beyond age, plays in the care of patients. However, we continue to have 
concerns about holding hospitals to different standards for the 
outcomes of their patients of diverse sociodemographic status because 
we do not want to mask potential disparities or minimize incentives to 
improve the outcomes of disadvantaged populations. We routinely monitor 
the impact of sociodemographic status on hospitals' results on our 
measures.
    The NQF is currently undertaking a 2-year trial period in which new 
measures and measures undergoing maintenance review will be assessed to 
determine if risk-adjusting for sociodemographic factors is 
appropriate. For 2 years, NQF will conduct a trial of temporarily 
allowing inclusion of sociodemographic factors in the risk-adjustment 
approach for some performance measures. At the conclusion of the trial, 
NQF will issue recommendations on future permanent inclusion of 
sociodemographic factors. During the trial, measure developers are 
expected to submit information such as analyses and interpretations as 
well as performance scores with and without sociodemographic factors in 
the risk adjustment model.
    Furthermore, the Office of the Assistant Secretary for Planning and 
Evaluation (ASPE) is conducting research to examine the impact of 
sociodemographic status on quality measures, resource use, and other 
measures under the Medicare program as directed by the IMPACT Act. We 
will closely examine the findings of the ASPE reports and related 
Secretarial recommendations and consider how they apply to our quality 
programs at such time as they are available.
    While we conducted analyses on the impact of age by sex on the 
performance of the MSPB-PAC LTCH QRP risk-adjustment model, we are not 
proposing to adjust the MSPB-PAC LTCH measure for socioeconomic and 
demographic factors at this time. As this MSPB-PAC LTCH QRP measure 
will be submitted for NQF endorsement, we prefer to await the results 
of this trial and study before deciding whether to risk adjust for 
socioeconomic and demographic factors. We will monitor the results of 
the trial, studies, and recommendations. We are inviting public comment 
on how socioeconomic and demographic factors should be used in risk 
adjustment for the MSPB-PAC LTCH QRP measure.
(c) Measure Numerator and Denominator
    The MPSB-PAC LTCH measure is a payment-standardized, risk-adjusted 
ratio that compares a given LTCH's Medicare spending against the 
Medicare spending of other LTCHs within a performance period. Similar 
to the hospital MSPB measure, the ratio allows for ease of comparison 
over time as it obviates the need to adjust for inflation or policy 
changes.
    The MSPB-PAC LTCH QRP measure is calculated as the ratio of the 
MSPB-PAC Amount for each LTCH divided by the episode-weighted median 
MSPB-PAC Amount across all LTCHs. To calculate the MSPB-PAC Amount for 
each LTCH, one calculates the average of the ratio of the standardized 
spending for LTCH standard episodes over the expected spending (as 
predicted in risk adjustment) for LTCH standard episodes, and the 
average of the ratio of the standardized spending for LTCH site neutral 
episodes over the expected spending (as predicted in risk adjustment) 
for LTCH site neutral episodes. This quantity is then multiplied by the 
average episode spending level across all LTCHs nationally for standard 
and site neutral episodes. The denominator for an LTCH's MSPB-PAC LTCH 
QRP measure is the episode-weighted national median of the MSPB-PAC 
Amounts across all LTCHs. An MSPB-PAC LTCH QRP measure of less than 1 
indicates that a given LTCH's Medicare spending is less than that of 
the national median LTCH during a performance period. Mathematically, 
this is represented in equation (A) below:

[[Page 25220]]

[GRAPHIC] [TIFF OMITTED] TP27AP16.002

where

     Yij = attributed standardized spending for episode i 
and provider j
     Yij = expected standardized spending for episode i and 
provider j, as predicted from risk adjustment
     nj = number of episodes for provider j
     n = total number of episodes nationally
     i [isin] {Ij{time}  = all episodes i in the set of 
episodes attributed to provider j.
(3) Data Sources
    The MSPB-PAC LTCH QRP resource use measure is an administrative 
claims-based measure. It uses Medicare Part A and Part B claims from 
FFS beneficiaries and Medicare eligibility files.
(4) Cohort
    The measure cohort includes Medicare FFS beneficiaries with an LTCH 
treatment period ending during the data collection period.
(5) Reporting
    If this proposed measure is finalized, we intend to provide initial 
confidential feedback to providers, prior to public reporting of this 
measure, based on Medicare FFS claims data from discharges in CY 2015 
and CY 2016. We intend to publicly report this measure using claims 
data from discharges in CY 2016 and CY 2017.
    We are proposing a minimum of 20 episodes for reporting and 
inclusion in the LTCH QRP. For the reliability calculation, as 
described in the measure specifications identified and for which a link 
has been provided above, we used two years of data (FY 2013 and FY 
2014) to increase the statistical reliability of this measure. The 
reliability results support the 20 episode case minimum, and 98.83 
percent of LTCHs had moderate or high reliability (above 0.4).
    We are inviting public comment on our proposal to adopt the MSPB-
PAC LTCH QRP measure for the LTCH QRP.
b. Proposal To Address the IMPACT Act Domain of Resource Use and Other 
Measures: Discharge to Community-Post Acute Care (PAC) Long-Term Care 
Hospital Quality Reporting Program
    Sections 1899B(d)(1)(B) and 1899B(a)(2)(E)(ii) of the Act require 
the Secretary to specify a measure to address the domain of discharge 
to community by SNFs, LTCHs, and IRFs by October 1, 2016, and HHAs by 
January 1, 2017. We are proposing to adopt the measure, Discharge to 
Community-PAC LTCH QRP, for the LTCH QRP for the FY 2018 payment 
determination and subsequent years as a Medicare FFS claims-based 
measure to meet this requirement.
    This proposed measure assesses successful discharge to the 
community from an LTCH setting, with successful discharge to the 
community including no unplanned rehospitalizations and no death in the 
31 days following discharge from the LTCH. Specifically, this proposed 
measure reports an LTCH's risk-standardized rate of Medicare FFS 
patients who are discharged to the community following an LTCH stay, 
and do not have an unplanned readmission to an acute care hospital or 
LTCH in the 31 days following discharge to community, and who remain 
alive during the 31 days following discharge to community. The term 
``community,'' for this measure, is defined as home/self-care, with or 
without home health services, based on Patient Discharge Status Codes 
01, 06, 81, and 86 on the Medicare FFS claim.183 184 This 
measure is conceptualized uniformly across the PAC settings, in terms 
of the definition of the discharge to community outcome, the approach 
to risk adjustment, and the measure calculation.
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    \183\ Further description of patient discharge status codes can 
be found, for example, at the following Web page: https://med.noridianmedicare.com/web/jea/topics/claim-submission/patient-status-codes.
    \184\ This definition is not intended to suggest that board and 
care homes, assisted living facilities, or other settings included 
in the definition of ``community'' for the purpose of this measure 
are the most integrated setting for any particular individual or 
group of individuals under the Americans with Disabilities Act (ADA) 
and Section 504.
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    Discharge to a community setting is an important health care 
outcome for many patients for whom the overall goals of post-acute care 
include optimizing functional improvement, returning to a previous 
level of independence, and avoiding institutionalization. Returning to 
the community is also an important outcome for many patients who are 
not expected to make functional improvement during their LTCH stay, and 
for patients who may be expected to decline functionally due to their 
medical condition. The discharge to community outcome offers a multi-
dimensional view of preparation for community life, including the 
cognitive, physical, and psychosocial elements involved in a discharge 
to the community.185 186
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    \185\ El-Solh AA, Saltzman SK, Ramadan FH, Naughton BJ. Validity 
of an artificial neural network in predicting discharge destination 
from a postacute geriatric rehabilitation unit. Archives of physical 
medicine and rehabilitation. 2000;81(10):1388-1393.
    \186\ Tanwir S, Montgomery K, Chari V, Nesathurai S. Stroke 
rehabilitation: availability of a family member as caregiver and 
discharge destination. European journal of physical and 
rehabilitation medicine. 2014;50(3):355-362.
---------------------------------------------------------------------------

    In addition to being an important outcome from a patient and family 
perspective, patients discharged to community settings, on average, 
incur lower costs over the recovery episode, compared with those 
discharged to institutional settings.187 188 Given the high 
costs of care in institutional settings, encouraging LTCHs to prepare 
patients for discharge to community, when clinically appropriate, may 
have cost-saving implications for the Medicare program.\189\ Also, 
providers have discovered that successful discharge to community was a 
major driver of their ability to achieve savings, where capitated 
payments for post-acute care were in place.\190\ For patients who 
require long-term care due to persistent disability, discharge to 
community could result in lower long-term care

[[Page 25221]]

costs for Medicaid and for patients' out-of-pocket expenditures.\191\
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    \187\ Dobrez D, Heinemann AW, Deutsch A, Manheim L, Mallinson T. 
Impact of Medicare's prospective payment system for inpatient 
rehabilitation facilities on stroke patient outcomes. American 
journal of physical medicine & rehabilitation/Association of 
Academic Physiatrists. 2010;89(3):198-204.
    \188\ Gage B, Morley M, Spain P, Ingber M. Examining Post Acute 
Care Relationships in an Integrated Hospital System. Final Report. 
RTI International;2009.
    \189\ Ibid.
    \190\ Doran JP, Zabinski SJ. Bundled payment initiatives for 
Medicare and non-Medicare total joint arthroplasty patients at a 
community hospital: bundles in the real world. The journal of 
arthroplasty. 2015;30(3):353-355.
    \191\ Newcomer RJ, Ko M, Kang T, Harrington C, Hulett D, Bindman 
AB. Health Care Expenditures After Initiating Long-term Services and 
Supports in the Community Versus in a Nursing Facility. Medical 
Care. 2016;54(3):221-228.
---------------------------------------------------------------------------

    Analyses conducted for ASPE on PAC episodes, using a 5 percent 
sample of 2006 Medicare claims, revealed that relatively high average, 
unadjusted Medicare payments are associated with discharge to 
institutional settings from IRFs, SNFs, LTCHs or HHAs, as compared with 
payments associated with discharge to community settings.\192\ Average, 
unadjusted Medicare payments associated with discharge to community 
settings ranged from $0 to $4,017 for IRF discharges, $0 to $3,544 for 
SNF discharges, $0 to $4,706 for LTCH discharges, and $0 to $992 for 
HHA discharges. In contrast, payments associated with discharge to non-
community settings were considerably higher, ranging from $11,847 to 
$25,364 for IRF discharges, $9,305 to $29,118 for SNF discharges, 
$12,465 to $18,205 for LTCH discharges, and $7,981 to $35,192 for HHA 
discharges.\193\
---------------------------------------------------------------------------

    \192\ Gage B, Morley M, Spain P, Ingber M. Examining Post Acute 
Care Relationships in an Integrated Hospital System. Final Report. 
RTI International;2009.
    \193\ Ibid.
---------------------------------------------------------------------------

    Measuring and comparing facility-level discharge to community rates 
is expected to help differentiate among facilities with varying 
performance in this important domain, and to help avoid disparities in 
care across patient groups. Variation in discharge to community rates 
has been reported within and across post-acute settings; across a 
variety of facility-level characteristics, such as geographic location 
(for example, regional location, urban or rural location), ownership 
(for example, for-profit or nonprofit), and freestanding or hospital-
based units; and across patient-level characteristics, such as race and 
gender.194 195 196 197 198 199 Discharge to community rates 
in the IRF setting have been reported to range from about 60 to 80 
percent.200 201 202 203 204 205 Longer-term studies show 
that rates of discharge to community from IRFs have decreased over time 
as IRF length of stay has decreased.206 207 Greater 
variation in discharge to community rates is seen in the SNF setting, 
with rates ranging from 31 to 65 percent.208 209 210 211 A 
multi-center study of 23 LTCHs demonstrated that 28.8 percent of 1,061 
patients who were ventilator-dependent on admission were discharged to 
home.\212\ A single-center study revealed that 31 percent of LTCH 
hemodialysis patients were discharged to home.\213\ In the LTCH 
Medicare FFS population, using CY 2012-2013 national data, we found 
that approximately 25 percent of patients were discharged to the 
community. One study noted that 64 percent of beneficiaries who were 
discharged from the home health episode did not use any other acute or 
post-acute services paid by Medicare in the 30 days after 
discharge.\214\ However, significant numbers of patients were admitted 
to hospitals (29 percent) and lesser numbers to SNFs (7.6 percent), 
IRFs (1.5 percent), home health (7.2 percent) or hospice (3.3 
percent).\215\
---------------------------------------------------------------------------

    \194\ Reistetter TA, Karmarkar AM, Graham JE, et al. Regional 
variation in stroke rehabilitation outcomes. Archives of physical 
medicine and rehabilitation. 2014;95(1):29-38.
    \195\ El-Solh AA, Saltzman SK, Ramadan FH, Naughton BJ. Validity 
of an artificial neural network in predicting discharge destination 
from a postacute geriatric rehabilitation unit. Archives of physical 
medicine and rehabilitation. 2000;81(10):1388-1393.
    \196\ March 2015 Report to the Congress: Medicare Payment 
Policy. Medicare Payment Advisory Commission;2015.
    \197\ Bhandari VK, Kushel M, Price L, Schillinger D. Racial 
disparities in outcomes of inpatient stroke rehabilitation. Archives 
of physical medicine and rehabilitation. 2005;86(11):2081-2086.
    \198\ Chang PF, Ostir GV, Kuo YF, Granger CV, Ottenbacher KJ. 
Ethnic differences in discharge destination among older patients 
with traumatic brain injury. Archives of physical medicine and 
rehabilitation. 2008;89(2):231-236.
    \199\ Berges IM, Kuo YF, Ostir GV, Granger CV, Graham JE, 
Ottenbacher KJ. Gender and ethnic differences in rehabilitation 
outcomes after hip-replacement surgery. American journal of physical 
medicine & rehabilitation/Association of Academic Physiatrists. 
2008;87(7):567-572.
    \200\ Galloway RV, Granger CV, Karmarkar AM, et al. The Uniform 
Data System for Medical Rehabilitation: report of patients with 
debility discharged from inpatient rehabilitation programs in 2000-
2010. American journal of physical medicine & rehabilitation/
Association of Academic Physiatrists. 2013;92(1):14-27.
    \201\ Morley MA, Coots LA, Forgues AL, Gage BJ. Inpatient 
rehabilitation utilization for Medicare beneficiaries with multiple 
sclerosis. Archives of physical medicine and rehabilitation. 
2012;93(8):1377-1383.
    \202\ Reistetter TA, Graham JE, Deutsch A, Granger CV, Markello 
S, Ottenbacher KJ. Utility of functional status for classifying 
community versus institutional discharges after inpatient 
rehabilitation for stroke. Archives of physical medicine and 
rehabilitation. 2010;91(3):345-350.
    \203\ Gagnon D, Nadeau S, Tam V. Clinical and administrative 
outcomes during publicly-funded inpatient stroke rehabilitation 
based on a case-mix group classification model. Journal of 
rehabilitation medicine. 2005;37(1):45-52.
    \204\ DaVanzo J, El-Gamil A, Li J, Shimer M, Manolov N, Dobson 
A. Assessment of patient outcomes of rehabilitative care provided in 
inpatient rehabilitation facilities (IRFs) and after discharge. 
Vienna, VA: Dobson DaVanzo & Associates, LLC;2014.
    \205\ Kushner DS, Peters KM, Johnson-Greene D. Evaluating 
Siebens Domain Management Model for Inpatient Rehabilitation to 
Increase Functional Independence and Discharge Rate to Home in 
Geriatric Patients. Archives of physical medicine and 
rehabilitation. 2015;96(7):1310-1318.
    \206\ Galloway RV, Granger CV, Karmarkar AM, et al. The Uniform 
Data System for Medical Rehabilitation: report of patients with 
debility discharged from inpatient rehabilitation programs in 2000-
2010. American journal of physical medicine & rehabilitation/
Association of Academic Physiatrists. 2013;92(1):14-27.
    \207\ Mallinson T, Deutsch A, Bateman J, et al. Comparison of 
discharge functional status after rehabilitation in skilled nursing, 
home health, and medical rehabilitation settings for patients after 
hip fracture repair. Archives of physical medicine and 
rehabilitation. 2014;95(2):209-217.
    \208\ El-Solh AA, Saltzman SK, Ramadan FH, Naughton BJ. Validity 
of an artificial neural network in predicting discharge destination 
from a postacute geriatric rehabilitation unit. Archives of physical 
medicine and rehabilitation. 2000;81(10):1388-1393.
    \209\ Hall RK, Toles M, Massing M, et al. Utilization of acute 
care among patients with ESRD discharged home from skilled nursing 
facilities. Clinical journal of the American Society of Nephrology: 
CJASN. 2015;10(3):428-434.
    \210\ Stearns SC, Dalton K, Holmes GM, Seagrave SM. Using 
propensity stratification to compare patient outcomes in hospital-
based versus freestanding skilled-nursing facilities. Medical care 
research and review: MCRR. 2006;63(5):599-622.
    \211\ Wodchis WP, Teare GF, Naglie G, et al. Skilled nursing 
facility rehabilitation and discharge to home after stroke. Archives 
of physical medicine and rehabilitation. 2005;86(3):442-448.
    \212\ Scheinhorn DJ, Hassenpflug MS, Votto JJ, et al. Post-ICU 
mechanical ventilation at 23 long-term care hospitals: a multicenter 
outcomes study. Chest. 2007;131(1):85-93.
    \213\ Thakar CV, Quate-Operacz M, Leonard AC, Eckman MH. 
Outcomes of hemodialysis patients in a long-term care hospital 
setting: a single-center study. American journal of kidney diseases: 
the official journal of the National Kidney Foundation. 
2010;55(2):300-306.
    \214\ Wolff JL, Meadow A, Weiss CO, Boyd CM, Leff B. Medicare 
home health patients' transitions through acute and post-acute care 
settings. Medical care. 2008;46(11):1188-1193.
    \215\ Ibid.
---------------------------------------------------------------------------

    Discharge to community is an actionable health care outcome, as 
targeted interventions have been shown to successfully increase 
discharge to community rates in a variety of post-acute 
settings.216 217 218 219 Many of these interventions involve 
discharge planning or specific rehabilitation strategies, such as 
addressing discharge barriers and improving medical and

[[Page 25222]]

functional status.220 221 222 223 The effectiveness of these 
interventions suggests that improvement in discharge to community rates 
among post-acute care patients is possible through modifying provider-
led processes and interventions.
---------------------------------------------------------------------------

    \216\ Kushner DS, Peters KM, Johnson-Greene D. Evaluating 
Siebens Domain Management Model for Inpatient Rehabilitation to 
Increase Functional Independence and Discharge Rate to Home in 
Geriatric Patients. Archives of physical medicine and 
rehabilitation. 2015;96(7):1310-1318.
    \217\ Wodchis WP, Teare GF, Naglie G, et al. Skilled nursing 
facility rehabilitation and discharge to home after stroke. Archives 
of physical medicine and rehabilitation. 2005;86(3):442-448.
    \218\ Berkowitz RE, Jones RN, Rieder R, et al. Improving 
disposition outcomes for patients in a geriatric skilled nursing 
facility. Journal of the American Geriatrics Society. 
2011;59(6):1130-1136.
    \219\ Kushner DS, Peters KM, Johnson-Greene D. Evaluating use of 
the Siebens Domain Management Model during inpatient rehabilitation 
to increase functional independence and discharge rate to home in 
stroke patients. PM & R: the journal of injury, function, and 
rehabilitation. 2015;7(4):354-364.
    \220\ Kushner DS, Peters KM, Johnson-Greene D. Evaluating 
Siebens Domain Management Model for Inpatient Rehabilitation to 
Increase Functional Independence and Discharge Rate to Home in 
Geriatric Patients. Archives of physical medicine and 
rehabilitation. 2015;96(7):1310-1318.
    \221\ Wodchis WP, Teare GF, Naglie G, et al. Skilled nursing 
facility rehabilitation and discharge to home after stroke. Archives 
of physical medicine and rehabilitation. 2005;86(3):442-448.
    \222\ Berkowitz RE, Jones RN, Rieder R, et al. Improving 
disposition outcomes for patients in a geriatric skilled nursing 
facility. Journal of the American Geriatrics Society. 
2011;59(6):1130-1136.
    \223\ Kushner DS, Peters KM, Johnson-Greene D. Evaluating use of 
the Siebens Domain Management Model during inpatient rehabilitation 
to increase functional independence and discharge rate to home in 
stroke patients. PM & R: the journal of injury, function, and 
rehabilitation. 2015;7(4):354-364.
---------------------------------------------------------------------------

    A TEP convened by our measure development contractor was strongly 
supportive of the importance of measuring discharge to community 
outcomes, and implementing the proposed measure, Discharge to 
Community-PAC LTCH QRP in the LTCH QRP. The panel provided input on the 
technical specifications of this proposed measure, including the 
feasibility of implementing the measure, as well as the overall measure 
reliability and validity. A summary of the TEP proceedings is available 
on the PAC Quality Initiatives Downloads and Videos Web site at: 
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
    We also solicited stakeholder feedback on the development of this 
measure through a public comment period held from November 9, 2015, 
through December 8, 2015. Several stakeholders and organizations, 
including the MedPAC, among others, supported this measure for 
implementation. The public comment summary report for the proposed 
measure is available on the CMS Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
    The NQF-convened MAP met on December 14 and 15, 2015, and provided 
input on the use of this proposed Discharge to Community-PAC LTCH QRP 
measure in the LTCH QRP. The MAP encouraged continued development of 
the proposed measure to meet the mandate of the IMPACT Act. The MAP 
supported the alignment of this proposed measure across PAC settings, 
using standardized claims data. More information about the MAP's 
recommendations for this measure is available at: http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_PAC-LTC.aspx.
    Since the MAP's review and recommendation of continued development, 
we have continued to refine risk-adjustment models and conduct measure 
testing for this measure, as recommended by the MAP. This proposed 
measure is consistent with the information submitted to the MAP and is 
scientifically acceptable for current specification in the LTCH QRP. As 
discussed with the MAP, we fully anticipate that additional analyses 
will continue as we submit this measure to the ongoing measure 
maintenance process.
    We reviewed the NQF's consensus-endorsed measures and were unable 
to identify any NQF-endorsed resource use or other measures for post-
acute care focused on discharge to community. In addition, we are 
unaware of any other post-acute care measures for discharge to 
community that have been endorsed or adopted by other consensus 
organizations. Therefore, we are proposing the measure, Discharge to 
Community-PAC LTCH QRP, under the Secretary's authority to specify non-
NQF-endorsed measures under section 1899B(e)(2)(B) of the Act.
    We are proposing to use data from the Medicare FFS claims and 
Medicare eligibility files to calculate this proposed measure. We are 
proposing to use data from the ``Patient Discharge Status Code'' on 
Medicare FFS claims to determine whether a patient was discharged to a 
community setting for calculation of this proposed measure. In all PAC 
settings, we tested the accuracy of determining discharge to a 
community setting using the ``Patient Discharge Status Code'' on the 
PAC claim by examining whether discharge to community coding based on 
PAC claim data agreed with discharge to community coding based on PAC 
assessment data. We found excellent agreement between the two data 
sources in all PAC settings, ranging from 94.6 percent to 98.8 percent. 
Specifically, in the LTCH setting, using 2013 data, we found 95.6 
percent agreement in coding of community and non-community discharges 
when comparing discharge status codes on claims and the Discharge 
Location (item A2100) codes on the LTCH Continuity Assessment Record 
and Evaluation (CARE) Data Set Version 1.01. We further examined the 
accuracy of the ``Patient Discharge Status Code'' on the PAC claim by 
assessing how frequently discharges to an acute care hospital were 
confirmed by follow-up acute care claims. We discovered that 88 percent 
to 91 percent of IRF, LTCH, and SNF claims with acute care discharge 
status codes were followed by an acute care claim on the day of, or day 
after, PAC discharge. We believe these data support the use of the 
claims ``Patient Discharge Status Code'' for determining discharge to a 
community setting for this measure. In addition, this measure can 
feasibly be implemented in the LTCH QRP because all data used for 
measure calculation are derived from Medicare FFS claims and 
eligibility files, which are already available to CMS.
    Based on the evidence discussed above, we are proposing to adopt 
the measure, Discharge to Community-PAC LTCH QRP, for the LTCH QRP for 
FY 2018 payment determination and subsequent years. This proposed 
measure is calculated using 2 years of data. We are proposing a minimum 
of 25 eligible stays in a given LTCH for public reporting of the 
proposed measure for that LTCH. Since Medicare FFS claims data are 
already reported to the Medicare program for payment purposes, and 
Medicare eligibility files are also available, LTCHs will not be 
required to report any additional data to CMS for calculation of this 
measure. The proposed measure denominator is the risk-adjusted expected 
number of discharges to community. The proposed measure numerator is 
the risk-adjusted estimate of the number of patients who are discharged 
to the community, do not have an unplanned readmission to an acute care 
hospital or LTCH in the 31-day post-discharge observation window, and 
who remain alive during the post-discharge observation window. The 
measure is risk-adjusted for variables such as age and sex, principal 
diagnosis, comorbidities, ventilator status, ESRD status, and dialysis, 
among other variables. For technical information about this proposed 
measure, including information about the measure calculation, risk 
adjustment, and denominator exclusions, we refer readers to the 
document titled, Proposed Measure Specifications for Measures Proposed 
in the FY 2017 LTCH QRP NPRM, available at: https://www.cms.gov/
Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-

[[Page 25223]]

Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    If this proposed measure is finalized, we intend to provide initial 
confidential feedback to LTCHs, prior to public reporting of this 
measure, based on Medicare FFS claims data from discharges in CY 2015 
and 2016. We intend to publicly report this measure using claims data 
from discharges in CY 2016 and 2017. We plan to submit this proposed 
measure to the NQF for consideration for endorsement.
    We are inviting public comment on our proposal to adopt the 
measure, Discharge to Community-PAC LTCH QRP, for the LTCH QRP.
c. Proposal To Address the IMPACT Act Domain of Resource Use and Other 
Measures: Potentially Preventable 30-Day Post-Discharge Readmission 
Measure for Long-Term Care Hospital Quality Reporting Program
    Sections 1899B(a)(2)(E)(ii) and 1899B(d)(1)(C) of the Act require 
the Secretary to specify measures to address the domain of all-
condition risk-adjusted potentially preventable hospital readmission 
rates by SNFs, LTCHs, and IRFs by October 1, 2016, and HHAs by January 
1, 2017. We are proposing the measure Potentially Preventable 30-Day 
Post-Discharge Readmission Measure for LTCH QRP as a Medicare FFS 
claims-based measure to meet this requirement for the FY 2018 payment 
determination and subsequent years.
    The proposed measure assesses the facility-level risk-standardized 
rate of unplanned, potentially preventable hospital readmissions for 
Medicare FFS beneficiaries in the 30 days post-LTCH discharge. The LTCH 
admission must have occurred within up to 30 days of discharge from a 
prior proximal hospital stay which is defined as an inpatient admission 
to an acute care hospital (including IPPS, CAH, or a psychiatric 
hospital). Hospital readmissions include readmissions to a short-stay 
acute care hospital or an LTCH, with a diagnosis considered to be 
unplanned and potentially preventable. This proposed measure is claims-
based, requiring no additional data collection or submission burden for 
LTCHs. Because the measure denominator is based on LTCH admissions, 
each Medicare beneficiary may be included in the measure multiple times 
within the measurement period. Readmissions counted in this measure are 
identified by examining Medicare FFS claims data for readmissions to 
either acute care hospitals (IPPS or CAH) or LTCHs that occur during a 
30-day window beginning two days after LTCH discharge. This measure is 
conceptualized uniformly across the PAC settings, in terms of the 
measure definition, the approach to risk adjustment, and the measure 
calculation. Our approach for defining potentially preventable hospital 
readmissions is described in more detail below.
    Hospital readmissions among the Medicare population, including 
beneficiaries that utilize PAC, are common, costly, and often 
preventable.224 225 MedPAC and a study by Jencks et al. 
estimated that 17 to 20 percent of Medicare beneficiaries discharged 
from the hospital were readmitted within 30 days. MedPAC found that 
more than 75 percent of 30-day and 15-day readmissions and 84 percent 
of 7-day readmissions were considered ``potentially preventable.'' 
\226\ In addition, MedPAC calculated that annual Medicare spending on 
potentially preventable readmissions would be $12 billion for 30-day, 
$8 billion for 15-day, and $5 billion for 7-day readmissions.\227\ For 
hospital readmissions from one post-acute care setting, SNFs, MedPAC 
deemed 76 percent of readmissions as ``potentially avoidable''--
associated with $12 billion in Medicare expenditures.\228\ Mor et al. 
analyzed 2006 Medicare claims and SNF assessment data (Minimum Data 
Set), and reported a 23.5 percent readmission rate from SNFs, 
associated with $4.3B in expenditures.\229\ Fewer studies have 
investigated potentially preventable readmission rates from the 
remaining post-acute care settings.
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    \224\ Friedman, B., and Basu, J.: The rate and cost of hospital 
readmissions for preventable conditions. Med. Care Res. Rev. 
61(2):225-240, 2004. doi:10.1177/1077558704263799.
    \225\ Jencks, S.F., Williams, M.V., and Coleman, E.A.: 
Rehospitalizations among patients in the Medicare Fee-for-Service 
Program. N. Engl. J. Med. 360(14):1418-1428, 2009. doi:10.1016/
j.jvs.2009.05.045
    \226\ MedPAC: Payment policy for inpatient readmissions, in 
Report to the Congress: Promoting Greater Efficiency in Medicare. 
Washington, DC, pp. 103-120, 2007. Available from http://www.medpac.gov/documents/reports/Jun07_EntireReport.pdf.
    \227\ Ibid.
    \228\ Ibid.
    \229\ Mor, V., Intrator, O., Feng, Z., et al.: The revolving 
door of rehospitalization from skilled nursing facilities. Health 
Aff. 29(1):57-64, 2010. doi:10.1377/hlthaff.2009.0629.
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    We have addressed the high rates of hospital readmissions in the 
acute care setting as well as in PAC. For example, we developed the 
following measure: All-Cause Unplanned Readmission Measure for 30 Days 
Post-Discharge from LTCHs (NQF #2512), as well as similar measures for 
other PAC providers (NQF #2502 for IRFs and NQF #2510 for SNFs).\230\ 
These measures are endorsed by the NQF, and the NQF-endorsed LTCH 
measure (NQF #2512) was adopted into the LTCH QRP in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49730 through 49731). Note that these NQF-
endorsed measures assess all-cause unplanned readmissions.
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    \230\ National Quality Forum: All-Cause Admissions and 
Readmissions Measures. pp. 1-319, April 2015. Available from http://www.qualityforum.org/Publications/2015/04/All-Cause_Admissions_and_Readmissions_Measures_-_Final_Report.aspx.
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    Several general methods and algorithms have been developed to 
assess potentially avoidable or preventable hospitalizations and 
readmissions for the Medicare population. These include the Agency for 
Healthcare Research and Quality's (AHRQ's) Prevention Quality 
Indicators, approaches developed by MedPAC, and proprietary approaches, 
such as the 3M\TM\ algorithm for Potentially Preventable 
Readmissions.231 232 233 Recent work led by Kramer et al. 
for MedPAC identified 13 conditions for which readmissions were deemed 
as potentially preventable among SNF and IRF 
populations.234 235 Although much of the existing literature 
addresses hospital readmissions more broadly and potentially avoidable 
hospitalizations for specific settings like long-term care, these 
findings are relevant to the development of potentially preventable 
readmission measures for PAC.236 237 238
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    \231\ Goldfield, N.I., McCullough, E.C., Hughes, J.S., et al.: 
Identifying potentially preventable readmissions. Health Care Finan. 
Rev. 30(1):75-91, 2008. Available from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4195042/.
    \232\ National Quality Forum: Prevention Quality Indicators 
Overview. 2008.
    \233\ MedPAC: Online Appendix C: Medicare Ambulatory Care 
Indicators for the Elderly. pp. 1-12, prepared for Chapter 4, 2011. 
Available from: http://www.medpac.gov/documents/reports/Mar11_Ch04_APPENDIX.pdf?sfvrsn=0.
    \234\ Kramer, A., Lin, M., Fish, R., et al.: Development of 
Inpatient Rehabilitation Facility Quality Measures: Potentially 
Avoidable Readmissions, Community Discharge, and Functional 
Improvement. pp. 1-42, 2015. Available from http://www.medpac.gov/documents/contractor-reports/development-of-inpatient-rehabilitation-facility-quality-measures-potentially-avoidable-readmissions-community-discharge-and-functional-improvement.pdf?sfvrsn=0.
    \235\ Kramer, A., Lin, M., Fish, R., et al.: Development of 
Potentially Avoidable Readmission and Functional Outcome SNF Quality 
Measures. pp. 1-75, 2014. Available from http://www.medpac.gov/documents/contractor-reports/mar14_snfqualitymeasures_contractor.pdf?sfvrsn=0.
    \236\ Allaudeen, N., Vidyarthi, A., Maselli, J., et al.: 
Redefining readmission risk factors for general medicine patients. 
J. Hosp. Med. 6(2):54-60, 2011. doi:10.1002/jhm.805.
    \237\ Gao, J., Moran, E., Li, Y.-F., et al.: Predicting 
potentially avoidable hospitalizations. Med. Care 52(2):164-171, 
2014. doi:10.1097/MLR.0000000000000041.
    \238\ Walsh, E.G., Wiener, J.M., Haber, S., et al.: Potentially 
avoidable hospitalizations of dually eligible Medicare and Medicaid 
beneficiaries from nursing facility and home[hyphen]and 
community[hyphen]based services waiver programs. J. Am. Geriatr. 
Soc. 60(5):821-829, 2012. doi:10.1111/j.1532-5415.2012.03920.x.

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[[Page 25224]]

    Potentially Preventable Readmission Measure Definition: We 
conducted a comprehensive environmental scan, analyzed claims data, and 
obtained input from a TEP to develop a definition and list of 
conditions for which hospital readmissions are potentially preventable. 
The Ambulatory Care Sensitive Conditions and Prevention Quality 
Indicators, developed by AHRQ, served as the starting point in this 
work. For patients in the 30-day post-PAC discharge period, a 
potentially preventable readmission (PPR) refers to a readmission for 
which the probability of occurrence could be minimized with adequately 
planned, explained, and implemented post-discharge instructions, 
including the establishment of appropriate follow-up ambulatory care. 
Our list of PPR conditions is categorized by 3 clinical rationale 
groupings:
     Inadequate management of chronic conditions;
     Inadequate management of infections; and
     Inadequate management of other unplanned events.
    Additional details regarding the definition for potentially 
preventable readmissions are available in the document titled, Proposed 
Measure Specifications for Measures Proposed in the FY 2017 LTCH QRP 
NPRM, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    This proposed measure focuses on readmissions that are potentially 
preventable and also unplanned. Similar to the All-Cause Unplanned 
Readmission Measure for 30 Days Post-Discharge from LTCHs (NQF #2512), 
this proposed measure uses the current version of the CMS Planned 
Readmission Algorithm as the main component for identifying planned 
readmissions. A complete description of the CMS Planned Readmission 
Algorithm, which includes lists of planned diagnoses and procedures, 
can be found on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. In addition to the CMS 
Planned Readmission Algorithm, this proposed measure incorporates 
procedures that are considered planned in post-acute care settings, as 
identified in consultation with TEPs. Full details on the planned 
readmissions criteria used, including the CMS Planned Readmission 
Algorithm and additional procedures considered planned for post-acute 
care, can be found in the document titled, Proposed Measure 
Specifications for Measures Proposed in the FY 2017 LTCH QRP NPRM, 
available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    The proposed measure, Potentially Preventable 30-Day Post-Discharge 
Readmission Measure for LTCH QRP, assesses potentially preventable 
readmission rates while accounting for patient demographics, principal 
diagnosis in the prior hospital stay, comorbidities, and other patient 
factors. While estimating the predictive power of patient 
characteristics, the model also estimates a facility-specific effect, 
common to patients treated in each facility. This proposed measure is 
calculated for each LTCH based on the ratio of the predicted number of 
risk-adjusted, unplanned, potentially preventable hospital readmissions 
that occur within 30 days after an LTCH discharge, including the 
estimated facility effect, to the estimated predicted number of risk-
adjusted, unplanned inpatient hospital readmissions for the same 
patients treated at the average LTCH. A ratio above 1.0 indicates a 
higher than expected readmission rate (worse) while a ratio below 1.0 
indicates a lower than expected readmission rate (better). This ratio 
is referred to as the standardized risk ratio (SRR). The SRR is then 
multiplied by the overall national raw rate of potentially preventable 
readmissions for all LTCH stays. The resulting rate is the risk-
standardized readmission rate (RSRR) of potentially preventable 
readmissions.
    An eligible LTCH stay is followed until: (1) The 30-day post-
discharge period ends; or (2) the patient is readmitted to an acute 
care hospital (IPPS or CAH) or LTCH. If the readmission is unplanned 
and potentially preventable, it is counted as a readmission in the 
measure calculation. If the readmission is planned, the readmission is 
not counted in the measure rate.
    This measure is risk adjusted. The risk adjustment modeling 
estimates the effects of patient characteristics, comorbidities, and 
select health care variables on the probability of readmission. More 
specifically, the risk-adjustment model for LTCHs account for 
demographic characteristics (age, sex, original reason for Medicare 
entitlement), principal diagnosis during the prior proximal hospital 
stay, body system specific surgical indicators, prolonged mechanical 
ventilation indicator, comorbidities, length of stay during the 
patient's prior proximal hospital stay, length of stay in the intensive 
care and coronary care unit (ICU and CCU), and number of acute care 
hospitalizations in the preceding 365 days.
    The proposed measure is calculated using 2 consecutive calendar 
years of FFS claims data, to ensure the statistical reliability of this 
measure for facilities. In addition, we are proposing a minimum of 25 
eligible stays for public reporting of the proposed measure.
    A TEP convened by our measure contractor provided recommendations 
on the technical specifications of this proposed measure, including the 
development of an approach to define potentially preventable hospital 
readmission for PAC. Details from the TEP meetings, including TEP 
members' ratings of conditions proposed as being potentially 
preventable, are available in the TEP summary report available on the 
CMS Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html. We also 
solicited stakeholder feedback on the development of this measure 
through a public comment period held from November 2 through December 
1, 2015. Comments on the measure varied, with some commenters 
supportive of the proposed measure, while others either were not in 
favor of the measure, or suggested potential modifications to the 
measure specifications, such as including standardized function data. A 
summary of the public comments is also available on the CMS Web site 
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
    The MAP encouraged continued development of the proposed measure. 
Specifically, the MAP stressed the need to promote shared 
accountability and ensure effective care transitions. More information 
about the MAP's recommendations for this measure is available at: 
http://www.qualityforum.org/Publications/2016/02/
MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-
_PAC-

[[Page 25225]]

LTC.aspx. At the time, the risk-adjustment model was still under 
development. Following completion of that development work, we were 
able to test for measure validity and reliability as identified in the 
measure specifications document provided above. Testing results are 
within range for similar outcome measures finalized in public reporting 
and value-based purchasing programs, including the All-Cause Unplanned 
Readmission Measure for 30 Days Post-Discharge from LTCHs (NQF #2512) 
adopted into the LTCH QRP.
    We reviewed the NQF's consensus endorsed measures and were unable 
to identify any NQF-endorsed measures focused on potentially 
preventable hospital readmissions. We are unaware of any other measures 
for this IMPACT Act domain that have been endorsed or adopted by other 
consensus organizations. Therefore, we are proposing the Potentially 
Preventable 30-Day Post-Discharge Readmission Measure for LTCH QRP, 
under the Secretary's authority to specify non-NQF-endorsed measures 
under section 1899B(e)(2)(B) of the Act, for the LTCH QRP for the FY 
2018 payment determination and subsequent years, given the evidence 
previously discussed above.
    We plan to submit the proposed measure to the NQF for consideration 
of endorsement. If this proposed measure is finalized, we intend to 
provide initial confidential feedback to LTCHs, prior to public 
reporting of this proposed measure, based on 2 calendar years of data 
from discharges in CY 2015 and 2016. We intend to publicly report this 
proposed measure using data from CY 2016 and 2017.
    We are inviting public comment on our proposal to adopt the 
measure, Potentially Preventable 30-Day Post-Discharge Readmission 
Measure for LTCH QRP.
7. LTCH QRP Quality Measure Proposed for the FY 2020 Payment 
Determination and Subsequent Years
a. Background
    In addition to the measures we are retaining as described in 
section VIII.C.5. of the preamble of this proposed rule under our 
policy described in section VIII.C.3. of the preamble of this proposed 
rule and the new quality measures proposed in section VIII.C.6. of the 
preamble of this proposed rule for the FY 2018 payment determinations 
and subsequent years, we are also proposing one new quality measure to 
meet the requirements of the IMPACT Act for the FY 2020 payment 
determination and subsequent years. The proposed measure, Drug Regimen 
Review Conducted with Follow-Up for Identified Issues-Post-Acute Care 
(PAC) LTCH QRP, addresses the IMPACT Act quality domain of Medication 
Reconciliation.
b. Quality Measure Addressing the IMPACT Act Domain of Medication 
Reconciliation: Drug Regimen Review Conducted With Follow-up for 
Identified Issues-Post Acute Care LTCH QRP
    Sections 1899B(a)(2)(E)(i)(III) and 1899B(c)(1)(C) of the Act 
require the Secretary to specify a quality measure to address the 
domain of medication reconciliation by October 1, 2018 for IRFs, LTCHs, 
and SNFs, and by January 1, 2017 for HHAs. We are proposing to adopt 
the quality measure, Drug Regimen Review Conducted with Follow-Up for 
Identified Issues-PAC LTCH QRP, for the LTCH QRP as a patient-
assessment based, cross-setting quality measure to meet the IMPACT Act 
requirements with data collection beginning April 1, 2018 for the FY 
2020 payment determinations and subsequent years.
    This proposed measure assesses whether PAC providers were 
responsive to potential or actual clinically significant medication 
issue(s) when such issues were identified. Specifically, the proposed 
quality measure reports the percentage of patient stays in which a drug 
regimen review was conducted at the time of admission and timely 
follow-up with a physician occurred each time potential clinically 
significant medication issues were identified throughout that stay.
    For this proposed quality measure, drug regimen review is defined 
as the review of all medications or drugs the patient is taking to 
identify any potentially clinically significant medication issues. This 
proposed quality measure utilizes both the processes of medication 
reconciliation and a drug regimen review, in the event an actual or 
potential medication issue occurred. The proposed measure informs 
whether the PAC facility identified and addressed each clinically 
significant medication issue and if the facility responded or addressed 
the medication issue in a timely manner. Of note, drug regimen review 
in PAC settings is generally considered to include medication 
reconciliation and review of the patient's drug regimen to identify 
potential clinically significant medication issues.\239\ This measure 
is applied uniformly across the PAC settings.
---------------------------------------------------------------------------

    \239\ Institute of Medicine. Preventing Medication Errors. 
Washington DC: National Academies Press; 2006.
---------------------------------------------------------------------------

    Medication reconciliation is a process of reviewing an individual's 
complete and current medication list. Medication reconciliation is a 
recognized process for reducing the occurrence of medication 
discrepancies that may lead to Adverse Drug Events (ADEs).\240\ 
Medication discrepancies occur when there is conflicting information 
documented in the medical records. The World Health Organization 
regards medication reconciliation as a standard operating protocol 
necessary to reduce the potential for ADEs that cause harm to patients. 
Medication reconciliation is an important patient safety process that 
addresses medication accuracy during transitions in patient care and in 
identifying preventable ADEs.\241\ The Joint Commission added 
medication reconciliation to its list of National Patient Safety Goals 
(2005), suggesting that medication reconciliation is an integral 
component of medication safety.\242\ The Society of Hospital Medicine 
published a statement in agreement of the Joint Commission's emphasis 
and value of medication reconciliation as a patient safety goal.\243\ 
There is universal agreement that medication reconciliation directly 
addresses patient safety issues that can result from medication 
miscommunication and unavailable or incorrect 
information.244 245 246
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    \240\ Ibid
    \241\ Leotsakos A., et al. Standardization in patient safety: 
the WHO High 5s project. Int J Qual Health Care. 2014:26(2):109-116.
    \242\ The Joint Commission. 2016 Long Term Care: National 
Patient Safety Goals Medicare/Medicaid Certification-based Option. 
(NPSG.03.06.01).
    \243\ Greenwald, J. L., Halasyamani, L., Greene, J., LaCivita, 
C., et al. (2010). Making inpatient medication reconciliation 
patient centered, clinically relevant and implementable: a consensus 
statement on key principles and necessary first steps. Journal of 
Hospital Medicine, 5(8), 477-485.
    \244\ Leotsakos A., et al. Standardization in patient safety: 
the WHO High 5s project. Int J Qual Health Care. 2014:26(2):109-116.
    \245\ The Joint Commission. 2016 Long Term Care: National 
Patient Safety Goals Medicare/Medicaid Certification-based Option. 
(NPSG.03.06.01).
    \246\ IHI. Medication Reconciliation to Prevent Adverse Drug 
Events [Internet]. Cambridge, MA: Institute for Healthcare 
Improvement; [cited 2016 Jan 11]. Available from: http://www.ihi.org/topics/adesmedicationreconciliation/Pages/default.aspx.
---------------------------------------------------------------------------

    The performance of timely medication reconciliation is valuable to 
the process of drug regimen review. Preventing and responding to ADEs 
is of critical importance as ADEs account for significant increases in 
health services

[[Page 25226]]

utilization and costs, 247 248 249 including subsequent 
emergency room visits and re-hospitalizations.\250\ Annual health care 
costs in the United States are estimated at $3.5 billion, resulting in 
7,000 deaths annually.251 252
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    \247\ Institute of Medicine. Preventing Medication Errors. 
Washington DC: National Academies Press; 2006.
    \248\ Jha AK, Kuperman GJ, Rittenberg E, et al. Identifying 
hospital admissions due to adverse drug events using a computer-
based monitor. Pharmacoepidemiol Drug Saf. 2001;10(2):113-119.
    \249\ Hohl CM, Nosyk B, Kuramoto L, et al. Outcomes of emergency 
department patients presenting with adverse drug events. Ann Emerg 
Med. 2011;58:270-279.
    \250\ Kohn LT, Corrigan JM, Donaldson MS. To Err Is Human: 
Building a Safer Health System Washington, DC: National Academies 
Press; 1999.
    \251\ Greenwald, J. L., Halasyamani, L., Greene, J., LaCivita, 
C., et al. (2010). Making inpatient medication reconciliation 
patient centered, clinically relevant and implementable: a consensus 
statement on key principles and necessary first steps. Journal of 
Hospital Medicine, 5(8), 477-485.
    \252\ Phillips, David P.; Christenfeld, Nicholas; and Glynn, 
Laura M. Increase in US Medication-Error Deaths between 1983 and 
1993. The Lancet. 351:643-644, 1998.
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    Medication errors include the duplication of medications, delivery 
of an incorrect drug, inappropriate drug omissions, or errors in the 
dosage, route, frequency, and duration of medications. Medication 
errors are one of the most common types of medical error and can occur 
at any point in the process of ordering and delivering a medication. 
Medication errors have the potential to result in an 
ADE.253 254 255 256 257 258 Inappropriately prescribed 
medications are also considered a major healthcare concern in the 
United States for the elderly population, with costs of roughly $7.2 
billion annually.\259\
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    \253\ Institute of Medicine. To err is human: building a safer 
health system. Washington, DC: National Academies Press; 2000.
    \254\ Lesar TS, Briceland L, Stein DS. Factors related to errors 
in medication prescribing. JAMA. 1997:277(4): 312-317.
    \255\ Bond CA, Raehl CL, & Franke T. Clinical pharmacy services, 
hospital pharmacy staffing, and medication errors in United States 
hospitals. Pharmacotherapy. 2002:22(2): 134-147.
    \256\ Bates DW, Cullen DJ, Laird N, Petersen LA, Small SD, et 
al. Incidence of adverse drug events and potential adverse drug 
events. Implications for prevention. JAMA. 1995:274(1): 29-34.
    \257\ Barker KN, Flynn EA, Pepper GA, Bates DW, & Mikeal RL. 
Medication errors observed in 36 health care facilities. JAMA. 2002: 
162(16):1897-1903.
    \258\ Bates DW, Boyle DL, Vander Vliet MB, Schneider J, & Leape 
L. Relationship between medication errors and adverse drug events. J 
Gen Intern Med. 1995:10(4): 199-205.
    \259\ Fu, Alex Z., et al. ``Potentially inappropriate medication 
use and healthcare expenditures in the US community-dwelling 
elderly.'' Medical care 45.5 (2007): 472-476.
---------------------------------------------------------------------------

    There is strong evidence that medication discrepancies occur during 
transfers from acute care facilities to post-acute care facilities. 
Discrepancies occur when there is conflicting information documented in 
the medical records. Almost one-third of medication discrepancies have 
the potential to cause patient harm.\260\ An estimated 50 percent of 
patients experienced a clinically important medication error after 
hospital discharge in an analysis of two tertiary care academic 
hospitals.\261\
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    \260\ Wong, Jacqueline D., et al. ``Medication reconciliation at 
hospital discharge: evaluating discrepancies.'' Annals of 
Pharmacotherapy 42.10 (2008): 1373-1379.
    \261\ Kripalani S, Roumie CL, Dalal AK, et al. Effect of a 
pharmacist intervention on clinically important medication errors 
after hospital discharge: A randomized controlled trial. Ann Intern 
Med. 2012:157(1):1-10.
---------------------------------------------------------------------------

    Medication reconciliation has been identified as an area for 
improvement during transfer from the acute care facility to the 
receiving post-acute care facility. PAC facilities report gaps in 
medication information between the acute care hospital and the 
receiving post-acute care setting when performing medication 
reconciliation.262 263 Hospital discharge has been 
identified as a particularly high risk time point, with evidence that 
medication reconciliation identifies high levels of 
discrepancy.264 265 266 267 268 269 Also, there is evidence 
that medication reconciliation discrepancies occur throughout the 
patient stay.270 271 For older patients, who may have 
multiple comorbid conditions and thus multiple medications, transitions 
between acute and post-acute care settings can be further 
complicated,\272\ and medication reconciliation and patient knowledge 
(medication literacy) can be inadequate post-discharge.\273\ The 
proposed quality measure, Drug Regimen Review Conducted with Follow-Up 
for Identified Issues-PAC LTCH QRP, provides an important component of 
care coordination for PAC settings and would affect a large proportion 
of the Medicare population who transfer from hospitals into PAC 
services each year. For example, in 2013, 1.7 million Medicare FFS 
beneficiaries had SNF stays, 338,000 beneficiaries had IRF stays, and 
122,000 beneficiaries had LTCH stays.\274\
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    \262\ Gandara, Esteban, et al. ``Communication and information 
deficits in patients discharged to rehabilitation facilities: an 
evaluation of five acute care hospitals.'' Journal of Hospital 
Medicine 4.8 (2009): E28-E33.
    \263\ Gandara, Esteban, et al. ``Deficits in discharge 
documentation in patients transferred to rehabilitation facilities 
on anticoagulation: results of a system wide evaluation.'' Joint 
Commission Journal on Quality and Patient Safety 34.8 (2008): 460-
463.
    \264\ Coleman EA, Smith JD, Raha D, Min SJ. Post hospital 
medication discrepancies: prevalence and contributing factors. Arch 
Intern Med. 2005 165(16):1842-1847.
    \265\ Wong JD, Bajcar JM, Wong GG, et al. Medication 
reconciliation at hospital discharge: evaluating discrepancies. Ann 
Pharmacother. 2008 42(10):1373-1379.
    \266\ Hawes EM, Maxwell WD, White SF, Mangun J, Lin FC. Impact 
of an outpatient pharmacist intervention on medication discrepancies 
and health care resource utilization in post hospitalization care 
transitions. Journal of Primary Care & Community Health. 2014; 
5(1):14-18.
    \267\ Foust JB, Naylor MD, Bixby MB, Ratcliffe SJ. Medication 
problems occurring at hospital discharge among older adults with 
heart failure. Research in Gerontological Nursing. 2012, 5(1): 25-
33.
    \268\ Pherson EC, Shermock KM, Efird LE, et al. Development and 
implementation of a post discharge home-based medication management 
service. Am J Health Syst Pharm. 2014; 71(18): 1576-1583.
    \269\ Pronovosta P, Weasta B, Scwarza M, et al. Medication 
reconciliation: a practical tool to reduce the risk of medication 
errors. J Crit Care. 2003; 18(4): 201-205.
    \270\ Bates DW, Cullen DJ, Laird N, Petersen LA, Small SD, et 
al. Incidence of adverse drug events and potential adverse drug 
events. Implications for prevention. JAMA. 1995:274(1): 29-34.
    \271\ Himmel, W., M. Tabache, and M. M. Kochen. ``What happens 
to long-term medication when general practice patients are referred 
to hospital?.''European journal of clinical pharmacology 50.4 
(1996): 253-257.
    \272\ Chhabra, P. T., et al. (2012). ``Medication reconciliation 
during the transition to and from long-term care settings: a 
systematic review.'' Res Social Adm Pharm 8(1): 60-75.
    \273\ Kripalani S, Roumie CL, Dalal AK, et al. Effect of a 
pharmacist intervention on clinically important medication errors 
after hospital discharge: A randomized controlled trial. Ann Intern 
Med. 2012:157(1):1-10.
    \274\ March 2015 Report to the Congress: Medicare Payment 
Policy. Medicare Payment Advisory Commission; 2015.
---------------------------------------------------------------------------

    A TEP convened by our measure development contractor provided input 
on the technical specifications of this proposed quality measure, Drug 
Regimen Review Conducted with Follow-Up for Identified Issues-PAC LTCH 
QRP, including components of reliability, validity and the feasibility 
of implementing the measure across PAC settings. The TEP supported the 
measure's implementation across PAC settings and was supportive of our 
plans to standardize this measure for cross-setting development. A 
summary of the TEP proceedings is available on the PAC Quality 
Initiatives Downloads and Videos Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
    We solicited stakeholder feedback on the development of this 
measure by means of a public comment period held from September 18 
through October 6, 2015. Through public comments submitted by several 
stakeholders and organizations, we received support for implementation 
of this proposed measure. The public comment summary

[[Page 25227]]

report for the proposed measure is available on the CMS Web site at: 
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
    The NQF-convened MAP met on December 14 and 15, 2015 and provided 
input on the use of this proposed measure, Drug Regimen Review 
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP. The MAP 
encouraged continued development of the proposed quality measure to 
meet the mandate added by the IMPACT Act. The MAP agreed with the 
measure gaps identified by CMS including medication reconciliation, and 
stressed that medication reconciliation be present as an ongoing 
process. More information about the MAP's recommendations for this 
measure is available at: http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_PAC-LTC.aspx.
    Since the MAP's review and recommendation of continued development, 
we have continued to refine this proposed measure in compliance with 
the MAP's recommendations. The proposed measure is both consistent with 
the information submitted to the MAP and support its scientific 
acceptability for use in quality reporting programs. Therefore, we are 
proposing this measure for implementation in the LTCH QRP as required 
by the IMPACT Act.
    We reviewed the NQF's endorsed measures and identified one NQF-
endorsed cross-setting and quality measure related to medication 
reconciliation, which applies to the SNF, LTCH, IRF, and HHA settings 
of care: Care for Older Adults (COA), (NQF #0553). The quality measure, 
Care for Older Adults (COA), (NQF #0553) assesses the percentage of 
adults 66 years and older who had a medication review. The Care for 
Older Adults (COA), (NQF #0553) measure requires at least one 
medication review conducted by a prescribing practitioner or clinical 
pharmacist during the measurement year and the presence of a medication 
list in the medical record. This is in contrast to the proposed quality 
measure, Drug Regimen Review Conducted with Follow-Up for Identified 
Issues-PAC LTCH QRP, which reports the percentage of patient stays in 
which a drug regimen review was conducted at the time of admission and 
that timely follow-up with a physician occurred each time one or more 
potential clinically significant medication issues were identified 
throughout that stay.
    After careful review of both quality measures, we have decided to 
propose the quality measure, Drug Regimen Review Conducted with Follow-
Up for Identified Issues-PAC LTCH QRP for the following reasons:
     The IMPACT Act requires the implementation of quality 
measures, using patient assessment data that are standardized and 
interoperable across PAC settings. The proposed quality measure, Drug 
Regimen Review Conducted with Follow-Up for Identified Issues-PAC LTCH 
QRP, employs three standardized patient-assessment data elements for 
each of the four PAC settings so that data are standardized, 
interoperable, and comparable; whereas, the Care for Older Adults 
(COA), (NQF #0553) quality measure does not contain data elements that 
are standardized across all four PAC settings.
     The proposed quality measure, Drug Regimen Review 
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, requires 
the identification of potential clinically significant medication 
issues at the beginning, during, and at the end of the patient's stay 
to capture data on each patient's complete PAC stay; whereas, the Care 
for Older Adults (COA), (NQF #0553) quality measure only requires 
annual documentation in the form of a medication list in the medical 
record of the target population.
     The proposed quality measure, Drug Regimen Review 
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, includes 
identification of the potential clinically significant medication 
issues and communication with the physician (or physician designee) as 
well as resolution of the issue(s) within a rapid timeframe (by 
midnight of the next calendar day); whereas, the Care for Older Adults 
(COA), (NQF #0553) quality measure does not include any follow-up or 
timeframe in which the follow-up would need to occur.
     The proposed quality measure, Drug Regimen Review 
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, does not 
have age exclusions; whereas, the Care for Older Adults (COA), (NQF 
#0553) quality measure limits the measure's population to patients aged 
66 and older.
     The proposed quality measure, Drug Regimen Review 
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, would be 
reported to LTCHs quarterly to facilitate internal quality monitoring 
and quality improvement in areas such as patient safety, care 
coordination, and patient satisfaction; whereas the Care for Older 
Adults (COA), (NQF #0553) quality measure would not enable quarterly 
quality updates, and thus data comparisons within and across PAC 
providers would be difficult due to the limited data and scope of the 
data collected.
    Therefore, based on the evidence discussed above, we are proposing 
to adopt the quality measure entitled, Drug Regimen Review Conducted 
with Follow-Up for Identified Issues-PAC LTCH QRP, for the LTCH QRP for 
FY 2020 payment determination and subsequent years. We plan to submit 
the quality measure to the NQF for consideration for endorsement.
    The calculation of the proposed quality measure would be based on 
the data collection of three standardized items to be included in the 
LTCH CARE Data Set. The collection of data by means of the standardized 
items would be obtained at admission and discharge. For more 
information about the data submission required for this proposed 
measure, we refer readers to section VIII.C.9. of the preamble of this 
proposed rule.
    The standardized items used to calculate this proposed quality 
measure do not duplicate existing items currently used for data 
collection within the LTCH CARE Data Set. The proposed measure 
denominator is the number of patient stays with a discharge or expired 
assessment during the reporting period. The proposed measure numerator 
is the number of stays in the denominator where the medical record 
contains documentation of a drug regimen review conducted at: (1) 
Admission; and (2) discharge with a lookback through the entire patient 
stay with all potential clinically significant medication issues 
identified during the course of care and followed up with a physician 
or physician designee by midnight of the next calendar day. This 
measure is not risk adjusted. For technical information about this 
proposed measure, including information about the measure calculation 
and discussion pertaining to the standardized items used to calculate 
this measure, we refer readers to the document titled, Proposed Measure 
Specifications for Measures Proposed in the FY 2017 LTCH QRP NPRM 
available at: http://www.cms.gov/Medicare/Quality-Initiative-Patient-Assessment-Instruments/LTCH-Quality-Reporting-Program-Measures-Information-.html.
    Data for the proposed quality measure, Drug Regimen Review 
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP,

[[Page 25228]]

would be collected using the Long-Term Care Hospital LTCH CARE Data Set 
with submission through the Quality Improvement Evaluation System 
(QIES) Assessment Submission and Processing (ASAP) system.
    We are inviting public comment on our proposal to adopt the quality 
measure, Drug Regimen Review Conducted with Follow-Up for Identified 
Issues-PAC LTCH QRP for the LTCH QRP.
8. LTCH QRP Quality Measures and Measure Concepts Under Consideration 
for Future Years
    We are inviting comment on the importance, relevance, 
appropriateness, and applicability of each of the quality measures 
listed in the table below for future years in the LTCH QRP. We are 
developing a measure related to the IMPACT Act domain, ``Accurately 
communicating the existence of and providing for the transfer of health 
information and care preferences of an individual to the individual, 
family caregiver of the individual, and providers of services 
furnishing items and services to the individual, when the individual 
transitions.'' We are considering the possibility of adding quality 
measures that rely on the patient's perspective; that is, measures that 
include patient-reported experience of care and health status data. We 
recently posted a ``Request for Information to Aid in the Design and 
Development of a Survey Regarding Patient and Family Member Experiences 
with Care Received in Long-Term Care Hospitals'' (80 FR 72722 through 
72725).
    Also, we are considering a measure focused on pain that relies on 
the collection of patient-reported pain data, and another that 
documents whether a patient has an Advance Care Plan. Finally, we are 
considering measures related to patient safety: Venous Thromboembolism 
Prophylaxis, Ventilator Weaning (Liberation) Rate, Compliance with 
Spontaneous Breathing Trial (SBT) (including Tracheostomy Collar Trial 
(TCT) or Continuous Positive Airway Pressure (CPAP) Breathing Trial) by 
Day 2 of the LTCH Stay, and Patients Who Received an Antipsychotic 
Medication.

     LTCH QRP Quality Measures Under Consideration for Future Years
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
IMPACT Act Domain: Accurately communicating the existence of and
 providing for the transfer of health information and care preferences
 of an individual to the individual, family caregiver of the individual,
 and providers of services furnishing items and services to the
 individual, when the individual transitions
IMPACT Act Measure
    Transfer of health information and care preferences when an
     individual transitions
NQS Priority: Patient- and Caregiver-Centered Care
Measures
     Patient Experience of Care
     Percent of Patients with Moderate to Severe Pain
     Advance Care Plan
NQS Priority: Patient Safety
Measures
     Ventilator Weaning (Liberation) Rate
     Compliance with Spontaneous Breathing Trial (SBT)
     (including Tracheostomy Collar Trial (TCT) or Continuous Positive
     Airway Pressure (CPAP) Breathing Trial) by Day 2 of the LTCH Stay
     Patients Who Received an Antipsychotic Medication
     Venous Thromboembolism Prophylaxis
------------------------------------------------------------------------

9. Proposed Form, Manner, and Timing of Quality Data Submission for the 
FY 2018 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. In 
addition, section 1886(m)(5)(F) of the Act requires that, for the 
fiscal year beginning on the specified application date, as defined in 
section 1899B(a)(2)(E) of the Act, and each subsequent year, each LTCH 
submit to the Secretary data on measures specified by the Secretary 
under section 1899B of the Act. The data required under sections 
1886(m)(5)(C) and (F) of the Act must 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 sections 1886(m)(5)(C) and (F) of the Act for a 
given fiscal year, the annual payment for discharges occurring during 
the fiscal year must be reduced by 2 percentage points.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49749 through 
49752), we:
     Adopted timing for new LTCHs to begin reporting quality 
data under the LTCH QRP for the FY 2017 payment determination and 
subsequent years; and
     Adopted new deadlines that allow 4.5 months (approximately 
135 days) after the end of each calendar year quarter for quality data 
submission, beginning with quarter 4 of 2015 (October 2015 through 
December 2015). The new deadlines apply to all LTCH QRP quality 
measures (except Influenza Vaccination Coverage Among Healthcare 
Personnel (NQF #0431)) for the FY 2017 and FY 2018 payment 
determinations and subsequent years.
b. Timeline for Data Submission Under the LTCH QRP for the FY 2018 
Payment Determination and Subsequent Years
    The table below presents the data collection period, data 
submission (for the LTCH CARE Data Set-assessment based and CDC 
measures) and data correction timelines for quality measures affecting 
the FY 2018 and subsequent years payment determination.

[[Page 25229]]



 Summary Details on the LTCH CARE Data Set and CDC NHSN Data Collection Period and Data Submission Timeline for
     Previously Adopted Quality Measures Affecting the FY 2018 Payment Determination and Subsequent Years *
----------------------------------------------------------------------------------------------------------------
                                                                           Quarterly review
                                                       Data collection/     and correction
                                                          submission        period and data        First APU
         Quality measure           Submission method       quarterly          submission         determination
                                                           reporting         deadlines for         affected
                                                           period(s)            payment
                                                                             determination
----------------------------------------------------------------------------------------------------------------
NQF #0678: Percent of Residents   LTCH CARE Data Set/ 1/1/16-3/31/16, 4/  8/15/16 (Q1), 11/   FY 2018.
 or Patients with Pressure         QIES ASAP.          1/16-6/30/16, 7/1/  15/16 (Q2), 2/15/
 Ulcers That Are New or Worsened                       16-9/30/16, 10/01/  17 (Q3), 5/15/17
 (Short Stay) (76 FR 51748                             16-12/31/16;        (Q4);
 through 51750).                                       Quarterly for       Approximately 135
                                                       each subsequent     days after the
                                                       calendar year.      end of each
                                                                           quarter.
NQF #0138: NHSN Catheter-         CDC NHSN..........  1/1/16-3/31/16, 4/  8/15/16 (Q1), 11/   FY 2018.
 Associated Urinary Tract                              1/16-6/30/16, 7/1/  15/16 (Q2), 2/15/
 Infection (CAUTI) Outcome                             16-9/30/16, 10/01/  17 (Q3), 5/15/17
 Measure (76 FR 51745 through                          16-12/31/16;        (Q4);
 51747).                                               Quarterly for       Approximately 135
                                                       each subsequent     days after the
                                                       calendar year.      end of each
                                                                           quarter.
NQF #0139: NHSN Central-Line      CDC NHSN..........  1/1/16-3/31/16, 4/  8/15/16 (Q1), 11/   FY 2018.
 Associated Bloodstream                                1/16-6/30/16, 7/1/  15/16 (Q2), 2/15/
 Infection (CLABSI) Outcome                            16-9/30/16, 10/01/  17 (Q3), 5/15/17
 Measure (76 FR 51747 through                          16-12/31/16;        (Q4);
 51748).                                               Quarterly for       Approximately 135
                                                       each subsequent     days after the
                                                       calendar year.      end of each
                                                                           quarter.
NQF #1716: NHSN Facility-wide     CDC NHSN..........  1/1/16-3/31/16, 4/  8/15/16 (Q1), 11/   FY 2018.
 Inpatient Hospital-onset                              1/16-6/30/16, 7/1/  15/16 (Q2), 2/15/
 Methicillin-resistant                                 16-9/30/16, 10/01/  17 (Q3), 5/15/17
 Staphylococcus aureus (MRSA)                          16-12/31/16;        (Q4);
 Bacteremia Outcome Measure (78                        Quarterly for       Approximately 135
 FR 50863 through 50865).                              each subsequent     days after the
                                                       calendar year.      end of each
                                                                           quarter.
NQF #1717: NHSN Facility-wide     CDC NHSN..........  1/1/16-3/31/16, 4/  8/15/16 (Q1), 11/   FY 2018.
 Inpatient Hospital-onset                              1/16-6/30/16, 7/1/  15/16 (Q2), 2/15/
 Clostridium difficile Infection                       16-9/30/16, 10/01/  17 (Q3), 5/15/17
 (CDI) Outcome Measure (78 FR                          16-12/31/16;        (Q4);
 50865 through 50868).                                 Quarterly for       Approximately 135
                                                       each subsequent     days after the
                                                       calendar year.      end of each
                                                                           quarter.
NHSN Ventilator-Associated Event  CDC NHSN..........  1/1/16-3/31/16, 4/  8/15/16 (Q1), 11/   FY 2018.
 (VAE) Outcome Measure (79 FR                          1/16-6/30/16, 7/1/  15/16 (Q2), 2/15/
 50301 through 50305).                                 16-9/30/16, 10/01/  17 (Q3), 5/15/17
                                                       16-12/31/16;        (Q4);
                                                       Quarterly for       Approximately 135
                                                       each subsequent     days after the
                                                       calendar year.      end of each
                                                                           quarter.
NQF #0680: Percent of Residents   LTCH CARE Data Set/ 10/1/15-12/31/15,   5/15/16, 8/15/16    FY 2018.
 or Patients Who Were Assessed     QIES ASAP.          1/1/16-3/31/16 **.  **.
 and Appropriately Given the
 Seasonal Influenza Vaccine
 (Short Stay) (77 FR 53624
 through 53627).
NQF #0431: Influenza Vaccination  CDC NHSN..........  10/1/16-3/31/17,    5/15/17, 5/15 for   FY 2018.
 Coverage Among Healthcare                             10/1-3/31 for       subsequent years.
 Personnel (77 FR 53630 through                        subsequent years.
 53631).
NQF #2512: All[dash]Cause         Medicare FFS        N/A...............  N/A...............  FY 2018.
 Unplanned Readmission Measure     Claims Data.
 for 30-Days Post[dash]Discharge
 from Long-Term Care Hospitals
 (78 FR 50868 through 50874).
NQF #0674: Application of         LTCH CARE Data Set/ 4/1/16-6/30/16, 7/  11/15/16 (Q2), 2/   FY 2018.
 Percent of Residents              QIES ASAP.          1/16-9/30/16, 10/   15/17 (Q3), 5/15/
 Experiencing One or More Falls                        1/16-12/31/16;      17 (Q4);
 with Major Injury (Long Stay)                         Quarterly for       Quarterly
 (80 FR 49736 through 49739).                          each subsequent     approximately 135
                                                       calendar year.      days after the
                                                                           end of each
                                                                           quarter for
                                                                           subsequent years.
NQF #2631: Percent of Long-Term   LTCH CARE Data Set/ 4/1/16-6/30/16, 7/  11/15/16 (Q2), 2/   FY 2018.
 Care Hospital Patients with an    QIES ASAP.          1/16-9/30/16, 10/   15/17 (Q3), 5/15/
 Admission and Discharge                               1/16-12/31/16;      17 (Q4);
 Functional Assessment and a                           Quarterly for       Quarterly
 Care Plan That Addresses                              each subsequent     approximately 135
 Function (79 FR 50298 through                         calendar year.      days after the
 50301).                                                                   end of each
                                                                           quarter for
                                                                           subsequent years.
NQF #2631: Application of         LTCH CARE Data Set/ 4/1/16-6/30/16, 7/  11/15/16 (Q2), 2/   FY 2018.
 Percent of Long-Term Care         QIES ASAP.          1/16-9/30/16, 10/   15/17 (Q3), 5/15/
 Hospital Patients with an                             1/16-12/31/16;      17 (Q4);
 Admission and Discharge                               Quarterly for       Quarterly
 Functional Assessment and a                           each subsequent     approximately 135
 Care Plan That Addresses                              calendar year.      days after the
 Function (80 FR 49739 through                                             end of each
 49747).                                                                   quarter for
                                                                           subsequent years.

[[Page 25230]]

 
NQF #2632: Functional Outcome     LTCH CARE Data Set/ 4/1/16-6/30/16, 7/  11/15/16 (Q2), 2/   FY 2018.
 Measure: Change in Mobility       QIES ASAP.          1/16-9/30/16, 10/   15/17 (Q3), 5/15/
 Among Long-Term Care Hospital                         1/16-12/31/16;      17 (Q4);
 Patients Requiring Ventilator                         Quarterly for       Quarterly
 Support (79 FR 50298 through                          each subsequent     approximately 135
 50301).                                               calendar year.      days after the
                                                                           end of each
                                                                           quarter for
                                                                           subsequent years.
----------------------------------------------------------------------------------------------------------------
* We refer readers to the table below for an illustration of the CY quarterly data collection/submission
  quarterly reporting periods and correction and submission deadlines for all APU years.
** For this measure, Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal
  Influenza Vaccine, we refer readers to the proposals on data submission for this measure we are making in
  section VIII.C.9.d. of the preamble of this proposed rule. These proposals for the FY 2019 payment
  determination and for FY 2020 payment determination and subsequent years are illustrated in the tables in that
  section.

    Further, in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49749 
through 49752), we established that the LTCH CARE Data Set-based and 
CDC NHSN measures finalized for adoption into the LTCH QRP would follow 
a calendar year schedule with quarterly reporting periods, followed by 
quarterly review and correction periods and submission deadlines. This 
pattern is illustrated in the table below and is in place for all APU 
years unless otherwise specified. We also wish to illustrate that for 
the measures finalized for use in the LTCH QRP that use the LTCH CARE 
Data Set or CDC NHSN data sources, payment determination would 
subsequently use the data collection and deadlines shown below unless 
otherwise specified.

   Annual CY LTCH CARE Data Set and CDC NHSN Data Collection/Submission Reporting Periods and Data Submission/
                                 Correction Deadlines for Payment Determinations
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
 Proposed CY data collection quarter      Data collection/      Quarterly review and correction periods and data
                                        submission quarterly     submission deadlines for payment determination
                                          reporting period
----------------------------------------------------------------------------------------------------------------
Quarter 1...........................  January 1-March 31 * **  April 1-August 15 *....  Deadline: August 15.* **
Quarter 2...........................  April 1-June 30........  July 1-November 15.....  Deadline: November 15.
Quarter 3...........................  July 1-September 30....  October 1-February 15..  Deadline: February 15.
Quarter 4...........................  October 1-December 31 *  January 1-May 15 *.....  Deadline: May 15.* **
                                       **.
----------------------------------------------------------------------------------------------------------------
* The annual data submission time frame for the measure, Influenza Vaccination Coverage among Healthcare
  Personnel, is October 1 through March 31 of the subsequent year with a reporting deadline of May 15 in that
  subsequent year.
** For the measure, Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal
  Influenza Vaccine, we refer readers to the proposals on data submission for this measure we are making in
  section VIII.C.9.d. of the preamble of this proposed rule. These proposals for the FY 2019 payment
  determination and for FY 2020 payment determination and subsequent years are illustrated in the tables in that
  section.

c. Proposed Timeline and Data Submission Mechanisms for the FY 2018 
Payment Determination and Subsequent Years for Proposed New LTCH QRP 
Resource Use and Other Measures--Claims-Based Measures
    The MSPB-PAC LTCH QRP measure; Discharge to Community-PAC LTCH QRP 
measure and Potentially Preventable 30-Day Post-Discharge Readmission 
Measure for LTCH QRP, which we have proposed in this proposed rule, are 
Medicare FFS claims-based measures. Because claims-based measures can 
be calculated based on data that are already reported to the Medicare 
program for payment purposes, no additional information collection 
would be required from LTCHs. As discussed in section VIII.C.6. of the 
preamble of this proposed rule, these measures would use 2 years of 
claims-based data beginning with CY 2015 and CY 2016 claims to inform 
confidential feedback reports for LTCHs, and CYs 2016 and 2017 claims 
data for public reporting.
    We are inviting public comments on this proposal.
d. Proposal To Revise 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 2019 Payment Determination and Subsequent 
Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 
53627), we adopted 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 the FY 2014 IPPS/LTCH PPS final rule (78 FR 50858 
through 50861), we finalized the data submission timelines and 
submission deadlines for the measures for FY 2016 and FY 2017 payment 
determinations. We refer readers to the FY 2013 and FY 2014 IPPS/LTCH 
PPS final rules for a more detailed discussion of the measure, 
timelines and deadlines.
    In these previous rules, we finalized that LTCHs were required to 
perform data collection in alignment with the influenza vaccination 
season (IVS); that is, obtaining the vaccination status of patients who 
are in an LTCH for one or more days between the dates of October 1 of a 
given year through March 31 of the subsequent year, or what the CDC 
terms the Influenza Vaccination Season (IVS), but for only those 
patients whose

[[Page 25231]]

corresponding admissions and discharges occurred during the IVS. 
Through analysis of the quality data submitted for this measure, we 
discovered that only requiring LTCH providers to submit patient 
Influenza vaccination data during the IVS (October 1 of a given year 
through March 31 of the subsequent year) inadvertently limits the data 
collection to only a subset of patients whose stays at an LTCH qualify 
for inclusion in the measure calculation. This measure is structured in 
such a way that all patients in an LTCH for one or more days during the 
IVS are included in the measure. For those patients, an LTCH should 
have the opportunity to demonstrate the Influenza vaccination status of 
these patients on either their LTCH CARE Data Set (LCDS) admission 
assessment or on their discharge assessment (planned, unplanned, or 
expired). By limiting data collection to only those assessments 
obtained during the IVS, per our previously finalized policy, CMS 
inadvertently excluded the collection of Influenza vaccination status 
data on those patients who were in an LTCH for at least one day during 
the IVS, but for whom the associated LCDS admission and/or discharge 
assessments occurred outside of the IVS (prior to October 1 or after 
March 31).
    For these reasons, we are proposing that beginning with the FY 2019 
payment determination and subsequent years, which includes the CY 2016/
2017 IVS, data collection and submission for the measure Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short Stay) (NQF #0680) will be required 
year-round, thus including all patients in the LTCH one or more days 
during the IVS (October 1 of any given CY through March 31 of the 
subsequent CY), regardless of the associated LCDS admission and 
discharge dates. This includes, for example, a patient that is admitted 
September 15 of a given year, and discharged April 1 of the subsequent 
year (thus, in the LTCH during the IVS). This proposal would enable the 
important data collection necessary to indicate that a patient who had 
an admission or a discharge outside of the IVS, but was in the facility 
during the vaccination season, ensuring that the data collected and 
submitted to CMS is representative of the status of all patients within 
the IVS, rather than only a subset of those who had both admissions and 
discharges within the IVS.
    Further, our proposal effectively changes the data collection and 
submission timeline for this measure to include 4 calendar quarters, 
that is based on the influenza season (July 1 of any given year through 
June 30 of the subsequent year), rather than on the calendar year. For 
the purposes of APU determination and for public reporting, data 
calculation and analysis uses data from an influenza vaccination season 
which takes place within the influenza season itself. While the 
influenza vaccination season is October 1 of a given year (or when the 
vaccine becomes available) through March 31 of the subsequent year, 
this timeframe rests within a greater time period of the influenza 
season, which spans 12 months--that is, July 1 of a given year through 
June 30 of the subsequent year, as defined by the CDC. Thus, for this 
measure, we utilize data from a timeframe of 12 months that mirrors the 
influenza season which is July 1 of a given year through June 30 of the 
subsequent year. In addition, for the APU determination, we review data 
submitted beginning on July 1 of the calendar year 2 years prior to the 
calendar year of the APU effective date and ending June 30 of the 
subsequent calendar year, one year prior to the calendar year of the 
APU effective date. For example, and as provided in the below for the 
FY 2020 (October 1, 2019) APU determination, we review data submission 
beginning July 1, 2017 through June 30, 2018 for the 2017/2018 
influenza vaccination season (October 1, 2017 [or when the vaccine 
becomes available] through March 31, 2018), so as to capture all data 
that an LTCH will have submitted with regard to the 2017/2018 influenza 
vaccination season itself which resides within the associated influenza 
season. We will use assessment data from the influenza season so as to 
ensure full capture of vaccination status in the IVS that resides 
within the influenza season period, as well for public reporting. 
Further, because we enable the opportunity to review and correct data 
for all assessment based LCDS measures within the LTCH QRP, we continue 
to follow quarterly calendar data collection/submission quarterly 
reporting period(s) and their subsequent quarterly review and 
correction periods with data submission deadlines for public reporting 
and payment determinations. However, rather than using a standard CY 
timeframe, these quarterly data collection/submission periods and their 
subsequent quarterly review and correction periods and submission 
deadlines begin with CY quarter 3, July 1, of a given year and end CY 
quarter 2, June 30, of the following year.
    The proposed revisions to the data collection period for the 
measure Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF 
#0680), will ultimately have the effect of helping LTCHs capture 
Influenza vaccination data on any LTCH patients that were in their 
hospital for one or more days during the IVS, by ensuring that such 
patient's admission and discharge assessments, regardless of the date 
of those assessments, capture potential influenza vaccination data, and 
allow the appropriate inclusion of patients and thus the accurate 
calculation of data for this measure. Lastly, this clarification will 
also remove any ambiguity and ensure that LTCHs are receiving credit 
for recording the vaccination status of all patients that were in their 
hospital for at least one day during any given IVS, regardless of the 
date(s) of their admission and/or discharge.
    We would like to note that in order to implement the newly proposed 
revision to the data collection timeframes and submission deadlines for 
this measure, the FY 2019 payment determination will only be based on 
three CY quarters, as this policy will not go into effect until October 
1, 2016, which is the start of the 2016/2017 IVS. Because of this, we 
are not requiring LTCHs to respond to the Influenza vaccination items 
on the LCDS admission or discharge assessments that take place during 
Q3 2016 (7/1/16-9/30/16), as this quarter will occur prior to the 
effective date of this policy, if finalized. This is illustrated in the 
table for the FY 2019 payment determination, below. All subsequent 
payment determinations will be based on four CY quarters, as discussed 
above, beginning with Q3 of CY 2017 for the FY 2020 payment 
determination. This is illustrated in table for the FY 2020 payment 
determination and subsequent years, below.

[[Page 25232]]



   FY 2019 Payment Determination: * Summary Details on Data Collection Period and Data Submission Timeline for
      Previously Adopted Quality Measure, NQF #0680 Percent of Residents or Patients Who Were Assessed and
                               Appropriately Given the Seasonal Influenza Vaccine
----------------------------------------------------------------------------------------------------------------
                                                                  Quarterly review and
                                           Data collection/     correction periods data
          Submission method              submission quarterly     submission deadlines      APU determination
                                         reporting period(s)          for payment                affected
                                                                    determination *
----------------------------------------------------------------------------------------------------------------
Finalized Measure: NQF #0680 Percent of Residents or Patients Who Were Assessed and Appropriately Given the
 Seasonal Influenza Vaccine (77 FR 53624 through 53627)
----------------------------------------------------------------------------------------------------------------
LTCH CARE Data Set/QIES ASAP System..  CY 16..................  1/1/2017-5/15/17         FY 2019.
                                       10/1/16-12/31/16.......   deadline.
                                       CY 17 Q1...............  4/1/2017-8/15/17
                                       1/1/17-3/31/17.........   deadline.
                                       CY 17 Q2...............  7/1/17-11/15/17
                                       4/1/17-6/30/17.........   deadline.
----------------------------------------------------------------------------------------------------------------
* This table refers to the FY 2019 payment determination only. We refer readers to the table below for all
  subsequent FY payment determinations for this measure.


     FY 2020 Payment Determination and Subsequent Years: Summary Details on Data Collection Period and Data
 Submission Timeline for Previously Adopted Quality Measure, NQF #0680 Percent of Residents or Patients Who Were
                         Assessed and Appropriately Given the Seasonal Influenza Vaccine
----------------------------------------------------------------------------------------------------------------
                                                                  Quarterly review and
                                           Data collection/     correction periods data
          Submission method              submission quarterly     submission deadlines      APU determination
                                         reporting period(s)          for payment                affected
                                                                    determination *
----------------------------------------------------------------------------------------------------------------
Finalized Measure: NQF #0680 Percent of Residents or Patients Who Were Assessed and Appropriately Given the
 Seasonal Influenza Vaccine (77 FR 53624 through 53627)
----------------------------------------------------------------------------------------------------------------
LTCH CARE Data Set/QIES ASAP System..  CY 17 Q3...............  10/1/17-2/15/18          FY 2020
                                       7/1/17-9/30/17.........   deadline.               .......................
                                       Q3 (7/1-9/30)..........  10/1-2/15..............  Subsequent Years
                                       CY 17 Q4...............  1/1/2018-5/15/18
                                       10/1/17-12/31/17.......   deadline
                                       Q4 (10/1-12/31)........  1/1-5/15...............
                                       CY 18 Q1...............  4/1/2018-8/15/18
                                       1/1/18-3/31/18.........   deadline
                                       Q1 (1/1-3/31)..........  4/1-8/15...............
                                       CY 18 Q2...............  7/1/18-11/15/18
                                       4/1/18-6/30/18.........   deadline
                                       Q2 (4/1-6/30)..........  7/1-11/15..............
----------------------------------------------------------------------------------------------------------------

    We are inviting comment on our proposal to revise the data 
collection and submission timeframe for the measure Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short Stay) (NQF #0680), beginning with the 
FY 2019 payment determination and subsequent years.
e. Proposed Timeline and Data Submission Mechanisms for the Proposed 
LTCH QRP Quality Measure for the FY 2020 Payment Determination and 
Subsequent Years
    As discussed in section VIII.C.7. of the preamble of this proposed 
rule, we are proposing that the data for the proposed quality measure, 
Drug Regimen Review Conducted with Follow-Up for Identified Issues-PAC 
LTCH QRP, affecting the FY 2020 payment determination and subsequent 
years be collected by completing data elements that would be added to 
the LTCH CARE Data Set with submission through the QIES ASAP system. 
Data collection would begin on April 1, 2018. More information on LTCH 
reporting using the QIES ASAP system is located at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Technical-Information.html.
    For the FY 2020 payment determination, we are proposing to collect 
CY 2018 Q2 through Q4 data, that is, beginning with admissions on April 
1, 2018 through discharges on December 31, 2018, to remain consistent 
with the usual April release schedule for the LTCH CARE Data Set, to 
give LTCHs sufficient time to update their systems so that they can 
comply with the new data reporting requirements, and to give CMS 
sufficient time to determine compliance for the FY 2020 payment 
determination. The proposed use of 3 quarters of data for the initial 
year of assessment data reporting in the LTCH QRP is consistent with 
the approach we used previously for the SNF, IRF, and Hospice QRPs.
    The table below presents the proposed data collection period and 
data submission timelines for the new proposed LTCH QRP quality measure 
for the FY 2020 payment determination. We are inviting public comments 
on this proposal.

[[Page 25233]]



 Details on the Proposed Data Collection Period and Data Submission Timeline for Resource Use and Other Measures
                                   Affecting the FY 2020 Payment Determination
----------------------------------------------------------------------------------------------------------------
                                                                           Quarterly review
                                                                            and correction
                                                       Data collection/    periods and data
         Quality measure           Submission method      submission          submission       APU determination
                                                           quarterly         deadlines for         affected
                                                       reporting period         payment
                                                                             determination
----------------------------------------------------------------------------------------------------------------
Drug Regimen Review Conducted     LTCH CARE Data Set/ 4/1/18-6/30/18      11/15/18 (Q2), 2/   FY 2020.
 with Follow-Up for Identified     QIES ASAP.          (Q2), 7/1/18-9/30/  15/19 (Q3), 5/15/
 Issues-PAC LTCH QRP.                                  18 (Q3), 10/1/18-   19 (Q4).
                                                       12/31/18 (Q4).
----------------------------------------------------------------------------------------------------------------

    Following the close of the reporting quarters for the FY 2020 
payment determination, LTCHs would have the already established 
additional 4.5 months to correct their quality data and that the final 
deadline for correcting data for the FY 2020 payment determination 
would be May 15, 2019 for these measures. We are also proposing that 
for the FY 2021 payment determination and subsequent years, we would 
collect data using the calendar year reporting cycle as described in 
section VIII.C.9.c. of the preamble of this proposed rule, and 
illustrated in the table below. We are inviting public comments on this 
proposal.

  Proposed Data Collection Period and Data Correction Deadlines Affecting the FY 2021 Payment Determination and
                                                Subsequent Years
----------------------------------------------------------------------------------------------------------------
                                                                                              Proposed quarterly
                                                                                                  review and
                                                                             Proposed data    correction periods
                                                       Proposed CY data       collection/          and data
         Quality measure           Submission method  collection quarter      submission          submission
                                                                               quarterly         deadlines for
                                                                           reporting period         payment
                                                                                                 determination
----------------------------------------------------------------------------------------------------------------
Drug regimen review conducted     LTCH CARE Data Set/ Quarter 1.........  January 1-March 31  April 1-August 15.
 with follow-up for identified     QIES ASAP.         Quarter 2.........  April 1-June 30...  July 1-November
 issues PAC LTCH QRP.                                 Quarter 3.........  July 1-September     15.
                                                      Quarter 4.........   30.                October 1-February
                                                                          October 1-December   15.
                                                                           31.                January 1-May 15.
----------------------------------------------------------------------------------------------------------------

10. LTCH QRP Data Completion Thresholds for the FY 2016 Payment 
Determination and Subsequent Years
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50311 through 
50314), we finalized LTCH QRP thresholds for completeness of LTCH data 
submissions. To ensure that LTCHs are meeting an acceptable standard 
for completeness of submitted data, we finalized the policy that, 
beginning with the FY 2016 payment determination and for each 
subsequent year, LTCHs must meet or exceed two separate data 
completeness thresholds: One threshold set at 80 percent for completion 
of quality measures data collected using the LTCH CARE Data Set 
submitted through the QIES and a second threshold set at 100 percent 
for quality measures data collected and submitted using the CDC's NHSN.
    In addition, we stated that we would apply the same thresholds to 
all measures adopted as the LTCH QRP expands and LTCHs begin reporting 
data on previously finalized measure sets. That is, as we finalize new 
measures through the regulatory process, LTCHs will be held accountable 
for meeting the previously finalized data completion threshold 
requirements for each measure until such time that updated threshold 
requirements are proposed and finalized through a subsequent regulatory 
cycle.
    Further, we finalized the requirement that an LTCH must meet or 
exceed both thresholds to avoid receiving a 2 percentage point 
reduction to their annual payment update for a given fiscal year, 
beginning with FY 2016 and for all subsequent payment updates. For a 
detailed discussion of the finalized LTCH QRP data completion 
requirements, we refer readers to the FY 2015 IPPS/LTCH PPS final rule 
(79 FR 50311 through 50314). We are not proposing any changes to these 
policies.
11. LTCH QRP Data Validation Process for the FY 2016 Payment 
Determination and Subsequent Years
    Validation is intended to provide added assurance of the accuracy 
of the data that will be reported to the public as required by sections 
1886(m)(5)(E) and 1899B(g) 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, a process to validate the 
data submitted for quality purposes. However, in the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 50314 through 50316), we did not finalize the 
proposal; instead we decided to further explore suggestions from 
commenters before finalizing the LTCH data validation process that we 
proposed. In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49752 through 
49753), we did not propose any new policies related to data accuracy 
validation. In this proposed rule, we are not proposing a data 
validation policy because we are developing a policy that could be 
applied to several PAC quality reporting programs. We intend to propose 
a data validation policy through future rulemaking.
12. Proposed Change to Previously Codified LTCH QRP Submission 
Exception and Extension Policies
    We refer readers to Sec.  412.560(c) for requirements pertaining to 
submission exception and extension for the FY 2017 payment 
determination and subsequent years. At this time, we are proposing to 
revise Sec.  412.560(c) to change the timing for submission of these 
exception and extension requests from 30 days to 90 days from the date 
of the qualifying event which is preventing an LTCH from submitting 
their quality data for the LTCH QRP. We are proposing the increased 
time allotted for the submission of the requests from 30 to 90 days to 
be consistent with other quality reporting programs; for example, the 
Hospital Inpatient Quality Reporting (IQR) Program is also proposing to 
extend the deadline to 90 days in section VIII.C.15.a. of the preamble 
of this proposed rule. We believe that this increased time will assist 
providers experiencing an event in having the

[[Page 25234]]

time needed to submit such a request. With the exception of this one 
change, we are not proposing any additional changes to the exception 
and extension policies for the LTCH QRP at this time.
    We are inviting public comments on the proposal to revise Sec.  
412.560(c) to change the timing for submission of these exception and 
extension requests from 30 days to 90 days from the date of the 
qualifying event which is preventing an LTCH from submitting their 
quality data for the LTCH QRP.
13. Previously Finalized LTCH QRP Reconsideration and Appeals 
Procedures
    We refer readers to Sec.  412.560(d) for a summary of our finalized 
reconsideration and appeals procedures for the LTCH QRP for FY 2017 
payment determination and subsequent years. We are not proposing any 
changes to this policy. However, we wish to clarify that in order to 
notify LTCHs found to be non-compliant with the reporting requirements 
set forth for a given payment determination, we may include the QIES 
mechanism in addition to U.S. mail, and we may elect to utilize the 
MACs to administer such notifications.
14. Proposals and Policies Regarding Public Display of Measure Data for 
the LTCH QRP and Procedures for the Opportunity To Review and Correct 
Data and Information
a. Public Display of Measures
    Section 1886(m)(5)(E) of the Act requires the Secretary to 
establish procedures for making the LTCH QRP data available to the 
public. In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49753 through 
49755), we finalized our proposals to display performance data for the 
LTCH QRP quality measures by fall 2016 on a CMS Web site, such as the 
Hospital Compare, after a 30-day preview period, and to give providers 
an opportunity to review and correct data submitted to the QIES ASAP 
system or to the CDC NHSN. The procedures for the opportunity to review 
and correct data are provided in the following section. In addition, we 
finalized the proposal to publish a list of LTCHs that successfully 
meet the reporting requirements for the applicable payment 
determination on the LTCH QRP Web site at: https://www.cms.gov/medicare/quality-initiatives-patient-assessment-instruments/ltch-quality-reporting/. In the FY 2016 IPPS/LTCH PPS final rule, we also 
finalized that we would update the list after the reconsideration 
requests are processed on an annual basis.
    Also, in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49753 through 
49755), we finalized that the display of information for fall 2016 
contains performance data on four quality measures:
     Percent of Residents or Patients with Pressure Ulcers That 
Are New or Worsened (Short Stay) (NQF #0678);
     NHSN CAUTI Outcome Measure (NQF #0138);
     NHSN CLABSI Outcome Measure (NQF #0139); and
     All-Cause Unplanned Readmission Measure for 30-Days Post-
Discharge from LTCHs (NQF #2512).
    The measures Percent of Residents or Patients with Pressure Ulcers 
That Are New or Worsened (Short Stay) (NQF #0678), NHSN CAUTI Outcome 
Measure (NQF #0138), and NHSN CLABSI Outcome Measure (NQF #0139) are 
based on data collected beginning with the first quarter of 2015 or 
discharges beginning on January 1, 2015. With the exception of the All-
Cause Unplanned Readmission Measure for 30-Days Post-Discharge from 
LTCHs (NQF #2512), rates are displayed based on 4 rolling quarters of 
data and would initially use discharges from January 1, 2015 through 
December 31, 2015 (CY 2015) for Percent of Residents or Patients with 
Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678) and 
data collected from January 1, 2015 through December 31, 2015 for NHSN 
CAUTI Outcome Measure (NQF #0138) and NHSN CLABSI Outcome Measure (NQF 
#0139). For the readmissions measure, data will be publicly reported 
beginning with data collected for discharges beginning January 1, 2013, 
and rates would be displayed based on 2 consecutive years of data. For 
LTCHs with fewer than 25 eligible cases, we are proposing to assign the 
LTCH to a separate category: ``The number of cases is too small (fewer 
than 25) to reliably tell how well the LTCH is performing.'' If an LTCH 
has fewer than 25 eligible cases, the LTCH's readmission rates and 
interval estimates would not be publicly reported for the measure.
    Calculations for all four measures are discussed in detail in the 
FY 2016 IPPS/LTCH PPS final rule (80 FR 49753 through 49755).
    Pending the availability of data, we are proposing to publicly 
report data in CY 2017 on 4 additional measures beginning with data 
collected on these measures for the first quarter of 2015, or 
discharges beginning on January 1, 2015: (1) Facility-wide Inpatient 
Hospital-onset Methicillin-resistant Staphylococcus aureus (MRSA) 
Bacteremia Outcome Measure (NQF #1716); (2) Facility-wide Inpatient 
Hospital-onset Clostridium difficile Infection (CDI) Outcome Measure 
(NQF #1717); and beginning with the 2015-16 influenza vaccination 
season these two measures; (3) Influenza Vaccination Coverage Among 
Healthcare Personnel (NQF #0431); and (4) Percent of Residents or 
Patients Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (Short Stay) (NQF #0680).
    Standardized infection ratios (SIRs) for the Facility-wide 
Inpatient Hospital-onset Methicillin-resistant Staphylococcus aureus 
(MRSA) Bacteremia Outcome Measure (NQF #1716) and Facility-wide 
Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome 
Measure (NQF #1717) would be displayed based on 4 rolling quarters of 
data and would initially use MRSA Bacteremia and CDI events that 
occurred from January 1, 2015 through December 31, 2015 (CY 2015), for 
calculations. We are proposing that the display of these ratios would 
be updated quarterly.
    Rates for the Influenza Vaccination Coverage Among Healthcare 
Personnel (NQF #0431) would be displayed for personnel working in the 
reporting facility October 1, 2015 through March 31, 2016. Rates for 
the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF 
#0680) would be displayed for patients in the LTCH during the influenza 
vaccination season, from October 1, 2015, through March 31, 2016. We 
are proposing that the display of these rates would be updated annually 
for subsequent influenza vaccination seasons.
    Calculations for the MRSA Bacteremia and CDI Healthcare Associated 
Infection (HAI) measures adjust for differences in the characteristics 
of hospitals and patients using a Standardized Infection Ratio (SIR). 
The SIR is a summary measure that takes into account differences in the 
types of patients that a hospital treats. For a more detailed 
discussion about SIR, we refer readers to the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49753). The MRSA Bacteremia and CDI SIRs may take 
into account the laboratory methods, bed size of the hospital, and 
other facility-level factors. It compares the actual number of HAIs in 
a facility or State to a national benchmark based on previous years of 
reported data and adjusts the data based on several factors. A 
confidence interval with a lower and upper limit is displayed around 
each SIR to indicate that there is a high degree of confidence that the 
true value of the SIR lies within

[[Page 25235]]

that interval. A SIR with a lower limit that is greater than 1.0 means 
that there were more HAIs in a facility or State than were predicted, 
and the facility is classified as ``Worse than the U.S. National 
Benchmark.'' If the SIR has an upper limit that is less than 1, the 
facility had fewer HAIs than were predicted and is classified as 
``Better than the U.S. National Benchmark.'' If the confidence interval 
includes the value of 1, there is no statistical difference between the 
actual number of HAIs and the number predicted, and the facility is 
classified as ``No Different than U.S. National Benchmark.'' If the 
number of predicted infections is less than 1.0, the SIR and confidence 
interval are not calculated by CDC.
    Calculations for the Influenza Vaccination Coverage Among 
Healthcare Personnel (NQF #0431) are based on reported numbers of 
personnel who received an influenza vaccine at the reporting facility 
or who provided written documentation of influenza vaccination outside 
the reporting facility. The sum of these two numbers is divided by the 
total number of personnel working at the facility for at least 1 day 
from October 1 through March 31 of the following year, and the result 
is multiplied by 100 to produce a compliance percentage (vaccination 
coverage). No risk adjustment is applicable to these calculations. More 
information on these calculations and measure specifications is 
available at: http://www.cdc.gov/nhsn/pdfs/hps-manual/vaccination/4-hcp-vaccination-module.pdf. We are proposing that this data would be 
displayed on an annual basis and would include data submitted by LTCHs 
for a specific, annual influenza vaccination season. A single 
compliance (vaccination coverage) percentage for all eligible 
healthcare personnel would be displayed for each facility.
    We are inviting public comment on our proposal to begin publicly 
reporting in CY 2017 pending the availability of data on Facility-wide 
Inpatient Hospital-onset Methicillin-resistant Staphylococcus aureus 
(MRSA) Bacteremia Outcome Measure (NQF #1716); Facility-wide Inpatient 
Hospital-onset Clostridium difficile Infection (CDI) Outcome Measure 
(NQF #1717); and Influenza Vaccination Coverage Among Healthcare 
Personnel (NQF #0431).
    For the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF 
#0680) we are proposing to display rates annually based on the 
influenza season to avoid reporting for more than one influenza 
vaccination within a CY. For example, in 2017 we would display rates 
for the patient vaccination measure based on discharges starting on 
July 1, 2015, to June 30, 2016. We are proposing this approach because 
it includes the entire influenza vaccination season (October 1, 2015, 
to March 31, 2016).
    Calculations for Percent of Residents or Patients Who Were Assessed 
and Appropriately Given the Seasonal Influenza Vaccine (Short Stay) 
(NQF #0680) would be based on patients meeting any one of the following 
criteria: Patients who received the influenza vaccine during the 
influenza season; patients who were offered and declined the influenza 
vaccine; and patients who were ineligible for the influenza vaccine due 
to contraindication(s). The facility's summary observed score would be 
calculated by combining the observed counts of all the criteria. This 
is consistent with the publicly reported patient influenza vaccination 
measure for Nursing Home Compare. In addition, for the patient 
influenza measure, we would exclude LTCHs with fewer than 20 stays in 
the measure denominator. For additional information on the 
specifications for this measure, we refer readers to the LTCH Quality 
Reporting Measures Information Web page at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    We are inviting public comments on our proposal to begin publicly 
reporting the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF 
#0680) measure on discharges from July 1 of the previous calendar year 
to June 30 of the current calendar year. We are inviting comments on 
the public display of the measure Percent of Residents or Patients Who 
Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 
(NQF #0680) in 2017 pending the availability of data.
    In addition, we are requesting public comments on whether to 
include in the future, public display comparison rates based on CMS 
regions or U.S. census regions for Percent of Residents or Patients 
with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678); 
All-Cause Unplanned Readmission Measure for 30-Days Post-Discharge from 
LTCHs (NQF #2512); and Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short 
Stay) (NQF #0680) for CY 2017 public display.
b. Procedures for the Opportunity To Review and Correct Data and 
Information
    Section 1899B(g) of the Act requires the Secretary to establish 
procedures for public reporting of LTCHs' performance, including the 
performance of individual LTCHs, on quality measures specified under 
section 1899B(c)(1) of the Act and resource use and other measures 
specified under section 1899B(d)(1) of the Act (collectively, IMPACT 
Act measures) beginning not later than 2 years after the applicable 
specified application date under section 1899B(a)(2)(E) of the Act. 
Under section 1899B(g)(2) of the Act, the procedures must ensure, 
including through a process consistent with the process applied under 
section 1886(b)(3)(B)(viii)(VII) of the Act, which refers to public 
display and review requirements in the Hospital IQR Program, that each 
LTCH has the opportunity to review and submit corrections to its data 
and information that are to be made public prior to the information 
being made public.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49754), and as 
illustrated in the second table in section VIII.C.9.e. of the preamble 
of this proposed rule, we finalized that once the provider has an 
opportunity to review and correct quarterly data related to measures 
submitted via the QIES ASAP system or CDC NHSN, we would consider the 
provider to have been given the opportunity to review and correct this 
data. We wish to clarify that although the correction of data 
(including claims) can occur after the submission deadline, if such 
corrections are made after a particular quarter's submission and 
correction deadline, such corrections will not be captured in the file 
that contains data for calculation of measures for public reporting 
purposes. To have publicly displayed performance data that is based on 
accurate underlying data, it will be necessary for LTCHs to review and 
correct this data before the quarterly submission and correction 
deadline.
    In this proposed rule, we are restating and proposing additional 
details surrounding procedures that would allow individual LTCHs to 
review and correct their data and information on measures that are to 
be made public before those measure data are made public.
    For assessment-based measures, we are proposing a process by which 
we would provide each LTCH with a confidential feedback report that 
would

[[Page 25236]]

allow the LTCH to review its performance on such measures and, during a 
review and correction period, to review and correct the data the LTCH 
submitted to CMS via the CMS QIES ASAP system for each such measure. In 
addition, during the review and correction period, the LTCH would be 
able to request correction of any errors in the assessment-based 
measure rate calculations.
    We are proposing that these confidential feedback reports would be 
available to each LTCH using the CASPER system. We refer to these 
reports as the LTCH Quality Measure (QM) Reports. We are proposing to 
provide monthly updates to the data contained in these reports as data 
become available. We are proposing to provide the reports so that 
providers would be able to view their data and information at both the 
facility and patient level for its quality measures. The CASPER 
facility level QM Reports may contain information such as the 
numerator, denominator, facility rate, and national rate. The CASPER 
patient-level QM Reports may contain individual patient information 
which would provide information related to which patients were included 
in the quality measures to identify any potential errors for those 
measures in which we receive patient-level data. Currently, we do not 
receive patient-level data on the CDC measure data received via the 
NHSN system. In addition, we would make other reports available in the 
CASPER system, such as LTCH CARE Data Set assessment data submission 
reports and provider validation reports, which would disclose the 
LTCH's data submission status providing details on all items submitted 
for a selected assessment and the status of records submitted.
    We refer providers to the CDC NHSN system Web site for information 
on obtaining reports specific to NHSN submitted data at: http://www.cdc.gov/nhsn/ltach/index.html. Additional information regarding the 
content and availability of these confidential feedback reports would 
be provided on an ongoing basis on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    As previously finalized in the FY 2016 IPPS/LTCH PPS final rule (80 
FR 49750 through 49752) and illustrated in the second table in section 
VIII.C.9.c. of the preamble of this proposed rule, LTCHs would have 
approximately 4.5 months after the reporting quarter to correct any 
errors of their assessment-based data (that appear on the CASPER-
generated QM reports) and NHSN data used to calculate the measures. 
During the time of data submission for a given quarterly reporting 
period and up until the quarterly submission deadline, LTCHs could 
review and perform corrections to errors in the assessment data used to 
calculate the measures and could request correction of measure 
calculations. However, as already established, once the quarterly 
submission deadline occurs, the data is ``frozen'' and calculated for 
public reporting and providers can no longer submit any corrections. We 
would encourage LTCHs to submit timely assessment data during a given 
quarterly reporting period and review their data and information early 
during the review and correction period so that they can identify 
errors and resubmit data before the data submission deadline.
    As noted above, the assessment data would be populated into the 
confidential feedback reports and we intend to update the reports 
monthly with all data that have been submitted and are available. We 
believe that the data collection/submission quarterly reporting periods 
plus 4.5 months to review and correct the data is sufficient time for 
LTCHs to submit, review and, where necessary, correct their data and 
information. These timeframes and deadlines for review and correction 
of such measures and data satisfy the statutory requirement that LTCHs 
be provided the opportunity to review and correct their data and 
information and are consistent with the informal process hospitals 
follow in the Hospital IQR Program.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49753 through 49755) 
we finalized the data submission/correction and review period. Also, we 
afford LTCHs a 30-day preview period prior to public display during 
which LTCHs may preview the performance information on their measures 
that will be made public. We would like to clarify that we will provide 
the preview report using the CASPER system, with which LTCHs are 
familiar. The CASPER preview reports inform providers of their 
performance on each measure which will be publicly reported. Please 
note that the CASPER preview reports for the reporting quarter will be 
available after the 4.5 month correction period and the applicable data 
submission/correction deadline have passed and are refreshed on a 
quarterly basis for those measures publicly reported quarterly, and 
annually for those measure publicly reported annually. We are proposing 
to give LTCHs 30 days to review the preview report beginning from the 
date on which they can access the report.
    As already finalized, corrections to the underlying data would not 
be permitted during this time; however, LTCHs may ask for a correction 
to their measure calculations during the 30-day preview period. We are 
proposing that if CMS determines that the measure, as it is displayed 
in the preview report, contains a calculation error, we could suppress 
the data on the public reporting Web site, recalculate the measure and 
publish it at the time of the next scheduled public display date. This 
process would be consistent with informal processes used in the 
Hospital IQR Program. If finalized, we intend to utilize a 
subregulatory mechanism, such as our LTCH QRP Web site, to provide more 
information about the preview reports, such as when they will be made 
available and explain the process for how and when providers may ask 
for a correction to their measure calculations. We are inviting public 
comment on these proposals to provide preview reports using the CASPER 
system, giving LTCHs 30 days review the preview report and ask for a 
correction, and to use a subregulatory mechanism to explain the process 
for how and when providers may ask for a correction.
    In addition to assessment-based measures and CDC measure data 
received via the NHSN system, we have also proposed claims-based 
measures for the LTCH QRP. The claims-based measures include those 
proposed to meet the requirements of the IMPACT Act as well as the All-
Cause Unplanned Readmission Measure for 30 Days Post-Discharge from 
LTCHs (NQF #2512) which was finalized for public display in the FY 2016 
IPPS/LTCH PPS final rule (80 FR 49753 through 49755). As noted in 
above, section 1899B(g)(2) of the Act requires prepublication provider 
review and correction procedures that are consistent with those 
followed in the Hospital IQR Program. Under the Hospital IQR Program's 
informal procedures, for claims-based measures, we provide hospitals 30 
days to preview their claims-based measures and data in a preview 
report containing aggregate hospital-level data. We are proposing to 
adopt a similar process for the LTCH QRP.
    Prior to the public display of our claims-based measures, in 
alignment with the Hospital IQR, HAC Reduction and Hospital VBP 
Programs, we are proposing to make available through the CASPER system, 
a confidential preview report that will contain information pertaining 
to claims-based measure rate calculations, for example, facility and

[[Page 25237]]

national rates. The data and information would be for feedback purposes 
only and could not be corrected. This information would be accompanied 
by additional confidential information based on the most recent 
administrative data available at the time we extract the claims data 
for purposes of calculating the measures. Because the claims-based 
measures are recalculated on an annual basis, these confidential CASPER 
QM reports for claims-based measures will be refreshed annually. As 
previously finalized in the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49753 through 49755), LTCHs will have 30 days from the date the preview 
report is made available in which to review this information.
    The 30-day preview period is the only time when LTCHs would be able 
to see claims-based measures before they are publicly displayed. LTCHs 
would not be able to make corrections to underlying claims data during 
this preview period, nor would they be able to add new claims to the 
data extract. However, LTCHs may request that we correct our measure 
calculation if the LTCH believes it is incorrect during the 30-day 
preview period. We are proposing that if we agree that the measure, as 
it is displayed in the preview report, contains a calculation error, we 
could suppress the data on the public reporting Web site, recalculate 
the measure, and publish it at the time of the next scheduled public 
display date. This process would be consistent with informal policies 
followed in the Hospital IQR Program. If finalized, we intend to 
utilize a subregulatory mechanism, such as our LTCH QRP Web site, to 
explain the process for how and when providers may contest their 
measure calculations.
    The proposed claims-based measures--The MSPB-PAC LTCH QRP; 
Discharge to Community--PAC LTCH QRP and Potentially Preventable 30-Day 
Post-Discharge Readmission Measure for LTCH QRP--use Medicare 
administrative data from hospitalizations for Medicare FFS 
beneficiaries. Public reporting of data would be based on 2 consecutive 
calendar years (CY) of data, which is consistent with the 
specifications of the proposed measures. We are proposing to create 
data extracts using claims data for the proposed claims based 
measures--The MSPB-PAC LTCH measure; Discharge to Community--PAC LTCH 
QRP and Potentially Preventable 30-Day Post-Discharge Readmission 
Measure for LTCH QRP--at least 90 days after the last discharge date in 
the applicable period, which we will use for the calculations. For 
example, if the last discharge date in the applicable period for a 
measure is December 31, 2017 for data collection January 1, 2016 
through December 31, 2017, we would create the data extract on 
approximately March 31, 2018 at the earliest, and use that data to 
calculate the claims-based measures for that applicable period. Since 
LTCHs would not be able to submit corrections to the underlying claims 
snapshot nor add claims (for those measures that use LTCH claims) to 
this data set at the conclusion of the at least 90-day period following 
the last date of discharge used in the applicable period, at that time 
we would consider LTCH claims data to be complete for purposes of 
calculating the claims-based measures.
    We are proposing that beginning with data that will be publicly 
displayed in 2018, claims-based measures will be calculated using 
claims data at least 90 days after the last discharge date in the 
applicable period, at which time we would create a data extract or 
snapshot of the available claims data to use for the measures 
calculation. This timeframe allows us to balance the need to provide 
timely program information to LTCHs with the need to calculate the 
claims-based measures using as complete a data set as possible. As 
noted, under this proposed procedure, during the 30-day preview period, 
LTCHs would not be able to submit corrections to the underlying claims 
data or to add new claims to the data extract. This is for two reasons: 
first, for certain measures, the claims data used to calculate the 
measures may not be derived from the LTCH's claims, but are from the 
claims of another provider. For example, the proposed measure 
Potentially Preventable 30-Day Post-Discharge Readmission Measure for 
LTCH QRP uses claims data submitted by the hospital to which the 
patient was readmitted, which may not be the LTCH. For the claims that 
are not those of the LTCH, the LTCH could not make corrections to them. 
Second, even where the claims used to calculate the measures are those 
of the LTCH, it would not be not possible to correct the data after it 
is extracted for the measures calculation. This is because it is 
necessary to take a static ``snapshot'' of the claims in order to 
perform the necessary measure calculations.
    We seek to have as complete a data set as possible. We recognize 
that the proposed at least 90 day ``run-out'' period when we would take 
the data extract to calculate the claims-based measures, is less than 
the Medicare program's current timely claims filing policy under which 
providers have up to 1 year from the date of discharge to submit 
claims. We considered a number of factors in determining that the 
proposed at least 90 day run-out period is appropriate to calculate the 
claims-based measures. After the data extract is created, it takes 
several months to incorporate other data needed for the calculations 
(particularly in the case of risk-adjusted or episode-based measures). 
We then need to generate and check the calculations. Because several 
months lead time is necessary after acquiring the data to generate the 
claims-based calculations, if we were to delay our data extraction 
point to 12 months after the last date of the last discharge in the 
applicable period, we would not be able to deliver the calculations to 
LTCHs sooner than 18 to 24 months after the last discharge. We believe 
this would create an unacceptably long delay both for LTCHs and for us 
to deliver timely calculations to LTCHs for quality improvement.
    We are inviting public comment on these proposals.
15. Proposed Mechanism for Providing Feedback Reports to LTCHs
    Section 1899B(f) of the Act requires the Secretary to provide 
confidential feedback reports to PAC providers on their performance to 
the measures specified under sections 1899B(c)(1) and (d)(1) of the 
Act, beginning 1 year after the specified application date that applies 
to such measures and PAC providers. As discussed earlier, the reports 
we are proposing to provide for use by LTCHs to review their data and 
information would be confidential feedback reports that would enable 
LTCHs to review their performance on the measures required under the 
LTCH QRP. We are proposing that these confidential feedback reports 
would be available to each LTCH using the CASPER system. Data contained 
within these CASPER reports would be updated as previously described, 
on a monthly basis as the data become available except for our claims-
based measures which are only updated on an annual basis.
    We intend to provide detailed procedures to LTCHs on how to obtain 
their confidential feedback CASPER reports on the LTCH QRP Web site at: 
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    We are proposing to use the CMS QIES ASAP system to provide quality 
measure reports in a manner consistent with how providers obtain 
various reports to date. The QIES ASAP system is a confidential and 
secure system with access granted to providers, or their designees.

[[Page 25238]]

    We seek public comment on this proposal to satisfy the requirement 
to provide confidential feedback reports to LTCHs.

D. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program

1. Background
a. Statutory Authority
    Section 1886(s)(4) of the Act, as added and amended by sections 
3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary 
to implement a quality reporting program for inpatient psychiatric 
hospitals and psychiatric units.
    Section 1886(s)(4)(A)(i) of the Act requires that, for FY 2014 
\275\ and each subsequent fiscal year, the Secretary must reduce any 
annual update to a standard federal rate for discharges occurring 
during the fiscal year by 2.0 percentage points for any inpatient 
psychiatric hospital or psychiatric unit that does not comply with 
quality data submission requirements with respect to an applicable 
fiscal year.
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    \275\ The statute uses the term ``rate year'' (RY). However, 
beginning with the annual update of the inpatient psychiatric 
facility prospective payment system (IPF PPS) that took effect on 
July 1, 2011 (RY 2012), we aligned the IPF PPS update with the 
annual update of the ICD-9-CM codes, effective on October 1 of each 
year. This change allowed for annual payment updates and the ICD-9-
CM coding update to occur on the same schedule and appear in the 
same Federal Register document, promoting administrative efficiency. 
To reflect the change to the annual payment rate update cycle, we 
revised the regulations at 42 CFR 412.402 to specify that, beginning 
October 1, 2012, the RY update period would be the 12-month period 
from October 1 through September 30, which we refer to as a ``fiscal 
year'' (FY) (76 FR 26435). Therefore, with respect to the IPFQR 
Program, the terms ``rate year,'' as used in the statute, and 
``fiscal year'' as used in the regulation, both refer to the period 
from October 1 through September 30. For more information regarding 
this terminology change, we refer readers to section III. of the RY 
2012 IPF PPS final rule (76 FR 26434 through 26435).
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    As provided in section 1886(s)(4)(A)(ii) of the Act, the 
application of the reduction for failure to report under section 
1886(s)(4)(A)(i) of the Act may result in an annual update of less than 
0.0 percent for a fiscal year, and may result in payment rates under 
section 1886(s)(1) of the Act being less than the payment rates for the 
preceding year. In addition, section 1886(s)(4)(B) of the Act requires 
that the application of the reduction to a standard Federal rate update 
be noncumulative across fiscal years. Thus, any reduction applied under 
section 1886(s)(4)(A) of the Act will apply only with respect to the 
fiscal year rate involved and the Secretary may not take into account 
the reduction in computing the payment amount under the system 
described in section 1886(s)(1) of the Act for subsequent years.
    Section 1886(s)(4)(C) of the Act requires that, for FY 2014 
(October 1, 2013 through September 30, 2014) and each subsequent year, 
each psychiatric hospital and psychiatric unit must submit to the 
Secretary data on quality measures as specified by the Secretary. The 
data must be submitted in a form and manner and at a time specified by 
the Secretary. Under section 1886(s)(4)(D)(i) of the Act, unless the 
exception of subclause (ii) applies, measures selected for the quality 
reporting program must have been endorsed by the entity with a contract 
under section 1890(a) of the Act. The National Quality Forum (NQF) 
currently holds this contract.
    Section 1886(s)(4)(D)(ii) of the Act provides an exception to the 
requirement for NQF endorsement of measures: 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.
    Section 1886(s)(4)(E) of the Act requires the Secretary to 
establish procedures for making public the data submitted by inpatient 
psychiatric hospitals and psychiatric units under the IPFQR Program. 
These procedures must ensure that a facility has the opportunity to 
review its data prior to the data being made public. The Secretary must 
report quality measures that relate to services furnished by the 
psychiatric hospitals and units on the CMS Web site.
b. Covered Entities
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53645), we 
established that the IPFQR Program's quality reporting requirements 
cover those psychiatric hospitals and psychiatric units paid under 
Medicare's IPF PPS (42 CFR 412.404(b)). Generally, psychiatric 
hospitals and psychiatric units within acute care and critical access 
hospitals that treat Medicare patients are paid under the IPF PPS. 
Consistent with prior rules, we continue to use the term ``inpatient 
psychiatric facility'' (IPF) to refer to both inpatient psychiatric 
hospitals and psychiatric units. This usage follows the terminology in 
our IPF PPS regulations at 42 CFR 412.402. For more information on 
covered entities, we refer readers to the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53645).
c. Considerations in Selecting Quality Measures
    Our objective in selecting quality measures is to balance the need 
for information on the full spectrum of care delivery and the need to 
minimize the burden of data collection and reporting. We have focused 
on measures that evaluate critical processes of care that have 
significant impact on patient outcomes and support CMS and HHS 
priorities for improved quality and efficiency of care provided by 
IPFs. We refer readers to section VIII.F.4.a. of the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53645 through 53646) for a detailed discussion of 
the considerations taken into account in selecting quality measures.
    Before being proposed for inclusion in the IPFQR Program, measures 
are placed on a list of measures under consideration, which is 
published annually by December 1 on behalf of CMS by the NQF. In 
compliance with section 1890A(a)(2) of the Act, measures that we are 
proposing for the IPFQR Program in this proposed rule were included in 
a publicly available document: ``List of Measures under Consideration 
for December 1, 2015'' (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81172). The Measure Applications 
Partnership (MAP), a multi-stakeholder group convened by the NQF, 
reviews the measures under consideration for the IPFQR Program, among 
other Federal programs, and provides input on those measures to the 
Secretary. The MAP's 2016 recommendations for quality measures under 
consideration are captured in the following document: ``Process and 
Approach for MAP Pre-Rulemaking Deliberations 2015-2016--Final Report, 
February 2016'' (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81599). We considered the input 
and recommendations provided by the MAP in selecting all measures for 
the IPFQR Program, including those discussed below.
2. Retention of IPFQR Program Measures Adopted in Previous Payment 
Determinations
    The current IPFQR Program includes 16 mandatory measures. In the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53646 through 53652), we adopted 6 
measures for the FY 2014 payment determination and subsequent years. In 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50889 through 50895), we 
added 2 measures for the FY 2016 payment determination and subsequent 
years. In the FY 2015

[[Page 25239]]

IPF PPS final rule (79 FR 45963 through 45974), we adopted another 2 
measures for the FY 2016 payment determination and subsequent years, 
and finalized 4 quality measures for the FY 2017 payment determination 
and subsequent years. In the FY 2016 IPF PPS final rule (80 FR 46694 
through 46714), we removed 1 measure beginning with the FY 2017 payment 
determination; we also adopted 5 measures and removed 2 measures 
beginning with the FY 2018 payment determination. We are retaining 15 
of these previously adopted measures and proposing to update one 
measure, as discussed below.
3. Proposed Update to Previously Finalized Measure: Screening for 
Metabolic Disorders
    In the FY 2016 IPF PPS final rule (80 FR 46709 through 46713), we 
finalized our proposal to include the Screening for Metabolic Disorders 
measure in the IPFQR Program for the FY 2018 payment determination and 
subsequent years. In that final rule, we described the denominator as 
IPF patients discharged with one or more routinely scheduled 
antipsychotic medications during the measurement period. We also listed 
the following denominator exclusions: (1) Patients for whom a screening 
could not be completed within the stay due to the patient's enduring 
unstable medical or psychological condition; and (2) patients with a 
length of stay equal to or greater than 365 days, or less than 3 days.
    In the FY 2016 IPF PPS final rule (80 FR 46717 through 46718), we 
finalized the CMS global sample methodology for 10 IPFQR Program 
measures eligible for sampling, including the Screening for Metabolic 
Disorders measure. Seven of these 10 measures have denominator 
exclusions for patients with short length of stay within an IPF. Of 
these 7 measures, the Screening for Metabolic Disorders measure is the 
only one with an exclusion for less than 3 days; the other 6 all have 
denominator exclusions for length of stay less than or equal to 3 days. 
Therefore, we are proposing to update the length of stay exclusion for 
the Screening for Metabolic Disorders measure to exclude patients with 
a length of stay equal to or greater than 365 days, or less than or 
equal to 3 days. We anticipate that this update would reduce burden on 
IPFs, if it is finalized, because it would support the intent of the 
global sample to allow IPFs to use the same sample for as many measures 
as possible, by aligning the denominator exclusions.
    We welcome public comments on this proposed denominator exclusion.
4. Proposed New Quality Measures for the FY 2019 Payment Determination 
and Subsequent Years
    We are proposing two new measures for the FY 2019 payment 
determination and subsequent years:
     SUB-3 Alcohol & Other Drug Use Disorder Treatment Provided 
or Offered at Discharge and the subset measure SUB-3a Alcohol & Other 
Drug Use Disorder Treatment at Discharge (NQF #1664) (SUB3 and SUB-3a); 
and
     Thirty-day all-cause unplanned readmission following 
psychiatric hospitalization in an IPF.
    The sections below outline our rationale for proposing these 
measures.
a. SUB-3 Alcohol & Other Drug Use Disorder Treatment Provided or 
Offered at Discharge and the Subset Measure SUB-3a Alcohol & Other Drug 
Use Disorder Treatment at Discharge (NQF #1664) (SUB-3 and SUB3a)
    Individuals with mental illness experience substance use disorders 
(SUDs) at a much higher rate than the general population.\276\ Nearly 
18 percent of the 43.6 million adults aged 18 years and older who had a 
mental illness in 2013 met the criteria for a SUD. Of those who met the 
criteria for a SUD, 26.7 percent used illicit drugs.\277\ Illicit drug 
use is particularly high among adults with serious mental 
illnesses.\278\ Misuse and abuse of prescription drugs among 
individuals with mental illnesses, in particular opioids, are also of 
growing concern.
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    \276\ National Institute on Drug Abuse (NIDA). ``Comorbidity: 
Addiction and Other Mental Illnesses.''
    \277\ SAMHSA. Results from the 2014 National Survey on Drug Use 
and Health: Mental Health Findings.
    \278\ Ibid.
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    Individuals with co-occurring mental disorders and SUDs, the 
combination of one or more mental disorders and one or more SUDs, 
experience far more physical illnesses and episodes of care than 
individuals with a single diagnosis.\279\ These co-occurring disorders 
tend to go undetected and untreated, especially among the elderly 
population, which experiences more adverse effects than the young adult 
population.\280\ Treatment of only one disorder for individuals who 
have two or more mental and SUDs often leads to poor functioning and 
poor treatment compliance that inhibits full recovery, increases the 
risk of relapse, and can lead to other high-risk illnesses, such as 
coronary heart disease, diabetes, infections, and respiratory 
disease.281 282 Furthermore, individuals with undetected, 
untreated or undertreated co-occurring disorders are more likely to 
experience homelessness, incarceration, additional medical illness, 
suicide, and early death.\283\
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    \279\ SAMHSA. ``Mental and Substance Use Disorders.''
    \280\ Robert Drake. ``Dual Diagnosis and Integrated Treatment of 
Mental Illness and Substance Abuse Disorder.''
    \281\ SAMHSA. ``Mental and Substance Use Disorders.''
    \282\ Mental Health Foundation. ``Physical Health and Mental 
Health.''
    \283\ SAMHSA. ``Mental and Substance Use Disorders.''
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    Due to the prevalence of substance abuse among individuals with 
mental illness, and the negative effects therefrom, we believe it is 
imperative to assess IPFs' efforts to offer treatment options for 
patients who screen positive for drug and alcohol use. As described 
under the Measure Description section of the NQF Web page regarding 
this measure, the SUB-3 measure includes hospitalized patients age 18 
years and older ``who are identified with an alcohol or drug use 
disorder who receive or refuse at discharge a prescription for FDA-
approved medications for alcohol or drug use disorder, OR who receive 
or refuse a referral for addictions treatment.'' \284\ The SUB-3a 
subset measure includes hospitalized patients age 18 years and older 
``who receive a prescription for FDA-approved medications for alcohol 
or drug use disorder OR a referral for addictions treatment.'' \285\ 
The numerator of the SUB-3 measure includes ``patients who received or 
refused at discharge a prescription for medication for treatment of 
alcohol or drug use disorder OR received or refused a referral for 
addictions treatment.'' \286\ The numerator of the SUB-3a subset 
measure includes ``patients who received a prescription at discharge 
for medication for treatment of alcohol or drug use disorder OR a 
referral for addictions treatment.'' \287\ The denominators of both the 
SUB-3 measure and SUB-3a subset measure include ``hospitalized 
inpatients 18 years of age and older identified with an alcohol or drug 
use disorder'' subject to a list of exclusions.\288\ Further 
information on this measure, including the denominator exclusions, can 
be found in the measure detail sheet on the NQF's Web site (http://www.qualityforum.org/QPS/1664) or in the section of the Specifications 
Manual

[[Page 25240]]

for National Hospital Inpatient Quality Measures on Substance Use 
Measures at: http://www.qualitynet.org/dcs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1228890516540&blobheader=multipart%2Foctet-stream&blobheadername1=Content-Disposition&blobheadervalue1=attachment%3Bfilename%3D2.6.2_SUB_v5_1.pdf&blobcol=urldata&blobtable=MungoBlobs.
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    \284\ NQF SUB-3 and SUB-3a Measure Specifications. Available at: 
http://www.qualityforum.org/QPS/1664.
    \285\ Ibid.
    \286\ Ibid.
    \287\ Ibid.
    \288\ Ibid.
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    We previously adopted the SUB-1 measure (Alcohol Use Screening (NQF 
#1661)) (78 FR 50890 through 50892) and the SUB-2 (Alcohol Use Brief 
Intervention Provided or Offered) and the subset measure SUB-2a 
(Alcohol Use Brief Intervention (NQF #1663) (SUB-2 and SUB-2a)) measure 
(80 FR 46699 through 46701). While the SUB-1 measure assesses 
``hospitalized patients 18 years of age and older who are screened 
during the hospital stay using a validated screening questionnaire for 
unhealthy alcohol use,'' \289\ the SUB-2 and SUB-2a measure assesses 
``hospitalized patients who screened positive for unhealthy alcohol use 
who received or refused a brief intervention during the hospital stay'' 
\290\ and ``hospitalized patients 18 years and older who received the 
brief intervention during the hospital stay,'' \291\ respectively. The 
SUB-1 measure and the SUB-2 and SUB-2a measure combined provide a 
greater understanding of the rate at which patients are screened for 
potential alcohol abuse and the rate at which those who screen positive 
accept the offered interventions.
---------------------------------------------------------------------------

    \289\ NQF SUB-1 Measure Specifications.
    \290\ NQF SUB-2 and SUB-2a Measure Specifications.
    \291\ Ibid.
---------------------------------------------------------------------------

    Despite the value created by the inclusion of the SUB-1 measure and 
the SUB-2 and SUB-2a measure in the IPFQR Program measure set, neither 
fully captures hospitalized patients 18 years of age and older with 
other SUDs because these measures focus on alcohol use only. In the 
past, commenters have urged CMS to include illicit and opioid drug 
screening in our measure set (80 FR 46701) stating that co-occurring 
substance use disorders are prevalent in many patients with psychiatric 
diagnoses and the SUB-3 and SUB-3a measure will ensure that patients 
continue to receive treatment after discharge.\292\ While the SUB-3 and 
SUB-3a measure does not guarantee that patients would continue to 
receive treatment for substance use disorders after discharge, the 
addition of the SUB-3 and SUB-3a measure to the existing measure set 
would encourage IPFs to offer and provide FDA-approved medication OR a 
referral for addictions treatment to patients with co-occurring drug or 
alcohol use disorders at discharge. This measure would also provide 
information regarding the rate at which these treatment options are 
accepted by patients. The SUB-3 and SUB-3a measure also provides a 
fuller picture of the entire episode of care. In addition, aggregated 
data from the SUB-1 measure, SUB-2 and SUB-2a measure, and the SUB-3 
and SUB-3a measure from each IPF would help provide patients with 
adequate consumer information to guide their decision-making process in 
selecting a treatment facility, specifically for patients that are 
diagnosed with a substance use disorder.
---------------------------------------------------------------------------

    \292\ 80 FR 46701.
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    Furthermore, we believe that this measure set promotes the National 
Quality Strategy priority of Effective Prevention and Treatment for 
leading causes of mortality, starting with cardiovascular disease. It 
is notable that the high prevalence of SUDs among adults age 65 years 
and older contributes to serious medical conditions, including 
cardiovascular disease and liver disease. The proposed measure also 
supports HHS' Opioid Abuse Reduction Initiative to reduce prescription 
opioid and heroin related overdose, death, and dependence.\293\ We also 
note that the addition of SUB-3 and SUB-3a in the measure set could 
encourage interventions and promote prevention of conditions that are 
associated with alcohol and drug use disorders.
---------------------------------------------------------------------------

    \293\ ASPE. ``Opioid Abuse in the U.S. and HHS Actions to 
Address Opioid-Drug Related Overdoses and Deaths.''
---------------------------------------------------------------------------

    For these reasons, we included the SUB-3 and SUB-3a measure in our 
``List of Measures under Consideration for December 1, 2015'' (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81172). The MAP provided input on 
the measure and supported its inclusion in the IPFQR Program in its 
report ``Process and Approach for MAP Pre-Rulemaking Deliberations 
2015-2016--Final Report, February 2016'' available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81599. Moreover, this measure is 
NQF-endorsed for the IPF setting, in conformity with the statutory 
criteria for measure selection under section 1886(s)(4)(D)(i) of the 
Act.
    Therefore, we are proposing to adopt the SUB-3 and SUB-3a measure 
for the FY 2019 payment determination and subsequent years. We welcome 
public comment on this proposal.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53657 through 53658) 
and FY 2014 IPPS/LTCH PPS final rule (78 FR 50901 through 50902), we 
finalized policies for population, sampling, and minimum case 
thresholds. In the FY 2016 IPF PPS final rule, we made one change to 
these requirements (80 FR 46717 through 46719) in finalizing a policy 
in which IPFs may take one, global sample for all measures for which 
sampling is permitted. This policy was adopted to decrease burden on 
IPFs and streamline policies and procedures. We are proposing to allow 
sampling for the SUB-3 and SUB-3a measure. Therefore, we are proposing 
to include the SUB3 and SUB-3a measure in the list of measures covered 
by the global sample. We welcome public comment on this proposal.
b. Thirty-Day All-Cause Unplanned Readmission Following Psychiatric 
Hospitalization in an IPF
    The MAP, composed of national stakeholders, identified readmissions 
as a key gap area in the IPFQR Program in a January 2015 report.\294\ A 
goal of the CMS Quality Strategy is to ``promote effective 
communication and coordination of care'' across different care settings 
and providers. In addition, readmission following discharge from IPFs 
is undesirable for patients because readmissions represent a 
deterioration in patients' mental and/or physical health status. 
Furthermore, an analysis of Medicare claims data for calendar years 
2012 and 2013 showed that among the 716,174 IPF admissions for Medicare 
beneficiaries, more than 20 percent resulted in readmission to an IPF 
or a short-stay acute care hospital within 30 days of discharge.\295\ 
Risk-standardized readmission rates ranged from 11 percent to 35 
percent, indicating wide variation across IPFs and clear opportunity 
for improvement. Finally, MedPAC estimates of Medicare payments to IPFs 
in 2012 indicated that the average payment per discharge was

[[Page 25241]]

nearly $10,000.\296\ Therefore, reducing readmissions would 
substantially reduce costs. For these reasons, we developed a facility-
level outcome measure of all-cause, unplanned readmissions following 
discharge from a qualifying IPF admission. This measure would provide 
an important indicator of the quality of care patients receive in the 
IPF setting.
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    \294\ Process and Approach for MAP Pre-Rulemaking Deliberations. 
Measure Applications Partnership. 2015. Available at: http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx.
    \295\ Inpatient Psychiatric Facility All-Cause Unplanned 
Readmission Measure: Draft Technical Report, November 23, 2015. 
Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html#17. (On 
this page, the file is listed as ``Inpatient Psychiatric Facility 
(IPF) Outcome and Process Measure Development and Maintenance'' 
under downloads.)
    \296\ Inpatient Psychiatric Facility Services Payment System. 
MedPAC. 2014. Available at: http://www.medpac.gov/documents/payment-basics/inpatient-psychiatric-facility-services-payment-system-14.pdf.
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    Although not all readmissions are preventable, there is evidence 
that improvements in the quality of care for patients in the IPF 
setting can reduce readmission rates which, in turn, would reduce costs 
to Medicare and the burden to patients and their caregivers. For 
example, a study of 30-day behavioral health readmissions using a 
multistate Medicaid database found that connecting patients to services 
they will need post-discharge can help prevent readmissions. A 1-
percent increase in the percentage of patients receiving follow-up care 
within 7 days of discharge was associated with a 5 percent reduction in 
the probability of being readmitted.\297\ Other studies have also found 
that transitional interventions such as pre- and post-discharge patient 
education, structured needs assessments, medication reconciliation/
education, transition managers, and inpatient/outpatient provider 
communication have been effective in reducing early psychiatric 
readmissions. A systematic review of such interventions observed 
reductions of 13.6 percent to 37.0 percent of readmissions.\298\
---------------------------------------------------------------------------

    \297\ Mark TL, Mark T, Tomic KS, et al. Hospital readmission 
among medicaid patients with an index hospitalization for mental 
and/or substance use disorder. J Behav Health Serv Res. 2013; 
40(2):207-221.
    \298\ Vigod SN, Kurdyak PA, Dennis CL, et al. Transitional 
interventions to reduce early psychiatric readmissions in adults: 
Systematic review. Br J Psychiatry. 2013; 202(3):187-194.
---------------------------------------------------------------------------

    The proposed readmission measure would complement the portfolio of 
facility-level, risk-standardized readmission measures in the acute 
care setting that CMS quality reporting and pay-for-performance 
programs currently use. These programs include, among others, the 
Hospital IQR Program, which requires facilities to report on condition-
specific risk-standardized readmission measures (including Acute 
Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia, and 
elective Hip/Knee replacements, among others).\299\ In addition, the 
Hospital IQR Program requires reporting on a Hospital-Wide All-Cause 
Unplanned Readmissions measure (READM-30-HWR) as finalized in the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53521 through 53528). The Hospital 
Readmissions Reduction Program, a pay-for-performance program for 
subsection (d) hospitals or hospitals paid under section 1814(b)(3) of 
the Act, also uses risk-standardized condition-specific readmission 
measures (including AMI, HF, and Pneumonia, among others).\300\
---------------------------------------------------------------------------

    \299\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/OutcomeMeasures.html.
    \300\ 76 FR 51660 through 51676.
---------------------------------------------------------------------------

    The proposed IPF readmission measure, 30-day all-cause unplanned 
readmission following psychiatric hospitalization in an IPF, estimates 
a facility-level, risk-standardized readmission rate for unplanned, 
all-cause readmissions within 30 days of discharge from an IPF. 
Detailed information about the development of this measure as well as 
final measure specifications can be downloaded from the CMS Web site 
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html#17 (on this page, 
the file is listed as ``Inpatient Psychiatric Facility (IPF) Outcome 
and Process Measure Development and Maintenance'' under downloads.). 
The denominator for this measure includes Medicare FFS beneficiaries 
aged 18 years and older who are admitted to and discharged alive from 
an IPF with a principal diagnosis of a psychiatric disorder. Admissions 
to IPFs for nonpsychiatric disorders, which account for only 1.1 
percent of admissions, were not included in the measure cohort because 
IPFs are expected to admit patients who need inpatient care for 
psychiatric causes.\301\ Therefore, nonpsychiatric admissions could 
represent either admissions that were initiated for presumed or 
preliminary psychiatric diagnoses but later were changed to 
nonpsychiatric primary diagnoses during the admission or admissions 
with unreliable data.
---------------------------------------------------------------------------

    \301\ Prospective Payment System for Inpatient Hospital 
Services. In: Services DoHaH, Ed. 42, Vol. 412, U.S. Government 
Publishing Office 2011:535-537.
---------------------------------------------------------------------------

    Eligible index admissions require enrollment in Medicare Parts A 
and B for 12 months prior to the index admission, the month of 
admission, and at least 30 days post-discharge. Admissions to IPFs are 
excluded from the denominator if any of the following apply:
     Subsequent admission on day of discharge (Day 0) or within 
2 days post-discharge (Day 1-Day 2) due to transfers to another 
inpatient facility on Day 0 or 1 or billing procedures for interrupted 
stays, which do not allow for identification of readmissions to the 
same IPF within 3 days;
     Patient discharged against medical advice (AMA) because 
the provider would not have an opportunity to provide optimal care; and
     Unreliable patient data (for example, has a death date but 
also admission afterwards).
    The numerator for the IPF readmission measure is defined as any 
admission to an IPF or acute care hospital that occurs on or between 
days 3 and 30 post-discharge, except those considered planned by the 
CMS Planned Readmission Algorithm, Version 3.0.\302\ The all-cause, 
unplanned, 30-day readmission rate is harmonized with other readmission 
measures that are endorsed by NQF and in use by CMS programs. For the 
timeframe for measurement, literature supports the connection between 
30-day readmissions and the quality of care provided during the index 
admission.303 304 305 306 307 This timeframe also supports 
interventions that have been developed on a wide range of patient 
populations that focus on reducing 30-day readmission 
rates.308 309 310 311 312 Finally, a

[[Page 25242]]

workgroup of relevant clinical experts agreed that the 30-day time 
period captures complications that may be attributable to the IPF.
---------------------------------------------------------------------------

    \302\ Horwitz LI, Grady JN, Zhang W, et al. 2015 Measure Updates 
and Specifications Report: Hospital-Wide All-Cause Unplanned 
Readmission Measure--Version 4.0. Centers for Medicare & Medicaid 
Services; 2015. Available in the Hospital Wide All Cause Readmission 
Updates folder at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    \303\ Hyland M. National Mental Health Benchmarking Project. In: 
Wendy Hoey, Whitecross MFaF, eds. Reducing 28 Day Readmission. 
Australian Mental Health Outcomes and Classification Network 
2008:38.
    \304\ Boaz TL, Becker MA, Andel R, Van Dorn RA, Choi J, Sikirica 
M. Risk factors for early readmission to acute care for persons with 
schizophrenia taking antipsychotic medications. Psychiatric services 
(Washington, DC). 2013; 64(12):1225-1229.
    \305\ Zilber N, Hornik-Lurie T, Lerner Y. Predictors of early 
psychiatric rehospitalization: A national case register study. Isr J 
Psychiatry Relat Sci. 2011; 48(1):49-53.
    \306\ Lutterman T, Ganju V, Schacht L, Shaw R, Monihan K, et.al. 
Sixteen State Study on Mental Health Performance Measures. 2003.
    \307\ Carr VJ, Lewin TJ, Sly KA, et al. Adverse incidents in 
acute psychiatric inpatient units: rates, correlates and pressures. 
Aust N Z J Psychiatry. 2008; 42(4):267-282.
    \308\ Naylor M, Brooten D, Jones R, Lavizzo-Mourey R, Mezey M, 
Pauly M. Comprehensive discharge planning for the hospitalized 
elderly. A randomized clinical trial. Annals of internal medicine. 
1994; 120(12):999-1006.
    \309\ Naylor MD, Brooten D, Campbell R, et al. Comprehensive 
discharge planning and home follow-up of hospitalized elders: A 
randomized clinical trial. JAMA. 1999; 281(7):613-620.
    \310\ van Walraven C, Seth R, Austin PC, Laupacis A. Effect of 
discharge summary availability during post-discharge visits on 
hospital readmission. J Gen Intern Med. 2002; 17(3):186-192.
    \311\ Zhang J, Harvey C, Andrew C. Factors associated with 
length of stay and the risk of readmission in an acute psychiatric 
inpatient facility: a retrospective study. Aust N Z J Psychiatry. 
2011; 45(7):578-585.
    \312\ Silva NC, Bassani DG, Palazzo LS. A case-control study of 
factors associated with multiple psychiatric readmissions. 
Psychiatric services (Washington, DC). 2009; 60(6):786-791.
---------------------------------------------------------------------------

    An all-cause readmission rate was selected because it promotes a 
holistic approach to the treatment of patients with psychiatric 
disorders, who often have comorbid medical conditions. From the patient 
and caregiver perspective, these readmissions indicate a deterioration 
in the patient's condition. In addition, the relationship between 
principal discharge diagnosis of the index admission and the principal 
discharge diagnosis of the readmission may be complex and difficult to 
determine based only on principal diagnosis codes. For example, a 
patient discharged with bipolar disorder may be readmitted because of a 
suicide attempt or self-harm due to poorly controlled symptoms of 
bipolar disorder. A measure that looks only for readmissions with 
principal discharge diagnoses of bipolar disorder would miss these 
readmissions.
    The IPF readmission measure uses Medicare FFS claims and enrollment 
data over a 24-month measurement period to calculate the measure 
results. Twenty-four months was determined to provide an adequate 
number of cases and reliable results. Because this measure is not 
limited to a single diagnosis, a 24-month measurement period gives 
sufficient sample size. The IPF measure had 4.2 percent of IPFs with 
fewer than 25 cases in the 24-month measurement period from January 
2012 to December 2013. For comparison, the HWR measure had 3.8 percent 
of hospitals with fewer than 25 cases in the 12-month measurement 
period from July 2013 to June 2014.
    We recognize that the risk of readmission is influenced by patient 
factors, so the measure is risk-adjusted to account for differences in 
the patients served across IPFs. Hierarchical logistic regression is 
used to estimate a risk standardized readmission rate for each 
facility. Factors considered in the risk-adjustment model include 
patient demographics, principal discharge diagnoses of the index 
admission, comorbidities in claims during the 12 months prior to the 
index admission or during the index admission with the exception of 
complications of care, and several risk variables specific to the IPF 
patient population. Risk factors were selected for inclusion in the 
final risk model if they were positively selected at least 70 percent 
of the time in a stepwise backward elimination process. The final risk 
model includes age, gender, 13 principal discharge diagnosis Agency for 
Healthcare Research and Quality (AHRQ) Clinical Classification Software 
(CCS) categories, 38 comorbidity CMS Hierarchical Condition Categories 
(CC), history of discharge against medical advice, history of suicide 
or self-harm, history of aggression, and the hospital as a random 
effect. For more information about factors used in calculating the 
risk-standardized readmission rate, we refer readers to the CMS Web 
site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html#17. (On this page, 
the file is listed as ``Inpatient Psychiatric Facility (IPF) Outcome 
and Process Measure Development and Maintenance'' under downloads.)
    We understand the importance of the role that sociodemographic 
status plays in the care of patients. However, we continue to have 
concerns about holding hospitals to different standards for the 
outcomes of their patients of diverse sociodemographic status because 
we do not want to mask potential disparities or minimize incentives to 
improve the outcomes of disadvantaged populations. We routinely monitor 
the impact of sociodemographic status on hospitals' results on our 
measures.
    The NQF is currently undertaking a 2-year trial period in which new 
measures and measures undergoing maintenance review will be assessed to 
determine if risk-adjusting for sociodemographic factors is 
appropriate. For 2 years, NQF will conduct a trial of temporarily 
allowing inclusion of sociodemographic factors in the risk-adjustment 
approach for some performance measures. At the conclusion of the trial, 
NQF will issue recommendations on future permanent inclusion of 
sociodemographic factors. During the trial, measure developers are 
expected to submit information such as analyses and interpretations as 
well as performance scores with and without sociodemographic factors in 
the risk adjustment model. Measure developers must submit information 
such as analyses and interpretations as well as performance scores with 
and without sociodemographic factors in the risk adjustment model. When 
this measure was submitted to NQF on January 29, 2016, this information 
was included.
    Furthermore, the Office of the Assistant Secretary for Planning and 
Evaluation (ASPE) is conducting research to examine the effect of 
sociodemographic status on quality measures, resource use, and other 
measures under the Medicare program, as directed by the IMPACT Act. We 
will closely examine the findings of the ASPE reports and related 
Secretarial recommendations and consider how they apply to our quality 
programs at such time as they are available.
    As part of the measure development process for this measure, we 
solicited public comments on the measure via the CMS Public Comment Web 
page. As part of our comment solicitation, we provided the Measure 
Information Form (MIF), Data Dictionary, and the Measure Technical 
Report to the public to inform their review of the measure. We accepted 
public comments from November 25, 2015 through December 11, 2015. The 
significant majority of stakeholders who provided comments on the 
measure design supported this measure because of the importance of 
measuring readmissions in this population. Commenters who provided 
input on the methodology agreed that it appears to be scientifically 
acceptable, and those who provided input on the feasibility agreed with 
our belief that the measure is feasible as designed. After review and 
evaluation of all the public comments received, we did not identify any 
areas in which the measure needed to be modified. For specific 
information regarding the comments we received, we refer readers to the 
CMS Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html#17. (On 
this page, the file is listed as ``Inpatient Psychiatric Facility (IPF) 
Outcome and Process Measure Development and Maintenance'' under 
downloads.)
    While section 1886(s)(4)(D)(ii) of the Act authorizes the Secretary 
to specify a measure that is not endorsed by NQF, the proposed IPF 
readmission measure was submitted to NQF for endorsement on January 29, 
2016, and we anticipate the measure will receive endorsement prior to 
the release of the final rule. However, the exception to the 
requirement to specify an endorsed measure states that in the case of a 
specified area or medical topic determined appropriate by the Secretary 
for which a feasible and practical measure has not been endorsed 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

[[Page 25243]]

endorsed or adopted by a consensus organization. We have reviewed NQF-
endorsed and other consensus-endorsed measures related to all-cause 
unplanned readmissions and believe that none are appropriate to the 
inpatient psychiatric setting. Therefore, no equivalent readmission 
measure that is endorsed by a consensus organization is available for 
use in the IPFQR Program.
    For the reasons stated above, we are proposing the IPF readmission 
measure described in this section for the FY 2019 payment determination 
and subsequent years. We welcome public comment on this proposal.
5. Summary of Proposed Measures for the FY 2019 Payment Determination 
and Subsequent Years
    The measures that we are proposing to adopt for the IPFQR Program 
for the FY 2019 payment determination and subsequent years are set 
forth in the table below.

         Proposed New IPFQR Program Measures for the FY 2019 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
 National quality strategy priority          NQF No.               Measure ID                  Measure
----------------------------------------------------------------------------------------------------------------
Effective Treatment and Prevention.  1664..................  SUB-3 and SUB-3a......  SUB-3 Alcohol & Other Drug
                                                                                      Use Disorder Treatment
                                                                                      Provided or Offered at
                                                                                      Discharge and SUB-3a
                                                                                      Alcohol & Other Drug Use
                                                                                      Disorder Treatment at
                                                                                      Discharge.
Communication/Care Coordination....  N/A (Under review for   N/A...................  Thirty-Day All-Cause
                                      endorsement).                                   Unplanned Readmission
                                                                                      Following Psychiatric
                                                                                      Hospitalization in an IPF.
----------------------------------------------------------------------------------------------------------------

    If these measures are adopted, the number of measures for the FY 
2019 IPFQR Program and subsequent years will total 18, as set forth in 
the table below.

  Proposed and Finalized Measures for FY 2019 Payment Determination and
                            Subsequent Years
------------------------------------------------------------------------
            NQF No.                 Measure ID            Measure
------------------------------------------------------------------------
0640..........................  HBIPS-2..........  Hours of physical
                                                    restraint use.
0641..........................  HBIPS-3..........  Hours of seclusion
                                                    use.
0560..........................  HBIPS-5..........  Patients discharged
                                                    on multiple
                                                    antipsychotic
                                                    medications with
                                                    appropriate
                                                    justification.
0576..........................  FUH..............  Follow-Up After
                                                    Hospitalization for
                                                    Mental Illness.
1661..........................  SUB-1............  Alcohol Use
                                                    Screening.
1663..........................  SUB-2 and SUB-2a.  Alcohol Use Brief
                                                    Intervention
                                                    Provided or Offered
                                                    and the subset
                                                    measure Alcohol Use
                                                    Brief Intervention.*
1651..........................  TOB-1............  Tobacco Use
                                                    Screening.
1654..........................  TOB-2 and TOB-2a.  Tobacco Use Treatment
                                                    Provided or Offered
                                                    and the subset
                                                    measure Tobacco Use
                                                    Treatment.
1656..........................  TOB-3 and TOB-3a.  Tobacco Use Treatment
                                                    Provided or Offered
                                                    at Discharge and the
                                                    subset measure
                                                    Tobacco Use
                                                    Treatment at
                                                    Discharge.
1659..........................  IMM-2............  Influenza
                                                    Immunization.
0647..........................  N/A..............  Transition Record
                                                    with Specified
                                                    Elements Received by
                                                    Discharged Patients
                                                    (Discharges from an
                                                    Inpatient Facility
                                                    to Home/Self Care or
                                                    Any Other Site of
                                                    Care).
0648..........................  N/A..............  Timely Transmission
                                                    of Transition Record
                                                    (Discharges from an
                                                    Inpatient Facility
                                                    to Home/Self Care or
                                                    Any Other Site of
                                                    Care).
N/A...........................  N/A..............  Screening for
                                                    Metabolic Disorders.
N/A...........................  N/A..............  Influenza Vaccination
                                                    Coverage Among
                                                    Healthcare
                                                    Personnel.
N/A...........................  N/A..............  Assessment of Patient
                                                    Experience of Care.
N/A...........................  N/A..............  Use of an Electronic
                                                    Health Record.
1664..........................  SUB-3 and SUB-3a.  Alcohol & Other Drug
                                                    Use Disorder
                                                    Treatment Provided
                                                    or Offered at
                                                    Discharge and the
                                                    subset measure
                                                    Alcohol & Other Drug
                                                    Use Disorder
                                                    Treatment at
                                                    Discharge.*
N/A (Under review for           N/A..............  Thirty-Day All-Cause
 endorsement).                                      Unplanned
                                                    Readmission
                                                    Following
                                                    Psychiatric
                                                    Hospitalization in
                                                    an IPF.*
------------------------------------------------------------------------
* New measures proposed for the FY 2019 payment determination and future
  years.

6. Possible IPFQR Program Measures and Topics for Future Consideration
    As we have indicated in prior rulemaking (79 FR 45974 through 
45975), we seek to develop a comprehensive set of quality measures to 
be available for widespread use for informed decision-making and 
quality improvement in the IPF setting. Therefore, through future 
rulemaking, we intend to propose new measures for adoption that will 
help further our goals of achieving better health care and improved 
health for Medicare beneficiaries who obtain inpatient psychiatric 
services through the widespread dissemination and use of quality 
information.
    We welcome public comments on possible new measures.
7. Public Display and Review Requirements
    We are proposing to change to how we specify the timeframes for 
public display of data and the associated preview period for IPFs to 
review the data that will be made public.
    Under section 1886(s)(4)(E) of the Act, we are required to 
establish procedures for making the data submitted under the

[[Page 25244]]

IPFQR Program available to the public. Such procedures must ensure that 
an IPF has the opportunity to review its data that are to be made 
public prior to such data being made public. Section 1866(s)(4)(E) 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 
hospitals on the CMS Web site.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50897 through 
50898), we stated that we would publicly display the data submitted by 
IPFs for the IPFQR Program on a CMS Web site in April of each calendar 
year following the start of the respective payment determination year. 
For example, we publicly displayed the data for the FY 2015 payment 
determination in April 2015. We strive to publicly display data as soon 
as possible on a CMS Web site, as this provides consumers with 
healthcare information and furthers our goal of transparency. 
Therefore, we believe it is best to not specify in rulemaking the exact 
timeframe for publication, as doing so may prevent earlier publication. 
We are proposing, then, to make these data available as soon as it is 
feasible. We intend to make the data available on Hospital Compare on 
at least a yearly basis.
    We also are required to give each IPF an opportunity to review its 
data before the data are made public. This purpose of this preview 
period is to ensure that each IPF is informed of the IPF level data 
that the public will be able to see for its facility, and to submit 
measure rate errors resulting from MS calculations of IPF submitted 
patient level claims and Web-based measure numerator and denominator 
data. It is not for the purpose of correcting an IPF's possible 
submission errors. As finalized in the 2015 IPF PPS final rule (79 FR 
45976), IPFs have the entire data submission period to review and 
correct claims data element and Web-based measure numerator and 
denominator count data they have submitted to CMS. In the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50897 through 50898), we stated that the 
preview period would be 30 days and would begin approximately 12 weeks 
prior to the public display of the data.
    Because we are proposing to make the data for the IPFQR Program 
available as soon as possible, and the timeframe for publication may 
change from year-to-year, we are proposing to no longer specify the 
dates for review in rulemaking, nor to specify in rulemaking that the 
preview period will begin approximately 12 weeks prior to publicly 
displaying the data. Instead, we are proposing to announce the exact 
timeframes through subregulatory guidance, including on a CMS Web site 
and/or on our applicable listservs. We also are proposing to continue 
our policy that the time period for review will be approximately 30 
days in length.
    As noted earlier, we wish to publicly display data as early as 
possible. For the FY 2017 payment determination, it may be technically 
feasible for us to display the data as early as December 2016. We 
previously finalized that the preview period would be 30 days and would 
be approximately 12 weeks prior to the public display date. However, in 
this case, 12 weeks prior to December 1, 2016 is in mid-September, 
which is 2 weeks before the usual effective date of the IPPS/LTCH PPS 
final rule. Therefore, for FY 2017 only, if it is technically feasible 
to display the data as early as December 2016, we are proposing a 2-
week preview period that would start on October 1, 2016. However, as a 
courtesy, and to give IPFs 30 days for review if they so choose, we are 
proposing to provide IPFs with their data in mid-September. We believe 
that this proposal complies with prior policies while still allowing us 
to display data as soon as possible for the FY 2017 payment 
determination.
    We are inviting public comment on these proposals.
8. Form, Manner, and Timing of Quality Data Submission
a. Procedural and Submission Requirements
    We are not proposing any changes to the procedural and submission 
requirements for the FY 2019 payment determination and subsequent 
years, and we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50898 through 50899) for more information on these previously 
finalized requirements.
b. Proposed Change to the Reporting Periods and Submission Timeframes
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50901), we finalized 
requirements for reporting periods and submission timeframes for the 
IPFQR Program measures. In the FY 2016 IPF PPS final rule, we made one 
change to these requirements (80 FR 46715 and 46716). We refer readers 
to these rules for further information.
c. Population and Sampling
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53657 through 53658) 
and FY 2014 IPPS/LTCH PPS final rule (78 FR 50901 through 50902), we 
finalized policies for population, sampling, and minimum case 
thresholds. In the FY 2016 IPF PPS final rule, we made one change to 
these requirements (80 FR 46717 through 46719). We refer readers to 
these rules for further information.
d. Data Accuracy and Completeness Acknowledgement (DACA) Requirements
    We are not proposing any changes to the DACA requirements and we 
refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658) for 
more information on these requirements.
9. Reconsideration and Appeals Procedures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658 through 
53660), we adopted a reconsideration and appeals process, later 
codified at 42 CFR 412.434, by which an IPF can request a 
reconsideration of its payment update reduction if an IPF believes that 
its annual payment update has been incorrectly reduced for failure to 
meet all IPFQR Program requirements and, if dissatisfied with a 
decision made by CMS on its reconsideration request, may file an appeal 
with the Provider Reimbursement Review Board. We are not proposing any 
changes to the Reconsideration and Appeals Procedure and refer readers 
to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658 through 53660) and 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50953) for further details 
on the reconsideration process.
10. Exceptions to Quality Reporting Requirements
    We are not proposing any changes to the exceptions to quality 
reporting requirements. For more information, we refer readers to the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53659 through 53660), where we 
initially finalized the policy as ``Waivers from Quality Reporting,'' 
and the FY 2015 IPF PPS final rule (79 FR 45978), where we renamed the 
policy as ``Exceptions to Quality Reporting Requirements.''

E. Clinical Quality Measurement for Eligible Hospitals and Critical 
Access Hospitals (CAHs) Participating in the EHR Incentive Programs in 
2017

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). Eligible 
hospitals and CAHs may qualify for these incentive payments under 
Medicare (as authorized under sections 1886(n) and

[[Page 25245]]

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 FY 2015, 
for eligible hospitals and CAHs that are not meaningful users of CEHRT 
for certain associated reporting periods. Section 1903(a)(3)(F)(i) of 
the Act establishes 100 percent Federal financial participation (FFP) 
to States for providing incentive payments to eligible Medicaid 
providers (described in section 1903(t)(2) of the Act) to adopt, 
implement, upgrade and meaningfully use CEHRT.
    Under sections 1886(n)(3)(A) and 1814(l)(3)(A) of the Act and the 
definition of ``meaningful EHR user'' under 42 CFR 495.4, eligible 
hospitals and CAHs must report on CQMs selected by CMS using CEHRT, as 
part of being a meaningful EHR user under the Medicare EHR Incentive 
Program. 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).
    In order to further align CMS quality reporting programs for 
eligible hospitals and CAHs and avoid redundant or duplicative 
reporting among hospital programs, the Medicare and Medicaid Programs; 
Electronic Health Record Incentive Program--Stage 3 and Modifications 
to Meaningful Use in 2015 Through 2017 (hereinafter referred to as the 
2015 EHR Incentive Programs Final Rule) \313\ (80 FR 62890) indicated 
our intent to address CQM reporting requirements for the Medicare and 
Medicaid EHR Incentive Programs for eligible hospitals and CAHs for 
2016, 2017, and future years in the IPPS rulemaking. We believe that 
receiving and reviewing public comments for various CMS quality 
programs at one time while simultaneously finalizing the requirements 
for these programs would provide us with an opportunity to better align 
these programs for eligible hospitals and CAHs, allow more flexibility 
within the Medicare and Medicaid EHR Incentive Programs, and add 
overall value and consistency. To further achieve this goal, the 2015 
Edition final rule (80 FR 62652) published by ONC indicated that it 
would address certification policy regarding the reporting of CQMs for 
eligible hospitals and CAHs in or in conjunction with the annual IPPS 
rulemaking to better align with the reporting goals of other CMS 
programs.
---------------------------------------------------------------------------

    \313\ Medicare and Medicaid Programs: Electronic Health Record 
Incentive Program--Stage 3 and Modifications to Meaningful Use in 
2015 Through 2017; final rule (80 FR 62761 through 62955) (``2015 
EHR Incentive Programs Final Rule'').
---------------------------------------------------------------------------

2. CQM Reporting for the Medicare and Medicaid EHR Incentive Programs 
in 2017
a. Background
    In the EHR Incentive Program Stage 2 final rule, we outlined the 
CQMs available for use in the EHR Incentive Programs beginning in 2014 
for eligible hospitals and CAHs in Table 10 at 77 FR 54083 through 
54087. For the FY 2017 IPPS/LTCH PPS proposed rule, we are proposing to 
maintain the existing requirements established in earlier rulemaking 
for the reporting of CQMs under the EHR Incentive Programs in 2017, 
unless otherwise indicated in this proposed rule. These requirements 
include reporting on 16 CQMs covering at least 3 NQS domains for 
eligible hospitals and CAHs (77 FR 54079). For this section of the 
preamble of this proposed rule, the following proposed policies 
regarding the EHR Incentive Programs apply to both the Medicare and 
Medicaid EHR Incentive Programs with the exception of the submission 
period proposed policy.
    As we expect to expand the current measures to align with the 
National Quality Strategy and the CMS Quality Strategy \314\ and 
incorporate updated standards and terminology in current CQMs, 
including updating the electronic specifications for these CQMs, and 
creating de novo CQMs, we plan to expand the set of CQMs available for 
reporting under the EHR Incentive Programs in future years. We will 
continue to engage stakeholders to provide input on future proposals 
for CQMs as well as request comment on future electronic specifications 
for new and updated CQMs.
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    In addition, we are transitioning from the quality data model (QDM) 
expression language to the clinical quality language (CQL) 
specification, which defines a representation for the expression of 
clinical knowledge that can be used within both the clinical decision 
support (CDS) and CQM domains. The QDM logic is based on capabilities 
of the health level 7 (HL7) reference information model (RIM), which 
does not have significant ability to express mathematical logic such as 
addition, subtraction, division, and multiplication. The QDM requires 
multiple, often repetitious lines of logic to compare relationships 
among different activities, usually by indicating the time of one 
activity with the time of the other activity. Also, EHR software cannot 
easily interpret QDM logic to perform calculations without significant 
human interaction and interpretation. In general, the CQL is a 
mathematical expression language that can be parsed by software to 
calculate results. The CQL includes basic math and allows description 
of relationship among activities in a simple, direct manner, which 
significantly reduces the lines of logic. With a modest effort, it 
represents a change that is straightforward to learn and interpret 
compared to the existing QDM logic statements.
    The CQL specification defines two components: CQL--author-friendly 
domain specific language; and expression logical model--computable 
extensible markup language (XML). The CQL leverages best practices and 
lessons learned from the quality data model, health e-decisions, and 
electronic CQM and clinical decision support (CDS) communities. The CQL 
is designed to work with any data model, more expressive and robust 
than the QDM logic, and is a HL7 draft standard for trial use (DSTU). 
The CQL includes: Datatypes; data retrieval and queries; timing phrases 
and operators; variable and function declaration; input parameters with 
default values; conditional logic, Boolean logic, and value comparison; 
simple arithmetic and aggregate functions; operations on valuesets, 
lists, intervals, sets and dates/times; and shared libraries. We 
anticipate the incorporation of the CQL into the CQM electronic 
specifications as we support the development and testing of this 
standard. We anticipate starting this work effort in 2016 with the 
expectation that extensive development and testing will continue, at 
minimum, through the fall of 2017. We will not implement CQL until the 
development and testing phases show success for utilization with the 
CQMs. We are engaging the participation of hospitals and other 
providers, health IT developer, measure developer, and other 
stakeholder communities as we undertake this effort at all stages of 
development and testing.
b. CQM Reporting Period for the Medicare and Medicaid EHR Incentive 
Programs in CY 2017
    In the 2015 EHR Incentive Programs Final Rule (80 FR 62892 through 
62893), beginning in CY 2017 and for subsequent years, we established a 
CQM reporting period of one full calendar

[[Page 25246]]

year (consisting of four quarterly data reporting periods) for CQM 
reporting for eligible hospitals and CAHs participating in the Medicare 
and Medicaid EHR Incentive Programs, with a limited exception for 
providers demonstrating meaningful use for the first time under the 
Medicaid EHR Incentive Program, for whom the CQM reporting period is 
any continuous 90-day period within the calendar year. We believe that 
one full calendar year of data will result in more complete and 
accurate data. Providers will be able to submit one full calendar year 
of data for both the EHR Incentive Program and the Hospital IQR 
Program, thereby reducing the reporting burden. We continue to assess 
electronically submitted data for accuracy and reliability. If data are 
determined to be flawed, such data will be identified by CMS in order 
to preserve the integrity of data used for differentiating performance.
    We also established a reporting period for CQMs of any continuous 
90-day period within CY 2017 for eligible hospitals and CAHs that are 
demonstrating meaningful use for the first time in either the Medicare 
or Medicaid EHR Incentive Programs (80 FR 62892 through 62893). In 
summary, the following CQM reporting periods apply for eligible 
hospitals and CAHs participating in the Medicare and Medicaid EHR 
Incentive Programs in CY 2017. We are proposing the following 
submission periods for the Medicare EHR Incentive Program, as well as 
requirements for eligible hospitals and CAHs reporting CQMs 
electronically.
     Eligible hospitals and CAHs Reporting CQMs by Attestation:
    ++ For eligible hospitals and CAHs demonstrating meaningful use for 
the first time in 2017, the reporting period is any continuous 90-day 
period within CY 2017. The submission period for attestation is the 2 
months following the close of the calendar year, ending February 28, 
2018.
    ++ For eligible hospitals and CAHs that demonstrated meaningful use 
in any year prior to 2017, the reporting period is the full CY 2017 
(consisting of four quarterly data reporting periods). The submission 
period for attestation is the 2 months following the close of the 
calendar year, ending February 28, 2018.
     Eligible hospitals and CAHs Reporting CQMs Electronically: 
For eligible hospitals and CAHs demonstrating meaningful use for the 
first time in 2017 or that have demonstrated meaningful use in any year 
prior to 2017, the reporting period is the full CY 2017 (consisting of 
four quarterly data reporting periods). The submission period for 
reporting CQMs electronically is the 2 months following the close of 
the calendar year, ending February 28, 2018.
    In regard to the Medicaid EHR Incentive Program, we provide States 
with the flexibility to determine the submission periods for reporting 
CQMs.
    For the reporting period in CY 2017, we are not proposing new CQMs. 
However, section 1886(n)(3)(B)(iii) of the Act requires that, in 
selecting measures for eligible hospitals and CAHs for the Medicare EHR 
Incentive Program, and establishing the form and manner for reporting 
measures, 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. In 
the interest of avoiding redundant or duplicative reporting with the 
Hospital IQR Program, we are proposing to remove 13 CQMs from the set 
of CQMs available for eligible hospitals and CAHs to report for the EHR 
Incentive Programs, beginning with the reporting periods in CY 2017. We 
are proposing to remove such measures for both the Medicare and 
Medicaid EHR Incentive Programs.
    We believe that a coordinated reduction in the overall number of 
CQMs reported electronically in both the Hospital IQR and the Medicare 
and Medicaid EHR Incentive Programs would reduce burdens and challenges 
associated with electronic reporting for hospitals and improve the 
quality of reported data by enabling hospitals to focus on a smaller, 
more specific subset of electronic CQMs. For the list of measures we 
are proposing to remove from the Hospital IQR Program and the Medicare 
and Medicaid EHR Incentive Programs, as well as the rationale in 
support of our proposals to remove these measures, we refer readers to 
section XVIII.A.3.b.(3) of the preamble of this proposed rule. All of 
the remaining measures listed in Table 10 of the EHR Incentive Program 
Stage 2 final rule (77 FR 54083 through 54087) would be available for 
eligible hospitals and CAHs to report for the Medicare and Medicaid EHR 
Incentive Programs. From that available set of measures, we are 
proposing the following reporting criteria for eligible hospitals and 
CAHs beginning with the reporting periods in CY 2017:
     For attestation: If only participating in the EHR 
Incentive Program, report on all 16 available CQMs.
     For electronic reporting--
    ++ If only participating in the EHR Incentive Program, report on 15 
of the 16 available CQMs (the Outpatient Quality Reporting (OQR) 
Program CQM (Emergency Department (ED)-3, NQF 0496) among the 16 
available CQMs is not required to be reported on for electronic 
reporting, in which 15 of the 16 available CQMs can be selected to meet 
this reporting requirement); or
    ++ If participating in the EHR Incentive Program and the Hospital 
IQR Program, report on all 15 available CQMs (the electronic reporting 
of the Outpatient Quality Reporting (OQR) Program CQM (ED-3, NQF 0496) 
is not applicable when reporting on CQMs for both programs, which 
results in the reporting of 15 available CQMs).
    We also considered an alternative proposal to require eligible 
hospitals and CAHs to select and report electronically on 8 CQMs for 
the reporting periods in CY 2017 and all available CQMs beginning with 
the reporting periods in CY 2018. Section VIII.A.8.a. of the preamble 
of this proposed rule further outlines this considered alternative 
proposal. Our intent is to align, to the extent possible, the EHR 
Incentive Program reporting requirements with the Hospital IQR Program 
reporting requirements established in the final rule. We believe that 
the 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. We are inviting public comment on these 
proposals.
c. CQM Reporting Form and Method for the Medicare EHR Incentive Program 
in 2017
    As finalized in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49759 
through 40760), we removed the QRDA-III as an option for reporting 
under the Medicare EHR Incentive Program for eligible hospitals and 
CAHs. For the reporting periods in 2016 and future years, we are 
requiring QRDA-I for CQM electronic submissions for the Medicare EHR 
Incentive Program. As noted in the FY 2016 IPPS/LTCH PPS final rule (80 
FR 40760), States would continue to have the option, subject to our 
prior approval, to allow or require QRDA-III for CQM reporting.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49578 through 
49579), we established the following options for CQM submission for 
eligible hospitals and CAHs in the Medicare EHR Incentive Program for 
the reporting periods in 2017:
     Eligible hospital and CAH options for Medicare EHR 
Incentive Program participation (single program participation)--

[[Page 25247]]

    ++ Option 1: Attest to CQMs through the EHR Registration & 
Attestation System; or
    ++ Option 2: Electronically report CQMs through QualityNet Portal.
     Eligible hospital and CAH options for electronic reporting 
for multiple programs (for example, EHR Incentive Program plus Hospital 
IQR Program participation)--electronically report through QualityNet 
Portal.
    As stated in the 2015 EHR Incentive Programs Final Rule (80 FR 
62894), in 2017, eligible hospitals and CAHs have two options to report 
CQM data, either through attestation or use of established methods for 
electronic reporting where feasible. However, starting in 2018, 
eligible hospitals, and CAHs participating in the Medicare EHR 
Incentive Program must electronically report CQMs using CEHRT where 
feasible; and attestation to CQMs will no longer be an option except in 
certain circumstances where electronic reporting is not feasible. 
Therefore, we encourage eligible hospitals and CAHs to begin 
electronically reporting CQMs as soon as feasible.
    For the Medicaid EHR Incentive Program, States will continue to be 
responsible for determining whether and how electronic reporting of 
CQMs would occur, or if they wish to allow reporting through 
attestation. Any changes that States make to their CQM reporting 
methods must be submitted through the State Medicaid Health IT Plan 
(SMHP) process for CMS review and approval prior to being implemented.
    We are proposing to continue our policy that electronic submission 
of CQMs will require the use of the most recent version of the CQM 
electronic specification for each CQM to which the EHR is certified. In 
the event that an eligible hospital or CAH has certified EHR technology 
that is certified to the 2014 Edition and not certified to all 16 CQMs 
that would be available for reporting in 2017 under our proposals, we 
are proposing to require that an eligible hospital or CAH would need to 
have its EHR technology certified to all such CQMs in order to meet the 
reporting requirements for 2017. For electronic reporting in 2017, this 
means eligible hospitals and CAHs would be required to use the Spring 
2017 version of the CQM electronic specifications available on the eCQI 
Resource Center Web page (https://ecqi.healthit.gov/). We are seeking 
public comment on this proposal.
    As noted in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49759), an 
EHR certified for CQMs under the 2014 Edition certification criteria 
does not need to be recertified each time it is updated to a more 
recent version of the CQMs. We are proposing to accept the use of CEHRT 
certified to ONC's 2014 or 2015 Edition for CQM reporting in 2017. 
Certification to the 2015 Edition is expected to be available in 2016. 
(For further information on CQM reporting, we refer readers to the EHR 
Incentive Program Web site where guides and tip sheets are available 
for each reporting option (http://www.cms.gov/ehrincentiveprograms).) 
As noted in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49759), we 
encourage health IT developers to test any updates, including any 
updates to the CQMs and CMS reporting requirements based on the CMS 
Implementation Guide for Quality Reporting Document Architecture (QRDA) 
Category I and Category III (CMS Implementation Guide for QRDA) for 
Eligible Professional Programs and Hospital Quality Reporting (HQR), on 
an annual basis.
    The form and method of electronic submission are further explained 
in subregulatory guidance and the certification process. For example, 
the following documents are updated annually to reflect the most recent 
CQM electronic specifications: The CMS Implementation Guide for QRDA; 
program specific performance calculation guidance; and CQM electronic 
specifications and guidance documents. These documents are located on 
the eCQI Resource Center Web page: (https://ecqi.healthit.gov/).
    We are inviting public comments on these proposals.

IX. 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 2016 ``Report 
to the Congress: Medicare Payment Policy'' and have given the 
recommendations in the report consideration in conjunction with the 
proposed policies set forth in this proposed rule. MedPAC 
recommendations for the IPPS for FY 2017 are addressed in Appendix B to 
this proposed rule.
    For further information relating specifically to the MedPAC reports 
or to obtain a copy of the reports, contact MedPAC at (202) 653-7226, 
or visit MedPAC's Web site at: http://www.medpac.gov.

X. Other Required Information

A. Requests for Data From the Public

    In order to respond promptly to public requests for data related to 
the prospective payment system, we have established a process under 
which commenters can gain access to raw data on an expedited basis. 
Generally, the data are now available on compact disc (CD) format. 
However, many of the files are available on the Internet at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Data files and the cost for each file, if 
applicable, are listed later in this section. Anyone wishing to 
purchase data tapes, cartridges, or diskettes should submit a written 
request along with a company check or money order (payable to CMS-PUF) 
to cover the cost to the following address: Centers for Medicare & 
Medicaid Services, Public Use Files, Accounting Division, P.O. Box 
7520, Baltimore, MD 21207-0520, (410) 786-3691. Files on the Internet 
may be downloaded without charge.
1. CMS Wage Data Public Use File
    This file contains the hospital hours and salaries from Worksheet 
S-3, Parts II and III from FY 2013 Medicare cost reports used to create 
the proposed FY 2017 prospective payment system wage index. Multiple 
versions of this file are created each year. For a complete schedule on 
the release of different versions of this file, we refer readers to the 
wage index schedule in section III.M. of the preamble of this proposed 
rule.

------------------------------------------------------------------------
                                                 Wage data    PPS fiscal
                Processing year                     year         year
------------------------------------------------------------------------
2016..........................................         2013         2017
2015..........................................         2012         2016
2014..........................................         2011         2015
2013..........................................         2010         2014
2012..........................................         2009         2013
2011..........................................         2008         2012
2010..........................................         2007         2011
2009..........................................         2006         2010
2008..........................................         2005         2009
2007..........................................         2004         2008
------------------------------------------------------------------------

    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files.html.
    Periods Available: FY 2007 through FY 2017 IPPS Update.
2. CMS Occupational Mix Data Public Use File
    This file contains the CY 2013 occupational mix survey data to be 
used to compute the occupational mix adjustment wage indexes. Multiple

[[Page 25248]]

versions of this file are created each year. For a complete schedule on 
the release of different versions of this file, we refer readers to the 
wage index schedule in section II.M. of the preamble of this proposed 
rule.
    Media: Internet at: https://www.cms.gov/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files.html.
    Period Available: FY 2017 IPPS Update.
3. Provider Occupational Mix Adjustment Factors for Each Occupational 
Category Public Use File
    This file contains each hospital's occupational mix adjustment 
factors by occupational category. Two versions of these files are 
created each year to support the rulemaking.
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-AService-Payment/AcuteInpatientPPS/Wage-Index-Files.html.
    Period Available: FY 2017 IPPS Update.
4. Other Wage Index Files
    CMS releases other wage index analysis files after each proposed 
and final rule.
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files.html.
    Periods Available: FY 2005 through FY 2017 IPPS Update.
5. FY 2017 IPPS SSA/FIPS CBSA State and County Crosswalk
    This file contains a crosswalk of State and county codes used by 
the Social Security Administration (SSA) and the Federal Information 
Processing Standards (FIPS), county name, and a list of Core-Based 
Statistical Areas (CBSAs).
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
    Period Available: FY 2017 IPPS Update.
6. HCRIS Cost Report Data
    The data included in this file contain cost reports with fiscal 
years ending on or after September 30, 1996. These data files contain 
the highest level of cost report status.
    Media: Internet at: http://www.cms.hhs.gov/CostReports/02_HospitalCostReport.asp.
    (We note that data are no longer offered on a CD. All of the data 
collected are now available free for download from the cited Web site.)
7. Provider-Specific File
    This file is a component of the PRICER program used in the MAC's 
system to compute DRG/MS-DRG payments for individual bills. The file 
contains records for all prospective payment system eligible hospitals, 
including hospitals in waiver States, and data elements used in the 
prospective payment system recalibration processes and related 
activities. Beginning with December 1988, the individual records were 
enlarged to include pass-through per diems and other elements.
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ProspMedicareFeeSvcPmtGen/Index.html.
    Period Available: Quarterly Update.
8. CMS Medicare Case-Mix Index File
    This file contains the Medicare case-mix index by provider number 
as published in each year's update of the Medicare hospital inpatient 
prospective payment system. The case-mix index is a measure of the 
costliness of cases treated by a hospital relative to the cost of the 
national average of all Medicare hospital cases, using DRG/MS-DRG 
weights as a measure of relative costliness of cases. Two versions of 
this file are created each year to support the rulemaking.
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
    Periods Available: FY 1985 through FY 2017.
9. MS-DRG Relative Weights (Also Table 5--MS-DRGs)
    This file contains a listing of MS-DRGs, MS-DRG narrative 
descriptions, relative weights, and geometric and arithmetic mean 
lengths of stay for each fiscal year. Two versions of this file are 
created each year to support the rulemaking.
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
    Periods Available: FY 2005 through FY 2017 IPPS Update.
10. IPPS Payment Impact File
    This file contains data used to estimate payments under Medicare's 
hospital impatient prospective payment systems for operating and 
capital-related costs. The data are taken from various sources, 
including the Provider-Specific File, HCRIS Cost Report Data, MedPAR 
Limited Data Sets, and prior impact files. The data set is abstracted 
from an internal file used for the impact analysis of the changes to 
the prospective payment systems published in the Federal Register. Two 
versions of this file are created each year to support the rulemaking.
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Historical-Impact-Files-for-FY-1994-through-Present.html.
    Periods Available: FY 1994 through FY 2017 IPPS Update.
11. AOR/BOR Tables
    This file contains data used to develop the MS-DRG relative 
weights. It contains mean, maximum, minimum, standard deviation, and 
coefficient of variation statistics by MS-DRG for length of stay and 
standardized charges. The BOR tables are ``Before Outliers Removed'' 
and the AOR is ``After Outliers Removed.'' (Outliers refer to 
statistical outliers, not payment outliers.)
    Two versions of this file are created each year to support the 
rulemaking.
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
    Periods Available: FY 2005 through FY 2017 IPPS Update.
12. Prospective Payment System (PPS) Standardizing File
    This file contains information that standardizes the charges used 
to calculate relative weights to determine payments under the hospital 
inpatient operating and capital prospective payment systems. Variables 
include wage index, cost-of-living adjustment (COLA), case-mix index, 
indirect medical education (IME) adjustment, disproportionate share, 
and the Core-Based Statistical Area (CBSA). The file supports the 
rulemaking.
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
    Period Available: FY 2017 IPPS Update.
13. Hospital Readmissions Reduction Program Supplemental File
    This file contains information on the calculation of the Hospital 
Readmissions Reduction Program (HRRP) payment adjustment. Variables 
include the proxy excess readmission ratios for acute myocardial 
infarction (AMI), pneumonia (PN) and heart failure (HF), coronary 
obstruction pulmonary disease (COPD), total hip arthroplasty (THA)/
total knee arthroplasty (TKA), and coronary artery bypass grafting 
(CABG) and the proxy

[[Page 25249]]

readmissions payment adjustment for each provider included in the 
program. In addition, the file contains information on the number of 
cases for each of the applicable conditions excluded in the calculation 
of the readmission payment adjustment factors. It also contains MS-DRG 
relative weight information to estimate the payment adjustment factors. 
The file supports the rulemaking.
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
    Period Available: FY 2017 IPPS Update.
14. Medicare Disproportionate Share Hospital (DSH) Supplemental File
    This file contains information on the calculation of the 
uncompensated care payments for FY 2017. Variables include a hospital's 
SSI days and Medicaid days used to determine a hospital's share of 
uncompensated care payments, total uncompensated care payments and 
estimated per claim uncompensated care payment amounts. The file 
supports the rulemaking.
    Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
    Period Available: FY 2017 IPPS Update.

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments
    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In this proposed rule, we are soliciting public comment on each of 
these issues for the following sections of this document that contain 
information collection requirements (ICRs).
2. ICRs for Add-On Payments for New Services and Technologies
    Section II.H.1. of the preamble of this proposed rule discusses 
add-on payments for new services and technologies. Specifically, this 
section states that applicants for add-on payments for new medical 
services or technologies for FY 2018 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. For FYs 2008, 2009, 2010, 2011, 2012, 2013, 2014, 
2015, 2016, and 2017, we received 1, 4, 5, 3, 3, 5, 5, 7, 9, and 9 
applications, respectively.
3. ICRs for the Occupational Mix Adjustment to the Proposed FY 2017 
Wage Index (Hospital Wage Index Occupational Mix Survey)
    Section III.E. of the preamble of this proposed rule discusses the 
occupational mix adjustment to the proposed FY 2017 wage index While 
the preamble 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 us to collect data at least once every 3 years on 
the occupational mix of employees for each short-term, acute care 
hospital participating in the Medicare program in order to construct an 
occupational mix adjustment to the wage index. We collect the data via 
the occupational mix survey.
    The burden associated with this information collection requirement 
is the time and effort required to collect and submit the data in the 
Hospital Wage Index Occupational Mix Survey to CMS. The aforementioned 
burden is subject to the PRA; it is currently approved under OMB 
control number 0938-0907.
4. Hospital Applications for Geographic Reclassifications by the MGCRB
    Section III.J.2. of the preamble of this proposed rule discusses 
proposed changes to the wage index based on hospital reclassifications. 
As stated in that section, under section 1886(d)(10) of the Act, the 
MGCRB has the authority to accept short-term IPPS hospital applications 
requesting geographic reclassification for wage index and to issue 
decisions on these requests by hospitals for geographic 
reclassification for purposes of payment under the IPPS.
    The burden associated with this application process is the time and 
effort necessary for an IPPS hospital to complete and submit an 
application for reclassification to the MGCRB. The burden associated 
with this requirement is subject to the PRA. It is currently approved 
under OMB control number 0938-0573.
5. ICRs for the Notice of Observation Treatment by Hospitals and CAHs
    In section IV.L. of the preamble of this proposed rule, we discuss 
our proposed implementation of the NOTICE Act (Pub. L. 114-42), which 
amended section 1866(a)(1) of the Act to require hospitals and CAHs to 
provide written and oral notification to Medicare beneficiaries 
receiving observation services as outpatients for more than 24 hours. 
We have developed a standardized format for the notice (the MOON), 
which would be disseminated during the normal course of related 
business activities. The proposed standardized notice discussed in this 
proposed rule is simultaneously being subject to public review and 
comment through the Office of Management and Budget (OMB) Paperwork 
Reduction Act process before implementation.
    We estimate that it will take hospitals and CAHs 5 minutes (0.0833 
hour) to complete and deliver each notice. In 2014, there were 
approximately 977,000 claims for Medicare outpatient observation 
services lasting greater than 24 hours furnished by 6,142 hospitals and 
CAHs.\315\ The annual hour burden is estimated to be 81,384 (977,000 
responses x 0.0833 hour). To derive average cost, we used data from the 
U.S. Bureau of Labor Statistics' May 2014 National Occupational 
Employment and Wage Estimates for all salary estimates (http://www.bls.gov/oes/current/oes_nat.htm). In this regard, we used the mean 
hourly wage of $33.55 and the

[[Page 25250]]

cost of fringe benefits, $33.55 (calculated at 100 percent of salary), 
to determine an adjusted hourly wage of $67.10. This is necessarily a 
rough adjustment, both because fringe benefits and overhead costs vary 
significantly from employer to employer and because methods of 
estimating these costs vary widely from study to study. Nonetheless, 
there is no practical alternative and we believe that doubling the 
hourly wage to estimate total cost is a reasonable accurate estimation 
method. The cost per response is approximately $5.59 based on an hourly 
salary rate of $67.10 (U.S. Bureau of Labor Statistics' May 2013 
National Occupational Employment and Wage Estimates for nursing) and 
the 5-minute response estimate. By multiplying the annual responses by 
$5.59, the annual cost burden estimate is $5,461,430 (977,000 responses 
x $5.59) or approximately $889.19 per hospital or CAH ($5,461,430/
6,142).
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    \315\ Source: CMS Office of Enterprise and Data Analytics.
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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 currently 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 Program measures was part of our 
implementation of section 5001(a) of the Deficit Reduction Act of 2005 
(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 is currently approved under OMB 
control number 0938-1022.
    In section VIII.A.3.b. of the preamble of this proposed rule, we 
are proposing to remove 13 eCQM versions of measures, 2 ``topped out'' 
chart-abstracted measures, and 2 structural measures, beginning with 
the FY 2019 payment determination. However, we note that the total 
number of measures proposed for removal is 15 because the STK-4 and 
VTE-5 measures are being proposed for removal twice--once in the chart-
abstracted form and again in electronic form.
    The 13 eCQM versions of measures we are proposing to remove are: 
(1) AMI-2: Aspirin Prescribed at Discharge for AMI (NQF #0142); (2) 
AMI-7a: Fibrinolytic Therapy Received Within 30 minutes of Hospital 
Arrival; (3) AMI-10: Statin Prescribed at Discharge; (4) HTN: Healthy 
Term Newborn (NQF #0716); (5) PN-6: Initial Antibiotic Selection for 
Community-Acquired Pneumonia (CAP) in Immunocompetent Patients (NQF 
#0147); (6) SCIP-Inf-1a: Prophylactic Antibiotic Received within 1 Hour 
Prior to Surgical Incision (NQF #0527); (7) SCIP-Inf-2a: Prophylactic 
Antibiotic Selection for Surgical Patients (NQF #0528); (8) SCIP Inf-9: 
Urinary Catheter Removed on Postoperative Day 1 (POD1) or Postoperative 
Day 2 (POD2) with Day of Surgery Being Day Zero; (9) STK-4: 
Thrombolytic Therapy (NQF #0437); (10) VTE-3: Venous Thromboembolism 
Patients with Anticoagulation Overlap Therapy (NQF #0373); (11) VTE-4: 
Venous Thromboembolism Patients Receiving Unfractionated Heparin (UFH) 
with Dosages/Platelet Count Monitoring by Protocol (or Nomogram); (12) 
VTE-5: Venous Thromboembolism Discharge Instructions; and (13) VTE-6: 
Incidence of Potentially Preventable Venous Thromboembolism.
    The two chart-abstracted measures we are proposing to remove are: 
(1) STK-4: Thrombolytic Therapy (NQF #0437); and (2) VTE-5: Venous 
Thromboembolism Discharge Instructions. The two structural measures we 
are proposing to remove are: (1) Participation in a Systematic Clinical 
Database Registry for Nursing Sensitive Care; and (2) Participation in 
a Systematic Clinical Database Registry for General Surgery.
    We believe that removing 13 eCQMs will reduce burden for hospitals, 
as they would have a smaller number of eCQMs to select from. As 
finalized in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49698), 
hospitals are required to select 4 out of 28 available eCQMs on which 
to report data beginning with the FY 2018 payment determination. Since 
the measures proposed for removal are among the list of measures 
available, reducing the number of eCQMs from which hospitals choose 
would decrease the burden associated with selecting and reporting data 
for 4 eCQMs because hospitals would have only 15 eCQMs from which to 
select instead of 28 eCQMs. However, if our proposal to require 
hospitals to submit data on all of the available eCQMs included in the 
Hospital IQR Program measure set is finalized as proposed, this modest 
reduction in burden would be offset by the increased burden associated 
with submitting data on 15 eCQMs instead of 4 eCQMs. We discuss the 
burden associated with our proposal to require the submission of all 
available eCQMs included in the Hospital IQR Program measure set below.
    We believe that there would be a reduction in burden for hospitals 
as a result of the removal of the two chart-abstracted measures listed 
above (STK-4 and VTE-5). Due to the burden associated with the 
collection of chart-abstracted data (based on updated measure record 
abstraction time estimates from the third quarter in 2014 through the 
second quarter in 2015 provided by CDAC, the number of reporting 
periods in a calendar year, and the number of IPPS hospitals 
reporting), we estimate that the removal of STK-4 would result in a 
burden reduction of approximately 303,534 hours and approximately $9.9 
million across all 3,300 IPPS hospitals participating in the Hospital 
IQR Program for the FY 2019 payment determination. In addition, we 
estimate that the removal of VTE-5 would result in a burden reduction 
of approximately 653,565 hours and approximately $21.4 million across 
all 3,300 IPPS hospitals participating in the Hospital IQR Program for 
the FY 2019 payment determination. More specifically, for both the STK 
and VTE measure sets, we calculated the burden hours by taking the 
difference in the burden estimates from this FY 2017 IPPS/LTCH PPS 
proposed rule and the burden estimates from the FY 2016 IPPS/LTCH PPS 
final rule. With regard to STK-4, because it is the only STK measure 
left in the Hospital IQR Program, and we are proposing in this FY 2017 
IPPS/LTCH PPS proposed rule to remove it, we calculated the total 
burden hours as follows: 0 hours (time required to report in CY 2017)-
303,534 hours (time required to report in CY 2016) = -303,534 hours for 
the STK measure set. With regard to the VTE measure set, we used an 
updated estimate from CDAC that the time per record (that is, to report 
all of the VTE

[[Page 25251]]

measures in the Hospital IQR Program) is 28 minutes, and in the FY 2016 
IPPS/LTCH PPS final rule, we estimated a burden reduction of 10 minutes 
for removing 3 VTE measures (or approximately 3 minutes per measure). 
As such, we deducted 3 minutes from the 28 minute estimate to account 
for the proposed removal of VTE-5, for a total of 25 minutes to report 
on the remaining VTE measure in the Hospital IQR Program. We then 
calculated the estimated total burden hours per hospital for reporting 
the remaining VTE measure as follows: 25 minutes per record/60 minutes 
per hour x 4 reporting quarters per year x 198.05 records per hospital 
per quarter = 330 burden hours per hospital. Because there are 3,300 
IPPS hospitals, we then multiplied 330 hours per hospital x 3,300 
hospitals to get a total annual burden estimate of 1,089,275 hours to 
report the remaining measure in the VTE measure set. To demonstrate the 
reduction in the total burden hours for VTE from this FY 2017 IPPS/LTCH 
PPS proposed rule and the FY 2016 IPPS/LTCH PPS final rule, we 
calculated as follows: 1,089,275 (FY 2017 total annual estimate)-
1,742,840 (FY 2016 total annual estimate) = -653,565 hours for the VTE 
measure set.
    We believe that there will be a negligible burden reduction due to 
the removal of two structural measures. Consistent with previous years 
(80 FR 49762), we estimate a burden of 15 minutes per hospital to 
report all four previously finalized structural measures and to 
complete other forms (such as the Extraordinary Circumstances 
Extension/Exemption Request Form). Therefore, our burden estimate of 15 
minutes per hospital remains unchanged because we believe the reduction 
in burden associated with removing these two structural measures will 
be sufficiently minimal that it will not substantially impact this 
estimate.
    In addition, in section VIII.A.6. of the preamble of this proposed 
rule, we are proposing refinements to two previously adopted measures: 
(1) Expanding the cohort for the Hospital-Level, Risk-standardized 
Payment Associated with a 30-Day Episode-of-Care for Pneumonia (NQF 
#2579); and (2) adopting the modified Patient Safety and Adverse Events 
Composite (NQF #0531). Because these claims-based measures can be 
calculated based on data that are already reported to the Medicare 
program for payment purposes, we believe no additional burden on 
hospitals will result from the proposed refinements to these two 
claims-based measures.
    Also, in section VIII.A.7. of the preamble of this proposed rule, 
we are proposing to add four claims-based measures to the Hospital IQR 
Program measure set beginning with the FY 2019 payment determination: 
(1) Aortic Aneurysm Procedure Clinical Episode-Based Payment Measure; 
(2) Cholecystectomy and Common Duct Exploration Clinical Episode-Based 
Payment Measure; (3) Spinal Fusion Clinical Episode-Based Payment 
Measure; and (4) Excess Days in Acute Care after Hospitalization for 
Pneumonia. Because these claims-based measures can be calculated based 
on data that are already reported to the Medicare program for payment 
purposes, we believe no additional burden on hospitals will result from 
the addition of these four proposed claims-based measures.
    For the FY 2019 payment determination and subsequent years, in 
section VIII.A.8. of the preamble of this proposed rule, we also are 
proposing to require hospitals to submit data for all eCQMs included in 
the Hospital IQR Program measure set in a manner that will permit 
eligible hospitals to align Hospital IQR Program requirements with some 
requirements under the Medicare and Medicaid EHR Incentive Programs. 
Specifically, hospitals would be required to submit a full calendar 
year of data on all eCQMs in the Hospital IQR Program measure set, on 
an annual basis, beginning with CY 2017 reporting. We believe that the 
total burden associated with the eCQM reporting proposal would be 
similar to that previously outlined in the Medicare EHR Incentive 
Program Stage 2 final rule (77 FR 54126 through 54133). In that final 
rule, the burden estimate for a hospital to report all 16 eCQMs is 2 
hours and 40 minutes (160 total minutes or 10 minutes per measure) per 
submission for a 3-month period (77 FR 54127). We believe that this 
estimate is accurate and appropriate to apply to the Hospital IQR 
Program because we are proposing to align the eCQM reporting 
requirements between both programs. As such, using the estimate of 10 
minutes per measure, we anticipate that if our proposals to: (1) 
Require reporting on all of the available eCQMs (15 eCQMs for the CY 
2017 reporting period/FY 2019 payment determination); and (2) submit 
one year of eCQM data (covering Q1, Q2, Q3, and Q4), both are finalized 
as proposed, it would take a hospital 150 minutes per quarter to report 
one medical record containing information on all the required eCQMs. In 
total, for the FY 2019 payment determination, we expect our proposal to 
require hospitals to report data on 15 eCQMs for 4 quarters (as 
compared to our previously finalized requirement to report data on 4 
eCQMs for 1 quarter) would represent a burden increase of 30,800 hours 
across all 3,300 IPPS hospitals participating in the Hospital IQR 
Program. This figure was derived by calculating the difference between 
the FY 2017 burden estimate of 33,000 hours (150 minutes per record/60 
minutes per hour x 4 reporting quarters per year x 1 record per 
hospital per quarter x 3,300 hospitals) and the FY 2016 burden estimate 
of 2,200 hours (20 minutes per record/60minutes per hour x 1 reporting 
quarter per year x 1 record per hospital per quarter x 3,300 hospitals) 
(80 FR 49763), for an incremental increase of 30,800 hours.
    Furthermore, we estimate that reporting these eCQMs can be 
accomplished by staff with a mean hourly wage of $16.42 per hour.\316\ 
However, obtaining data on other overhead costs is challenging. 
Overhead costs vary greatly across industries and firm sizes. In 
addition, the precise cost elements assigned as ``indirect'' or 
``overhead'' costs, as opposed to direct costs or employee wages, are 
subject to some interpretation at the firm level. Therefore, we have 
chosen to calculate the cost of overhead at 100 percent of the mean 
hourly wage. This is necessarily a rough adjustment, both because 
fringe benefits and overhead costs vary significantly from employer to 
employer and because methods of estimating these costs vary widely from 
study to study. Nonetheless, there is no practical alternative, and we 
believe that doubling the hourly wage to estimate total cost is a 
reasonably accurate estimation method. This is a change from how we 
have accounted for the cost of overhead in our previous rules regarding 
the Hospital IQR Program. In calculating labor cost, we estimate an 
hourly labor cost of $32.84 ($16.42 base salary + $16.42 fringe) and a 
cost increase of $1,011,472.00 (30,800 additional burden hours x $32.84 
per hour) across approximately 3,300 hospitals participating in the 
Hospital IQR Program to report a full calendar year of data for 15 
eCQMs, on an annual basis.
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    \316\ Occupational Outlook Handbook. Available at: http://www.bls.gov/ooh/healthcare/medical-records-and-health-information-technicians.html.
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    We are not proposing any changes to our validation requirements 
related to chart-abstracted measures, but are providing some background 
information as basis for our eCQM validation proposals. As noted in the 
FY 2016 IPPS/LTCH IPPS final rule (80 FR 49762 and 49763), for 
validation of chart-abstracted data for the FY 2018 payment

[[Page 25252]]

determination and subsequent years, we require hospitals to provide 72 
charts per hospital per year (with an average page length of 1,500), 
including 40 charts for HAI validation and 32 charts for clinical 
process of care validation, for a total of 108,000 pages per hospital 
per year. We reimburse hospitals at 12 cents per photocopied page (79 
FR 50346) for a total per hospital cost of $12,960. For hospitals 
providing charts digitally via a re-writable disc, such as encrypted 
CD-ROMs, DVDs, or flash drives, we will reimburse hospitals at a rate 
of 40 cents per digital media (80 FR 49837), and additionally hospitals 
will be reimbursed $3.00 per record (78 FR 50956). For hospitals 
providing charts via secure file transfer, we will reimburse hospitals 
at a rate of $3.00 per record (78 FR 50835).
    In section VIII.A.11. of the preamble of this proposed rule, 
beginning in spring 2018 for the FY 2020 payment determination, we are 
proposing to modify the existing validation process for the Hospital 
IQR Program data to include a random sample of up to 200 hospitals for 
validation of eCQMs in the Hospital IQR Program. In previous years (79 
FR 50347), we estimated a total burden of 16 hours (960 minutes) for 
the submission of 12 records, which would equal 1 hour and 20 minutes 
per record (960 minutes/12 records). Applying the time per individual 
submission of 1 hour and 20 minutes (or 80 minutes) for the 32 records 
we are proposing hospitals submit beginning with the FY 2020 payment 
determination, we estimate a total burden of approximately 43 hours (1 
hour and 20 minutes x 32 records) for each hospital selected for 
participation in eCQM validation. We estimate that approximately 43 
hours of work for up to 200 hospitals would increase the eCQM 
validation burden hours from 0 hours (as this is the first instance 
where eCQM validation is being proposed as a requirement) to 8,533 
labor hours.
    As previously stated, with respect to eCQMs, the labor performed 
can be accomplished by staff, with a mean hourly wage of $16.42.\317\ 
Further, in calculating labor costs, we have chosen to calculate the 
cost of overhead at 100 percent of the mean hourly wage. As such, we 
estimate a fully burdened labor rate of $32.84 ($16.42 base salary + 
$16.42 fringe) per hour. Therefore, using these assumptions, we 
estimate an hourly labor cost of $32.84 and a cost increase of $280,224 
(8,533 additional burden hours x $32.84 per hour) across the (up to) 
200 hospitals selected for eCQM validation, on an annual basis. 
Consistent with the chart-abstraction validation process, we will 
reimburse hospitals providing records via secure file transfer, at a 
rate of $3.00 per record.
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    \317\ Occupational Outlook Handbook. Available at: http://www.bls.gov/ooh/healthcare/medical-records-and-health-information-technicians.html.
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    Lastly, in section VIII.A.15. of the preamble of this proposed 
rule, we are proposing to update our Extraordinary Circumstances 
Extensions or Exemptions (ECE) policy by: (1) Extending the general ECE 
request deadline for non-eCQM circumstances from 30 to 90 calendar days 
following an extraordinary circumstance; and (2) establishing a 
separate submission deadline for ECE requests with respect to eCQM 
reporting circumstances of April 1 following the end of the reporting 
calendar year. Consistent with previous years, we estimate a burden of 
15 minutes per hospital to report all forms (including the ECE request 
form) and structural measures. We believe that the proposed updates to 
the ECE deadlines will have no effect on burden for hospitals, because 
we are not making any changes that will increase the amount of time 
necessary to complete the form. In addition, the burden associated with 
the completion of this form is included in the 15 minutes allocated for 
all forms and structural measures.
    In summary, under OMB number 0938-1022, we estimate a total burden 
decrease of approximately 917,766 hours, for a total cost decrease of 
approximately $30 million across approximately 3,300 hospitals 
participating in the Hospital IQR Program as a result of the policies 
proposed in this proposed rule.
    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 OMB control numbers 0920-
0666 and 0938-0981, respectively. The burden estimates in this proposed 
rule are the estimates for which we are requesting OMB approval.
7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program
    As discussed in sections VIII.B. of the preamble of this proposed 
rule, section 1866(k)(1) of the Act requires, for purposes of FY 2014 
and each subsequent fiscal year, that a hospital described in section 
1886(d)(1)(B)(v) of the Act (a PPS-exempt cancer hospital, or a PCH) 
submit data in accordance with section 1866(k)(2) of the Act with 
respect to such fiscal year.
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
28124), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50957 through 
50959), the FY 2015 IPPS/LTCH PPS final rule (79 FR 50347 through 
50348), and the FY 2016 IPPS/LTCH PPS final rule (80 FR 49764) for a 
detailed discussion of the burden for the program requirements that we 
have previously adopted. Below we discuss only any changes in burden 
that would result from the proposals in this proposed rule.
    In section VIII.B.3.b. of the preamble of this proposed rule, we 
are proposing that PCHs submit data on Oncology: Radiation Dose Limits 
to Normal Tissues (NQF #0382) measure for an expanded cohort of 
patients. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50285) we 
finalized a sampling methodology for Clinical Process/Oncology Care 
Measures, which includes the Oncology: Radiation Dose Limits to Normal 
Tissues measure. Because our previous burden estimates were based on 
the maximum sample for this measure, the expansion of the patient 
cohort would not raise the burden for this measure beyond that which we 
described in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50347 through 
50348).
    In section VIII.B.4.b. of the preamble of this proposed rule, we 
are proposing to adopt the Admissions and Emergency Department (ED) 
Visits for Patients Receiving Outpatient Chemotherapy measure beginning 
with the FY 2019 program year. This is a claims-based measure, and 
therefore, does not require PCHs to submit any new data. Thus, this 
measure would not pose any new burden on PCHs.
    In summary, as a result of our proposals, we do not anticipate any 
changes to previously finalized burden estimates.
8. ICRs for the Hospital Value-Based Purchasing (VBP) Program
    In section IV.H. of the preamble of this proposed rule, we discuss 
proposed requirements for the Hospital VBP Program. Specifically, in 
this proposed rule, with respect to quality measures, we are proposing 
to: Include selected ward non-Intensive Care Unit (ICU) locations in 
certain NHSN measures beginning with the FY 2019 program year; adopt 
the Hospital-Level, Risk-Standardized Payment Associated with a 30-Day 
Episode-of-Care for Acute Myocardial Infarction (AMI) and the Hospital-
Level, Risk-Standardized Payment Associated with a 30-Day Episode-of-
Care for Heart Failure (HF) measures for the FY 2021 program year; 
update the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 
(RSMR) Following Pneumonia (PN) Hospitalization (Updated Cohort)

[[Page 25253]]

measure for the FY 2021 program year; and adopt the Hospital 30-Day, 
All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Coronary 
Artery Bypass Graft (CABG) Surgery measure for the FY 2022 program 
year.
    As required under section 1886(o)(2)(A) of the Act, the additional 
and updated 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 Program (LTCH 
QRP)
    As discussed in section VIII.C.5 of the preamble of this proposed 
rule, we are retaining the following 13 previously finalized quality 
measures for use in the LTCH QRP:

  LTCH QRP Quality Measures Previously Adopted for the FY 2014 Payment
                   Determinations and Subsequent Years
------------------------------------------------------------------------
                                                        Annual payment
                                                        determination:
          Measure title              IPPS/LTCH PPS        Initial and
                                      final rule        subsequent APU
                                                             years
------------------------------------------------------------------------
National Healthcare Safety        Adopted an          FY 2014 payment
 Network (NHSN) Catheter-          application of      determination and
 Associated Urinary Tract          the measure in      subsequent years.
 Infection (CAUTI) Outcome         the FY 2012 IPPS/
 Measure (NQF #0138).              LTCH PPS final
                                   rule (76 FR 51745
                                   through 51747);
                                  Adopted the
                                   NQF[dash]endorsed
                                   version and
                                   expanded measure
                                   (with
                                   standardized
                                   infection ratio
                                   [SIR]) in the FY
                                   2013 IPPS/LTCH
                                   PPS final rule
                                   (77 FR 53616
                                   through 53619).
National Healthcare Safety        Adopted an          FY 2014 payment
 Network (NHSN) Central Line-      application of      determination and
 Associated Bloodstream            the measure in      subsequent years.
 Infection (CLABSI) Outcome        the FY 2012 IPPS/
 Measure (NQF #0139).              LTCH PPS final
                                   rule (76 FR 51747
                                   through 51748);
                                  Adopted the
                                   NQF[dash]endorsed
                                   and expanded
                                   measure (with
                                   SIR) in the FY
                                   2013 IPPS/LTCH
                                   PPS final rule
                                   (77 FR 53616
                                   through 53619)..
Percent of Residents or Patients  Adopted an          FY 2014 payment
 with Pressure Ulcers That Are     application of      determination and
 New or Worsened (Short Stay)      the measure in      subsequent years.
 (NQF #0678).                      the FY 2012 IPPS/
                                   LTCH PPS final
                                   rule (76 FR 51748
                                   through 51750);
                                  Adopted the
                                   NQF[dash]endorsed
                                   version in the FY
                                   2014 IPPS/LTCH
                                   PPS final rule
                                   (78 FR 50861
                                   through 50863);.
                                  Adopted in the FY
                                   2016 IPPS/LTCH
                                   PPS final rule
                                   (80 FR 49731
                                   through 49736) to
                                   fulfill IMPACT
                                   Act requirements..
Percent of Residents or Patients  Adopted in the FY   FY 2016 payment
 Who Were Assessed and             2013 IPPS/LTCH      determination and
 Appropriately Given the           PPS final rule      subsequent years.
 Seasonal Influenza Vaccine        (77 FR 53624
 (Short Stay) (NQF #0680).         through 53627);
                                  Revised data
                                   collection
                                   timeframe in the
                                   FY 2014 IPPS/LTCH
                                   PPS final rule
                                   (78 FR 50858
                                   through 50861);.
                                  Revised data
                                   collection
                                   timeframe in the
                                   FY 2015 IPPS/LTCH
                                   PPS final rule
                                   (79 FR 50289
                                   through 50290)..
Influenza Vaccination Coverage    Adopted in the FY   FY 2016 payment
 among Healthcare Personnel (NQF   2013 IPPS/LTCH      determination and
 #0431).                           PPS final rule      subsequent years.
                                   (77 FR 53630
                                   through 53631);
                                  Revised data
                                   collection
                                   timeframe in the
                                   FY 2014 IPPS/LTCH
                                   PPS final rule
                                   (78 FR 50857
                                   through 50858)..
National Healthcare Safety        Adopted in the FY   FY 2017 payment
 Network (NHSN) Facility-wide      2014 IPPS/LTCH      determination and
 Inpatient Hospital[dash]onset     PPS final rule      subsequent years.
 Methicillin-Resistant             (78 FR 50863
 Staphylococcus aureus (MRSA)      through 50865).
 Bacteremia Outcome Measure (NQF
 #1716).
National Healthcare Safety        Adopted in the FY   FY 2017 payment
 Network (NHSN) Facility-wide      2014 IPPS/LTCH      determination and
 Inpatient Hospital[dash]onset     PPS final rule      subsequent years.
 Clostridium difficile Infection   (78 FR 50865
 (CDI) Outcome Measure (NQF        through 50868).
 #1717).
All-Cause Unplanned Readmission   Adopted in FY 2014  FY 2017 payment
 Measure for 30 Days               IPPS/LTCH PPS       determination and
 Post[dash]Discharge from Long-    final rule (78 FR   subsequent years.
 Term Care Hospitals (NQF #2512).  50868 through
                                   50874);
                                  Adopted the NQF-
                                   endorsed version
                                   in the FY 2016
                                   IPPS/LTCH PPS
                                   final rule (80 FR
                                   49730 through
                                   49731)..
National Healthcare Safety        Adopted in the FY   FY 2018 payment
 Network (NHSN) Ventilator-        2015 IPPS/LTCH      determination and
 Associated Event (VAE) Outcome    PPS final rule      subsequent years.
 Measure.                          (79 FR 50301
                                   through 50305).

[[Page 25254]]

 
Application of Percent of         Adopted in the FY   FY 2018 payment
 Residents Experiencing One or     2014 IPPS/LTCH      determination and
 More Falls with Major Injury      PPS final rule      subsequent years.
 (Long Stay) (NQF #0674).          (78 FR 50874
                                   through 50877);
                                  Revised data
                                   collection
                                   timeframe in the
                                   FY 2015 IPPS/LTCH
                                   PPS final rule
                                   (79 FR 50290
                                   through 50291);.
                                  Adopted an
                                   application of
                                   the measure in
                                   the FY 2016 IPPS/
                                   LTCH PPS final
                                   rule (80 FR 49736
                                   through 49739) to
                                   fulfill IMPACT
                                   Act requirements..
Percent of Long-Term Care         Adopted in the FY   FY 2018 payment
 Hospital Patients with an         2015 IPPS/LTCH      determination and
 Admission and Discharge           PPS final rule      subsequent years.
 Functional Assessment and a       (79 FR 50291
 Care Plan That Addresses          through 50298).
 Function (NQF #2631).
Functional Outcome Measure:       Adopted in the FY   FY 2018 payment
 Change in Mobility among Long-    2015 IPPS/LTCH      determination and
 Term Care Hospital Patients       PPS final rule      subsequent years.
 Requiring Ventilator Support      (79 FR 50298
 (NQF #2632).                      through 50301).
Application of Percent of Long-   Adopted an          FY 2018 payment
 Term Care Hospital Patients       application of      determination and
 with an Admission and Discharge   the measure in      subsequent years.
 Functional Assessment and a       the FY 2016 IPPS/
 Care Plan That Addresses          LTCH PPS final
 Function (NQF #2631).             rule (80 FR 49739
                                   through 49747) to
                                   fulfill IMPACT
                                   Act requirements.
------------------------------------------------------------------------

    As discussed in section VIII.C.6 and VIII.C.7 of the preamble of 
this proposed rule, we are proposing the following four measures for 
use in the LTCH QRP:

LTCH QRP Quality Measures Proposed for the FY 2018 Payment Determination
                          and Subsequent Years
------------------------------------------------------------------------
                                           Annual payment determination:
              Measure title                 Initial and subsequent APU
                                                       years
------------------------------------------------------------------------
Potentially Preventable 30-Day Post-      FY 2018 payment determination
 Discharge Readmission Measure for the     and subsequent years.
 LTCH QRP *.
Discharge to Community-PAC LTCH QRP *...  FY 2018 payment determination
                                           and subsequent years.
MSPB-PAC LTCH QRP *.....................  FY 2018 payment determination
                                           and subsequent years.
Drug Regimen Review Conducted with        FY 2020 payment determination
 Follow-Up for Identified Issues- PAC      and subsequent years.
 LTCH QRP **.
------------------------------------------------------------------------
* Proposed in this FY 2017 IPPS/LTCH PPS proposed rule for the FY 2018
  payment determination and subsequent years.
** Proposed in this FY 2017 IPPS/LTCH PPS proposed rule for the FY 2020
  payment determination and subsequent years.

    Currently, LTCHs use two separate data collection mechanisms to 
report quality data to CMS. Six of the 13 measures being retained in 
this FY 2017 IPPS/LTCH PPS proposed rule are currently collected via 
the CDC's NHSN. The NHSN is a secure, Internet-based 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 is provided free of charge to facilities. In this 
proposed rule, we are not proposing any new quality measures that would 
be collected via the CDC's NHSN. Therefore, at this time, there would 
be no additional burden related to this submission method. Any burden 
related to NHSN-based quality measures we have retained in this 
proposed rule has been previously discussed in the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 50443 through 50445) and FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49766) and has been previously approved under OMB 
control number 0920-0666, with an expiration date of November, 31, 
2016.
    In addition to the previously finalized All-Cause Unplanned 
Readmission Measure for 30 Days Post-Discharge From LTCHs (NQF #2512), 
we are proposing three additional Medicare FFS claims-based measures in 
this proposed rule: Potentially Preventable 30 Day Post-Discharge 
Readmission Measure for LTCH QRP; Discharge to Community--PAC LTCH QRP; 
and MSBP-PAC LTCH QRP. Because these proposed claims-based measures 
would be calculated based on data that are already reported to the 
Medicare program for payment purposes, we believe no additional 
information collection would be required from the LTCHs. We are not 
proposing new assessment-based quality measures in the LTCH QRP in this 
proposed rule for the FY 2018 payment determination and subsequent 
years.
    The remaining assessment-based quality measure data are reported to 
CMS by LTCHs using the LTCH CARE Data Set. In section VIII.C.9.d. of 
the preamble of this of this proposed rule, we are proposing to expand 
the data collection timeframe for the measure NQF #0680 Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (77 FR 53624 through 53627), beginning with 
the FY 2019 payment determination. The data collection time frame and 
associated data submission deadlines are currently aligned with the 
Influenza Vaccination Season (IVS) (October 1 of a given year

[[Page 25255]]

through March 31 of the subsequent year), and only require data 
collection during the 2 calendar year quarters that align with the IVS. 
We are proposing to expand the data collection timeframe from just 2 
quarters (covering the IVS) to a full four quarters or 12 months. We 
refer readers to section VIII.C.9.d. of the preamble of this this 
proposed rule for further details on the proposed expansion of data 
collection for this measures (NQF #0680), including data collection 
timeframes and associated submission deadlines. We originally finalized 
this measure for use in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53624 through 53627). Although we finalized data collection for this 
measure to coincide with the IVS, we originally proposed year-round 
data collection. The associated PRA package, which was approved under 
OMB control number 0938-1163, included burden calculations that aligned 
with our original proposal for year-round data collection. All 
subsequent PRA packages, and the PRA package that is currently under 
review, included burden calculations reflecting year-round (12 month) 
data collection for this measure. Because of this, the proposed change 
in the data collection timeframe for this measure, and any associated 
burden related to increased data collection, has already been accounted 
for in the total burden figures included in this section of the 
preamble of this proposed rule.
    For the FY 2020 payment determination and subsequent years, we are 
proposing the use of one new assessment based quality measure in the 
LTCH QRP: Drug Regimen Review Conducted with Follow-Up for Identified 
Issues-PAC LTCH QRP. This is a cross-setting measure that satisfies the 
required addition of a quality measure under the domain of medication 
reconciliation, as mandated by section 1899B of the Act, as added by 
the IMPACT Act. In addition to the proposed Drug Regimen Review 
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP quality 
measure, the remaining six measures, outlined below, will continue to 
be collected utilizing the LTCH CARE Data Set.
    The LTCH CARE Data Set Version 2.01 has been approved under OMB 
control number 0938-1163. The LTCH CARE Data Set Version 2.01 contains 
data elements related to patient demographic data, various voluntary 
questions, as well as data elements related to the following quality 
measures:
     Percent of Residents or Patients with Pressure Ulcers That 
Are New or Worsened (Short Stay) (NQF #0678);
     Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF 
#0680).
    We have submitted a revision to the PRA package that addressed the 
changes from LTCH CARE Data Set Version 2.01 to Version 3.00. The LTCH 
CARE Data Set Version 3.00, which is to be implemented April 1, 2016, 
contains those data elements included in Version 2.01, as well as 
additional data elements in order to allow for the collection of data 
associated with the following quality measures:
     Application of Percent of Residents Experiencing One or 
More Falls with Major Injury (Long Stay) (NQF #0674) (previously 
finalized in the FY 2016 IPPS/LTCH PPS final rule);
     Percent of Long-Term Care Hospital Patients with an 
Admission and Discharge Functional Assessment and a Care Plan That 
Addresses Function (NQF #2631) (previously finalized in the FY 2015 
IPPS/LTCH PPS final rule);
     Functional Outcome Measure: Change in Mobility Among Long-
Term Care Hospital Patients Requiring Ventilator Support (NQF #2632) 
(previously finalized in the FY 2015 IPPS/LTCH PPS final rule); and
     Application of Percent of Long-Term Care Hospital Patients 
with an Admission and Discharge Functional Assessment and a Care Plan 
That Addresses Function (NQF #2631) (previously finalized in the FY 
2016 IPPS/LTCH PPS final rule).
    The LTCH CARE Data Set Version 4.00, effective April 1, 2018, will 
contain those data elements included in Version 3.00, as well as 
additional data elements in order to allow for the collection of data 
associated with the proposed quality measure: Drug Regimen Review 
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, proposed 
in this proposed rule.
    Each time we add new data elements to the LTCH CARE Data Set 
related to newly proposed or finalized LTCH QRP quality measures, we 
are required by the PRA to submit the expanded data collection 
instrument to OMB for review and approval. Section 1899B(m) of the Act, 
as added by IMPACT Act, provides that the PRA requirements do not apply 
to section 1899B of the Act and the sections referenced in section 
1899B(a)(2)(B) of the Act that require modifications in order to 
achieve the standardization of patient assessment data. We believe that 
the LTCH CARE Data Set Version 3.00 falls under the PRA provisions in 
1899B(m) of the Act. We believe that all additional data elements added 
to the LTCH CARE Data Set Version 3.00 are for the purpose of 
standardizing patient assessment data, as required under section 
1899B(a)(2)(B) of the Act. As noted above, the LTCH CARE Data Set 
Version 3.00 would be updated to Version 4.0, effective April 1, 2018, 
to include data elements for the Drug Regimen Review Conducted with 
Follow-Up for Identified Issues- PAC LTCH QRP proposed quality measure, 
if the measure is finalized. For the reasons discussed above, we 
believe that the LTCH CARE Data Set Version 4.00 also falls under the 
PRA provisions in section 1899B(m) of the Act.
    A comprehensive list of all data elements included in the LTCH CARE 
Data Set Version 3.00 is available in the LTCH QRP Manual which is 
accessible on the LTCH QRP Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html. For a discussion of burden related to LTCH CARE 
Data Set Version 3.00, we refer readers to section I.M. of Appendix A 
of this proposed rule.
10. ICRs for the Inpatient Psychiatric Facility Quality Reporting 
(IPFQR) Program
    Section 1886(s)(4) of the Act, as added and amended by sections 
3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary 
to implement a quality reporting program for inpatient psychiatric 
hospitals and psychiatric units. We refer to this program as the 
Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program.
    In section VIII.D. of the preamble of this proposed rule, we are 
proposing the following measure-related changes: To update a previously 
finalized measure (Screening for Metabolic Disorders); and to adopt two 
new measures beginning with the FY 2019 payment determination (SUB-3 
Alcohol & Other Drug Use Disorder Treatment Provided or Offered at 
Discharge and subset measure SUB-3a Alcohol & Other Drug Use Disorder 
Treatment at Discharge (NQF #1664), and Thirty-day all-cause unplanned 
readmission following psychiatric hospitalization in an IPF). We also 
are proposing to no longer specify in rulemaking when measure data will 
be publicly available, when the preview period will occur or that the 
preview period will begin approximately 12 weeks before the public 
display date, but rather to announce the timeframes using subregulatory 
guidance.
    We refer readers to the FY 2015 IPF PPS final rule (79 FR 45978 
through

[[Page 25256]]

45980) and the FY 2016 IPF PPS final rule (80 FR 46720 through 46721) 
for a detailed discussion of the burden for the IPFQR Program 
requirements that we have previously adopted. Below we discuss only the 
changes in burden resulting from the proposals in this proposed rule. 
Although we are proposing provisions that impact policies beginning in 
both the FY 2017 and FY 2019 payment determinations, IPFs must take 
steps to comply with all of these policies beginning in FY 2017. For 
example, data collection for the measures begins in FY 2017, and the 
changes to the public display dates take effect beginning in FY 2017. 
For purposes of calculating burden, we will attribute the costs to the 
year in which these costs begin; for the purposes of all of the 
proposals in this proposed rule, that year is FY 2017.
    We believe that approximately 1,684 \318\ IPFs will participate in 
the IPFQR Program for requirements occurring in FY 2017 and subsequent 
years. Based on program data, we believe that each IPF will submit 
measure data on approximately 848 \319\ cases per year. In prior 
rulemaking, we estimated that the time required to chart-abstract data 
for chart-abstracted measures is 12 minutes per case per measure.\320\ 
Based on the experience of other quality reporting programs, such as 
the Hospital IQR Program, we are updating this estimate to 15 minutes 
per case per measure. We are only proposing one chart-abstracted 
measure this year: SUB-3 and subset SUB-3a. The other measure that we 
are proposing, Thirty-day all-cause unplanned readmission following 
Psychiatric hospitalization in an IPF, is claims-based and, therefore, 
does not require IPFs to report any additional data.
---------------------------------------------------------------------------

    \318\ In the FY 2016 IPF PPS final rule, we estimated 1,617 IPFs 
and are adjusting that estimate by +67 to account for more recent 
data.
    \319\ In the FY 2016 IPF PPS final rule, we estimated 431 cases 
per year and are adjusting that estimate by +417 to account for more 
recent data.
    \320\ 80 FR 46720.
---------------------------------------------------------------------------

    We estimate that reporting data for the IPFQR Program measures can 
be accomplished by staff with a mean hourly wage of $16.42.\321\ 
However, obtaining data on other overhead costs is challenging. 
Overhead costs vary greatly across industries and firm sizes. In 
addition, the precise cost elements assigned as ``indirect'' or 
``overhead'' costs, as opposed to direct costs or employee wages, are 
subject to some interpretation at the firm level. Therefore, we have 
chosen to calculate the cost of overhead at 100 percent of the mean 
hourly wage. This is necessarily a rough adjustment, both because 
fringe benefits and overhead costs vary significantly from employer to 
employer and because methods of estimating these costs vary widely from 
study to study. Nonetheless, there is no practical alternative, and we 
believe that doubling the hourly wage to estimate total cost is a 
reasonably accurate estimation method. In calculating the labor cost, 
we estimate an hourly labor cost of $32.84 ($16.42 base salary + $16.42 
fringe). The following table presents the mean hourly wage, the cost of 
fringe benefits (calculated at 100 percent of salary), and the adjusted 
hourly wage.
---------------------------------------------------------------------------

    \321\ http://www.bls.gov/ooh/healthcare/medical-records-and-health-information-technicians.html.

                                   Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
                                                         Mean hourly       Fringe benefit (at    Adjusted hourly
          Occupation title            Occupation code    wage ($/hr)        36.25% in $/hr)        wage ($/hr)
----------------------------------------------------------------------------------------------------------------
Medical Records and Health                   29-2071            16.42                    16.42            32.84
 Information Technician.............
----------------------------------------------------------------------------------------------------------------

    We do not believe that our proposal to update a previously 
finalized measure will affect our previous burden estimate for that 
measure. As noted above, one of our proposed measures is claims-based 
and would not result in increased burden. Therefore, increased burden 
would occur primarily as a result of our proposed new chart-abstracted 
measure. We estimate that this proposal would result in an increase in 
burden of 212 hours per IPF (1 measure x (848 cases/measure x 0.25 
hours/case)) or 357,008 hours across all IPFs (212 hours/IPF x 1,684 
IPFs). The increase in costs would be approximately $6,962 per IPF (212 
hours x $32.84/hour) or $11,724,143 across all IPFs (357,008 hours x 
32.84/hour).
    Consistent with our estimates in the FY 2015 IPF PPS final rule (79 
FR 45979), we believe the estimated burden for training personnel on 
the revised data collection and submission requirements would be 2 
hours per IPF or 3,368 hours (2 hours/IPF x 1,684 IPFs) across all 
IPFs. Therefore, we estimate the cost for this training would be $65.68 
($32.84/hour x 2 hours) for each IPF or $110,605 ($32.84/hour x 3,368 
hours) for all IPFs.
    Finally, IPFs must submit to CMS aggregate population counts for 
Medicare and non-Medicare discharges by age group and diagnostic group, 
and sample size counts for measures for which sampling is performed. 
Because the population for the SUB-3 and SUB-3a measure is nearly 
identical to the population for both the SUB-1 measure and the SUB-2 
and SUB-2a measure, we believe that the addition of 1 chart-abstracted 
measure would lead to a negligible change in burden associated with 
nonmeasure data collection.
    In section VIII.D.7. of the preamble of this proposed rule, we are 
proposing to no longer specify in rulemaking, but rather in 
subregulatory guidance, when measure data will be publicly available, 
when the preview period will occur, or that the preview period will 
begin approximately 12 weeks before the public display date. We do not 
believe this proposal will result in any change in burden because it 
does not require IPFs to report any more or less data. Rather, if 
finalized, the timeline for public display of that data is simply 
shifting.
    In the table below, we set out a summary of annual burden 
estimates.

[[Page 25257]]



                             Annual Recordkeeping and Reporting Requirements Under OMB Control Number 0938-1171 (CMS-10432)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Burden per     Total annual
           Proposed action [preamble section]               Respondents    Responses per     response         burden      Labor cost ($/  Total cost ($)
                                                                            respondent       (hours) *        (hours)           hr)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Add NQF #1664 [VIII.D.4.a.].............................           1,684             848            0.25         357,008           32.84      11,724,143
Add Readmissions Measure [VIII.D.4.b.]..................           1,684               0               0               0           32.84               0
Training................................................           1,684               1               2           3,368           32.84         110,605
Shift Public Display Timeline [VIII.D.7.]...............           1,684               0               0               0           32.84               0
                                                         -----------------------------------------------------------------------------------------------
                                                                   1,684  ..............  ..............         360,376           32.84      11,834,748
--------------------------------------------------------------------------------------------------------------------------------------------------------

11. ICRs for the Electronic Health Record (EHR) Incentive Program and 
Meaningful Use
    In section VIII.E. of the preamble of this proposed rule, we 
discuss our proposals to align the Medicare and Medicaid EHR Incentive 
Programs reporting and submission timelines for electronically 
submitted clinical quality measures for eligible hospitals and CAHs 
with the Hospital IQR Program's reporting and submission timelines for 
the FY 2019 payment determination. Because these proposals for data 
collection in this proposed rule will align with the reporting 
requirements in place for the Hospital IQR Program, and eligible 
hospitals and CAHs still have the option to submit their clinical 
quality measures via attestation for the Medicare and Medicaid EHR 
Incentive Programs for CY 2017 reporting, we do not believe there is 
any additional burden for this collection of information. However, 
starting with CY 2018 reporting, eligible hospitals and CAHs 
participating in the Medicare EHR Incentive Programs must 
electronically report CQMs using CEHRT where feasible; and attestation 
to CQMs will no longer be an option except in certain circumstances 
where electronic reporting is not feasible (80 FR 62894).
    We are requesting public comments on these information collection 
and recordkeeping requirements.
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget,
    Attention: CMS Desk Officer, CMS-1655-P
    Fax: (202) 395-6974; or
    Email: [email protected].

C. Response to Public Comments

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

List of Subjects

42 CFR Part 405

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

42 CFR Part 412

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

42 CFR Part 413

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

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.

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

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

0
1. The authority citation for part 405 continues to read as follows:

    Authority:  Secs. 205(a), 1102, 1862(a), 1869, 1871, 1874, 1881, 
and 1886(k) of the Social Security Act (42 U.S.C. 405(a), 1302, 
1395x, 1395y(a), 1395ff, 1395hh, 1395kk, 1395rr, and 1395ww(k)), and 
sec. 353 of the Public Health Service Act (42 U.S.C. 263a).

0
2. Section 405.926 is amended by adding paragraph (u) to read as 
follows:


Sec.  405.926  Actions that are not initial determinations.

* * * * *
    (u) Issuance of notice to an individual entitled to Medicare 
benefits under Title XVIII of the Act when such individual received 
observation services as an outpatient for more than 24 hours, as 
specified under Sec.  489.20(y) of this chapter.

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

0
3. 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
4. Section 412.64 is amended by adding paragraph (d)(1)(vii) and 
revising paragraphs (h)(4) introductory text and (h)(4)(vi) 
introductory text to read as follows:


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

* * * * *
    (d) * * *
    (1) * * *
    (vii) For fiscal year 2017, 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 (3) of this section, less a multifactor productivity 
adjustment (as determined by CMS) and less 0.75 percentage point.
* * * * *
    (h) * * *
    (4) For discharges on or after October 1, 2004 and before October 
1, 2017, CMS establishes a minimum wage index for each all-urban State, 
as defined in paragraph (h)(5) of this section. This minimum wage index 
value is computed using the following methodology:
* * * * *
    (vi) For discharges on or after October 1, 2012 and before October 
1, 2017, the

[[Page 25258]]

minimum wage index value for the State is the higher of the value 
determined under paragraph (h)(4)(iv) of this section or the value 
computed using the following alternative methodology:
* * * * *
0
5. Section 412.103 is amended by adding paragraph (b)(6) to read as 
follows:


Sec.  412.103  Special treatment: Hospitals located in urban areas and 
that apply for reclassification as rural.

* * * * *
    (b) * * *
    (6) Lock-in date for the wage index calculation and budget 
neutrality. In order for a hospital to be treated as rural in the wage 
index and budget neutrality calculations under Sec. Sec.  
412.64(e)(1)(ii), (e)(2) and (4), and (h) for the payment rates for the 
next Federal fiscal year, the hospital's filing date must be no later 
than 70 days prior to the second Monday in June of the current Federal 
fiscal year and the application must be approved by the CMS Regional 
Office in accordance with the requirements of this section.
* * * * *
0
6. 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)(1) For fiscal years 2014 and 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.
    (2) For fiscal year 2016, CMS will base its estimates of the amount 
of hospital uncompensated care on utilization data for Medicaid and 
Medicare SSI patients, as determined by CMS in accordance with 
paragraphs (b)(2)(i) and (b)(4) of this section, using data on Medicaid 
utilization from 2012 or 2011 cost reports from the most recent HCRIS 
database extract, the 2012 cost report data submitted to CMS by IHS 
hospitals, and the most recent available data on Medicare SSI 
utilization.
    (3) For fiscal year 2017, CMS will base its estimates of the amount 
of hospital uncompensated care on utilization data for Medicaid and 
Medicare SSI patients, as determined by CMS in accordance with 
paragraphs (b)(2)(i) and (b)(4) of this section, using data on Medicaid 
utilization from 2011, 2012, and 2013 cost reports from the most recent 
HCRIS database extract, the 2011 and 2012 cost report data submitted to 
CMS by IHS hospitals, and the most recent available 3 years of data on 
Medicare SSI utilization (or, for Puerto Rico hospitals, a proxy for 
Medicare SSI utilization data).
    (4) For fiscal year 2018, CMS will base its estimates of the amount 
of hospital uncompensated care determined in part from utilization data 
for Medicaid and Medicare SSI patients, as determined by CMS in 
accordance with paragraphs (b)(2)(i) and (b)(4) of this section, using 
data on Medicaid utilization from 2012 and 2013 cost reports from the 
most recent HCRIS database extract, the 2012 cost report data submitted 
to CMS by IHS hospitals, and the most recent available 2 years of data 
on Medicare SSI utilization (or, for Puerto Rico hospitals, a proxy for 
Medicare SSI utilization data), and determined in part on uncompensated 
care costs, defined as charity care costs plus non-Medicare bad debt 
costs, from 2014 cost reports also from the most recent HCRIS database 
extract.
    (5) For fiscal year 2019, CMS will base its estimates of the amount 
of hospital uncompensated care determined in part from utilization data 
for Medicaid and Medicare SSI patients, as determined by CMS in 
accordance with paragraphs (b)(2)(i) and (b)(4) of this section, using 
data on Medicaid utilization from 2013 cost reports from the most 
recent HCRIS database extract and the most recent available year of 
data on Medicare SSI utilization (or, for Puerto Rico hospitals, a 
proxy for Medicare utilization data), and determined in part on 
uncompensated care costs, defined as charity care costs plus non-
Medicare bad debt costs, from 2014 and 2015 cost reports also from the 
most recent HCRIS database extract.
    (6) For fiscal year 2020, CMS will base its estimates of the amount 
of hospital uncompensated care on uncompensated care costs, defined as 
charity care costs plus non-Medicare bad debt costs, from 2014, 2015, 
and 2016 cost reports from the most recent HCRIS database extract.
    (7) For fiscal years 2021 and subsequent years, CMS will base its 
estimates of the amount of hospital uncompensated care on uncompensated 
care costs, defined as charity care costs plus non-Medicare bad debt 
costs, using three cost reporting periods from the most recently 
available HCRIS database extract. For each fiscal year, the cost 
reporting periods will be advanced forward by one year (for example, 
for FY 2021, FYs 2016, 2017, and 2018 cost reports will be used).
* * * * *
0
7. Section 412.140 is amended by revising paragraph (d)(2) to read as 
follows:


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

* * * * *
    (d) * * *
    (2) A hospital meets the chart-abstracted validation requirement 
with respect to a fiscal year if it achieves a 75-percent score, as 
determined by CMS.
* * * * *
0
8. Section 412.160 is amended by revising the definitions of 
``Achievement threshold (or achievement performance standard)'', 
``Benchmark'', and ``Cited for deficiencies that pose immediate 
jeopardy'' to read as follows:


Sec.  412.160  Definitions for the Hospital Value-Based Purchasing 
(VBP) Program.

* * * * *
    Achievement threshold (or achievement performance standard) means 
the median (50th percentile) of hospital performance on a measure 
during a baseline period with respect to a fiscal year, for Hospital 
VBP Program measures other than the measures in the Efficiency and Cost 
Reduction domain, and the median (50th percentile) of hospital 
performance on a measure during the performance period with respect to 
a fiscal year, for the measures in the Efficiency and Cost Reduction 
domain.
* * * * *
    Benchmark means the arithmetic mean of the top decile of hospital 
performance on a measure during the baseline period with respect to a 
fiscal year, for Hospital VBP Program measures other than the measures 
in the Efficiency and Cost Reduction domain, and the arithmetic mean of 
the top decile of hospital performance on a measure during the 
performance period with respect to a fiscal year, for the measures in 
the Efficiency and Cost Reduction domain.
    Cited for deficiencies that pose immediate jeopardy means that, 
during the applicable performance period, the Secretary cited the 
hospital for immediate jeopardy on at least three surveys using the 
Form CMS-2567, Statement of Deficiencies and Plan of Correction. CMS 
assigns an immediate jeopardy citation to a performance period as 
follows:

[[Page 25259]]

    (1) If the Form CMS-2567 only contains one or more EMTALA-related 
immediate jeopardy citations, CMS uses the date that the Form CMS-2567 
is issued to the hospital;
    (2) If the Form CMS-2567 only contains one or more Medicare 
conditions of participation immediate jeopardy citations, CMS uses the 
survey end date generated in ASPEN; and
    (3) If the Form CMS-2567 contains both one or more EMTALA-related 
immediate jeopardy citations and one or more Medicare conditions of 
participation immediate jeopardy citations, CMS uses the survey end 
date generated in ASPEN.
* * * * *
0
9. Section 412.170 is amended by revising the definition of 
``Applicable period'' to read as follows:


Sec.  412.170  Definitions for the Hospital-Acquired Condition 
Reduction Program.

* * * * *
    Applicable period is, unless otherwise specified by the Secretary, 
with respect to a fiscal year, the 2-year period (specified by the 
Secretary) from which data are collected in order to calculate the 
total hospital-acquired condition score under the Hospital-Acquired 
Condition Reduction Program.
* * * * *
0
10. Section 412.204 is amended by revising paragraph (d) introductory 
text and adding paragraph (e) to read as follows:


Sec.  412.204  Payment to hospitals located in Puerto Rico.

* * * * *
    (d) FY 2005 through December 31, 2015. For discharges occurring on 
or after October 1, 2004 and before January 1, 2016, payments for 
inpatient operating costs to hospitals located in Puerto Rico that are 
paid under the prospective payment system are equal to the sum of--
* * * * *
    (e) January 1, 2016 and thereafter. For discharges occurring on or 
after January 1, 2016, payments for inpatient operating costs to 
hospitals located in Puerto Rico that are paid under the prospective 
payment system are equal to 100 percent of a national prospective 
payment rate for inpatient operating costs, as determined under Sec.  
412.212.
0
11. Section 412.256 is amended by revising paragraph (a)(1) to read as 
follows:


Sec.  412.256  Application requirements.

    (a) * * *
    (1) An application must be submitted to the MGCRB according to the 
method prescribed by the MGCRB, with an electronic copy of the 
application sent to CMS.
* * * * *
0
12. Section 412.374 is amended by revising paragraph (b) introductory 
text and adding paragraph (e) to read as follows:


Sec.  412.374  Payments to hospitals located in Puerto Rico.

* * * * *
    (b) FY 2005 through FY 2016. For discharges occurring on or after 
October 1, 2004 and on or before September 30, 2016, payments for 
capital-related costs to hospitals located in Puerto Rico that are paid 
under the prospective payment system are equal to the sum of the 
following:
* * * * *
    (e) FY 2016 and FYs thereafter. For discharges occurring on or 
after October 1, 2016, payments for capital-related costs to hospitals 
located in Puerto Rico that are paid under the prospective payment 
system are based on 100 percent of the Federal rate, as determined 
under Sec.  412.308.
0
13. Section 412.503 is amended by adding in alphabetical order 
definitions of ``MSA'', ``MSA-dominant area'', and ``MSA-dominant 
hospital'' and revising the definitions of ``Outlier payment'' and 
``Subsection (d) hospital'' to read as follows:


Sec.  412.503  Definitions.

* * * * *
    MSA means a Metropolitan Statistical Area, as defined by the 
Executive Office of Management and Budget.
    MSA-dominant area means an MSA in which an MSA-dominant hospital is 
located.
    MSA-dominant hospital means a hospital that has discharged more 
than 25 percent of the total hospital Medicare discharges in the MSA 
(subject to the provisions of Sec.  412.538(d)(2)(ii)) in which such 
subsection (d) hospital is located.
* * * * *
    Outlier payment means an additional payment beyond the long-term 
care hospital standard Federal payment rate or the site neutral payment 
rate (including, when applicable, the blended payment rate), as 
applicable, for cases with unusually high costs.
* * * * *
    Subsection (d) hospital means, for purposes of Sec.  412.522, a 
hospital defined in section 1886(d)(1)(B) of the Social Security Act 
and includes any hospital that is located in Puerto Rico and that would 
be a subsection (d) hospital as defined in section 1886(d)(1)(B) of the 
Social Security Act if it were located in one of the 50 States.
* * * * *
0
14. Section 412.507 is amended by revising paragraph (a) and adding 
paragraph (b)(3) to read as follows:


Sec.  412.507  Limitation on charges to beneficiaries.

    (a) Prohibited charges. Except as provided in paragraph (b) of this 
section, a long-term care hospital may not charge a beneficiary for any 
covered services for which payment is made by Medicare, even if the 
hospital's costs of furnishing services to that beneficiary are greater 
than the amount the hospital is paid under the prospective payment 
system.
    (1) If Medicare has paid at the full LTCH prospective payment 
system standard Federal payment rate, that payment applies to the 
hospital's costs for services furnished until the high-cost outlier 
threshold is met.
    (2) If Medicare pays less than the full LTCH prospective payment 
system standard Federal payment rate and payment was not made at the 
site neutral payment rate (including, when applicable, the blended 
payment rate), that payment only applies to the hospital's costs for 
those costs or days used to calculate the Medicare payment.
    (3) For cost reporting periods beginning on or after October 1, 
2016, for Medicare payments to a long-term care hospital described in 
Sec.  412.23(e)(2)(ii), that payment only applies to the hospital's 
costs for those costs or days used to calculate the Medicare payment.
    (4) If Medicare has paid at the full site neutral payment rate, 
that payment applies to the hospital's costs for services furnished 
until the high-cost outlier is met.
    (b) * * *
    (3) For cost reporting periods beginning on or after October 1, 
2016, a long-term care hospital described in Sec.  412.23(e)(2)(ii) may 
only charge the Medicare beneficiary for the applicable deductible and 
coinsurance amounts under Sec. Sec.  409.82, 409.83, and 409.87 of this 
chapter, for items and services as specified under Sec.  489.20(a) of 
this chapter, and for services provided during the stay for which 
benefit days were not available and that were not the basis for 
adjusted LTCH prospective payment system payment amount under Sec.  
412.526.
0
15. Section 412.522 is amended by adding paragraph (c)(2)(v) to read as 
follows:

[[Page 25260]]

Sec.  412.522  Application of site neutral payment rate.

* * * * *
    (c) * * *
    (2) * * *
    (v) The limitation on long-term care hospital admissions from 
referring hospitals specified in Sec.  412.538.
* * * * *
0
16. Section 412.523 is amended by adding paragraph (c)(3)(xiii) to read 
as follows:


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

* * * * *
    (c) * * *
    (3) * * *
    (xiii) For long-term care hospital prospective payment system 
fiscal year beginning October 1, 2016, and ending September 30, 2017. 
The LTCH PPS standard Federal payment rate for the long-term care 
hospital prospective payment system beginning October 1, 2016, and 
ending September 30, 2017, is the standard Federal payment rate for the 
previous long-term care hospital prospective payment system fiscal year 
updated by 1.45 percent and further adjusted, as appropriate, as 
described in paragraph (d) of this section.
* * * * *
0
17. Section 412.525 is amended by adding paragraph (d)(6) to read as 
follows:


Sec.  412.525  Adjustments to the Federal prospective payment.

* * * * *
    (d) * * *
    (6) The limitation on long-term care hospital admissions from 
referring hospitals specified in Sec.  412.538.
0
18. The section heading of Sec.  412.534 is revised to read as follows:


Sec.  412.534  Special payment provisions for long-term care hospitals-
within-hospitals and satellites of long-term care hospitals, effective 
for discharges occurring on or before September 30, 2016.

* * * * *
0
19. The section heading of Sec.  412.536 is revised to read as follows:


Sec.  412.536  Special payment provisions for long-term care hospitals 
and satellites of long-term care hospitals that discharge 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, effective for discharges occurring on or 
before September 30, 2016.

* * * * *
0
20. Add Sec.  412.538 to read as follows:


Sec.  412.538  Limitation on long-term care hospital admissions from 
referring hospitals.

    (a) Scope. (1) The provisions of this section apply to all long-
term care hospitals excluded from the hospital inpatient prospective 
payment system under Sec.  412.23(e), effective for discharges 
occurring on or after October 1, 2016, except as specified in 
paragraphs (a)(2) and (3) of this section.
    (2) The provisions of this section do not apply to a long-term care 
hospital described in Sec.  412.23(e)(2)(ii).
    (3) The provisions of this section do not apply to a long-term care 
hospital described in Sec.  412.23(e)(2)(i) that meets the criteria in 
Sec.  412.22(f).
    (b) Discharges at or below the applicable percent threshold. For 
any cost reporting period which includes discharges occurring on or 
after October 1, 2016, in which a long-term care hospital has a 
population of Medicare discharges occurring on or after October 1, 2016 
of whom no more than the applicable percent threshold were admitted to 
the long-term care hospital from a single referring hospital as 
identified by the CCN, payments are made under the rules at Sec. Sec.  
412.500 through 412.541 with no adjustment under this section.
    (c) Discharges in excess of the applicable percent threshold. For 
any cost reporting period which includes discharges occurring on or 
after October 1, 2016, in which a long-term care hospital has a 
population of Medicare discharges occurring on or after October 1, 2016 
of whom more than the applicable percentage threshold (as defined in 
paragraph (e) of this section) were admitted to the long-term care 
hospital from a single referring hospital as identified by the CNN, 
payments for the Medicare discharges who are admitted from that 
referring hospital and who cause the long-term care hospital to exceed 
the applicable percentage threshold (as defined in paragraph (e) of 
this section) are to be paid at the lesser of the amount otherwise 
payable under this subpart or the amount equivalent to the hospital 
inpatient prospective payment system amount as defined in paragraph (f) 
of this section. Payments for discharges not in excess of the 
applicable percentage threshold (as defined in paragraph (e) of this 
section) are made under the rules at Sec. Sec.  412.500 through 412.541 
with no adjustment under this section.
    (d) Determination of exceeding the applicable percentage 
threshold.--(1) General. The determination of whether a long-term care 
hospital has exceeded its applicable percentage threshold (as defined 
in paragraph (e) of this section) in regard to admissions from a single 
referring hospital as identified by the CNN is made by comparing the 
hospital's percentage of Medicare discharges occurring on or after 
October 1, 2016 admitted to the long-term care hospital (as calculated 
under paragraph (d)(2) of this section) to the long-term care 
hospital's applicable percentage threshold in paragraph (e) of this 
section.
    (2) Percentage of Medicare discharges. For each individual 
referring hospital, the percentage of Medicare discharges admitted to 
the long-term care hospital is calculated by dividing the amount in 
paragraph (d)(2)(i) of this section by the amount in paragraph 
(d)(2)(ii) of this paragraph.
    (i) The number of the long-term care hospital's Medicare discharges 
in the cost reporting period that were admitted from a single referring 
hospital as identified by the CNN on whose behalf an outlier payment 
was not made to that hospital and for whom payment was not made by a 
Medicare Advantage plan.
    (ii) The long-term care hospital's total number of Medicare 
discharges in the long-term care hospital's cost reporting period for 
whom payment was not made by a Medicare Advantage plan.
    (e) Applicable percentage threshold--(1) General. For the purposes 
of this section, except as provided for in paragraphs (f)(2) and (3) of 
this section, ``applicable percentage threshold'' means 25 percent.
    (2) Special treatment of exclusively rural long-term care 
hospitals. In the case of a long-term care hospital that is located in 
a rural area as defined in Sec.  412.503, the applicable percentage 
threshold means 50 percent. If an LTCH has multiple locations, all 
locations of the LTCH must be in a rural area (as defined in Sec.  
412.503) in order to be treated as rural under this section.
    (3) Special treatment for long-term care hospitals located in an 
MSA with an MSA-dominant hospital. In the case of a long-term care 
hospital that admits Medicare patients from a referring MSA-dominant 
hospital (as defined in paragraph (h)(3)(ii) of this section), the 
applicable percentage threshold means the percentage of total 
subsection (d) hospital Medicare discharges in the MSA in which the 
long-term care hospital is located for the cost reporting period for 
which the adjustment under this section is made, but in no case is less 
than 25 percent or more than 50 percent. The determination of the 
applicable percentage threshold in this paragraph is subject to the 
provisions of paragraph (d)(2) of this section. If an LTCH has multiple 
locations payable

[[Page 25261]]

under this subpart, all locations of the LTCH must be in an MSA with an 
MSA-dominant hospital in order to be treated as such under this 
section.
    (f) Determining the amount equivalent to the hospital inpatient 
prospective payment system amount. (1) As specified in paragraphs (b) 
and (c) of this section, CMS calculates an amount payable under subpart 
O that is equivalent to an amount that would be paid for the services 
provided if such services had been provided in an inpatient prospective 
payment system hospital (that is, the amount that would be determined 
under the rules at Sec.  412.1(a)). This amount is based on the sum of 
the applicable hospital inpatient prospective payment system operating 
standardized amount and capital Federal rate in effect (as set forth in 
section Sec.  412.529(d)(4)) at the time of the long-term care hospital 
discharge.
    (2) In addition to the payment amount under paragraph (f)(1) of 
this section, an additional payment for high-cost outlier cases is 
based on the applicable fixed-loss amount established for the hospital 
inpatient prospective payment system in effect at the time of the long-
term care hospital discharge.
0
21. Section 412.560 is amended by revising paragraph (c)(1) to read as 
follows:


Sec.  412.560  Participation, data submission, and other requirements 
under the Long-Term Care Hospital Quality Reporting (LTCHQR) Program.

* * * * *
    (c) * * *
    (1) A long-term care hospital that wishes to request an exception 
or extension with respect to quality data reporting requirements must 
submit its request to CMS within 90 days of the date that the 
extraordinary circumstances occurred.
* * * * *

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

0
22. The authority for part 413 is revised to read as follows:

    Authority:  Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), 
and (n), 1861(v), 1871, 1881, 1883 and 1886 of the Social Security 
Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and 
(n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of 
Pub. L. 106-113 (113 Stat. 1501A-332), sec. 3201 of Pub. L. 112-96 
(126 Stat. 156), sec. 632 of Pub. L. 112-240 (126 Stat. 2354), sec. 
217 of Pub. L. 113-93 (129 Stat. 1040), and sec. 204 of Pub L. 113-
295 (128 Stat. 4010).

0
23. Section 413.17 is amended by revising paragraph (d)(1) introductory 
text to read as follows:


Sec.  413.17  Cost to related organizations.

* * * * *
    (d) * * *
    (1) An exception is provided to this general principle if the 
provider demonstrates by convincing evidence to the satisfaction of the 
contractor, that--
* * * * *
0
24. Section 413.24 is amended by revising paragraphs (f)(4)(i), (ii), 
and (iv) to read as follows:


Sec.  413.24  Adequate cost data and cost finding.

* * * * *
    (f) * * *
    (4) * * *
    (i) As used in this paragraph, ``provider'' means a hospital, 
skilled nursing facility, home health agency, hospice, organ 
procurement organization, histocompatibility laboratory, rural health 
clinic, Federally qualified health center, community mental health 
center, or end-stage renal disease facility.
    (ii) Effective for cost reporting periods beginning on or after 
October 1, 1989 for hospitals, cost reporting periods ending on or 
after February 1, 1997 for skilled nursing facilities and home health 
agencies, cost reporting periods ending on or after December 31, 2004 
for hospices, and end-stage renal disease facilities, and cost 
reporting periods ending on or after March 31, 2005 for organ 
procurement organizations, histocompatibility laboratories, rural 
health clinics, Federally qualified health centers, and community 
mental health centers, a provider is required to submit cost reports in 
a standardized electronic format. The provider's electronic program 
must be capable of producing the CMS standardized output file in a form 
that can be read by the contractor's automated system. This electronic 
file, which must contain the input data required to complete the cost 
report and to pass specified edits, must be forwarded to the contractor 
for processing through its system.
* * * * *
    (iv) Effective for cost reporting periods ending on or after 
September 30, 1994 for hospitals, cost reporting periods ending on or 
after February 1, 1997 for skilled nursing facilities and home health 
agencies, cost reporting periods ending on or after December 31, 2004 
for hospices and end-stage renal disease facilities, and cost reporting 
periods ending on or after March 31, 2005 for organ procurement 
organizations, histocompatibility laboratories, rural health clinics, 
Federally qualified health centers, and community mental health 
centers, a provider must submit a hard copy of a settlement summary, a 
statement of certain worksheet totals found within the electronic file, 
and a statement signed by its administrator or chief financial officer 
certifying the accuracy of the electronic file or the manually prepared 
cost report. During a transition period (first two cost-reporting 
periods on or after December 31, 2004 for hospices and end-stage renal 
disease facilities, and the first two cost-reporting periods on or 
after March 31, 2005 for organ procurement organizations, 
histocompatibility laboratories, rural health clinics, Federally 
qualified health centers, community mental health centers), providers 
must submit a hard copy of the completed cost report forms in addition 
to the electronic file. The following statement must immediately 
precede the dated signature of the provider's administrator or chief 
financial officer:

    I hereby certify that I have read the above certification statement 
and that I have examined the accompanying electronically filed or 
manually submitted cost report and the Balance Sheet and Statement of 
Revenue and Expenses prepared by ______(Provider Name(s) and Number(s)) 
for the cost reporting period beginning ___and ending ___and that to 
the best of my knowledge and belief, this report and statement are 
true, correct, complete and prepared from the books and records of the 
provider in accordance with applicable instructions, except as noted. I 
further certify that I am familiar with the laws and regulations 
regarding the provision of health care services, and that the services 
identified in this cost report were provided in compliance with such 
laws and regulations.
* * * * *
0
25. Section 413.79 is amended by revising paragraphs (k)(1)(i) and 
(ii), (k)(2)(i) and (ii), (k)(3) and (4), and (k)(7)(ii) and (iii) to 
read as follows:


Sec.  413.79  Direct GME payments: Determination of the weighted number 
of FTE residents.

* * * * *
    (k) * * *
    (1) * * *
    (i) For rural track programs started prior to October 1, 2012, for 
the first 3 years of the rural track's existence, the rural track FTE 
limitation for each urban hospital will be the actual number of

[[Page 25262]]

FTE residents, subject to the rolling average at paragraph (d)(7) of 
this section, training in the rural track at the urban hospital. For 
rural track programs started on or after October 1, 2012, prior to the 
start of the urban hospital's cost reporting period that coincides with 
or follows the start of the sixth program year of the rural track's 
existence, the rural track FTE limitation for each urban hospital will 
be the actual number of FTE residents, subject to the rolling average 
at paragraph (d)(7) of this section, training in the rural track at the 
urban hospital.
    (ii) For rural track programs started prior to October 1, 2012, 
beginning with the fourth year of the rural track's existence, the 
rural track FTE limitation is equal to the product of the highest 
number of residents, in any program year, who during the third year of 
the rural track's existence are training in the rural track at the 
urban hospital or the rural hospital(s) and are designated at the 
beginning of their training to be rotated to the rural hospital(s) for 
at least two-thirds of the duration of the program for cost reporting 
periods beginning on or after April 1, 2000, and before October 1, 
2002, or for more than one-half of the duration of the program 
effective for cost reporting periods beginning on or after October 1, 
2003, and the number of years those residents are training at the urban 
hospital. For rural track programs started on or after October 1, 2012, 
beginning with the start of the urban hospital's cost reporting period 
that coincides with or follows the start of the sixth program year of 
the rural track's existence, the rural track FTE limitation is equal to 
the product of the highest number of residents, in any program year, 
who during the fifth year of the rural track's existence are training 
in the rural track at the urban hospital or the rural hospital(s) and 
are designated at the beginning of their training to be rotated to the 
rural hospital(s) for more than one-half of the duration of the 
program, and the number of years those residents are training at the 
urban hospital.
    (2) * * *
    (i) For rural track programs started prior to October 1, 2012, for 
the first 3 years of the rural track's existence, the rural track FTE 
limitation for each urban hospital will be the actual number of FTE 
residents, subject to the rolling average specified in paragraph (d)(7) 
of this section, training in the rural track at the urban hospital and 
the rural nonhospital site(s). For rural track programs started on or 
after October 1, 2012, prior to the start of the urban hospital's cost 
reporting period that coincides with or follows the start of the sixth 
program year of the rural track's existence, the rural track FTE 
limitation for each urban hospital will be the actual number of FTE 
residents, subject to the rolling average specified in paragraph (d)(7) 
of this section, training in the rural track at the urban hospital and 
the rural nonhospital site(s).
    (ii)(A) For rural track programs started prior to October 1, 2012, 
beginning with the fourth year of the rural track's existence, the 
rural track FTE limitation is equal to the product of--
    (1) The highest number of residents in any program year who, during 
the third year of the rural track's existence, are training in the 
rural track at--
    (i) The urban hospital and are designated at the beginning of their 
training to be rotated to a rural nonhospital site(s) for at least two-
thirds of the duration of the program for cost reporting periods 
beginning on or after April 1, 2000 and before October 1, 2003, or for 
more than one-half of the duration of the program for cost reporting 
periods beginning on or after October 1, 2003; and
    (ii) The rural nonhospital site(s); and
    (2) The number of years in which the residents are expected to 
complete each program based on the minimum accredited length for the 
type of program.
    (B) For rural track programs started on or after to October 1, 
2012, beginning with the start of the urban hospital's cost reporting 
period that coincides with or follows the start of the sixth program 
year of the rural track's existence, the rural track FTE limitation is 
equal to the product of--
    (1) The highest number of residents in any program year who, during 
the fifth year of the rural track's existence, are training in the 
rural track at--
    (i) The urban hospital and are designated at the beginning of their 
training to be rotated to a rural nonhospital site(s) for more than 
one-half of the duration of the program; and
    (ii) The rural nonhospital site(s); and
    (2) The number of years in which the residents are expected to 
complete each program based on the minimum accredited length for the 
type of program.
    (3) For rural track programs started prior to October 1, 2012, if 
an urban hospital rotates residents in the rural track program to a 
rural hospital(s) for less than two-thirds of the duration of the 
program for cost reporting periods beginning on or after April 1, 2000, 
and before October 1, 2003, or for one-half or less than one-half of 
the duration of the program for cost reporting periods beginning on or 
after October 1, 2003, the rural hospital may not include those 
residents in its FTE count (if the rural track is not a new program 
under paragraph (e)(3) of this section, or if the rural hospital's FTE 
count exceeds that hospital's FTE cap), nor may the urban hospital 
include those residents when calculating its rural track FTE 
limitation. For rural track programs started on or after October 1, 
2012, if an urban hospital rotates residents in the rural track program 
to a rural hospital(s) for one-half or less than one-half of the 
duration of the program, the rural hospital may not include those 
residents in its FTE count (if the rural track is not a new program 
under paragraph (e)(3) of this section, or if the rural hospital's FTE 
count exceeds that hospital's FTE cap), nor may the urban hospital 
include those residents when calculating its rural track FTE 
limitation.
    (4)(i) For rural track programs started prior to October 1, 2012, 
if an urban hospital rotates residents in the rural track program to a 
rural nonhospital site(s) for less than two-thirds of the duration of 
the program for cost reporting periods beginning on or after April 1, 
2000 and before October 1, 2003, or for one-half or less than one-half 
of the duration of the program for cost reporting periods beginning on 
or after October 1, 2003, the urban hospital may include those 
residents in its FTE count, subject to the requirements under Sec.  
413.78(d). The urban hospital may include in its FTE count those 
residents in the rural track, not to exceed its rural track limitation, 
determined as follows:
    (A) For the first 3 years of the rural track's existence, the rural 
track FTE limitation for the urban hospital will be the actual number 
of FTE residents, subject to the rolling average specified in paragraph 
(d)(7) of this section, training in the rural track at the rural 
nonhospital site(s).
    (B) Beginning with the fourth year of the rural track's existence, 
the rural track FTE limitation is equal to the product of--
    (1) The highest number of residents in any program year who, during 
the third year of the rural track's existence, are training in the 
rural track at the rural nonhospital site(s) or are designated at the 
beginning of their training to be rotated to the rural nonhospital 
site(s) for a period that is less than two-thirds of the duration of 
the program for cost reporting periods beginning on or after April 1, 
2002, and before October 1, 2003, or for one-half or less than one-half 
of the duration of the program for cost reporting periods beginning on 
or after October 1, 2003; and

[[Page 25263]]

    (2) The length of time in which the residents are training at the 
rural nonhospital site(s) only.
    (ii) For rural track programs started on or after October 1, 2012, 
if an urban hospital rotates residents in the rural track program to a 
rural nonhospital site(s) for one-half or less than one-half of the 
duration of the program, the urban hospital may include those residents 
in its FTE count, subject to the requirements under Sec.  413.78(d). 
The urban hospital may include in its FTE count those residents in the 
rural track, not to exceed its rural track limitation, determined as 
follows:
    (A) Prior to the start of the urban hospital's cost reporting 
period that coincides with or follows the start of the sixth program 
year of the rural track's existence, the rural track FTE limitation for 
the urban hospital will be the actual number of FTE residents, subject 
to the rolling average specified in paragraph (d)(7) of this section, 
training in the rural track at the rural nonhospital site(s).
    (B) Beginning with the start of the urban hospital's cost reporting 
period that coincides with or follows the start of the sixth program 
year of the rural track's existence, the rural track FTE limitation is 
equal to the product of--
    (1) The highest number of residents in any program year who, during 
the fifth year of the rural track's existence, are training in the 
rural track at the rural nonhospital site(s) or are designated at the 
beginning of their training to be rotated to the rural nonhospital 
site(s) for a period that is for one-half or less than one-half of the 
duration of the program; and
    (2) The length of time in which the residents are training at the 
rural nonhospital site(s) only.
* * * * *
    (7) * * *
    (ii)(A) For rural track programs started prior to October 1, 2012, 
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.
    (B) For rural track programs started on or after October 1, 2012, 
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 5-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)(A) For rural track programs started prior to October 1, 2012, 
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.
    (B) For rural track programs started on or after October 1, 2012, 
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 5-year period that is used to calculate the 
urban hospital's rural track FTE limit, or after the 5-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.
* * * * *


Sec.  413.200  [Amended]

0
26. In Sec.  413.200, paragraph (c)(1)(i), remove the phrase ``three 
months'' and add in its place the phrase ``5 months''.

[[Page 25264]]

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

0
27. The authority citation for part 489 is revised to read as follows:

    Authority:  Secs. 1102 1819, 1820(E), 1861, 1864(M), 1866, 1869, 
and 1871 of the Social Security Act (42 U.S.C. 1302, 1395i-3, 1395x, 
1395aa(m), 1395cc, 1395ff, and 1395(hh)).

0
28. Section 489.20 is amended by adding paragraph (y) to read as 
follows:

Sec.  489.20  Basic commitments.

* * * * *
    (y) In the case of a hospital or critical access hospital, to 
provide notice, as specified in paragraphs (y)(1) and (2) of this 
section, to each individual entitled to Medicare benefits under Title 
XVIII of the Act when such individual receives observation services as 
an outpatient for more than 24 hours. Notice must be provided to the 
individual not later than 36 hours after observation services are 
initiated or sooner if the individual is transferred, discharged, or 
admitted.
    (1) Written notice. Hospitals and critical access hospitals must 
use a standardized written notice, as specified by the Secretary, which 
includes the following information:
    (i) An explanation of the status of the individual as an outpatient 
receiving observation services and not as an inpatient of the hospital 
or critical access hospital and the reason for status as an outpatient 
receiving observation services; and
    (ii) An explanation of the implications of such status as an 
outpatient on services furnished by the hospital or critical access 
hospital (including services furnished on an inpatient basis), such as 
Medicare cost-sharing requirements, and subsequent eligibility for 
Medicare coverage for skilled nursing facility services.
    (2) Oral notice. The hospital must give an oral explanation of the 
written notification described in paragraph (y)(1) of this section.
    (3) Signature requirements. The written notice specified in 
paragraph (y)(1) of this section must either--
    (i) Be signed by the individual who receives observation services 
as an outpatient or a person acting on the individual's behalf to 
acknowledge receipt of such notification; or
    (ii) If the individual who receives observation services as an 
outpatient or the person acting on behalf of the individual refuses to 
provide the signature described in paragraph (y)(1) of this section, is 
signed by the staff member of the hospital or critical access hospital 
who presented the written notification and includes the name and title 
of the staff member, a certification that the notification was 
presented, and the date and time the notification was presented.

    Dated: April 1, 2016.
Andrew M. Slavitt,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 14, 2016.
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--Proposed Schedule of Standardized Amounts, Update Factors, 
Rate-of-Increase Percentages Effective With Cost Reporting Periods 
Beginning on or After October 1, 2016, and Payment Rates for LTCHs 
Effective for Discharges Occurring on or After October 1, 2016

I. Summary and Background

    In this Addendum, we are setting forth a description of the 
methods and data we used to determine the proposed prospective 
payment rates for Medicare hospital inpatient operating costs and 
Medicare hospital inpatient capital-related costs for FY 2017 for 
acute care hospitals. We also are setting forth the rate-of-increase 
percentage for updating the target amounts for certain hospitals 
excluded from the IPPS for FY 2017. 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 proposed figures for the 
standardized amounts, offsets, and budget neutrality factors. 
Therefore, in this proposed rule, we are setting forth the rate-of-
increase percentage for updating the target amounts for certain 
hospitals excluded from the IPPS that will be effective for cost 
reporting periods beginning on or after October 1, 2016.
    In addition, we are setting forth a description of the methods 
and data we used to determine the proposed standard Federal payment 
rate that would be applicable to Medicare LTCHs for FY 2017.
    In general, except for SCHs and MDHs, for FY 2017, 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 
proposed rule, uncompensated care payments under section 1886(r)(2) 
of the Act); the updated hospital-specific rate based on FY 1982 
costs per discharge; the updated hospital-specific rate based on FY 
1987 costs per discharge; the updated hospital-specific rate based 
on FY 1996 costs per discharge; or the updated hospital-specific 
rate based on FY 2006 costs per discharge.
    We note that section 205 of the Medicare Access and CHIP 
Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10, enacted on 
April 16, 2015) extended the MDH program (which, under previous law, 
was to be in effect for discharges on or before March 31, 2015 only) 
for discharges occurring on or after April 1, 2015, through FY 2017 
(that is, for discharges occurring on or before September 30, 2017).
    Under section 1886(d)(5)(G) of the Act, MDHs historically were 
paid based on the Federal national rate or, if higher, the Federal 
national rate plus 50 percent of the difference between the Federal 
national rate and the updated hospital-specific rate based on FY 
1982 or FY 1987 costs per discharge, whichever was higher. However, 
section 5003(a)(1) of Public Law 109-171 extended and modified the 
MDH special payment provision that was previously set to expire on 
October 1, 2006, to include discharges occurring on or after October 
1, 2006, but before October 1, 2011. Under section 5003(b) of Public 
Law 109-171, if the change results in an increase to an MDH's target 
amount, we must rebase an MDH's hospital-specific rates based on its 
FY 2002 cost report. Section 5003(c) of Public Law 109-171 further 
required that MDHs be paid based on the Federal national rate or, if 
higher, the Federal national rate plus 75 percent of the difference 
between the Federal national rate and the updated hospital-specific 
rate. Further, based on the provisions of section 5003(d) of Public 
Law 109-171, MDHs are no longer subject to the 12-percent cap on 
their DSH payment adjustment factor.
    As discussed in section IV.A. of the preamble of this proposed 
rule, prior to January 1, 2016, Puerto Rico hospitals were paid 
based on 75 percent of the national standardized amount and 25 
percent of the Puerto Rico-specific standardized amount. As a 
result, CMS calculated the Puerto Rico-specific standardized amount. 
Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 
114-113) amended section 1886(d)(9)(E) of the Act to specify that 
the payment calculation with respect to operating costs of inpatient 
hospital services of a subsection (d) Puerto Rico hospital for 
inpatient hospital discharges on or after January 1, 2016, shall use 
100 percent of the national standardized amount. Because Puerto Rico 
hospitals are no longer paid with a Puerto Rico-specific 
standardized amount under the amendments to section 1886(d)(9)(E) of 
the Act, there is no longer a need for us to calculate a Puerto 
Rico-specific standardized amount. For operating costs for inpatient 
hospital discharges occurring in FY 2017 and subsequent fiscal 
years, consistent with the provisions of section 1886(d)(9)(E) of 
the Act as amended by section 601 of Public Law 114-113, subsection 
(d) Puerto Rico hospitals will continue to be paid based on 100 
percent of the national standardized amount. Because Puerto Rico 
hospitals are now paid 100 percent of the national standardized 
amount and are subject to the same national standardized amount as 
subsection (d) hospitals that receive the full update, our 
discussion below does not

[[Page 25265]]

include references to the Puerto Rico standardized amount or the 
Puerto Rico-specific wage index.
    As discussed in section II. of this Addendum, we are proposing 
to make changes in the determination of the prospective payment 
rates for Medicare inpatient operating costs for acute care 
hospitals for FY 2017. In section III. of this Addendum, we discuss 
our proposed policy changes for determining the prospective payment 
rates for Medicare inpatient capital-related costs for FY 2017. In 
section IV. of this Addendum, we are setting forth the rate-of-
increase percentage for determining the rate-of-increase limits for 
certain hospitals excluded from the IPPS for FY 2017. In section V. 
of this Addendum, we discuss proposed policy changes for determining 
the standard Federal rate for LTCHs paid under the LTCH PPS for FY 
2017. The tables to which we refer in the preamble of this proposed 
rule are listed in section VI. of this Addendum and are available 
via the Internet on the CMS Web site.

II. Proposed Changes to Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2017

    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 proposing to use for determining the proposed prospective 
payment rates for FY 2017.
    In summary, the proposed 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 on the CMS Web 
site) 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 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 2017, 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 proposed rule for a complete discussion on the 
proposed FY 2017 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 2017                         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
----------------------------------------------------------------------------------------------------------------
Proposed Market Basket                                       2.8             2.8             2.8             2.8
 Rate[dash]of[dash]Increase.....................
Proposed Adjustment for Failure to Submit                    0.0             0.0            -0.7            -0.7
 Quality Data under Section 1886(b)(3)(B)(viii)
 of the Act.....................................
Proposed Adjustment for Failure to be a                      0.0            -2.1             0.0            -2.1
 Meaningful EHR User under Section
 1886(b)(3)(B)(ix) of the Act...................
Proposed MFP Adjustment under Section                       -0.6            -0.5            -0.5            -0.5
 1886(b)(3)(B)(xi) of the Act...................
Statutory Adjustment under Section                         -0.75           -0.75           -0.75           -0.75
 1886(b)(3)(B)(xii) of the Act..................
Proposed Applicable Percentage Increase Applied             1.55           -0.55            0.85           -1.25
 to Standardized Amount.........................
----------------------------------------------------------------------------------------------------------------

    We note that section 1886(b)(3)(B)(viii) of the Act, which 
specifies the adjustment to the applicable percentage increase for 
``subsection (d)'' hospitals that do not submit quality data under 
the rules established by the Secretary, is not applicable to 
hospitals located in Puerto Rico.
    In addition, section 602 of Public Law 114-113 amended section 
1886(n)(6)(B) of the Act to specify that Puerto Rico hospitals are 
eligible for incentive payments for the meaningful use of certified 
EHR technology, effective beginning FY 2016, and also to apply the 
adjustments to the applicable percentage increase under section 
1886(b)(3)(B)(ix) of the Act to Puerto Rico hospitals that are not 
meaningful EHR users, effective FY 2022. Accordingly, because the 
provisions of section 1886(b)(3)(B)(ix) of the Act are not 
applicable to hospitals located in Puerto Rico until FY 2022, the 
adjustments under this provision are not applicable for FY 2017.
     An adjustment to the standardized amount to ensure 
budget neutrality for DRG recalibration and reclassification, as 
provided for under section 1886(d)(4)(C)(iii) of the Act.
     An adjustment to ensure the wage index changes are 
budget neutral, as provided for under section 1886(d)(3)(E)(i) of 
the Act. We note that section 1886(d)(3)(E)(i) of the Act requires 
that when we compute such budget neutrality, we assume that the 
provisions of section 1886(d)(3)(E)(ii) of the Act (requiring a 62-
percent labor-related share in certain circumstances) had not been 
enacted.
     An adjustment to ensure the effects of geographic 
reclassification are budget neutral, as provided for under section 
1886(d)(8)(D) of the Act, by removing the FY 2016 budget neutrality 
factor and applying a revised factor.
     As discussed below and in section III.G. of the 
preamble of this proposed rule, an adjustment to offset the cost of 
the 3-year hold harmless transitional wage index provisions provided 
by CMS as a result of the implementation of the new OMB labor market 
area delineations (beginning with FY 2015).
     An adjustment to remove the FY 2016 outlier offset and 
apply an offset for FY 2017, as provided for under section 
1886(d)(3)(B) of the Act.
     As discussed below and in section II.D. of the preamble 
of this proposed rule, a recoupment to meet the requirements of 
section 631 of ATRA to adjust the standardized amount to offset the 
estimated amount of the increase in aggregate payments as a result 
of not completing the prospective adjustment authorized under 
section 7(b)(1)(A) of Public Law 110-90 until FY 2013.
     As discussed below and in section IV.O. of the preamble 
of this proposed rule, we are proposing a (1/0.998) adjustment to 
the standardized amount using our authority under sections 
1886(d)(5)(I)(i) and 1886(g) of the Act to permanently prospectively 
remove the 0.2 percent reduction to the rate put in place in FY 2014 
to offset the estimated increase in IPPS expenditures associated 
with the projected increase in inpatient encounters that was 
expected to result from the new inpatient admission guidelines under 
the 2-midnight policy.
     As discussed below and in section IV.O. of the preamble 
of this proposed rule, we are proposing a temporary one-time 
prospective increase to the FY 2017 rates of 0.6 percent or a factor 
of 1.006 using our authority under sections 1886(d)(5)(I)(i) and 
1886(g) of the Act to address the effects of the 0.2 percent 
reduction to the rate for the 2-midnight policy in effect for FY 
2014, FY 2015, and FY 2016.
    For FY 2017, consistent with current law, we are applying the 
rural floor budget neutrality adjustment to hospital wage indexes. 
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 2017 wage index for the rural 
floor. We note that, in section III.H.2.b. of the preamble to this 
proposed rule, we are proposing to extend

[[Page 25266]]

the imputed floor policy (both the original methodology and 
alternative methodology) for FY 2017. Therefore, for FY 2017, in 
this proposed rule, we are proposing to continue to include the 
imputed floor (calculated under the original and alternative 
methodologies) in calculating the uniform, national rural floor 
budget neutrality adjustment, which would be reflected in the FY 
2017 wage index.
    In prior fiscal years, CMS made 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 (FYs 2011 through 
2016), were budget neutral as required under section 410A(c)(2) of 
Public Law 108-173. As discussed in section IV.K.3. of the preamble 
to this proposed rule, given the small number of participating 
hospitals and the limited time of participation during FY 2017, we 
are proposing to forego the process of estimating the costs 
attributable to the demonstration for FY 2017 and to instead analyze 
the set of finalized cost reports for reporting periods beginning in 
FY 2016 when they become available. In addition, we discuss how we 
would reconcile the budget neutrality offset amounts identified in 
the IPPS final rules for FYs 2011 through 2016 with the actual costs 
of the demonstration for those years, considering the fact that the 
demonstration will end December 31, 2016. We stated that we believe 
it would be appropriate to conduct this analysis for FYs 2011 
through 2016 at one time, when all of the finalized cost reports for 
cost reporting periods beginning in FYs 2011 through 2016 are 
available. Such an aggregate analysis encompassing the cost 
experience through the end of the period of performance of the 
demonstration represents an administratively streamlined method, 
allowing for the determination of any appropriate final adjustment 
to the IPPS rates and obviating the need for multiple fiscal-year-
specific calculations and regulatory actions. Given the general lag 
of 3 years in finalizing cost reports, we expect any such analysis 
to be conducted in FY 2020. Therefore, for FY 2017 we are not 
proposing to make any adjustment to the standardized amounts for the 
rural community hospital demonstration program. We refer the reader 
to section IV.K. of the preamble of this proposed rule for a 
complete discussion on the rural community hospital demonstration 
program.

A. Calculation of the Proposed Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

    In general, the national standardized amount is based on per 
discharge averages of adjusted hospital costs from a base period 
(section 1886(d)(2)(A) of the Act), updated and otherwise adjusted 
in accordance with the provisions of section 1886(d) of the Act. 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.
    Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act requires 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.
    For FY 2017, we are proposing to continue to use the national 
labor-related and nonlabor-related shares (which are based on the FY 
2010-based hospital market basket) that was used in FY 2016. 
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 and adjusts 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 2017, as discussed in section III. of the 
preamble of this proposed rule, we are proposing to continue to use 
a labor-related share of 69.6 percent for the national standardized 
amounts for all IPPS hospitals (including hospitals in Puerto Rico) 
that have a wage index value that is greater than 1.0000. Consistent 
with section 1886(d)(3)(E) of the Act, we are proposing to apply the 
wage index to a labor-related share of 62 percent of the national 
standardized amount for all IPPS hospitals (including hospitals in 
Puerto Rico) whose wage index values are less than or equal to 
1.0000
    The proposed standardized amounts for operating costs appear in 
Tables 1A, 1B, and 1C that are listed and published in section VI. 
of the Addendum to this proposed rule and are available via the 
Internet on the CMS Web site.

2. Computing the National Average Standardized Amount

    Section 1886(d)(3)(A)(iv)(II) of the Act requires that, 
beginning with FY 2004 and thereafter, an equal standardized amount 
be computed for all hospitals at the level computed for large urban 
hospitals during FY 2003, updated by the applicable percentage 
update. Accordingly, we are proposing to calculate the FY 2017 
national average standardized amount irrespective of whether a 
hospital is located in an urban or rural location.

3. Updating the National Average Standardized Amount

    Section 1886(b)(3)(B) of the Act specifies the applicable 
percentage increase used to update the standardized amount for 
payment for inpatient hospital operating costs. We note that, in 
compliance with section 404 of the MMA, in this proposed rule, we 
are proposing to use the revised and rebased FY 2010-based IPPS 
operating and capital market baskets for FY 2017 (which replaced the 
FY 2006-based IPPS operating and capital market baskets in FY 2014). 
As discussed in section IV.B. of the preamble of this proposed rule, 
in accordance with section 1886(b)(3)(B) of the Act, as amended by 
section 3401(a) of the Affordable Care Act, we are proposing to 
reduce the FY 2017 applicable percentage increase (which is based on 
IHS Global Insight, Inc.'s (IGI's) first quarter 2016 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 2017) of 0.5 
percentage point, which is calculated based on IGI's first quarter 
2016 forecast.
    In addition, in accordance with section 1886(b)(3)(B)(i) of the 
Act, as amended by sections 3401(a) and 10319(a) of the Affordable 
Care Act, we are proposing to further update the standardized amount 
for FY 2017 by the estimated market basket percentage increase less 
0.75 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 2016 first quarter forecast of the hospital 
market basket increase (as discussed in Appendix B of this proposed 
rule), the most recent forecast of the hospital market basket 
increase for FY 2017 is 2.8 percent. As discussed earlier, for FY 
2017, 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.B. of the preamble of this proposed rule for a 
complete discussion on the proposed FY 2017 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 proposed standardized amounts shown in Tables 1A through 1C that 
are published in section VI. of this Addendum and that are available 
via the Internet on the CMS Web site reflect these differential 
amounts.
    Although the update factors for FY 2017 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 
2017 for both IPPS hospitals and hospitals and hospital units 
excluded from the IPPS. Section 1886(e)(5)(A) of the Act requires 
that we publish our proposed recommendations in the Federal Register 
for public comment. Our recommendation on the update factors is set 
forth in Appendix B of this proposed rule.

4. Methodology for Calculation of the Average Standardized Amount

    The methodology we used to calculate the proposed FY 2017 
standardized amount is as follows:
     To ensure we are only including hospitals paid under 
the IPPS in the

[[Page 25267]]

calculation of the standardized amount, we apply the following 
inclusion and exclusion criteria: include hospitals whose last four 
digits fall between 0001 and 0879 (section 2779A1 of Chapter 2 of 
the State Operations Manual on the CMS Web site at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/som107c02.pdf); exclude critical access hospitals at the time of 
this proposed rule; exclude hospitals in Maryland (because these 
hospitals are paid under an all payer model under section 1115A of 
the Act); and remove PPS-excluded cancer hospitals that have a ``V'' 
in the fifth position of their provider number or a ``E'' or ``F'' 
in the sixth position.
     As in the past, we are proposing to adjust the FY 2017 
standardized amount to remove the effects of the FY 2016 geographic 
reclassifications and outlier payments before applying the FY 2017 
updates. We then apply budget neutrality offsets for outliers and 
geographic reclassifications to the standardized amount based on 
proposed FY 2017 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.
     Consistent with our methodology established in the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50422 through 50433), because 
IME Medicare Advantage payments are made to IPPS hospitals under 
section 1886(d) of the Act, we believe these payments must be part 
of these budget neutrality calculations. However, we note that it is 
not necessary to include Medicare Advantage IME payments in the 
outlier threshold calculation or the outlier offset to the 
standardized amount because the statute requires that outlier 
payments be not less than 5 percent nor more than 6 percent of total 
``operating DRG payments,'' which does not include IME and DSH 
payments. We refer readers to the FY 2011 IPPS/LTCH PPS final rule 
for a complete discussion on our methodology of identifying and 
adding the total Medicare Advantage IME payment amount to the budget 
neutrality adjustments.
     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 an FFS claim).
     In order to further ensure that we capture only FFS 
claims, we are proposing to exclude claims with a ``GHOPAID'' 
indicator of 1 (which is a field on the MedPAR file that indicates a 
claim is not an FFS claim and is paid by a Group Health 
Organization).
     Consistent with our methodology established in the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50422 through 50423), we 
examine the MedPAR file and remove 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 remove 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 first set of health care organizations selected to 
participate in the BPCI initiative. Additional organizations were 
selected in 2014. 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). For FY 2017, we are proposing to continue to include 
all applicable data from subsection (d) hospitals participating in 
BPCI Models 1, 2, and 4 in our IPPS payment modeling and ratesetting 
calculations.
     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 the 
Hospital Readmissions Reduction Program and the Hospital VBP Program 
(established under the Affordable Care Act) within our budget 
neutrality calculations.
    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.
    In order to properly determine aggregate payments on each side 
of the comparison, as we have done for the last 3 fiscal years, for 
FY 2017 and subsequent years, we are proposing to continue to apply 
the hospital readmissions payment adjustment and the hospital VBP 
payment adjustment on each side of the comparison, consistent with 
the methodology that we adopted in the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53687 through 53688). That is, we are proposing to apply 
the proposed readmissions payment adjustment factor and the proposed 
hospital VBP payment adjustment factor on both sides of our 
comparison of aggregate payments when determining all budget 
neutrality factors described in section II.A.4. of this Addendum.
    For the purpose of calculating the proposed FY 2017 readmissions 
payment adjustment factors, we are proposing to use excess 
readmission ratios and aggregate payments for excess readmissions 
based on admissions from the prior fiscal year's applicable period 
because hospitals have had the opportunity to review and correct 
these data before the data were made public under the policy we 
adopted regarding the reporting of hospital-specific readmission 
rates, consistent with section 1886(q)(6) of the Act. For FY 2017, 
in this proposed rule, we are proposing to calculate the 
readmissions payment adjustment factors using excess readmission 
ratios and aggregate payments for excess readmissions based on 
admissions from the finalized applicable period for FY 2017 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 proposed policy regarding the reporting of hospital-
specific readmission rates for FY 2017 in section IV.G.3.f of the 
preamble of this proposed rule. (For additional information on our 
general policy for the reporting of hospital-specific readmission 
rates, consistent with section 1886(q)(6) of the Act, we refer 
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53399 through 
53400).)
    In addition, for FY 2017, in this proposed rule, for the purpose 
of modeling aggregate payments when determining all budget 
neutrality factors, we are proposing to use proxy hospital VBP 
payment adjustment factors for FY 2017 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 2017 
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

[[Page 25268]]

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 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 and an additional 
statutory adjustment, 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 2017 (as we did for the last 3 fiscal years), 
we are proposing to include estimated empirically justified Medicare 
DSH payments that will be paid in accordance with section 1886(r)(1) 
of the Act and estimates of the additional uncompensated care 
payments made to hospitals receiving Medicare DSH payment 
adjustments as described by section 1886(r)(2) of the Act. That is, 
we are proposing to consider estimated empirically justified 
Medicare DSH payments at 25 percent of what would otherwise have 
been paid, and also the estimated additional uncompensated care 
payments for hospitals receiving Medicare DSH payment adjustments on 
both sides of our comparison of aggregate payments when determining 
all budget neutrality factors described in section II.A.4. of this 
Addendum.
     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 proposed rule and below, we 
are proposing to continue the FY 2014 finalized methodology under 
which we would 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 proposing to 
include estimated uncompensated care payments in this comparison.
    Similarly, for MDHs, as discussed in section IV. of the preamble 
to this proposed 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.
     We are proposing to include an 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 2017. Similar to FY 2016, we are including this adjustment 
based on data on the prior year's performance. Payments for 
hospitals would be estimated based on the proposed applicable 
standardized amount in Tables 1A and 1B for discharges occurring in 
FY 2017.

a. Proposed Recalibration of MS-DRG Relative Weights

    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.G. of the preamble of this proposed rule, we normalized 
the recalibrated MS-DRG relative weights by an adjustment factor so 
that the average case relative weight after recalibration is equal 
to the average case relative weight prior to recalibration. However, 
equating the average case relative weight after recalibration to the 
average case relative weight before recalibration does not 
necessarily achieve budget neutrality with respect to aggregate 
payments to hospitals because payments to hospitals are affected by 
factors other than average case relative weight. Therefore, as we 
have done in past years, we are proposing to make a budget 
neutrality adjustment to ensure that the requirement of section 
1886(d)(4)(C)(iii) of the Act is met.
    For FY 2017, to comply with the requirement that MS-DRG 
reclassification and recalibration of the relative weights be budget 
neutral for the standardized amount and the hospital-specific rates, 
we used FY 2015 discharge data to simulate payments and compared the 
following:
     Aggregate payments using the FY 2016 labor-related 
share percentages, the FY 2016 relative weights, and the FY 2016 
pre-reclassified wage data, and applied the proposed FY 2017 
hospital readmissions payment adjustments and estimated FY 2017 
hospital VBP payment adjustments; and
     Aggregate payments using the FY 2016 labor-related 
share percentages, the proposed FY 2017 relative weights, and the FY 
2016 pre-reclassified wage data, and applied the same proposed FY 
2017 hospital readmissions payment adjustments and estimated FY 2017 
hospital VBP payment adjustments applied above.
    Based on this comparison, we computed a proposed budget 
neutrality adjustment factor equal to 0.999006 and applied this 
factor to the standardized amount. As discussed in section IV. of 
this Addendum, we also are proposing to apply the MS-DRG 
reclassification and recalibration budget neutrality factor of 
0.999006 to the hospital-specific rates that are effective for cost 
reporting periods beginning on or after October 1, 2016.

b. Updated Wage Index--Budget Neutrality Adjustment

    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 2017, we are 
proposing to adjust 100 percent of the wage index factor for 
occupational mix. We describe the occupational mix adjustment in 
section III.E. of the preamble of this proposed rule.
    To compute a proposed budget neutrality adjustment factor for 
wage index and labor-related share percentage changes, we used FY 
2015 discharge data to simulate payments and compared the following:
     Aggregate payments using the proposed FY 2017 relative 
weights and the FY 2016 pre-reclassified wage indexes, applied the 
FY 2016 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 proposed FY 2017 hospital readmissions 
payment adjustment and the estimated FY 2017 hospital VBP payment 
adjustment; and
     Aggregate payments using the proposed FY 2017 relative 
weights and the proposed FY 2017 pre-reclassified wage indexes, 
applied the proposed labor-related share for FY 2017 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 proposed FY 2017 
hospital readmissions payment adjustments and estimated FY 2017 
hospital VBP payment adjustments applied above.
    In addition, we applied the proposed 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 2016 to FY 2017. 
By applying this methodology, we determined a proposed budget 
neutrality adjustment factor of 0.999785 for proposed changes to the 
wage index.
    We note that, in prior fiscal years, we used a three-step 
process and combined the

[[Page 25269]]

recalibration and wage index budget neutrality factors into one 
factor by multiplying the recalibration adjustment factor by the 
wage index adjustment factor. Because these two adjustments are 
required under two different sections of the Act (sections 
1886(d)(4)(C)(iii) and 1886(d)(3)(E)(i) of the Act) and the law 
requires that the wage index budget neutrality adjustment 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 for FY 2017, we are proposing to 
separate these two adjustments and apply them individually to the 
standardized amount. Applying these factors individually rather than 
as a combined factor has no effect mathematically on adjusting the 
standardized amount.

c. Reclassified Hospitals--Proposed 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 proposed budget neutrality adjustment factor for FY 
2017, we used FY 2015 discharge data to simulate payments and 
compared the following:
     Aggregate payments using the proposed FY 2017 labor-
related share percentages, proposed FY 2017 relative weights and 
proposed FY 2017 wage data prior to any reclassifications under 
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act, and 
applied the proposed FY 2017 hospital readmissions payment 
adjustments and the estimated FY 2017 hospital VBP payment 
adjustments; and
     Aggregate payments using the proposed FY 2017 labor-
related share percentages, proposed FY 2017 relative weights, and 
proposed FY 2017 wage data after such reclassifications, and applied 
the same proposed FY 2017 hospital readmissions payment adjustments 
and the estimated FY 2017 hospital VBP payment adjustments applied 
above.
    We note that the reclassifications applied under the second 
simulation and comparison are those listed in Table 2 associated 
with this proposed rule, which is available via the Internet on the 
CMS Web site. This table reflects reclassification crosswalks 
proposed for FY 2017, and apply the proposed policies explained in 
section III. of the preamble to this proposed rule. Based on these 
simulations, we calculated a proposed budget neutrality adjustment 
factor of 0.988816 to ensure that the effects of these provisions 
are budget neutral, consistent with the statute.
    The proposed FY 2017 budget neutrality adjustment factor was 
applied to the standardized amount after removing the effects of the 
FY 2016 budget neutrality adjustment factor. We note that the 
proposed FY 2017 budget neutrality adjustment reflects FY 2017 wage 
index reclassifications approved by the MGCRB or the Administrator 
at the time of development of the proposed rule.

d. Proposed Rural Floor Budget Neutrality Adjustment

    Under Sec.  412.64(e)(4), we make an adjustment to the wage 
index to ensure that aggregate payments after implementation of the 
rural floor under section 4410 of the BBA (Pub. L. 105-33) and the 
imputed floor under Sec.  412.64(h)(4) are equal to the aggregate 
prospective payments that would have been made in the absence of 
such provisions. Consistent with section 3141 of the Affordable Care 
Act and as discussed in section III.H. of the preamble of this 
proposed rule and codified at Sec.  412.64(e)(4)(ii), the budget 
neutrality adjustment for the rural floor and the imputed floor is a 
national adjustment to the wage index.
    As noted above and as discussed in section III.H.2. of the 
preamble of this proposed rule, we are proposing to extend the 
imputed floor policy (both the original methodology and alternative 
methodology) for FY 2017. Therefore, in order to ensure that 
aggregate payments to hospitals are not affected, similar to prior 
years, for FY 2017, we would follow our policy of including the 
proposed imputed floor (calculated under the original and 
alternative methodologies) in the proposed national rural floor 
budget neutrality adjustment to the wage index.
    Similar to our calculation in the FY 2015 IPPS/LTCH PPS final 
rule (79 FR 50369 through 50370), for FY 2017, we are proposing to 
calculate a national rural Puerto Rico wage index. Because there are 
no rural Puerto Rico hospitals with established wage data, our 
calculation of the proposed FY 2017 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 proposed FY 2017 
rural Puerto Rico wage index is calculated based on the average of 
the proposed FY 2017 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).
    To calculate the national rural floor and imputed floor budget 
neutrality adjustment factor, we are proposing to use FY 2015 
discharge data to simulate payments and the proposed post-
reclassified national wage indexes and compared the following:
     National simulated payments without the proposed 
national rural floor and imputed floor; and
     National simulated payments with the proposed national 
rural floor and imputed floor.
    Based on this comparison, we determined a proposed national 
rural floor and imputed floor budget neutrality adjustment factor of 
0.993806. The national adjustment was applied to the national wage 
indexes to produce a proposed national rural floor and imputed floor 
budget neutral wage index.

e. Wage Index Transition Budget Neutrality

    As discussed in section III.G. of the preamble of this proposed 
rule, in the past, we have provided for transition periods when 
adopting changes that have significant payment implications, 
particularly large negative impacts.
    Similar to FY 2005, for FY 2015, we determined that the 
transition to using the new OMB labor market area delineations would 
have the largest impact on hospitals that were located in an urban 
county that became rural under the new OMB delineations or hospitals 
deemed urban where the urban area 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 finalized a policy to generally assign the hospitals in these 
counties the urban wage index value of the CBSA where they are 
physically located in for FY 2014 for FYs 2015, 2016, and 2017. FY 
2017 will be the final year of this 3-year transition policy. We 
note that the 1-year blended wage index transitional policy for all 
hospitals that would experience any decrease in their wage index 
value expired in FY 2015.
    As discussed in the FY 2015 IPPS/LTCH PPS final rule (79 FR 
50372 through 50373), in the past, CMS has budget neutralized 
transitional wage indexes. We stated that because we established 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 OMB delineations without any 
transitional provisions. Therefore, as we did for FYs 2015 and 2016, 
for FY 2017, we are proposing to use our exceptions and adjustments 
authority under section 1886(d)(5)(I)(i) of the Act to make an 
adjustment to the national standardized amounts to ensure that total 
payments for the effect of the 3-year transitional wage index 
provisions would equal what payments would have been if we had fully 
adopted the new OMB delineations without providing these 
transitional provisions. To calculate the proposed transitional wage 
index budget neutrality factor for FY 2017, we used FY 2015

[[Page 25270]]

discharge data to simulate payments and compared the following:
     Aggregate payments using the OMB delineations for FY 
2017, the proposed FY 2017 relative weights, proposed FY 2017 wage 
data after such reclassifications under sections 1886(d)(8)(B) and 
(C) and 1886(d)(10) of the Act, application of the proposed rural 
floor budget neutrality adjustment factor to the wage index, and 
application of the proposed FY 2017 hospital readmissions payment 
adjustments and the estimated FY 2017 hospital VBP payment 
adjustments; and
     Aggregate payments using the OMB delineations for FY 
2017, the proposed FY 2017 relative weights, proposed FY 2017 wage 
data after such reclassifications under sections 1886(d)(8)(B) and 
(C) and 1886(d)(10) of the Act, application of the proposed rural 
floor budget neutrality adjustment factor to the wage index, 
application of the 3-year transitional wage indexes, and application 
of the same proposed FY 2017 hospital readmissions payment 
adjustments and the estimated FY 2017 hospital VBP payment 
adjustments applied above.
    Based on these simulations, we calculated a proposed budget 
neutrality adjustment factor of 0.999999. Therefore, for FY 2017, we 
are proposing to apply a transitional wage index budget neutrality 
adjustment factor of 0.999999 to the national average standardized 
amounts to ensure that the effects of these proposed transitional 
wage indexes are budget neutral.
    We note that the proposed budget neutrality adjustment factor 
calculated above is based on the increase in payments in FY 2017 
that would result from the final year of the 3-year transitional 
wage index policies. Therefore, we are proposing to apply this 
proposed budget neutrality adjustment factor as a one-time 
adjustment to the FY 2017 national standardized amounts in order to 
offset the increase in payments in FY 2017 as a result of this final 
year of the 3-year transitional wage index. For FY 2017, we did not 
take into consideration the adjustment factor applied to the 
national 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 is not 
applied cumulatively).

f. Proposed Case-Mix Budget Neutrality Adjustment

(1) Background

    Below we summarize the proposed recoupment adjustment to the FY 
2017 payment rates, as required by section 631 of ATRA, to account 
for the increase in aggregate payments as a result of not completing 
the prospective adjustment authorized under section 7(b)(1)(A) of 
Public Law 110-90 until FY 2013. We refer readers to section II.D. 
of the preamble of this proposed rule for a complete discussion 
regarding our proposed policies for FY 2017 in this proposed rule 
and previously finalized policies (including our historical 
adjustments to the payment rates) relating to the effect of changes 
in documentation and coding that do not reflect real changes in 
case-mix.

(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, FY 2015 and FY 2016, we applied 
a -0.8 percent adjustment to the standardized amount. For FY 2017, 
we are proposing to apply a -1.5 percent adjustment to the 
standardized amount. We refer the reader to section II. D. 6 of the 
preamble to this proposed rule for a complete discussion on this 
adjustment. 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 hospital-specific 
payment rates.

g. Proposed Adjustment to IPPS Rates Resulting From 2-Midnight Policy

    As discussed in section IV. O of the preamble to this proposed 
rule, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50906 through 
50954), we adopted the 2-midnight policy effective for dates of 
admission on or after October 1, 2013. We used our authority under 
section 1886(d)(5)(I)(i) of the Act to make a reduction of 0.2 
percent to the standardized amount, the Puerto Rico standardized 
amount, and the hospital-specific payment rate, and we used our 
authority under section 1886(g) of the Act to make a reduction of 
0.2 percent to the national capital Federal rate and the Puerto 
Rico-specific capital rate, in order to offset the estimated 
increase of $220 million in IPPS expenditures in FY 2014 as a result 
of the 2-midnight policy.
    In Shands Jacksonville Medical Center, Inc. v. Burwell, No. 14-
263 (D.D.C.) and consolidated cases, hospitals challenged the 0.2 
percent reduction in IPPS rates to account for the estimated $220 
million in additional FY 2014 expenditures resulting from the 2-
midnight policy. In its Memorandum Opinion, issued September 21, 
2015, the Court found that the ``Secretary's interpretation of the 
exceptions and adjustments provision is a reasonable one'' for this 
purpose. However, the Court also ordered the 0.2 percent reduction 
remanded back to the Secretary, without vacating the rule, to 
correct certain procedural deficiencies in the promulgation of the 
0.2 percent reduction and reconsider the adjustment. In accordance 
with the Court's order, we published a notice with comment period 
that appeared in the December 1, 2015 Federal Register (80 FR 
75107), which discussed the basis for the 0.2 percent reduction and 
its underlying assumptions and invited comments on the same in order 
to facilitate our further consideration of the FY 2014 reduction.
    We still believe the assumptions underlying the 0.2 percent 
reduction to the rates put in place beginning in FY 2014 were 
reasonable at the time we made them in 2013. Nevertheless, taking 
all the factors discussed in section IV. O of the preamble to this 
proposed rule into account and in the context of the litigation, we 
believe it would be appropriate to use our authority under section 
1886(d)(5)(I)(i) to prospectively remove, beginning in FY 2017, the 
0.2 percent reduction to the standardized amount and hospital-
specific rates put in place beginning in FY 2014. The 0.2 percent 
reduction was implemented by including a factor of 0.998 in the 
calculation of the FY 2014 standardized amount and hospital-specific 
rates, permanently reducing the standardized amount and hospital-
specific rates for FY 2014 and future years until the 0.998 is 
removed. We are proposing to permanently remove the 0.998 reduction 
beginning in FY 2017 by including a factor of (1/0.998) in the 
calculation of the FY 2017 standardized amount and hospital specific 
rate.
    In addition, for the reasons discussed in section IV.O. of the 
preamble of this proposed rule, we believe it would be appropriate 
to use our authority under section 1886(d)(5)(I)(i) to temporarily 
increase the standardized amount and hospital-specific rates, only 
for FY 2017, to address the effect of the 0.2 percent reduction to 
the standardized amount and hospital-specific rates in effect for FY 
2014, the 0.2 percent reduction to the standardized amount and 
hospital-specific rates in effect for FY 2015 (recall the 0.998 
factor included in the calculation of the FY 2014 rates permanently 
reduced the rates for FY 2014 and future years until it is removed), 
and the 0.2 percent reduction to the standardized amount and 
hospital-specific rates in effect for FY 2016. We believe that the 
most transparent, expedient, and administratively feasible method to 
accomplish this is a temporary one-time prospective increase to the 
FY 2017 standardized amount and hospital-specific rates of 0.6 
percent (= 0.2 percent + 0.2 percent + 0.2 percent). Specifically, 
we are proposing to include a factor of 1.006 in the calculation of 
the standardized amount and the hospital-specific rates in FY 2017 
and then remove this temporary one-time prospective increase by 
including a factor of (1/1.006) in the calculation of the 
standardized amount and hospital-specific rates for FY 2018.
    We refer the reader to section IV.O. of the preamble to this 
proposed rule for a complete discussion.

h. Proposed Outlier Payments

    Section 1886(d)(5)(A) of the Act provides for payments in 
addition to the basic prospective payments for ``outlier'' cases 
involving extraordinarily high costs. To qualify for outlier 
payments, a case must have costs greater than the sum of the 
prospective payment rate for the MS-DRG, any IME and DSH payments, 
uncompensated care payments, any new technology add-on payments, and 
the ``outlier threshold'' or ``fixed-loss'' amount (a dollar amount 
by

[[Page 25271]]

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 MS-DRG, any IME and DSH payments, uncompensated 
care 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 2017 is 80 percent, or 90 
percent for burn MS-DRGs 927, 928, 929, 933, 934 and 935. We have 
used a marginal cost factor of 90 percent since FY 1989 (54 FR 36479 
through 36480) for designated burn DRGs as well as a marginal cost 
factor of 80 percent for all other DRGs 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. 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) Proposed FY 2017 Outlier Fixed-Loss Cost Threshold

    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50977 through 
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.
    As we have done in the past, to calculate the proposed FY 2017 
outlier threshold, we simulated payments by applying proposed FY 
2017 payment rates and policies using cases from the FY 2015 MedPAR 
file. Therefore, in order to determine the proposed FY 2017 outlier 
threshold, we inflated the charges on the MedPAR claims by 2 years, 
from FY 2015 to FY 2017. As discussed in the FY 2015 IPPS/LTCH PPS 
final rule, we believe a methodology that is based on 1-year of 
charge data will provide a more stable measure to project the 
average charge per case because our prior methodology used a 6-month 
measure, which inherently uses fewer claims than a 1-year measure 
and makes it more susceptible to fluctuations in the average charge 
per case as a result of any significant charge increases or 
decreases by hospitals. The methodology we are proposing to 
calculate the charge inflation factor for FY 2017 and subsequent 
fiscal years is as follows:
     To produce the most stable measure of charge inflation, 
we applied the following inclusion and exclusion criteria of 
hospitals claims in our measure of charge inflation: include 
hospitals whose last four digits fall between 0001 and 0899 (section 
2779A1 of Chapter 2 of the State Operations Manual on the CMS Web 
site at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/som107c02.pdf); include CAHs that were IPPS 
hospitals for the time period of the MedPAR data being used to 
calculate the charge inflation factor; include hospitals in 
Maryland; and remove PPS excluded cancer hospitals who have a ``V'' 
in the fifth position of their provider number or a ``E'' or ``F'' 
in the sixth position.
     We excluded Medicare Advantage IME claims for the 
reasons described in section I.A.4. of this Addendum. 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 order to ensure that we capture only FFS claims, we 
included claims with a ``Claim Type'' of 60 (which is a field on the 
MedPAR file that indicates a claim is an FFS claim).
     In order to further ensure that we capture only FFS 
claims, we excluded claims with a ``GHOPAID'' indicator of 1 (which 
is a field on the MedPAR file that indicates a claim is not an FFS 
claim and is paid by a Group Health Organization).
     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. We also 
removed organ acquisition charges from the covered charge field 
because organ acquisition is a pass-through payment not paid under 
the IPPS.
    In the FY 2016 IPPS/LTCH final rule (80 FR 49779-49780), we 
stated that commenters were concerned that they were unable to 
replicate the calculation of the charge inflation factor that CMS 
used in the proposed rule. In response to those comments, we stated 
that we continue to believe that it is optimal to use the most 
recent period of charge data available to measure charge inflation. 
In response to those comments, similar to FY 2016, for FY 2017 we 
grouped claims data by quarter in the table below in order that the 
public would be able to replicate the claims summary for the claims 
with discharge dates through September 30, 2015, that are available 
under the current LDS structure. In order to provide even more 
information in response to the commenters' request, similar to FY 
2016, for FY 2017 we have made available on the CMS Web site at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html (click on the link on the left titled 
``FY 2017 IPPS Proposed Rule Home Page''' and then click the link 
``FY 2017 Proposed Rule Data Files''') a more detailed summary table 
by provider with the monthly charges that were used to compute the 
charge inflation factor. We continue to work with our systems teams 
and privacy office to explore expanding the information available in 
the current LDS, perhaps through the provision of a supplemental 
data file for future rulemaking.

----------------------------------------------------------------------------------------------------------------
                                               Covered charges  Cases (January   Covered charges       Cases
                                                 (January 1,       1, 2014,        (January 1,      (January 1,
                   Quarter                      2014, through       through       2015, through    2015, through
                                                December 31,     December 31,     December 31,     December 31,
                                                    2014)            2014)            2015)            2015)
----------------------------------------------------------------------------------------------------------------
1...........................................  $126,156,195,005       2,479,295  $134,250,323,661       2,546,078
2...........................................   122,171,248,575       2,445,370   126,880,227,174       2,416,569
3...........................................   119,364,629,662       2,364,553   122,165,668,615       2,308,537
4...........................................   124,733,843,923       2,436,787    90,677,073,204       1,696,180
                                             -------------------------------------------------------------------
    Total...................................   492,425,917,165       9,726,005   473,973,292,654       8,967,364
----------------------------------------------------------------------------------------------------------------

    Under this methodology, to compute the 1-year average annualized 
rate-of-change in charges per case for FY 2017, we are proposing to 
compare the average covered charge per case of $50,360 
($492,425,917,165/9,726,005) from the second quarter of FY 2014 
through the first quarter of FY 2015 (January 1, 2014, through 
December 31, 2014) to the average covered charge per case of $52,855 
($473,973,292,654/8,967,364) from the second quarter of FY 2015 
through the first quarter of FY 2016 (January 1, 2015, through 
December 31, 2015). This rate-of-change is 4.4 percent (1.043957) or 
9.8 percent (1.089846) over 2 years. The billed charges are obtained 
from the claim from the MedPAR file and inflated by the inflation 
factor specified above.
    As we have done in the past, in this proposed rule, we are 
proposing to establish the proposed FY 2017 outlier threshold using 
hospital CCRs from the December 2015 update to the Provider-Specific 
File (PSF)--

[[Page 25272]]

the most recent available data at the time of the development of 
this proposed rule. 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 
do not apply the adjustment factors described below to hospitals 
assigned the statewide average CCR.
    For FY 2017, we also are proposing to continue to apply an 
adjustment factor to the CCRs to account for cost and charge 
inflation (as explained below). We are proposing that, if more 
recent data become available, we would use that data to calculate 
the final FY 2017 outlier threshold.
    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 the last 3 fiscal years, we are 
proposing to adjust the CCRs from the December 2015 update of the 
PSF by comparing the percentage change in the national average case-
weighted operating CCR and capital CCR from the December 2014 update 
of the PSF to the national average case-weighted operating CCR and 
capital CCR from the December 2015 update of the PSF. We note that 
we used total transfer-adjusted cases from FY 2015 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, we calculated a proposed 
December 2014 operating national average case-weighted CCR of 
0.280907 and a proposed December 2015 operating national average 
case-weighted CCR of 0.272363. We then calculated the percentage 
change between the two national operating case-weighted CCRs by 
subtracting the December 2014 operating national average case-
weighted CCR from the December 2015 operating national average case-
weighted CCR and then dividing the result by the December 2014 
national operating average case-weighted CCR. This resulted in a 
proposed national operating CCR adjustment factor of 0.969585.
    We used the same methodology proposed above to adjust the 
capital CCRs. Specifically, we calculated a December 2014 capital 
national average case-weighted CCR of 0.024615 and a December 2015 
capital national average case-weighted CCR of 0.024008. We then 
calculated the percentage change between the two national capital 
case-weighted CCRs by subtracting the December 2014 capital national 
average case-weighted CCR from the December 2015 capital national 
average case-weighted CCR and then dividing the result by the 
December 2014 capital national average case-weighted CCR. This 
resulted in a proposed national capital CCR adjustment factor of 
0.975335.
    As discussed above, for FY 2017, we are proposing to apply the 
final year of the 3-year transitional wage index 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.H.3. 
of the preamble of this proposed rule, in accordance with section 
10324(a) of the Affordable Care Act, 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 
would 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 would receive a 
wage index less than 1.0000 due to the proposed 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 2017, 
it was necessary to apply the proposed 3-year transitional wage 
indexes and adjust the proposed wage index of those eligible 
hospitals in a frontier State when calculating the proposed outlier 
threshold that results in outlier payments being 5.1 percent of 
total payments for FY 2017. If we did not take the above into 
account, our estimate of total FY 2017 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 2017 outlier payments, we are 
proposing not to make any adjustments for the possibility that 
hospitals' CCRs and outlier payments may be reconciled upon cost 
report settlement. We continue to believe that, due to the policy 
implemented in the June 9, 2003 Outlier Final Rule (68 FR 34494), 
CCRs will no longer fluctuate significantly and, therefore, few 
hospitals will actually have these ratios reconciled upon cost 
report settlement. In addition, it is difficult to predict the 
specific hospitals that will have CCRs and outlier payments 
reconciled in any given year. We note that we have instructed MACs 
to identify for CMS any instances where (1) 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; and (2) the total outlier 
payments for the hospital exceeded $500,000.00 for that period. Our 
simulations assume that CCRs accurately measure hospital costs based 
on information available to us at the time we set the outlier 
threshold. For these reasons, we are proposing not to make any 
assumptions regarding the effects of reconciliation on the outlier 
threshold calculation.
    As described in sections IV.G. and IV.H. respectively, of the 
preamble of this proposed rule, sections 1886(q) and 1886(o) of the 
Act establish the Hospital Readmissions Reduction Program and the 
Hospital VBP Program, respectively. We do not believe that it is 
appropriate to include the hospital VBP payment adjustments and the 
hospital readmissions payment adjustments in the proposed outlier 
threshold calculation or the proposed outlier offset to the 
standardized amount. Specifically, consistent with our definition of 
the base operating DRG payment amount for the Hospital Readmissions 
Reduction Program under Sec.  412.152 and the Hospital VBP Program 
under Sec.  412.160, outlier payments under section 1886(d)(5)(A) of 
the Act are not affected by these payment adjustments. Therefore, 
outlier payments would continue to be calculated based on the 
unadjusted base DRG payment amount (as opposed to using the base-
operating DRG payment amount adjusted by the hospital readmissions 
payment adjustment and the hospital VBP payment adjustment). 
Consequently, we are proposing to exclude the hospital VBP payment 
adjustments and the hospital readmissions payment adjustments from 
the calculation of the proposed outlier fixed-loss cost threshold.
    We note that, to the extent section 1886(r) of the Act modifies 
the DSH payment methodology under section 1886(d)(5)(F) of the Act, 
the new uncompensated care payment under section 1886(r)(2) of the 
Act, like the empirically justified Medicare DSH payment under 
section 1886(r)(1) of the Act, 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) of the Act. As we have done since the 
implementation of uncompensated care payments in FY 2014, we also 
are proposing for FY 2017 to allocate an estimated per-discharge 
uncompensated care payment amount to all cases for the hospitals 
eligible to receive the uncompensated care payment amount in the 
calculation of the outlier fixed-loss cost threshold methodology. We 
continue to believe that allocating an eligible hospital's estimated 
uncompensated care payment to all cases equally in the calculation 
of the outlier fixed-loss cost threshold would best approximate the 
amount we would pay in uncompensated care payments during the year 
because, when we make claim payments to a hospital eligible for such 
payments, we would be making estimated per-discharge uncompensated 
care payments to all cases equally. Furthermore, we continue to 
believe that using the estimated per-claim uncompensated care 
payment amount to determine outlier estimates provides 
predictability as to the amount of uncompensated care payments 
included in

[[Page 25273]]

the calculation of outlier payments. Therefore, consistent with the 
methodology used since FY 2014 to calculate the outlier fixed-loss 
cost threshold, for FY 2017, we are proposing to include estimated 
FY 2017 uncompensated care payments in the computation of the 
proposed outlier fixed-loss cost threshold. Specifically, we are 
proposing to use the estimated per-discharge uncompensated care 
payments to hospitals eligible for the uncompensated care payment 
for all cases in the calculation of the proposed outlier fixed-loss 
cost threshold methodology.
    Using this methodology, we used the formula described in section 
I.C.1 of this Addendum to simulate and calculate the Federal payment 
rate and outlier payments for all claims. We used a threshold of 
$23,681 and calculated total operating Federal payments of 
$82,727,323,366 and total outlier payments of $4,445,892,903. We 
then divided total outlier payments by total operating Federal 
payments plus total outlier payments and determined that this 
threshold met the 5.1 percent target. As a result, we are proposing 
an outlier fixed-loss cost threshold for FY 2017 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 $23,681.

(2) Other Proposed Changes Concerning Outliers

    As stated in the FY 1994 IPPS final rule (58 FR 46348), we 
establish an outlier threshold that is applicable to both hospital 
inpatient operating costs and hospital inpatient capital-related 
costs. When we modeled the combined operating and capital outlier 
payments, we found that using a common threshold resulted in a lower 
percentage of outlier payments for capital-related costs than for 
operating costs. We project that the thresholds for FY 2017 will 
result in outlier payments that will equal 5.1 percent of operating 
DRG payments and 6.26 percent of capital payments based on the 
Federal rate.
    In accordance with section 1886(d)(3)(B) of the Act, we are 
proposing to reduce the FY 2017 standardized amount by the same 
percentage to account for the projected proportion of payments paid 
as outliers.
    The proposed outlier adjustment factors that would be applied to 
the standardized amount based on the proposed FY 2017 outlier 
threshold are as follows:

------------------------------------------------------------------------
                                                 Operating     Capital
                                               standardized    Federal
                                                  amounts        rate
------------------------------------------------------------------------
National.....................................      0.948999     0.937400
------------------------------------------------------------------------

    We are proposing to apply the outlier adjustment factors to the 
proposed FY 2017 payment rates after removing the effects of the FY 
2016 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 MAC computes operating CCRs 
greater than 1.19 or capital CCRs greater than 0.171, or hospitals 
for which the 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 proposed 
statewide average operating CCRs for urban hospitals and for rural 
hospitals for which the MAC is unable to compute a hospital-specific 
CCR within the above range. Effective for discharges occurring on or 
after October 1, 2016, these statewide average ratios would replace 
the ratios posted on our Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY-2014-IPPS-Final-Rule-Home-Page-Items/FY-2014-IPPS-Final-Rule-CMS-1599-F-Tables.html. Table 8B listed in section VI. of this Addendum (and 
available via the Internet on the CMS Web site) contains the 
comparable proposed statewide average capital CCRs. As previously 
stated, the proposed CCRs in Tables 8A and 8B would be used during 
FY 2017 when hospital-specific CCRs based on the latest settled cost 
report either are 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 
proposed statewide average total CCRs used under the LTCH PPS as 
discussed in section V. of this Addendum.
    We finally note that we published a manual update (Change 
Request 3966) to our outlier policy on October 12, 2005, which 
updated Chapter 3, Section 20.1.2 of the Medicare Claims Processing 
Manual. The manual update covered an array of topics, including 
CCRs, reconciliation, and the time value of money. We encourage 
hospitals that are assigned the statewide average operating and/or 
capital CCRs to work with their 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 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 2015 Outlier Payments

    Our current estimate, using available FY 2015 claims data, is 
that actual outlier payments for FY 2015 were approximately 4.68 
percent of actual total MS-DRG payments. Therefore, the data 
indicate that, for FY 2015, the percentage of actual outlier 
payments relative to actual total payments is lower than we 
projected for FY 2015. 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 2015 are equal to 5.1 percent of 
total MS-DRG payments. As explained in the FY 2003 Outlier Final 
Rule (68 FR 34502), if we were to make retroactive adjustments to 
all outlier payments to ensure total payments are 5.1 percent of MS-
DRG payments (by retroactively adjusting outlier payments), we would 
be removing the important aspect of the prospective nature of the 
IPPS. Because such an across-the-board adjustment would either lead 
to more or less outlier payments for all hospitals, hospitals would 
no longer be able to reliably approximate their payment for a 
patient while the patient is still hospitalized. We believe it would 
be neither necessary nor appropriate to make such an aggregate 
retroactive adjustment. Furthermore, we believe it is consistent 
with the intent of the language at section 1886(d)(5)(A)(iv) of the 
Act not to make retroactive adjustments to outlier payments. This 
section calls for the Secretary to ensure that outlier payments are 
equal to or greater than 5 percent and less than or equal to 6 
percent of projected or estimated (not actual) MS-DRG payments. We 
believe this language reflects the intent of Congress regarding the 
prospectivity of the IPPS. We believe that an important goal of a 
PPS is predictability. Therefore, we believe that the fixed-loss 
outlier threshold should be projected based on the best available 
historical data and should not be adjusted retroactively. A 
retroactive change to the fixed-loss outlier threshold would affect 
all hospitals subject to the IPPS, thereby undercutting the 
predictability of the system as a whole.
    We note that because the MedPAR claims data for the entire FY 
2016 will not be available until after September 30, 2016, we are 
unable to provide an estimate of actual outlier payments for FY 2016 
based on FY 2016 claims data in this proposed rule. We will provide 
an estimate of actual FY 2016 outlier payments in the FY 2018 IPPS/
LTCH PPS proposed rule.

5. Proposed FY 2017 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 on 
the CMS Web site) contain the national standardized amounts that we 
are proposing to apply to all hospitals, except hospitals located in 
Puerto

[[Page 25274]]

Rico, for FY 2017. The proposed standardized amount for hospitals in 
Puerto Rico is shown in Table 1C listed and published in section VI. 
of this Addendum (and available via the Internet on the CMS Web 
site). The proposed amounts shown in Tables 1A and 1B differ only in 
that the labor-related share applied to the standardized amounts in 
Table 1A is 69.6 percent, and the labor-related share applied to the 
standardized amounts in Table 1B is 62 percent. In accordance with 
sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act, we are 
proposing to apply a labor-related share of 62 percent, unless 
application of that percentage would result in lower payments to a 
hospital than would otherwise be made. In effect, the statutory 
provision means that we will apply a labor-related share of 62 
percent for all hospitals whose wage indexes are less than or equal 
to 1.0000.
    In addition, Tables 1A and 1B include the proposed standardized 
amounts reflecting the proposed applicable percentage increases for 
FY 2017.
    The proposed labor-related and nonlabor-related portions of the 
national average standardized amounts for Puerto Rico hospitals for 
FY 2017 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). Similar to above, 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 2016 
national standardized amount to the proposed FY 2017 national 
standardized amount. The second through fifth columns display the 
proposed changes from the FY 2016 standardized amounts for each 
applicable FY 2017 standardized amount. The first row of the table 
shows the updated (through FY 2016) average standardized amount 
after restoring the FY 2016 offsets for outlier payments, 
demonstration budget neutrality, geographic reclassification budget 
neutrality, new labor market delineation wage index transition 
budget neutrality, retrospective documentation and coding adjustment 
under section 7(b)(1)(B) of Public Law 110-90 and an adjustment to 
the standardized amount using our authority under section 
1886(d)(5)(I)(i) of the Act to permanently prospectively remove the 
0.2 percent reduction to the rate put in place in FY 2014 to offset 
the estimated increase in IPPS expenditures as a result of the 2-
midnight policy . The MS-DRG reclassification and recalibration and 
wage index budget neutrality adjustment factors are cumulative. 
Therefore, those FY 2016 adjustment factors are not removed from 
this table.

             Comparison of FY 2016 Standardized Amounts to the Proposed FY 2017 Standardized Amounts
----------------------------------------------------------------------------------------------------------------
                                                      Hospital submitted   Hospital did NOT    Hospital did NOT
                                  Hospital submitted   quality data and     submit quality      submit quality
                                   quality data and        is NOT a          data and is a     data and is NOT a
                                    is a meaningful     meaningful EHR      meaningful EHR      meaningful EHR
                                       EHR user              user                user                user
----------------------------------------------------------------------------------------------------------------
FY 2016 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
                                   1.0000:             1.0000:             1.0000:             1.0000:
                                  Labor (69.6%):      Labor (69.6%):      Labor (69.6%):      Labor (69.6%):
                                   $4,394.09.          $4,394.09.          $4,394.09.          $4,394.09
                                  Nonlabor (30.4%):   Nonlabor (30.4%):   Nonlabor (30.4%):   Nonlabor (30.4%):
                                   $1,919.26.          $1,919.26.          $1,919.26.          $1,919.26
                                  If Wage Index is    If Wage Index is    If Wage Index is    If Wage Index is
                                   less Than or        less Than or        less Than or        less Than or
                                   Equal to 1.0000:    Equal to 1.0000:    Equal to 1.0000:    Equal to 1.0000:
                                   Labor (62%):        Labor (62%):        Labor (62%):        Labor (62%):
                                   $3,914.28.          $3,914.28.          $3,914.28.          $3,914.28
                                  Nonlabor (38%):     Nonlabor (38%):     Nonlabor (38%):     Nonlabor (38%):
                                   $2,399.07.          $2,399.07.          $2,399.07.          $2,399.07
    1. FY 2016 Geographic
     Reclassification Budget
     Neutrality (0.988169).
    2. FY 2016 Rural Community
     Hospital Demonstration
     Program Budget Neutrality
     (0.999837).
    3. Cumulative FY 2008, FY
     2009, FY 2012, FY 2013, FY
     2014, FY 2015 and FY 2016
     Documentation and Coding
     Adjustments 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 (0.9255).
    4. FY 2016 Operating Outlier
     Offset (0.948998).
    5. FY 2016 New Labor Market
     Delineation Wage Index
     Transition Budget
     Neutrality Factor
     (0.999998).
    6. FY 2017 Proposed 2-
     Midnight Rule Permanent
     Adjustment (1/0.998).
Proposed FY 2017 Update Factor..  1.0155............  0.9945............  1.0085............  0.9875
Proposed FY 2017 MS-DRG           0.999006..........  0.999006..........  0.999006..........  0.999006
 Recalibration Budget Neutrality
 Factor.
Proposed FY 2017 Wage Index       0.999785..........  0.999785..........  0.999785..........  0.999785
 Budget Neutrality Factor.
Proposed FY 2017                  0.988816..........  0.988816..........  0.988816..........  0.988816
 Reclassification Budget
 Neutrality Factor.
Proposed FY 2017 Operating        0.948999..........  0.948999..........  0.948999..........  0.98999
 Outlier Factor.

[[Page 25275]]

 
Cumulative Factor: FY 2008, FY    0.9118............  0.9118............  0.9118............  0.9118
 2009, FY 2012, FY 2013, FY
 2014, FY 2015, FY 2016 and FY
 2017 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.
Proposed FY 2017 New Labor        0.999999..........  0.999999..........  0.999999..........  0.999999
 Market Delineation Wage Index 3-
 Year Hold Harmless Transition
 Budget Neutrality Factor.
Proposed FY 2017 2[dash]Midnight  1.006.............  1.006.............  1.006.............  1.006
 Rule One-Time Prospective
 Increase.
Proposed National Standardized    Labor: $3,836.20..  Labor: $3,756.87..  Labor: $3,809.76..  Labor: $3,730.43
 Amount for FY 2017 if Wage       Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 Index is Greater Than 1.0000;     $1,675.59.          $1,640.94.          $1,664.04.          $1,629.39
 Labor/Non-Labor Share
 Percentage (69.6/30.4).
Proposed National Standardized    Labor: $3,417.31..  Labor: $3,346.64..  Labor: $3,393.76..  Labor: $3,323.09
 Amount for FY 2017 if Wage       Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 Index is less Than or Equal to    $2,094.48.          $2,051.17.          $2,080.04.          $2,036.73
 1.0000; Labor/Non-Labor Share
 Percentage (62/38).
----------------------------------------------------------------------------------------------------------------

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

    Tables 1A through 1C, as published in section VI. of this 
Addendum (and available via the Internet on the CMS Web site), 
contain the proposed labor-related and nonlabor-related shares that 
we are proposing to use to calculate the prospective payment rates 
for hospitals located in the 50 States, the District of Columbia, 
and Puerto Rico for FY 2017. This section addresses two types of 
adjustments to the standardized amounts that are made in determining 
the proposed prospective payment rates as described in this 
Addendum.

1. Proposed Adjustment for Area Wage Levels

    Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require 
that we make an adjustment to the labor-related portion of the 
national prospective payment rate to account for area differences in 
hospital wage levels. This adjustment is made by multiplying the 
labor-related portion of the adjusted standardized amounts by the 
appropriate wage index for the area in which the hospital is 
located. In section III. of the preamble of this proposed rule, we 
discuss the data and methodology for the proposed FY 2017 wage 
index.

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

    Section 1886(d)(5)(H) of the Act provides discretionary 
authority to the Secretary to make such adjustments as the Secretary 
deems appropriate to take into account the unique circumstances of 
hospitals located in Alaska and Hawaii. Higher labor-related costs 
for these two States are taken into account in the adjustment for 
area wages described above. To account for higher nonlabor-related 
costs for these two States, we multiply the nonlabor-related portion 
of the standardized amount for hospitals located in Alaska and 
Hawaii by an adjustment factor.
    In the FY 2013 IPPS/LTCH PPS final rule, we established a 
methodology to update the COLA factors for Alaska and Hawaii that 
were published by the U.S. Office of Personnel Management (OPM) 
every 4 years (at the same time as the update to the labor-related 
share of the IPPS market basket), beginning in FY 2014. We refer 
readers to the FY 2013 IPPS/LTCH PPS proposed and final rules for 
additional background and a detailed description of this methodology 
(77 FR 28145 through 28146 and 77 FR 53700 through 53701, 
respectively).
    For FY 2014, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50985 through 50987), we updated the COLA factors published by OPM 
for 2009 (as these are the last COLA factors OPM published prior to 
transitioning from COLAs to locality pay) using the methodology that 
we finalized in the FY 2013 IPPS/LTCH PPS final rule.
    Based on the policy finalized in the FY 2013 IPPS/LTCH PPS final 
rule, we are proposing to continue to use the same COLA factors in 
FY 2017 that were used in FY 2016 to adjust the nonlabor-related 
portion of the standardized amount for hospitals located in Alaska 
and Hawaii. Below is a table listing the proposed COLA factors for 
FY 2017.

  Proposed FY 2017 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             1.23
     by road............................................
    City of Fairbanks and 80-kilometer (50-mile) radius             1.23
     by road............................................
    City of Juneau and 80-kilometer (50-mile) radius by             1.23
     road...............................................
    Rest of Alaska......................................            1.25
Hawaii:
    City and County of Honolulu.........................            1.25
    County of Hawaii....................................            1.19
    County of Kauai.....................................            1.25
    County of Maui and County of Kalawao................            1.25
------------------------------------------------------------------------


[[Page 25276]]

    Based on the policy finalized in the FY 2013 IPPS/LTCH PPS final 
rule, the next update to the COLA factors for Alaska and Hawaii 
would occur in FY 2018.

C. Calculation of the Proposed Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY 
2017

    In general, the operating prospective payment rate for all 
hospitals (including hospitals in Puerto Rico) paid under the IPPS, 
except SCHs and MDHs, for FY 2017 equals the Federal rate (which 
includes uncompensated care payments).
    SCHs are paid based on whichever of the following rates yields 
the greatest aggregate payment: The Federal national rate (which, as 
discussed in section IV.F. of the preamble of this proposed rule, 
includes uncompensated care payments); the updated hospital-specific 
rate based on FY 1982 costs per discharge; the updated hospital-
specific rate based on FY 1987 costs per discharge; the updated 
hospital-specific rate based on FY 1996 costs per discharge; or the 
updated hospital-specific rate based on FY 2006 costs per discharge 
to determine the rate that yields the greatest aggregate payment.
    The prospective payment rate for SCHs for FY 2017 equals the 
higher of the applicable Federal rate, or the hospital-specific rate 
as described below. The prospective payment rate for MDHs for FY 
2017 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.

1. Operating and Capital Federal Payment Rate and Outlier Payment 
Calculation

    Note: The formula below is used for actual claim payment and is 
also used by CMS to project the outlier threshold for the upcoming 
FY. The difference is the source of some of the variables in the 
formula. For example, operating and capital CCRs for actual claim 
payment are from the PSF while CMS uses an adjusted CCR (as 
described above) to project the threshold for the upcoming FY. In 
addition, charges for a claim payment are from the bill while 
charges to project the threshold are from the MedPAR data with an 
inflation factor applied to the charges (as described above).
    Step 1--Determine the MS-DRG and MS-DRG relative weight for each 
claim based on the ICD-10-CM procedure and diagnosis codes on the 
claim.
    Step 2--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 3--Compute the operating and capital Federal payment rate:

--Federal Payment Rate for Operating Costs = MS-DRG Relative Weight 
x [(Labor-Related Applicable Standardized Amount x Applicable CBSA 
Wage Index) + (Nonlabor-Related Applicable Standardized Amount x 
Cost of Living Adjustment)] x (1 + IME + (DSH * 0.25))
--Federal Payment for Capital Costs = MS-DRG Relative Weight x 
Federal Capital Rate x Geographic Adjustment Fact x (l + IME + DSH)

    Step 4--Determine operating and capital costs:

--Operating Costs = (Billed Charges x Operating cost-to-charge 
ratio)
--Capital Costs = (Billed Charges x Capital cost-to-charge ratio).

    Step 5--Compute operating and capital outlier threshold (CMS 
applies a geographic adjustment to the operating and capital outlier 
threshold to account for local cost variation):

--Operating Cost-to-Charge Ratio to Total Cost-to-Charge Ratio = 
(Operating Cost-to-Charge Ratio)/(Operating Cost-to-Charge Ratio + 
Capital Cost-to-Charge Ratio)
--Operating Outlier Threshold = [Fixed Loss Threshold x ((Labor-
Related Portion x CBSA Wage Index) + Nonlabor-Related portion)] x 
Operating Cost-to-Charge Ratio to Total Cost-to-Charge Ratio + 
Federal Payment with IME, DSH + Uncompensated Care Payment + New 
Technology Add-On Payment Amount
--Capital Cost-to-Charge Ratio to Total Cost-to-Charge Ratio = 
(Capital Cost-to-Charge Ratio)/(Operating Cost-to-Charge Ratio + 
Capital Cost-to-Charge Ratio)
--Capital Outlier Threshold = (Fixed Loss Threshold x Geographic 
Adjustment Factor x Capital CCR to Total CCR) + Federal Payment with 
IME and DSH

    Step 6: Compute operating and capital outlier payments:

--Marginal Cost Factor = 0.80 or 0.90 (depending on the MS-DRG)
--Operating Outlier Payment = (Operating Costs--Operating Outlier 
Threshold) x Marginal Cost Factor
--Capital Outlier Payment = (Capital Costs--Capital Outlier 
Threshold) x Marginal Cost Factor

    The payment rate may then be further adjusted 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 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. Payments also may be reduced by the 1-percent 
adjustment under the HAC Reduction Program as described in section 
1886(p) of the Act. We also make new technology add-on payments in 
accordance with section 1886(d)(5)(K) and (L) of the Act. Finally, 
we add the uncompensated care payment to the total claim payment 
amount. As noted in the formula above, we take uncompensated care 
payments and new technology add-on 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; the updated hospital-specific 
rate based on FY 1982 costs per discharge; the updated hospital-
specific rate based on FY 1987 costs per discharge; the updated 
hospital-specific rate based on FY 1996 costs per discharge; or the 
updated hospital-specific rate based on FY 2006 costs per discharge 
to determine the rate that yields the greatest aggregate payment.
    As noted above, section 205 of the Medicare Access and CHIP 
Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10) extended the 
MDH program through FY 2017 (that is, for discharges occurring on or 
before September 30, 2017). 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).

b. Updating the FY 1982, FY 1987, FY 1996, FY 2002 and FY 2006 
Hospital-Specific Rate for FY 2017

    Section 1886(b)(3)(B)(iv) of the Act provides that the 
applicable percentage increase applicable to the hospital-specific 
rates for SCHs and MDHs equals the applicable percentage increase 
set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same 
update factor as for all other hospitals subject to the IPPS). 
Because the Act sets the update factor for SCHs and MDHs equal to 
the update factor for all other IPPS hospitals, the update to the 
hospital-specific rates for SCHs and MDHs is subject to the 
amendments to section 1886(b)(3)(B) of the Act made by sections 
3401(a) and 10319(a) of the Affordable Care Act. Accordingly, the 
proposed applicable percentage increases to the hospital-specific 
rates applicable to SCHs and MDHs are the following:

[[Page 25277]]



----------------------------------------------------------------------------------------------------------------
                                                     Hospital        Hospital      Hospital did    Hospital did
                                                     submitted       submitted      NOT submit      NOT submit
                                                   quality data    quality data    quality data    quality data
                     FY 2017                         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
----------------------------------------------------------------------------------------------------------------
Proposed Market Basket                                       2.8             2.8             2.8             2.8
 Rate[dash]of[dash]Increase.....................
Proposed Adjustment for Failure to Submit                    0.0             0.0            -0.7            -0.7
 Quality Data under Section 1886(b)(3)(B)(viii)
 of the Act.....................................
Proposed Adjustment for Failure to be a                      0.0            -2.1             0.0            -2.1
 Meaningful EHR User under Section
 1886(b)(3)(B)(ix) of the Act...................
Proposed MFP Adjustment under Section                       -0.5            -0.5            -0.5            -0.5
 1886(b)(3)(B)(xi) of the Act...................
Statutory Adjustment under Section                         -0.75           -0.75           -0.75           -0.75
 1886(b)(3)(B)(xii) of the Act..................
Proposed Applicable Percentage Increase Applied             1.55           -0.55            0.85           -1.25
 to Hospital-Specific Rate......................
----------------------------------------------------------------------------------------------------------------

    For a complete discussion of the applicable percentage increase 
applied to the hospital-specific rates for SCHs and MDHs, we refer 
readers to section IV.B. of the preamble of this proposed rule.
    In addition, because SCHs and MDHs use the same MS-DRGs as other 
hospitals when they are paid based in whole or in part on the 
hospital-specific rate, the hospital-specific rate is adjusted by a 
budget neutrality factor to ensure that changes to the MS-DRG 
classifications and the recalibration of the MS-DRG relative weights 
are made in a manner so that aggregate IPPS payments are unaffected. 
Therefore, the hospital-specific rate for an SCH or an MDH is 
adjusted by the proposed MS-DRG reclassification and recalibration 
budget neutrality factor of 0.999006, as discussed in section III. 
of this Addendum. The resulting rate is used in determining the 
payment rate that an SCH or MDH will receive for its discharges 
beginning on or after October 1, 2016. We note that, in this 
proposed rule, for FY 2017, we are not proposing to make a 
documentation and coding adjustment to the hospital-specific rate. 
We refer readers to section II.D. of the preamble of this proposed 
rule for a complete discussion regarding our proposed policies and 
previously finalized policies (including our historical adjustments 
to the payment rates) relating to the effect of changes in 
documentation and coding that do not reflect real changes in case-
mix. Also, as discussed above and in section IV.O. of the preamble 
of this proposed rule, we are proposing an adjustment to the 
hospital-specific rates using our authority under section 
1886(d)(5)(I)(i) of the Act to permanently prospectively remove the 
0.2 percent reduction to the rates put in place in FY 2014 to offset 
the estimated increase in IPPS expenditures as a result of the 2-
midnight policy. In addition, as discussed above and in section 
IV.O. of the preamble of this proposed rule, we are proposing a 
temporary one-time prospective increase to the FY 2017 hospital-
specific rates of 0.6 percent by including a temporary one-time 
factor of 1.006 in the calculation of the hospital-specific rates, 
using our authority under section 1886(d)(5)(I)(i) of the Act, to 
address the effects of the 0.2 percent reduction to the rates for 
the 2-midnight policy in effect for FY 2014, FY 2015, and FY 2016.

III. Proposed Changes to Payment Rates for Acute Care Hospital 
Inpatient Capital-Related Costs for FY 2017

    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 Sec. Sec.  
412.308 through 412.352. In this section, we discuss the factors 
that we used to determine the proposed capital Federal rate for FY 
2017, which would be effective for discharges occurring on or after 
October 1, 2016.
    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, historically, under 
the capital PPS, we have computed 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. 
Effective with discharges occurring on or after October 1, 2004, in 
conjunction with the change to the operating payment methodology, we 
adopted a methodology for computing capital payments made to 
hospitals located in Puerto Rico 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). Effective with discharges on or after 
January 1, 2016, operating IPPS payments to hospitals located in 
Puerto Rico are now based on 100 percent of the Federal rate--the 
operating payment methodology is no longer a blend of 75 percent of 
the Federal rate and 25 percent of the Puerto Rico rate. Consistent 
with historical practice and under the authority of section 1886(g) 
of the Act, as discussed in section V.B.3. of the preamble of this 
proposed rule, we are proposing that the capital IPPS payments to 
hospitals located in Puerto Rico would be based on 100 percent of 
the capital Federal rate, effective with discharges on or after 
October 1, 2016, and would no longer be based on the current 75/25 
blended rate.

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

    In the discussion that follows, we explain the factors that we 
used to determine the proposed capital Federal rate for FY 2017. In 
particular, we explain why the proposed FY 2017 capital Federal rate 
increases approximately 1.7 percent, compared to the FY 2016 capital 
Federal rate. As discussed in the impact analysis in Appendix A to 
this proposed rule, we estimate that capital payments per discharge 
will increase approximately 2.0 percent during that same period. 
Because capital payments constitute approximately 10 percent of 
hospital

[[Page 25278]]

payments, a percent change in the capital Federal rate yields only 
approximately 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 proposed update factor for FY 2017 under that 
framework is 0.9 percent based on the best data available at the 
time of development of this proposed rule. The proposed update 
factor under that framework is based on a projected 1.2 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 DRG 
reclassification and recalibration, and a forecast error correction 
of -0.3 percentage point. As discussed 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 
2017 CIPI projection in that same section of this Addendum. Below we 
describe the policy adjustments that we are proposing to apply in 
the update framework for FY 2017.
    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 patient changes 
(``real'' case-mix change);
     Changes in hospital documentation and coding of patient 
records result in higher-weighted DRG assignments (``coding 
effects''); and
     The annual DRG reclassification and recalibration 
changes may not be budget neutral (``reclassification effect'').
    We define real case-mix change as actual changes in the mix (and 
resource requirements) of Medicare patients as opposed to changes in 
documentation and coding behavior that result in assignment of cases 
to higher-weighted DRGs, but do not reflect higher resource 
requirements. The capital update framework includes the same case-
mix index adjustment used in the former operating IPPS update 
framework (as discussed in the May 18, 2004 IPPS proposed rule for 
FY 2005 (69 FR 28816)). (We no longer use an update framework to 
make a recommendation for updating the operating IPPS standardized 
amounts as discussed in section II. of Appendix B to the FY 2006 
IPPS final rule (70 FR 47707).)
    For FY 2017, we are projecting a 0.5 percent total increase in 
the case-mix index. We estimated that the real case-mix increase 
will equal 0.5 percent for FY 2017. 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, we 
are proposing the net adjustment for case-mix change in FY 2017 of 
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 2015 DRG reclassification and recalibration as 
part of our update for FY 2017. We estimate that FY 2015 DRG 
reclassification and recalibration resulted in no change in the 
case-mix when compared with the case-mix index that would have 
resulted if we had not made the reclassification and recalibration 
changes to the DRGs. Therefore, we are proposing a 0.0 percentage 
point adjustment for reclassification and recalibration in the 
update framework for FY 2017.
    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. 
Historically, when a 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. A forecast error of -0.3 
percentage point was calculated for the FY 2015 update, for which 
there are historical data. That is, current historical data indicate 
that the forecasted FY 2015 CIPI (1.5 percent) used in calculating 
the FY 2015 update factor was 0.3 percentage points higher than 
actual realized price increases (1.2 percent). This over-prediction 
was primarily due to prices from municipal bond yields declining in 
2015 whereas the forecast projected an increase. Therefore, we are 
proposing to make a -0.3 percentage point adjustment for forecast 
error in the update for FY 2017.
    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 CPI for 
hospital and related services) and changes in real case-mix. Without 
reliable estimates of the proportions of the overall annual 
intensity increases that are due, respectively, to ineffective 
practice patterns and the combination of quality-enhancing new 
technologies and complexity within the DRG system, we assume that 
one-half of the annual increase is due to each of these factors. The 
capital update framework thus provides an add-on to the input price 
index rate of increase of one-half of the estimated annual increase 
in intensity, to allow for increases within DRG severity and the 
adoption of quality-enhancing technology.
    In this proposed rule, we are continuing to use a Medicare-
specific intensity measure that is based on a 5-year adjusted 
average of cost per discharge for FY 2017 (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 2017, 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 2010 and extending through FY 2014. Based 
on these data, we estimated that case-mix constant intensity 
declined during FYs 2010 through 2014. 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 2017. Therefore, we are proposing 
to make a 0.0 percentage point adjustment for intensity in the 
update for FY 2017.
    Above, we described the basis of the components used to develop 
the proposed 0.9 percent capital update factor under the capital 
update framework for FY 2017 as shown in the following table.

     Proposed CMS FY 2017 Update Factor to the Capital Federal Rate
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Capital Input Price Index *.............................             1.2
Intensity:..............................................             0.0
Case-Mix Adjustment Factors:
    Real Across DRG Change..............................             0.5
    Projected Case-Mix Change...........................             0.5
        Subtotal........................................             1.2
Effect of FY 2015 Reclassification and Recalibration....             0.0
Forecast Error Correction...............................            -0.3
                                                         ---------------
        Total Update....................................             0.9
------------------------------------------------------------------------
* The capital input price index represents the FY 2010-based CIPI.


[[Page 25279]]

b. Comparison of CMS and MedPAC Update Recommendation

    In its March 2016 Report to Congress, MedPAC did not make a 
specific update recommendation for capital IPPS payments for FY 
2017. (We refer readers to MedPAC's Report to the Congress: Medicare 
Payment Policy, March 2016, Chapter 3, available on the Web site at: 
http://www.medpac.gov.)

2. Proposed 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 2016, we estimated that outlier payments for capital 
would equal 6.35 percent of inpatient capital-related payments based 
on the capital Federal rate in FY 2016. Based on the proposed 
thresholds as set forth in section II.A. of this Addendum, we 
estimate that outlier payments for capital-related costs will equal 
6.26 percent for inpatient capital-related payments based on the 
proposed capital Federal rate in FY 2017. Therefore, we are 
proposing to apply an outlier adjustment factor of 0.9374 in 
determining the capital Federal rate for FY 2017. Thus, we estimate 
that the percentage of capital outlier payments to total capital 
Federal rate payments for FY 2017 will be lower than the percentage 
for FY 2016.
    The outlier reduction factors are not built permanently into the 
capital rates; that is, they are not applied cumulatively in 
determining the capital Federal rate. The proposed FY 2017 outlier 
adjustment of 0.9374 is a 0.10 percent change from the FY 2016 
outlier adjustment of 0.9365. Therefore, the net change in the 
outlier adjustment to the proposed capital Federal rate for FY 2017 
is 1.0010 (0.9374/0.9365). Thus, the proposed outlier adjustment 
will increase the FY 2017 capital Federal rate by 0.10 percent 
compared to the FY 2016 outlier adjustment.

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

    Section 412.308(c)(4)(ii) requires that the capital Federal rate 
be adjusted so that aggregate payments for the fiscal year based on 
the capital Federal rate after any changes resulting from the annual 
DRG reclassification and recalibration and changes in the GAF are 
projected to equal aggregate payments that would have been made on 
the basis of the capital Federal rate without such changes. Because 
we are proposing to determine capital IPPS payments to hospitals 
located in Puerto Rico based on 100 percent of the capital Federal 
rate beginning in FY 2017, we have not calculated a separate GAF for 
Puerto Rico, and therefore, we are not applying a separate budget 
neutrality adjustment for the Puerto Rico GAF. Similarly, the budget 
neutrality factor for DRG reclassifications and recalibration 
nationally is applied in determining the capital IPPS Federal rate, 
and is applicable for all hospitals, including those hospitals 
located in Puerto Rico.
    To determine the proposed national capital rate factors for FY 
2017, we compared estimated aggregate capital Federal rate payments 
based on the FY 2016 MS-DRG classifications and relative weights and 
the FY 2016 GAF to estimated aggregate capital Federal rate payments 
based on the FY 2016 MS-DRG classifications and relative weights and 
the proposed FY 2017 GAFs. To achieve budget neutrality for the 
changes in the national GAFs, based on calculations using updated 
data, we are proposing to apply an incremental budget neutrality 
adjustment factor of 0.9997 for FY 2017 to the previous cumulative 
FY 2016 adjustment factor of 0.9860, yielding an adjustment factor 
of 0.9857 through FY 2017.
    We then compared estimated aggregate capital Federal rate 
payments based on the FY 2016 MS-DRG relative weights and the 
proposed FY 2017 GAFs to estimated aggregate capital Federal rate 
payments based on the cumulative effects of the proposed FY 2017 MS-
DRG classifications and relative weights and the proposed FY 2017 
GAFs. The proposed incremental adjustment factor for DRG 
classifications and changes in relative weights is 0.9996. The 
proposed cumulative adjustment factor for MS-DRG classifications and 
proposed changes in relative weights and for proposed changes in the 
GAFs through FY 2017 is 0.9853. (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 for changes 
in the GAF (including geographic reclassification) and the MS-DRG 
relative weights. In addition, there is no adjustment for the 
effects that geographic reclassification has on the other payment 
parameters, such as the payments for DSH or IME.
    The proposed cumulative adjustment factor of 0.9993 (the product 
of the proposed incremental national GAF budget neutrality 
adjustment factor of 0.9997 and the proposed incremental DRG budget 
neutrality adjustment factor of 0.9996) accounts for the MS-DRG 
reclassifications and recalibration and for changes in the GAFs. It 
also incorporates the effects on the GAFs of FY 2017 geographic 
reclassification decisions made by the MGCRB compared to FY 2016 
decisions. However, it does not account for changes in payments due 
to changes in the DSH and IME adjustment factors.
    As discussed in section V.C. of the preamble of this proposed 
rule, we are proposing to make an adjustment of (1/0.998) to the 
proposed national capital Federal rate to remove the 0.2 percent 
reduction (an adjustment factor of 0.998) to the national capital 
Federal rate to offset the estimated increase in capital IPPS 
expenditures associated with the 2-midnight policy. This is 
consistent with the proposed adjustment to the operating IPPS 
standardized amount and the hospital-specific payment rates. In 
addition, consistent with the approach proposed for the operating 
IPPS standardized amount and hospital-specific payment rates and for 
the reasons discussed in sections IV.O. and V.C. of the preamble of 
this proposed rule, we are proposing a one-time prospective 
adjustment of 1.006 in FY 2017 to the proposed national capital 
Federal rate to address the effect of the 0.2 percent reduction to 
the national capital Federal rates in effect for FY 2014, FY 2015, 
and FY 2016. We also are proposing to remove this one-time 
prospective adjustment through an adjustment of (1/1.006) to the 
national capital Federal rate in FY 2018, consistent with the 
approach proposed for the operating IPPS standardized amount and 
hospital-specific payment rates (as discussed in section IV.O. of 
the preamble of this proposed rule). We refer readers to sections 
IV.O. and V.C. of the preamble of this proposed rule for a complete 
discussion of these proposals.

4. Proposed Capital Federal Rate for FY 2017

    For FY 2016, we established a capital Federal rate of $438.75 
(as revised, in the FY 2016 IPPS/LTCH PPS correction notice CMS-
1632-CN2 (80 FR 60060 and 60061)). We are proposing to establish an 
update of 0.9 percent in determining the FY 2017 capital Federal 
rate for all hospitals. As a result of this proposed update, the 
proposed budget neutrality factors discussed earlier, and the 
proposed adjustments to remove the 0.2 percent reductions (both the 
(1/0.998) adjustment to permanently remove the 0.2 percent reduction 
and the one-time 0.6 percent adjustment) resulting from the 2-
midnight policy, we are proposing to establish a national capital 
Federal rate of $446.35 for FY 2017. The proposed national capital 
Federal rate for FY 2017 was calculated as follows:
     The proposed FY 2017 update factor is 1.009, that is, 
the proposed update is 0.9 percent.
     The proposed FY 2017 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 0.9993.
     The proposed FY 2017 outlier adjustment factor is 
0.9374.

[[Page 25280]]

     The proposed 2-midnight policy adjustment to 
permanently remove the 0.2 percent reduction is (1/0.998).
     The proposed 2-midnight one-time policy adjustment is 
1.006.
    (We note that, as discussed in section V.C. of the preamble of 
this proposed rule, we are not making an additional MS-DRG 
documentation and coding adjustment to the proposed capital IPPS 
Federal rate for FY 2017.)
    Because the proposed FY 2017 capital Federal rate has already 
been adjusted for differences in case-mix, wages, cost-of-living, 
indirect medical education costs, and payments to hospitals serving 
a disproportionate share of low-income patients, we are not 
proposing to make additional adjustments in the capital Federal rate 
for these factors, other than the 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 
proposed factors and adjustments for FY 2017 affects the computation 
of the proposed FY 2017 national capital Federal rate in comparison 
to the FY 2016 national capital Federal rate. The proposed FY 2017 
update factor has the effect of increasing the capital Federal rate 
by 0.9 percent compared to the FY 2016 capital Federal rate. The 
proposed GAF/DRG budget neutrality adjustment factor has the effect 
of decreasing the proposed capital Federal rate by 0.07 percent. The 
proposed FY 2017 outlier adjustment factor has the effect of 
increasing the proposed capital Federal rate by 0.10 percent 
compared to the FY 2016 capital Federal rate. The proposed permanent 
2-midnight policy adjustment has the effect of increasing the 
proposed capital Federal rate by 0.2 percent and the proposed 
temporary 2-midnight policy adjustment has the effect of increasing 
the proposed capital Federal rate by 0.6 percent. The combined 
effect of all the proposed changes would increase the proposed 
national capital Federal rate by approximately 1.7 percent compared 
to the FY 2016 national capital Federal rate.

  Comparison of Factors and Adjustments: FY 2016 Capital Federal Rate and Proposed FY 2017 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
                                                                    Proposed FY
                                                      FY 2016          2017           Change      Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\...............................          1.0130           1.009           1.009             0.9
GAF/DRG Adjustment Factor \1\...................          0.9976          0.9993          0.9993           -0.07
Outlier Adjustment Factor \2\...................          0.9365          0.9374          1.0010            0.10
Permanent 2-midnight Policy Adjustment Factor...             N/A           1.002           1.002             0.2
One-Time 2-midnight Policy Adjustment Factor....             N/A           1.006           1.006             0.6
Capital Federal Rate............................         $438.75         $446.35          1.0173            1.73
----------------------------------------------------------------------------------------------------------------
\1\ The proposed update factor and the proposed GAF/DRG budget neutrality adjustment factors are built
  permanently into the capital Federal rates. Thus, for example, the incremental change from FY 2016 to FY 2017
  resulting from the application of the proposed 0.9993 GAF/DRG budget neutrality adjustment factor for FY 2017
  is a net change of 0.9993 (or -0.07 percent).
\2\ The proposed outlier reduction factor is not built permanently into the capital Federal rate; that is, the
  factor is not applied cumulatively in determining the capital Federal rate. Thus, for example, the net change
  resulting from the application of the proposed FY 2017 outlier adjustment factor is 0.9374/0.9365, or 1.0010
  (or 0.10 percent).

B. Calculation of the Proposed Inpatient Capital-Related 
Prospective Payments for FY 2017

    For purposes of calculating payments for each discharge during 
FY 2017, the capital Federal rate is adjusted as follows: (Standard 
Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals located 
in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME Adjustment 
Factor, if applicable). The result is the adjusted capital Federal 
rate.
    Hospitals also may receive outlier payments for those cases that 
qualify under the thresholds established for each fiscal year. 
Section 412.312(c) provides for a single set of thresholds to 
identify outlier cases for both inpatient operating and inpatient 
capital-related payments. The proposed outlier thresholds for FY 
2017 are in section II.A. of this Addendum. For FY 2017, a case 
would qualify as a cost outlier if the cost for the case plus the 
(operating) IME and DSH payments (including both the empirically 
justified Medicare DSH payment and the estimated uncompensated care 
payment, as discussed in section II.A.4.g.(1) of this Addendum) is 
greater than the prospective payment rate for the MS-DRG plus the 
proposed fixed-loss amount of $23,681.
    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 2017

    Based on the latest forecast by IHS Global Insight, Inc. (first 
quarter of 2016), we are forecasting the FY 2010-based CIPI to 
increase 1.2 percent in FY 2017. This reflects a projected 1.6 
percent increase in vintage-weighted depreciation prices (building 
and fixed equipment, and movable equipment), and a projected 2.6 
percent increase in other capital expense prices in FY 2017, 
partially offset by a projected 1.5 percent decline in vintage-
weighted interest expense prices in FY 2017. The weighted average of 
these three factors produces the forecasted 1.2 percent increase for 
the FY 2010-based CIPI as a whole in FY 2017.

IV. Proposed Changes to Payment Rates for Excluded Hospitals: Proposed 
Rate-of-Increase Percentages for FY 2017

    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

[[Page 25281]]

rate-of-increase limits established under Sec.  413.40 of the 
regulations.)
    In this proposed rule, the FY 2017 rate-of-increase percentage 
for updating the target amounts for the 11 cancer hospitals, 
children's hospitals, the short-term acute care hospitals located in 
the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and 
American Samoa, and RNHCIs is the estimated percentage increase in 
the IPPS operating market basket for FY 2017, in accordance with 
applicable regulations at Sec.  413.40. Based on IHS Global Insight, 
Inc.'s 2016 first quarter forecast, we estimated that the FY 2010-
based IPPS operating market basket update for FY 2017 would be 2.8 
percent (that is, the estimate of the market basket rate-of-
increase). However, we proposed that if more recent data become 
available for the final rule, we would use them to calculate the 
IPPS operating market basket update for FY 2017. Therefore, based on 
IHS Global Insight, Inc.'s 2016 first quarter forecast, with 
historical data through 2015 fourth quarter, we estimate that the FY 
2010-based IPPS operating market basket update for FY 2017 is 2.8 
percent (that is, the estimate of the market basket rate-of-
increase). For children's hospitals, the 11 cancer hospitals, 
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), and RNHCIs, the proposed FY 2017 rate-of-increase 
percentage that would be applied to the FY 2016 target amounts in 
order to determine the proposed FY 2017 target amounts is 2.8 
percent.
    The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. 
We refer readers to section VII. of the preamble of this proposed 
rule and section V. of the Addendum to this proposed rule for the 
proposed update changes to the Federal payment rates for LTCHs under 
the LTCH PPS for FY 2017. The annual updates for the IRF PPS and the 
IPF PPS are issued by the agency in separate Federal Register 
documents.

V. Proposed Changes to the Payment Rates for the LTCH PPS for FY 2017

A. Proposed LTCH PPS Standard Federal Payment Rate for FY 2017

1. Background

    In section VII. of the preamble of this proposed rule, we 
discuss our proposed annual updates to the payment rates, factors, 
and specific policies under the LTCH PPS for FY 2017.
    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 to account 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 through 2016, 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.E.2. of the preamble 
of this proposed rule.
    Section 1886(m)(3)(B) of the Act provides that the application 
of paragraph (3) of section 1886(m) of the Act may result in the 
annual update being less than zero for a rate year, and may result 
in payment rates for a rate year being less than such payment rates 
for the preceding rate year. (As noted in section VII.E.2.a. of the 
preamble of this proposed rule, the annual update to the LTCH PPS 
occurs on October 1 and we have adopted the term ``fiscal year'' 
(FY) rather than ``rate year'' (RY) under the LTCH PPS beginning 
October 1, 2010. Therefore, for purposes of clarity, when discussing 
the annual update for the LTCH PPS, including the provisions of the 
Affordable Care Act, we use the term ``fiscal year'' rather than 
``rate year'' for 2011 and subsequent years.)
    For FY 2016, consistent with our historical practice, we 
established an update to the LTCH PPS standard Federal payment rate 
based on the full estimated LTCH PPS market basket increase of 2.4 
percent and the 0.7 percentage point reductions required by sections 
1886(m)(3)(A)(i) and 1886(m)(3)(A)(ii) with 1886(m)(4)(E) of the 
Act. Accordingly, at Sec.  412.523(c)(3)(xii) of the regulations, we 
established an annual update of 1.7 percent to the standard Federal 
payment rate for FY 2016 (80 FR 49636 through 49637). In addition, 
as discussed in that same final rule, the annual update for FY 2016 
was further reduced by 2.0 percentage points for LTCHs that failed 
to submit quality reporting data in accordance with the requirements 
of the LTCH QRP under section 1886(m)(5) of the Act.
    For FY 2017, in this proposed rule, based on the best available 
data, we are proposing an annual update to the LTCH PPS standard 
Federal payment rate of 1.45 percent, which is based on the full 
estimated increase in the LTCH PPS market basket of 2.7 percent, 
less the MFP adjustment of 0.5 percentage point consistent with 
section 1886(m)(3)(A)(i) of the Act, and less the 0.75 percentage 
point required by sections 1886(m)(3)(A)(ii) and (m)(4)(F) of the 
Act. (As discussed in section VII.E. of the preamble of this 
proposed rule, we are proposing to rebase and revise the 2009-based 
LTCH-specific market basket to reflect a 2013 base year.) For LTCHs 
that fail to submit the required quality reporting data for FY 2017 
in accordance with the LTCH QRP, the annual update is further 
reduced by 2.0 percentage points as required by section 1886(m)(5) 
of the Act (as discussed in greater detail in section VII.E.2.c. of 
the preamble of this proposed rule). Accordingly, we are proposing 
an annual update to the LTCH PPS standard Federal payment rate of -
0.55 percent for LTCHs that fail to submit the required quality 
reporting data for FY 2017. This proposed -0.55 percent update was 
calculated based on the full estimated increase in the LTCH PPS 
market basket of 2.7 percent, less a MFP adjustment of 0.5 
percentage point, less an additional adjustment of 0.75 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 Proposed FY 2017 LTCH PPS Standard Federal 
Payment Rate

    We continue to believe that the annual update to the LTCH PPS 
standard Federal payment rate should be based on the most recent 
estimate of the increase in the LTCH PPS market basket, including 
any statutory adjustments. Consistent with our historical practice, 
for FY 2017, we are proposing to apply the annual update to the LTCH 
PPS standard Federal payment rate from the previous year. 
Furthermore, in determining the LTCH PPS standard Federal payment 
rate for FY 2017, we also are proposing to make certain regulatory 
adjustments, consistent with past practices. Specifically, in 
determining the proposed FY 2017 LTCH PPS standard Federal payment 
rate, we are proposing to apply a budget neutrality adjustment 
factor for the proposed changes related to the area wage adjustment 
(that is, changes to the wage data and labor-related share) in 
accordance with Sec.  412.523(d)(4). We also are proposing to use 
more recent data to

[[Page 25282]]

determine the update to the LTCH PPS standard Federal payment rate 
for FY 2017 in the final rule.
    For FY 2016, we established an annual update to the LTCH PPS 
standard Federal payment rate of 1.7 percent based on the full 
estimated LTCH PPS market basket increase of 2.4 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. 
Accordingly, at Sec.  412.523(c)(3)(xii), we established an annual 
update to the LTCH PPS standard Federal payment rate for FY 2015 of 
1.7 percent. That is, we applied an update factor of 1.017 to the FY 
2015 Federal rate of $41,043.71 to determine the FY 2016 LTCH PPS 
standard Federal payment rate. We also applied an area wage level 
budget neutrality factor for FY 2016 of 1.000513 to the LTCH PPS 
standard Federal payment rate to ensure that any changes to the area 
wage level adjustment would not result in any change in estimated 
aggregate LTCH PPS payments. Consequently, we established a LTCH PPS 
standard Federal payment rate for FY 2016 of $41,762.85 (calculated 
as $41,043.71 x 1.017 x 1.000513) (80 FR 49797).
    In this proposed rule, we are proposing an annual update to the 
LTCH PPS standard Federal payment rate of 1.45 percent, which was 
determined using the methodology previously described. Accordingly, 
under Sec.  412.523(c)(3)(xiii), we are proposing to apply a factor 
of 1.0145 to the FY 2017 LTCH PPS standard Federal payment rate of 
$41,762.85 to determine the proposed FY 2017 LTCH PPS standard 
Federal payment rate. These factors are based on IGI's first quarter 
2016 forecast, which are the best available data at this time. For 
LTCHs that fail to submit quality reporting data for FY 2017 under 
the LTCH QRP, under proposed Sec.  412.523(c)(3)(xiii), applied in 
conjunction with the provisions of Sec.  412.523(c)(4), we are 
proposing to reduce the annual update to the LTCH PPS standard 
Federal payment rate by an additional 2.0 percentage points, 
consistent with section 1886(m)(5) of the Act. In those cases, the 
LTCH PPS standard Federal payment rate is updated by -0.55 percent 
(that is, a proposed update factor of 0.9945) for FY 2017 for LTCHs 
that fail to submit the required quality reporting data for FY 2017 
as required under the LTCH QRP. Consistent with Sec.  412.523(d)(4), 
we also are proposing to apply an area wage level budget neutrality 
factor to the FY 2017 LTCH PPS standard Federal payment rate of 
0.998723, which was determined using the methodology described below 
in section V.B.4. of this Addendum. We are proposing to apply this 
area wage level budget neutrality factor to the FY 2017 LTCH PPS 
standard Federal payment rate to ensure that any proposed changes to 
the area wage level adjustment (that is, the proposed annual update 
of the wage index values and labor-related share) will not result in 
any change (increase or decrease) in estimated aggregate LTCH PPS 
standard Federal payment rate payments. Accordingly, we are 
proposing a LTCH PPS standard Federal payment rate of $42,314.31 
(calculated as $41,762.85 x 1.0145 x 0.998723) for FY 2017. For 
LTCHs that fail to submit quality reporting data for FY 2017 in 
accordance with the requirements of the LTCHQRP under section 
1886(m)(5) of the Act, we are proposing a LTCH PPS standard Federal 
payment rate of $41,480.12 (calculated as $41,762.85x 0.9945 x 
0.998723) for FY 2017. We note, as discussed in section VII.B. of 
the preamble of this proposed rule, under our application of the 
site neutral payment rate required under section 1886(m)(6) of the 
Act, this LTCH PPS standard Federal payment rate will only be used 
to determine payments for LTCH PPS standard Federal payment rate 
cases (that is, those LTCH PPS cases that meet the statutory 
criteria to be excluded from the site neutral payment rate).

B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS for 
FY 2017

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 payment 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 payment rate is adjusted to account 
for geographic differences in area wage levels by applying the 
applicable LTCH PPS wage index. The applicable LTCH PPS wage index 
is computed using wage data from inpatient acute care hospitals 
without regard to reclassification under section 1886(d)(8) or 
section 1886(d)(10) of the Act.
    When we implemented the LTCH PPS, we established a 5-year 
transition to the full area wage level adjustment. The area wage 
level adjustment was completely phased-in for cost reporting periods 
beginning in FY 2007. Therefore, for cost reporting periods 
beginning on or after October 1, 2006, the applicable LTCH area wage 
index values are the full LTCH PPS area wage index values calculated 
based on acute care hospital inpatient wage index data without 
taking into account geographic reclassification under section 
1886(d)(8) and section 1886(d)(10) of the Act. For additional 
information on the phase-in of the area wage level adjustment under 
the LTCH PPS, we refer readers to the August 30, 2002 LTCH PPS final 
rule (67 FR 56015 through 56019) and the RY 2008 LTCH PPS final rule 
(72 FR 26891).

2. Proposed Geographic Classifications (Labor Market Areas) for the 
LTCH PPS Standard Federal Payment Rate

    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 (MSA) (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. (Information on OMB's MSA delineations 
based on the 2010 standards can be found at: http://www.whitehouse.gov/sites/default/files/omb/assets/fedreg_2010/06282010_metro_standards-Complete.pdf).
    The CBSA-based geographic classifications (labor market area 
definitions) currently used under the LTCH PPS, effective for 
discharges occurring on or after October 1, 2014, are based on the 
OMB labor market area delineations based on the 2010 Decennial 
Census data. The current statistical areas (which were implemented 
beginning with FY 2015) are based on revised OMB delineations issued 
on February 28, 2013, in OMB Bulletin No. 13-01. We adopted these 
labor market area delineations because they 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 these 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 noted that this policy was consistent with the IPPS 
policy adopted in FY 2015 under Sec.  412.64(b)(1)(ii)(D) of the 
regulations (79 FR 49951 through 49963). (For additional information 
on the CBSA-based labor market area (geographic classification) 
delineations currently used under the LTCH PPS and the history of 
the labor market area definitions used under the LTCH PPS, we refer 
readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50180 through 
50185).)
    In general, it is our historical practice to update the CBSA-
based labor market area delineations annually based on the most 
recent updates issued by OMB. Generally, OMB issues major revisions 
to statistical areas every 10 years, based on the results of the 
decennial census. However, OMB occasionally issues minor updates and 
revisions to statistical areas in the years between the decennial 
censuses. On July 15, 2015, OMB issued OMB Bulletin No. 15-01, which 
provides updates to and supersedes OMB Bulletin No. 13-01 that was 
issued on February 28, 2013. The attachment to OMB Bulletin No. 15-
01 provides detailed information on the update to statistical areas 
since February 28, 2013. As discussed in section III.A.2. of the 
preamble of this proposed rule, the updates provided in OMB Bulletin 
No. 15-01 are based on the application of the 2010 Standards for 
Delineating Metropolitan and Micropolitan Statistical Areas to 
Census Bureau population estimates for July 1, 2012 and July 1, 
2013. A copy of this bulletin may be obtained on the Web site at: 
https://www.whitehouse.gov/omb/bulletins_/.
    OMB Bulletin No. 15-01 made the following changes that are 
relevant to the LTCH PPS CBSA-based labor market area (geographic 
classification) delineations:
     Garfield County, OK, with principal city Enid, OK, 
which was a Micropolitan (geographically rural) area, now qualifies 
as an urban area under new CBSA 21420 entitled Enid, OK.
     The county of Bedford City, VA, a component of the 
Lynchburg, VA CBSA

[[Page 25283]]

31340, changed to town status and is added to Bedford County. 
Therefore, the county of Bedford City is now part of the county of 
Bedford, VA. The CBSA remains Lynchburg, VA, 31340.
     The name of Macon, GA, CBSA 31420, as well as a 
principal city of the Macon-Warner Robins, GA combined statistical 
area, is now Macon-Bibb County, GA. The CBSA code remains as 31420.
    We believe that these revisions to the CBSA-based labor market 
area 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 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 and, therefore, we are proposing to adopt them 
under the LTCH PPS, effective October 1, 2016. Accordingly, the 
proposed FY 2017 LTCH PPS wage index values in Tables 12A and 12B 
listed in section VI. of the Addendum of this proposed rule (which 
are available via the Internet on the CMS Web site) reflect the 
revisions to the CBSA-based labor market area delineations described 
above. We note that, as discussed in section III.C.2. of the 
preamble of this proposed rule, the revisions to the CBSA-based 
delineations also are proposed for adoption under the IPPS, 
effective beginning October 1, 2016.

3. Proposed Labor-Related Share for the LTCH PPS Standard Federal 
Payment Rate

    Under the payment adjustment for the differences in area wage 
levels under Sec.  412.525(c), the labor-related share of an LTCH's 
standard Federal payment rate 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 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, beginning in FY 2013, we 
determined the labor-related share annually as the sum of the 
relative importance of each labor-related cost category of the 2009-
based LTCH-specific market basket for the respective fiscal year 
based on the best available data. (For more details, we refer 
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53477 through 
53479).) As noted previously, we are proposing to rebase and revise 
the 2009-based LTCH-specific market basket to reflect a 2013 base 
year. In conjunction with that proposal, as discussed in section 
VII.D.4.e. of the preamble of this proposed rule, we are proposing 
that the LTCH PPS labor-related share for FY 2017 would be the sum 
of the FY 2017 relative importance of each labor-related cost 
category in the proposed 2013-based LTCH market basket using the 
most recent available data. Specifically, we are proposing that the 
labor related share for FY 2017 would include the sum of the labor-
related portion of operating costs from the proposed 2013-based LTCH 
market basket (that is, the sum of the FY 2017 relative importance 
share of Wages and Salaries; Employee Benefits; Professional Fees: 
Labor-Related; Administrative and Facilities Support Services; 
Installation, Maintenance, and Repair Services; All Other: Labor-
related Services) and a portion of the Capital-Related cost weight 
from the proposed 2013-based LTCH PPS market basket. Based on IGI's 
first quarter 2016 forecast of the proposed 2013-based LTCH market 
basket, we are proposing a labor-related share under the LTCH PPS 
for FY 2017 of 66.6 percent. This proposed labor-related share is 
determined using the same methodology as employed in calculating all 
previous LTCH PPS labor-related shares. Consistent with our 
historical practice, we are proposing to use more recent data to 
determine the final FY 2017 labor-related share in the final rule.
    Table VII-9 in section VII.D.4.e. of the preamble of this 
proposed rule shows the proposed FY 2017 relative importance labor-
related share using the proposed 2013-based LTCH market basket and 
the FY 2016 relative importance labor-related share using the 2009-
based LTCH-specific market basket. The proposed labor-related share 
for FY 2017 is the sum of the proposed FY 2017 relative importance 
of each labor-related cost category, and would reflect the different 
rates of price change for these cost categories between the base 
year (2013) and FY 2017. The sum of the proposed relative importance 
for FY 2017 for operating costs (Wages and Salaries; Employee 
Benefits; Professional Fees: Labor-Related; Administrative and 
Facilities Support Services; Installation, Maintenance, and Repair 
Services; All Other: Labor-related Services) is 62.3 percent. We are 
proposing that the portion of capital-related costs that is 
influenced by the local labor market is estimated to be 46 percent 
(the same percentage applied to the 2009-based LTCH-specific market 
basket). Because the relative importance for capital-related costs 
under our proposals would be 9.4 percent of the proposed 2013-based 
LTCH market basket in FY 2017, we are proposing to take 46 percent 
of 9.4 percent to determine the proposed labor-related share of 
capital-related costs for FY 2017 (0.46 x 9.4). The result is 4.3 
percent, which we are proposing to add to 62.3 percent for the 
operating cost amount to determine the total proposed labor-related 
share for FY 2017. Therefore, the proposed labor-related share under 
the LTCH PPS for FY 2017 is 66.6 percent. We note that the proposed 
FY 2017 labor-related share using the proposed 2013-based LTCH 
market basket is 4.6 percentage points higher than the FY 2016 
labor-related share using the 2009-based LTCH-specific market 
basket. This is primarily due to, as discussed in greater detail in 
section VII.D.4.e. of the preamble of this proposed rule, the change 
in the quantity of labor, particularly for professional services, 
outpacing the change in quantity of products (which are not included 
in the labor-related share) between 2009 and 2013, which more than 
offsets the faster relative growth in prices for products.

4. Proposed Wage Index for FY 2017 for the LTCH PPS Standard Federal 
Payment Rate

    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 2016 LTCH PPS final rule (80 FR 49798through 49799), 
we calculated the FY 2016 LTCH PPS area wage index values using the 
same data used for the FY 2016 acute care hospital IPPS (that is, 
data from cost reporting periods beginning during FY 2012), 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 2016 LTCH PPS area wage index 
values, consistent with the urban and rural geographic 
classifications (labor market areas) that were in place at that time 
and consistent with the pre-reclassified IPPS wage index policy 
(that is, our historical policy of not taking into account IPPS 
geographic reclassifications in determining payments under the LTCH 
PPS). As with the IPPS wage index, wage data for multicampus 
hospitals with campuses located in different labor market areas 
(CBSAs) are apportioned to each CBSA where the campus (or campuses) 
are located. We also continued to use our existing policy for 
determining area wage index values for areas where there are no IPPS 
wage data.
    Consistent with our historical methodology, to determine the 
applicable area wage index values for the FY 2017 LTCH PPS standard 
Federal payment rate, under the broad authority of section 123 of 
the BBRA, as amended by section 307(b) of the BIPA, we are proposing 
to use wage data collected from cost reports submitted by IPPS 
hospitals for cost reporting periods beginning during FY 2013, 
without taking into account geographic reclassification under 
sections 1886(d)(8) and 1886(d)(10) of the Act, because these data 
are the most recent complete data available. We also note that these 
are the same data we are using to compute the proposed FY 2017 acute 
care hospital inpatient wage index, as discussed in section III. of 
the preamble of this proposed rule. We are computing the proposed FY 
2017 LTCH PPS standard Federal payment rate area wage index values 
consistent with the ``urban'' and ``rural'' geographic 
classifications (that is, labor market area delineations, including 
the proposed updates, as previously discussed in section V.B.2. of 
this Addendum) and our historical policy of not taking into account

[[Page 25284]]

IPPS geographic reclassifications under sections 1886(d)(8) and 
1886(d)(10) of the Act in determining payments under the LTCH PPS. 
We also are proposing to continue to apportion wage data for 
multicampus hospitals with campuses located in different labor 
market areas to each CBSA where the campus or campuses are located, 
consistent with the IPPS policy. Lastly, consistent with our 
existing methodology for determining the LTCH PPS wage index values, 
for FY 2017 we are proposing to continue to use our existing policy 
for determining area wage index values for areas where there are no 
IPPS wage data.
    Under our existing methodology, the LTCH PPS wage index value 
for urban CBSAs with no IPPS wage data would be 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 would be 
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 2013 IPPS wage data that we are using to 
determine the proposed FY 2017 LTCH PPS standard Federal payment 
rate area wage index values in this proposed rule, there are no IPPS 
wage data for the urban area of Hinesville, GA (CBSA 25980). 
Consistent with the methodology discussed above, we calculated the 
proposed FY 2017 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 proposed rule and available via the Internet on the 
CMS Web site). We note that, as IPPS wage data are dynamic, it is 
possible that urban areas without IPPS wage data will vary in the 
future.
    Based on the FY 2013 IPPS wage data that we are using to 
determine the proposed FY 2017 LTCH PPS standard Federal payment 
rate area wage index values in this proposed rule, there are no 
rural areas without IPPS hospital wage data. Therefore, it is not 
necessary to use our established methodology to calculate a proposed 
LTCH PPS standard Federal payment rate wage index value for rural 
areas with no IPPS wage data for FY 2017. We note that, as IPPS wage 
data are dynamic, it is possible that the number of rural areas 
without IPPS wage data will vary in the future. The proposed FY 2017 
LTCH PPS standard Federal payment rate wage index values that would 
be applicable for LTCH PPS standard Federal payment rate discharges 
occurring on or after October 1, 2016, through September 30, 2017, 
are presented in Table 12A (for urban areas) and Table 12B (for 
rural areas), which are listed in section VI. of the Addendum of 
this proposed rule and available via the Internet on the CMS Web 
site.

5. Proposed Budget Neutrality Adjustment for Changes to the LTCH PPS 
Standard Federal Payment Rate 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 
payment 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 payment 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 this proposed rule, for FY 2017 LTCH PPS standard Federal 
payment rate cases, in accordance with Sec.  412.523(d)(4), we are 
proposing to apply an area wage level adjustment budget neutrality 
factor to adjust the LTCH PPS standard Federal payment rate to 
account for the estimated effect of the proposed adjustments or 
updates to the area wage level adjustment under Sec.  412.525(c)(1) 
on estimated aggregate LTCH PPS payments using a methodology that is 
consistent with the methodology we established in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51773). Specifically, we are proposing to 
determine an area wage level adjustment budget neutrality factor 
that would be applied to the LTCH PPS standard Federal payment rate 
under Sec.  412.523(d)(4) for FY 2017 using the following 
methodology:
    Step 1--We simulated estimated aggregate LTCH PPS standard 
Federal payment rate payments using the FY 2016 wage index values 
and the FY 2016 labor-related share of 62.0 percent (as established 
in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49798 and 49799).
    Step 2--We simulated estimated aggregate LTCH PPS standard 
Federal payment rate payments using the proposed FY 2017 wage index 
values (as shown in Tables 12A and 12B listed in the Addendum to 
this proposed rule and available via the Internet on the CMS Web 
site) and the proposed FY 2017 labor-related share of 66.6 percent 
(based on the latest available data as previously discussed 
previously in this Addendum).
    Step 3--We calculated the ratio of these estimated total LTCH 
PPS standard Federal payment rate payments by dividing the estimated 
total LTCH PPS standard Federal payment rate payments using the FY 
2016 area wage level adjustments (calculated in Step 1) by the 
estimated total LTCH PPS standard Federal payment rate payments 
using the proposed FY 2017 area wage level adjustments (calculated 
in Step 2) to determine the proposed area wage level adjustment 
budget neutrality factor for FY 2017 LTCH PPS standard Federal 
payment rate payments.
    Step 4--We then applied the proposed FY 2017 area wage level 
adjustment budget neutrality factor from Step 3 to determine the 
proposed FY 2017 LTCH PPS standard Federal payment rate after the 
application of the proposed FY 2017 annual update (discussed 
previously in section V.A.2. of this Addendum).
    We note that, with the exception of cases subject to the 
transitional blend payment rate provisions in the first 2 years, 
under the dual rate LTCH PPS payment structure, only LTCH PPS cases 
that meet the statutory criteria to be excluded from the site 
neutral payment rate (that is, LTCH PPS standard Federal payment 
rate cases) are paid based on the LTCH PPS standard Federal payment 
rate. Because the area wage level adjustment under Sec.  412.525(c) 
is an adjustment to the LTCH PPS standard Federal payment rate, we 
only used data from claims that would have qualified for payment at 
the LTCH PPS standard Federal payment rate if such rate were in 
effect at the time of discharge to calculate the FY 2017 LTCH PPS 
standard Federal payment rate area wage level adjustment budget 
neutrality factor described above.
    For this proposed rule, using the steps in the methodology 
previously described, we determined a proposed FY 2017 LTCH PPS 
standard Federal payment rate area wage level adjustment budget 
neutrality factor of 0.998723. Accordingly, in section V.A.2. of the 
Addendum to this propose rule, to determine the proposed FY 2017 
LTCH PPS standard Federal payment rate, we are applying a proposed 
area wage level adjustment budget neutrality factor of 0.998723, in 
accordance with Sec.  412.523(d)(4). The proposed FY 2017 LTCH PPS 
standard Federal payment rate shown in Table 1E of the Addendum to 
this proposed rule reflects this adjustment factor.

C. Proposed 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 previously described.
    Under our current methodology, we 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) (77 FR 53712 
through 53713). This

[[Page 25285]]

methodology is based on a comparison of the growth in the Consumer 
Price Indexes (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 includes 
a 25-percent cap on the CPI-updated COLA factors. (For additional 
details on our current methodology for updating the COLA factors for 
Alaska and Hawaii, we refer readers to section VII.D.3. of the 
preamble of the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481 
through 53482).)
    We continue to believe that determining updated COLA factors 
using this methodology would appropriately adjust the nonlabor-
related portion of the LTCH PPS standard Federal payment rate for 
LTCHs located in Alaska and Hawaii. Under our current 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 this proposed rule for FY 2017, under the broad authority 
conferred upon the Secretary by section 123 of the BBRA, as amended 
by section 307(b) of the BIPA, to determine appropriate payment 
adjustments under the LTCH PPS, we are proposing to continue to use 
the COLA factors 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 refer readers to the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50998) for a discussion of the FY 2014 COLA factors.) 
Consistent with our historical practice, we are proposing to 
establish that the COLA factors shown in the following table will be 
used to adjust the nonlabor-related portion of the LTCH PPS standard 
Federal payment rate for LTCHs located in Alaska and Hawaii under 
Sec.  412.525(b).

    Proposed Cost-of-Living Adjustment Factors for Alaska and Hawaii
                Hospitals Under the LTCH PPS for FY 2017
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Alaska:
  City of Anchorage and 80-kilometer (50[dash]mile) radius by       1.23
   road......................................................
  City of Fairbanks and 80-kilometer (50[dash]mile) radius by       1.23
   road......................................................
  City of Juneau and 80-kilometer (50[dash]mile) radius by          1.23
   road......................................................
  All other areas of Alaska..................................       1.25
Hawaii:
  City and County of Honolulu................................       1.25
  County of Hawaii...........................................       1.19
  County of Kauai............................................       1.25
  County of Maui and County of Kalawao.......................       1.25
------------------------------------------------------------------------

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

1. HCO Background

    From the beginning of the LTCH PPS, we have included an 
adjustment to account for cases in which there are extraordinarily 
high costs relative to the costs of most discharges. Under this 
policy, additional payments are made based on the degree to which 
the estimated cost of a case (which is calculated by multiplying the 
Medicare allowable covered charge by the hospital's overall hospital 
CCR) exceeds a fixed-loss amount. This policy results in greater 
payment accuracy under the LTCH PPS and the Medicare program, and 
the LTCH sharing the financial risk for the treatment of 
extraordinarily high-cost cases.
    We retained the basic tenets of our HCO policy in FY 2016 when 
we implemented the dual rate LTCH PPS payment structure under 
section 1206 of Public Law 113-67. LTCH discharges that meet the 
criteria for exclusion from site neutral payment rate (that is, LTCH 
PPS standard Federal payment rate cases) are paid at the LTCH PPS 
standard Federal payment rate, which includes, as applicable, HCO 
payments under Sec.  412.523(e). LTCH discharges that do not meet 
the criteria for exclusion are paid at the site neutral payment 
rate, which includes, as applicable, HCO payments under Sec.  
412.522(c)(2)(i). In the same rule, we established separate fixed-
loss amounts and targets for the two different LTCH PPS payment 
rates. Under this bifurcated policy, the historic 8 percent HCO 
target was retained for LTCH PPS standard Federal payment rate 
cases, with the fixed-loss amount calculated using only data from 
LTCH cases which would have been paid at the LTCH PPS standard 
Federal payment rate if that rate had been in effect at the time of 
those discharges. For site neutral payment rate cases, we adopted 
the operating IPPS HCO target (currently 5.1 percent) and set the 
fixed-loss amount for site neutral payment rate cases at the value 
of the IPPS fixed-loss amount. Under the HCO policy for both payment 
rates, an LTCH receives 80 percent of the difference between the 
estimated cost of the case and the applicable HCO threshold, which 
is the sum of the LTCH PPS payment for the case and the applicable 
fixed-loss amount for such case. In order to maintain budget 
neutrality, consistent with the budget neutrality requirement for 
HCO payments to LTCH PPS standard Federal rate payment cases, we 
also adopted a budget neutrality requirement for HCO payments to 
site neutral payment rate cases by applying a budget neutrality 
factor to the LTCH PPS payment for those site neutral payment rate 
cases. (We refer readers to Sec.  412.522(c)(2)(i) of the regulation 
for further details). We note during the 2-year transitional period, 
the site neutral payment rate HCO budget neutrality factor does not 
apply to the LTCH PPS standard Federal payment rate portion of the 
blended rate at Sec.  412.522(c)(3) payable to site neutral payment 
rate cases. (For additional details on the HCO policy adopted for 
site neutral payment rate cases under the dual rate LTCH PPS payment 
structure, including the budget neutrality adjustment for HCO 
payments to site neutral payment rate cases, we refer readers to the 
FY 2016 IPPS/LTCH PPS final rule (80 FR 49617 through 49623).)

2. Determining LTCH CCRs under the LTCH PPS

a. Background

    As noted above, CCRs are used to determine payments for HCO 
adjustments for both payment rates under the LTCH PPS, and are also 
used to determine payments for SSO cases under Sec.  412.529 as well 
as payments for site neutral payment rate cases. (We note that the 
provisions of Sec.  412.529 are only applicable to LTCH PPS standard 
Federal payment rate cases.) Therefore, this discussion is relevant 
to all HCO, SSO, and site neutral payment rate calculations.
    As noted earlier, in determining HCO, SSO, and the site neutral 
payment rate (regardless of whether the case is also an HCO) 
payments, we generally calculate the estimated cost of the case by 
multiplying the LTCH's overall CCR by the Medicare allowable charges 
for the case. An overall CCR is used because the LTCH PPS uses a 
single prospective payment per discharge that covers both inpatient 
operating and capital-related costs. The LTCH's overall CCR is 
generally computed 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 Medicare 
charges (that is, the sum of its operating and capital inpatient 
routine and ancillary charges), with those values determined from 
either the most recently settled cost report or the most recent 
tentatively settled cost report, whichever is from the latest cost 
reporting period. However, in certain instances, we use an 
alternative CCR, such as the statewide average CCR, a CCR that is 
specified by CMS, or one that is requested by the hospital. (We 
refer readers to Sec.  412.525(a)(4)(iv) of the regulations for 
further details regarding HCO adjustments for either LTCH PPS 
payment rate, Sec.  412.529(f)(4) for SSO adjustments, and Sec.  
412.522(c)(1)(ii) for the site neutral payment rate, respectively.)
    The LTCH's calculated CCR is then compared to the LTCH total CCR 
ceiling. Under our established policy, an LTCH with a calculated CCR 
in excess of the applicable maximum CCR threshold (that is, the LTCH 
total CCR ceiling, which is calculated as 3 standard deviations from 
the national geometric average CCR) is generally assigned the 
applicable statewide CCR. This policy is premised on a belief that 
calculated CCRs above the LTCH total CCR ceiling 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.

b. LTCH Total CCR Ceiling

    In this proposed rule, using our established methodology for 
determining the LTCH total CCR ceiling based on IPPS total CCR data 
from the December 2015 update of the Provider Specific File (PSF), 
we are proposing a LTCH total CCR ceiling of 1.302 under the LTCH 
PPS for FY 2017 in accordance with Sec.  412.525(a)(4)(iv)(C)(2) for 
HCO cases under either payment rate, Sec.  412.529(f)(4)(iii)(B) for 
SSOs, and Sec.  412.522(c)(1)(ii) for the site neutral payment rate. 
Consistent with our historical practice, we also are proposing to 
use more

[[Page 25286]]

recent data to determine the LTCH total CCR ceiling for the FY 2017 
final rule. (For additional information on our methodology for 
determining the LTCH total CCR ceiling, we refer readers to the FY 
2007 IPPS final rule (71 FR 48118 through 48119).)

c. LTCH Statewide Average CCRs

    Our general methodology for determining the statewide average 
CCRs used under the LTCH PPS is similar to our established 
methodology for determining the LTCH total CCR ceiling because it is 
based on ``total'' IPPS CCR data. (For additional information on our 
methodology for determining statewide average CCRs under the LTCH 
PPS, we refer readers to the FY 2007 IPPS final rule (71 FR 48119 
through 48120).) Under the LTCH PPS HCO policy for cases paid under 
either payment rate at Sec.  412.525(a)(4)(iv)(C), the SSO policy at 
Sec.  412.529(f)(4)(iii), and the site neutral payment rate at Sec.  
412.522(c)(1)(ii), 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, 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 calculated CCR is in 
excess of the LTCH total CCR ceiling; and (3) other LTCHs for whom 
data with which to calculate a CCR are not available (for example, 
missing or faulty data). (Other sources of data that the MAC may 
consider in determining an LTCH's CCR include data from a different 
cost reporting period for the LTCH, data from the cost reporting 
period preceding the period in which the hospital began to be paid 
as an LTCH (that is, the period of at least 6 months that it was 
paid as a short-term, acute care hospital), or data from other 
comparable LTCHs, such as LTCHs in the same chain or in the same 
region.)
    Consistent with our historical practice of using the best 
available data, in this proposed rule, using our established 
methodology for determining the LTCH statewide average CCRs, based 
on the most recent complete IPPS ``total CCR'' data from the 
December 2015 update of the PSF, we are proposing LTCH PPS statewide 
average total CCRs for urban and rural hospitals that would be 
effective for discharges occurring on or after October 1, 2016 
through September 30, 2017, in Table 8C listed in section VI. of the 
Addendum to this proposed rule (and available via the Internet on 
the CMS Web site). Consistent with our historical practice, we are 
proposing to use more recent data to determine the LTCH PPS 
statewide average total CCRs for FY 2017 in the final rule.
    Under the current LTCH PPS labor market areas, all areas in 
Delaware, the District of Columbia, New Jersey, and Rhode Island are 
classified as urban. Therefore, there are no rural statewide average 
total CCRs listed for those jurisdictions in Table 8C. This policy 
is consistent with the policy that we established when we revised 
our methodology for determining the applicable LTCH statewide 
average CCRs in the FY 2007 IPPS final rule (71 FR 48119 through 
48121) and is the same as the policy applied under the IPPS. In 
addition, although Connecticut and North Dakota have areas that are 
designated as rural, in our calculation of the LTCH statewide 
average CCRs, there was no data available from short-term, acute 
care IPPS hospitals to compute a rural statewide average CCR or 
there were no short-term, acute care IPPS hospitals or LTCHs located 
in those areas as of December 2015. Therefore, consistent with our 
existing methodology, we are proposing to use the national average 
total CCR for rural IPPS hospitals for rural Connecticut and North 
Dakota in Table 8C listed in section VI. of the Addendum to this 
proposed rule (and available via the Internet on the CMS Web site). 
Furthermore, consistent with our existing methodology, in 
determining the urban and rural statewide average total CCRs for 
Maryland LTCHs paid under the LTCH PPS, we are proposing to continue 
to use, as a proxy, the national average total CCR for urban IPPS 
hospitals and the national average total CCR for rural IPPS 
hospitals, respectively. We use this proxy because we believe that 
the CCR data in the PSF for Maryland hospitals may not be entirely 
accurate (as discussed in greater detail in the FY 2007 IPPS final 
rule (71 FR 48120)).

d. Reconciliation of HCO and SSO Payments

    Under the HCO policy for cases paid under either payment rate at 
Sec.  412.525(a)(4)(iv)(D) and the SSO policy at Sec.  
412.529(f)(4)(iv), the payments for HCO and SSO cases are subject to 
reconciliation. Specifically, any such payments are reconciled at 
settlement based on the CCR that is calculated based on the cost 
report coinciding with the discharge. (We note the existing 
reconciliation process for HCO payments is also applicable to LTCH 
PPS payments for site neutral payment rate cases (80 FR 49610).) For 
additional information on the reconciliation policy, 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).

e. Proposed Technical Change to the Definition of ``Outlier Payment''

    The existing regulations at Sec.  412.503 includes a definition 
of ``outlier payment,'' which was adopted when the LTCH PPS was 
implemented (67 FR 56049). This definition does not account for the 
dual rate LTCH PPS payment structure that began in FY 2016. 
Therefore, in this proposed rule, to account for our HCO policy for 
LTCH cases paid under either payment rate, we are proposing to 
revise the definition of ``outlier payment'' at Sec.  412.503 to 
mean an additional payment beyond the LTCH PPS standard Federal 
payment rate or the site neutral payment rate (including, when 
applicable, the transitional blended rate), as applicable, for cases 
with unusually high costs.

3. Proposed High-Cost Outlier Payments for LTCH PPS Standard Federal 
Payment Rate Cases

a. Establishment of the Proposed Fixed-Loss Amount for LTCH PPS 
Standard Federal Payment Rate Cases for FY 2017

    When we implemented the LTCH PPS, 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 (67 
FR 56022 through 56026). When we implemented the dual rate LTCH PPS 
payment structure beginning in FY 2016, we established that, in 
general, that the historical LTCH PPS HCO policy will continue to 
apply to LTCH PPS standard Federal payment rate cases. That is, the 
fixed-loss amount and target for LTCH PPS standard Federal payment 
rate cases is determined using the LTCH PPS HCO policy adopted when 
the LTCH PPS was first implemented, but we limited the data used 
under that policy to LTCH cases that would have been LTCH PPS 
standard Federal payment rate cases if the statutory changes had 
been in effect at the time of those discharges.
    To determine the applicable fixed-loss amount for LTCH PPS 
standard Federal payment rate cases, we estimate outlier payments 
and total LTCH PPS payments for each LTCH PPS standard Federal 
payment rate case (or for each case that would have been a LTCH PPS 
standard Federal payment rate case if the statutory changes had been 
in effect at the time of the discharge) using claims data from the 
MedPAR files. The applicable fixed-loss amount for LTCH PPS standard 
Federal payment rate cases results in estimated total outlier 
payments being projected to be equal to 8 percent of projected total 
LTCH PPS payments for LTCH PPS standard Federal payment rate cases. 
We use MedPAR claims data and CCRs based on data from the most 
recent PSF (or from the applicable statewide average CCR if an 
LTCH's CCR data are faulty or unavailable) to establish an 
applicable fixed-loss threshold amount for LTCH PPS standard Federal 
payment rate cases.
    For FY 2017, we are not proposing to make any modifications to 
the current LTCH PPS HCO payment methodology for LTCH PPS standard 
Federal payment rate cases. Therefore, for FY 2017, we are proposing 
to determine an applicable fixed-loss amount for LTCH PPS standard 
Federal payment rate cases using data from LTCH PPS standard Federal 
payment rate cases (or cases that would have been LTCH PPS standard 
Federal payment rate cases had the dual rate LTCH PPS payment 
structure been in effect at the time of those discharges). The 
proposed fixed-loss amount for LTCH PPS standard Federal payment 
rate cases would continue to be determined so that estimated HCO 
payments would be projected to equal 8 percent of estimated total 
LTCH PPS standard Federal payment rate cases. Furthermore, in 
accordance with Sec.  412.523(d)(1), a budget neutrality factor 
would continue to be applied to LTCH PPS standard Federal payment 
rate cases to offset that 8 percent so that HCO payments for LTCH 
PPS standard Federal payment rate

[[Page 25287]]

cases will be budget neutral. Below we present our calculation of 
the proposed fixed-loss amount for LTCH PPS standard Federal payment 
rate cases for FY 2017, which is consistent with the methodology 
used to establish the FY 2016 LTCH PPS fixed-loss amount.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49803 through 
49804), we presented our policies regarding the methodology and data 
we used to establish a fixed-loss amount of $16,432 for FY 2016 for 
LTCH PPS standard Federal payment rate cases, which was calculated 
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 proposed fixed-loss amount for LTCH PPS standard Federal payment 
rate cases for FY 2017, we used the most recent available LTCH 
claims data and CCR data, that is, LTCH claims data from the 
December 2015 update of the FY 2015 MedPAR file and CCRs from the 
December 2015 update of the PSF, as these data were the most recent 
complete LTCH data available at that time.
    For FY 2017, we are proposing to continue to use our current 
methodology to calculate an applicable fixed-loss amount for LTCH 
PPS standard Federal payment rate cases for FY 2017 using the best 
available data that would maintain estimated HCO payments at the 
projected 8 percent of total estimated LTCH PPS payments for LTCH 
PPS standard Federal payment rate cases (based on the rates and 
policies for these cases presented in this proposed rule). 
Specifically, based on the most recent complete LTCH data available 
(that is, LTCH claims data from the December 2015 update of the FY 
2015 MedPAR file and CCRs from the December 2015 update of the PSF), 
we determined a proposed fixed-loss amount for LTCH PPS standard 
Federal payment rate cases for FY 2017 that will result in estimated 
outlier payments projected to be equal to 8 percent of estimated FY 
2017 payments for such cases. Under the broad authority of section 
123(a)(1) of the BBRA and section 307(b)(1) of the BIPA, we are 
proposing a fixed-loss amount of $22,728 for LTCH PPS standard 
Federal payment rate cases for FY 2017. Under our proposal, we would 
continue to make an additional HCO payment for the cost of an LTCH 
PPS standard Federal payment rate case that exceeds the HCO 
threshold amount 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 LTCH PPS standard Federal payment rate 
payment and the fixed-loss amount for LTCH PPS standard Federal 
payment rate cases of $22,728).
    We note that the proposed fixed-loss amount of $22,728 for FY 
2017 for LTCH PPS standard Federal payment rate cases is notably 
higher than the FY 2016 fixed-loss amount for LTCH PPS standard 
Federal payment rate cases of $16,423. The FY 2016 fixed-loss amount 
for LTCH PPS standard Federal payment rate cases was determined 
using LTCH claims data from the March 2015 update of the FY 2014 
MedPAR file and CCRs from the March 2015 update of the PSF. Based on 
that data, the estimated outlier payments were projected to be equal 
to 8 percent of estimated FY 2016 payments for such cases (80 FR 
49803). Using the more recent LTCH claims data (that is, FY 2015 
LTCH discharges from the December 2015 update of the MedPAR file and 
CCRs from the December 2015 update of the PSF), we currently 
estimate that the FY 2016 fixed-loss amount of $16,423 results in 
estimated HCO payments for LTCH PPS standard Federal payment rate 
cases of approximately 9.1 percent of total estimated FY 2016 LTCH 
PPS payments to those cases, which exceeds the 8 percent target. 
While many factors contribute to this increase, we found that the 
rate-of-change in the Medicare allowable charges on the claims data 
in the MedPAR is a significant contributing factor. In the payment 
modeling used to estimate LTCH PPS payments for the FY 2016 IPPS/
LTCH PPS final rule, for SSO and HCO cases paid as LTCH PPS standard 
Federal payment rate cases, we applied an inflation factor of 4.6 
percent (determined by the Office of the Actuary) to update the 2014 
costs of each case to 2016 (80 FR 49833). Upon examining the FY 2014 
LTCH discharge data and the FY 2015 discharge data, we found that 
Medicare allowable charges for LTCH PPS standard Federal payment 
rate cases (had the dual rate LTCH PPS payment structure been in 
effect at the time of the discharges) increased approximately 7 
percent. This higher inflation factor results in higher estimated 
costs for outlier cases and, therefore, more estimated outlier 
payments.
    Fluctuations in the fixed-loss amount occurred in the first few 
years after the implementation of the LTCH PPS, due, in part, to the 
changes in LTCH behavior (such as Medicare beneficiary treatment 
patterns) in response to the new payment system and the lack of data 
and information available to predict how those changes would affect 
the estimate costs of LTCH cases. As we gained more experience with 
the effects and implementation of the LTCH PPS, the annual changes 
on the fixed-loss amount generally stabilized relative to the 
fluctuations that occurred in the early years of the LTCH PPS. At 
this time, we are not proposing any changes to our method for the 
inflation factor applied to update the costs of each case (that is, 
an inflation factor based on the most recent estimate of the 
proposed 2013-based LTCH market basket as determined by the Office 
of the Actuary) in determining the proposed fixed-loss amount for 
LTCH PPS standard Federal payment rate cases for FY 2017. We 
continue to believe that it is appropriate to continue to use our 
historical approach until we gain experience with the effects and 
implementation of the dual rate LTCH PPS payment structure that 
began with discharges occurring in cost reporting periods beginning 
on or after October 1, 2015, and the types of cases paid at the LTCH 
PPS standard Federal payment rate under this dual rate payment 
structure. We may revisit this issue in the future if data 
demonstrate such a change is warranted, and would propose any 
changes in the future through the notice-and-comment rulemaking 
process. However, we are inviting public comments on potential 
improvements to the determination of the fixed-loss amount for LTCH 
PPS standard Federal payment rate cases, including the most 
appropriate method of determining an inflation factor for projecting 
the costs of each case when determining the fixed-loss threshold.
    For the reasons discussed above, we believe it is necessary and 
appropriate to propose an increase to the fixed-loss amount for LTCH 
PPS standard Federal payment rate cases for FY 2017 to maintain 
that, for LTCH PPS standard Federal payment rate cases, estimated 
HCO payments would equal 8 percent of estimated total LTCH PPS 
payments for those cases as required under Sec.  412.525(a). (For 
further information on the existing 8 percent HCO ``target'' 
requirement, we refer readers to the August 30, 2002 LTCH PPS final 
rule (67 FR 56022 through 56024).) Maintaining the fixed-loss amount 
at the current level would result in HCO payments that are 
substantially more than the current regulatory 8 percent target that 
we are applying to total payments for LTCH PPS standard Federal 
payment rate cases 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.

b. Application of the High-Cost Outlier Policy to SSO Cases

    Under our implementation of the dual rate LTCH PPS payment 
structure required by statute, LTCH PPS standard Federal payment 
rate cases (that is, LTCH discharges that meet the criteria for 
exclusion from the site neutral payment rate) will continue to be 
paid based on the LTCH PPS standard Federal payment rate, and will 
include all of the existing payment adjustments under Sec.  
412.525(d), such as the adjustments for SSO cases under Sec.  
412.529. Under some rare circumstances, an LTCH discharge can 
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, 
as discussed in the August 30, 2002 final rule (67 FR 56026). 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 applicable fixed-loss amount), the discharge is eligible 
for payment as an HCO. Therefore, for an SSO case in FY 2017, we are 
proposing the HCO payment would be 80 percent of the difference 
between the estimated cost of the case and the outlier threshold 
(the sum of the proposed fixed-loss amount of $22,728 and the amount 
paid under the SSO policy as specified in Sec.  412.529).

4. Proposed High-Cost Outlier Payments for Site Neutral Payment Rate 
Cases

    Under Sec.  412.525(a), site neutral payment rate cases receive 
an additional HCO payment for costs that exceed the HCO threshold 
that is equal to 80 percent of the difference between the estimated 
cost of the case and the applicable HCO threshold (80

[[Page 25288]]

FR 49618 through 49629). In the FY 2016 IPPS/LTCH PPS final rule, in 
examining the appropriate fixed-loss amount for site neutral payment 
rate cases issue, we considered how LTCH discharges based on 
historical claims data would have been classified under the dual 
rate LTCH PPS payment structure and the CMS' Office of the Actuary 
(OACT) projections regarding how LTCHs would likely respond to our 
proposed implementation of policies resulting from the statutory 
payment changes. For FY 2016, at that time our actuaries projected 
that the proportion of cases that would qualify as LTCH PPS standard 
Federal payment rate cases versus site neutral payment rate cases 
under the statutory provisions would remain consistent with what is 
reflected in the historical LTCH PPS claims data. Although our 
actuaries did not project an immediate change in the proportions 
found in the historical data, they did project cost and resource 
changes to account for the lower payment rates. Our actuaries also 
projected that the costs and resource use for cases paid at the site 
neutral payment rate would likely be lower, on average, than the 
costs and resource use for cases paid at the LTCH PPS standard 
Federal payment rate and would likely mirror the costs and resource 
use for IPPS cases assigned to the same MS-DRG, regardless of 
whether the proportion of site neutral payment rate cases in the 
future remains similar to what is found based on the historical 
data. In light of these projections and expectations, we discussed 
that we believed that the use of a single fixed-loss amount and HCO 
target for all LTCH PPS cases would be problematic. In addition, we 
discussed that we did not believe that it would be appropriate for 
comparable LTCH PPS site neutral payment rate cases to receive 
dramatically different HCO payments from those cases that would be 
paid under the IPPS (80 FR 49618 through 49619). For those reasons, 
in the FY 2016 IPPS/LTCH PPS final rule (FR 80 49619), we stated 
that we believe that the most appropriate fixed-loss amount for site 
neutral payment rate cases for a given fiscal year, beginning with 
FY 2016, would be the IPPS fixed-loss amount for that fiscal year. 
Accordingly, we established that for FY 2016, a fixed-loss amount 
for site neutral payment rate cases of $22,544, which was the same 
as the FY 2016 IPPS fixed-loss amount. (We note that the FY 2016 
fixed-loss amount under the IPPS was updated, applicable for 
discharges on or after January 1, 2016, as a conforming change to 
the implementation of section 601 of the Consolidated Appropriations 
Act, 2016, which modified the payment calculation with respect to 
operating costs of inpatient hospital services of a subsection (d) 
Puerto Rico hospital for inpatient hospital discharges on or after 
January 1, 2016 (Change Request 9523, Transmittal 3449, dated 
February 4, 2016).) Consistent with this change, the FY 2016 fixed-
loss amount for site neutral payment rate cases under the LTCH PPS 
was updated, applicable for discharges on or after January 1, 2016, 
to $22,538, which is the same as the updated IPPS outlier fixed-loss 
cost threshold for FY 2016. (We refer readers to Change Request 
9527, Transmittal 3445, dated January 29, 2016, which also updated 
the IPPS comparable amount calculation, applicable to discharges 
occurring on or after January 1, 2016, consistent with the 
conforming changes made as a result of the new IPPS payment 
requirement.)
    For this proposed rule, in developing a proposed fixed-loss 
amount for site neutral payment rate cases for FY 2017, we 
considered the same factors we did developing a fixed-loss amount 
for such cases for FY 2016. For FY 2017, our actuaries currently 
project that the proportion of cases that would qualify as LTCH PPS 
standard Federal payment rate cases versus site neutral payment rate 
cases under the dual rate LTCH PPS payment structure provisions 
would remain consistent with what is reflected in the historical 
LTCH PPS claims data. Based on FY 2014 LTCH claims data, LTCH claims 
data, we found that approximately 55 percent of LTCH cases would 
have been paid the LTCH PPS standard Federal payment rate and 
approximately 45 percent of LTCH cases would have been paid the site 
neutral payment rate if those rates had been in effect at that 
time.) At this time, our actuaries continue to project no immediate 
change in these proportions. However, they do continue to project 
that the costs and resource use for cases paid at the site neutral 
payment rate would likely be lower, on average, than the costs and 
resource use for cases paid at the LTCH PPS standard Federal payment 
rate and would likely mirror the costs and resource use for IPPS 
cases assigned to the same MS-DRG, regardless of whether the 
proportion of site neutral payment rate cases in the future remains 
similar to what is found based on the historical data. As discussed 
in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49619), this 
actuarial assumption is based on our expectation that site neutral 
payment rate cases would generally be paid based on an IPPS 
comparable per diem amount under the statutory LTCH PPS payment 
changes that began in FY 2016, which, in the majority of cases, is 
much lower than the payment that would have been paid if these 
statutory changes were not enacted. For these reasons, we continue 
to believe that the most appropriate fixed-loss amount for site 
neutral payment rate cases for FY 2017 is the IPPS fixed-loss amount 
for FY 2017.
    Therefore, for FY 2017, we are proposing that the applicable HCO 
threshold for site neutral payment rate cases is the sum of the site 
neutral payment rate for the case and the IPPS fixed-loss amount. 
That is, we are proposing a fixed-loss amount for site neutral 
payment rate cases of $23,681, which is the same proposed FY 2017 
IPPS fixed-loss amount discussed in section II.A.4.g.(1). of the 
Addendum to this proposed rule. We continue to believe that this 
policy will reduce differences between HCO payments for similar 
cases under the IPPS and site neutral payment rate cases under the 
LTCH PPS and promote fairness between the two systems. Accordingly, 
under this proposal, for FY 2017, we would calculate a HCO payment 
for site neutral payment rate cases with costs that exceed the HCO 
threshold amount, which is equal to 80 percent of the difference 
between the estimated cost of the case and the outlier threshold 
(the sum of site neutral payment rate payment and the proposed 
fixed-loss amount for site neutral payment rate cases of $23,681). 
(We note that any site neutral payment rate case that is paid 100 
percent of the estimated cost of the case (because that amount is 
lower than the IPPS comparable per diem amount) will not be eligible 
to receive a HCO payment because, by definition, the estimated costs 
of such cases would never exceed the IPPS comparable per diem amount 
by any threshold.)
    In establishing a HCO policy for site neutral payment rate 
cases, we established a budget neutrality requirement at Sec.  
412.522(c)(2)(i). We established this requirement because we believe 
that the HCO policy for site neutral payment rate cases should be 
budget neutral, just as the HCO policy for LTCH PPS standard Federal 
payment rate cases are budget neutral, meaning that estimated site 
neutral payment rate HCO payments should not result in any change in 
estimated aggregate LTCH PPS payments. Under Sec.  412.522(c)(2)(i), 
we adjust all payments for site neutral payment rate cases by a 
budget neutrality factor so that the estimated HCO payments payable 
for site neutral payment rate cases do not result in any increase in 
aggregate LTCH PPS payments. Specifically, under Sec.  
412.522(c)(2)(i), we apply a budget neutrality factor to the site 
neutral payment rate portion of the transitional blended rate 
payment (that is applicable to site neutral payment rate cases 
during the 2-year transition period provided by the statute) that is 
established based on an estimated basis. (We refer readers to 80 FR 
49621 through 49622 and 49805.)
    Under the approach adopted for applying the budget neutrality 
adjustment to the site neutral payment rate portion of the 
transitional blended rate payment in the FY 2016 IPPS/LTCH PPS final 
rule (80 FR 49805), we explained that there is no need to perform 
any calculation of the site neutral payment rate case HCO payment 
budget neutrality adjustment under our finalized policy. This is 
because, as discussed previously, based on our actuarial assumptions 
we project that our proposal to use the IPPS fixed-loss threshold 
for the site neutral payment rate cases would result in HCO payments 
for those cases that are similar in proportion as is seen in IPPS 
cases assigned to the same MS-DRG; that is, 5.1 percent. In other 
words, we estimated that HCO payments for site neutral payment rate 
cases would be 5.1 percent of the site neutral payment rate 
payments. Under the statutory transition period, payments to site 
neutral payment rate cases in FY 2017 will be paid under the blended 
transitional rate. As such, estimated HCO payments for site neutral 
payment rate cases in the FY 2017 proposal would be projected to be 
5.1 percent of the portion of the blended rate payment that is based 
on the estimated site neutral payment rate payment amount (and would 
not include the LTCH PPS standard Federal payment rate payment 
amount as specified in Sec.  412.522(c)(2)(i)). To ensure that 
estimated HCO payments payable to site neutral payment rate cases in 
FY 2017 would not

[[Page 25289]]

result any increase in estimated aggregate FY 2017 LTCH PPS 
payments, under the budget neutrality requirement at Sec.  
412.522(c)(2)(i), it is necessary to reduce the site neutral payment 
rate portion of the blended rate payment by 5.1 percent to account 
for the estimated additional HCO payments payable to those cases in 
FY 2017. In order to achieve this, for FY 2017, we are proposing to 
continue to apply a budget neutrality factor of 0.949 (that is, the 
decimal equivalent of a 5.1 percent reduction, determined as 1.0-
5.1/100 = 0.949) to the site neutral payment rate portion of the 
blended rate payment (80 FR 49805). As stated previously, this 
adjustment is necessary so that the estimated HCO payments payable 
for site neutral payment rate cases do not result in any increase in 
aggregate LTCH PPS payments.

E. Proposed Update to the IPPS Comparable/Equivalent Amounts to 
Reflect the Statutory Changes to the IPPS DSH Payment Adjustment 
Methodology

    In the FY 2014 IPPS/LTCH PPS final rule, we established a policy 
for reflecting the changes to the Medicare IPPS DSH payment 
adjustment methodology provided for by section 3133 of the 
Affordable Care Act in the calculation of the ``IPPS comparable 
amount'' under the SSO policy at Sec.  412.529 and the ``IPPS 
equivalent amount'' under the 25-percent threshold payment 
adjustment policy at Sec.  412.534 and Sec.  412.536. Historically, 
the determination of both the ``IPPS comparable amount'' and the 
``IPPS equivalent amount'' 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 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. 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 (79 FR 50766 through 50767).
    For FY 2017, as discussed in greater detail in section 
IV.D.3.d.(2) of the preamble of this proposed 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) is 
adjusted to 56.74 percent of that amount to reflect the change in 
the percentage of individuals who are uninsured. The resulting 
amount is then used to determine the amount of uncompensated care 
payments that will be made to eligible IPPS hospitals in FY 2017. In 
other words, Medicare DSH payments prior to the amendments made by 
the Affordable Care Act would be adjusted to 42.56 percent (the 
product of 75 percent and 56.74 percent) and the resulting amount 
will be used to calculate the uncompensated care payments to 
eligible hospitals. As a result, for FY 2017, 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, would result in overall 
Medicare DSH payments of 67.56 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 + 
56.74 percent = 67.56 percent).
    In this proposed rule, for FY 2017, we are proposing that the 
calculation of the ``IPPS comparable amount'' under Sec.  412.529 
and the ``IPPS equivalent amount'' under new Sec.  412.538 would 
include an applicable operating Medicare DSH payment amount that is 
equal to 67.5677 percent of the operating Medicare DSH payment 
amount that would have been paid based on the statutory Medicare DSH 
payment formula but for the amendments made by the Affordable Care 
Act. Furthermore, consistent with our historical practice, we are 
proposing to use more recent data, if available, to determine this 
factor in the final rule.

F. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2017

    Section 412.525 sets forth the adjustments to the LTCH PPS 
standard Federal payment rate. Under the dual rate LTCH PPS payment 
structure, only LTCH PPS cases that meet the statutory criteria to 
be excluded from the site neutral payment rate are paid based on the 
LTCH PPS standard Federal payment rate. Under Sec.  412.525(c), the 
LTCH PPS standard Federal payment rate is adjusted to account for 
differences in area wages by multiplying the labor-related share of 
the LTCH PPS standard Federal payment for a case by the applicable 
LTCH PPS wage index (the proposed FY 2017 values are shown in Tables 
12A through 12B listed in section VI. of the Addendum of this 
proposed rule and are available via the Internet on the CMS Web 
site). The LTCH PPS standard Federal payment is also adjusted to 
account for the higher costs of LTCHs located in Alaska and Hawaii 
by the applicable COLA factors (the proposed FY 2017 factors are 
shown in the chart in section V.D. of this Addendum) in accordance 
with Sec.  412.525(b). In this proposed rule, we are proposing an 
LTCH PPS standard Federal payment rate for FY 2017 of $42,314.31, as 
discussed in section V.A.2. of the Addendum to this proposed rule. 
We illustrate the methodology to adjust the proposed LTCH PPS 
standard Federal payment rate for FY 2017 in the following example:

    Example: During FY 2017, a Medicare discharge that meets the 
criteria to be excluded from the site neutral payment rate, that is 
an LTCH PPS standard Federal payment rate case, is from an LTCH that 
is located in Chicago, Illinois (CBSA 16974). The FY 2017 LTCH PPS 
proposed wage index value for CBSA 16974 is 1.0486 (obtained from 
Table 12A listed in section VI. of the Addendum of this proposed 
rule and available via the Internet on the CMS Web site). The 
Medicare patient case is classified into MS-LTC-DRG 189 (Pulmonary 
Edema & Respiratory Failure), which has a proposed relative weight 
for FY 2017 of 0.9107 (obtained from Table 11 listed in section VI. 
of the Addendum of this proposed rule and available via the Internet 
on the CMS Web site). The LTCH submitted quality reporting data for 
FY 2017 in accordance with the LTCHQRP under section 1886(m)(5) of 
the Act.

    To calculate the LTCH's total proposed adjusted Federal 
prospective payment for this Medicare patient case in FY 2017, we 
computed the wage-adjusted Federal prospective payment amount by 
multiplying the unadjusted proposed FY 2017 LTCH PPS standard 
Federal payment rate ($42,314.31) by the proposed labor-related 
share (66.6 percent) and the wage index value (1.0486). This wage-
adjusted amount was then added to the proposed nonlabor-related 
portion of the unadjusted LTCH PPS standard Federal payment rate 
(33.4 percent; adjusted for cost of living, if applicable) to 
determine the adjusted proposed LTCH PPS standard Federal payment 
rate, which is then multiplied by the proposed MS-LTC-DRG relative 
weight (0.9107) to calculate the total proposed adjusted LTCH PPS 
standard Federal prospective payment for FY 2017 ($39,782.95). The 
table below illustrates the components of the calculations in this 
example.

[[Page 25290]]



------------------------------------------------------------------------
 
------------------------------------------------------------------------
Proposed LTCH PPS Standard Federal       $42,314.31
 Prospective Payment Rate.
Proposed Labor-Related Share...........  x 0.666
Proposed Labor-Related Portion of the    = $28,181.33
 LTCH PPS Standard Federal Payment Rate.
Proposed Wage Index (CBSA 16974).......  x 1.0486
Proposed Wage-Adjusted Labor Share of    = $29,550.94
 LTCH PPS Standard Federal Payment Rate.
Proposed Nonlabor-Related Portion of     + $14,132.98
 the LTCH PPS Standard Federal Payment
 Rate ($42,314.31 x 0.334).
Proposed Adjusted LTCH PPS Standard      = $43,683.92
 Federal Payment Amount.
Proposed MS-LTC-DRG 189 Relative Weight  x 0.9107
Total Proposed Adjusted LTCH PPS         = $39,782.95
 Standard Federal Prospective Payment.
------------------------------------------------------------------------

VI. Tables Referenced in This Proposed Rule and Available Only Through 
the Internet on the CMS Web Site

    This section lists the tables referred to throughout the 
preamble of this proposed rule and in this Addendum. In the past, a 
majority of these tables were published in the Federal Register as 
part of the annual proposed and final rules. However, similar to FYs 
2012 through 2016, for the FY 2017 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 the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49807), we streamlined and consolidated the wage index tables for FY 
2016 and subsequent fiscal years.
    As discussed in sections II.F.14., II.F.15.b., II.F.16., 
II.F.17.a., and II.F.19.a.1., a.3., and c.1. of the preamble of this 
proposed rule, we developed the following ICD-10-CM and ICD-10-PCS 
code tables for FY 2017: Table 6A--New Diagnosis Codes; Table 6B--
New Procedure Codes; Table 6C--Invalid Diagnosis Codes; Table 6G.1--
Proposed Secondary Diagnosis Order Additions to the CC Exclusion 
List; Table 6G.2--Proposed Principal Diagnosis Order Additions to 
the CC Exclusion List; Table 6H.1--Proposed Secondary Diagnosis 
Order Deletions to the CC Exclusion List; Table 6H.2--Proposed 
Principal Diagnosis Order Deletions to the CC Exclusion List; Table 
6I--Proposed Complete MCC List; Table 6I.1--Proposed Additions to 
MCC List; Table 6I.2--Proposed Deletions to MCC List; Table 6J--
Proposed Complete CC List; Table 6J.1--Proposed Additions to CC 
List; Table 6J.2--Proposed Deletions to CC List; Table 6L--Proposed 
Principal Diagnosis Is Its Own MCC List; Table 6M--Proposed 
Principal Diagnosis Is Its Own CC List; Table 6M.1--Proposed 
Additions to the Principal Diagnosis Is Its Own CC List; and Table 
6P--ICD-10-CM and ICD-10-PCS Codes for Proposed MCE and MS-DRG 
Changes. Table 6P contains multiple tables, 6P.1a through 6P.4k, 
that include the ICD-10-CM and ICD-10-PCS code lists and 
translations relating to specific MCE and MS-DRG proposed changes. 
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.F. of the preamble of 
this proposed rule, we are not providing the hospital-level data as 
a table associated with this proposed rule. The hospital-level data 
for the FY 2017 HAC Reduction Program will be made publicly 
available once it has undergone the review and corrections process.
    Finally, a hospital's Factor 3 is the proportion of the 
uncompensated care amount that a DSH eligible hospital 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 
(or for a Puerto Rico hospital, a proxy for its Medicare SSI days) 
relative to the estimate of all DSH hospitals' Medicaid days and 
Medicare SSI days (or for Puerto Rico hospitals that are estimated 
to be eligible for DSH payments, a proxy for their Medicare SSI 
days). Table 18 associated with this proposed rule contains the FY 
2017 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 2017.
    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 2017 proposed rule are 
available only through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left side of 
the screen titled, ``FY 2017 IPPS Proposed Rule Home Page'' or 
``Acute Inpatient--Files for Download''.

Table 2.--Proposed Case-Mix Index and Wage Index Table by CCN--FY 
2017
Table 3.--Proposed Wage Index Table by CBSA--FY 2017
Table 5.--Proposed List of Proposed Medicare Severity Diagnosis-
Related Groups (MS DRGs), Relative Weighting Factors, and Geometric 
and Arithmetic Mean Length of Stay--FY 2017
Table 6A.--New Diagnosis Codes for FY 2017
Table 6B.--New Procedure Codes for FY 2017
Table 6C.--Invalid Diagnosis Codes for FY 2017
Table 6G.1.--Proposed Secondary Diagnosis Order Additions to the CC 
Exclusions List--FY 2017
Table 6G.2.--Proposed Principal Diagnosis Order Additions to the CC 
Exclusions List--FY 2017
Table 6H.1.--Proposed Secondary Diagnosis Order Deletions to the CC 
Exclusions List--FY 2017
Table 6H.2.--Proposed Principal Diagnosis Order Deletions to the CC 
Exclusions List--FY 2017
Table 6I.--Proposed Complete Major Complication and Comorbidity 
(MCC) List--FY 2017
Table 6I.1.--Proposed Additions to the MCC List--FY 2017
Table 6I.2.--Proposed Deletions to the MCC List--FY 2017
Table 6J.--Proposed Complete Complication and Comorbidity (CC) 
List--FY 2017
Table 6J.1.--Proposed Additions to the CC List--FY 2017
Table 6J.2.--Proposed Deletions to the CC List--FY 2017
Table 6L.--Proposed Principal Diagnosis Is Its Own MCC List--FY 2017
Table 6M.--Proposed Principal Diagnosis Is Its Own CC List--FY 2017
Table 6M.1.--Proposed Additions to the Principal Diagnosis Is Its 
Own CC List--FY 2017
Table 6P.--ICD-10-CM and ICD-10-PCS Codes for Proposed MCE and MS-
DRG Changes--FY 2017
Table 7A.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2015 MedPAR Update--December 2015 GROUPER V33.0 
MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2015 MedPAR Update--December 2015 GROUPER V34.0 
MS-DRGs
Table 8A.--Proposed FY 2017 Statewide Average Operating Cost-to-
Charge Ratios (CCRs) for Acute Care Hospitals (Urban and Rural)
Table 8B.--Proposed FY 2017 Statewide Average Capital Cost-to-Charge 
Ratios (CCRs) for Acute Care Hospitals
Table 10.--Proposed New Technology Add-On Payment Thresholds for 
Applications for FY 2018
Table 14.--List of Hospitals with Fewer Than 1,600 Medicare 
Discharges Based on the December 2015 Update of the FY 2015 MedPAR 
File and Potentially Eligible Hospitals for the Proposed FY 2017 Low 
Volume Hospital Payment Adjustment (eligibility for the low-volume 
hospital payment adjustment is also dependent upon meeting the 
mileage criteria specified at 42 CFR 412.101(b)(2)(ii).)
Table 15.--Proposed FY 2017 Proxy Readmissions Adjustment Factors
Table 16.--Proposed Proxy Hospital Inpatient Value-Based Purchasing 
(VBP) Adjustment Factors for FY 2017
Table 18.--Proposed FY 2017 Medicare DSH Uncompensated Care Payment 
Factor 3

    The following LTCH PPS tables for this FY 2017 proposed rule are 
available only through the Internet on the CMS Web site at

[[Page 25291]]

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for 
Regulation Number CMS-1655-P:

Table 8C.--Proposed FY 2017 Statewide Average Total Cost-to-Charge 
Ratios (CCRs) for LTCHs (Urban and Rural)
Table 11.--Proposed MS-LTC-DRGs, Relative Weights, Geometric Average 
Length of Stay, Short-Stay Outlier (SSO) Threshold, and ``IPPS 
Comparable'' Threshold for LTCH PPS Discharges Occurring from 
October 1, 2016 through September 30, 2017
Table 12A.--Proposed LTCH PPS Wage Index for Urban Areas for 
Discharges Occurring from October 1, 2016 through September 30, 2017
Table 12B.--Proposed LTCH PPS Wage Index for Rural Areas for 
Discharges Occurring from October 1, 2016 through September 30, 2017
Table 13A.--Proposed Composition of Low Volume Quintiles for MS-LTC-
DRGs--FY 2017
Table 13B.--Proposed No Volume MS LTC-DRG Crosswalk for FY 2017

 Table 1A--Proposed National Adjusted Operating Standardized Amounts, Labor/Nonlabor (69.6 Percent Labor Share/
                      30.4 Percent Nonlabor Share if Wage Index Is Greater Than 1)--FY 2017
----------------------------------------------------------------------------------------------------------------
 Hospital submitted quality   Hospital submitted quality    Hospital did NOT submit     Hospital did NOT submit
data and is a meaningful EHR       data and is NOT a         quality data and is a     quality data and is NOT a
user (update = 1.55 percent)      meaningful EHR user         meaningful EHR user         meaningful EHR user
-----------------------------  (update = -0.55 percent)    (update = 0.850 percent)    (update = -1.25 percent)
                             -----------------------------------------------------------------------------------
    Labor         Nonlabor        Labor       Nonlabor        Labor       Nonlabor        Labor       Nonlabor
----------------------------------------------------------------------------------------------------------------
   $3,836.20      $1,675.59      $3,756.87     $1,640.94     $3,809.76     $1,664.04     $3,730.43     $1,629.39
----------------------------------------------------------------------------------------------------------------


 Table 1B--Proposed National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38
                          Percent Nonlabor Share if Wage Index Is Less Than 1)--FY 2017
----------------------------------------------------------------------------------------------------------------
 Hospital submitted quality   Hospital submitted quality    Hospital did NOT submit     Hospital did NOT submit
data and is a meaningful EHR       data and is NOT a         quality data and is a     quality data and is NOT a
user (update = 1.55 percent)      meaningful EHR user         meaningful EHR user         meaningful EHR user
-----------------------------  (update = -0.55 percent)    (update = 0.850 percent)    (update = -1.25 percent)
                             -----------------------------------------------------------------------------------
    Labor         Nonlabor        Labor       Nonlabor        Labor       Nonlabor        Labor       Nonlabor
----------------------------------------------------------------------------------------------------------------
   $3,417.31      $2,094.48      $3,346.64     $2,051.17     $3,393.76     $2,080.04     $3,323.09     $2,036.73
----------------------------------------------------------------------------------------------------------------


     Table 1C--Proposed Adjusted Operating Standardized Amounts for Hospitals in Puerto Rico, Labor/Nonlabor
 (National: 62 Percent Labor Share/38 Percent Nonlabor Share Because Wage Index Is Less Than or Equal to 1)--FY
                                                      2017
----------------------------------------------------------------------------------------------------------------
                                        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.......       $3,417.31       $2,094.48
----------------------------------------------------------------------------------------------------------------
\1\ For FY 2017, there are no CBSAs in Puerto Rico with a national wage index greater than 1.


    Table 1D--Proposed Capital Standard Federal Payment Rate--FY 2017
------------------------------------------------------------------------
                                                               Rate
------------------------------------------------------------------------
National................................................         $446.35
------------------------------------------------------------------------


   Table 1E--Proposed LTCH PPS Standard Federal Payment Rate--FY 2017
------------------------------------------------------------------------
                                    Full update (1.45   Reduced update *
                                         percent)       (-0.55 percent)
------------------------------------------------------------------------
Standard Federal Rate.............         $42,314.31         $41,480.12
------------------------------------------------------------------------
* For LTCHs that fail to submit quality reporting data for FY 2017 in
  accordance with the LTCH Quality Reporting Program (LTCH QRP), the
  annual update is reduced by 2.0 percentage points as required by
  section 1886(m)(5) of the Act.

Appendix A: Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this proposed rule as required 
by Executive Order 12866 on Regulatory Planning and Review 
(September 30, 1993), Executive Order 13563 on Improving Regulation 
and Regulatory Review (February 2, 2011), the Regulatory Flexibility 
Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of 
the Social Security Act, section 202 of the Unfunded Mandates Reform 
Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 
on Federalism (August 4, 1999), and the Congressional Review Act (5 
U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic,

[[Page 25292]]

environmental, public health and safety effects, distributive 
impacts, and equity). Executive Order 13563 emphasizes the 
importance of quantifying both costs and benefits, of reducing 
costs, of harmonizing rules, and of promoting flexibility. A 
regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year).
    We have determined that this proposed rule is a major rule as 
defined in 5 U.S.C. 804(2). We estimate that the proposed changes 
for FY 2017 acute care hospital operating and capital payments would 
redistribute amounts in excess of $100 million to acute care 
hospitals. The applicable percentage increase to the IPPS rates 
required by the statute, in conjunction with other proposed payment 
changes in this proposed rule, would result in an estimated $693 
million increase in FY 2017 proposed operating payments (or 0.7 
percent change) and an estimated $164 million increase in FY 2017 
proposed capital payments (or 2.0 percent change). These proposed 
changes are relative to payments made in FY 2016. The impact 
analysis of the proposed capital payments can be found in section 
I.I. of this Appendix. In addition, as described in section I.J. of 
this Appendix, LTCHs are expected to experience a decrease in 
payments by $355 million in FY 2017 relative to FY 2016.
    Our operating impact estimate includes the proposed -1.5 percent 
documentation and coding adjustment applied to the IPPS standardized 
amount, as discussed in section II.D. of the preamble of this 
proposed rule, which represents part of the recoupment required 
under section 631 of the ATRA. In addition, our operating payment 
impact estimate includes the proposed 1.55 percent hospital update 
to the standardized amount (which includes the estimated 2.8 percent 
market basket update less 0.5 percentage point for the proposed 
multifactor productivity adjustment and less 0.75 percentage point 
required under the Affordable Care Act). Our operating payment 
impact estimate also includes a proposed adjustment of (1/0.998) to 
permanently remove the -0.2 percent reduction and a proposed 1.006 
temporary adjustment to address the effects of the 0.2 percent 
reduction in effect for FYs 2014 through 2016 as a result of the 2-
midnight policy (we refer readers to section IV.O. of the preamble 
of this proposed rule for an explanation of these proposed 
adjustments). 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 proposed payment 
changes.
    The analysis in this Appendix, in conjunction with the remainder 
of this document, demonstrates that this proposed rule is consistent 
with the regulatory philosophy and principles identified in 
Executive Orders 12866 and 13563, the RFA, and section 1102(b) of 
the Act. This proposed rule would affect payments to a substantial 
number of small rural hospitals, as well as other classes of 
hospitals, and the effects on some hospitals may be significant. 
Finally, in accordance with the provisions of Executive Order 12866, 
the Executive Office of Management and Budget has reviewed this 
proposed rule.

B. Statement of Need

    This proposed rule is necessary in order to make payment and 
policy changes under the Medicare IPPS for Medicare acute care 
hospital inpatient services for operating and capital-related costs 
as well as for certain hospitals and hospital units excluded from 
the IPPS. This proposed rule also is necessary to make payment and 
policy changes for Medicare hospitals under the LTCH PPS.

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 proposed rule would further 
each of these goals while maintaining the financial viability of the 
hospital industry and ensuring access to high quality health care 
for Medicare beneficiaries. We expect that these proposed changes 
will ensure that the outcomes of the prospective payment systems are 
reasonable and equitable while avoiding or minimizing unintended 
adverse consequences.

D. Limitations of Our Analysis

    The following quantitative analysis presents the projected 
effects of our proposed policy changes, as well as statutory changes 
effective for FY 2017, on various hospital groups. We estimate the 
effects of individual proposed policy changes by estimating payments 
per case while holding all other payment policies constant. We use 
the best data available, but, generally, we do not attempt to make 
adjustments for future changes in such variables as admissions, 
lengths of stay, or case-mix.

E. Hospitals Included in and Excluded From the IPPS

    The prospective payment systems for hospital inpatient operating 
and capital-related costs of acute care hospitals encompass most 
general short-term, acute care hospitals that participate in the 
Medicare program. There were 31 Indian Health Service hospitals in 
our database, which we excluded from the analysis due to the special 
characteristics of the prospective payment methodology for these 
hospitals. Among other short-term, acute care hospitals, 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 2016, there were 3,330 IPPS acute care hospitals 
included in our analysis. This represents approximately 55 percent 
of all Medicare-participating hospitals. The majority of this impact 
analysis focuses on this set of hospitals. There also are 
approximately 1,374 CAHs. These small, limited service hospitals are 
paid on the basis of reasonable costs rather than under the IPPS. 
IPPS-excluded hospitals and units, which are paid under separate 
payment systems, 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. Changes in the prospective payment 
systems for IPFs and IRFs are made through separate rulemaking. 
Payment impacts of changes to the prospective payment systems for 
these IPPS-excluded hospitals and units are not included in this 
proposed rule. The impact of the proposed update and proposed policy 
changes to the LTCH PPS for FY 2017 is discussed in section I.J. of 
this Appendix.

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

    As of March 2016, 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, 262 rehabilitation hospitals and 869 
rehabilitation units, and approximately 430 LTCHs, are paid the 
Federal prospective per discharge rate under the IRF PPS and the 
LTCH PPS, respectively, and 495 psychiatric hospitals and 1,122 
psychiatric units are paid the Federal per diem amount under the IPF 
PPS. As stated previously, IRFs and IPFs are not affected by the 
rate updates discussed in this proposed rule. The impacts of the 
changes on LTCHs are discussed in section I.J. 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 
2017 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 
2017 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,

[[Page 25293]]

based on IHS Global Insight, Inc.'s first quarter 2016 forecast of 
the FY 2010-based IPPS market basket increase, we are estimating the 
FY 2017 update to be 2.8 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 2017) and a 0.75 
percentage point reduction to the market basket update, resulting in 
a 1.55 percent applicable percentage increase for IPPS hospitals 
that submit quality data and are meaningful EHR users, as discussed 
in section IV.B. of the preamble of this proposed rule. Children's 
hospitals, the 11 cancer hospitals, the 5 short-term acute care 
hospitals located in the Virgin Islands, Guam, the Northern Mariana 
Islands, and American Samoa, and RNHCIs 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 percentage increase in the FY 
2010-based IPPS operating market basket for FY 2017, estimated at 
2.8 percent, without the reductions described previously 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 
would not be paid.
    We note that, under Sec.  413.40(d)(3), an excluded hospital 
that continues to be paid under the TEFRA system and whose costs 
exceed 110 percent of its rate-of-increase limit receives its rate-
of-increase limit plus the lesser of: (1) 50 percent of its 
reasonable costs in excess of 110 percent of the limit; or (2) 10 
percent of its limit. In addition, under the various provisions set 
forth in Sec.  413.40, hospitals can obtain payment adjustments for 
justifiable increases in operating costs that exceed the limit.

G. Quantitative Effects of the Proposed Policy Changes Under the 
IPPS for Operating Costs

1. Basis and Methodology of Estimates

    In this proposed rule, we are announcing proposed policy changes 
and proposed payment rate updates for the IPPS for FY 2017 for 
operating costs of acute care hospitals. The proposed FY 2017 
updates to the capital payments to acute care hospitals are 
discussed in section I.I. of this Appendix.
    Based on the overall percentage change in payments per case 
estimated using our payment simulation model, we estimate that total 
FY 2017 operating payments would increase by 0.7 percent compared to 
FY 2016. In addition to the applicable percentage increase, this 
amount reflects the proposed FY 2017 recoupment adjustment for 
documentation and coding described in section II.D. of the preamble 
of this proposed rule of -1.5 percent to the IPPS national 
standardized amounts. This amount also reflects the proposed 
adjustment of (1/0.998) to permanently remove the 0.2 percent 
reduction and the proposed 1.006 temporary adjustment to address the 
effects of the 0.2 percent reduction in effect for FYs 2014 through 
2016 related to the 2-midnight policy, which are discussed in 
section IV.O. of the preamble of this proposed rule. The impacts do 
not reflect changes in the number of hospital admissions or real 
case-mix intensity, which would also affect overall proposed payment 
changes.
    We have prepared separate impact analyses of the proposed 
changes to each system. This section deals with the proposed changes 
to the operating inpatient prospective payment system for acute care 
hospitals. Our payment simulation model relies on the most recent 
available data to enable us to estimate the impacts on payments per 
case of certain changes in this proposed rule. However, there are 
other proposed changes for which we do not have data available that 
would allow us to estimate the payment impacts using this model. For 
those proposed changes, we have attempted to predict the payment 
impacts based upon our experience and other more limited data.
    The data used in developing the quantitative analyses of 
proposed changes in payments per case presented in this section are 
taken from the FY 2015 MedPAR file and the most current Provider-
Specific File (PSF) that is used for payment purposes. Although the 
analyses of the proposed changes to the operating PPS do not 
incorporate cost data, data from the most recently available 
hospital cost reports were used to categorize hospitals. Our 
analysis has several qualifications. First, in this analysis, we do 
not make adjustments for future changes in such variables as 
admissions, lengths of stay, or underlying growth in real case-mix. 
Second, due to the interdependent nature of the IPPS payment 
components, it is very difficult to precisely quantify the impact 
associated with each proposed 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 2015 MedPAR file, we simulate payments 
under the operating IPPS given various combinations of payment 
parameters. As described previously, Indian Health Service hospitals 
and hospitals in Maryland were excluded from the simulations. The 
proposed impact of payments under the capital IPPS, or the impact of 
payments for costs other than inpatient operating costs, are not 
analyzed in this section. Estimated payment impacts of the capital 
IPPS for FY 2017 are discussed in section I.I. of this Appendix.
    We discuss the following proposed changes:
     The effects of the proposed application of the 
documentation and coding adjustment and the applicable percentage 
increase (including the proposed market basket update, the proposed 
multifactor productivity adjustment, and the applicable percentage 
reduction in accordance with the Affordable Care Act) to the 
standardized amount and hospital-specific rates.
     The effects of the proposed adjustment of (1/0.998) to 
permanently remove the 0.2 percent reduction and the proposed 1.006 
temporary adjustment to address the effects of the 0.2 percent 
reduction in effect for FYs 2014 through 2016 related to the 2-
midnight policy, as discussed in section IV.O. of the preamble of 
this proposed rule.
     The effects of the proposed changes to the relative 
weights and MS-DRG GROUPER.
     The effects of the proposed changes in hospitals' wage 
index values reflecting updated wage data from hospitals' cost 
reporting periods beginning during FY 2013, compared to the FY 2012 
wage data, to calculate the FY 2017 wage index.
     The effects of the geographic reclassifications by the 
MGCRB (as of publication of this proposed rule) that would be 
effective for FY 2017.
     The effects of the proposed rural floor and imputed 
floor with the application of the proposed national budget 
neutrality factor to the wage index.
     The effects of the last year of the 3-year transition 
for hospitals that were located in an urban county that became rural 
under the new OMB delineations or hospitals that were deemed urban 
where the urban area became rural under the new OMB delineations.
     The effects of the proposed frontier State wage index 
adjustment under the statutory provision that requires that 
hospitals located in States that qualify as frontier States to not 
have a wage index less than 1.0. This provision is not budget 
neutral.
     The effects of the 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. This provision is not budget neutral.
     The total estimated change in payments based on the 
proposed FY 2017 policies relative to payments based on FY 2016 
policies that include the applicable percentage increase of 1.55 
percent (or 2.8 percent market basket update with a proposed 
reduction of 0.5 percentage point for the multifactor productivity 
adjustment, and a 0.75 percentage point reduction, as required under 
the Affordable Care Act).
    To illustrate the impact of the proposed FY 2017 changes, our 
analysis begins with a FY 2016 baseline simulation model using: The 
FY 2016 applicable percentage increase of 1.7 percent and the 
documentation and coding recoupment adjustment of -0.8 percent to 
the Federal standardized amount; the FY 2016 MS-DRG GROUPER (Version 
33); the FY 2016 CBSA designations for hospitals based on the new 
OMB definitions; the FY 2016 wage index; and no MGCRB 
reclassifications. Outlier payments are set at

[[Page 25294]]

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 2017, we are proposing that hospitals that do not 
submit quality information under rules established by the Secretary 
and that are meaningful EHR users under section 1886(b)(3)(B)(ix) of 
the Act would receive an applicable percentage increase of 0.85 
percent. At the time that this impact was prepared, 90 hospitals are 
estimated to not receive the full market basket rate-of-increase for 
FY 2016 because they failed the quality data submission process or 
did not choose to participate but are meaningful EHR users. For 
purposes of the simulations shown later in this section, we modeled 
the proposed payment changes for FY 2017 using a reduced update for 
these 90 hospitals.
    For FY 2017, in accordance with section 1886(b)(3)(B)(ix) of the 
Act, a hospital that has been identified as not a meaningful EHR 
user would be subject to a reduction of three-quarters of such 
applicable percentage increase determined without regard to section 
1886(b)(3)(B)(ix), (xi), or (xii) of the Act. Therefore, for FY 
2017, we are proposing 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 would receive an applicable 
percentage increase of -0.55 percent. At the time that this impact 
analysis was prepared, 147 hospitals are estimated to not receive 
the full market basket rate-of-increase for FY 2017 because they are 
identified as not meaningful EHR users that do submit quality 
information under section 1886(b)(3)(B)(viii) of the Act. For 
purposes of the simulations shown in this section, we modeled the 
proposed payment changes for FY 2017 using a reduced update for 
these 147 hospitals.
    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 would receive an 
applicable percentage increase of -1.25 percent, which reflects a 
one-quarter reduction of the market basket update for failure to 
submit quality data and a three-quarter reduction of the market 
basket update for being identified as not a meaningful EHR user. At 
the time that this impact was prepared, 30 hospitals are estimated 
to not receive the full market basket rate-of-increase for FY 2017 
because they are identified as not meaningful EHR users that do not 
submit quality data under section 1886(b)(3)(B)(viii) of the Act.
    Each proposed policy change, statutory or otherwise, is then 
added incrementally to this baseline, finally arriving at an FY 2017 
model incorporating all of the proposed changes. This simulation 
would allow us to isolate the effects of each proposed change.
    Our final comparison illustrates the percent change in payments 
per case from FY 2016 to FY 2017. Three factors not discussed 
separately have significant impacts here. The first factor is the 
proposed update to the standardized amount. In accordance with 
section 1886(b)(3)(B)(i) of the Act, we are proposing to update the 
standardized amounts for FY 2017 using a proposed applicable 
percentage increase of 1.55 percent. This includes our forecasted 
IPPS operating hospital market basket increase of 2.8 percent with a 
reduction of 0.5 percentage point for the multifactor productivity 
adjustment and a 0.75 percentage point reduction as required under 
the Affordable Care Act. Hospitals that fail to comply with the 
quality data submission requirements and are meaningful EHR users 
would receive a proposed update of 0.85 percent. This update 
includes a reduction of one-quarter of the market basket update for 
failure to submit these data. Hospitals that do comply with the 
quality data submission requirements but are not meaningful EHR 
users would receive an update of -0.55 percent, which includes a 
reduction of three-quarters 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 -1.25 percent. Under section 1886(b)(3)(B)(iv) 
of the Act, the update to the hospital-specific amounts for SCHs and 
MDHs also is equal to the applicable percentage increase, or 1.55 
percent if the hospital submits quality data and is a meaningful EHR 
user.
    A second significant factor that affects the proposed changes in 
hospitals' payments per case from FY 2016 to FY 2017 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 2016 that are no longer reclassified in FY 2017. 
Conversely, payments may increase for hospitals not reclassified in 
FY 2016 that are reclassified in FY 2017.
    A third significant factor is that we currently estimate that 
actual outlier payments during FY 2016 would be 5.3 percent of total 
MS-DRG payments. When the FY 2016 IPPS/LTCH PPS final rule was 
published, we projected FY 2016 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 2016 are reflected 
in the analyses in this section comparing our current estimates of 
FY 2016 payments per case to estimated FY 2017 payments per case 
(with outlier payments projected to equal 5.1 percent of total MS-
DRG payments).

2. Analysis of Table I

    Table I displays the results of our analysis of the proposed 
changes for FY 2017. 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 3,330 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 2,512 
hospitals located in urban areas included in our analysis. Among 
these, there are 1,378 hospitals located in large urban areas 
(populations over 1 million), and 1,134 hospitals in other urban 
areas (populations of 1 million or fewer). In addition, there are 
818 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 2017 proposed 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 2,455; 
1,372; 1,083; and 875, respectively.
    The next three groupings examine the impacts of the proposed 
changes on hospitals grouped by whether or not they have GME 
residency programs (teaching hospitals that receive an IME 
adjustment) or receive Medicare DSH payments, or some combination of 
these two adjustments. There are 2,275 nonteaching hospitals in our 
analysis, 804 teaching hospitals with fewer than 100 residents, and 
251 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 three rows examine the impacts of the proposed changes 
on rural hospitals by special payment groups (SCHs, RRCs, and MDHs). 
There were 193 RRCs, 326 SCHs, 146 MDHs, 126 hospitals that are both 
SCHs and RRCs, and 15 hospitals that are both MDHs and RRCs.
    The next series of groupings are based on the type of ownership 
and the hospital's Medicare utilization expressed as a percent of 
total patient days. These data were taken from the FY 2013 or FY 
2012 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 2017. The second grouping 
shows the MGCRB rural reclassifications.

[[Page 25295]]



                                                    Table I--Impact Analysis of Proposed Changes to the IPPS for Operating Costs for FY 2017
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                     Proposed rural
                                                                                                    Proposed FY     Proposed FY                        and imputed
                                                                                     Proposed      2017 weights   2017 wage data                       floor with       Proposed
                                                                      Number of    hospital rate      and DRG     under new CBSA                     application of  application of      All
                                                                      hospitals     update and     changes with    designations     FY 2017 MGCRB        national     the frontier   proposed FY
                                                                         \1\       documentation  application of       with       reclassifications     rural and    wage index and      2017
                                                                                    and coding     recalibration  application of                      imputed floor   out-migration    changes
                                                                                    adjustment        budget        wage budget                          budget        adjustment
                                                                                                    neutrality      neutrality                         neutrality
                                                                     ...........         (1) \2\         (2) \3\         (3) \4\           (4) \5\          (5) \6\         (6) \7\      (7) \8\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
All Hospitals......................................................        3,330             0.9               0               0                 0                0             0.1          0.7
By Geographic Location:
    Urban hospitals................................................        2,512             0.8               0               0              -0.1                0             0.1          0.6
    Large urban areas..............................................        1,378             0.8             0.1               0              -0.3             -0.1               0          0.6
    Other urban areas..............................................        1,134             0.9               0               0               0.1              0.2             0.2          0.7
    Rural hospitals................................................          818             1.5            -0.4             0.1               1.4             -0.2             0.1          0.8
Bed Size (Urban):
    0-99 beds......................................................          656             0.8            -0.2             0.2              -0.5              0.1             0.2          0.7
    100-199 beds...................................................          765             0.9            -0.2               0                 0              0.3             0.2          0.5
    200-299 beds...................................................          449             0.9            -0.1            -0.1               0.1                0             0.1          0.5
    300-499 beds...................................................          429             0.9             0.1             0.1              -0.2                0             0.2          0.7
    500 or more beds...............................................          213             0.8             0.2            -0.1              -0.2             -0.1               0          0.8
Bed Size (Rural):
    0-49 beds......................................................          320             1.3            -0.5             0.1               0.3             -0.2             0.3          0.6
    50-99 beds.....................................................          292             1.7            -0.6             0.1               0.8             -0.1             0.1          0.8
    100-149 beds...................................................          119             1.5            -0.4               0               1.5             -0.2             0.2          0.6
    150-199 beds...................................................           46             1.5            -0.2             0.1               1.7             -0.2               0          1.0
    200 or more beds...............................................           41             1.5            -0.1             0.2               2.5             -0.2               0          1.2
Urban by Region:
    New England....................................................          116             0.7               0            -0.4               1.3              0.8               0         -0.6
    Middle Atlantic................................................          315             0.8             0.1            -0.3               0.5             -0.2             0.1          0.2
    South Atlantic.................................................          406             0.9               0            -0.1              -0.4             -0.2             0.1          0.8
    East North Central.............................................          390             0.8               0             0.1              -0.2             -0.3               0          1.1
    East South Central.............................................          147             0.9               0            -0.2              -0.4             -0.3               0          1.0
    West North Central.............................................          163               1             0.1               0              -0.7             -0.3             0.7          0.9
    West South Central.............................................          384             0.8               0             0.3              -0.4             -0.3               0          1.2
    Mountain.......................................................          163               1               0             0.2              -0.4                0             0.2          0.7
    Pacific........................................................          377             0.8               0             0.4              -0.4              1.1             0.1          0.4
    Puerto Rico....................................................           51             0.8             0.1            -0.4              -0.9              0.2             0.1          0.3
Rural by Region:
    New England....................................................           21             1.2            -0.2             0.4               1.5             -0.2               0          1.2
    Middle Atlantic................................................           55             1.7            -0.4             0.1               0.6             -0.1             0.1          0.9
    South Atlantic.................................................          127             1.4            -0.4            -0.1               2.5             -0.2             0.1          0.8
    East North Central.............................................          115             1.6            -0.4               0                 1             -0.1               0          0.9
    East South Central.............................................          156               1            -0.3             0.4               2.1             -0.3             0.1          0.7
    West North Central.............................................           99             2.1            -0.4               0               0.3             -0.1             0.3          1.0
    West South Central.............................................          161             1.6            -0.5             0.2               1.6             -0.2             0.1          0.9
    Mountain.......................................................           60             1.6            -0.4             0.1               0.2             -0.1             0.1          0.7
    Pacific........................................................           24             1.7            -0.5            -0.2               1.3             -0.1               0          0.8
By Payment Classification:
    Urban hospitals................................................        2,455             0.8               0               0              -0.1                0             0.1          0.6
    Large urban areas..............................................        1,372             0.8             0.1               0              -0.3             -0.1               0          0.6
    Other urban areas..............................................        1,083             0.9               0               0               0.2              0.2             0.2          0.7
    Rural areas....................................................          875             1.6            -0.4             0.1               1.1             -0.1             0.3          0.9
Teaching Status:
    Nonteaching....................................................        2,275               1            -0.2               0               0.2              0.1             0.1          0.6
    Fewer than 100 residents.......................................          804             0.9               0               0              -0.1                0             0.2          0.7
    100 or more residents..........................................          251             0.8             0.2            -0.1              -0.1             -0.2               0          0.8
Urban DSH:
    Non-DSH........................................................          597             0.9               0            -0.1               0.1             -0.1             0.1          0.5
    100 or more beds...............................................        1,608             0.8             0.1               0              -0.1                0             0.1          0.7
    Less than 100 beds.............................................          330             0.8            -0.3             0.1              -0.6              0.1             0.1          0.5
Rural DSH:
    SCH............................................................          266               2            -0.5             0.1                 0                0               0          0.9
    RRC............................................................          347             1.5            -0.3             0.1               1.5             -0.2             0.3          0.9
    100 or more beds...............................................           33             0.8            -0.4            -0.1               2.9             -0.3             0.1          0.5
    Less than 100 beds.............................................          149             0.7            -0.4             0.1               1.4             -0.3             0.5          0.2
Urban teaching and DSH:
    Both teaching and DSH..........................................          880             0.8             0.1               0              -0.2             -0.1             0.1          0.7
    Teaching and no DSH............................................          107             0.8               0               0               0.7             -0.1               0          0.2
    No teaching and DSH............................................        1,058             0.8            -0.1             0.1                 0              0.2             0.1          0.5
    No teaching and no DSH.........................................          410             0.8               0            -0.1              -0.3                0             0.1          0.7
Special Hospital Types:
    RRC............................................................          193             0.8            -0.1             0.2                 2             -0.1             0.4          1.1
    SCH............................................................          326               2            -0.3            -0.1                 0                0               0          1.0
    MDH............................................................          146             1.6            -0.6               0               0.5             -0.1             0.2          0.8
    SCH and RRC....................................................          126               2            -0.3             0.1               0.4             -0.1               0          1.2
    MDH and RRC....................................................           15             1.8            -0.5            -0.1               0.8             -0.1               0          1.3
Type of Ownership:
    Voluntary......................................................        1,914             0.9               0               0                 0                0             0.1          0.7
    Proprietary....................................................          858             0.9               0             0.1               0.1                0             0.1          0.8
    Government.....................................................          516             0.9               0            -0.2              -0.2              0.1             0.1          0.5

[[Page 25296]]

 
Medicare Utilization as a Percent of Inpatient Days:
    0-25...........................................................          517             0.7             0.1               0              -0.4              0.1               0          0.7
    25-50..........................................................        2,128             0.9               0               0                 0                0             0.1          0.7
    50-65..........................................................          546             1.1            -0.2            -0.1               0.6              0.1             0.1          0.5
    Over 65........................................................           94             1.1            -0.3             0.3              -0.5              0.3             0.2          0.9
FY 2017 Reclassifications by the Medicare Geographic Classification
 Review Board:
    All Reclassified Hospitals.....................................          853             0.9               0               0               2.1             -0.1               0          0.6
    Non-Reclassified Hospitals.....................................        2,477             0.9               0               0              -0.9                0             0.1          0.7
    Urban Hospitals Reclassified...................................          576             0.8               0               0                 2             -0.1               0          0.5
    Urban Nonreclassified Hospitals................................        1,879             0.8             0.1               0              -0.9              0.1             0.1          0.7
    Rural Hospitals Reclassified Full Year.........................          277             1.6            -0.3             0.1               2.3             -0.2               0          1.0
    Rural Nonreclassified Hospitals Full Year......................          484             1.5            -0.5             0.2              -0.2             -0.1             0.3          0.7
    All Section 401 Reclassified Hospitals:........................           57             1.7            -0.2             0.2              -0.4                0             1.2          1.0
    Other Reclassified Hospitals (Section 1886(d)(8)(B))...........           57             1.2            -0.4             0.1                 3             -0.3               0          0.6
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national total. Discharge data are from FY
  2015, and hospital cost report data are from reporting periods beginning in FY 2012 and FY 2013.
\2\ This column displays the payment impact of the proposed hospital rate update and other proposed adjustments including the proposed 1.55 percent adjustment to the national standardized
  amount and hospital-specific rate (the estimated 2.8 percent market basket update reduced by the 0.5 percentage point for the proposed multifactor productivity adjustment and the 0.75
  percentage point reduction under the Affordable Care Act), the -1.5 percent proposed documentation and coding adjustment to the national standardized amount and the proposed adjustment of (1/
  0.998) to permanently remove the -0.2 percent reduction, and the proposed 1.006 temporary adjustment to address the effects of the 0.2 percent reduction in effect for FYs 2014 through 2016
  related to the 2-midnight policy.
\3\ This column displays the payment impact of the proposed changes to the Version 34 GROUPER, the proposed changes to the relative weights and the recalibration of the MS-DRG weights based on
  FY 2015 MedPAR data in accordance with section 1886(d)(4)(C)(iii) of the Act. This column displays the application of the proposed recalibration budget neutrality factor of 0.999006 in
  accordance with section 1886(d)(4)(C)(iii) of the Act.
\4\ This column displays the payment impact of the proposed update to wage index data using FY 2013 cost report data and the OMB labor market area delineations based on 2010 Decennial Census
  data. This column displays the payment impact of the application of the proposed wage budget neutrality factor, which is calculated separately from the proposed recalibration budget
  neutrality factor, and is calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The proposed wage budget neutrality factor is 0.999785.
\5\ Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB) along with the effects of the continued implementation of the new
  OMB labor market area delineations on these reclassifications. The effects demonstrate the FY 2017 payment impact of going from no reclassifications to the reclassifications scheduled to be
  in effect for FY 2017. Reclassification for prior years has no bearing on the payment impacts shown here. This column reflects the proposed geographic budget neutrality factor of 0.988816.
\6\ This column displays the effects of the proposed rural and imputed floor based on the continued implementation of the new OMB labor market area delineations. The Affordable Care Act
  requires the rural floor budget neutrality adjustment to be 100 percent national level adjustment. The proposed rural floor budget neutrality factor (which includes the proposed imputed
  floor) applied to the wage index is 0.993806. This column also shows the effect of the 3-year transition for hospitals that were located in urban counties that became rural under the new OMB
  delineations or hospitals deemed urban where the urban area became rural under the new OMB delineations, with a proposed budget neutrality factor of 0.999999.
\7\ This column shows the combined impact of the policy required under section 10324 of the Affordable Care Act that hospitals located in frontier States have a wage index no less than 1.0 and
  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. These are non-budget neutral policies.
\8\ This column shows the proposed changes in payments from FY 2016 to FY 2017. It reflects the impact of the proposed FY 2017 hospital update and the proposed adjustment for documentation and
  coding. It also reflects proposed changes in hospitals' reclassification status in FY 2017 compared to FY 2016. It incorporates all of the proposed changes displayed in Columns 1 through 6.
  The sum of these impacts may be different from the proposed percentage changes shown here due to rounding and interactive effects.

a. Effects of the Proposed Hospital Update, Documentation and Coding 
Adjustment, and Other Adjustments (Column 1)

    As discussed in section IV.B. of the preamble of this proposed 
rule, this column includes the proposed hospital update, including 
the proposed 2.8 percent market basket update, the proposed 
reduction of 0.5 percentage point for the multifactor productivity 
adjustment, and the 0.75 percentage point reduction in accordance 
with the Affordable Care Act. In addition, as discussed in section 
II.D. of the preamble of this proposed rule, this column includes 
the proposed FY 2017 documentation and coding recoupment adjustment 
of -1.5 percent on the national standardized amount as part of the 
recoupment required by section 631 of the ATRA and, as discussed in 
section IV.O. of the preamble of this proposed rule, the proposed 
adjustment of (1/0.998) to permanently remove the 0.2 percent 
reduction and the proposed 1.006 temporary adjustment to address the 
effects of the 0.2 percent reduction in effect for FYs 2014 through 
2016 related to the 2-midnight policy. As a result, we are proposing 
to make a 0.9 percent update to the national standardized amount. 
This column also includes the proposed 1.55 percent update to the 
hospital-specific rates which includes the proposed 2.8 percent 
market basket update, the proposed reduction of 0.5 percentage point 
for the multifactor productivity adjustment, the 0.75 percentage 
point reduction in accordance with the Affordable Care Act. In 
addition, this column includes the proposed adjustment to the 
hospital-specific rates of (1/0.998) to permanently remove the -0.2 
percent reduction and the proposed 1.006 temporary adjustment to 
address the effects of the 0.2 percent reduction in effect for FYs 
2014 through 2016, which are discussed in section IV.O. of

[[Page 25297]]

the preamble of this proposed rule. As a result, we are proposing to 
make a 2.35 percent update to the hospital-specific rates.
    Overall, hospitals would experience a 0.9 percent increase in 
payments primarily due to the combined effects of the proposed 
hospital update and the proposed documentation and coding adjustment 
on the national standardized amount and the proposed hospital update 
to the hospital-specific rate as well as the proposed adjustment of 
(1/0.998) to permanently remove the -0.2 percent reduction and the 
proposed 1.006 temporary adjustment to address the effects of the 
0.2 percent reduction in effect for FYs 2014 through 2016 related to 
the 2-midnight policy to both the national standardized amount and 
the hospital-specific rate. Hospitals that are paid under the 
hospital-specific rate, namely SCHs, would experience a 2.0 percent 
increase in payments; therefore, hospital categories with SCHs paid 
under the hospital-specific rate would experience increases in 
payments of more than 0.9 percent.

b. Effects of the Proposed Changes to the MS-DRG Reclassifications and 
Relative Cost-Based Weights With Recalibration Budget Neutrality 
(Column 2)

    Column 2 shows the effects of the proposed changes to the MS-
DRGs and relative weights with the application of the recalibration 
budget neutrality factor to the standardized amounts. Section 
1886(d)(4)(C)(i) of the Act requires us annually to make appropriate 
classification changes in order to reflect changes in treatment 
patterns, technology, and any other factors that may change the 
relative use of hospital resources. Consistent with section 
1886(d)(4)(C)(iii) of the Act, we are calculating a recalibration 
budget neutrality factor to account for the changes in MS-DRGs and 
relative weights to ensure that the overall payment impact is budget 
neutral.
    As discussed in section II.E. of the preamble of this proposed 
rule, the FY 2017 MS-DRG relative weights would be 100 percent cost-
based and 100 percent MS-DRGs. For FY 2017, the MS-DRGs are 
calculated using the FY 2015 MedPAR data grouped to the Version 34 
(FY 2017) MS-DRGs. The methodology to calculate the relative weights 
and the reclassification changes to the GROUPER are described in 
more detail in section II.G. of the preamble of this proposed rule.
    The ``All Hospitals'' line in Column 2 indicates that proposed 
changes due to the MS-DRGs and relative weights would result in a 
0.0 percent change in payments with the application of the proposed 
recalibration budget neutrality factor of 0.999006 on to the 
standardized amount. Hospital categories that generally treat more 
surgical cases than medical cases would experience increases in 
their payments under the relative weights. Rural hospitals would 
experience a 0.4 percent decrease in payments because rural 
hospitals tend to treat fewer surgical cases than medical cases, 
while teaching hospitals with more than 100 residents would 
experience an increase in payments by 0.2 percent as those hospitals 
treat more surgical cases than medical cases.

c. Effects of the Proposed Wage Index Changes (Column 3)

    Column 3 shows the impact of updated wage data using FY 2013 
cost report data, 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 standards used in FY 2017 are based on OMB standards 
published on February 28, 2013 (75 FR 37246 and 37252), and 2010 
Decennial Census data (OMB Bulletin No. 13-01). (We refer readers to 
the FY 2015 IPPS/LTCH PPS final rule (79 FR 49951 through 49963) for 
a full discussion on our adoption of the OMB labor market area 
delineations based on the 2010 Decennial Census data, effective 
beginning with the FY 2015 IPPS wage index).
    Section 1886(d)(3)(E) of the Act requires that, beginning 
October 1, 1993, we annually update the wage data used to calculate 
the wage index. In accordance with this requirement, the proposed 
wage index for acute care hospitals for FY 2017 is based on data 
submitted for hospital cost reporting periods beginning on or after 
October 1, 2012 and before October 1, 2013. The estimated impact of 
the updated wage data using the FY 2013 cost report data and the OMB 
labor market area delineations on hospital payments is isolated in 
Column 3 by holding the other payment parameters constant in this 
simulation. That is, Column 3 shows the percentage change in 
payments when going from a model using the FY 2016 wage index, based 
on FY 2012 wage data, the labor-related share of 69.6 percent, under 
the OMB delineations and having a 100-percent occupational mix 
adjustment applied, to a model using the FY 2017 pre-
reclassification wage index based on FY 2013 wage data with the 
labor-related share of 69.6 percent, under the OMB delineations, 
also having a 100-percent occupational mix adjustment applied, while 
holding other proposed payment parameters such as use of the Version 
34 MS-DRG GROUPER constant. The proposed FY 2017 occupational mix 
adjustment is based on the CY 2013 occupational mix survey.
    In addition, the column shows the impact of the proposed 
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 2017, we are 
proposing to calculate 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 proposed FY 2017 wage budget neutrality factor is 0.999785, and 
the overall payment change is 0.0 percent.
    Column 3 shows the impacts of updating the wage data using FY 
2013 cost reports. Overall, the new wage data and the labor-related 
share, combined with the proposed wage budget neutrality adjustment, 
would lead to no change for all hospitals as shown in Column 3.
    In looking at the wage data itself, the proposed national 
average hourly wage would increase 1.02 percent compared to FY 2016. 
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 3,303 hospitals with 
wage data for both FYs 2016 and 2017, 1.634 or 49.5 percent would 
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 proposed changes in the average hourly wage data 
for FY 2017 relative to FY 2016. Among urban hospitals, 5 would 
experience a decrease of 10 percent or more, and 14 urban hospitals 
would experience an increase of 10 percent or more. One hundred and 
thirty-nine urban hospitals would experience an increase or decrease 
of at least 5 percent or more but less than 10 percent. Among rural 
hospitals, 9 would experience an increase of at least 5 percent but 
less than 10 percent, but no rural hospitals would experience a 
decrease of greater than or equal to 5 percent but less than 10 
percent. No rural hospital would experience increases of 10 percent 
or more, but 2 rural hospitals would experience decreases of 10 
percent or more. However, 794 rural hospitals would experience 
increases or decreases of less than 5 percent, while 2,340 urban 
hospitals would experience increases or decreases of less than 5 
percent. No urban hospital and no rural hospital would experience no 
change to their wage index. These figures reflect proposed changes 
in the ``pre-reclassified, occupational mix-adjusted wage index,'' 
that is, the proposed wage index before the application of proposed 
geographic reclassification, the proposed rural and imputed floors, 
the proposed out-migration adjustment, and other proposed wage index 
exceptions and adjustments. (We refer readers to sections III.G. 
through III.L. of the preamble of this proposed rule for a complete 
discussion of the exceptions and adjustments to the wage index.) We 
note that the proposed ``post-reclassified wage index'' or proposed 
``payment wage index,'' which is the proposed wage index that 
includes all such exceptions and adjustments (as reflected in Tables 
2 and 3 associated with this proposed 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 proposed pre-reclassified wage index figures in the

[[Page 25298]]

following chart may illustrate a somewhat larger or smaller change 
than would occur in a hospital's proposed payment wage index and 
total payment.
    The following chart shows the projected impact of proposed 
changes in the area wage index values for urban and rural hospitals.

      Proposed FY 2017 Percentage Change in Area Wage Index Values
------------------------------------------------------------------------
                                                Number of hospitals
                                         -------------------------------
                                               Urban           Rural
------------------------------------------------------------------------
Increase 10 percent or more.............              14               0
Increase greater than or equal to 5                   88               9
 percent and less than 10 percent.......
Increase or decrease less than 5 percent           2,340             794
Decrease greater than or equal to 5                   51               0
 percent and less than 10 percent.......
Decrease 10 percent or more.............               5               2
Unchanged...............................               0               0
------------------------------------------------------------------------

d. Effects of MGCRB Reclassifications (Column 4)

    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 bases other than where they are 
geographically located). The proposed changes in Column 4 reflect 
the per case payment impact of moving from this baseline to a 
simulation incorporating the MGCRB decisions for FY 2017.
    By spring of each year, the MGCRB makes reclassification 
determinations that would be effective for the next fiscal year, 
which begins on October 1. The MGCRB may approve a hospital's 
reclassification request for the purpose of using another area's 
wage index value. Hospitals may appeal denials of MGCRB decisions to 
the CMS Administrator. Further, hospitals have 45 days from 
publication of the IPPS proposed rule in the Federal Register to 
decide whether to withdraw or terminate an approved geographic 
reclassification for the following year.
    The overall effect of geographic reclassification is required by 
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, 
for purposes of this impact analysis, we are proposing to apply an 
adjustment of 0.988816 to ensure that the effects of the 
reclassifications under section 1886(d)(10) of the Act are budget 
neutral (section II.A. of the Addendum to this proposed rule). 
Geographic reclassification generally benefits hospitals in rural 
areas. We estimate that the geographic reclassification would 
increase payments to rural hospitals by an average of 1.4 percent. 
By region, all the rural hospital categories will experience 
increases in payments due to MGCRB reclassifications.
    New Table 2 listed in section VI. of the Addendum to this 
proposed rule and available via the Internet on the CMS Web site 
reflects the proposed reclassifications for FY 2017.

e. Effects of the Proposed Rural Floor and Imputed Floor, Including 
Application of National Budget Neutrality (Column 5)

    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, 2014, 2015, 2016 IPPS/LTCH PPS final rules, 
and this proposed rule, section 4410 of Public Law 105-33 
established the rural floor by requiring that the wage index for a 
hospital in any urban area cannot be less than the wage index 
received by rural hospitals in the same State. We would 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 and in FY 2014 and FY 2015 for 1 additional year. 
Prior to FY 2013, 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 and FY 2015, we extended the imputed 
rural floor, as calculated under the original methodology and the 
alternative methodology. Due to the adoption of the new OMB labor 
market area delineations in FY 2015, the State of Delaware also 
became an all-urban State and thus eligible for an imputed floor. 
For FY 2016, we extended the imputed floor for 1 year, as calculated 
under the original methodology and the alternative methodology, 
through September 30, 2016. For FY 2017, we are proposing to extend 
the imputed rural floor for 1 year, as calculated under the original 
methodology and the alternative methodology, through September 20, 
2017. As a result, New Jersey, Rhode Island, and Delaware would be 
able to receive an imputed floor through September 30, 2017. In New 
Jersey, 20 out of 64 hospitals would receive the imputed floor, and 
10 out of 11 hospitals in Rhode Island would receive the imputed 
floor for FY 2017. For FY 2017, no hospitals would benefit 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 a proposed 
FY 2017 rural floor budget neutrality factor to be applied to the 
wage index of 0.993806, which would reduce wage indexes by 0.62 
percent.
    Column 5 shows the projected impact of the proposed rural floor 
and imputed floor with the national rural floor budget neutrality 
factor applied to the wage index based on the OMB labor market area 
delineations. The column compares the proposed post-reclassification 
FY 2017 wage index of providers before the proposed rural floor and 
imputed floor adjustment and the proposed post-reclassification FY 
2017 wage index of providers with the proposed rural floor and 
imputed floor adjustment based on the 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) would experience a decrease in 
payments due to the budget neutrality adjustment that is applied 
nationally to their wage index.
    We estimate that 401 hospitals would benefit from the proposed 
rural and imputed floors in FY 2017, while the remaining 2,929 IPPS 
hospitals in our model would have their wage index reduced by the 
rural floor budget neutrality adjustment of 0.993806 (or 0.62 
percent). We project that, in aggregate, rural hospitals would 
experience a 0.2 percent decrease in payments as a result of the 
application of the proposed rural floor budget neutrality because 
the rural hospitals do not benefit from the rural floor, but have 
their wage indexes downwardly adjusted to ensure that the 
application of the rural floor is budget neutral overall. We project 
hospitals located in urban areas would experience no change in 
payments because increases in payments by hospitals benefitting from 
the rural floor offset decreases in payments by nonrural floor urban 
hospitals whose wage index is downwardly adjusted by the rural floor 
budget neutrality factor. Urban hospitals in the New England region 
would experience a 0.8 percent increase in payments primarily due to 
the application of the proposed rural floor in Massachusetts and the 
proposed imputed floor in Rhode Island. Fifteen urban providers in 
Massachusetts are expected to receive the proposed rural floor wage 
index value, including the rural floor budget neutrality of 
0.993806, increasing payments overall to Massachusetts by an 
estimated $25 million. We estimate that Massachusetts hospitals 
would receive approximately a 0.8 percent increase in IPPS payments 
due to the application of the proposed rural floor in FY 2017.

[[Page 25299]]

    Urban Puerto Rico hospitals are expected to experience a 0.2 
percent increase in payments as a result of the application of the 
proposed rural floor budget neutrality factor, of 0.993806 or 0.62 
percent, to the proposed rural floor wage index.
    There are 20 hospitals out of the 64 hospitals in New Jersey 
that would benefit from the proposed extension of the imputed floor 
and would receive the imputed floor wage index value under the OMB 
labor market area delineations, including the rural floor budget 
neutrality of 0.993806, which we estimate would increase payments to 
those imputed floor hospitals by $20 million (overall, the State 
would receive an increase of $8 million in payments due to the other 
hospitals in the State that would experience decreases in payments 
due to the proposed rural floor budget neutrality adjustment). Ten 
hospitals out of the 11 hospitals in Rhode Island would benefit from 
the proposed imputed rural floor calculated under the alternative 
methodology and would receive an additional $18 million. While some 
hospitals in Delaware are geographically located in CBSAs that are 
assigned the imputed floor, none of these hospitals benefit from the 
imputed floor because they are reclassifying to CBSAs with a higher 
wage index than the imputed floor.
    Column 5 also shows the projected effects of the last year of 
the 3-year hold harmless provision for hospitals that were located 
in an urban county that became rural under the new OMB delineations 
or hospitals deemed urban where the urban area became rural under 
the new OMB delineations. As discussed in section III.G.2. of the 
preamble of this proposed rule, under this transition, hospitals 
that were located in an urban county that became rural under the new 
OMB delineations will generally be assigned the urban wage index 
value of the CBSA in which they are physically located in FY 2014 
for a period of 3 fiscal years (that is, FYs 2015, 2016, and 2017). 
In addition, as discussed in section III.G.3. of the preamble of 
this proposed rule, under this transition, hospitals that were 
deemed urban where the urban area became rural under the new OMB 
delineations will generally be assigned the area wage index value of 
hospitals reclassified to the urban CBSA (that is, the attaching 
wage index, if applicable) to which they were designated in FY 2014. 
For FY 2017, we are applying the 3-year transition wage index 
adjustments in a budget neutral manner, with a budget neutrality 
factor of 0.999999.
    In response to a public comment addressed in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51593), we are providing the payment 
impact of the proposed rural floor and imputed floor with budget 
neutrality at the State level. Column 1 of the following table 
displays the number of IPPS hospitals located in each State. Column 
2 displays the number of hospitals in each State that would receive 
the proposed rural floor or imputed floor wage index for FY 2017. 
Column 3 displays the percentage of total payments each State would 
receive or contribute to fund the rural floor and imputed floor with 
national budget neutrality. The column compares the proposed post-
reclassification FY 2017 wage index of providers before the proposed 
rural floor and imputed floor adjustment and the proposed post-
reclassification FY 2017 wage index of providers with the proposed 
rural floor and imputed floor adjustment. Column 4 displays the 
estimated payment amount that each State would gain or lose due to 
the application of the proposed rural floor and imputed floor with 
national budget neutrality.

     Proposed FY 2017 IPPS Estimated Payments Due to Rural and Imputed Floor With National Budget Neutrality
----------------------------------------------------------------------------------------------------------------
                                                                                    Proposed percent
                                                                                       change in
                                                                    Number of       payments due to    Proposed
                                                 Number of        hospitals that     application of   difference
                   State                         hospitals       will receive the   rural floor and       (in
                                                                  rural floor or     Imputed floor     millions)
                                                                  imputed floor       with budget
                                                                                       neutrality
                                                           (1)                (2)                (3)    (4)
----------------------------------------------------------------------------------------------------------------
Alabama....................................                 83                  6               -0.3  $-4.43
Alaska.....................................                  6                  1               -0.2  -0.34
Arizona....................................                 57                  7               -0.1  -1.55
Arkansas...................................                 44                  0               -0.3  -3.07
California.................................                300                185                1.4  139.3
Colorado...................................                 48                  3                0.3   3.57
Connecticut................................                 31                 13                  0   0.29
Delaware...................................                  6                  0               -0.4  -1.64
Washington, DC.............................                  7                  0               -0.3  -1.62
Florida....................................                171                 15               -0.2  -11.11
Georgia....................................                105                  0               -0.3  -7.76
Hawaii.....................................                 12                  0               -0.3  -0.76
Idaho......................................                 14                  0               -0.2  -0.74
Illinois...................................                126                  3               -0.3  -14.43
Indiana....................................                 89                  0               -0.3  -8.24
Iowa.......................................                 35                  0               -0.3  -2.83
Kansas.....................................                 53                  0               -0.3   -2.5
Kentucky...................................                 65                  0               -0.3  -4.71
Louisiana..................................                 95                  0               -0.3  -4.19
Maine......................................                 18                  0               -0.3  -1.53
Massachusetts..............................                 58                 15                0.8   25.4
Michigan...................................                 95                  0               -0.3  -14.07
Minnesota..................................                 49                  0               -0.2  -5.06
Mississippi................................                 62                  0               -0.3  -3.08
Missouri...................................                 75                  2               -0.3  -6.19
Montana....................................                 12                  4                0.3   0.96
Nebraska...................................                 26                  0               -0.2  -1.67
Nevada.....................................                 24                  3               -0.1  -0.79
New Hampshire..............................                 13                  9                0.4   2.24
New Jersey.................................                 64                 20                0.2   7.84
New Mexico.................................                 25                  0               -0.2  -0.88
New York...................................                154                 21               -0.3  -20.52
North Carolina.............................                 84                  4               -0.2  -5.88
North Dakota...............................                  6                  1               -0.2  -0.57

[[Page 25300]]

 
Ohio.......................................                130                  8               -0.3   -9.5
Oklahoma...................................                 86                  2               -0.3  -3.53
Oregon.....................................                 34                  2               -0.3   -3.1
Pennsylvania...............................                152                  5               -0.3  -15.88
Puerto Rico................................                 51                 12                0.2   0.26
Rhode Island...............................                 11                 10                4.8  18.11
South Carolina.............................                 56                  5               -0.1  -0.99
South Dakota...............................                 18                  0               -0.2  -0.67
Tennessee..................................                 93                 20               -0.2  -5.59
Texas......................................                320                  1               -0.3  -20.35
Utah.......................................                 33                  1               -0.3  -1.33
Vermont....................................                  6                  0               -0.2  -0.39
Virginia...................................                 75                  1               -0.2  -6.29
Washington.................................                 49                  8                0.2   4.38
West Virginia..............................                 29                  2               -0.2  -1.21
Wisconsin..................................                 65                 12               -0.2  -2.85
Wyoming....................................                 10                  0               -0.1  -0.15
----------------------------------------------------------------------------------------------------------------

f. Effects of the Application of the Proposed Frontier State Wage Index 
and Out-Migration Adjustment (Column 6)

    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, 5 
States (Montana, Nevada, North Dakota, South Dakota, and Wyoming) 
are considered frontier States and 50 hospitals located in those 
States will receive a frontier wage index of 1.0000. Overall, this 
provision is not budget neutral and is estimated to increase IPPS 
operating payments by approximately $56 million. Rural and urban 
hospitals located in the West North Central region would experience 
an increase in payments by 0.3 and 0.7 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 249 providers that would receive the out-migration wage 
adjustment in FY 2017. 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 would experience a 1.2 percent and 0.4 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 would be approximately $31 
million.

g. Effects of All FY 2017 Changes (Column 7)

    Column 7 shows our estimate of the proposed changes in payments 
per discharge from FY 2016 and FY 2017, resulting from all proposed 
changes reflected in this proposed rule for FY 2017. It includes 
combined effects of the previous columns in the table.
    The proposed average increase in payments under the IPPS for all 
hospitals is approximately 0.7 percent for FY 2017 relative to FY 
2016. This column includes the proposed annual hospital update of 
1.55 percent to the national standardized amount. This proposed 
annual hospital update includes the 2.8 percent market basket 
update, the proposed reduction of 0.5 percentage point for the 
multifactor productivity adjustment, and the 0.75 percentage point 
reduction under section 3401 of the Affordable Care Act. As 
discussed in section II.D. of the preamble of this proposed rule, 
this column also includes the proposed FY 2017 documentation and 
coding recoupment adjustment of -1.5 percent on the national 
standardized amount as part of the recoupment required under section 
631 of the ATRA. In addition, this column includes the proposed 
adjustment of (1/0.998) to permanently remove the 0.2 percent 
reduction, and the proposed 1.006 temporary adjustment to address 
the effects of the 0.2 percent reduction in effect for FYs 2014 
through 2016 related to the 2-midnight policy, which are discussed 
in section IV.O. of the preamble of this proposed rule. Hospitals 
paid under the hospital-specific rate would receive a 1.55 percent 
proposed hospital update in addition to the proposed adjustment of 
(1/0.998) to permanently remove the 0.2 percent reduction, and the 
proposed 1.006 temporary adjustment to address the effects of the 
0.2 percent reduction in effect for FYs 2014 through 2016 previously 
described. As described in Column 1, the proposed annual hospital 
update with the proposed documentation and coding recoupment 
adjustment for hospitals paid under the national standardized 
amount, the proposed adjustment of (1/0.998) to permanently remove 
the 0.2 percent reduction and the proposed 1.006 temporary 
adjustment to address the effects of the 0.2 percent reduction in 
effect for FYs 2014 through 2016 for hospitals paid under the 
national standardized amount and hospitals paid under the hospital-
specific rates, which are discussed in section IV.O. of the preamble 
of this proposed rule, combined with the proposed annual hospital 
update for hospitals paid under the hospital-specific

[[Page 25301]]

rates would result in a 0.7 percent increase in payments in FY 2017 
relative to FY 2016. The impact of moving from our estimate of FY 
2016 outlier payments, 5.3 percent, to the proposed estimate of FY 
2017 outlier payments, 5.1 percent, would result in a decrease of 
0.2 percent in FY 2017 payments relative to FY 2016. 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 7 may not equal the sum of the 
estimated percentage changes described previously.
    Overall payments to hospitals paid under the IPPS due to the 
proposed applicable percentage increase and proposed changes to 
policies related to MS-DRGs, geographic adjustments, and outliers 
are estimated to increase by 0.7 percent for FY 2017. Hospitals in 
urban areas would experience a 0.6 percent increase in payments per 
discharge in FY 2017 compared to FY 2016. Hospital payments per 
discharge in rural areas are estimated to increase by 0.8 percent in 
FY 2017.

3. Impact Analysis of Table II

    Table II presents the projected impact of the proposed changes 
for FY 2017 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 2016 with the proposed 
estimated average payments per discharge for FY 2017, as calculated 
under our models. Therefore, this table presents, in terms of the 
average dollar amounts paid per discharge, the combined effects of 
the proposed changes presented in Table I. The proposed estimated 
percentage changes shown in the last column of Table II equal the 
estimated percentage changes in average payments per discharge from 
Column 7 of Table I.

   Table II--Impact Analysis of Proposed Changes for FY 2017 Acute Care Hospital Operating Prospective Payment
                                                     System
                                            [Payments per discharge]
----------------------------------------------------------------------------------------------------------------
                                                         Estimated average  Estimated average
                                          Number of       FY 2016 payment    FY 2017 payment    Proposed FY 2017
                                          hospitals        per discharge      per discharge         changes
                                                    (1)                (2)                (3)                (4)
----------------------------------------------------------------------------------------------------------------
All Hospitals.......................              3,330             11,524             11,599                0.7
By Geographic Location:
    Urban hospitals.................              2,512             11,869             11,944                0.6
    Large urban areas...............              1,378             12,658             12,729                0.6
    Other urban areas...............              1,134             10,924             11,004                0.7
    Rural hospitals.................                818              8,614              8,686                0.8
Bed Size (Urban):
    0-99 beds.......................                656              9,393              9,462                0.7
    100-199 beds....................                765             10,006             10,052                0.5
    200-299 beds....................                449             10,758             10,807                0.5
    300-499 beds....................                429             12,068             12,153                0.7
    500 or more beds................                213             14,591             14,703                0.8
Bed Size (Rural):
    0-49 beds.......................                320              7,187              7,230                0.6
    50-99 beds......................                292              8,214              8,278                0.8
    100-149 beds....................                119              8,457              8,506                0.6
    150-199 beds....................                 46              9,263              9,359                1.0
    200 or more beds................                 41             10,175             10,295                1.2
Urban by Region:
    New England.....................                116             12,947             12,870               -0.6
    Middle Atlantic.................                315             13,445             13,469                0.2
    South Atlantic..................                406             10,494             10,574                0.8
    East North Central..............                390             11,167             11,290                1.1
    East South Central..............                147             10,022             10,123                1.0
    West North Central..............                163             11,589             11,694                0.9
    West South Central..............                384             10,688             10,812                1.2
    Mountain........................                163             12,273             12,361                0.7
    Pacific.........................                377             15,279             15,336                0.4
    Puerto Rico.....................                 51              8,409              8,432                0.3
Rural by Region:
    New England.....................                 21             11,758             11,897                1.2
    Middle Atlantic.................                 55              8,646              8,726                0.9
    South Atlantic..................                127              8,059              8,120                0.8
    East North Central..............                115              8,947              9,023                0.9
    East South Central..............                156              7,642              7,694                0.7
    West North Central..............                 99              9,464              9,555                1.0
    West South Central..............                161              7,254              7,321                0.9
    Mountain........................                 60             10,142             10,214                0.7
    Pacific.........................                 24             11,976             12,066                0.8
By Payment Classification:
    Urban hospitals.................              2,455             11,888             11,963                0.6
    Large urban areas...............              1,372             12,664             12,735                0.6
    Other urban areas...............              1,083             10,926             11,006                0.7
    Rural areas.....................                875              8,890              8,967                0.9
Teaching Status:
    Nonteaching.....................              2,275              9,593              9,649                0.6
    Fewer than 100 residents........                804             11,122             11,194                0.7
    100 or more residents...........                251             16,697             16,821                0.8
Urban DSH:
    Non-DSH.........................                597             10,104             10,156                0.5

[[Page 25302]]

 
    100 or more beds................              1,608             12,247             12,327                0.7
    Less than 100 beds..............                330              8,718              8,759                0.5
Rural DSH:
    SCH.............................                266              9,218              9,299                0.9
    RRC.............................                347              9,200              9,286                0.9
    100 or more beds................                 33              7,070              7,102                0.5
    Less than 100 beds..............                149              6,783              6,798                0.2
Urban teaching and DSH:
    Both teaching and DSH...........                880             13,362             13,456                0.7
    Teaching and no DSH.............                107             11,418             11,438                0.2
    No teaching and DSH.............              1,058             10,009             10,061                0.5
    No teaching and no DSH..........                410              9,519              9,585                0.7
Special Hospital Types:
    RRC.............................                193              9,673              9,782                1.1
    SCH.............................                326             10,357             10,459                1.0
    MDH.............................                146              7,202              7,262                0.8
    SCH and RRC.....................                126             10,814             10,940                1.2
    MDH and RRC.....................                 15              9,216              9,334                1.3
Type of Ownership:
    Voluntary.......................              1,914             11,704             11,781                0.7
    Proprietary.....................                858             10,110             10,188                0.8
    Government......................                516             12,474             12,532                0.5
Medicare Utilization as a Percent of
 Inpatient Days:
    0-25............................                517             14,964             15,062                0.7
    25-50...........................              2,128             11,446             11,523                0.7
    50-65...........................                546              9,341              9,387                0.5
    Over 65.........................                 94              6,966              7,025                0.9
FY 2017 Reclassifications by the
 Medicare Geographic Classification
 Review Board:
    All Reclassified Hospitals......                853             11,571             11,641                0.6
    Non-Reclassified Hospitals......              2,477             11,504             11,581                0.7
    Urban Hospitals Reclassified....                576             12,191             12,256                0.5
    Urban Nonreclassified Hospitals.              1,879             11,774             11,852                0.7
    Rural Hospitals Reclassified                    277              8,994              9,080                1.0
     Full Year......................
    Rural Nonreclassified Hospitals                 484              8,193              8,250                0.7
     Full Year......................
    All Section 401 Reclassified                     57             10,782             10,892                1.0
     Hospitals:.....................
    Other Reclassified Hospitals                     57              7,949              7,998                0.6
     (Section 1886(d)(8)(B))........
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Proposed Policy Changes

    In addition to those proposed policy changes discussed 
previously that we are able to model using our IPPS payment 
simulation model, we are proposing to make various other changes in 
this proposed rule. Generally, we have limited or no specific data 
available with which to estimate the impacts of these proposed 
changes. Our estimates of the likely impacts associated with these 
other proposed changes are discussed in this section.

1. Effects of Proposed Policy Relating to New Medical Service and 
Technology Add-On Payments

    In section II.H. of the preamble to this proposed rule, we 
discuss nine technologies for which we received applications for 
add-on payments for new medical services and technologies for FY 
2017, as well as the status of the new technologies that were 
approved to receive new technology add-on payments in FY 2016. We 
note that one applicant withdraw its application prior to the 
issuance of this proposed rule. As explained in the preamble to this 
proposed rule, add-on payments for new medical services and 
technologies under section 1886(d)(5)(K) of the Act are not required 
to be budget neutral. As discussed in section II.H.5. of the 
preamble of this proposed rule, we have not yet determined whether 
any of these nine technologies for which we received applications 
for consideration for new technology add-on payments for FY 2017 
will meet the specified criteria. Consequently, it is premature to 
estimate the potential payment impact of these nine technologies for 
any potential new technology add-on payments for FY 2017. We note 
that if any of the nine technologies are found to be eligible for 
new technology add-on payments for FY 2017, in the FY 2017 IPPS/LTCH 
PPS final rule, we would discuss the estimated payment impact for FY 
2017.
    In section II.H.4. of the preamble of this proposed rule, we are 
proposing to discontinue new technology add-on payments for the 
Argus[supreg] II Retinal Prosthesis System, KcentraTM, 
the MitraClip[supreg] System, and the Responsive Neurostimulator 
(RNS[supreg]) for FY 2017 because these technologies will have been 
on the U.S. market for 3 years. We also are proposing to continue to 
make new technology add-on payments for the CardioMEMSTM 
HF (Heart Failure) Monitoring System, Blinatumomab 
(BLINCYTOTM), and the LUTONIX[supreg] Drug Coated Balloon 
(DCB) Percutaneous Transluminal Angioplasty (PTA) and 
IN.PACTTM AdmiralTM Pacliaxel Coated 
Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter in FY 
2017 because these technologies are still considered new. We note 
that new technology add-on payments for each 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 new technology add-on 
payments for FY 2017 as if every claim that would qualify for a new 
technology add-on payment would receive the maximum add-on

[[Page 25303]]

payment. For the CardioMEMSTM HF Monitoring System, based 
on the applicant's estimate from FY 2015, we currently estimate that 
new technology add-on payments for the CardioMEMSTM HF 
Monitoring System will increase overall FY 2017 payments by 
$11,315,625. Based on the applicant's estimate for FY 2016, we 
currently estimate that new technology add-on payments for 
BLINCYTOTM will increase overall FY 2017 payments by 
$4,593,034 (maximum add-on payment of $27,017.85 * 170 patients). 
Based on the weighted cost average for FY 2016 described in the FY 
2016 IPPS/LTCH final rule (80 FR 49469 through 49470), we currently 
estimate that new technology add-on payments for the LUTONIX[supreg] 
DCB PTA and IN.PACTTM AdmiralTM Pacliaxel 
Coated PTA Balloon Catheter will increase overall FY 2017 payments 
by $36,120,735 (maximum add-on payment of $1,035.72 * 8,875 patients 
for LUTONIX[supreg] DCB PTA Balloon Catheter; maximum add-on payment 
of $1,035.72 * 26,000 patients for IN.PACTTM 
AdmiralTM Pacliaxel Coated PTA Balloon Catheter).

2. Effects of the Proposed Changes to Medicare DSH Payments for FY 2017

    As discussed in section IV.F. of the preamble of this proposed 
rule, under section 3133 of the Affordable Care Act, 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 formerly would have been 
paid as Medicare DSH payments (Factor 1), reduced to reflect changes 
in the percentage of individuals under age 65 who are uninsured and 
additional statutory adjustments (Factor 2), is available to make 
additional payments to each hospital that qualifies for Medicare DSH 
payments and that has uncompensated care. Each hospital eligible for 
Medicare DSH payments will receive an additional payment based on 
its estimated share of the total amount of uncompensated care for 
all hospitals eligible for Medicare DSH payments. The uncompensated 
care payment methodology has redistributive effects based on the 
proportion of a hospital's uncompensated care relative to the 
uncompensated care for all hospitals eligible for Medicare DSH 
payments (Factor 3). For FY 2017, because we are proposing to 
continue to use low-income insured patient days as a proxy for 
uncompensated care, the uncompensated care payment methodology has 
redistributive effects based on the proportion of a hospital's low-
income insured patient days (sum of Medicaid patient days and 
Medicare SSI patient days) relative to the low-income insured 
patient days for all hospitals eligible for DSH payments. The 
reduction to Medicare DSH payments under section 3133 of the 
Affordable Care Act is not budget neutral.
    In this proposed rule, we are proposing to establish the overall 
amount available to be distributed as uncompensated care payments to 
DSH eligible hospitals, which for FY 2017 is $6,054,458,492.68, or 
75 percent of what otherwise would have been paid for Medicare DSH 
payment adjustments adjusted by a proposed Factor 2 of 56.74 
percent. For FY 2016, the amount available to be distributed for 
uncompensated care was $6,406,145,534.04, or 75 percent of what 
otherwise would have been paid for Medicare DSH payment adjustments 
adjusted by a Factor 2 of 63.69 percent. To calculate Factor 3 for 
FY 2017, we are proposing to use an average of data computed using 
Medicaid days from hospitals' 2011, 2012, and 2013 cost reports, 
Medicaid days from 2011 and 2012 cost report data submitted to CMS 
by IHS hospitals, and SSI days from the FY 2012, FY 2013, and FY 
2014 SSI ratios. That is, for each hospital we are proposing to 
calculate an individual Factor 3 for cost reporting periods 
beginning during FYs 2011, 2012, and 2013, sum the individual 
amounts, and divide the sum by three in order to calculate an 
average Factor 3 for the hospital.
    The FY 2017 proposal to use data on low-income insured days from 
3 years of cost reports to determine Factor 3, as described earlier, 
is in contrast to the methodology used in FY 2016, when we used 
Medicaid days from the more recent of a hospital's full year 2012 or 
2011 cost report from the March 2015 update of the HCRIS database, 
Medicaid days from 2012 cost report data submitted to CMS by IHS 
hospitals, and SSI days from the FY 2013 SSI ratios to calculate 
Factor 3. In addition, as explained in section IV.F. of the preamble 
of this proposed rule, we are proposing to make two additional 
modifications to the Factor 3 methodology: (1) To create proxy 
Medicare SSI values for Puerto Rico hospitals and (2) to include all 
hospitals' cost reports that begin during FYs 2011, 2012, and 2013, 
even in the instance where a hospital has more than one cost report 
beginning during a given fiscal year. Because residents of Puerto 
Rico are not eligible for SSI benefits, we are proposing to impute a 
Medicare SSI value for each Puerto Rico hospital equal to 14 percent 
of its Medicaid days. The proposed FY 2017 uncompensated care 
payment methodology is discussed in more detail in section IV.F. of 
the preamble of this proposed rule.
    To estimate the impact of the combined effect of reductions in 
the percent of individuals under age 65 who are uninsured and 
additional statutory adjustments (Factor 2) and changes in Medicaid 
and SSI patient days (components of Factor 3) on the calculation of 
Medicare DSH payments, including both empirically justified Medicare 
DSH payments and uncompensated care payments, we compared total DSH 
payments estimated in the FY 2016 IPPS/LTCH PPS final rule to total 
DSH payments estimated in this FY 2017 IPPS/LTCH PPS proposed rule. 
For FY 2016, for each hospital, we calculated the sum of: (1) 25 
percent of the estimated amount of what would have been paid as 
Medicare DSH in FY 2016 in the absence of section 3133 of the 
Affordable Care Act; and (2) 75 percent of the estimated amount of 
what would have been paid as Medicare DSH payments in the absence of 
section 3133 of the Affordable Care Act, adjusted by a Factor 2 of 
63.69 percent and multiplied by a Factor 3 as stated in the FY 2016 
IPPS/LTCH PPS final rule. For FY 2017, we would calculate the sum 
of: (1) 25 percent of the estimated amount of what would be paid as 
Medicare DSH payments in FY 2017 absent section 3133 of Affordable 
Care Act; and (2) 75 percent of the estimated amount of what would 
have been paid as Medicare DSH payments absent section 3133 of the 
Affordable Care Act, adjusted by a Factor 2 of 56.74 percent and 
multiplied by a Factor 3 as previously stated.
    Our analysis included 2,434 hospitals that are projected to be 
eligible for DSH in FY 2017. It did not include hospitals that 
terminated their participation from the Medicare program as of July 
1, 2015, Maryland hospitals, and SCHs that are expected to be paid 
based on their hospital-specific rates. In addition, low-income 
insured days from merged or acquired hospitals were combined into 
the surviving hospital's CCN, and the nonsurviving CCN was excluded 
from the analysis. In contrast to FY 2016, hospitals participating 
in the Rural Community Hospital Demonstration program, which is 
scheduled to end in FY 2017, are included in the analysis if 
projected to be eligible for DSH payments during FY 2017. The 
estimated impact of the proposed changes in Factors 1, 2, and 3 
across all hospitals projected to be eligible for DSH payments in FY 
2017, by hospital characteristic, is presented in the following 
table.

  Modeled Disproportionate Share Hospital Payments for Estimated FY 2017 DSHs by Hospital Type: Model DSH $ (in
                                        Millions) From FY 2016 to FY 2017
----------------------------------------------------------------------------------------------------------------
                                                                      FY 2017
                                     Number of     FY 2016 final   proposed rule      Dollar
                                  estimated DSHs  rule estimated   estimated DSH  difference: FY  Percent change
                                     (FY 2017)     DSH $ *  (in      $ *  (in      2017-FY 2016         **
                                                     millions)       millions)     (in millions)
                                             (1)             (2)             (3)             (4)             (5)
----------------------------------------------------------------------------------------------------------------
Total...........................           2,434          $9,732          $9,598           -$134           -1.4%
By Geographic Location:
    Urban Hospitals.............           1,927           9,262           9,148            -114            -1.2

[[Page 25304]]

 
    Large Urban Areas...........           1,048           5,861           5,789             -72            -1.2
    Other Urban Areas...........             879           3,401           3,359             -42            -1.2
Rural Hospitals.................             507             470             450             -20            -4.3
Bed Size (Urban):
    0 to 99 Beds................             337             184             186               2             0.9
    100 to 249 Beds.............             841           2,199           2,171             -28            -1.3
    250 to 499 Beds.............             749          $6,879          $6,791            -$88            -1.3
Bed Size (Rural):
    0 to 99 Beds................             375             205             192            -$13            -6.3
    100 to 249 Beds.............             118             209             202              -7            -3.4
    250 to 499 Beds.............              14              56              56               0            -0.3
Urban by Region:
    East North Central..........             317           1,268           1,253            -$15            -1.2
    East South Central..........             132             575             566              -9            -1.6
    Middle Atlantic.............             233           1,607           1,583             -24            -1.5
    Mountain....................             122             447             449               2             0.4
    New England.................              90             386             388               2             0.5
    Pacific.....................             313           1,459           1,453              -6            -0.4
    Puerto Rico.................              42             100             113              12            12.2
    South Atlantic..............             320           1,772           1,737             -35            -2.0
    West North Central..........             103             450             440             -10            -2.3
    West South Central..........             255           1,198           1,168             -30            -2.5
Rural by Region:
    East North Central..........              65              48              45              -3            -6.7
    East South Central..........             142             151             142              -9            -6.0
    Middle Atlantic.............              26              34              32              -2            -6.2
    Mountain....................              21              16              16               0             0.1
    New England.................              11              15              16               1             8.8
    Pacific.....................               7               8               7              -1           -16.2
    South Atlantic..............              88              96              96               0             0.2
    West North Central..........              34              20              19              -1            -5.4
    West South Central..........             113              83              78              -5            -5.9
By Payment Classification:
    Urban Hospitals.............           1,896           9,212           9,097            -115            -1.2
        Large Urban Areas.......           1,046           5,859           5,788             -72            -1.2
        Other Urban Areas.......             850           3,353           3,310             -43            -1.3
    Rural Hospitals.............             538             520             501             -20            -3.8
Teaching Status:
    Nonteaching.................           1,551           3,101           3,065             -36            -1.2
    Fewer than 100 residents....             644           3,206           3,157             -49            -1.5
    100 or more residents.......             239           3,425           3,375             -50            -1.5
Type of Ownership:
    Voluntary...................           1,400           6,020           5,939             -81            -1.3
    Proprietary.................             550           1,664           1,638             -26            -1.5
    Government..................             482           2,022           1,996             -26            -1.3
    Unknown.....................               2              27              25              -2            -5.8
Medicare Utilization Percent:
    0-25........................             430           3,008           2,972             -36            -1.2
    25-50.......................           1,625           6,329           6,235             -94            -1.5
    50-65.......................             320             382             379              -3            -0.8
    Over 65.....................              59              14              12              -2           -12.9
----------------------------------------------------------------------------------------------------------------
Source: Dobson [bond] DaVanzo analysis of 2011-2013 Hospital Cost Reports.
* Dollar DSH calculated by [0.25 * estimated section 1886(d)(5)(F) payments] + [0.75 * estimated section
  1886(d)(5)(F) payments * Factor 2 * Factor 3]. When summed across all hospitals projected to receive DSH
  payments, DSH payments are estimated to be $9,372 million in FY 2016 and $9,598 million in FY 2017.
** Percentage change is determined as the difference between Medicare DSH payments modeled for the FY 2017 IPPS/
  LTCH PPS proposed rule (column 3) and Medicare DSH payments modeled for the FY 2016 IPPS/LTCH final rule
  (column 2) divided by Medicare DSH payments modeled for the FY 2016 final rule (column 2) 1 times 100 percent.

    Changes in projected FY 2017 DSH payments from DSH payments in 
FY 2016 are primarily driven by three factors: (1) An increase in 
Factor 1 from $13.411 billion to $14.227 billion; (2) a reduction in 
the percent of uninsured (Factor 2) from 63.69 percent to 56.74 
percent; and (3) a revised proxy methodology for calculating Factor 
3 values. The proposed impact analysis found that, across all 
projected DSH eligible hospitals, FY 2017 DSH payments are estimated 
at approximately $9.598 billion, or a decrease of

[[Page 25305]]

approximately 1.4 percent from FY 2016 DSH payments (approximately 
$9.732 billion). Although Factor 1 increased by approximately 6.1 
percent, the reduction in Factor 2 offsets this and results in a net 
decrease in the amount available to be distributed in uncompensated 
care payments.
    As seen in the above table, percent reductions greater than 1.4 
percent indicate that hospitals within the specified category are 
projected to experience a greater reduction in DSH payments, on 
average, compared to the universe of FY 2017 projected DSH 
hospitals. Conversely, percent reductions that are less than 1.4 
percent indicate a hospital type is projected to have a smaller 
reduction than the overall average. The variation in the 
distribution of payments by hospital characteristic is largely 
dependent on the change in a given hospital's number of Medicaid 
days and SSI days used in the Factor 3 computation.
    Rural hospitals, grouped by geographic location, payment 
classification, and bed size, are projected to experience a larger 
reduction in DSH payments than urban hospitals. Overall, urban 
hospitals are projected to receive a 1.2 percent decrease in DSH 
payments, and rural hospitals are projected to receive a 4.3 percent 
decrease in DSH payments. The smaller the rural hospital, the larger 
the projected reduction in DSH payments, with rural hospitals that 
have 0-99 beds projected to experience a 6.3 percent payment 
reduction, and larger rural hospitals with 250-499 beds projected to 
experience a 0.3 percent payment reduction. In contrast, the 
smallest urban hospitals (0-99 beds) are projected to receive an 
increase in DSH payments of 0.9 percent. Larger hospitals (100-250 
beds and 250+ beds) are projected to receive reductions of 1.3 
percent in DSH payments that are smaller than the overall average.
    By region, projected DSH payment reductions for urban hospitals 
were largest in the West South Central, West North Central, and 
South Atlantic regions. The Mountain, New England, and Puerto Rico 
region hospitals are projected to receive an increase in DSH 
payments. Reductions in remaining urban hospital regions are 
generally consistent with the overall average percent reduction of 
1.4. Regionally, rural hospitals are projected to receive a wider 
range of reductions. Rural hospitals in the South Atlantic, 
Mountain, and most notably New England regions are projected to 
receive an increase in DSH payments. Reductions are projected to be 
larger than the overall average in most remaining regions, 
particularly in the Pacific region.
    Teaching hospitals are projected to receive relatively larger 
reductions than nonteaching hospitals. Voluntary, proprietary, and 
government hospitals are projected to receive payment reductions 
generally consistent with the overall average percent reduction of 
1.4. Government hospitals are projected to receive slightly smaller 
reductions in DSH payments, while proprietary hospitals are 
projected to receive slightly larger reductions than the overall 
average. Hospitals with over 65 percent Medicare utilization are 
projected to receive a significant reduction in DSH payments, while 
lower Medicare utilization percentiles show smaller reductions.
    Puerto Rico hospitals are projected to receive an increase in 
overall DSH payments, including both empirically justified DSH 
payments and uncompensated care payments, due to the proposal to 
create proxy values for SSI days for hospitals in Puerto Rico for 
purposes of calculating Factor 3 of the uncompensated care payment 
methodology. For FY 2017, Puerto Rico hospitals are projected to 
receive $113 million in overall DSH and uncompensated care payments, 
or a 12.2 percent increase from FY 2016 payments ($100 million). Of 
the estimated $113 million for FY 2017, we estimate that $75 million 
will be uncompensated care payments to Puerto Rico hospitals. This 
represents an increase of approximately 11.2 percent, or $7.6 
million, in FY 2017 compared to the estimated $68 million in 
uncompensated care payments to Puerto Rico hospitals in FY 2016. 
Moreover, we estimate that uncompensated care payments to Puerto 
Rico hospitals for FY 2017 are 12.6 percent, or $8.4 million, higher 
with the proposed SSI proxy than they otherwise would have been 
without the proposed SSI proxy for FY 2017. In other words, without 
the proposed SSI proxy, we would have expected uncompensated care 
payments to Puerto Rico hospitals to decline by approximately $0.9 
million between FY 2016 and FY 2017. We note that because the 
proposed SSI proxy for Puerto Rico hospitals increases the number of 
days in the denominator of Factor 3, this affects hospitals 
nationally. We estimate that uncompensated care payments to non-
Puerto Rico hospitals for FY 2017 are approximately 0.1 percent 
lower with the proposed SSI proxy than they otherwise would have 
been without the proposed SSI proxy.

3. Effects of Proposed Reduction Under the Hospital Readmissions 
Reduction Program

    In section IV.G. of the preamble of this proposed rule, we 
discuss our proposals for the FY 2017 Hospital Readmissions 
Reduction Program (established under section 3025 of the Affordable 
Care Act), which requires a reduction to a hospital's base operating 
DRG payments to account for excess readmissions. For FY 2017, the 
reduction is based on a hospital's risk-adjusted readmission rate 
during a 3-year period for acute myocardial infarction (AMI), heart 
failure (HF), pneumonia, chronic obstructive pulmonary disease 
(COPD), total hip arthroplasty/total knee arthroplasty (THA/TKA), 
and coronary artery bypass graft (CABG). 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). A hospital's base operating DRG payment (that is, wage-
adjusted DRG payment amount, as discussed in section IV.G. of the 
preamble of this proposed rule) is the portion of the IPPS payment 
subject to the readmissions payment adjustment (DSH, IME, outliers 
and low-volume add-on payments are not subject to the readmissions 
adjustment). In this proposed rule, we estimate that 2,603 hospitals 
would have their base operating DRG payments reduced by their proxy 
FY 2017 hospital-specific readmissions adjustment. As a result, we 
estimate that the Hospital Readmissions Reduction Program would save 
approximately $523 million in FY 2017, an increase of $100 million 
over the estimated FY 2016 savings.

4. Effects of Proposed Changes Under the FY 2017 Hospital Value-Based 
Purchasing (VBP) Program

    In section IV.H. of the preamble of this proposed rule, we 
discuss the Hospital VBP Program under which the Secretary makes 
value-based incentive payments to hospitals based on their 
performance on measures during the performance period with respect 
to a fiscal year. These incentive payments will be funded for FY 
2017 through a reduction to the FY 2017 base operating DRG payment 
amount for the discharge for the hospital for such fiscal year, as 
required by section 1886(o)(7)(B) of the Act. The applicable 
percentage for FY 2017 and subsequent years is 2 percent. The total 
amount available for value-based incentive payments must be equal to 
the total amount of reduced payments for all hospitals for the 
fiscal year, as estimated by the Secretary.
    In section IV.H. of the preamble of this proposed rule, we 
estimate the available pool of funds for value-based incentive 
payments in the FY 2017 program year, which, in accordance with 
section 1886(o)(7)(C)(v) of the Act, will be 2.00 percent of base 
operating DRG payments, or a total of approximately $1.7 billion. 
This estimated available pool for FY 2017 is based on the historical 
pool of hospitals that were eligible to participate in the FY 2016 
program year and the payment information from the December 2015 
update to the FY 2015 MedPAR file.
    The proposed estimated impacts of the FY 2017 program year by 
hospital characteristic, found in the table below, are based on 
historical TPSs. We used the FY 2016 program year's TPSs to 
calculate the proxy adjustment factors used for this impact 
analysis. These are the most recently available scores that 
hospitals were given an opportunity to review and correct. The proxy 
adjustment factors use estimated annual base operating DRG payment 
amounts derived from the December 2015 update to the FY 2015 MedPAR 
file. The proxy adjustment factors can be found in Table 16 
associated with this proposed rule (available via the Internet on 
the CMS Web site).
    The impact analysis shows that, for the FY 2017 program year, 
the number of hospitals that would receive an increase in their base 
operating DRG payment amount is higher than the number of hospitals 
that would receive a decrease. Among urban hospitals, those in the 
New England, South Atlantic, East North Central, East South Central, 
West North Central, West South Central, Mountain, and Pacific 
regions would have an increase, on average, in their base operating 
DRG payment amount. Urban hospitals in the Middle Atlantic region 
would receive an average decrease in their base operating DRG 
payment amount. Among rural hospitals, those in all regions would 
have an increase, on average, in their base operating DRG payment 
amounts.

[[Page 25306]]

    On average, hospitals that receive a higher (50-65) percent of 
DSH payments would receive decreases in base operating DRG payment 
amount. With respect to hospitals' Medicare utilization as a percent 
of inpatient days (MCR), those hospitals with an MCR above 65 
percent would have the largest average increase in base operating 
DRG payment amount.
    Nonteaching hospitals would have an average increase, and 
teaching hospitals would experience an average decrease in base 
operating DRG payment amount.

  Impact Analysis of Base Operating DRG Payment Amount Proposed Changes
             Resulting From the FY 2017 Hospital VBP Program
------------------------------------------------------------------------
                                             Number of
                                             hospitals      Average (%)
------------------------------------------------------------------------
By Geographic Location:
    All Hospitals.......................           3,041           0.244
        Large Urban.....................           1,247           0.117
        Other Urban.....................           1,046           0.202
        Rural Area......................             748           0.514
    Urban hospitals.....................           2,293           0.156
        0-99 beds.......................             517           0.708
        100-199 beds....................             719           0.143
        200-299 beds....................             430          -0.035
        300-499 beds....................             419          -0.146
        500 or more beds................             208          -0.171
    Rural hospitals.....................             748           0.514
        0-49 beds.......................             265           0.695
        50-99 beds......................             286           0.540
        100-149 beds....................             115           0.304
        150-199 beds....................              45           0.159
        200 or more beds................              37           0.103
By Region:
    Urban By Region.....................           2,293           0.156
        New England.....................             110           0.152
        Middle Atlantic.................             297          -0.065
        South Atlantic..................             389           0.108
        East North Central..............             368           0.204
        East South Central..............             141           0.126
        West North Central..............             155           0.370
        West South Central..............             324           0.211
        Mountain........................             159           0.128
        Pacific.........................             350           0.225
    Rural By Region.....................             748           0.514
        New England.....................              20           0.528
        Middle Atlantic.................              53           0.373
        South Atlantic..................             117           0.621
        East North Central..............             112           0.514
        East South Central..............             138           0.389
        West North Central..............              94           0.623
        West South Central..............             135           0.416
        Mountain........................              55           0.713
        Pacific.........................              24           0.677
By MCR Percent:
    0-25................................             374           0.131
    25-50...............................           2,024           0.205
    50-65...............................             508           0.409
    Over 65.............................             126           0.539
    Missing.............................               9           0.204
BY DSH Percent:
    0-25................................           1,427           0.384
    25-50...............................           1,320           0.154
    50-65...............................             156          -0.067
    Over 65.............................             138           0.007
By Teaching Status:
    Non-Teaching........................           2,041           0.381
    Teaching............................           1,000          -0.036
------------------------------------------------------------------------

    Actual FY 2017 program year's TPSs will not be reviewed and 
corrected by hospitals until after the FY 2017 IPPS/LTCH PPS final 
rule has been published. Therefore, the same historical universe of 
eligible hospitals and corresponding TPSs from the FY 2016 program 
year will be used for the updated impact analysis in that final 
rule.

5. Effects of Proposed Changes to the HAC Reduction Program for FY 2017

    In section IV.I. of the preamble of this proposed rule, we 
discuss the proposed changes to the HAC Reduction Program for FY 
2017. The table and analysis below show the estimated cumulative 
effect of the measures and scoring system for the HAC Reduction 
Program proposed in this proposed rule. In the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49575 through 49576), we finalized a Total HAC 
Score methodology that assigns, for FY 2017, weights for Domain 1 
and Domain 2 at 15 percent and 85 percent, respectively. Based on 
this methodology, the table below presents data on the estimated 
proportion of hospitals in the worst-performing quartile of the 
Total HAC Scores by hospital characteristic. We note that because 
scores will undergo a 30-day review and correction period by the 
hospitals that will not conclude until after the publication of the 
FY 2017 IPPS/LTCH PPS final rule, we are not providing hospital-
level data or a hospital-level payment impact in conjunction with 
this FY 2017 IPPS/LTCH PPS proposed rule.
    To estimate the impact of the FY 2017 HAC Reduction Program, we 
used, as previously finalized, AHRQ PSI 90 measure results based on 
Medicare FFS discharges from July 2013 through June 2015 and version 
5.0.1 (recalibrated) of the AHRQ software. For the CLABSI, CAUTI, 
Colon and Abdominal Hysterectomy SSI, MRSA Bacteremia, and CDI 
measure results, we used standardized

[[Page 25307]]

infection ratios (SIRs) calculated with hospital surveillance data 
reported to the NHSN for infections occurring between January 1, 
2013 and December 31, 2014.
    To analyze the results by hospital characteristic, we used the 
FY 2016 Final Rule Impact File. This table includes 3,225 non-
Maryland hospitals that had a Total HAC Score for FY 2017. Of these, 
3,211 hospitals had information for geographic location, region, bed 
size, DSH percent, and teaching status, 3,197 had information for 
ownership, and 3,191 had information for MCR percent. Maryland 
hospitals and hospitals without a Total HAC Score are not included 
in the table below.

 Estimated Proportion of Hospitals in the Worst-Performing Quartile (75th Percentile) of the Total HAC Score for
                                        the FY 2017 HAC Reduction Program
                                          [By hospital characteristic]
----------------------------------------------------------------------------------------------------------------
                                                                                     Number of      Percent of
                                                                                   hospitals in    hospitals in
                     Hospital characteristic                         Number of      the worst-      the worst-
                                                                   hospitals \a\    performing      performing
                                                                                   quartile \b\    quartile \c\
----------------------------------------------------------------------------------------------------------------
Total \d\.......................................................           3,225             774            24.0
By Geographic Location:
All hospitals:
    Urban.......................................................           2,403             656            27.3
    Rural.......................................................             808             108            13.4
Urban hospitals:
    1-99 beds...................................................             593              90            15.2
    100-199 beds................................................             737             164            22.3
    200-299 beds................................................             436             128            29.4
    300-399 beds................................................             273             103            37.7
    400-499.....................................................             151              62            41.1
    500 or more beds............................................             213             109            51.2
Rural hospitals:
    1-49 beds...................................................             306              44            14.4
    50-99 beds..................................................             294              32            10.9
    100-149 beds................................................             120              11             9.2
    150-199 beds................................................              47              11            23.4
    200 or more beds............................................              41              10            24.4
By Region:
    New England.................................................             134              46            34.3
    Mid-Atlantic................................................             367             130            35.4
    South Atlantic..............................................             520             131            25.2
    East North Central..........................................             499             105            21.0
    East South Central..........................................             299              58            19.4
    West North Central..........................................             262              39            14.9
    West South Central..........................................             510              79            15.5
    Mountain....................................................             225              64            28.4
    Pacific.....................................................             395             112            28.4
By DSH Percent: \e\
    0-24........................................................           1,512             336            22.2
    25-49.......................................................           1,370             329            24.0
    50-64.......................................................             170              48            28.2
    65 and over.................................................             159              51            32.1
By Teaching Status: \f\
    Non-teaching................................................           2,189             398            18.2
    Fewer than 100 residents....................................           1,022             366            35.8
    100 or more residents.......................................             777             230            29.6
By Type of Ownership:
    Voluntary...................................................           1,874             480            25.6
    Proprietary.................................................             834             160            19.2
    Government..................................................             489             122            24.9
By MCR Percent:
    0-24........................................................             480             143            29.8
    25-49.......................................................           2,096             498            23.8
    50-64.......................................................             533             104            19.5
    65 and over.................................................              82              14            17.1
----------------------------------------------------------------------------------------------------------------
Source: FY 2017 HAC Reduction Program Proposed Rule Preliminary Results. Scores are based on AHRQ PSI 90 data
  from July 2013 through June 2015 and CDC CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI, MRSA Bacteremia
  and CDI data from January 2013 to December 2014. Hospital Characteristics are based on the FY 2016 Final Rule
  Impact File updated on October 8, 2015.
\a\ The total number of non-Maryland hospitals with a Total HAC Score with hospital characteristic data (3,211
  for geographic location, region, bed size, DSH percent, and teaching status; 3,197 for type of ownership; and
  3,191 for MCR) does not add up to the total number of non-Maryland hospitals with a Total HAC Score for the FY
  2017 HAC Reduction Program (3,225) because 14 hospitals are not included in the FY 2016 Final Rule Impact File
  and not all hospitals have data for all characteristics.
\b\ This column is the number of non-Maryland hospitals with a Total HAC Score within the corresponding
  characteristic that are estimated to be in the worst-performing quartile.
\c\ This column is the percent of hospitals within each characteristic that are estimated to be in the worst-
  performing quartile. The percentages are calculated by dividing the number of non-Maryland hospitals with a
  Total HAC Score in the worst-performing quartile by the total number of non-Maryland hospitals with a Total
  HAC Score within that characteristic.
\d\ Total excludes 47 Maryland hospitals and 64 non-Maryland hospitals without a Total HAC Score for FY 2017.
\e\ A hospital is considered to be a DSH hospital if it has a disproportionate patient percentage (DPP) greater
  than zero.
\f\ A hospital is considered to be a teaching hospital if it has an IME adjustment factor for Operation PPS
  (TCHOP) greater than zero.


[[Page 25308]]

6. Effects of Proposed Policy Changes Relating to Direct GME and IME 
Payments for Rural Training Tracks at Urban Hospitals

    In section IV.J. of the preamble of this proposed rule, we 
discuss our proposal to extend the period for establishing rural 
track FTE limitations from 3 years to 5 years for purposes of direct 
GME and IME payments to urban hospitals with rural track training 
programs. Specifically, we are proposing to revise the regulations 
to permit that, in the first 5 program years (rather than the first 
3 program years) of the rural track's existence, the rural track FTE 
limitation for each urban hospital will be the actual number of FTE 
residents training in the rural training track at the urban 
hospital, and beginning with the urban hospital's cost reporting 
period that coincides with or follows the start of the sixth program 
year of the rural training track's existence, the rural track FTE 
limitation would take effect. This proposed change addresses 
concerns expressed by the hospital community that rural training 
tracks, like any program, should have a sufficient amount of time 
for a hospital to ``grow'' and to establish a rural track FTE 
limitation that reflects the number of FTE residents that it will 
actually train, once the program is fully grown. In section IV.J. of 
the preamble of this proposed rule, we explain that because we 
inadvertently did not also amend the separate direct GME and IME 
regulations regarding the growth window and effective date of FTE 
limitations for rural track training programs when we amended the 
regulations regarding the 5-year growth window in the FY 2013 IPPS/
LTCH PPS final rule and regarding the additional changes we made in 
the FY 2015 IPPS/LTCH PPS final rule, we are proposing that the 
effective date regarding the change in the growth window also be 
effective for rural track training programs started on or after 
October 1, 2012. Mostly due to the relatively small size of rural 
track programs, we estimate that the proposal would cost 
approximately $1 million by the end of the 10-year period, a 
negligible cost.

7. Effects of Implementation of Rural Community Hospital Demonstration 
Program

    In section IV.K. of the preamble of this proposed rule, for FY 
2017, 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 payments for inpatient services for 
up to 30 rural community hospitals. Section 410A(c)(2) requires that 
in 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.K. of the preamble of this proposed 
rule, in the IPPS final rules for each of the previous 12 fiscal 
years, we have estimated the additional payments made by the program 
for each of the participating hospitals as a result of the 
demonstration. In order to achieve budget neutrality, we have 
adjusted the national IPPS rates by an amount sufficient to account 
for the added costs of this demonstration. In other words, we have 
applied 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.
    In this FY 2017 proposed rule, we are proposing a different 
methodology as compared to previous years for analyzing the costs 
attributable to the demonstration for FY 2017. The demonstration 
will have substantially phased out by the beginning of FY 2017. The 
7 ``originally participating hospitals'', that is, those hospitals 
that were selected for the demonstration in 2004 and 2008, ended 
their participation in the 5-year extension period authorized by the 
Affordable Care Act prior to the start of FY 2016. In addition, the 
participation period for the 14 hospitals that entered the 
demonstration following the extension of the demonstration mandated 
by the Affordable Care Act and that are still participating will end 
on a rolling basis according to the end dates of the hospitals' cost 
report periods, respectively, from April 30, 2016 through December 
31, 2016. Of these 14 hospitals, 10 hospitals will end participation 
on or before September 30, 2016, leaving 4 hospitals participating 
for the last 3 months of CY 2016 (that is, the first 3 months of FY 
2017). Given the small number of participating hospitals and the 
limited time of participation, we are proposing to forego the 
process of estimating the costs attributable to the demonstration 
for FY 2017 and to instead analyze the set of finalized cost reports 
for reporting periods beginning in FY 2016 when they become 
available.
    In previous IPPS/LTCH PPS final rules, we have determined the 
amount by which the actual costs of the demonstration for an 
earlier, previous year differed from the estimated costs of the 
demonstration set forth in the corresponding final rule for the 
corresponding fiscal year, and we incorporated that amount into the 
budget neutrality offset amount for the upcoming fiscal year. We 
note that we have calculated this difference between the actual 
costs of the demonstration for FYs 2005 through 2010, as determined 
from finalized cost reports once available, and estimated costs of 
the demonstration as identified in the applicable IPPS final rules 
for these years. In this proposed rule, we are proposing to conduct 
this analysis for FYs 2011 through 2016 at one time, when all of the 
finalized cost reports for cost reporting periods beginning in FYs 
2011 through 2016 are available. Given the general lag of 3 years in 
finalizing cost reports, we expect any such analysis to be conducted 
in FY 2020.
    Because, as discussed earlier, we are proposing that we would 
not calculate and apply an estimated budget neutrality offset amount 
for FY 2017, but instead analyze the set of finalized cost reports 
for cost reporting periods beginning in FY 2016 when they become 
available, and are proposing to reconcile the budget neutrality 
offset amounts for FYs 2011 through 2016 with the actual costs of 
the demonstration once the finalized cost reports for all of these 
years are available, we believe there would be no impact from the 
demonstration on the national IPPS rates for FY 2017.

8. Effects of Proposed Implementation of the Notice of Observation 
Treatment and Implications for Care Eligibility Act (NOTICE Act)

    In section IV.L. of the preamble of this proposed rule, we 
discuss our proposal to implement section 1866(a)(1)(Y) of the Act 
as amended by the NOTICE Act (Pub. L. 114-42) by revising the basic 
commitments providers agree to as part of participating in Medicare 
under a provider agreement by establishing regulations that would 
specify a process for hospitals and CAHs to notify an individual, 
orally and in writing, regarding the individual's receipt of 
observation services as an outpatient for more than 24 hours and the 
implications of receiving such services. The statute mandates the 
Secretary develop a plain language written notice for this purpose. 
The written notice must be delivered no later than 36 hours after 
observation services are initiated. We have developed a standardized 
format for the notice, which is undergoing OMB approval. The notice 
would be disseminated during the normal course of related business 
activities. In 2014, there were approximately 977,000 claims for 
Medicare outpatient observation services lasting greater than 24 
hours furnished by 6,142 hospitals and CAHs.\322\ We refer readers 
to section IX.B. of the preamble of this proposed rule for a 
discussion of the burden associated with this notice requirement.
---------------------------------------------------------------------------

    \322\ Source: CMS Office of Enterprise and Data Analytics.
---------------------------------------------------------------------------

9. Effects of Proposed Technical Changes and Correction of 
Typographical Errors in Certain Regulations Under 42 CFR Part 413 
Relating to Costs to Related Organizations and Medicare Cost Reports

    In section IV.M. of the preamble of this proposed rule, we 
discuss a number of proposed technical changes or corrections of 
typographical errors in 42 CFR part 413 relating to costs to related 
organizations and Medicare cost reports that need to be made. We 
believe that the impact of these proposed technical changes and 
corrections is negligible.

10. Effects of Proposed Implementation of the Frontier Community Health 
Integration Project (FCHIP) Demonstration

    In section VI.B. of the preamble of this proposed rule, we 
discuss the implementation of the FCHIP demonstration, which will 
allow eligible entities to develop and test new models for the 
delivery of health care services in eligible counties in order to 
improve access to and better integrate the delivery of acute care, 
extended care, and other health care services to Medicare 
beneficiaries in no more than four

[[Page 25309]]

States. CMS has selected CAHs to participate in the demonstration, 
and budget neutrality estimates will be based on the demonstration 
period, which is expected to be August 1, 2016 through July 31, 
2019. The selected CAHs are located in three States: Montana, 
Nevada, and North Dakota. The demonstration design includes three 
intervention prongs, under which specific waivers of Medicare 
payment rules will allow for enhanced payment: telemedicine, nursing 
facility, and ambulance services. These waivers were formulated with 
the goal of increasing access to care with no net increase in costs.
    We have specified the payment enhancements for the 
demonstration, and based our selection of CAHs for participation, 
with the goal of maintaining the budget neutrality of the 
demonstration on its own terms (that is, the demonstration will 
produce savings from reduced transfers and admissions to other 
health care providers, thus offsetting any increase in payments 
resulting from the demonstration). However, because of the small 
size of this demonstration program and uncertainty associated with 
projected Medicare utilization and costs, we are proposing a 
contingency plan to ensure that the budget neutrality requirement in 
section 123 of Public Law 110-275 is met. Accordingly, if analysis 
of claims data for the Medicare beneficiaries receiving services at 
each of the participating CAHs, as well as of other data sources, 
including cost reports for these CAHs, shows that increases in 
Medicare payments under the demonstration during the 3-year period 
are not sufficiently offset by reductions elsewhere, we will recoup 
the additional expenditures attributable to the demonstration 
through a reduction in payments to all CAHs nationwide. The 
demonstration is projected to impact payments to participating CAHs 
under both Medicare Part A and Part B. Thus, in the event that we 
determine that aggregate payments under the demonstration exceed the 
payments that would otherwise have been made, we are proposing that 
CMS would recoup payments through reductions of Medicare payments to 
all CAHs under both Medicare Part A and Part B. Because of the small 
scale of the demonstration, it would be not be feasible to implement 
budget neutrality by reducing only payments to the participating CAH 
providers. We are proposing to make the reduction to payments to all 
CAHs, not just those participating in the demonstration, because the 
FCHIP program is specifically designed to test innovations that 
affect delivery of services by this provider category. We believe 
that the language of the statutory budget neutrality requirement at 
section 123(g)(1)(B) of the Act permits the agency to implement the 
budget neutrality provision in this manner. The statutory language 
refers merely to ensuring that aggregate payments made by the 
Secretary do not exceed the amount which the Secretary estimates 
would have been paid if the demonstration project was not 
implemented, and does not identify the range across which aggregate 
payments must be held equal.
    Given the 3-year period of performance of the FCHIP 
demonstration and the time needed to conduct the budget neutrality 
analysis, we are proposing that, in the event the demonstration is 
found not to have been budget neutral, any excess costs would be 
recouped over a period of three cost report periods, beginning in CY 
2020. Therefore, this proposal does not impact any national payment 
system for FY 2017.

I. Effects of Proposed Changes in the Capital IPPS

1. General Considerations

    For the impact analysis presented below, we used data from the 
December 2015 update of the FY 2015 MedPAR file and the December 
2015 update of the Provider-Specific File (PSF) that is used for 
payment purposes. Although the analyses of the proposed changes to 
the capital prospective payment system do not incorporate cost data, 
we used the December 2015 update of the most recently available 
hospital cost report data (FYs 2013 and 2014) 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 later in this section.
    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 December 2015 update of the FY 2015 MedPAR 
file, we simulated payments under the capital IPPS for FY 2016 and 
FY 2017 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 the 
proposed capital IPPS payments in FY 2017 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 receive 
outlier payments for those cases that qualify under the threshold 
established for each fiscal year. We modeled payments for each 
hospital by multiplying the capital Federal rate by the GAF and the 
hospital's case-mix. We then added estimated payments for indirect 
medical education, disproportionate share, and outliers, if 
applicable. For purposes of this impact analysis, the model includes 
the following assumptions:
     We estimate that the Medicare case-mix index will 
increase by 0.5 percent in both FYs 2016 and 2017.
     We estimate that Medicare discharges will be 
approximately 11.3 million in FY 2016 and 11.5 million in FY 2017.
     The capital Federal rate was updated beginning in FY 
1996 by an analytical framework that considers changes in the prices 
associated with capital-related costs and adjustments to account for 
forecast error, changes in the case-mix index, allowable changes in 
intensity, and other factors. As discussed in section III.A.1.a. of 
the Addendum to this proposed rule, the proposed update is 0.9 
percent for FY 2017.
     In addition to the proposed FY 2017 update factor, the 
proposed FY 2017 capital Federal rate was calculated based on a 
proposed GAF/DRG budget neutrality adjustment factor of 0.9993, a 
proposed outlier adjustment factor of 0.9374, and a proposed 
adjustment of (1/0.998) to permanently remove the 0.2 percent 
adjustment, as well as a proposed temporary 2-midnight adjustment of 
1.006. The 2-midnight adjustments are discussed in section V.C. of 
the preamble of this proposed rule and are consistent with the 
proposed 2-midnight adjustments on the operating Federal rate. As 
discussed in section V.C. of the preamble of this proposed rule, we 
are not proposing to make an additional MS-DRG documentation and 
coding adjustment to the capital IPPS Federal rates for FY 2017.

2. Results

    We used the actuarial model previously described in section I.I. 
of Appendix A of this proposed rule to estimate the potential impact 
of our proposed changes for FY 2017 on total capital payments per 
case, using a universe of 3,330 hospitals. As previously described, 
the individual hospital payment parameters are taken from the best 
available data, including the December 2015 update of the FY 2015 
MedPAR file, the December 2015 update to the PSF, and the most 
recent cost report data from the December 2015 update of HCRIS. In 
Table III, we present a comparison of estimated total payments per 
case for FY 2016 and estimated total payments per case for FY 2017 
based on the proposed FY 2017 payment policies. Column 2 shows 
estimates of payments per case under our model for FY 2016. Column 3 
shows estimates of payments per case under our model for FY 2017. 
Column 4 shows the total percentage change in payments from FY 2016 
to FY 2017. The change represented in Column 4 includes the proposed 
0.9 percent update to the capital Federal rate and other proposed 
changes in the adjustments to the capital Federal rate. The 
comparisons are provided by: (1) Geographic location; (2) region; 
and (3) payment classification.
    The simulation results show that, on average, proposed capital 
payments per case in FY 2017 are expected to increase as compared to 
capital payments per case in FY 2016. This expected increase is due 
to the proposed approximately 1.7 percent increase in the capital 
Federal rate for FY 2017 as compared to the FY 2016 capital Federal 
rate and, to a lesser degree, changes to the MS-DRG 
reclassifications and recalibrations. (For a discussion of the 
determination of the capital Federal rate, we refer readers to 
section III.A. of the Addendum to this proposed rule.) The proposed 
increase in

[[Page 25310]]

capital payments per case due to the effects of changes to the MS-
DRG reclassifications and recalibrations is expected to be slightly 
greater for urban hospitals than for rural hospitals. However, less 
than half of the hospitals in urban areas are expected to experience 
a slight increase in capital payments per case due to the effects of 
proposed changes to the GAFs, while the remainder of these urban 
area hospitals would experience no change or a decrease in capital 
payments per case due to proposed changes in the GAFs. For most 
hospitals in rural areas, proposed changes in the GAFs are expected 
to increase capital payments, to a greater or lesser extent, except 
for two rural areas where proposed changes in the GAFs are expected 
to decrease capital payments per case. These regional effects of the 
proposed changes to the GAFs on capital payments are consistent with 
the projected changes in payments due to proposed changes in the 
wage index (and proposed policies affecting the wage index) as shown 
in Table I in section I.G. of this Appendix A.
    The net impact of these proposed changes is an estimated 
proposed 2.0 percent change in capital payments per case from FY 
2016 to FY 2017 for all hospitals (as shown in Table III).
    The geographic comparison shows that, on average, hospitals in 
all classifications (urban and rural) would experience an increase 
in capital IPPS payments per case in FY 2017 as compared to FY 2016. 
Capital IPPS payments per case for hospitals in ``large urban 
areas'' have an estimated increase of 2.0 percent, while hospitals 
in rural areas, on average, are expected to experience a 2.1 percent 
increase in proposed capital payments per case from FY 2016 to FY 
2017. Capital IPPS payments per case for ``other urban hospitals'' 
are also estimated to increase 2.1 percent. The primary factor 
contributing to the difference in the proposed projected increase in 
capital IPPS payments per case for urban hospitals as compared to 
rural hospitals is the proposed changes to the MS-DRGs 
reclassifications and recalibrations.
    The comparisons by region show that the estimated increases in 
capital payments per case from FY 2016 to FY 2017 in urban areas 
range from a 2.7 percent increase for the West South Central urban 
region to a 0.7 percent increase for the New England urban region. 
For rural regions, the Middle Atlantic rural region is projected to 
experience the largest increase in capital IPPS payments per case of 
2.9 percent; the Mountain rural region is projected to experience 
the smallest increase in capital IPPS payments per case of 0.7 
percent. The proposed change in the GAFs is the main factor for the 
Mountain rural region experiencing the smallest projected increase 
in capital IPPS payments among rural regions, and it is also the 
main contributor for the smallest projected increase in capital IPPS 
payments for the New England urban region.
    Hospitals of all types of ownership (that is, voluntary 
hospitals, government hospitals, and proprietary hospitals) are 
expected to experience an increase in capital payments per case from 
FY 2016 to FY 2017. The proposed increase in capital payments for 
voluntary and proprietary hospitals is estimated to be 2.0 percent 
and 2.2 percent, respectively. For government hospitals, the 
increase is estimated to be 1.8 percent.
    Section 1886(d)(10) of the Act established the MGCRB. Hospitals 
may apply for reclassification for purposes of the wage index for FY 
2017. Reclassification for wage index purposes also affects the GAFs 
because that factor is constructed from the hospital wage index. To 
present the effects of the hospitals being reclassified as of the 
publication of this proposed rule for FY 2017, we show the average 
capital payments per case for reclassified hospitals for FY 2017. 
Urban reclassified hospitals are expected to experience an increase 
in capital payments of 2.0 percent; urban nonreclassified hospitals 
are expected to experience an increase in capital payments of 2.1 
percent. The estimated percentage increase for rural reclassified 
hospitals is 2.3 percent, and for rural nonreclassified hospitals, 
the estimated percentage increase is 1.5 percent. Other reclassified 
hospitals (section 1886(d)(8)(B) of the Act) are expected to 
experience the largest increase in capital payments of 2.6 percent.

                                Table III--Comparison of Total Payments per Case
                                 [FY 2016 payments compared to FY 2017 payments]
----------------------------------------------------------------------------------------------------------------
                                                                    Average FY      Average FY
                                                     Number of    2016 payments/  2017 payments/      Change
                                                     hospitals         case            case
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
    All hospitals...............................           3,330             895             913             2.0
    Large urban areas (populations over 1                  1,378             991           1,010             2.0
     million)...................................
    Other urban areas (populations of 1 million            1,134             855             873             2.1
     of fewer)..................................
    Rural areas.................................             818             607             619             2.1
    Urban hospitals.............................           2,512             929             948             2.0
        0-99 beds...............................             656             752             766             2.0
        100-199 beds............................             765             805             819             1.8
        200-299 beds............................             449             848             864             1.9
        300-499 beds............................             429             943             963             2.1
        500 or more beds........................             213           1,118           1,142             2.1
    Rural hospitals.............................             818             607             619             2.1
        0-49 beds...............................             320             509             519             2.0
        50-99 beds..............................             292             568             579             2.1
        100-149 beds............................             119             599             610             1.8
        150-199 beds............................              46             656             669             2.1
        200 or more beds........................              41             727             744             2.3
By Region:
    Urban by Region.............................           2,512             929             948             2.0
        New England.............................             116           1,011           1,018             0.7
        Middle Atlantic.........................             315           1,035           1,050             1.5
        South Atlantic..........................             406             826             843             2.1
        East North Central......................             390             892             913             2.3
        East South Central......................             147             780             800             2.5
        West North Central......................             163             907             926             2.1
        West South Central......................             384             839             862             2.7
        Mountain................................             163             961             980             1.9
        Pacific.................................             377           1,194           1,218             2.0
        Puerto Rico.............................              51             426             450             5.5
    Rural by Region.............................             818             607             619             2.1
        New England.............................              21             847             866             2.3
        Middle Atlantic.........................              55             579             595             2.9

[[Page 25311]]

 
        South Atlantic..........................             127             573             581             1.5
        East North Central......................             115             627             642             2.4
        East South Central......................             156             552             563             2.0
        West North Central......................              99             655             666             1.8
        West South Central......................             161             524             538             2.6
        Mountain................................              60             710             715             0.7
        Pacific.................................              24             794             813             2.4
By Payment Classification:
    All hospitals...............................           3,330             895             913             2.0
    Large urban areas (populations over 1                  1,372             992           1,011             2.0
     million)...................................
    Other urban areas (populations of 1 million            1,083             860             878             2.1
     of fewer)..................................
    Rural areas.................................             875             622             634             1.9
    Teaching Status:
        Non-teaching............................           2,275             755             770             1.9
        Fewer than 100 Residents................             804             868             886             2.1
        100 or more Residents...................             251           1,264           1,290             2.1
        Urban DSH:
            100 or more beds....................           1,608             954             973             2.1
            Less than 100 beds..................             330             688             700             1.8
        Rural DSH:
            Sole Community (SCH/EACH)...........             266             590             603             2.2
            Referral Center (RRC/EACH)..........             347             652             665             2.0
        Other Rural:
                100 or more beds................              33             537             545             1.4
                Less than 100 beds..............             149             515             523             1.6
    Urban teaching and DSH:
        Both teaching and DSH...................             880           1,029           1,051             2.1
        Teaching and no DSH.....................             107             928             942             1.5
        No teaching and DSH.....................           1,058             800             816             2.0
        No teaching and no DSH..................             410             804             820             1.9
    Rural Hospital Types:
        Non special status hospitals............           2,522             931             949             2.0
        RRC/EACH................................             193             754             774             2.6
        SCH/EACH................................             326             689             702             2.0
        SCH, RRC and EACH.......................             126             735             749             1.9
Hospitals Reclassified by the Medicare
 Geographic Classification Review Board:
    FY2017 Reclassifications:
        All Urban Reclassified..................             576             952             971             2.0
        All Urban Non-Reclassified..............           1,879             925             944             2.1
        All Rural Reclassified..................             277             636             651             2.3
        All Rural Non-Reclassified..............             484             570             578             1.5
        Other Reclassified Hospitals (Section                 57             582             597             2.6
         1886(d)(8)(B)).........................
    Type of Ownership:
        Voluntary...............................           1,914             908             927             2.0
        Proprietary.............................             858             803             820             2.2
        Government..............................             516             946             963             1.8
    Medicare Utilization as a Percent of
     Inpatient Days:
        0-25....................................             517           1,086           1,109             2.2
        25-50...................................           2,128             899             917             2.0
        50-65...................................             546             730             744             1.9
        Over 65.................................              94             518             528             2.0
----------------------------------------------------------------------------------------------------------------

J. Effects of Proposed Payment Rate Changes and Policy Changes 
Under the LTCH PPS

1. Introduction and General Considerations

    In section VII. of the preamble of this proposed rule and 
section V. of the Addendum to this proposed rule, we set forth the 
proposed annual update to the payment rates for the LTCH PPS for FY 
2017. In the preamble of this proposed rule, we specify the 
statutory authority for the proposed provisions that are presented, 
identify those proposed policies, and present rationales for our 
proposed decisions as well as alternatives that were considered. In 
this section of Appendix A to this proposed rule, we discuss the 
impact of the proposed changes to the payment rate, factors, and 
other payment rate policies related to the LTCH PPS that are 
presented in the preamble of this proposed rule in terms of their 
estimated fiscal impact on the Medicare budget and on LTCHs.
    There are 420 LTCHs included in this impacts analysis, which 
includes data for 78 nonprofit (voluntary ownership control) LTCHs, 
325 proprietary LTCHs, and 17 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 consistent with the development 
of the proposed FY 2017 MS-LTC-DRG relative weights (discussed in 
section VII.C.3.c. of the preamble of this proposed rule).) In the 
impact analysis, we used the proposed payment rate, factors, and 
policies presented in this proposed rule, which includes the

[[Page 25312]]

continued transition to the site neutral payment rate required by 
section 1886(m)(6)(A) of the Act (discussed in section VII.B. of the 
preamble of this proposed rule), the proposed 1.45 percent annual 
update to the LTCH PPS standard Federal payment rate in accordance 
with section 1886(m)(5)(C) of the Act (which is based on the full 
estimated increase of the proposed revised and rebased LTCH PPS 
market basket and the reductions required by sections 1886(m)(3) and 
(m)(4) of the Act), the proposed update to the MS-LTC-DRG 
classifications and relative weights, the proposed update to the 
wage index values and labor-related share, and the best available 
claims and CCR data to estimate the proposed change in payments for 
FY 2017.
    Under the dual rate LTCH PPS payment structure, payment for LTCH 
discharges that meet the criteria for exclusion from the site 
neutral payment rate (that is, LTCH PPS standard Federal payment 
rate cases) is based on the LTCH PPS standard Federal payment rate. 
Consistent with the statute, the site neutral payment rate is the 
lower of the IPPS comparable per diem amount as determined under 
Sec.  412.529(d)(4), including any applicable outlier payments as 
specified in Sec.  412.525(a); or 100 percent of the estimated cost 
of the case as determined under existing Sec.  412.529(d)(2). In 
addition, there are two separate HCO targets--one for LTCH PPS 
standard Federal payment rate cases and one for site neutral payment 
rate cases. The statute also establishes a transitional payment 
method for cases that are paid the site neutral payment rate for 
LTCH discharges occurring in cost reporting periods beginning during 
FY 2016 and FY 2017. The transitional payment amount for site 
neutral payment rate cases is a blended payment rate, which is 
calculated as 50 percent of the applicable site neutral payment rate 
amount for the discharge as determined under new Sec.  412.522(c)(1) 
and 50 percent of the applicable LTCH PPS standard Federal payment 
rate for the discharge determined under Sec.  412.523.
    Based on the best available data for the 420 LTCHs in our 
database that were considered in the analyses used for this proposed 
rule, we estimate that overall LTCH PPS payments in FY 2017 would 
decrease by approximately 6.9 percent (or approximately $355 
million). This projection takes into account estimated payments for 
LTCH cases in our database that would have met the patient-level 
criteria and been paid the LTCH PPS standard Federal payment rate if 
those criteria had been in effect at the time of the discharge, and 
estimated payments for LTCH cases that would not have met the 
patient-level criteria and been paid under the site neutral payment 
rate if that rate had been in effect at the time of the discharge, 
as described in the following paragraph.
    The statutory transitional payment method for cases that are 
paid the site neutral payment rate for LTCH discharges occurring in 
cost reporting periods beginning during FY 2016 or FY 2017 uses a 
blended payment rate, which is determined as 50 percent of the site 
neutral payment rate amount for the discharge and 50 percent of the 
standard Federal prospective payment rate amount for the discharge 
(Sec.  412.522(c)(3)). The transitional blended payment rate uses 
the same blend percentages (that is, 50 percent) for both years of 
the 2-year transition period. Therefore, when estimating FY 2017 
LTCH PPS payments for site neutral payment rate cases for this 
impact analysis, the transitional blended payment rate was applied 
to all such cases because all discharges in FY 2017 will either be 
in the hospital's cost reporting period that began during FY 2016 or 
in the hospital's cost reporting period that will begin during FY 
2017. However, when estimating FY 2016 LTCH PPS payments for site 
neutral payment rate cases for this impact analysis because the 
statute specifies that the site neutral payment rate effective date 
for a given LTCH is determined based on the date on which that 
LTCH's cost reporting period begins during FY 2016, we included an 
adjustment to account for this rolling effective date, consistent 
with the approach used for the LTCH PPS impact analysis presented in 
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49831). This approach 
accounts for the fact that LTCHs with discharges in FY 2016 that are 
in cost reporting periods that begin before October 1, 2015, 
continued to be paid for all discharges (including those that did 
not meet the patient-level criteria for exclusion from the site 
neutral payment rate) at the LTCH PPS standard Federal payment rate 
until the start of their first cost reporting period beginning after 
October 1, 2015.
    For purposes of this impact analysis, to estimate total FY 2016 
LTCH PPS payments for site neutral payment rate cases, we used the 
same approach as was used in the FY 2016 IPPS/LTCH PPS final rule. 
In summary, under this approach, we grouped LTCHs based on the 
quarter of FY 2016 their cost reporting periods began during FY 
2016. For example, LTCHs with cost reporting periods that began 
during October through December 2015 began during the first quarter 
of FY 2016. For LTCHs grouped in each quarter of FY 2016, we modeled 
those LTCHs' estimated FY 2016 site neutral payment rate payments 
under the transitional blended payment rate based on the quarter in 
which the LTCHs in each group become subject to the site neutral 
payment rate. Then, we modeled for LTCHs grouped in each quarter of 
FY 2016, estimated FY 2016 payments under the LTCH PPS standard 
Federal payment rate based on the quarter in which the LTCHs in each 
group become subject to the site neutral payment rate. (For 
additional details on our method of taking into account the rolling 
effective date of the application of the site neutral payment rate 
when estimating payments for FY 2016, we refer readers to the 
description presented in FY 2016 IPPS/LTCH PPS final rule (80 FR 
49831).) We continue to believe that this approach is a reasonable 
means of taking the rolling effective date into account when 
estimating FY 2016 payments.
    Based on the fiscal year start dates recorded in the December 
2015 update of the PSF, of the 420 LTCHs in our database of LTCH 
claims from the December 2015 update of the FY 2015 MedPAR files 
used for this proposed rule, the following percentages apply in the 
approach previously described: 9.9 percent of site neutral payment 
rate cases are from LTCHs whose cost reporting periods begin in the 
first quarter of FY 2016; 26.4 percent of site neutral payment rate 
cases are from LTCHs whose cost reporting periods begin in the 
second quarter of FY 2016; 10.3 percent of site neutral payment rate 
cases are from LTCHs whose cost reporting periods begin in the third 
quarter of FY 2016; and 53.4 percent of site neutral payment rate 
cases are from LTCHs whose cost reporting periods begin in the 
fourth quarter of FY 2016.
    Based on the FY 2015 LTCH cases that were used for the analyses 
in this proposed rule, approximately 45 percent of those LTCH cases 
would have been classified as site neutral payment rate cases if the 
site neutral payment rate had been in effect in FY 2015 (that is, 45 
percent of such LTCH cases would not have met the patient-level 
criteria for exclusion from the site neutral payment rate). Our 
Office of the Actuary estimates that the percent of LTCH PPS cases 
that will be paid at the site neutral payment rate in FY 2017 will 
not change significantly from the historical data. Taking into 
account the transitional blended payment rate and other proposed 
changes that would apply to the site neutral payment rate cases in 
FY 2017, we estimate that aggregate LTCH PPS payments for these site 
neutral payment rate cases would decrease by approximately 21 
percent (or approximately $367 million).
    Approximately 55 percent of LTCH cases are expected to meet the 
patient-level criteria for exclusion from the site neutral payment 
rate in FY 2017, and will be paid based on the LTCH PPS standard 
Federal payment rate for the full year. We estimate that total LTCH 
PPS payments for these LTCH PPS standard Federal payment rate cases 
in FY 2017 would increase approximately 0.3 percent (or 
approximately $12 million). This estimated increase in LTCH PPS 
payments for LTCH PPS standard Federal payment rate cases in FY 2017 
is primarily due to the combined effects of the proposed 1.45 
percent annual update to the LTCH PPS standard Federal payment rate 
for FY 2017 (discussed in section V.A. of the Addendum to this 
proposed rule) and an estimated decrease in HCO payments for these 
cases (discussed in section V.D.3. of the Addendum to this proposed 
rule).
    Based on the 420 LTCHs that were represented in the FY 2015 LTCH 
cases that were used for the analyses in this proposed rule, we 
estimate that aggregate FY 2017 LTCH PPS payments would be 
approximately $4.757 billion, as compared to estimated aggregate FY 
2016 LTCH PPS payments of approximately $5.112 billion, resulting in 
an estimated overall decrease in LTCH PPS payments of approximately 
$355 million. Because the combined distributional effects and 
estimated payment changes exceed $100 million, this proposed rule is 
a major economic rule. We note that this estimated $355 million 
decrease in LTCH PPS payments in FY 2017 (which includes estimated 
payments for LTCH PPS standard Federal payment rate cases and site 
neutral payment rate cases) does not reflect changes in LTCH 
admissions or case-mix intensity, which would also affect the 
overall payment effects of the proposals in this proposed rule.

[[Page 25313]]

    The LTCH PPS standard Federal payment rate for FY 2016 is 
$41,762.85. For FY 2017, we are proposing an LTCH PPS standard 
Federal payment rate of $42,314.31, which reflects the proposed 1.45 
percent annual update to the LTCH PPS standard Federal payment rate 
and the proposed area wage budget neutrality factor of 0.998723 to 
ensure that the proposed changes in the wage indexes and labor-
related share do not influence aggregate payments. For LTCHs that 
fail to submit data for the LTCH QRP, in accordance with section 
1886(m)(5)(C) of the Act, we are proposing an LTCH PPS standard 
Federal payment rate of $41,480.12. This proposed reduced LTCH PPS 
standard Federal payment rate reflects the updates previously 
described as well as the required 2.0 percentage point reduction to 
the annual update for failure to submit data under the LTCH QRP. We 
note that the factors previously described to determine the proposed 
FY 2017 LTCH PPS standard Federal payment rate are applied to the FY 
2016 LTCH PPS standard Federal rate set forth under Sec.  
412.523(c)(3)(xi) (that is, $41,762.85).
    Table IV shows the estimated impact for LTCH PPS standard 
Federal payment rate cases. The estimated change attributable solely 
to the proposed annual update to the LTCH PPS standard Federal 
payment rate is projected to result in an increase of 1.3 percent in 
payments per discharge for LTCH PPS standard Federal payment rate 
cases from FY 2016 to FY 2017, on average, for all LTCHs (Column 6). 
In addition to the proposed annual update to the LTCH PPS standard 
Federal payment rate for FY 2017, the estimated increase of 1.3 
percent shown in Column 6 of Table IV also includes estimated 
payments for SSO cases that will be paid using special methodologies 
that are not affected by the proposed annual update to the LTCH PPS 
standard Federal payment rate, as well as the reduction that is 
applied to the proposed annual update of LTCHs that do not submit 
the required LTCH QRP data. Therefore, for all hospital categories, 
the projected increase in payments based on the proposed LTCH PPS 
standard Federal payment rate to LTCH PPS standard Federal payment 
rate cases is somewhat less than the proposed 1.45 percent proposed 
annual update for FY 2017.
    For FY 2017, we are proposing to update the wage index values 
based on the most recent available data, and we are proposing to 
continue to use labor market areas based on the OMB CBSA 
delineations (as discussed in section V.B. of the Addendum to this 
proposed rule). In addition, we are proposing an increase in the 
labor-related share from 62.0 percent to 66.6 percent under the LTCH 
PPS for FY 2017, based on the most recent available data on the 
relative importance of the labor-related share of operating and 
capital costs of the proposed 2013-based LTCH market basket (as 
discussed in section VII.D. of the preamble of this proposed rule). 
We also are proposing to apply an area wage level budget neutrality 
factor of 0.998723 to ensure that the proposed changes to the wage 
data and labor-related share do not result in a change in estimated 
aggregate LTCH PPS payments to LTCH PPS standard Federal payment 
rate cases, which decreases the LTCH PPS standard Federal payment 
rate by approximately 0.13 percent.
    We currently estimate total HCO payments for LTCH PPS standard 
Federal payment rate cases would decrease from FY 2016 to FY 2017. 
Based on the FY 2015 LTCH cases that were used for the analyses in 
this proposed rule, we estimate that the FY 2016 HCO threshold of 
$16,423 (as established in the FY 2016 IPPS/LTCH PPS final rule) 
would result in estimated HCO payments for LTCH PPS standard Federal 
payment rate cases in FY 2016 that are above the estimated 8 percent 
target. Specifically, we currently estimate that HCO payments for 
LTCH PPS standard Federal payment rate cases would be approximately 
9.1 percent of the estimated total LTCH PPS standard Federal payment 
rate payments in FY 2016. Combined with our estimate that FY 2017 
HCO payments for LTCH PPS standard Federal payment rate cases would 
be 8.0 percent of estimated total LTCH PPS standard Federal payment 
rate payments in FY 2017, this results in the estimated decrease in 
HCO payments of approximately 1.1 percent between FY 2016 and FY 
2017.
    In calculating these estimated HCO payments, we increased 
estimated costs by our actuaries' projected market basket percentage 
increase factor. This increase in estimated costs also results in a 
projected increase in SSO payments in FY 2017 (because 100 percent 
of the estimated cost of the case is an option in the SSO payment 
formula (Sec.  412.529)). We estimate that these increased SSO 
payments in FY 2017 would increase total payments for LTCH PPS 
standard Federal payment rate cases by approximately 0.25 percent. 
(Payments for SSO cases represent approximately 14 percent of the 
estimated total FY 2017 payments for LTCH PPS standard Federal 
payment rate cases.)
    Table IV shows the estimated impact of the proposed payment rate 
and policy changes on LTCH PPS payments for LTCH PPS standard 
Federal payment rate cases for FY 2017 by comparing estimated FY 
2016 LTCH PPS payments to estimated FY 2017 LTCH PPS payments. (As 
noted earlier, our analysis does not reflect changes in LTCH 
admissions or case-mix intensity.) The projected increase in 
payments from FY 2016 to FY 2017 for LTCH PPS standard Federal 
payment rate cases of 0.3 percent is attributable to the impacts of 
the change to the LTCH PPS standard Federal payment rate (1.3 
percent in Column 6) and the effect of the estimated decrease in HCO 
payments for LTCH PPS standard Federal payment cases (-1.1 percent), 
and the estimated increase in payments for SSO cases (0.25 percent). 
We note that these impacts do not include LTCH PPS site neutral 
payment rate cases for the reasons discussed in section I.J.3. of 
this Appendix.
    As we discuss in detail throughout this proposed rule, based on 
the most recent available data, we believe that the provisions of 
this proposed rule relating to the LTCH PPS, which are projected to 
result in an overall decrease in estimated aggregate LTCH PPS 
payments, and the resulting LTCH PPS payment amounts would result in 
appropriate Medicare payments that are consistent with the statute.

2. Impact on Rural Hospitals

    For purposes of section 1102(b) of the Act, we define a small 
rural hospital as a hospital that is located outside of an urban 
area and has fewer than 100 beds. As shown in Table IV, we are 
projecting a 0.3 percent increase in estimated payments for LTCH PPS 
standard Federal payment rate cases. This estimated impact is based 
on the FY 2015 data for the 21 rural LTCHs (out of 420 LTCHs) that 
were used for the impact analyses shown in Table VI.

3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes and 
Policy Changes

a. Budgetary Impact

    Section 123(a)(1) of the BBRA requires that the PPS developed 
for LTCHs ``maintain budget neutrality.'' We believe that the 
statute's mandate for budget neutrality applies only to the first 
year of the implementation of the LTCH PPS (that is, FY 2003). 
Therefore, in calculating the FY 2003 standard Federal payment 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.
    Section 1886(m)(6)(A) of the Act establishes a dual rate LTCH 
PPS payment structure with two distinct payment rates for LTCH 
discharges beginning in FY 2016. Under this statutory change, LTCH 
discharges that meet the patient-level criteria for exclusion from 
the site neutral payment rate (that is, LTCH PPS standard Federal 
payment rate cases) are paid based on the LTCH PPS standard Federal 
payment rate. LTCH discharges paid at the site neutral payment rate 
are generally paid the lower of the IPPS comparable per diem amount, 
including any applicable HCO payments, or 100 percent of the 
estimated cost of the case. The statute also establishes a 
transitional payment method for cases that are paid at the site 
neutral payment rate for LTCH discharges occurring in cost reporting 
periods beginning during FY 2016 or FY 2017, under which the site 
neutral payment rate cases are paid based on a blended payment rate 
calculated as 50 percent of the applicable site neutral payment rate 
amount for the discharge and 50 percent of the applicable LTCH PPS 
standard Federal payment rate for the discharge.
    As discussed in section I.J.1. of this Appendix, we project a 
decrease in aggregate LTCH PPS payments in FY 2017 of approximately 
$355 million. This estimated decrease in payments reflects the 
projected increase in payments to LTCH PPS standard Federal payment 
rate cases of approximately $12 million and the projected decrease 
in payments to site neutral payment rate cases of approximately $367 
million under the dual rate LTCH PPS payment rate structure required 
by the statute beginning in FY 2016.
    As discussed in section VII.B.7.b. of the preamble of this 
proposed rule, our actuaries project cost and resource changes for 
site neutral payment rate cases due to the site

[[Page 25314]]

neutral payment rates required under the statute. Specifically, our 
actuaries project that the costs and resource use for cases paid at 
the site neutral payment rate will likely be lower, on average, than 
the costs and resource use for cases paid at the LTCH PPS standard 
Federal payment rate, and will likely mirror the costs and resource 
use for IPPS cases assigned to the same MS-DRG. While we are able to 
incorporate this projection at an aggregate level into our payment 
modeling, because the historical claims data that we are using in 
this proposed rule to project estimated FY 2017 LTCH PPS payments 
(that is, FY 2015 LTCH claims data) do not reflect this actuarial 
projection, we are unable to model the impact of the change in LTCH 
PPS payments for site neutral payment rate cases at the same level 
of detail with which we are able to model the impacts of the changes 
to LTCH PPS payments for LTCH PPS standard Federal payment rate 
cases. Therefore, Table IV only reflects proposed changes in LTCH 
PPS payments for LTCH PPS standard Federal payment rate cases and, 
unless otherwise noted, the remaining discussion in section I.J.3. 
of this Appendix refers only to the impact on LTCH PPS payments for 
LTCH PPS standard Federal payment rate cases. In the following 
section, we present our provider impact analysis for the changes 
that affect LTCH PPS payments for LTCH PPS standard Federal payment 
rate cases.

b. Impact on Providers

    Under the dual rate LTCH PPS payment structure, there are two 
distinct payment rates for LTCH discharges occurring in cost 
reporting periods beginning on or after October 1, 2016. Under that 
statute, any discharges that occur on or after October 1, 2015, but 
prior to the start of the LTCH's FY 2016 cost reporting period, will 
be paid at the LTCH PPS standard Federal payment rate. On or after 
the start of an LTCH's FY 2017 cost reporting period, discharges are 
paid based on the nature of the case. As described previously, LTCH 
PPS standard Federal payment rate cases are defined as LTCH 
discharges that meet the patient-level criteria to be excluded from 
the typically lower site neutral payment rate, and site neutral 
payment rate cases are defined as LTCH discharges that do not meet 
the patient-level criteria and generally will be paid the lower site 
neutral payment rate. However, for discharges occurring in cost 
reporting periods beginning in FY 2016 or 2017, the statute 
specifies that site neutral payment rate cases are paid based on a 
transitional payment method that is calculated as 50 percent of the 
applicable site neutral payment rate amount and 50 percent of the 
applicable LTCH PPS standard Federal payment rate.
    The basic methodology for determining a per discharge payment 
for LTCH PPS standard Federal payment rate cases is currently set 
forth under Sec. Sec.  412.515 through 412.536. In addition to 
adjusting the LTCH PPS standard Federal payment rate by the MS-LTC-
DRG relative weight, we make adjustments to account for area wage 
levels and SSOs. LTCHs located in Alaska and Hawaii also have their 
payments adjusted by a COLA. Under our application of the dual rate 
LTCH PPS payment structure, the LTCH PPS standard Federal payment 
rate is generally only used to determine payments for LTCH PPS 
standard Federal payment rate cases (that is, those LTCH PPS cases 
that meet the statutory criteria to be excluded from the site 
neutral payment rate). LTCH discharges that do not meet the patient-
level criteria for exclusion are paid the site neutral payment rate, 
which we are calculating as the lower of the IPPS comparable per 
diem amount as determined under Sec.  412.529(d)(4), including any 
applicable outlier payments, or 100 percent of the estimated cost of 
the case as determined under existing Sec.  412.529(d)(2). In 
addition, when certain thresholds are met, LTCHs also receive HCO 
payments for both LTCH PPS standard Federal payment rate cases and 
site neutral payment rate cases that are paid at the IPPS comparable 
per diem amount.
    To understand the impact of the changes to the LTCH PPS payments 
for LTCH PPS standard Federal payment rate cases presented in this 
proposed rule on different categories of LTCHs for FY 2017, it is 
necessary to estimate payments per discharge for FY 2016 using the 
rates, factors, and the policies established in the FY 2016 IPPS/
LTCH PPS final rule and estimate payments per discharge for FY 2017 
using the rates, factors, and the policies proposed in this FY 2017 
IPPS/LTCH PPS proposed rule (as discussed in section VII. of the 
preamble of this proposed rule and section V. of the Addendum to 
this proposed rule). As discussed elsewhere in this proposed rule, 
these estimates 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. The resulting 
analyses can then be used to compare how our proposed policies 
applicable to LTCH PPS standard Federal payment rate cases affect 
different groups of LTCHs.
    For the following analysis, we group hospitals based on 
characteristics provided in the OSCAR data, FY 2012 through FY 2013 
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.

c. Calculation of LTCH PPS Payments for LTCH PPS Standard Federal 
Payment Rate Cases

    For purposes of this impact analysis, to estimate the per 
discharge payment effects of our proposed policies on payments for 
LTCH PPS standard Federal payment rate cases, we simulated FYs 2016 
and 2017 payments on a case-by-case basis using historical LTCH 
claims from the FY 2015 MedPAR files that would have met the 
criteria to be paid at the LTCH PPS standard Federal payment rate if 
the statutory patient-level criteria had been in effect at the time 
of discharge for those cases. For modeling FY 2016 LTCH PPS 
payments, we used the FY 2016 standard Federal payment rate of 
$41,762.85, or $40,941.55 for LTCHs that failed to submit quality 
data as required under the requirements of the LTCH QRP. Similarly, 
for modeling payments based on the FY 2017 LTCH PPS standard Federal 
payment rate, we used the proposed FY 2017 standard Federal payment 
rate of $42,314.31, or $41,480.12 for LTCHs that failed to submit 
quality data as required under the requirements of the LTCH QRP. In 
each case, we applied the applicable proposed adjustments for area 
wage levels and the COLA for LTCHs located in Alaska and Hawaii. 
Specifically, for modeling FY 2016 LTCH PPS payments, we used the 
current FY 2016 labor-related share (62.0 percent); the wage index 
values established in the Tables 12A through 12D listed in the 
Addendum to the FY 2016 IPPS/LTCH PPS final rule (which are 
available via the Internet on the CMS Web site); the FY 2016 HCO 
fixed-loss amount for LTCH PPS standard Federal payment rate cases 
of $16,423 (as discussed in section V.D. of the Addendum to that 
final rule) and the FY 2016 COLA factors (shown in the table in 
section V.C. of the Addendum to that final rule) to adjust the FY 
2016 nonlabor-related share (38.0 percent) for LTCHs located in 
Alaska and Hawaii. Similarly, for modeling FY 2017 LTCH PPS 
payments, we used the proposed FY 2017 LTCH PPS labor-related share 
(66.6 percent), the proposed FY 2017 wage index values from Tables 
12A and 12B listed in section VI. of the Addendum to this proposed 
rule (which are available via the Internet on the CMS Web site), the 
proposed FY 2017 fixed-loss amount for LTCH PPS standard Federal 
payment rate cases of $22,728 (as discussed in section V.D.3. of the 
Addendum to this proposed rule), and the proposed FY 2017 COLA 
factors (shown in the table in section V.C. of the Addendum to this 
proposed rule) to adjust the proposed FY 2017 nonlabor-related share 
(33.4 percent) for LTCHs located in Alaska and Hawaii.
    As previously discussed, our impact analysis reflects an 
estimated change in payments for SSO cases, as well as an estimated 
decrease in HCO payments for LTCH PPS standard Federal payment rate 
cases (as described previously in section I.J.1. of this Appendix). 
In modeling proposed payments for SSO and HCO cases for LTCH PPS 
standard Federal payment rate cases, we applied an inflation factor 
of 4.8 percent (determined by the Office of the Actuary) to update 
the 2015 costs of each case.
    The impacts that follow reflect the estimated ``losses'' or 
``gains'' among the various classifications of LTCHs from FY 2016 to 
FY 2017 based on the proposed payment rates and policy changes 
applicable to LTCH PPS standard Federal payment rate cases presented 
in this proposed rule. Table IV illustrates the estimated aggregate 
impact of the change in LTCH PPS payments for LTCH PPS standard 
Federal payment rate cases among various classifications of LTCHs. 
(As discussed previously, these impacts do not include LTCH PPS site 
neutral payment rate cases.)
     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 
expected to meet the LTCH PPS standard Federal payment rate 
criteria.
     The fourth column shows the estimated FY 2016 payment 
per discharge for LTCH

[[Page 25315]]

cases expected to meet the LTCH PPS standard Federal payment rate 
criteria (as described previously).
     The fifth column shows the estimated FY 2017 payment 
per discharge for LTCH cases expected to meet the LTCH PPS standard 
Federal payment rate criteria (as described previously).
     The sixth column shows the percentage change in 
estimated payments per discharge for LTCH cases expected to meet the 
LTCH PPS standard Federal payment rate criteria from FY 2016 to FY 
2017 due to the annual update to the standard Federal rate (as 
discussed in section V.A.2. of the Addendum to this proposed rule).
     The seventh column shows the percentage change in 
estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases from FY 2016 to FY 2017 for proposed changes to 
the area wage level adjustment (that is, the proposed wage indexes 
and the proposed labor-related share), including the application of 
the proposed area wage level budget neutrality factor (as discussed 
in section V.B. of the Addendum to this proposed rule).
     The eighth column shows the percentage change in 
estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases from FY 2016 (Column 4) to FY 2017 (Column 5) for 
all proposed changes (and includes the effect of estimated changes 
to HCO and SSO payments).

              Table IV--Impact of Proposed Payment Rate and Policy Changes to LTCH PPS Payments for Standard Payment Rate Cases for FY 2017
                                           [Estimated FY 2016 payments compared to estimated FY 2017 payments]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Proposed        Proposed
                                                                                             Proposed     percent change  percent change
                                                                                            average FY      in payments     in payments   Percent change
                                                          Number of LTCH    Average FY     2017 LTCH PPS   per case due    per case due    in  payments
                                             Number of     PPS standard    2016 LTCH PPS     standard      to the annual   to changes to   per case from
           LTCH classification                 LTCHs          Federal       payment per       Federal      update to the   the area wage   FY 2016 to FY
                                                           payment rate        case        payment rate      LTCH PPS          level       2017 for all
                                                               cases                        payment per      standard       adjustment       proposed
                                                                                             case \1\      Federal rate     with budget     changes \4\
                                                                                                                \2\       neutrality \3\
(1)                                                  (2)             (3)             (4)             (5)             (6)             (7)             (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS...........................             420          72,064         $46,944         $47,105             1.3             0.0             0.3
BY LOCATION:
    RURAL...............................              21           2,271          38,858          38,808             1.3            -0.6             0.2
    URBAN...............................             399          69,793          47,207          47,375             1.3             0.0             0.3
        LARGE...........................             202          41,448          49,428          49,738             1.3             0.2             0.3
        OTHER...........................             197          28,345          43,959          43,920             1.3            -0.3             0.2
BY PARTICIPATION DATE:
    BEFORE OCT. 1983....................              14           1,929          42,951          43,133             1.3             0.0             0.3
    OCT. 1983-SEPT. 1993................              42           8,856          53,153          53,438             1.2             0.3             0.4
    OCT. 1993-SEPT. 2002................             174          31,584          45,536          45,721             1.3             0.1             0.2
    OCTOBER 2002 and AFTER..............             190          29,695          46,849          46,947             1.3            -0.2             0.2
BY OWNERSHIP TYPE:
    VOLUNTARY...........................              78          10,016          47,838          47,719             1.3            -0.3             0.2
    PROPRIETARY.........................             325          60,366          46,633          46,844             1.3             0.1             0.3
GOVERNMENT..............................              17           1,682          52,773          52,799             1.3             0.0             0.3
BY REGION:
    NEW ENGLAND.........................              13           2,792          43,643          43,864             1.3             0.0             0.3
    MIDDLE ATLANTIC.....................              26           5,486          51,620          52,093             1.3             0.5             0.3
    SOUTH ATLANTIC......................              63          12,021          46,804          46,754             1.3            -0.4             0.3
    EAST NORTH CENTRAL..................              69          11,588          46,982          47,092             1.3            -0.2             0.2
    EAST SOUTH CENTRAL..................              34           5,367          44,251          44,005             1.3            -0.8             0.2
    WEST NORTH CENTRAL..................              29           3,877          46,850          46,623             1.3            -0.4             0.2
    WEST SOUTH CENTRAL..................             128          18,590          42,312          42,344             1.3            -0.1             0.2
    MOUNTAIN............................              33           4,287          49,026          49,174             1.3             0.2             0.2
    PACIFIC.............................              25           8,056          56,476          57,556             1.2             1.2             0.4
BY BED SIZE:
    BEDS: 0-24..........................              26           1,497          43,923          44,126             1.3            -0.1             0.2
    BEDS: 25-49.........................             194          24,575          44,012          44,018             1.3            -0.4             0.2
    BEDS: 50-74.........................             119          19,597          48,823          48,938             1.3             0.1             0.3
    BEDS: 75-124........................              48          12,941          49,992          50,356             1.3             0.3             0.3
    BEDS: 125-199.......................              23           8,347          46,472          46,688             1.3             0.1             0.3
    BEDS: 200 +.........................              10           5,107          47,771          48,242             1.2             0.4             0.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated proposed FY 2017 LTCH PPS payments for LTCH PPS standard Federal payment rate criteria based on the proposed payment rate and factor
  changes applicable to such cases presented in the preamble of and the Addendum to this proposed rule.

[[Page 25316]]

 
\2\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2016 to FY 2017 for the proposed annual
  update to the LTCH PPS standard Federal payment rate. The temporary exclusion from the site neutral payment rate provided by section 231 of Public Law
  114-113 is not reflected in these estimated FY 2017 LTCH PPS payments.
\3\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2016 to FY 2017 for proposed changes to
  the area wage level adjustment under Sec.   412.525(c) (as discussed in section V.B. of the Addendum to this proposed rule).
\4\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2016 (shown in Column 4) to FY 2017
  (shown in Column 5), including all of the proposed changes to the rates and factors applicable to such cases presented in the preamble and the
  Addendum to this proposed rule. We note that this column, which shows the percent change in estimated payments per discharge for all proposed changes,
  does not equal the sum of the percent changes in estimated payments per discharge for the proposed annual update to the LTCH PPS standard Federal
  payment rate (Column 6) and the proposed 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 for LTCH PPS standard Federal
  payment rate cases (as discussed in this impact analysis), as well as other interactive effects that cannot be isolated.

d. Results

    Based on the FY 2015 LTCH cases (from 420 LTCHs) that were used 
for the analyses in this proposed rule, we have prepared the 
following summary of the impact (as shown in Table IV) of the 
proposed LTCH PPS payment rate and proposed policy changes for LTCH 
PPS standard Federal payment rate cases presented in this proposed 
rule. The impact analysis in Table IV shows that estimated payments 
per discharge for LTCH PPS standard Federal payment rate cases are 
expected to increase 0.3 percent, on average, for all LTCHs from FY 
2016 to FY 2017 as a result of the proposed payment rate and policy 
changes applicable to LTCH PPS standard Federal payment rate cases 
presented in this proposed rule. This estimated 0.3 percent increase 
in LTCH PPS payments per discharge was determined by comparing 
estimated FY 2017 LTCH PPS payments (using the proposed payment 
rates and factors discussed in this proposed rule) to estimated FY 
2016 LTCH PPS payments for LTCH discharges which would be LTCH PPS 
standard Federal payment rate cases if the dual rate LTCH PPS 
payment structure had been in effect at the time of the discharge 
(as described in section I.J.3. of this Appendix).
    As stated previously, we are proposing to update the LTCH PPS 
standard Federal payment rate for FY 2017 by 1.45 percent based on 
the estimate of the proposed 2013-based LTCH PPS market basket 
increase (2.7 percent), the proposed reduction of 0.5 percentage 
point for the MFP adjustment, and the 0.75 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 LTCH QRP, as required by section 1886(m)(5)(C) of the Act, a 2.0 
percentage point reduction is applied to the proposed annual update 
to the LTCH PPS standard Federal payment rate. As explained earlier 
in this section, for most categories of LTCHs (as shown in Table IV, 
Column 6), the estimated payment increase due to the 1.45 percent 
proposed annual update to the LTCH PPS standard Federal payment rate 
is projected to result in approximately a 1.3 percent increase in 
estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases for all LTCHs from FY 2016 to FY 2017. This is 
because our estimate of the changes in payments due to the proposed 
update to the LTCH PPS standard Federal payment rate also reflects 
estimated payments for SSO cases that are paid using special 
methodologies that are not affected by the proposed update to the 
LTCH PPS standard Federal payment rate. Consequently, for certain 
hospital categories, we estimate that payments to LTCH PPS standard 
Federal payment rate cases may increase by less than 1.45 percent 
due to the proposed annual update to the LTCH PPS standard Federal 
payment rate for FY 2017.

(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 3 percent of all LTCH PPS standard Federal payment 
rate cases are expected to be treated in these rural hospitals. The 
impact analysis presented in Table IV shows that the overall average 
percent increase in estimated payments per discharge for LTCH PPS 
standard Federal payment rate cases from FY 2016 to FY 2017 for all 
hospitals is 0.3 percent. For rural LTCHs, the overall percent 
change for LTCH PPS standard Federal payment rate cases is estimated 
to be a 0.2 percent increase, while for urban LTCHs, we estimate the 
increase will be 0.3 percent. Large urban LTCHs are projected to 
experience an increase of 0.3 percent in estimated payments per 
discharge for LTCH PPS standard Federal payment rate cases from FY 
2016 to FY 2017, and other urban LTCHs are projected to experience 
an increase of 0.2 percent in estimated payments per discharge for 
LTCH PPS standard Federal payment rate cases from FY 2016 to FY 
2017, 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 expected percentage of LTCH PPS 
standard Federal payment rate cases (approximately 44 percent) are 
in LTCHs that began participating in the Medicare program between 
October 1993 and September 2002, and they are projected to 
experience a 0.2 percent increase in estimated payments per 
discharge for LTCH PPS standard Federal payment rate cases from FY 
2016 to FY 2017, as shown in Table IV.
    Approximately 3.3 percent of LTCHs began participating in the 
Medicare program before October 1983, and these LTCHs are projected 
to experience an average percent increase (0.3 percent) in estimated 
payments per discharge for LTCH PPS standard Federal payment rate 
cases from FY 2016 to FY 2017, 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 larger than average increase (0.4 percent) in 
estimated payments for LTCH PPS standard Federal payment rate cases 
from FY 2016 to FY 2017, which is primarily due to a projected 
larger than average increase in payments due to the proposed changes 
to the area wage adjustment. LTCHs that began participating in the 
Medicare program after October 1, 2002, which treat approximately 41 
percent of all LTCH PPS standard Federal payment rate cases, are 
projected to experience a 0.2 percent increase in estimated payments 
from FY 2016 to FY 2017.

(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 (approximately 77 
percent) of LTCHs are identified as proprietary, while government 
owned and operated LTCHs represent approximately 4 percent of LTCHs. 
Based on ownership type, voluntary LTCHs are expected to experience 
an average increase in payments to LTCH PPS standard Federal payment 
rate cases of 0.2 percent. Both proprietary and government owned and 
operating LTCHs are expected to experience an increase of 0.3 
percent in payments to LTCH PPS standard Federal payment rate cases 
from FY 2016 to FY 2017.

(4) Census Region

    Estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases for FY 2017 are projected to increase for LTCHs 
located in all regions in comparison to FY 2016. Of the 9 census 
regions, we project that the increase in estimated payments per 
discharge to LTCH PPS standard Federal payment rate cases would have 
the largest positive impact on LTCHs in the Pacific region (0.4 
percent as shown in Table IV), which is largely attributable to the 
proposed changes in the area wage level adjustment.
    In contrast, LTCHs located in the East North Central, East South 
Central, West North Central, West South Central, and Mountain 
regions are projected to experience the smallest increase in 
estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases from FY 2016 to FY 2017. The lower than national 
average estimated increase in payments of 0.2 percent is primarily 
due to estimated decreases in payments associated with the proposed 
changes to the area wage level adjustment.

[[Page 25317]]

(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. All bed size categories are projected to receive an 
increase in estimated payments per discharge for LTCH PPS standard 
Federal payment rate cases from FY 2016 to FY 2017. We project that 
LTCHs with 50 or more beds (that is, LTCHs in the 50-74 beds; 75-124 
beds; 125-199 beds; and 200+ beds categories) would experience an 
average increase in payments for LTCH PPS standard Federal payment 
rate cases (0.3 percent). LTCHs with less than 50 beds (that is, 
LTCHs in the 0-24 beds and 25-49 beds categories) are expected to 
experience a smaller than average increase in payments per discharge 
for LTCH PPS standard Federal payment rate cases from FY 2016 to FY 
2017 (0.2 percent), mostly due to estimated decreases in payments 
from the proposed area wage level adjustment.

4. Effect on the Medicare Program

    As stated previously, we project that the provisions of this 
proposed rule would result in an increase in estimated aggregate 
LTCH PPS payments to LTCH PPS standard Federal payment rate cases in 
FY 2017 relative to FY 2016 of approximately $12 million (or 
approximately 0.3 percent) for the 420 LTCHs in our database. 
Although, as stated previously, the hospital-level impacts do not 
include LTCH PPS site neutral payment rate cases, we estimate that 
the provisions of this proposed rule would result in a decrease in 
estimated aggregate LTCH PPS payments to site neutral payment rate 
cases in FY 2017 relative to FY 2016 of approximately $367million 
(or approximately 21 percent) for the 420 LTCHs in our database. 
Therefore, we project that the provisions of this proposed rule 
would result in a decrease in estimated aggregate LTCH PPS payments 
to all LTCH cases in FY 2017 relative to FY 2016 of approximately 
$355 million (or approximately 6.9 percent) for the 420 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 as a result of this proposed rule, but we 
continue to expect that paying prospectively for LTCH services will 
enhance the efficiency of the Medicare program.

K. Effects of Proposed Requirements for the Hospital Inpatient 
Quality Reporting (IQR) Program

    In section VIII.A. of the preamble of this proposed 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 2019 payment determination.
    In section VIII.A.3.b. of the preamble of this proposed rule, we 
are proposing to remove 15 measures: 13 eCQMs (2 of which we are 
proposing to remove also in their chart-abstracted form) and 2 
structural measures.
    We are proposing to remove the electronic versions of: (1) AMI-
2: Aspirin Prescribed at Discharge for AMI (NQF #0142); (2) AMI-7a: 
Fibrinolytic Therapy Received Within 30 minutes of Hospital Arrival; 
(3) AMI-10: Statin Prescribed at Discharge; (4) HTN: Healthy Term 
Newborn (NQF #0716); (5) PN-6: Initial Antibiotic Selection for 
Community-Acquired Pneumonia (CAP) in Immunocompetent Patients (NQF 
#0147); (6) SCIP-Inf-1a: Prophylactic Antibiotic Received within 1 
Hour Prior to Surgical Incision (NQF #0527); (7) SCIP-Inf-2a: 
Prophylactic Antibiotic Selection for Surgical Patients (NQF #0528); 
(8) SCIP Inf-9: Urinary Catheter Removed on Postoperative Day 1 
(POD1) or Postoperative Day 2 (POD2) with Day of Surgery Being Day 
Zero; (9) STK-4: Thrombolytic Therapy (NQF #0437); (10) VTE-3: 
Venous Thromboembolism Patients with Anticoagulation Overlap Therapy 
(NQF #0373); (11) VTE-4: Venous Thromboembolism Patients Receiving 
Unfractionated Heparin (UFH) with Dosages/Platelet Count Monitoring 
by Protocol (or Nomogram); (12) VTE-5: Venous Thromboembolism 
Discharge Instructions; and (13) VTE-6: Incidence of Potentially 
Preventable Venous Thromboembolism.
    We are also proposing to remove: (1) STK-4: Thrombolytic Therapy 
(NQF #0437); and (2) VTE-5: Venous Thromboembolism Discharge 
Instructions in their chart-abstracted form. Finally, we are also 
proposing to remove two structural measures: (1) Participation in a 
Systematic Clinical Database Registry for Nursing Sensitive Care; 
and (2) Participation in a Systematic Clinical Database Registry for 
General Surgery.
    As further explained in section X.B.6. of the preamble of this 
proposed rule, we believe that there would be a reduction in burden 
for hospitals due to the removal of two chart-abstracted measures 
(STK-4 and VTE-5). Due to the burden associated with the collection 
of chart-abstracted data, we estimate that the removal of STK-4 
would result in a burden reduction of approximately 303,534 hours 
across all hospitals participating in the Hospital IQR Program for 
the FY 2019 payment determination. We estimate that the removal of 
VTE-5 would result in a burden reduction of approximately 653,565 
hours across all hospitals participating in the Hospital IQR Program 
for the FY 2019 payment determination. We believe that removing 13 
eCQMs would reduce burden for hospitals, however, if our proposal to 
require hospitals to submit data on all of the available eCQMs 
included in the Hospital IQR Program measure set is finalized as 
proposed, this modest reduction in burden would be offset by the 
increased burden associated with submitting data on 15 eCQMs instead 
of 4 eCQMs. We believe that there would be a negligible burden 
reduction due to the removal of the two structural measures.
    Also, we are proposing refinements to two previously adopted 
measures: (1) Expanding the population cohort for the Hospital-
Level, Risk-Standardized 30-Day Episode-of-Care Payment Measure for 
Pneumonia; and (2) Patient Safety and Adverse Events Composite (NQF 
#0531). As further explained in section X.B.6. of the preamble of 
this proposed rule, we believe no additional burden on hospitals 
will result from the proposed refinements to these two claims-based 
measures.
    In addition, we are proposing to add four claims-based measures 
to the Hospital IQR Program measure set beginning with the FY 2019 
payment determination: (1) Aortic Aneurysm Procedure Clinical 
Episode-Based Payment Measure; (2) Cholecystectomy and Common Duct 
Exploration Clinical Episode-Based Payment Measure; (3) Spinal 
Fusion Clinical Episode-Based Payment Measure; and (4) Excess Days 
in Acute Care after Hospitalization for Pneumonia. We believe no 
additional burden on hospitals would result from the addition of 
these four proposed claims-based measures.
    For the FY 2019 payment determination and subsequent years, we 
are proposing to require hospitals to submit data for all available 
eCQMs included in the Hospital IQR Program measure set in a manner 
that will permit eligible hospitals to align Hospital IQR Program 
requirements with some requirements under the Medicare and Medicaid 
EHR Incentive Programs. Specifically, hospitals would be required to 
submit a full calendar year of data for all eCQMs, on an annual 
basis beginning with CY 2017 reporting for the FY 2019 payment 
determination, as further explained in section X.B.6. of the 
preamble of this proposed rule. In total, we expect that this 
proposal would increase burden by 30,800 hours across all hospitals 
participating in the Hospital IQR Program.
    As we noted in the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49763), for validation of chart-abstracted data, we require 
hospitals to provide 72 charts per hospital per year (with an 
average page length of 1,500), including 40 charts for HAI 
validation and 32 charts for clinical process of care validation, 
for a total of 108,000 pages per hospital per year. We reimburse 
hospitals at 12 cents per photocopied page for a total per hospital 
cost of $12,960. For hospitals providing charts digitally via a re-
writable disc, such as encrypted CD-ROMs, DVDs, or flash drives, we 
will reimburse hospitals at a rate of 40 cents per disc, and 
additionally hospitals will be reimbursed $3.00 per record. For 
hospitals providing charts via secure file transfer, we will 
reimburse hospitals at a rate of $3.00 per record. We will maintain 
these requirements for the FY 2019 payment determination and 
subsequent years.
    In this proposed rule, we are proposing to modify the existing 
validation process for Hospital IQR Program data to include a random 
sample of up to 200 hospitals for validation of eCQMs in the 
Hospital IQR Program. As further explained in section X.B.5. of the 
preamble of this proposed rule, we estimate that 43 hours of work 
for up to 200 hospitals reflects a total burden increase of 8,533 
labor hours. As such, we estimate an hourly labor cost of $32.84 and 
a cost increase of $280,224 (8,533 additional burden hours x $32.84 
per hour) across the up to 200 hospitals selected for eCQM 
validation, on an annual basis.
    Finally, we are proposing to update our Extraordinary 
Circumstances Extensions or Exemptions (ECE) policy. We believe the 
proposed updates would have no effect on burden for hospitals.

[[Page 25318]]

    Historically, 100 hospitals, on average, that participate in the 
Hospital IQR Program do not receive the full annual percentage 
increase in any fiscal year due to the requirements of this program. 
We anticipate that, because of the new requirements for reporting we 
are proposing for the FY 2019 payment determination, the number of 
hospitals not receiving the full annual percentage increase may be 
higher than average. At this time, information is not available to 
determine the precise number of hospitals that would not meet the 
proposed requirements to receive the full annual percentage increase 
for the FY 2019 payment determination. If the number of hospitals 
failing to receive the full annual percentage increase does increase 
because of the new requirements, we anticipate that, over the long 
run, this number would decline as hospitals gain more experience 
with these requirements.
    Under OMB number 0938-1022, considering the policies proposed 
above, we estimate a total burden decrease of 917,766 hours, at a 
total cost decrease of approximately $30 million across 
approximately 3,300 hospitals participating in the Hospital IQR 
Program for the FY 2019 payment determination. 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.

L. Effects of Proposed Requirements for the PPS-Exempt Cancer 
Hospital Quality Reporting (PCHQR) Program

    In section VIII.B. of the preamble of this proposed 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 section VIII.B.3. of the preamble of this proposed rule, we 
are proposing updates to one of the measures on which PCHs currently 
submit data: Oncology: Radiation Dose Limits to Normal Tissues (NQF 
#0382). In addition, in section VIII.B.4.b. of the preamble of this 
proposed rule, we are proposing the addition of one claims-based 
quality measure for the PCHQR Program: Admissions and Emergency 
Department (ED) Visits for Patients Receiving Outpatient 
Chemotherapy.
    The impact of the proposed new requirements for the PCHQR 
Program is expected to be minimal overall since beginning with Q1 
2016 events, PCHs have been reporting Clinical Process/Oncology Care 
Measures using a sampling methodology which requires reporting no 
more than 25 cases per facility (79 FR 28259). As the measure cohort 
expansion for Oncology: Radiation Dose Limits to Normal Tissues (NQF 
#0382) does not expand the maximum required sample, we do not 
anticipate that this cohort expansion will significantly impact the 
operational burden for PCHs.
    In addition, the Admissions and Emergency Department (ED) Visits 
for Patients Receiving Outpatient Chemotherapy measure is a claims-
based measure and, therefore, poses no additional burden for PCHs to 
submit data beyond that which they currently submit as part of the 
claims process.
    One expected effect of the PCHQR Program is to keep the public 
informed of the quality of care provided by PCHs. We will display 
publicly the 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.

M. Effects of Proposed Requirements for the Long-Term Care Hospital 
Quality Reporting Program (LTCH QRP) for the FY 2018 Payment 
Determination and Subsequent Years

    In section VIII.C.1. of the preamble of this proposed rule, we 
discuss the implementation of section 1886(m)(5) of the Act, which 
was added by section 3004(a) of the Affordable Care Act. Section 
1886(m)(5) of the Act provides that, for rate year 2014 and each 
subsequent year, any LTCH that does not submit data to the Secretary 
in accordance with section 1886(m)(5)(C) and (F) 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 2016 IPPS/LTCH PPS final rule (80 FR 49838 through 
49839), we estimated that only a few LTCHs will not receive the full 
annual percentage increase in any fiscal year as a result of failure 
to submit data under the LTCH QRP. There are approximately 432 LTCHs 
currently reporting quality data to CMS. At the time that this 
analysis was prepared, 39, or approximately 9.5 percent, of 412 
eligible LTCHs were determined to be noncompliant and therefore will 
receive a 2 percentage point reduction to their FY 2016 annual 
payment update.
    Information is not available to determine the precise number of 
LTCHs that will not meet the requirements to receive the full annual 
percentage increase for the FY 2017 payment determination.
    We believe that a majority of LTCHs will continue to collect and 
submit data for the FY 2017 payment determination and subsequent 
years because they will continue to view the LTCH QRP as an 
important step in improving the quality of care patients receive in 
the LTCHs. We believe that the burden associated with the LTCH QRP 
is the time and effort associated with data collection.
    Currently, LTCHs use two separate data collection mechanisms to 
report quality data to CMS: The CDC's NHSN, which is used to report 
all Healthcare Associated Infections (HAI) (CAUTI, CLABSI, MRSA 
Bacteremia, CDI, VAE) and vaccination data, (Influenza Vaccination 
Coverage Among Healthcare Personnel measure); and the LTCH CARE Data 
Set, which is submitted to the QIES ASAP system.
    The data collection burden associated with reporting quality 
measures via the CDC's NHSN is discussed in the FY 2016 IPPS/LTCH 
PPS final rule (80 FR 49838 through 49839). These measures are 
stewarded by the CDC, and the reporting burden is approved under OMB 
control number 0920-0666.
    The All-Cause Unplanned Readmission Measure for 30 Days Post-
Discharge from Long-Term Care Hospitals (NQF #2512) measure is 
calculated based on Medicare FFS claims data, and therefore does not 
have any associated data reporting burden for LTCHs.
    The remaining assessment-based quality measure data are reported 
to CMS by LTCHs using the LTCH CARE Data Set. As of April 1, 2016, 
LTCHs use the LTCH CARE Data Set Version 3.00 (approved under OMB 
control number 0938-1163) which includes data elements related to 
the following quality 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 (Short Stay) (NQF #0680); Application 
of Percent of Residents Experiencing One or More Falls with Major 
Injury (Long Stay) (NQF #0674); Percent of Long-Term Care Hospital 
Patients with an Admission and Discharge Functional Assessment and a 
Care Plan That Addresses Function (NQF #2631); Application of 
Percent of Long-Term Care Hospital Patients with an Admission and 
Discharge Functional Assessment and a Care Plan That Addresses 
Function (NQF #2631); and Functional Outcome Measure: Change in 
Mobility Among Long-Term Care Hospital Patients Requiring Ventilator 
Support (NQF #2632).
    In this proposed rule, we are retaining 13 previously finalized 
quality measures and are proposing 4 additional measures for use in 
the LTCH QRP. In section VII.C.6. of the preamble of this proposed 
rule, we are proposing three measures for the FY 2018 payment 
determination and subsequent years: (1) MSPB-PAC LTCH QRP; (2) 
Discharge to Community--PAC LTCH QRP; and (3) Potentially 
Preventable 30-Day Post-Discharge Readmission Measure for the PAC 
LTCH QRP. These three measures are Medicare claims-based measures, 
and because claims-based measures can be calculated based on data 
that are already reported to the Medicare program for payment 
purposes, we believe there would be no additional burden if any of 
these measures are finalized.
    In section VIII.C.9.d. of the preamble of this proposed rule, we 
are proposing to expand the data collection timeframe for the 
measure NQF #0680 Percent of Residents or Patients Who Were Assessed 
and Appropriately Given the Seasonal Influenza Vaccine (77 FR 53624 
through 53627), beginning with the FY 2019 payment determination. 
The data collection time frame and associated data submission

[[Page 25319]]

deadlines are currently aligned with the Influenza Vaccination 
Season (IVS) (October 1 of a given year through March 31 of the 
subsequent year), and only require data collection during the two 
calendar year quarters that align with the IVS. We have proposed to 
expand the data collection timeframe from just two quarters 
(covering the IVS) to a full four quarters or 12 months. We refer 
readers to section VIII.C.9.d. of the preamble of this proposed rule 
for further details on the proposed expansion of data collection for 
this measures (NQF #0680), including data collection timeframes and 
associated submission deadlines. We originally finalized this 
measure for use in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 
through 53627). Although we finalized data collection for this 
measure to coincide with the IVS, we originally proposed year-round 
data collection. The associated PRA package, which was approved 
under OMB control number 0938-1163, included burden calculations 
that aligned with our original proposal for year-round data 
collection. All subsequent PRA packages, and the PRA package that is 
currently under review by OMB, included burden calculations 
reflecting year-round (12 month) data collection for this measure. 
Because of this, the proposed change in the data collection 
timeframe for this measure, and any associated burden related to 
increased data collection, has already been accounted for in the 
total burden figures included in this section of the preamble of 
this proposed rule.
    In section VIII.C.7. of the preamble of this proposed rule, we 
are proposing to adopt one measure for the FY 2020 payment 
determination and subsequent years: Drug Regimen Review Conducted 
with Follow-Up for Identified Issues--PAC LTCH QRP. In addition, we 
are proposing that data for this measure will be collected and 
reported using the LTCH CARE Data Set Version 4.00 (effective April 
1, 2018).
    While reporting quality measure data involves collecting 
information, we believe that the burden associated with 
modifications to the LTCH CARE Data Set discussed in this proposed 
rule fall under the PRA exceptions provided in section 1899B(m) of 
the Act. Section 1899B(m) of the Act, which was added by the IMPACT 
Act, states that the PRA requirements do not apply to section 1899B 
of the Act and the sections referenced in section 1899B(a)(2)(B) of 
the Act that require modifications in order to achieve standardized 
patient assessment data. However, the PRA requirements and burden 
estimates will be submitted to OMB for review and approval when 
modifications to the LTCH CARE Data Set or other applicable PAC 
assessment instruments are not used to achieve standardized patient 
assessment data.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49838 through 
49840), we discussed burden estimates for the 13 previously 
finalized quality measures which we are retaining in this proposed 
rule using the LTCH CARE Data Set Version 2.01. Based on a revised 
PRA package for the LTCH CARE Data Set Version 3.00, we estimate the 
total cost for the previously finalized assessment-based measures 
was $13,929 per LTCH annually or $6,017,146 for all LTCHs annually. 
In addition, we estimate that the cost to report the previously 
finalized quality measures via the CDC's NHSN was $10,896 per LTCH 
annually or $4,706,857 for all LTCHs annually. The revised total 
estimate for all 13 previously finalized measures was $24,825 per 
LTCH annually or $10,724,003 for all LTCHs annually. The two 
estimates discussed above, as well as the comprehensive estimate 
discussed below, include overhead; however, obtaining data on other 
overhead costs is challenging. Overhead costs vary greatly across 
industries and firm sizes. In addition, the precise cost elements 
assigned as ``indirect'' or ``overhead'' costs, as opposed to direct 
costs or employee wages, are subject to some interpretation at the 
firm level. Therefore, we have chosen to calculate the cost of 
overhead at 100 percent of the mean hourly wage. This is necessarily 
a rough adjustment, both because fringe benefits and overhead costs 
vary significantly from employer to employer and because methods of 
estimating these costs vary widely from study to study. Nonetheless, 
there is no practical alternative, and we believe that doubling the 
hourly wage to estimate total cost is a reasonably accurate 
estimation method.
    Because we are proposing to add the Drug Regimen Review 
Conducted with Follow-Up for Identified Issues--PAC LTCH QRP measure 
in the LTCH CARE Data Set Version 4.00, the estimated burden and 
cost would increase if this measure is finalized. The additional 
data elements for this proposed quality measure will take 6 minutes 
of nursing/clinical staff time to report data on admission and 4 
minutes of nursing/clinical staff time to report data on discharge, 
for a total of 10 minutes. We believe that the additional LTCH CARE 
Data Set items we are proposing would be completed by registered 
nurses and pharmacists. As a result, we estimate that the total cost 
related to the proposed Drug Regimen Review Conducted with Follow-Up 
for Identified Issues--PAC LTCH QRP measure would be $3,080 per LTCH 
annually, or $1,330,721 for all LTCHs annually. Because the three 
measures proposed in section VII.C.6. of the preamble of this 
proposed rule are claims-based and would be calculated based on data 
that are already reported to the Medicare program for payment 
purposes, we believe that there would be no additional LTCH burden 
if any of these measures is finalized.
    Overall, we estimate the total cost for the 13 previously 
adopted measures and the 4 proposed measures would be $27,905 per 
LTCH annually or $12,054,724 for all LTCHs annually. This is an 
average increase of 14 percent to all LTCHs over the burden 
discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49838 
through 49840), which included all quality measures that LTCHs are 
required to report under the LTCH QRP, with the exception of those 4 
new measures we are proposing in this proposed rule.
    We intend to continue to closely monitor the effects of the LTCH 
QRP on LTCHs and help facilitate successful reporting outcomes 
through ongoing stakeholder education, national trainings, LTCH 
announcements, Web site postings, CMS Open Door Forums, and general 
and technical help desks.

N. Effects of Proposed Updates to the Inpatient Psychiatric 
Facility Quality Reporting (IPFQR) Program

    As discussed in section VIII.D. of the preamble of this proposed 
rule and in accordance with section 1886(s)(4)(A)(i) of the Act, we 
will implement a 2.0 percentage point reduction in the FY 2019 
market basket update for IPFs that have failed to comply with the 
IPFQR Program requirements for FY 2019, including reporting on the 
required measures. In section VIII.D. of the preamble of this 
proposed rule, we discuss how the 2 percentage point reduction will 
be applied. For FY 2016, of the 1,684 IPFs eligible for the IPFQR 
Program, 51 did not receive the full market basket update because of 
the IPFQR Program; 24 of these IPFs chose not to participate and 27 
did not meet the requirements of the program. We anticipate that 
even fewer IPFs will receive the reduction for FY 2017 as IPFs 
become more familiar with the requirements. Thus, we estimate that 
this policy will have a negligible impact on overall IPF payments 
for FY 2017.
    Based on the proposals in this proposed rule, we estimate a 
total increase in burden due to the proposed addition of a chart-
abstracted measure set of 212 hours per IPF or 357,008 hours across 
all IPFs, resulting in a total increase in financial burden of 
approximately $6,962 per IPF or $11,724,143 across all IPFs. We also 
estimate a total increase in burden for training of 2 hours per IPF 
or 3,368 hours across all IPFs, resulting in a total increase in 
financial burden of $65.68 per IPF or $110,605 across all IPFs. Our 
estimate for the total increase in burden, including the newly 
proposed chart-abstracted measure set and training, is 360,376 hours 
across all IPFs, which at $32.84 labor cost per hour, totals 
$11,834,748. As discussed in section X.B.10. of the preamble of this 
proposed rule, we will attribute the costs associated with the 
finalized proposals to the year in which these costs begin; for the 
purposes of all the proposed changes made in this proposed rule, 
that year is FY 2017. Further information on these estimates can be 
found in section X.B.10. of the preamble of this proposed rule.
    We intend to closely monitor the effects of this quality 
reporting program on IPFs and help facilitate successful reporting 
outcomes through ongoing stakeholder education, national trainings, 
and a technical help desk.

O. Effects of Proposed Requirements Regarding Electronic Health 
Record (EHR) Meaningful Use Program

    In section VIII.E. of the preamble of this proposed rule, we 
discuss proposed requirements for the Medicare and Medicaid EHR 
Incentive Programs. We are proposing CQM reporting requirements, 
including reporting periods and submission periods, as well as CQMs 
required and information about CQM specifications' updates, for the 
Medicare and Medicaid EHR Incentive Programs for eligible hospitals 
and CAHs for 2017. We note that these proposals would

[[Page 25320]]

only apply for eligible hospitals and CAHs submitting CQMs 
electronically in CY 2017. Because these proposals for data 
collection would align with the reporting requirements in place for 
the Hospital IQR Program and eligible hospitals and CAHs still have 
the option to submit their clinical quality measures via attestation 
for the Medicare and Medicaid EHR Incentive Programs, we do not 
believe these proposals would have a significant impact.

P. Alternatives Considered

    This proposed rule contains a range of proposed policies. It 
also provides descriptions of the statutory provisions that are 
addressed, identifies the proposed policies, and presents rationales 
for our decisions and, where relevant, alternatives that were 
considered.

Q. Overall Conclusion

1. Acute Care Hospitals

    Table I of section I.G. of this Appendix demonstrates the 
estimated distributional impact of the IPPS budget neutrality 
requirements for the proposed MS-DRG and wage index changes, and for 
the wage index reclassifications under the MGCRB. Table I also shows 
a projected overall increase of 0.7 percent in operating payments. 
As discussed in section I.G. of this Appendix, we estimate that 
operating payments would increase by approximately $693 million in 
FY 2017 relative to FY 2016. However, when we account for the impact 
of the proposed changes in Medicare DSH payments and the impact of 
the proposed additional payments based on uncompensated care in 
accordance with section 3133 of the Affordable Care Act, based on 
estimates provided by the CMS Office of the Actuary, consistent with 
our policy discussed in section IV.F. of the preamble of this 
proposed rule, we estimate that operating payments would increase by 
approximately $525 million relative to FY 2016. We currently 
estimate that the proposed changes in new technology add-on payments 
for FY 2017 would decrease spending by approximately $50 million due 
to the expiration of new technology add-on payments for four 
technologies. In addition, the proposed changes to the Hospital 
Readmissions Reduction Program for FY 2017 would decrease spending 
by $100 million, as a result of the proposed inclusion of the 
refinement to the pneumonia readmissions measure that expanded the 
measure cohort, along with the addition of the CABG readmission 
measure, in the calculation of the FY 2017 payment adjustment 
factor. This estimate, combined with our estimated increase in FY 
2017 operating payment of $525 million, would result in an estimated 
increase of approximately $375 million for FY 2017. We estimate that 
hospitals would experience a 2.0 percent increase in capital 
payments per case, as shown in Table III of section I.I. of this 
Appendix. We project that there would be a $164 million increase in 
capital payments in FY 2017 compared to FY 2016. The cumulative 
operating and capital payments would result in a net increase of 
approximately $539 million to IPPS providers. The discussions 
presented in the previous pages, in combination with the rest of 
this proposed rule, constitute a regulatory impact analysis.

2. LTCHs

    Overall, LTCHs are projected to experience a decrease in 
estimated payments per discharge in FY 2017. In the impact analysis, 
we are using the proposed rates, factors, and policies presented in 
this proposed 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 2017. Accordingly, 
based on the best available data for the 420 LTCHs in our database, 
we estimate that FY 2017 LTCH PPS payments would decrease 
approximately $355 million relative to FY 2016 as a result of the 
proposed payment rates and factors presented in this proposed rule.

II. 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 the following 
Table V, we have prepared an accounting statement showing the 
classification of the expenditures associated with the provisions of 
this proposed rule as they relate to acute care hospitals. This 
table provides our best estimate of the change in Medicare payments 
to providers as a result of the proposed changes to the IPPS 
presented in this proposed rule. All expenditures are classified as 
transfers to Medicare providers.
    The costs to the Federal Government associated with the proposed 
policies in this proposed rule are estimated at $539 million.

 Table V--Accounting Statement: Classification of Estimated Expenditures
                 Under the IPPS From FY 2016 to FY 2017
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $539 million.
From Whom to Whom......................  Federal Government to IPPS
                                          Medicare Providers.
------------------------------------------------------------------------

B. LTCHs

    As discussed in section I.J. of this Appendix, the impact 
analysis of the proposed payment rates and factors presented in this 
proposed rule under the LTCH PPS is projected to result in a 
decrease in estimated aggregate LTCH PPS payments in FY 2017 
relative to FY 2016 of approximately $355 million based on the data 
for 420 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, 
we have prepared an accounting statement showing the classification 
of the expenditures associated with the provisions of this proposed 
rule as they relate to the proposed changes to the LTCH PPS. Table 
VI provides our best estimate of the estimated change in Medicare 
payments under the LTCH PPS as a result of the proposed payment 
rates and factors and other provisions presented in this proposed 
rule based on the data for the 420 LTCHs in our database. All 
expenditures are classified as transfers to Medicare providers (that 
is, LTCHs).
    The savings to the Federal Government associated with the 
policies for LTCHs in this proposed rule are estimated at $355 
million.

Table VI--Accounting Statement: Classification of Estimated Expenditures
            From the FY 2016 LTCH PPS to the FY 2017 LTCH PPS
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  -$355 million.
From Whom to Whom......................  Federal Government to LTCH
                                          Medicare Providers
------------------------------------------------------------------------

III. Regulatory Flexibility Act (RFA) Analysis

    The RFA requires agencies to analyze options for regulatory 
relief of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
government jurisdictions. We estimate that most hospitals and most 
other providers and suppliers are small entities as that term is 
used in the RFA. The great majority of hospitals and most other 
health care providers and suppliers are small entities, either by 
being nonprofit organizations or by meeting the SBA definition of a 
small business (having revenues of less than $7.5 million to $38.5 
million in any 1 year). (For details on the latest standards for 
health care providers, we refer readers to page 36 of the Table of 
Small Business Size Standards for NAIC 622 found on the SBA Web site 
at: http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.)
    For purposes of the RFA, all hospitals and other providers and 
suppliers are considered to be small entities. Individuals and 
States are not included in the definition of a small entity. We 
believe that the provisions of this proposed rule relating to acute 
care hospitals would have a significant impact on small entities as 
explained in this Appendix. Because we lack data on individual 
hospital receipts, we cannot determine the number of small 
proprietary LTCHs. Therefore, we are assuming that all LTCHs are 
considered small entities for the purpose of the analysis in section 
I.J. of this Appendix. MACs are not considered to be small entities. 
Because we acknowledge that many of the affected entities are small 
entities, the analysis discussed throughout the preamble of this 
proposed rule constitutes our regulatory flexibility analysis. In 
this proposed rule, we are soliciting public comments on our 
estimates and analysis of the impact of our proposals on those small 
entities. Any public comments that we receive and our responses will 
be presented in the final rule.

[[Page 25321]]

IV. Impact on Small Rural Hospitals

    Section 1102(b) of the Social Security Act requires us to 
prepare a regulatory impact analysis for any proposed or final rule 
that may have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must 
conform to the provisions of section 603 of the RFA. With the 
exception of hospitals located in certain New England counties, for 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of an urban area and 
has fewer than 100 beds. Section 601(g) of the Social Security 
Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain 
New England counties as belonging to the adjacent urban area. Thus, 
for purposes of the IPPS and the LTCH PPS, we continue to classify 
these hospitals as urban hospitals. (We refer readers to Table I in 
section I.G. of this Appendix for the quantitative effects of the 
proposed policy changes under the IPPS for operating costs.)

V. 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 2016, that threshold level is approximately $146 
million. This proposed rule would not mandate any requirements for 
State, local, or tribal governments, nor would it affect private 
sector costs.

VI. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, the 
Executive Office of Management and Budget reviewed this proposed 
rule.

Appendix B: Recommendation of Update Factors for Operating Cost Rates 
of Payment for Inpatient Hospital Services

I. Background

    Section 1886(e)(4)(A) of the Act requires that the Secretary, 
taking into consideration the recommendations of MedPAC, recommend 
update factors for inpatient hospital services for each fiscal year 
that take into account the amounts necessary for the efficient and 
effective delivery of medically appropriate and necessary care of 
high quality. Under section 1886(e)(5) of the Act, we are required 
to publish update factors recommended by the Secretary in the 
proposed and final IPPS rules, respectively. Accordingly, this 
Appendix provides the recommendations for the update factors for the 
IPPS national standardized amount, the 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 2017 consistent with approach for FY 2016, we are including 
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 2017

A. Proposed FY 2017 Inpatient Hospital Update

    As discussed in section IV.B. of the preamble to this proposed 
rule, 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 reduction of 
three-quarters 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 0.75 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 2017 adjustment of 0.75 percentage point may 
result in the applicable percentage increase being less than zero.
    Based on the most recent data available for this FY 2017 IPPS/
LTCH PPS proposed rule, in accordance with section 1886(b)(3)(B) of 
the Act, we are proposing to base the proposed FY 2017 market basket 
update used to determine the applicable percentage increase for the 
IPPS on the IHS Global Insight, Inc. (IGI's) first quarter 2016 
forecast of the FY 2010-based IPPS market basket rate-of-increase 
with historical data through fourth quarter 2015, which is estimated 
to be 2.8 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. of the preamble of this proposed rule, we are 
proposing an MFP adjustment of 0.5 percent for FY 2017. Therefore, 
based on IGI's first quarter 2016 forecast of the FY 2010-based IPPS 
market basket, depending on whether a hospital submits quality data 
under the rules established in accordance with section 
1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital 
that submits quality data) and is a meaningful EHR user under 
section 1886(b)(3)(B)(ix) of the Act (hereafter referred to as a 
hospital that is a meaningful EHR user), there are four possible 
applicable percentage increases that can be applied to the 
standardized amount. Below we provide a table summarizing the four 
proposed applicable percentage increases.

----------------------------------------------------------------------------------------------------------------
                                                     Hospital        Hospital      Hospital did    Hospital did
                                                     submitted       submitted      NOT submit      NOT submit
                                                   quality data    quality data    quality data    quality data
                     FY 2017                         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
----------------------------------------------------------------------------------------------------------------
Proposed Market Basket                                       2.8             2.8             2.8             2.8
 Rate[dash]of[dash]Increase.....................
Proposed Adjustment for Failure to Submit                    0.0             0.0            -0.7            -0.7
 Quality Data under Section 1886(b)(3)(B)(viii)
 of the Act.....................................
Proposed Adjustment for Failure to be a                      0.0            -2.1             0.0            -2.1
 Meaningful EHR User under Section
 1886(b)(3)(B)(ix) of the Act...................
Proposed MFP Adjustment under Section                       -0.5            -0.5            -0.5            -0.5
 1886(b)(3)(B)(xi) of the Act...................
Statutory Adjustment under Section                         -0.75           -0.75           -0.75           -0.75
 1886(b)(3)(B)(xii) of the Act..................
Proposed Applicable Percentage Increase Applied             1.55           -0.55            0.85           -1.25
 to Standardized Amount.........................
----------------------------------------------------------------------------------------------------------------

B. Proposed Update for SCHs and MDHs for FY 2017

    Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2017 
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.N. of the preamble of this proposed 
rule, section 205 of the Medicare Access and CHIP

[[Page 25322]]

Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10, enacted on 
April 16, 2015) extended the MDH program (which, under previous law, 
was to be in effect for discharges on or before March 31, 2015 only) 
for discharges occurring on or after April 1, 2015, through FY 2017 
(that is, for discharges occurring on or before September 30, 2017).
    As previously mentioned, the update to the hospital specific 
rate for SCHs and MDHs is subject to section 1886(b)(3)(B)(i) of the 
Act, as amended by sections 3401(a) and 10319(a) of the Affordable 
Care Act. Accordingly, depending on whether a hospital submits 
quality data and is a meaningful EHR user, we are proposing the same 
four possible applicable percentage increases in the table above for 
the hospital-specific rate applicable to SCHs and MDHs.

C. Proposed FY 2017 Puerto Rico Hospital Update

    As discussed in section IV.A. of the preamble of this proposed 
rule, prior to January 1, 2016, Puerto Rico hospitals were paid 
based on 75 percent of the national standardized amount and 25 
percent of the Puerto Rico-specific standardized amount. Section 601 
of Public Law 114-113 amended section 1886(d)(9)(E) of the Act to 
specify that the payment calculation with respect to operating costs 
of inpatient hospital services of a subsection (d) Puerto Rico 
hospital for inpatient hospital discharges on or after January 1, 
2016, shall use 100 percent of the national standardized amount. 
Because Puerto Rico hospitals are no longer paid with a Puerto Rico-
specific standardized amount under the amendments to section 
1886(d)(9)(E) of the Act, there is no longer a need for us to 
propose an update to the Puerto Rico standardized amount. Hospitals 
in Puerto Rico are now paid 100 percent of the national standardized 
amount and, therefore, are subject to the same update to the 
national standardized amount discussed under section IV.B.1. of the 
preamble of this proposed rule. Accordingly, for FY 2017, we are 
proposing an applicable percentage increase of 1.55 percent to the 
standardized amount for hospitals located in Puerto Rico.

D. Proposed Update for Hospitals Excluded From the IPPS for FY 2017

    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. As we finalized in the FY 2015 IPPS/LTCH PPS final rule (79 
FR 50156 through 50157), we are applying the FY 2017 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 
proposed rule, the current estimate of the IPPS operating market 
basket percentage increase for FY 2017 is 2.8 percent.

E. Proposed Update for LTCHs for FY 2017

    Section 123 of Public Law 106-113, as amended by section 307(b) 
of Public Law 106-554 (and codified at section 1886(m)(1) of the 
Act), provides the statutory authority for updating payment rates 
under the LTCH PPS.
    As discussed in section V.A. of the Addendum to this proposed 
rule, we are proposing to establish an update to the LTCH PPS 
standard Federal rate for FY 2017 based on the full proposed 2013-
based LTCH PPS market basket increase estimate (for this proposed 
rule, estimated to be 2.7 percent), subject to an adjustment based 
on changes in economy-wide productivity and an additional reduction 
required by sections 1886(m)(3)(A)(ii) and (m)(4)(F) of the Act. In 
accordance with the LTCHQR Program under section 1886(m)(5) of the 
Act, we are proposing to reduce the annual update to the LTCH PPS 
standard Federal rate by 2.0 percentage points for failure of a LTCH 
to submit the required quality data. The MFP adjustment described in 
section 1886(b)(3)(B)(xi)(ii) of the Act is currently estimated to 
be 0.5 percent for FY 2017. In addition, section 1886(m)(3)(A)(ii) 
of the Act requires that any annual update for FY 2017 be reduced by 
the ``other adjustment'' at section 1886(m)(4)(F) of the Act, which 
is 0.75 percentage point. Therefore, based on IGI's first quarter 
2016 forecast of the proposed FY 2017 LTCH PPS market basket 
increase, we are proposing to establish an annual update to the LTCH 
PPS standard Federal rate of 1.45 percent (that is, the current FY 
2017 estimate of the proposed market basket rate-of-increase of 2.7 
percent less a proposed adjustment of 0.5 percentage point for MFP 
and less 0.75 percentage point). Accordingly, we are proposing to 
apply an update factor of 1.0145 percent in determining the LTCH PPS 
standard Federal rate for FY 2017. For LTCHs that fail to submit 
quality data for FY 2017, we are proposing to apply an annual update 
to the LTCH PPS standard Federal rate of -0.55 percent (that is, the 
proposed annual update for FY 2017 of 1.45 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 a proposed update factor of 0.9945 percent in determining 
the LTCH PPS standard Federal rate for FY 2017.

III. Secretary's Recommendations

    MedPAC is recommending an inpatient hospital update in the 
amount specified in current law for FY 2017. 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.
    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 2.8 percent.
    For FY 2017, consistent with policy set forth in section VII. of 
the preamble of this proposed rule, for LTCHs that submit quality 
data, we are recommending an update of 1.45 percent to the LTCH PPS 
standard Federal rate. For LTCHs that fail to submit quality data 
for FY 2017, we are recommending an annual update to the LTCH PPS 
standard Federal rate of -0.55 percent.

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 
Payments in Traditional Medicare

    In its March 2016 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 in the amount specified in current 
law. We refer the reader to the March 2016 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 2016. 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: We agree with MedPAC and consistent with current law 
we are proposing an applicable percentage increase for FY 2017 of 
1.55 percent, provided the hospital submits quality data and is a 
meaningful EHR user, consistent with 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 
proposed rule.

[FR Doc. 2016-09120 Filed 4-18-16; 4:15 pm]
BILLING CODE 4120-01-P